Summary of a Recent
Judicial
Development in
Corporate Farming Laws
Iowa Packer Ban Held Unconstitutional
Kaleb K. HennighNational AgLaw Center Graduate Assistant
Summary of Decision
In Smithfield Food, Inc. v. Miller, 241 F. Supp.2d 978 (S.D. Iowa Jan.2003), the United States District Court of the Southern District of Iowa held that an Iowa law prohibiting ownership and control of swine production by swine processors placed an unconstitutional burden on interstate commerce.
Background
Smithfield Food, Inc. (Smithfield), "the world's largest pork processor and hog producer," announced on September 2, 1999 that it intended to purchase its wholly owned subsidiary Murphy Farms, LLC. (Murphy). See id. at 982. The purchase was to include substantial capital and assets located within the state of Iowa. See id. The Iowa Attorney General, Thomas J. Miller, challenged the announced purchase as a violation of Iowa Code § 9H.2, which prohibited ownership and control of swine production by swine processors. See id. Subsequent to these challenges Smithfield "modified the transaction" and Stoecker Farms, Inc. (Stoecker) was created under Iowa law as a family farm. See id. at 983. Stoecker subsequently purchased the Iowa based assets and capital from Murphy. See id..
Miller brought an action to challenge Stoecker's purchase of Murphy's Iowa based assets, claiming that the creation of Stoecker and its purchase of the Murphy assets were a "sham" and the that the transaction constituted a violation of § 9H2. See id. The court determined that the formation of Stoecker "was not a sham" and that § 9H2 had not been violated. See id. The Iowa legislature amended the statute numerous times in response to the ruling by the court. See id. at 984. The amendments "expanded the prohibition on activities by [swine] processors in Iowa . . .," and "expanded exemption[s] for Iowa cooperative associations . . ." See id. at 984. Smithfield then filed an in federal district court to challenge the constitutionality of the amended statute. See id.
Arguments
Smithfield argued that the amended statute "discriminate[d] against out-of-state- interests to the benefit of Iowa interests," and that it was a form of "economic protectionism" that violated the dormant commerce clause of the United States Constitution. Id. at 987. Miller claimed that the legislature had a "legitimate and no[n] discriminatory" intent for amending the statute, that the amended statute was not "facially discriminat[ing]," that it "applie[d] universally to all processors," and that any expanded exemptions for cooperatives was constitutional because "the unique treatment of cooperatives [was] widely recognized." Id. at 989.
Analysis and Holdings
The court concluded that the amended statute, "on its face, in its purpose, and in its effect unconstitutionally discriminat[ed] against out-of-state interests in favor of local ones," and the "economic protectionism" effect and purpose of the statute was a violation of the dormant commerce clause. Id. at 990. The court examined the amended language in the statute and comments made by legislators during the amendment process to determine that the "State amended the Act with a discriminatory purpose to achieve a discriminatory effect." Id. at 992.
The court determined that the state's reserved exemptions for Iowa cooperatives "blatantly protect[ed] the rights of Iowans to engage in conduct forbidden to out-of-state entities such as [Smithfield]," and found such attempts were a violation of the dormant commerce clause. See id. at 991. Upon finding the amended statute unconstitutional, the court declared it "null and void" and permanently enjoined enforcement of the law. See id. at 994.
The case was decided on January 22, 2003; this summary was posted Oct. 25, 2004.