May 1, 2018

Answering the Minerva Dairy questions at Overlawyered

By Joshua P. Thompson Senior Attorney

If you aren’t already a regular reader of Overlawyered, you should check it out. Walter Olson does a magnificent job pointing out and explaining the seen and unseen costs of our legal system. Last week I was excited to see Overlawyered link to our Minerva Dairy lawsuit.* In the days that followed, the comments section to that post has had an interesting discussion about the federal grading standards.  This comment by David C is illustrative: “If the federal government has the same or similar grading standards, doesn’t that rather weaken the argument that there is no rational basis for the standards, especially when the federal government cannot plausibly have the same supposed ulterior motivation of protecting Wisconsin?” 

It is true that the federal government also grades butter. Under the USDA, any butter maker that operates out of a USDA-approved facility may choose to have its butter graded. A butter maker may hire a USDA grader, pay her travel costs to the butter making facility, and pay her an hourly wage (minimum of $82/hr.).  If the butter maker does so — and labels the butter according to the grader’s evaluation — that butter may be sold in Wisconsin. The important distinction, however, is that the USDA does not mandate that butter be graded. Minerva Dairy is arguing that Wisconsin’s mandate that butter be graded is irrational. In other words, the Wisconsin government has no rational basis for demanding that butter be graded before it is sold in the state.

Butter grading imposes significant — indeed prohibitive — costs for artisanal butter makers like Minerva Dairy.  Minerva Dairy does operate out of a USDA-approved facility, but unlike Land O’ Lakes or other large commodity butters, artisanal butter is slow-churned in small batches. Because each small batch of artisanal butter needs to be independently graded, Minerva Dairy would either need to employ a USDA grader 24/7  or segment out its Wisconsin-bound butter, hire a grader for that segmented butter only, fly her out each time butter might end up in Wisconsin, and create new shipping, labeling, and distribution for Wisconsin-bound butter. If that doesn’t sound too onerous, read our preliminary injunction motion which goes into much more detail.**

So why would any butter maker use the USDA grading system? The stated purpose of the USDA grading standards is for marketing. Large, commodity butter makers enjoy the marketing tool.  Land O’ Lakes can say to consumers that its butter conforms to a government taste. It can market its butter as having the government-tested seal of approval. In addition, commodity butter makers can sell butter on mass to companies that need butter for mass-produced baked goods. Those companies may enjoy the assurance that comes from a company having the government taste test the butter beforehand, or they may enjoy the lower cost they can demand for down-graded butter.

Minerva Dairy, however, is a specialty product.  It tastes unique.  Some — myself included — would say it tastes better than commodity butter. And its consumers are willing to pay a little extra for that higher-quality taste. Minerva Dairy has no interest in labeling its product as if it tastes exactly like the cheap, mass-produced commodity butter that is typically graded. And in 49 states you can buy Minerva Dairy butter (and I recommend you do so). Yet when that perfectly healthful, safe, delicious butter arrives at the Wisconsin border, its state laws prevent it from being sold to consumers unless a Wisconsin (or USDA) taste tester grades and labels it accordingly.

With respect to the silly standards that Wisconsin (and the USDA) use to grade butter, we have no objection to using those standards so long as they are voluntary. If Land O’ Lakes thinks it’s helpful to have the government grade its butter and slap a “AA” grade on its butter for marketing purposes, who are we to judge that business decision? But when Wisconsin mandates that those grading standards be used before the butter is sold to Wisconsinites, it has to demonstrate that its mandate is reasonably related to a legitimate government interest. Wisconsin’s law fails both prongs of the rational basis test.

With respect to Wisconsin’s governmental interest, the state does not argue that the standards ensure that the butter is safe or healthful. It’s only argument is that the butter grades help “inform” consumers about how the butter tastes. But that is not a legitimate government interest. As we explain in our opening brief on appeal:

Informing the public of whether butter, or any otherwise safe and legal product, meets the government’s subjective aesthetic preferences, does not further the public interest. Under that rationale, the State could require clothing manufacturers to hire licensed graders to grade clothing according to the government’s “fashion” standards. It could require blanket companies to grade blankets according to a “cuddly” scale. It could require pen companies to grade their pens according to the government’s “writeability” preferences. Such tests could even be based on objective criteria: cuddliness could be based on the fabric’s material, thickness, warmth, etc. All of these tests would ostensibly “inform” consumers of something. But the substance of that information, i.e., whether the government considers a shirt to look pleasing, or a blanket to feel cuddly, or a pen to glide nicely, is valueless and capricious. It is valueless because it is subjective, and it is capricious because it is determined by mere whim of the State. The State simply doesn’t have an interest in prescribing how healthful and safe products should taste, look, or feel.

But even if you accept that the government has an interest in informing consumers about its aesthetic preferences, this mandate does nothing to further that interest. And this is where the absurdity of the the grading standards, discussed in Cato’s brief, are particularly relevant.  The government uses 32 criteria to grade butter (utensil, mealy, ragged-boring, flat, etc.). No consumer understands what these terms mean (indeed in discovery we unveiled that even the government’s experts did not understand what they mean).  Worse, even if a consumer did understand what the grading criteria mean, there is no way whatsoever to tell from a grade which criteria your butter “passes” or “fails.” Because the government must distill 32 criteria into 4 grades (“AA,” “A,” “B,” and “undergrade”), any particular butter could fail any host of criteria and still receive any of the grades. Thus, when a consumer buys an AA grade butter, they cannot plausibly have any idea whether that butter passes or fails any particular criterion.

There is no doubt that in rational basis cases like this, the government is afforded a lot of deference.  But this grading mandate furthers no legitimate government purpose, and isn’t even related to the illegitimate purpose the government ascribes to it.

Many thanks to Walter Olson and his readers for their interest in the case, and I hope this post helps clarify a few of the issues involved.

*The Cato Institute filed an amicus brief in the case, and Walter Olson is a Senior Fellow at Cato.

** When we filed this lawsuit, using a federal grader was the only method for out-of-state butter makers to comply with the Wisconsin mandate. After filing the lawsuit, Wisconsin changed its rules to allow out-of-state butter makers to use Wisconsin-licensed graders. As a result, the discussion of federal grading has largely become irrelevant to Minerva Dairy’s claims and is not discussed in the appellate brief.

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