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Core-Mark International, Inc. v. The Montana Board of Livestock

United States District Court, D. Montana, Helena Division

November 1, 2018

The Montana Board of Livestock, in its official capacity as head of the Montana Department of Livestock, et al., Defendants.



         Before the Court are: (1) Plaintiffs Motion for Summary Judgment;[1] and (2) Defendants' Motion for Summary Judgment.[2] A hearing on both was held on September 27, 2018.


          Plaintiff Core-Mark International, Inc., ("Core-Mark"), is a sales and marketing company that distributes and sells grade A pasteurized milk in Montana.[3] This action was brought against the Montana Board of Livestock ("the Board") in its official capacity as department head of the Montana Department of Livestock ("the Department"), the Chairman of the Board and members of the Board in their official capacities, and others (collectively "the State").[4] Counts I through IV were dismissed with prejudice.[5] Only Count V alleging violation of the First Amendment of the United States Constitution remains.[6]

         Core-Mark alleges that the milk labeling regulations promulgated by the Board violate its First Amendment commercial speech rights.[7] It seeks declaratory and injunctive relief as to all defendants.[8]

         Grade A milk sold in Montana must be labeled with a "code date" no more than 12 days after the date of pasteurization.[9] In addition, Mont. Admin. R. § 32.8.203(1), as interpreted by the Board, prohibits the sale of milk in containers labeled with any code date other than a sell-by date and pasteurization date.[10] This requirement has been referred to as the "Single Date Rule."[11]

         Relevant facts material to the issues before the Court are not disputed.

         Undisputed Facts

         1. "The Board promulgates administrative rules regulating milk sales on behalf of the Department."[12]

         2. In 2002, the Department granted Core-Mark's predecessor-in-interest, Inland Northwest Dairies ("Inland"), an exemption to the single-date rule, permitting it to include an additional expiration date set by the processor.[13] Core-Mark assumed Inland's Montana distribution in 2006.[14]

         3. The single-date exemption was revoked by the Department on January 25, 2008.[15]

         4. On May 29, 2008, Core-Mark filed suit against the Defendants challenging constitutionality of the Single Date Rule.[16] A Memorandum of Understanding ("MOU") was executed by the parties to the suit which contemplated dismissal of the case upon conditions, including that the single date exemption remain in place pending completion of an administrative proceeding.[17]

         5. On October 27, 2011, an administrative hearing officer issued a proposed decision recommending repeal of the Single Date Rule.[18] On May 30, 2012, the Board voted to reject the hearing officer's recommendation and to retain the rule.[19] Core-Mark then sought judicial review of the Board's decision, which was affirmed by the district court.[20] The Montana Supreme Court in turn affirmed the district court, finding the Board's decision to uphold the Single Date Rule was appropriate.[21]

         6. On December 24, 2014, the Department ended the single-date exemption. Core-Mark's Complaint in this lawsuit was filed on January 1, 2015.[22]

         7. If reasonable handling and storage conditions are observed milk should remain fresh and fit to drink for a period ranging from 16 to 21 days after pasteurization.[23]

         8. Milk processors perform shelf-life testing of the milk they process and distribute, which allows determination to be made of an appropriate label code date based on milk quality, freshness, and palatability.[24]

         9. The administrative rules at issue in this case[25] were not adopted to protect the health or safety of consumers, it being agreed that: (1) the pasteurization process effectively eliminates potential harm; and (2) milk will become unpalatable before it will endanger human health or safety.[26]


         "The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law."[27] The record before the Court supports the conclusion that the cross-motions are to be granted in part and denied in part.

         Qualified Immunity., Res Judicata., and Eleventh Amendment Immunity

         The State asserts this action is barred by res judicata - specifically that the First Amendment claim of Count V could have been raised in the prior state court action, and that a valid final judgment precluding relitigation of the issue was entered by the Montana Supreme Court.[28]

         "To determine the preclusive effect of a state court judgment federal courts look to state law."[29] "'The doctrine of res judicata prohibits relitigation of a cause of action once a final judgment has been entered. Once there has been a full opportunity to present an issue for judicial decision in a given proceeding, the determination of the court in that proceeding must be accorded finality as to all issues raised or which fairly could have been raised, else judgments might be attacked piecemeal and without end.'"[30] Under Montana law, res judicata requires that: "(1) the parties or their privies are the same; (2) the subject matter of the present and past actions is the same; (3) the issues are the same and relate to the same subject matter; and (4) the capacities of the parties are the same to the subject matter and issues between them.[31] It applies after a valid final judgment has been entered on the merits in the first action by a court of competent jurisdiction.[32]

         The prior proceedings in Core-Mark International, Inc. v. Montana Board of Livestock[33] grew out of a negotiated and executed MOU between the Department and Core-Mark, which "outline[d] their respective rights, duties, obligations, and responsibilities during the suspension [of Plaintiff s 2008 federal lawsuit]."[34] The MOU directed that the federal lawsuit remain suspended while Core-Mark submitted a petition for amendment or repeal of the rules at issue to the Department under Mont. Code Ann. § 24-315, which in turn provided a process to request promulgation, amendment, or repeal of an administrative rule.[35]

         On appeal, the Montana Supreme Court specifically characterized the petition before it as an administrative "rulemaking" procedure, not a "contested case, "[36] and that such a proceeding was "pursuant to the Board's discretionary authority to consider proposed amendments to generally applicable rules. It was not a legally mandatory proceeding to determine the legal rights of one party."[37]The proceeding was limited, at the time of review, to whether the agency decision was "'arbitrary, capricious, unlawful, or not supported by substantial evidence."'[38]

         Given the narrow scope of judicial review available in Core-Mark, it is clear that neither the subject matter of the action nor the capacities of the parties were sufficiently similar to those in this lawsuit to warrant application of res judicata principles.

         The State also argues that it is entitled to qualified immunity, [39] which "protects government officials 'from liability for civil damages insofar as their conduct does not violate clearly established statutory or constitutional rights of which a reasonable person would have known.'"[40] '"Qualified immunity is an affirmative defense to damage liability; it does not bar actions for declaratory or injunctive relief.'"[41]

         Here, Core-Mark seeks only declaratory and injunctive relief against the individual defendants, sued in their official capacities.[42] Qualified immunity has no application in this case.

         The State also claims that the Eleventh Amendment bars suit against the Board, which forbids unconsented lawsuits in federal court against states or the arms or instrumentalities of states.[43] Case law precedent also supports the principle that certain government boards can constitute agencies which are "arms" of the state and thus protected from suit.[44]

         Dismissal of the Board on Eleventh Amendment grounds, however, would have no practical effect, as the individual members of the Board have also been sued in their official capacities.[45] Whether the board is entitled to immunity is a distinction without a difference.[46] Members of the Board are properly named as defendants. They are not entitled to Eleventh Amendment immunity from Plaintiffs request for injunctive and declaratory relief.

         The Sell-By Date Requirement

         The parties have stipulated that the protected speech claimed in this case is commercial speech.[47]

         The allowable parameters of compelled commercial speech are defined and analyzed under the test outlined in Zauderer v. Office of Disciplinary Counsel of the Supreme Court of Ohio.[48]There the Supreme Court held that the government may compel purely factual and uncontroversial information related to a substantial governmental interest that is not unjustified or unduly burdensome.[49] Whether a particular requirement is unjustified or unduly burdensome depends upon whether it is "reasonably related" to the State's substantial interest.[50]

         The specific issue in Zauderer was whether an Ohio State Bar rule that required all attorney advertising to "inform clients that they would be liable for costs (as opposed to legal fees) even if their claims were unsuccessful" could be upheld.[51] In addressing the issue the Court determined that the required disclosure was "purely factual and uncontroversial," and that the speaker's protected interest in refraining from providing additional information was minimal.[52] Moreover, the weight of authority from other courts strongly suggests the Zauderer analysis applies equally to all forms of government-mandated speech.[53]

         In this case, the 12-day sell-by date requirement concerns factual and uncontroversial information similar to that mandated in Zauderer. The dating requirement compelled by Mont. Admin. R. § 32.8.203 merely reflects the twelfth day from the date a carton of milk is pasturized.[54] The information is definite and determinable. It does not constitute an opinion, and cannot reasonably be considered controversial.

         Whether the present labeling requirement is reasonably related to a substantial state interest and not unduly burdensome must also be addressed.[55] Health, safety, and welfare has long been recognized to constitute a substantial governmental interest.[56] Here, the State asserts that the sell-by date requirement "ensure[s] that Montana consumers are allocated a reasonable amount of time to bring the milk home and enjoy it completely before it begins to lose its freshness or palatability."[57]

         The State seeks to further the welfare of milk drinking consumers in Montana by affording a reasonable period of freshness to consumers while allocating waste to the retailer of milk. This requirement is reasonably related to the corresponding provision of Mont. Admin. R. § 32, 8.202(1) as a written expression of the State's milk sale policy, which ensures that consumers are likely to purchase grade A pasturized milk early in the milk's freshness period.[58] Requiring a sell-by date merely assists milk retailers in determining when to dispose of milk in accordance with the rules. Mont. Admin. R. § 32.8.202 is reasonably related to the State's interest in providing a longer period of freshness to the consumer, Is the required disclosure mandated by the sell-by date requirement unduly burdensome? The answer is "no." Earlier cases which found an undue burden on protected commercial speech in the First Amendment context have involved, inter alia, laws requiring advertisers to provide detailed disclosures in every advertisement, [59] or that required a font "that is so large that an advertisement can no longer convey its message, "[60] or that mandated that television advertisements devote one-sixth of their broadcast time to a government message.[61] In contrast, the burden in this case is comparatively minimal, requiring only a non-obtrusive, factually accurate date stamp be applied to milk cartons. The subject rule does not force the milk processor "to tailor its speech to an opponent's agenda, "[62] nor does it require the statement of a one-sided and misleading message.[63] The compelled speech here is minimal in context and reasonably related to the State's interest. It is not unduly burdensome. The sell-by dating required by Mont. Admin. R. § 32.8.202 does not violate Plaintiffs freedom of speech under Zauderer.

         The Single Date Rule

          Plaintiff also contends that Mont. Admin. R. § 32.8.203(1), as interpreted and applied by the Board, completely prohibits further date information other than that mandated by Mont. Admin. R. § 32.8.203(1) and unconstitutionally infringes on its freedom of speech. In this instance the Court agrees.

         To prohibit lawful, non-misleading commercial speech, the State must establish that: (1) the prohibition is supported by a substantial governmental interest; (2) the substantial interest is directly advanced by the prohibition; and (3) the prohibition is not more extensive than necessary.[64] The government interest must be advanced in a "direct and material way."[65] It cannot be satisfied "by mere speculation or conjecture; rather, a governmental body seeking to sustain a restriction on commercial speech must demonstrate that the harms it recites are real and that it's restriction will in fact alleviate them to a material degree."[66] This particular inquiry is critical, lest the State be allowed to "restrict commercial speech in the service of other objectives that could not themselves justify a burden on commercial expression."[67]

         The State concedes that Core-Mark, if allowed to provide an additional code date on grade A pasteurized milk, would seek only to disclose truthful, verifiable, and non-misleading information.[68] Further, it is undisputed that the current prohibition on additional labeling is unrelated to protecting health ...

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