American Beverage Association v. Snyder et al

Filing 42

OPINION; signed by Judge Gordon J. Quist (Judge Gordon J. Quist, jmt)

UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION

AMERICAN BEVERAGE ASSOCIATION,
Plaintiff,
v.
RICK SNYDER, in his official capacity as the
Governor of the State of Michigan; BILL
SCHUETTE, in his official capacity as the
Attorney General of the State of Michigan;
and ANDREW DILLON, in his official capacity
as the Treasurer of the State of Michigan,

Case No. 1:11-CV-195
HON. GORDON J. QUIST

Defendants,
v.
MICHIGAN BEER & WINE WHOLESALERS
ASSOCIATION,
Intervenor-Defendant.
/
OPINION
The question in this case is whether a Michigan statute designed to protect the State and
Michigan beverage retailers and distributors from fraud, M.C.L. § 445.572a(10), is unconstitutional
because it violates the dormant Commerce Clause. For the reasons stated below, the undersigned
holds that the statute does not, on its face, violate this clause because it is neither discriminatory nor
extraterritorial. This leaves open the issue of whether the burden on interstate commerce is clearly
excessive in relation to the putative local benefits. Defendants’ equitable defenses relating to laches,
unclean hands, and the appropriateness of a declaratory ruling are rejected. Defendants claim that
Plaintiff has failed to establish a right to injunctive relief is rejected at this point as it remains to be
seen whether the burden imposed by the statute is clearly excessive in relation to the local benefits.

I. BACKGROUND
Plaintiff, the American Beverage Association, is a non-profit association of the producers,
marketers, distributors, and bottlers of virtually every non-alcoholic beverage sold in the United
States. Plaintiff sued Governor Rick Snyder, Attorney General Bill Schuette, and Treasurer Andrew
Dillon. By Order dated April 26, 2011, the Court permitted the Michigan Beer & Wine Wholesalers
Association (“MBWWA”) to intervene as a Defendant. Throughout this Opinion, the individual
defendants and the MBWWA will be referred to collectively as “Defendants.”
Michigan is one of ten “Bottle Bill” states.1 Michigan’s Bottle Bill, which was enacted in
1976, requires certain beverages2 to be sold in returnable containers – meaning, a container “upon
which a deposit of at least 10 cents has been paid, or is required to be paid upon the removal of the
container from the sale or consumption area, and for which a refund of at least 10 cents in cash is
payable.” M.C.L. § 445.571(d). Consumers may obtain a refund of the deposit by returning the
empty container to a retailer or to a reverse vending machine.3 The retailers, in turn, may return the
empty containers to beverage distributors or manufacturers to obtain the ten-cent refund. M.C.L.
§ 445.572(6).
Distributors and manufacturers who originate deposits must file reports each year with the
Michigan Department of Treasury indicating the total deposits collected and total refunds paid.
M.C.L. § 445.573a. As of 1989, a manufacturer or distributor who collects more in deposits than
it pays out in refunds (i.e., an “underredeemer”) must annually escheat to the State the value of any
1

The other Bottle Bill states are: California, Connecticut, Hawaii, Iowa, Maine, Massachusetts, New York,
Oregon, and Vermont. See http://www.bottlebill.org/legislation/usa.htm (last visited May 17, 2011).
2

“Beverage” is defined as “a soft drink, soda water, carbonated natural or mineral water, or other nonalcoholic
carbonated drink; beer, ale, or other malt drink of whatever alcoholic content; or a mixed wine drink or mixed spirit
drink.” M.C.L. § 445.571(a).
3

A “reverse vending machine” is defined as “a device designed to properly identify and process empty beverage
containers and provide a means for a deposit refund on returnable containers.” M.C.L. § 445.572a(12)(j).

2

unredeemed deposits. M.C.L. §§ 445.573b(2), (5). Most of the escheated money is used for cleanup
and redevelopment, with the remainder going to retailers to assist with handling costs. M.C.L. §
445.573c. When a distributor or manufacturer pays out more in refunds than it collects in deposits
(i.e., an “overredeemer”), not only does the State lose its escheat revenue, but the distributor or
manufacturer may suffer a direct financial loss.
One cause of overredemption is individuals redeeming containers in Michigan that were
purchased outside of the State. To combat such fraudulent redemption, in 1998 the Michigan
Legislature criminalized the redemption of containers by a person who knows or should have known
that no deposit was paid and began requiring retailers to post a notice to that effect. See M.C.L. §§
445.574a, 445.574b. Then, in 2008, the Bottle Bill was amended to criminalize the knowing
acceptance of such containers by dealers and distributors, M.C.L. § 445.574a, and to include the
provision that is challenged here – the unique-mark requirement, M.C.L. § 445.572a(10).
Under the 2008 Amendment, all brands that have sales exceeding certain specified thresholds
must include on their bottles a “symbol, mark or other distinguishing characteristic” that is unique
to Michigan so as to permit reverse vending machines to identify the container as having been sold
in the State. See M.C.L. § 445.572a. In its entirety, the challenged provision reads as follows:
A symbol, mark, or other distinguishing characteristic that is placed on a designated
metal container, designated glass container, or designated plastic container by a
manufacturer to allow a reverse vending machine to determine if that container is a
returnable container must be unique to this state, or used only in this state and 1 or
more other states that have laws substantially similar to this act.
M.C.L. § 445.572a(10). The Amendment does not define “substantially similar,” but Defendants
assert that its common understanding includes all Bottle Bill states, even those where the deposit
is less than Michigan’s. Failure to comply is a misdemeanor punishable by imprisonment for not
more than 180 days or a fine of not more than $2,000.00 or both. M.C.L. § 445.572a(11). The

3

Amendment became law in December of 2008, but its effective date was contingent upon the
appropriation of at least 1 million dollars into an antifraud fund to retrofit reverse vending machines
to read the unique marks § 572a(10) requires. That appropriation did not occur until nearly a year
after the Amendment was signed. In addition, in order to accommodate technological issues that
manufacturers might encounter, the unique-mark requirement did not go into effect until 90 or 450
days after the Amendment’s effective date, depending on the type of container. M.C.L. §
445.572a(1)-(9).
Compliance with the unique-mark provision is only required of those brands whose sales
meet certain specified thresholds. See M.C.L. 445.572a. For brands of non-alcoholic beverages that
are sold in 12-ounce metal or glass containers, or in 20-ounce plastic containers, compliance is
required if at least 500,000 cases were sold in the State, or if that brand was overredeemed by more
than 600,000 containers, in the preceding year. See M.C.L. § 445.572a(1),(3), and (5). Due to the
high threshold levels that trigger coverage, therefore, not all beverages must comply. For example,
for 12-ounce metal containers, the non-alcoholic beverages subject to the provision are: Coca-Cola,
Diet Coke, Caffeine Free Diet Coke, Sprite, Coke Zero, Cherry Coke, Pepsi, Diet Pepsi, Mountain
Dew, Diet Mountain Dew, Diet Caffeine Free Pepsi, A & W, Dr. Pepper, and Vernors. (Def.’s
Resp. at 4, Ex. 8.) The manufacturers of most of these beverages have been complying with the law
for approximately one year. By way of illustration, Coca-Cola Enterprises is placing two parallel
lines of dots centered between the date and manufacturing number on the bottom of its 12-ounce
cans. (Def.’s Resp. Ex. 9.) Dr. Pepper and A &W did not meet the thresholds until more recently.
Some of Plaintiff’s members, either individually or through their membership in the
Michigan Soft Drink Association (“MSDA”), participated in the legislative process leading to the
2008 Amendment. The MSDA informed Plaintiff regarding the introduction and passage of the

4

unique-mark requirement, but Plaintiff neither directed nor controlled the MSDA’s activities relating
to the legislation, nor did Plaintiff itself directly participate in the legislative process. (Def.’s Resp.
at 5, Pl.’s Reply at 13 and Ex. E.) The MSDA fervently opposed statutorily mandating unique-toMichigan marking, especially because some industry members were already voluntarily
experimenting with such marking on cans, but the technology had not yet been perfected. (Def.’s
Resp. Ex. 7A.)
In this case, Plaintiff asserts that the unique-mark requirement violates the Commerce Clause
by (1) discriminating against interstate commerce, (2) regulating commerce occurring entirely
outside of the State, and (3) imposing a burden on interstate commerce in excess of the provision’s
putative local benefits.
II. MOTION STANDARD
Summary judgment is proper where “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.” Fed. R. Civ. P.
56(a). Material facts are facts which are defined by substantive law and are necessary to apply the
law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S. Ct. 2505, 2510 (1986). A dispute
is genuine if a reasonable jury could return judgment for the non-moving party. Id.
The court must draw all inferences in a light most favorable to the non-moving party, but
may grant summary judgment when “the record taken as a whole could not lead a rational trier of
fact to find for the non-moving party.” Agristor Fin. Corp. v. Van Sickle, 967 F.2d 233, 236 (6th
Cir.1992) (quoting Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587, 106
S. Ct. 1348, 1356 (1986)).

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III. ANALYSIS
A. Affirmative Defenses
As an initial matter, Defendants assert that Plaintiff’s claim is barred by the equitable
doctrines of laches and unclean hands, that Plaintiff has failed to meet the standard for declaratory
relief, and that Plaintiff’s claim for injunctive relief should be dismissed because the circumstances
do not warrant the extraordinary grant of equitable relief.
1. Laches
“A party asserting laches must show: (1) lack of diligence by the party against whom the
defense is asserted, and (2) prejudice to the party asserting it.” Chirco v. Crosswinds Cmtys., Inc.,
474 F.3d 227, 231 (6th Cir. 2007). Defendants argue that Plaintiff unreasonably delayed bringing
this case because the beverage industry actively participated in the legislative discussions leading
to the 2008 Amendment, the Amendment itself already contained a delayed timetable for
compliance (i.e., the 90 and 450 day periods), and yet, Plaintiff waited more than two years after
enactment to file this case. As to prejudice, Defendants note that in addition to the time and money
spent on the legislative process, the legislature has already appropriated $1.5 million to retrofit
reverse-vending machines and, unlike industry members who can recoup their costs through sales,
the State has no similar opportunity.
Plaintiff argues that Defendants’ laches claim must fail because it filed this case within the
three-year statute of limitations period applicable to suits under 42 U.S.C. § 1983. See Wolfe v.
Perry, 412 F.3d 707, 714 (6th Cir. 2005); M.C.L. § 600.5805(10) (three-year limitations period for
injuries to property). Moreover, Plaintiff notes, it was not obligated to bring suit before the law was
enacted, so the time and money spent on the legislative process is irrelevant. As to the money
appropriated to retrofit reverse vending machines, that investment would have been needed anyway
in order to comply with the industry’s own voluntary marking efforts.
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“[I]n this Circuit, there is a strong presumption that a plaintiff’s delay is reasonable so long
as the analogous statute of limitations has not elapsed.” Elvis Presley Enters., Inc. v. Elvisly Yours,
Inc., 936 F.2d 889, 894 (6th Cir. 1991). Where, as here, the defendant has not claimed that the
statute of limitations has run, it must articulate “compelling reasons” in support of its laches claim.
Id.; see also Chirco, 474 F.3d at 233 (“Only rarely should laches bar a case before the . . . statute
has run.”) (quoting Tandy Corp. v. Malone & Hyde, Inc., 769 F.2d 362, 366 (6th Cir. 1985)). The
Court finds that Defendants’ stated reasons do not meet this standard and laches does not apply.
2. Unclean Hands
Defendants assert that Plaintiff did not act in good faith because, although its members
participated in crafting the 2008 Amendment, they did not mention the “cataclysmic consequences”
Plaintiff now forecasts. Even though some of Plaintiff’s members may have participated in the
legislative discussions, Plaintiff did not. In addition, the members who did participate “fervently
opposed” the legislation even if not to the same extent as Plaintiff does here. (See Def.’s Reply Ex.
7A., Pl.’s Mot. for Summ. J. Ex. K at 15.) Therefore, the Court rejects this claim.
3. Declaratory Relief
For the same reasons raised with regard to laches and unclean hands, Defendants claim that
the Court should decline to issue a declaratory ruling. The Court disagrees. The Sixth Circuit has
identified six criteria to consider in whether a declaratory ruling is appropriate, Grand Trunk W. R.R.
Co. v. Consol. Rail Corp., 746 F.2d 323, 326 (6th Cir. 1984), none of which counter against
exercising jurisdiction under the circumstances presented here.
4. Appropriateness of Injunctive Relief
Finally, Defendants argue that Plaintiff has not met its burden of establishing a right to
injunctive relief. “A party is entitled to a permanent injunction if it can establish that it suffered a

7

constitutional violation and will suffer ‘continuing irreparable injury’ for which there is no adequate
remedy at law.” Wedgewood Ltd. P’ship I v. Twp. of Liberty, 610 F.3d 340, 349 (6th Cir. 2010).
As set forth below, the Court finds that the challenged provision is neither discriminatory nor
extraterritorial and, thus, Plaintiff has not established its entitlement to a permanent injunction on
either of those bases. Id. However, because it remains to be seen whether the burden on interstate
commerce is clearly excessive in relation to its putative local benefits, the Court rejects Defendants’
argument as to the appropriateness of injunctive relief at this time.
B. Commerce Clause
The Constitution grants Congress the power “[t]o regulate Commerce with foreign Nations,
and among the several States.” U.S. Const. art. I, § 8, cl. 3. “Although the Commerce Clause is by
its text an affirmative grant of power to Congress to regulate interstate and foreign commerce, the
Clause has long been recognized as a self-executing limitation on the power of the States to enact
laws imposing substantial burdens on such commerce.” Int’l Dairy Foods Ass’n v. Boggs, 622 F.3d
628, 644 (6th Cir. 2010) (quoting S.-Cent. Timber Dev., Inc. v. Wunnicke, 467 U.S. 82, 87, 104 S.
Ct. 2237, 2240 (1984)). “In this ‘dormant’ form, the Commerce Clause limits the power of states
‘to erect barriers against interstate trade.’” Id.
The Sixth Circuit has recently explained that dormant Commerce Clause claims involve a
two-step analysis. Id. at 645-46. The first step is to determine whether the state regulation is either
discriminatory or extraterritorial, in which case it is “virtually per se invalid,” id. at 646, and “will
survive only if it advances a legitimate local purpose that cannot be adequately served by reasonable
nondiscriminatory alternatives,” Dep’t of Revenue of Ky. v. Davis, 553 U.S. 328, 338, 128 S. Ct.
1801, 1808 (2008) (internal citations omitted). If it is neither discriminatory nor extraterritorial, then
the court must apply the balancing test set forth in Pike v. Bruce Church, Inc., 397 U.S. 137, 90 S.

8

Ct. 844 (1970), under which the state regulation must be upheld “unless the burden it imposes upon
interstate commerce is ‘clearly excessive in relation to the putative local benefits.’” Boggs. 622 F.3d
at 645-46. “‘[T]he critical consideration’ in any dormant Commerce Clause analysis ‘is the overall
effect of the statute on both local and interstate activity.” Id. at 646 (quoting Brown-Forman
Distillers Corp. v. N.Y. State Liquor Auth., 476 U.S. 573, 579, 106 S. Ct. 2080, 2084 (1986)).
1. Whether the Unique-Mark Requirement is “Virtually Per Se Invalid”
a. The Unique-Mark Requirement is not Discriminatory
The Supreme Court has explained that a state statute is discriminatory if it “directly regulates
or discriminates against interstate commerce, or when its effect is to favor in-state economic
interests over out-of-state interests.” Brown-Forman, 476 U.S. at 579, 106 S. Ct. at 2084. This
inquiry, therefore, asks whether the regulation has a direct effect, or only an incidental effect, on
interstate commerce. Boggs, 622 F.3d at 644. However, “[w]hat counts as a ‘direct’ burden on
interstate commerce has long been a matter of difficulty for courts, and, presumably due to its
questionable value as an analytical device, the ‘direct/incidental’ distinction has fallen out of use in
dormant commerce clause analysis.” Id. Instead, the Sixth Circuit recently reformulated the issue
as follows: “The first prong targets the core concern of the dormant commerce clause,
protectionism-that is, differential treatment of in-state and out-of-state economic interests that
benefits the former and burdens the latter.” Id. at 644-645 (quoting Tenn. Scrap Recyclers Ass’n v.
Bredesen, 556 F.3d 442, 449 (6th Cir. 2009)). A law may discriminate against out-of-state interests
“either facially, purposefully, or in practical effect.” Tenn. Scrap Recyclers Ass’n, 556 F.3d at 450.
Plaintiff argues that the unique-mark requirement is “stark, on-its-face, outright, and
purposeful” discrimination against interstate commerce because interstate beverage manufacturers
– and only interstate beverage manufacturers – are the exclusive targets of the law. This is so,
Plaintiff asserts, both because the high volume levels that trigger coverage implicate only national
9

companies and because Michigan beverage companies that sell only in-state – by default – produce
a Michigan-unique product. The law, Plaintiff argues, creates a financial disincentive for companies
doing business in Michigan to engage in interstate commerce because to do so they must make and
distribute cans of “Coke Michigan” and “Coke Rest of the United States,” which increases
production, material, storage and transportation costs. For example, Plaintiff’s members utilize
warehouse delivery systems, under which products are shipped from the manufacturing site to a
warehouse, where they are stored until distribution to individual retailers. One warehouse may serve
multiple states. Segregating products by state requires the development and tracking of dual
inventory systems for the same products and necessitates the use of additional and costly warehouse
space. Moreover, Plaintiff asserts, swift, unanticipated changes in demand are common in the
beverage industry and manufacturers must often shift products between distribution sites or across
state lines to meet demand. Yet, because “Coke Michigan” cans cannot be replaced with “Coke Rest
of the United States” cans, manufacturers can no longer fluidly shift their distribution across state
lines to meet demand. They may even be required to halt production at a plant that produces “rest
of the United States” products to set up temporary Michigan-only production lines or vice versa.
Defendants contend that the unique-mark requirement is not facially discriminatory because,
by its plain terms, it applies to all designated beverages, whether originating in-state or out-of-state.
The purpose of the law is to combat fraudulent redemption, not to protect local economic interests
or burden out-of-state beverage manufacturers. And the statute does not discriminate in effect
because it evenhandedly requires all those who sell certain amounts of beverages in Michigan to use
a unique-to-Michigan mark, without regard to the products’ in-state or out-of-state origins. Any
costs associated with producing the unique-to-Michigan mark are the same for both Michigan-based
and out-of-state manufacturers.

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1. Facial Discrimination
The parties differ in way they frame the issue of whether the statute is facially
discriminatory. Defendants would have the Court consider only whether the statute facially
discriminates between in-state and out-of state manufacturers and, because the statute itself makes
no overt distinction between the two, it is not facially discriminatory. An in-state manufacturer, just
like an out-of-state manufacturer, must comply with the law if it meets the designated threshold
levels. See e.g., McNeilus Truck & Mfg., Inc. v. Ohio ex rel. Montgomery, 226 F.3d 429, 442 (6th
Cir. 2000) (“Whether a remanufacturer is located within the state of Ohio or outside of it, it must
comply with the statute’s requirements to obtain a license.” ); Minn. v. Clover Leaf Creamery Co.,
449 U.S. 456, 471-72, 101 S. Ct. 715, 728 (1981) (“Minnesota's statute does not effect ‘simple
protectionism,’ but ‘regulates evenhandedly’ by prohibiting all milk retailers from selling their
products in plastic, nonreturnable milk containers, without regard to whether the milk, the
containers, or the sellers are from outside the State.”).
Plaintiff, on the other hand, would have the Court look, not to whether the statute
distinguishes between in-state and out-of-state manufacturers, but between manufacturers who deal
in interstate commerce and those who do not. In support, Plaintiff relies on Healy v. Beer Institute,
491 U.S. 324, 109 S. Ct. 2491 (1989). At issue in Healy was a Connecticut statute that required outof-state shippers of beer to affirm that their posted prices for products sold to Connecticut
wholesalers were, at the moment of posting, no higher than the prices at which those products were
sold in bordering states. Id. at 326, 109 S. Ct. at 2494. The Court first found, as it has in other cases
challenging price-affirmation statutes under the dormant Commerce Clause, that the statute had an
impermissible extraterritorial effect. Id. at 335-340, 109 S. Ct. at 2499-2501. The Court went on,
however, to hold that the statute violated the Commerce Clause in a second respect:

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On its face, the statute discriminates against brewers and shippers of beer engaged
in interstate commerce. In its previous decisions, this Court has followed a consistent
practice of striking down state statutes that clearly discriminate against interstate
commerce, see, e.g., New Energy Co. of Indiana v. Limbach, 486 U.S. 269, 108 S.Ct.
1803, 100 L.Ed.2d 302 (1988); Sporhase v. Nebraska ex rel. Douglas, 458 U.S. 941,
102 S.Ct. 3456, 73 L.Ed.2d 1254 (1982); Lewis v. BT Investment Managers, Inc.,
447 U.S. 27, 100 S.Ct. 2009, 64 L.Ed.2d 702 (1980), unless that discrimination is
demonstrably justified by a valid factor unrelated to economic protectionism, see,
e.g., Maine v. Taylor, 477 U.S. 131, 106 S.Ct. 2440, 91 L.Ed.2d 110 (1986). By its
plain terms, the Connecticut affirmation statute applies solely to interstate brewers
or shippers of beer, that is, either Connecticut brewers who sell both in Connecticut
and in at least one border State or out-of-state shippers who sell both in Connecticut
and in at least one border State. Under the statute, a manufacturer or shipper of beer
is free to charge wholesalers within Connecticut whatever price it might choose so
long as that manufacturer or shipper does not sell its beer in a border State. This
discriminatory treatment establishes a substantial disincentive for companies doing
business in Connecticut to engage in interstate commerce, essentially penalizing
Connecticut brewers if they seek border-state markets and out-of-state shippers if
they choose to sell both in Connecticut and in a border State.
Id. at 340-41, 109 S. Ct. at 2501-02.
Like Healy, Plaintiff asserts, the unique-mark requirement affects only those who engage
in interstate commerce – either Michigan manufacturers who sell both in Michigan and at least one
other state or out-of-state manufacturers who sell in Michigan and at least one other state. A
manufacturer who sells beverages solely within the state of Michigan, by default, already complies
with the law. Moreover, Plaintiff adds, the statute imposes an economic disincentive for those doing
business in Michigan to engage in interstate commerce by essentially penalizing Michigan
manufacturers if they seek out-of-state markets and out-of-state manufacturers if they seek to do
business both in Michigan and another state because only then must they incur the cost of producing,
storing, and distributing “Coke Michigan” and “Coke rest of the United States.”
The Court finds that Defendants have the best of this argument. First, by its plain terms, the
unique-mark requirement applies to all beverage manufacturers who meet the specified thresholds
regardless of their in-state or out-of-state origins. Contrary to Plaintiff’s assertion, even a wholly

12

intrastate manufacturer must have a “symbol, mark, or other distinguishing characteristic” on its
bottles – be it a unique UPC code or other mark – so as to permit reverse vending machines to
identify it as having been sold in the State. M.C.L. § 445.572a(10). But more importantly,
Plaintiff’s rationale would by extension bar all state labeling requirements.

That is, any

manufacturer who deals solely intrastate has an advantage over interstate manufacturers because it
need comply with only one state’s labeling requirements. To hold that the unique-mark requirement
is facially discriminatory, and therefore per se invalid, simply because it imposes a greater burden
on those engaged in interstate commerce than those who do not would, in effect, mean that every
state labeling restriction is unconstitutional. However, “[n]egatively affecting interstate commerce
is not the same as discriminating against interstate commerce.” Cotto Waxo Co. v. Williams, 46 F.3d
790, 794 (8th Cir. 1995). In a Commerce Clause context, “discrimination” is defined as the
“differential treatment of in-state and out-of-state economic interests that benefits the former and
burdens the latter.” Id. (citing Oregon Waste Sys. Inc. v. Dep’t of Envtl. Quality of Or., 511 U.S.
93, 99, 114 S. Ct. 1345, 1350 (1994)); see also E. Ky. Res. v. Fiscal Court of Magoffin Cnty., 127
F.3d 532, 541 (6th Cir. 1997) (same). The unique-mark requirement does not favor in-state
manufacturers or disfavor out-of-state manufacturers; regardless of the bottle’s point of origin, it
must contain a “symbol, mark, or other distinguishing characteristic” that is unique to Michigan.
M.C.L. § 445.572a(10).
2. Discriminatory Effect
Like a statute that is discriminatory on its face, a statute has a “discriminatory effect,” for
Commerce Clause purposes, if it “favors in-state economic interests while burdening out-of state
interests.” E. Ky. Res., 127 F.3d at 543. Thus, the Sixth Circuit has explained, “there are two
complementary components to a claim that a statute has a discriminatory effect on interstate

13

commerce: the claimant must show both how local economic actors are favored by the legislation,
and how out-of-state actors are burdened by the legislation.” Id.; see also Boggs, 622 F.3d at 648.
For example, in Hunt v. Washington State Apple Advertising Commission, 432 U.S. 333, 97
S. Ct. 2434 (1977), the Supreme Court found unconstitutional a North Carolina statute that required
“all closed containers of apples sold, offered for sale, or shipped into the State to bear ‘no grade
other than the applicable U.S. grade or standard.’” Id. at 335, 97 S. Ct. at 2437. Although the statute
was facially neutral, it discriminated against interstate commerce in practical effect for a number
of reasons: (1) it increased the cost of doing business in North Carolina for Washington apple
growers and dealers, who would have to incur the costs of changing or relabeling their containers
to remove Washington’s grades, while leaving North Carolina growers unaffected because they were
not forced to alter their marketing practices in a similar way – they could use the USDA grade or
none at all, just as they had prior to the statute’s enactment; (2) it stripped away from Washington
growers and dealers the competitive and economic advantage they had earned through Washington’s
expensive inspection and grading system, and, because it had no similar impact on North Carolina
growers, it operated to their benefit; and (3) it essentially required Washington growers to
downgrade their apples to the inferior USDA grades, which also worked to the advantage of North
Carolina growers, whose apples were of inferior quality. Id. at 350-52, 97 S. Ct. at 2445-46.
On the other hand, in International Dairy Association v. Boggs, the Sixth Circuit upheld an
Ohio regulation that prohibited dairy processors from making claims about the absence of rbST, an
artificial hormone given to lactating cows, in their milk products and required them to include a
disclaimer when making such claims about their production processes. 622 F.3d at 632. The court
rejected the argument that the regulation was discriminatory in effect, explaining that the rule
burdened Ohio dairy farmers who do not use rbST in their production of milk to the same extent it

14

burdened out-of-state farmers who do not use rbST. Id. at 649. Thus, the plaintiffs had not
demonstrated that the regulation favored Ohio actors at the expense of out-of-state actors. Id.
Contrary to Plaintiff’s assertion, the circumstances presented here are more akin to Boggs
than to Hunt. In Hunt, the North Carolina statute required Washington growers to downgrade their
apples and essentially lose the competitive advantage of their superior grading system.
Simultaneously, the North Carolina statute benefitted North Carolina growers, whose apples were
of inferior quality. Michigan’s unique-mark statute, on the other hand, does not strip out-of-state
actors of any competitive edge to the benefit of in-state actors. And like Boggs, the unique-mark
requirement burdens in-state beverage manufacturers who meet the designated thresholds to the
same extent it burdens out-of-state manufacturers who meet the designated thresholds. Even if the
threshold levels that trigger coverage implicate only high-volume, national companies like Coca
Cola, small-volume out-of-state companies, just like small-volume in-state companies, are exempt.
In short, Plaintiff has not shown how “local economic actors are favored by the legislation,
and how out-of-state actors are burdened by the legislation.” Boggs, 622 F.3d at 648.
3. Discriminatory Purpose
“It is axiomatic that a state law that purposefully discriminates against out-of-state interests
is unconstitutional.” E. Ky. Res., 127 F.3d at 541. Plaintiff argues that the purpose behind the statute
is to increase the state’s escheat revenue, while Defendants argue that it is to prevent fraudulent
redemption. In either case, however, there is nothing that indicates that Michigan is attempting to
benefit local economic actors at the expense of out-of-state actors. See Boggs, 622 F.3d at 648. The
unique-mark requirement applies to all beverage manufacturers who meet the thresholds regardless
of their in-state or out-of-state origins.

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b. The Unique-Mark Requirement is not Extraterritorial
In addition to regulations that are protectionist, there is second type of regulation which the
Supreme Court has recognized as virtually per se invalid: “a regulation that has the practical effect
of controlling commerce that occurs entirely outside of the state in question.” Boggs, 622 F.3d at
645. “The Commerce Clause ‘precludes the application of a state statute to commerce that takes
place wholly outside of the State’s borders, whether or not the commerce has effects within the
State.’” Id. (citing Healy, 491 U.S. at 336, 109 S. Ct. at 2499). The critical inquiry in determining
whether a statute is extraterritorial is “whether the practical effect of the regulation is to control
conduct beyond the boundaries of the State.” Healy, 491 U.S. at 336, 109 S. Ct. at 2499. In
analyzing the “practical effect” of the statute, the court must consider not only the consequences of
the statute itself, but also “how the challenged statute may interact with the legitimate regulatory
regimes of other States and what effect would arise if not one, but many or every, State adopted
similar legislation.” Id.
The Supreme Court has struck down regulations on extraterritoriality grounds in the context
of price-affirmation statutes. In Brown-Forman Distillers Corp. v. New York State Liquor Authority,
476 U.S. 573, 106 S. Ct. 2080 (1986), the Supreme Court struck down a New York statute that
required every liquor distiller or producer selling to wholesalers within the state to affirm that the
prices charged were no higher than the lowest price at which the same product was sold in any other
state during the month of affirmation. Id. at 576, 106 S. Ct. at 2082. The Court explained that the
statute had an impermissible extraterritorial effect because, once a distiller posted its prices in New
York, it was no longer free to change its prices elsewhere in the United States during the relevant
month, at least without the approval of the New York State Liquor Authority. Id. at 582-83, 106 S.
Ct. at 2086. “Forcing a merchant to seek regulatory approval in one State before undertaking a

16

transaction in another directly regulates interstate commerce.” Id. at 582, 106 S. Ct. at 2086.
Although New York was free to regulate the sale of liquor within its own borders and to seek low
prices for its residents, it was not free to “‘project its legislation into [other States] by regulating the
price to paid’ for liquor in those States.” Id. at 582-83, 106 S. Ct. at 2086. Moreover, the Court
explained, because of the recent proliferation in price-affirmation statutes, the likelihood that a seller
would be subjected to inconsistent obligations in different states was high. Id. at 583, 106 S. Ct.
2086.
Similarly, in Healy the Supreme Court struck down a Connecticut statute that required outof-state shippers of beer to affirm that their posted prices for products sold to Connecticut
wholesalers were, at the moment of posting, no higher than the prices at which those products were
sold in bordering states. Id. at 326, 109 S. Ct. at 2494. Like the statute in Brown-Forman, the
Connecticut statute had the extraterritorial effect of “requir[ing] out-of-state shippers to forgo the
implementation of competitive pricing schemes in out-of-state markets because those pricing
decisions are imported by statute into the Connecticut market regardless of local competitive
conditions.” Id. at 339, 109 S. Ct. at 2501. As it had in Brown-Forman, the Court also explained
that “States may not deprive businesses and consumers in other States of ‘whatever competitive
advantages they may possess’ based on the conditions of the local market.” Id.
Although the Supreme Court has not addressed an extraterritorial challenge to a product
labeling restriction as presented here, the Sixth and Second Circuits have. See Boggs, supra; Nat.
Elec. Mfrs. Ass’n v. Sorrell, 272 F.3d 104 (2d Cir. 2001). In Boggs, the plaintiff argued that due to
the complex national distribution channels through which milk products are delivered and the costs
associated with changing their labels, the Ohio regulation effectively forced the plaintiff’s members
to create a nationwide label in accordance with Ohio’s requirements. 622 F.3d at 647. The Sixth
Circuit rejected this argument explaining:
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[U]nlike the price-affirmation statues [in Brown-Forman and Healy], which directly
tied their pricing requirements to the prices charged by the distillers in other states,
the Ohio Rule’s labeling requirements have no direct effect on the Processor’s outof-state labeling conduct. That is to say, how the Processors label their products in
Ohio has no bearing on how they are required to label their products in other states
(or vice versa).
Id. In addition, compliance with Ohio’s rule did not raise the possibility that processors would be
in violation of other state’s regulations, which, the court noted, was the key problem in BrownForman. Id.
In Sorrell, the Second Circuit rejected a similar extraterritoriality argument regarding a
Vermont statute that required mercury-containing products to be labeled so as to inform consumers
that the products contain mercury and, on disposal, should be recycled or disposed of as hazardous
waste. 272 F.3d at 106. The plaintiff argued that given the manufacturing and distribution systems
used by its members, who manufactured mercury-containing lamps, if they were to continue selling
in Vermont, they would be forced to also label lamps sold in every other state. Id. at 110. The court
explained:
Unlike the restrictions in the Supreme Court’s price-regulation cases, the statute here
makes no mention of other states for any purpose. To the extent the statute may be
said to “require” labels on lamps sold outside Vermont, then, it is only because the
manufacturers are unwilling to modify their production and distribution systems to
differentiate between Vermont-bound and non-Vermont-bound lamps.
Id. (internal citation omitted). The manufacturers could simply pass on any increased Vermont
compliance costs with higher prices to Vermont consumers. Id. They were not required to adhere
to the Vermont rule in other states. Id. at 111.
Plaintiff argues that the unique-mark requirement directly regulates the labeling and sale of
beverages in other states by making it a crime to use the same label in any non-Bottle Bill state.
The unique-mark requirement is, Plaintiff says, therefore, distinguishable from the state labeling
requirements in Boggs and Sorrell, which did not ban the out-of-state sale of similarly packaged

18

products. Morever, if Michigan can require unique-to-the-state labeling, so can every other state
in the nation, and for any other product, which, Plaintiff asserts, would shatter the interstate
economy. Finally, Plaintiff adds, the fact that bottles with the mark § 572a(10) requires may also
be used in states with “substantially similar” laws only compounds the constitutional problem
because Michigan cannot force its judgment as to the proper method for handling empty beverage
containers onto other states.
Defendants distinguish Healy and Brown-Forman by asserting that the unique-mark
requirement will never cause beverages to be in violation of the regulations of other states because
it does not govern how beverages are labeled in other states, only how they are labeled within
Michigan. And, Defendants note, that labeling does not depend on, or exclude, other identifying
marks that might be required in non-Bottle Bill States. Finally, if other states adopted similar laws,
Defendants explain, it would not shatter the interstate economy, but instead eliminate the dilemma
of which Plaintiff complains because the same mark could be used in any state that did so.
The Court notes that the unique-mark requirement presents an unusual extraterritoriality
question. It is distinguishable from the labeling requirements that were upheld in Boggs and Sorrell
in that neither of those statutes prevented manufacturers from using the same label in other states.
However, it is also distinguishable from the price-affirmation statutes in Healy and Brown-Forman
because it does not directly control conduct occurring wholly outside the State’s borders. That is,
manufacturers are free to label their products however they see fit in other states. They simply must
label their bottles differently for sale in Michigan. The Court recognizes that if a manufacturer must
use a unique-mark for bottle law states, Michigan law would dictate what the label in a non-bottle
state could not contain, i.e. a “unique mark” enabling machines to recognize containers not sold in
Michigan. Nonetheless, the Court believes that Defendants have the better side of the argument.

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First, the scope of the extraterritoriality doctrine is not entirely clear as the Supreme Court
has only struck down statutes based on their extraterritorial effects in cases involving priceaffirmation statutes or statutes that “force an out of state merchant to seek regulatory approval in one
State before undertaking a transaction in another.” Healy, 491 U.S. at 336-37, 109 S. Ct. at 24992450 (summarizing the Court’s extraterritoriality doctrine jurisprudence); see also IMS Health Inc.
v. Mills, 616 F.3d 7, 30 (1st Cir. 2010) (“The Supreme Court has applied the so-called
extraterritoriality doctrine sparingly.”). In fact, the Supreme Court has previously rejected an
extraterritoriality argument against a state statute that regulated out-of-state commercial
transactions, but which, as here, had a clear in-state nexus and impact. See CTS Corp. v. Dynamics
Corp. of Am., 481 U.S. 69, 88-93,107 S. Ct. 1637, 1649-52 (1987) (upholding an Indiana statute that
limited out-of-state tender offerors’ acquisition of controlling shares in certain Indiana corporations
and noting “every application of the Indiana Act will affect a substantial number of Indiana
residents, whom Indiana indisputably has an interest in protecting”).
The statutes the Supreme Court has invalidated on extraterritoriality grounds also raised
independent concerns about protectionism. IMS Health Inc., 616 F.3d at 31 n.30; see BrownForman, 476 U.S. at 580, 106 S. Ct. at 2085 (“While a state may seek lower prices for its
consumers, it may not insist that producers or consumers in other States surrender whatever
competitive advantages they may possess.”); Healy, 491 U.S. at 339, 109 S. Ct. at 2501 (same). As
set forth above, the unique mark requirement does not involve protectionist concerns because both
in-state and out-of-state manufacturers are equally burdened.
Perhaps most importantly, Plaintiff’s extraterritoriality argument can be, and was, framed
in terms of inconsistent regulations. That is, the danger here is that other or all states may impose
their own unique-to-the-state packaging requirements for any product. However, “[i]t is not enough

20

to point to a risk of conflicting regulatory regimes in multiple states; there must be a conflict
between the challenged regulation and those in place in other states.” Sorrell, 272 F.3d at 112; see
also C & A Carbone, Inc. v. Town of Clarkstown, 511 U.S. 383, 406-07, 114 S. Ct. 1622, 1690
(1994) (O’Conner J., concurring) (quoting the language from Healy that the “practical effect” of the
challenged statute “must be evaluated not only by considering the consequences of the statute itself,
but also by considering how the challenged statute may interact with the legitimate regulatory
regimes of other States and what effect would arise if not one, but many or every, [jurisdiction]
adopted similar legislation,” explaining that this is not a “hypothetical inquiry,” and going on to
discuss that because many jurisdictions were contemplating or enacting similar laws, the potential
for conflict was high); Brown-Forman, 476 U.S. at 583-84, 106 S. Ct. at 2086-87 (explaining that
proliferation of price affirmation laws made the likelihood that a seller would be subjected to
inconsistent obligations in different states high). No such conflict has actually been shown here –
Michigan is the only state with a unique-mark requirement.

In addition, because of the

“substantially similar” language in § 572a(10), if, in fact, other states adopted similar container
deposit laws, the burden of which Plaintiff complains, would only be diminished.
Finally, the Court disagrees with Plaintiff’s contention that the “substantially similar”
language in the challenged provision creates a constitutional problem. The case on which Plaintiff
relies, National Solid Wastes Management Association v. Meyer, 165 F.3d 1151 (7th Cir. 1999), is
readily distinguishable. The statute challenged in that case prohibited the importation of solid waste
from any other state unless the community from which the waste originated enacted an ordinance
meeting Wisconsin’s specifications for recycling. Id. at 1152. The unique-mark requirement, in
contrast, does not condition entry into the Michigan market on a state’s having enacted a Bottle Bill.
All brands that meet the specified thresholds must have the mark § 572a(10) requires, regardless of

21

whether the bottle originates out-of-state or in-state and regardless of whether the state from which
it originates has a Bottle Bill. The “substantially similar” language was simply designed to lessen
the burden on interstate manufacturers in that a bottle marked in accordance with § 572a(10), can
also be used in other states with “substantially similar” laws (i.e., other Bottle Bill States).
Michigan’s borders, however, are not closed to non-Bottle Bill states. Furthermore, unlike the
Wisconsin statute, the Michigan statute in no way attempts to regulate the actual product (i.e., soft
drink beverages) in any other state.
2. The Pike Balancing Test
Because the Court concludes that the statute is neither discriminatory nor extraterritorial, but
instead regulates evenhandedly, it must move onto the second step of the inquiry, which is to apply
the Pike balancing test. Boggs, 622. F.3d at 644. “That test upholds a state regulation unless the
burden it imposes upon interstate commerce is ‘clearly excessive in relation to the putative local
benefits.” Id. (citing Pike, 397 U.S. at 142, 90 S. Ct. at 847). “If a legitimate local purpose is found,
then the question becomes one of degree. And the extent of the burden that will be tolerated will
of course depend on the nature of the local interest involved, and on whether it could be promoted
as well with a lesser impact on interstate activities.” Pike, 394 U.S. at 142, 90 S. Ct. at 847.
Plaintiff asserts that the unique-mark requirement imposes substantial burdens on interstate
commerce because any company that wishes to do business both within and outside of Michigan
must create duplicative production, bottling, and distribution operations. In addition, Plaintiff says,
the statute deprives manufacturers of the ability to fluidly shift beverages into or out of Michigan
in response to sudden changes in demand. This burden substantially outweighs the putative local
benefit, which, according to Plaintiff, is merely to increase the State’s escheat revenue. In fact,

22

Plaintiff contends, the extent of fraudulent redemption has not even been reliably documented.
Finally, Plaintiff argues, the unique-mark requirement does nothing to prevent fraudulent returns
to retailers who often do not examine bottles individually, and the problem could be adequately
deterred in the following less-burdensome ways: (1) ban retailer redemption altogether and require
the use of reverse vending machines for all refunds; (2) seriously enforcing the criminal penalties
for improper redemption, including the newly created criminal prohibitions on retailer and
distributor fraud; and (3) allocating retailers their share of escheated funds based, not upon the
number of cans redeemed as it is now, but upon their anti-fraud efforts.
Defendants contend that the unique-mark requirement benefits Michigan by preventing
fraudulent redemption, which, Defendants assert, is a well-documented problem. Defendants also
allege that the burden on interstate commerce is relatively minor. In support, Defendants note that
many of Plaintiff’s members have already been complying with the law for approximately a year
as have beer manufacturers (whose cans and bottles are similar to what Plaintiff’s members use) and
that even before the law was enacted, some industry members were voluntarily implementing
unique-to-Michigan marking. Moreover, Plaintiff’s members may recoup any related costs in the
form of higher prices to Michigan consumers. As to Plaintiff’s alternative solutions, Defendants
assert that none would adequately resolve the problem. Banning retailer redemption does nothing
to combat fraudulent redemption using reverse vending machines. Criminal penalties have already
proven unsuccessful. And, although allocating escheated funds to retailers based on their anti-fraud
effort may help, it cannot fully combat the problem. Finally, at a minimum, Defendants request
additional discovery before the Court rules on the Pike balancing test regarding Plaintiff’s members’
labeling and distribution procedures as well as how, and at what expense, the affected industry
members have been complying with the law.
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With regard to the local benefit, although it has never been stated with precision how many
bottles are fraudulently redeemed each year, Plaintiff does not deny that the problem exists, and
Defendants have presented sufficient evidence that estimates the scope of fraud to be,
conservatively, 10 million dollars per year. (See Defs.’ Ex. 1A, 1B, and 1C.) The parties’ dispute
about the purpose behind the statute – preventing criminal fraud versus increasing the State’s escheat
revenue – is not dispositive. Although revenue generation is insufficient to justify a discriminatory
statute, it is a cognizable benefit for purposes of the Pike balancing test. United Haulers Ass’n, Inc.
v. Oneida-Herkimer Solid Waste Mgmt. Auth., 550 U.S. 330, 346, 127 S. Ct. 1786, 1798 (2007).
Moreover, Plaintiff has cited no case, and the Court is aware of none, holding that a state does not
have a legitimate interest in preventing an illegal activity simply because that illegal activity is one
which has the primary effect of decreasing state revenue. Finally, it is undisputed that the majority
of the funds that are lost to fraudulent redemption each year would otherwise go into a cleanup and
redevelopment trust fund. Protecting the environment is a legitimate public benefit. See Maine v.
Taylor, 477 U.S. 131, 106 S. Ct. 2440 (1986).
With regard to the burden on interstate commerce, Plaintiff presents affidavits which
describe logistical difficulties in production and warehousing that manufacturers face in order to
comply with the statute and describe them as “costly.” Although several of Plaintiff’s members
have been complying with the law for approximately a year, the Court has no concrete idea of the
actual costs this has imposed on any individual manufacturer or on the interstate market as a whole.
In addition, the case on which Plaintiff relies for support that the burden on interstate commerce
is substantial, Bibb v. Navajo Freight Lines, Inc., 359 U.S. 520, 79 S. Ct. 962 (1959), involved

24

interstate transporters and is, therefore, distinguishable.4

See Sorrell, 272 F.3d at 111-12

(distinguishing cases involving interstate transporters from the issues presented with a labeling
restriction). “Transporters forced either to abide by state rules or avoid the state entirely would
necessarily be impeded, if they chose the latter course, in their effort to conduct commerce with the
surrounding states because they would be unable to pass through the regulating state.” Id. Here,
in contrast, Plaintiff’s members may simply choose not to do business in Michigan or may pass the
cost onto Michigan consumers in the form of higher prices. See id.; see also Exxon Corp. v.
Governor of Md., 437 U.S. 117, 128, 98 S. Ct. 2207, 2215 (1978) (“It may be true that the
consuming public will be injured by the [effect of the challenged regulation], but again that
argument relates to the wisdom of the statute, not to its burden on commerce.”).
In attempting to weigh the burdens and benefits, therefore, it is not clear whether the burden
on interstate commerce is “clearly excessive” in relation to the local benefits. The Court does not
doubt that the unique-mark requirement places some burden on Plaintiff’s members, but the scope
of that burden remains unclear. The Court is also not prepared to say, however, that as a matter of
law, the unique-mark requirement is constitutional. Instead, the Court finds that a genuine issue
of material fact exists as to the extent of the burden that M.C.L. § 445.572a(10) imposes on
interstate commerce.
CONCLUSION
For the reasons set forth above, the Court will:
(1)

grant summary judgment in favor of Defendants as to the Court’s conclusion that
M.C.L. § 445.572a(10) is neither discriminatory nor extraterritorial.

4

The statute challenged in Bibb required the use of a certain type of mudguard on all trucks and trailers operated
on Illinois highways. As a result, conventional mudguards that were legal or even required in at least 45 other states,
were illegal in Illinois. 359 U.S. at 523, 79 S. Ct. at 964. The Court found the statute, although nondiscriminatory, was
unduly burdensome on interstate motorcarriers. Id. at 529-30, 79 S. Ct. at 967-68.

25

(2)

decline to enter summary judgment with regard to the Pike balancing test, finding
that material questions of fact remain regarding the extent of the burden that M.C.L.
§ 445.572a(10) places on interstate commerce.

(3)

grant summary judgment in favor of Plaintiff on Defendants’ defense of laches.

(4)

grant summary judgment in favor of Plaintiff on Defendants’ defense of unclean
hands.

(5)

grant summary judgment in favor of Plaintiff on Defendants’ defense that the Court
should decline to issue a declaratory ruling.

(6)

deny summary judgment at this time on Defendants’ defense that Plaintiff has failed
to establish a right to injunctive relief as it remains to be seen whether the statute is
unconstitutional under Pike.

A separate Order will issue.

Dated: May 31, 2011

/s/ Gordon J. Quist
GORDON J. QUIST
UNITED STATES DISTRICT JUDGE

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