In a heavily fractured decision last month, the U.S. Supreme Court held in National Pork Producers Council, et al v. Ross, et al, that a California law (Cal. Health & Safety Code 25991, known as Proposition 12), which forbids the in-state sale of whole pork meat that comes from breeding pigs “confined in a cruel manner,” did not violate the Dormant Commerce Clause impermissibly burdening interstate commerce. While the decision deeply impacts the pork industry, it may also have broader impacts on states’ rights and ultimately impact all types of companies doing business in California.
The Commerce Clause gives Congress the power “to regulate commerce with foreign nations, and among the several states, and with the Indian tribes.” The Dormant Commerce Clause doctrine, which began to emerge early in our nation’s jurisprudence, is the inverse of the Commerce Clause. It prohibits a state from passing a law that discriminates or excessively burdens interstate commerce. Many early cases applying the Dormant Commerce Clause involved states passing protectionist laws that favored in-state businesses over out-of-state.
In last month’s ruling, the Court rejected the pork producers’ Dormant Commerce Clause arguments that Prop 12 has a “practical effect of controlling commerce outside” of California “even when those laws do not purposely discriminate against out-of-state interests.” They also rejected what they determined would be an expansion of the Dormant Commerce Clause, where pork producers argued that Prop 12 violates an “almost per se” rule “because the law will impose substantial new costs on out-of-state pork producers who wish to sell their products in California.”
While the Court’s more specific reasons for rejecting the above arguments and application of the Dormant Commerce Clause varied (certain justices limited their support to only certain sections of the Opinion), in general, the Court reasoned that the Dormant Commerce Clause only prohibits “discrimination in favor of in-state businesses or against out-of-state competitors.” The Court claimed they “say nothing new here” in the face of prior Dormant Commerce Clause precedent and made clear that individual states have the right to set animal welfare standards within their borders as they see fit.
The wrinkle to this case is that California produces little pork of its own. Therefore, Prop 12 would largely impact out-of-state businesses. Pork producers argued that there are practical reasons for their cage designs, and compliance with the Prop 12 standards would likely mean increasing the size of their facilities, leading to an increase in the price of pork which may impact communities who rely on pork as a less costly protein.
How pork producers proceed with the Ross holding remains uncertain. That said, while the Ross case greatly impacts the pork industry, the decision may have even broader impacts on states’ rights, particularly for companies that have nationwide businesses in all industries. California has the largest domestic economy in the United States and a population of over 40 million people. (Compare that to the second largest population in Texas which is 30 million or the third and fourth states – New York and Florida – combined.)
With California’s huge consumer market, the Ross case seems to set a precedent that California (or another state with a large consumer market) can dictate how industry outside of California operates. Here on our blog, we regularly cover California’s Proposition 65, a consumer product law which requires companies doing business in California label products that can expose consumers to certain chemicals listed (by a California agency) that may cause cancer or reproductive harm.
Since a major set of amendments became effective in 2018, we have discussed how Prop 65 has completely changed the way companies who want to do business in California operate. In many instances, because California products cannot be isolated and labeled in compliance with Prop 65, it is not uncommon for companies to simply label all their products, whether they end up in California or not. Therefore, the laws in one state can theoretically dictate how products are received in another state or the entire US market.
While Prop 65 has not been challenged at the Supreme Court, this month’s Ross ruling on Prop 12 may lend judicial support to the broad reach of California’s Prop 65 along with other recent or forthcoming regulations in California, including AB45’s regulation of cannabis (which regulates both in-state and out-of-state industrial hemp manufacturers), the California Air Resources Board’s regulation of auto emissions, climate change, and more. Therefore, it will be important now more than ever for domestic and international companies doing business in the U.S. to be informed of the scope and reach of California’s laws and regulations.
Squire Patton Boggs regularly provides counsel on and monitors California environmental, health and safety regulations for a variety of industries. Our team at SPB will continue to provide updates on these developments in the future.