Overview
On May 11, the Supreme Court decided National Pork Producers v. Ross, No. 21-468. Although the Justices were splintered over the reasoning and disposition of the case, the 5-4 ruling upholds a California animal-welfare law that regulates the sale of pork products in California, including items produced out-of-state, based on how the pigs had been raised. With this ruling, the Supreme Court affirmed the authority of state and local governments to regulate the products sold within their borders based on the interests of that state’s residents, even when those laws have out-of-state effects. Notably, the majority opinion appears to recognize a state’s right to regulating based on ESG-focused interests. At the same time, the badly fractured opinion, split among unconventional ideological lines, also leaves open a number of significant questions, including how the Court will act in future cases involving conflicting state regulations and/or regulations challenged as having discriminatory purpose or protectionist intent.
An Affirmation of States’ Commercial Regulatory Authority and Interest in ESG
National Park Producers v. Ross centered on a California initiative, Proposition 12,[1] that forbids the sale of meat that comes from the offspring of a breeding pig that is confined in a “cruel manner.”[2] Overwhelmingly approved by California voters in 2018, Proposition 12 defines confinement as “cruel” if it prevents a pig from “lying down, standing up, fully extending [its] limbs, or turning around freely” The law also requires, among other things, that the pig have at least 24 feet of living space.[3] Under the law, every sale of covered pork in California, including meat originating out-of-state, that does not meet such standards is considered a crime punishable by a $1,000 fine or a 180-day prison sentence.[4]
The National Pork Producers Council and the American Farm Bureau Federation challenged Proposition 12 under the dormant commerce clause, which precludes states from passing laws that discriminate against that interstate commerce and the economic interests of other states. Because most of California’s pork originates in pig-producing states like North Carolina and Iowa, the pork industry claimed that Proposition 12 imposed an impermissible and excessive burden on interstate commerce by requiring out-of-state producers to meet California’s new standards if they want to keep selling there.[5] The pork producers did not argue that Proposition 12 discriminates purposefully against out-of-state economic interests, but instead asked the Court to adopt new and more aggressive constitutional restrictions on the ability of States to regulate what is sold within their borders.
Although the Supreme Court ultimately upheld Proposition 12, the Justices joining the majority were fractured on their reasoning and positions - with five different opinions. Despite the complexity of the ruling, some points of consensus offer important insights for businesses:
- Affirmation of States’ Commercial Regulatory Authority: Contrary to the pork industry’s claims, the Court held a law is not automatically unconstitutional just because it has “extraterritorial effects.”[6] Gorsuch, writing for the majority, reasoned that such an interpretation would “cast a shadow over” a broad range of existing state laws—all of which are widely regarded as constitutional—that may affect behavior outside the states that enact them.[7]
- ESG Concerns as Cognizable Benefit: The pork industry argued that under the Supreme Court’s 1970 decision in Pike v. Bruce Church, 397 U.S. 137 (1970), Proposition 12 should fall because its benefits for California residents do not outweigh the costs it imposes on out-of-state economic interests. The Justices were deeply divided on this cost-benefit analysis, with Gorsuch, Thomas, and Barrett finding that courts do not have the power to undertake such an analysis at all. Proponents of state ESG laws will likely argue this decision stands for the principle that citizens of states have a right to pass legislation based on their stated interests and that protecting these interests, including animal-welfare and morality (as demonstrated by voters) along with public health, are benefits that outweigh the costs of the regulation.
- Anticipation of ESG Concerns as Central to Forthcoming State Regulations: Justice Kavanaugh, in dissent, commented that the decision “could provide a blueprint for other States” to pass laws that advance ESG-related policy preferences in the future.[8] Justice Kavanaugh viewed this as a distinct danger—fearing states may “shutter their markets to goods produced in a way that offends their moral or policy preferences.”[9]
Open Questions from the Decision
Despite its 58 pages of analysis, the Court’s decision also is notable for what it does not say. How the impact of this decision translates into other areas, especially subject areas operating in the absence of clear federal guidance, remains to be seen.
- Discriminatory Impact: Although the five Justices in the majority ruled that Proposition 12 did not “discriminate purposefully against out-of-state economic interests,” Justice Gorsuch’s majority opinion noted that the National Pork Producers did not argue that the law had a discriminatory purpose. Accordingly, the majority did not comment on how the law would have fared against such a claim, and highlighted that antidiscrimination “lies at the core of our dormant Commerce Clause jurisprudence.”[10].
- Contradictory State Laws: Although the pork industry contended that “some out-of-state firms may face difficulty complying (or may choose not to comply) with Proposition 12,” the Court was clear in its decision that out-of-state producers have other compliance options, such as giving their pigs “the space the law requires” or designating some of their operations for sale in California, while not complying with Proposition 12 in other parts of their operations. In other words, the California law was expanding—but not contradicting—the legal requirements imposed elsewhere for the sale of pork. In their decision, however, the Supreme Court did not clarify how its analysis would have changed had California’s law directly conflicted with the regulations imposed by other states.
Along those lines, Gorsuch, writing for the majority, emphasized Congress’s “power to adopt federal legislation that may preempt conflicting state laws.”[11] He reasoned that Congress “is certainly better positioned to claim democratic support for any policy choice it may make,” implying that businesses should advocate federally for changes in state-level policy.[12]
Following this decision, clients who are interested in ensuring a unified federal standard on given issues have even more reason to express their views via democratic processes, such as participating in Congressional advocacy or submitting public comments on proposed rulemakings. Such opportunities for engagement can offer important opportunities to shape federal law.
Please do not hesitate to contact the authors of this alert for help with any issues concerning this decision or ESG-driven issues and policymaking more generally.
[1] Prop. 12, now codified at Cal.Code Regs. tit. 3, § 1320-1326 (2023).
[2] Cal. Health & Safety Code § 25991(e).
[3] Cal.Code Regs. tit. 3, § 1322.1(a)(2).
[4] Cal. Health & Safety Code § 25993(b).
[5] Nat’l Pork Prods. Council v. Ross, No. 21-468, slip op. at 4, 15 (May 11, 2023).
[6] Id. at 27 n.4. (“Today, the Court unanimously disavows petitioners’ ‘almost per se’ rule against laws with extraterritorial effects.”)
[7] Id. at 3, 13.
[8] Id. at 5.
[9] Id.
[10] Id. at 4, 15.
[11] Id. at 21.
[12] Id.
