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

Filing 119

MEMORANDUM AND ORDER: The pending Cross-Motions for Summary Judgment are GRANTED in part and DENIED in part. re: 103 , 106 (SEE ORDER FOR COMPLETE DETAILS.) Signed by Judge Sam E Haddon on 11/1/2018. (HEG)

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MONTANA
HELENA DIVISION

FILED
NOV

CORE-MARK INTERNATIONAL,
INC.,
Plaintiff,

No. CV 15-05-H-SEH

O 1 2018

Clerk, U.S. District Court
District Of Montana
Helena

vs.
MEMORANDUM
AND ORDER

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.
Background

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

1

Doc. 106.

2

Doc. 103.

3

See Doc. I 05 at 2.
-1-

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 ofpasteurization. 9 In addition, Mont. Admin. R. §
32.8.203(1), as interpreted by the Board, prohibits the sale of milk in containers

4

See Doc. 88.

5

See Doc. I 02.

6

See Doc. I 02.

7

Doc. 88 at 34.

8

Doc. 88 at 34.

9

See MONT. ADMIN. R. § 32.8.202(2) (2018). A "code date" as interpreted and used by
the parties is a component of a label placed on milk cartons that provides a notice or notices
individually or in combination to the seller and to the consumer of a "sell by," a "best by," or a
"best if used by" date or dates for the product.
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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 CoreMark assumed Inland's Montana distribution in 2006. 14
3.

The single-date exemption was revoked by the Department on

January 25, 2008. 15

10

See Doc. 105 at 10-11.

11

Doc. 105 at 11.

12

Doc. I 05 at 4.

13

See Doc. 105 at 11.

14

See Doc. 150 at 11.

15

See Doc. I 05 at 11.

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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 3 0,
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 tum 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

16

See Doc. 105 at 12.

17

See Doc. 105 at 12.

18

See Doc. 105 at 13.

19

See Doc. 105 at 13.

20

See Doc. 105 at 14.

21

See Doc. 105 at 14.
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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

Discussion
"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

22

Doc. I.

23

See Doc. I 05 at 21.

24

See Doc. I 05 at 25.

25

See MONT. ADMIN. R. §§ 32.8.200-32.8.206 (2018).

26

See Doc. 105 at 19.

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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
27

Fed. R. Civ. P. 56(a).

28

See Core-Mark Int'/, Inc. v. Mont. Bd. Of Livestock, 329 P.3d 1278 (Mont. 2014).

29

Manufactured Home Cmtys. Inc. v. City ofSan Jose, 420 F.3d 1022, I 031 (9th Cir.
2005) (citing Palomar Mobile home Park Ass 'n v. City ofSan Marcos, 989 F.2d 362, 364 (9th
Cir. 1993)).
30

Belanus v.Potter, 394 P.3d 906,911 (Mont. 2017) (quoting Olympic Coast Inv., Inc. v.
Wright, 105 P.3d 743 (Mont. 2005) (citations omitted)); See also Wiser v. Mont. Bd. a/Dentistry,
251 P.3d 675,679 (Mont. 2011) ("[Rjesjudicata bars not only issues that were actually litigated,
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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

ofLivestock33 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 Plaintiffs 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

but also those that could have been litigated in a prior proceeding.") (quoting State ex rel.
Harlem Irrigation District v. Mont. Seventeenth Judicial Dist. Court, 894 P.2d 943, 946 (1995)).
31

See Wiser, 251 P.3d at 677 (Mont.2011) (citing Somani Oil Co., Inc. v. A & G Drilling,
Inc., 199 P.3d 241 (Mont. 2008)).
32

See Wiser, 251 P.3d at 677 (Mont. 2011) (citing Baltrusch v. Baltrusch, 130 PJd 1267
(Mont. 2006)).
33

329 P.3d 1278 (Mont. 2014).

34

Doc. 105-13 at 2.
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Department under Mont. Code Ann. § 2--4-315, 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.

35

Doc. 105-13 at 2; See also Core-Mark, 329 P.3d at 1282 (Mont. 2014).

36

Core-Mark, 329 P.3d at 1282.

37

Core-Mark, 329 P.3d at 1282.

38

Core-Mark, 329 P.3d at 1286 (quoting Clark Fork Coalition v. Mont. Dept. Of Envl.
Quality, 197 P.3d 482, 487 (Mont. 2008)).
-8-

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

39

Doc. 104 at 19-22.

40

Pearson v. Callahan, 555 U.S. 223,231 (2009) (quoting Harlow v. Fitzgerald, 457
U.S. 800,818 (1982) (emphasis added)).
41

Am. Fire, Theft & Collision Managers, Inc. v. Gille.1pie, 932 F.2d 816, 818 (9th Cir.
1991) (quoting Presbyterian Church (US.A.) v. United States, 870 F.2d 518,527 (9 th Cir. 1989)).
See also Hoohuli v. Ariyoshi, 741 F.2d 1169, 1176 (9th Cir. 1984).
42

While Core-Mark is seeking attorneys' fees under 42 U.S.C. § 1988, such fees are
"ancillary to a grant of prospective [injunctive] relief." Missouri v. Jenkins, 491 U.S. 274,284
(I 989).
43

U.S. CONST. amend. XI; See also Pennhurst State Sch. & Hosp. v. Halderman, 465 U.S.
89, 100-01 (1984).
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that certain government boards can constitute agencies which are "arms" of the
state and thus protected from suit.''
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 ofDisciplinary Counsel of

44

See Rounds v. Or. State Bd of Higher Educ., 166 F.3d I 032, I 035 (9th Cir. 1999)
(finding that a suit against the Oregon State Board of Higher Education is for Eleventh
Amendment purposes a suit against the state) (quoting Peters v. Lieuallen, 693 F.2d 966, 970
(9th Cir. 1982)).
45

Doc. 88.

46

Plaintiff acknowledges this in its briefing. See Doc. 109 at 13-14.

47

Doc. 105 at 15.
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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

48

471 U.S. 626 (1985).

49

See Zauderer, 471 U.S. 626.

50

Zauderer, 471 U.S. at 651.

51

Zauderer, 471 U.S. at 633.

52

Zauderer, 471 U.S. at 651.

53

See, e.g., Am. Meat Inst. v. US. Dep 't ofAgric., 760 F.3d 18, 22 (D.C. Cir. 2014)
(finding the reasoning in Zauderer "inherently applicable beyond the problem of deception, as
other circuits have found."). See also Pharm. Care Mgmt. Ass 'n v. Rowe, 429 F.3d 294, 316 n. 8
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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

(1st Cir. 2005); Nat? Elec. Mfrs. Ass'n v. Sorrell, 272 F.3d 104 (2d Cir. 2001); Disc. Tobacco
City & Lottery, Inc. v. United States, 674 F.3d 509, 556 (6th Cir. 2012).
54

The full text of Mont. Adm in. R. § 32.8.203(1) states:
32.8.203 LABELING OF MILK CONTAINERS TO SHOW THE
PASTEURIZED DA TE AND LAST DAY OF LEGAL SALE
(I) Each container into which grade A pasteurized milk is

placed for sale for public consumption must be marked with a
pasteurized date and a sell-by date.
(a) The sell-by and pasteurized date will be
displayed in Arabic numerals or standard abbreviations for
day and month, which shows the last day the milk may be
sold as required by ARM 32.8.202.
55

See Zauderer, 471 U.S. at 651.
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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."
56

Posadas de Puerto Rico Assocs. v. Tourism Co. ofPuerto Rico, 478 U.S. 328, 341

57

Doc. 104 at 12.

58

See Doc. 105 at 21.

(I 986).

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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 Plaintiff's freedom of speech under Zauderer.
The Single Date Rule

59

See Ibanez v. Florida Dept. of Bus. and Prof'! Regulation, 512 U.S. 136, 146 (I 994).

60

Pub. Citizen, Inc. v. Louisiana Attorney Disciplinary Bd, 632 F.3d 212, 228 (5th Cir.

2011).
61

See Tillman v. Miller, 133 F.3d 1402, 1404 n.4 (11th Cir. 1998).

62

Pac. Gas and Elec. Co. v. Pub. Utils. Comm 'n ofCal., 475 U.S. 1, 10 (1986).

63

Pac. Gas and Elec. Co., at 15 n. 12.
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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

64

See Cent. Hudson Gas & Elec. Corp. v. Pub. Serv. Comm 'n of New York, 447 U.S. 557,
566 (1980).
65

Edenfeldv. Fane, 507 U.S. 761,767 (1993).

66

Edenfeld, 507 U.S. at 770-71.

67

Rubin v. Coors Brewing Co., 514 U.S. 476,487 (1995).
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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 and
safety. The restriction appears solely based on concerns of"freshness." 69
The State argues that by allowing other dating on labels in addition to a
"sell-by" and a pasteurization date, milk labeling in Montana would be less
consistent, and that processors might use a variety of different terms in their
labeling which would lead to confusion among consumers. 70 However, the First
Amendment requires that the Court be "especially skeptical of regulations that
seek to keep people in the dark for what the government perceives to be their own
good." 71 "Any 'interest' in restricting the flow of accurate information because of
the perceived danger of that knowledge is anathema to the First Amendment; more
speech and a better informed citizenry are among the central goals of the Free
Speech Clause." 72
68

See Doc. 105 at 16.

69

Doc. 105 at 19.

'

0

Doc. 104 at 7-8.

71

44 Liquormart, Inc. v. Rhode Island, 517 U.S. 484, 503 (1996) (plurality opinion).

72

Rubin, 514 U.S. at 497 (Stevens, J., concurring).

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Here, the State's apparent concern is that "generations of Montanans" who
have "grown up only knowing grade A pasteurized milk cartons with a single sellby date" would find it "confusing" and "alienating" if presented with additional,
useful information about their milk. 73 However, the State has provided no
evidence that market confusion as asserted would ensue.
The State's argument is further contradicted by the fact that it previously
allowed additional dating on milk by an out-of-state processor-between 2002 and
2008. No evidence in the record suggests that particular exemption resulted in
confusion among consumers. The argument clearly does not satisfy the
"substantial governmental interest" prong required by Central Hudson. It also
suggests a low regard by state rulemakers for the ability of Montana consumers to
make informed decisions when provided with purely factual information.
The State, in addition, argues that by prohibiting the labeling of milk with
an additional label (such as a proposed code date) the State eliminates any risk that
distributors will prolong or "overstate" their use-by dates for competitive
advantage. 74 Defendants, however, again provide no evidence that such practices

73

Doc. I 04 at 11.

74

Doc. 104 at 8-9.
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would occur or have occurred in Montana or elsewhere. Nor has evidence been
provided that a longer freshness period would be undesirable for consumers.
The State directs the Court to the testimony of former Spokane Division
President Mark Huelskamp, who suggested there are "market incentives for milk
processors to use technology to increase shelflife. " 75 The fact that milk processors
have a market incentive to advance the science of pasteurization does not lead to a
conclusion that milk processors will fraudulently overstate their code dates in a
conspiracy against the public. There is simply no evidence before the Court,
beyond "mere speculation or conjecture," that the harm about which the State
expresses concern is real.
The State has failed to identify a sufficient interest in restricting labels as
required by Mont. Admin. R. § 32.8.203. It has failed to meet its burden under

Central Hudson. The Board's interpretation of Mont. Admin. R. § 32.8.203, which
prohibits further date information or code dating other than as mandated by the
rule, violates Core-Mark's freedom of commercial speech.
ORDERED:

75

Doc. I 04 at 9.
-I 8-

The pending Cross-Motions for Summary Judgment7 6 are GRANTED in
part and DENIED in part as follows:
1.

Defendants are entitled to continue to require, as a component of

grade A milk labeling in Montana, the display of printed dates that include the
date of pasteurization and the last day milk may be sold, as set out in Mont.
Admin. R. § 32.8.203 and as required by Mont. Admin. R. § 32.8.202;
2.

Defendants may not limit the labeling on grade A milk sold in

Montana to exclude additional language approved by the Board informing
consumers of a "best by" or "best if used by" date;
3.

The parties shall meet and confer and propose to the Court on or

before November 9, 2018, an agreed upon form and content of the additional
labeling to be approved by the Board to be placed on grade A cartons together
with the presently used label;
4.

If the parties fail to agree upon the form and content of the additional

labeling as specified in paragraph 3, each shall submit its suggested language for
the label to the Court on or before November 15, 2018; and

76

Docs. I 03 and I 06.

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5.

Final decision and judgment on all issues presented by the pending

motions are reserved pending further necessary and appropriate proceedings and
orders of Court.

!(;t

DATED this

L%ay of November, 2018.

~~~

~~$ADDON
United States District Judge

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