How the Supreme Court Stacked the Deck Against Economic Liberty

A federal price-fixing case highlights the judiciary's troubling deference to government regulation.

When it comes to the protection of individual rights by the U.S. Supreme Court, some rights are more equal than others. If a government regulation infringes on freedom of speech or the right to vote, for example, the Court presumes the law to be unconstitutional and forces the government to justify its actions. Lawyers call this approach strict scrutiny.

But if a government regulation infringes on economic rights, the Court takes the opposite tack, presuming the law to be constitutional and therefore requiring the regulated party to shoulder the burden of proving why the law should be struck down. This approach is known as the rational-basis test.

The key text spelling out this bifurcated system is the Supreme Court's 1938 decision in United States v. Carolene Products Co. At issue was a federal law forbidding the interstate shipment of so-called filled milk, which is basically a milk product made with oil rather than milk fat. Because filled milk looks like normal milk or cream while containing a cheaper non-dairy ingredient, the dairy industry viewed the product as a competitor and lobbied successfully for the restriction. And although the federal regulation seemed to have little to do with protecting the health or safety of the public, the Supreme Court allowed the protectionist rule to stand thanks to the generous terms of the rational-basis test.

When it comes to "regulatory legislation affecting ordinary commercial transactions," the Court declared in Carolene Products, "the existence of facts supporting the legislative judgment is to be presumed." As for non-economic rights, the Court added in the case's fourth footnote, "there may be narrower scope for operation of the presumption of constitutionality." Thus economic liberty was demoted to second-class status while certain other rights were promised future judicial protection.

The courts have followed this basic approach ever since, although a persistent question remains unanswered: While the rational-basis test is clearly designed to privilege government action, does that make it the functional equivalent of a rubber stamp?

The Supreme Court now has the opportunity to provide a clear answer. Last week the Pacific Legal Foundation, a national public interest law firm based in Sacramento, California, petitioned the Court to grant review in the case of Hettinga v. United States. At issue is a New Deal era federal price-fixing scheme for the sale of milk. Under the terms of the Agricultural Marketing Agreement Act of 1937, minimum milk prices were set for various federal marketing areas around the country. Most of the dairy industry fell under this system, though an exemption was granted for what's known as "producer-handlers," essentially dairy farmers who also bottle and distribute their own milk.

In the early 2000s, Sarah Farms, an Arizona-based producer-handler owned and operated by Dutch immigrant Hein Hettinga and his wife Ellen, became successful by selling milk for a lower price than the federally-fixed minimum. In response, the Hettingas' competitors turned to the government for help. As The Washington Post reported, "a coalition of giant milk companies and dairies, along with their congressional allies, decided to crush Hettinga's initiative. For three years, the milk lobby spent millions of dollars on lobbying and campaign contributions and made deals with lawmakers, including incoming Senate Majority Leader Harry M. Reid (D-Nev.)."

The result was the Milk Regulation Equity Act of 2005, which, among other things, imposed minimum milk pricing on all producer-handlers operating out of Arizona that distribute at least 3,000,000 pounds of fluid milk per month. Not coincidentally, Sarah Farms is the only producer-handler in the entire state that fits that description. The 2005 law also imposed new minimum price rules on all handlers selling prepackaged milk in California—a provision that also applied to just one existing business, the Arizona-based bottling facility GH Dairy, which also happens to be owned and operated by the Hettingas.

So the family brought suit in federal district court, charging that the new regulations singled their businesses out for abuse and violated their right to equal protection. In response, the federal government invoked the rational-basis test, arguing that the new law was reasonably related to the government's interest in regulating the sale of milk.

The federal district court accepted the government's claim of rational basis and dismissed the case. In April of this year, the United States Court of Appeals for the District of Columbia Circuit affirmed the lower court's ruling against the Hettingas.

The question now facing the Supreme Court is whether the lower court acted correctly by accepting the government's mere assertion of rational-basis, or whether the Hettingas are entitled to present their evidence of government malfeasance. As their petition to the Supreme Court puts its, "the rational basis test may be lenient, but a court employing that test must still allow a plaintiff the opportunity to prove his or her case."

It's a compelling argument. Indeed, the U.S. Court of Appeals for the 6th Circuit has already adopted that very position. In the 2002 case of Craigmiles v. Giles, the 6th Circuit reviewed Tennessee's requirement that anyone selling coffins in the state first obtain a funeral director's license, even if those individuals sold coffins exclusively and never once came in contact with a dead body as part of their business. In that case, the court refused to dismiss based solely on the state's assertion that it had a rational basis for the law, and instead allowed the legal challengers to present evidence to rebut Tennessee's claims. After reviewing the evidence, the 6th Circuit voided the licensing requirement. "Tennessee's justifications," the court declared, "come close to striking us with the 'force of a five-week-old, unrefrigerated dead fish.'"

The Hettingas seek the same opportunity to prove their case against a misguided government action. Indeed, the central point of the case is not to strike down an economic regulation, it's to insure that these family farmers and other entrepreneurs like them receive their day in court.

As Justice John Paul Stevens remarked in a 1992 dissent, "deference is not abdication and 'rational basis scrutiny' is still scrutiny." The Supreme Court should heed his words and take the case.