California Loses On Foie Gras, But Still Controls Ethanol And Eggs

Source: By Daniel Fisher, Forbes Staff • Posted: Monday, January 12, 2015

A federal judge struck down California’s ban on selling foie gras from force-fed ducks, but worry not: The Golden State still has plenty of room to flex its regulatory muscles far beyond its borders.

California can dictate how ethanol producers make products destined for the world’s eighth-largest economy, and egg farmers still have to raise their chickens in California-compliant cages if they want to sell there (in the shell; if their eggs go into frozen quiches or heat-’n’eat omelets, the cruel conditions the hen was kept in matter not). Indeed, based on the reasoning upheld by the Ninth Circuit Court of Appeals on California’s ethanol rules, there’s no reason the state couldn’t slap restrictions on the sale of products made by workers whose wages aren’t high enough to please California voters, or oranges whose “carbon content” is too high because they need to be shipped in from Florida.

Producers of the delicacy made from force-fed geese got a reprieve, however, when U.S. District Judge Stephen V. Wilson decided that California’s law banning such foie gras was preempted by a federal law regulating poultry. In a 15-page ruling yesterday, Wilson prohibited California from enforcing the law, which had been challenged by foie gras producers in New York and Canada.

The Humane Society immediately urged California to appeal the decision to the Ninth Circuit, which has been friendly toward the state’s extraterritorial regulatory efforts in the past. “The state clearly has the right to ban the sale of the products of animal cruelty, and we expect the 9th Circuit will uphold this law,” the society said.

The group also warned against drawing parallels to the state’s ban on eggs it doesn’t like. The foie gras ban ran afoul of federal law controlling the ingredients in poultry products, the Humane Society said, while the egg ban involves the process of raising chickens. An attempt by the state of Missouri to challenge the ban on behalf of its egg farmers failed in October when it was dismissed for lack of standing.

The state may well prevail at the Nutty Ninth, based on what happened with its ethanol rules. As I wrote in 2013, the Ninth has already approved the foie gras ban once, rejecting arguments the California law violated the Constitution’s prohibition of state laws that restrict interstate commerce. The plaintiffs succeeded on remand with a different argument, based on the constitutional power of Congress to override state laws. By regulating poultry at the federal level and prohibiting states from imposing additional rules, Judge Wilson ruled, California’s law must fall.

No such luck for California’s comprehensive ethanol rules, which assess “lifecycle” greenhouse-gas emissions associated with ethanol production and penalizes fuel made with coal-fired electricity, say, instead of hydropower. That is convenient for California ethanol producers who have access to electricity from Bonneville Dam, and not so good for producers in Iowa. Out-of-state producers sued and won on interstate-commerce grounds at the district court level, but a three-judge panel of the Ninth overturned. To be sure, the state’s economy is so important that manufacturers often appeal to Congress for national regulations modeled on California rules — such as mandates for low-flow toilets — simply to avoid complexity.

But ethanol producers argue the California rules unfairly discriminate against out-of-state fuel. They sought an en banc review of the decision but lost, drawing a fierce dissent from seven judges. By ignoring the impact on interstate commerce by penalizing out-of-state ethanol, the dissenters said, the majority effectively gave California the power to regulate industries outside its borders –and invited other states to retaliate with similar laws. This violates the doctrine known as the “dormant Commerce Clause,” under which the Supreme Court has struck down laws that appear to be designed for goals such as public safety but have the practical effect of impeding the flow of interstate commerce.

California could impose regulatory penalties (or grant “incentives”) to require manufacturers in Texas to pay higher wages to their employees if they intend to sell their products in California. Such a measure would, of course, benefit California to the extent that it would minimize the risk of competition from Texas businesses, with their lower labor costs. But under the same logic, Texas could—and assuredly would—respond in kind, perhaps by penalizing California agriculture on account of its reliance on costly irrigation methods.

The ethanol producers appealed to the Supreme Court, but it denied cert this year.

In his decision on foie gras, Wilson avoided heavy constitutional questions. Luckily for the foie gras producers, the Poultry Products Inspection Act regulates the distribution and sale of poultry products nationwide, including foie gras and other products made from geese or ducks. Thus it preempts a sales ban that “imposes an ingredient requirement that is in addition to or different than those imposed by the PPIA.”

California argued it regulated a process, not an ingredient, but the court said the practical effect was the same. The plaintiffs’ products could comply with all federal laws and still violate California law. The court cited a 1994 decision, National Broiler Council vs. Voss, overturning a California law prohibiting chicken processors from labeling as “fresh” meat that had been stored above 25 degrees, as well as a Michigan case involving sausage standards.

The state argued a Supreme Court decision involving another California law prohibiting the sale of non-ambulatory pigs contained reasoning that supported its position, namely that the foie gras law regulates a process, not ingredients. But Judge Wilson said that would make a mockery of the Supreme Court’s overall goal of preventing states from using clever drafting to write laws that had the functional effect of preempting federal law.

“California cannot regulate foie gras products’ ingredients by creatively phrasing its law in terms of the manner in which those ingredients were produced,” he wrote.

California is perfectly free to regulate the behavior of farmers and manufacturers within the state, and no one is challenging the parallel ban on force-feeding geese within state borders. California egg producers likewise must live with the ban on cages the state thinks are too small, which is one reason legislators passed a law prohibiting the sale of non-compliant eggs within the state. (Over the constitutional concerns of their own lawyers, it must be noted.)

The Supreme Court rejected the appeal of California’s ethanol rules, but sooner or later it will have to hear a case on this question. California voters and legislators have a strong tendency toward trying to regulate the conduct of the world outside their borders, which might be seen as altruistic, but also tends to help their own businesses as well.