Rocky Mountain Farmers Union v. Richard W. Corey

FOR PUBLICATION

UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT

ROCKY MOUNTAIN FARMERS UNION; No. 12-15131
REDWOOD COUNTY MINNESOTA
CORN AND SOYBEAN GROWERS; D.C. Nos.
PENNY NEWMAN GRAIN, INC.; REX 1:09-cv-02234-
NEDEREND; FRESNO COUNTY FARM LJO-GSA
BUREAU; NISEI FARMERS LEAGUE; 1:10-cv-00163-
CALIFORNIA DAIRY CAMPAIGN; LJO-DLB
GROWTH ENERGY; RENEWABLE
FUELS ASSOCIATION; AMERICAN
FUEL & PETROCHEMICAL
MANUFACTURERS ASSOCIATION,
FKA National Petrochemical &
Refiners Association; AMERICAN
TRUCKINGS ASSOCIATIONS; CENTER
FOR NORTH AMERICAN ENERGY
SECURITY; THE CONSUMER ENERGY
ALLIANCE,
Plaintiffs-Appellees,

v.

RICHARD W. COREY, in his official
capacity as Executive Officer of the
California Air Resources Board;
MARY D. NICHOLS; DANIEL
SPERLING; KEN YEAGER; DORENE
D’ADAMO; BARBARA RIORDAN;
JOHN R. BALMES; LYDIA H.
KENNARD; SANDRA BERG; RON
2 ROCKY MOUNTAIN FARMERS UNION V. COREY

ROBERTS; JOHN G. TELLES, in his
official capacity as member of the
California Air Resources Board;
RONALD O. LOVERIDGE, in his
official capacity as member of the
California Air Resources Board;
EDMUND G. BROWN, JR., in his
official capacity as Governor of the
State of California; KAMALA D.
HARRIS, Attorney General, in her
official capacity as Attorney General
of the State of California,
Defendants-Appellants,

ENVIRONMENTAL DEFENSE FUND;
NATURAL RESOURCES DEFENSE
COUNCIL; SIERRA CLUB;
CONSERVATION LAW FOUNDATION,
Intervenor-Defendants-Appellants.

ROCKY MOUNTAIN FARMERS UNION; No. 12-15135
REDWOOD COUNTY MINNESOTA
CORN AND SOYBEAN GROWERS; D.C. Nos.
PENNY NEWMAN GRAIN, INC.; REX 1:09-cv-02234-
NEDEREND; FRESNO COUNTY FARM LJO-GSA
BUREAU; NISEI FARMERS LEAGUE; 1:10-cv-00163-
CALIFORNIA DAIRY CAMPAIGN; LJO-DLB
GROWTH ENERGY; RENEWABLE
FUELS ASSOCIATION; AMERICAN
FUEL & PETROCHEMICAL ORDER
MANUFACTURERS ASSOCIATION,
FKA National Petrochemical &
 ROCKY MOUNTAIN FARMERS UNION V. COREY 3

Refiners Association; AMERICAN
TRUCKINGS ASSOCIATIONS; CENTER
FOR NORTH AMERICAN ENERGY
SECURITY; THE CONSUMER ENERGY
ALLIANCE,
Plaintiffs-Appellees,

v.

RICHARD W. COREY, in his official
capacity as Executive Officer of the
California Air Resources Board;
MARY D. NICHOLS; DANIEL
SPERLING; KEN YEAGER; DORENE
D’ADAMO; BARBARA RIORDAN;
JOHN R. BALMES; LYDIA H.
KENNARD; SANDRA BERG; RON
ROBERTS; JOHN G. TELLES, in his
official capacity as member of the
California Air Resources Board;
RONALD O. LOVERIDGE, in his
official capacity as member of the
California Air Resources Board;
EDMUND G. BROWN, JR., in his
official capacity as Governor of the
State of California; KAMALA D.
HARRIS, Attorney General, in her
official capacity as Attorney General
of the State of California,
Defendants-Appellants,

ENVIRONMENTAL DEFENSE FUND;
NATURAL RESOURCES DEFENSE
4 ROCKY MOUNTAIN FARMERS UNION V. COREY

COUNCIL; SIERRA CLUB;
CONSERVATION LAW FOUNDATION,
Intervenor-Defendants-Appellants.

Filed January 22, 2014

Before: Dorothy W. Nelson, Ronald M. Gould,
and Mary H. Murguia, Circuit Judges.

Order;
Concurrence by Judge Gould;
Dissent by Judge Milan D. Smith, Jr.

SUMMARY*

Fuel Standards/Commerce Clause

The panel denied the petitions for rehearing en banc on
behalf of the court in a case alleging that California’s Low
Carbon Fuel Standard, Cal. Code Regs. tit. 17, §§ 95480–90
(2011), violated the dormant Commerce Clause and was
preempted by Section 211(o) of the Clean Air Act, 42 U.S.C.
§ 7545(o).

In the opinion, the panel held that the Fuel Standard’s
ethanol provisions were not facially discriminatory, and
reversed that portion of the district court’s decision. The

*
This summary constitutes no part of the opinion of the court. It has
been prepared by court staff for the convenience of the reader.
 ROCKY MOUNTAIN FARMERS UNION V. COREY 5

panel also reversed the district court’s decision that the Fuel
Standard was an impermissible extraterritorial regulation.
The panel affirmed the district court’s conclusion that the
Fuel Standard’s crude oil provisions were not facially
discriminatory, but reversed the district court’s holding that
the provisions were discriminatory in purpose and effect. The
panel affirmed the district court’s conclusion that Section
211(c)(4)(b) of the Clean Air Act did not insulate California
from scrutiny under the dormant Commerce Clause. Judge
Murguia concurred in part and dissented from the majority’s
conclusion that the ethanol regulations did not facially
discriminate against interstate commerce.

Concurring in the denial of rehearing en banc, Judge
Gould stated that in his view the opinion and partial dissent
fairly presented the key issues in this appeal, and the denial
order should be read with the majority opinion’s reasoning in
mind. He wrote to offer supplemental observations that
responded to the views of the judges who dissented from the
denial of rehearing en banc.

Dissenting from the denial of rehearing en banc, Judge M.
Smith, joined by Judges O’Scannlain, Callahan, Bea, Ikuta
and N.R. Smith, and joined by Judge Murguia as to Part III,
stated that in upholding California’s ethanol regulations, the
majority disregarded longstanding dormant Commerce
Clause doctrine, and placed the law of this circuit squarely at
odds with Supreme Court precedent.
6 ROCKY MOUNTAIN FARMERS UNION V. COREY

ORDER

The full court was advised of the petitions for rehearing
en banc. A judge requested a vote on whether to rehear the
matter en banc, and the matter failed to receive a majority of
the votes of the nonrecused active judges in favor of en banc
consideration. Fed. R. App. P. 35.

The petitions for rehearing en banc are DENIED.

GOULD, Circuit Judge, concurring in the denial of rehearing
en banc:

I respectfully file this separate concurrence in the denial
order. In my view, the opinion and partial dissent fairly
present the key issues in this appeal, and the denial order
should be read with the majority opinion’s reasoning in mind.
But in light of the views of my dissenting colleagues, I offer
supplemental observations.

First, the dissent is riddled with overstatements. For
example, it claims that California’s Low Carbon Fuel
Standard (“LCFS”)—and the ethanol provisions contained
therein—explicitly discriminates against other states and is a
“protectionist regulatory scheme that threatens to Balkanize
our national economy.” Dissent at 14. Not only is this mere
alarmist rhetoric, it also does not fit the reality of the
California legislation. Moreover, although the dissent
trumpets that nine states seek rehearing, the converse is that
41 do not. And some states, like Washington and Oregon,
have already joined California in its endeavor to combat
global warming by reducing greenhouse gas emissions from
 ROCKY MOUNTAIN FARMERS UNION V. COREY 7

fuels. Finally, the dissent characterizes the LCFS as an
extraterritorial regulation, and argues that the majority’s
position to the contrary contravenes Supreme Court
precedent. This is an incorrect view of the law: California is
free to regulate commerce within its borders even if it has an
ancillary goal of influencing the choices of actors in other
states. See Pharm. Research & Mfrs. of Am. v. Walsh,
538 U.S. 644, 669 (2003).

Second, the dissent is written as if the majority opinion
conclusively determined that the LCFS was above
constitutional reproach. It begins, for example, by accusing
the majority of “upholding California’s ethanol regulations.”
Dissent at 14. It later repeats this charge. See Dissent at 19.
We did no such thing. Believing that findings of fact and
more proceedings in the district court were needed to
determine the LCFS’s constitutionality, we remanded. All we
did, in other words, was to reject the argument that the
LCFS’s ethanol provisions facially discriminate against out-
of-state commerce. Our remand advises the district court to
determine “whether the Fuel Standard’s ethanol provisions
discriminate in purpose or in practical effect.” Rocky Mtn.
Farmers Union v. Corey, 730 F.3d 1070, 1078 (9th Cir.
2013). And we instructed the district court to apply strict
scrutiny to those provisions if it found that they did
discriminate, or to apply the balancing test set forth in Pike v.
Bruce Church, Inc., 397 U.S. 137 (1970), if it found that they
did not. Rocky Mtn. Farmers Union, 730 F.3d at 1078. The
dissent acknowledges our remand, but it rhetorically argues
that the remand has a “predestined” outcome, Dissent at 17,
because of our statement that the LCFS incorporates state
boundaries for “good and non-discriminatory” reasons, Rocky
Mtn. Farmers Union, 730 F.3d at 1107. There is a simple
response to this critique, which has no legal merit: We
8 ROCKY MOUNTAIN FARMERS UNION V. COREY

reviewed this case at the summary judgment stage. As such,
we had to take as true all facts presented by California and
reasonable inferences therefrom. Our statement, then, about
good and non-discriminatory reasons for incorporating state
boundaries into the LCFS methodology is based on evidence
that had to be credited at the summary judgment stage. It will
not control what the district court decides on remand as it
considers the LCFS’s purpose and effect and makes factual
findings on disputed evidence.

Similarly, the dissent asserts that our opinion “nullifies”
constitutional limitations on states’ ability to legislate in ways
that affect other states. Dissent at 15. I disagree. If the
LCFS in purpose or practical effect discriminates against
interstate commerce, such limitations still exist in the form of
strict scrutiny. And even if it does not discriminate, the Pike
balancing test imposes its own limitations on states’ ability to
legislate in this arena.1

Third, the dissent argues that the LCFS’s ethanol
provisions facially discriminate against out-of-state
commerce by drawing lines based on state borders, and that
strict scrutiny therefore applies to invalidate the law. I
disagree. For the reasons stated in the majority opinion, I
believe that California made its geographic distinctions based
on the carbon impact and intensity of various fuels, not on
their state-of-origin. True, the LCFS does attribute different

1
The dissent’s insistence that strict scrutiny should be applied to the
regulatory provisions here, absent a finding of discriminatory purpose or
effect, is a type of “archaic formalism” that should not be encouraged by
the Supreme Court. Rocky Mtn. Farmers Union, 730 F.3d at 1107. In my
view, the Supreme Court has not applied strict scrutiny to provisions like
those in the LCFS based on a theory of facial discrimination.
 ROCKY MOUNTAIN FARMERS UNION V. COREY 9

carbon intensity values to fuels from different geographic
areas. CAL. CODE REGS. tit. 17, § 95486(b). But the dissent’s
argument that it is “clear that the challenged regulations
discriminate against interstate commerce” is wide of the
mark. Dissent at 21. A legislative geographic distinction is
not facially discriminatory merely because it affects in-state
and out-of-state interests unequally. Rather, as long as there
is “some reason, apart from their origin, to treat them
differently,” California may distinguish between Midwestern,
Brazilian, and California ethanols. Philadelphia v. New
Jersey, 437 U.S. 617, 627 (1978). The dissent disregards this
principle. To the extent that California treats fuels based on
their location, it does so for non-discriminatory reasons; if
Midwestern ethanol is more carbon-intensive than its
California counterpart, that is so not because of its origin but
rather because of its method of production and other objective
factors, including transportation-related emissions.

Further, the pathways set forth in the LCFS—and
reproduced at the end of the majority opinion in Appendix
One—are not immutable legislative classifications. They are
default pathways, and while they may be relied upon by
producers, they may also be supplanted if a producer creates
an individualized pathway by supplying its own data about
the carbon emission impact of its product. This allows
ethanol producers in California and elsewhere some control
over the carbon intensity value assigned to their fuels. And
it shows that the dissent’s position that the LCFS facially
discriminates is incorrect. The LCFS’s ethanol provisions are
based on an objective fact, carbon emissions, not on the
constitutionally impermissible goal of benefitting local
companies at the expense of foreign ones. Such a system
does not warrant strict scrutiny.
10 ROCKY MOUNTAIN FARMERS UNION V. COREY

The dissent notes that “the Fuel Standard expressly
assigns a higher carbon intensity to Midwestern ethanol.”
Dissent at 21. In fact, however, the lowest carbon intensity
values yet—supplied by producers who went outside the
default pathways to provide their own data—are from
Midwestern and Brazilian ethanol producers. See CAL. CODE
REGS. tit. 17, § 95486(b)(1); Rocky Mtn. Farmers Union,
730 F.3d at 1084. This is so largely because the LCFS takes
into account carbon emissions from transportation, and most
California ethanol producers import corn from the Midwest
to make their product, whereas Midwestern ethanol
producers, who have corn close by, avoid those transportation
emissions. The geographic distinctions made by California,
then, are not classifications based on state boundaries per se;
rather, they are classifications based on the carbon impact of
fuels as calculated under a rubric that considers
transportation-related emissions. That does not warrant strict
scrutiny unless the district court concludes that the LCFS
discriminates against out-of-state commerce in purpose or
practical effect. That is why we remanded with instructions
to consider such purpose and effect.

Fourth, the tone and substance of the dissent is perhaps
aimed at encouraging Supreme Court review. A petition for
writ of certiorari from the parties who sought rehearing is
likely forthcoming, but our court properly declines to give its
judicial imprimatur to the dissent’s position. Because
Supreme Court review is possible, however, I set forth my
own views on that prospect. On the one hand, the Supreme
Court’s considered judgment could be helpful to clarify as
soon as practical what states may do of their own accord to
deter or slow global warming. The Supreme Court, if it
wants to do so at this time, can set constitutional limits,
binding in all circuits, as to what the individual states in our
 ROCKY MOUNTAIN FARMERS UNION V. COREY 11

Union may do to combat global warming. The Supreme
Court also can give meaning to, or limit, the general principle
that state experimentation is often a desirable predicate to
actions by other states or the federal government. On the
other hand, the record in this case is incomplete and thus
unsuitable for understanding the full scope of the issues
presented. The panel remanded for findings on
discriminatory purpose or effect which, if it exists, would
invoke strict scrutiny. And, if not, the majority required on
remand that the district court engage in Pike balancing,
weighing the LCFS’s benefits against its impact on interstate
competition. The issues raised by the dissent, then, may be
rendered moot by the district court’s decision, and in any
event there will be a more complete record, including
findings on purpose and effect, on which to make a ruling
about the controlling legal principles.

Fifth, the dissent contends that California admits its
scheme will, by itself, have little effect in averting
environmental catastrophe. Dissent at 22. This argument
ignores not only the principle that incremental change, when
aggregated, can be significant, but also the possibility that
successful experimentation by California could lead to
broader action by other states and/or the federal government.
The Supreme Court has reminded us that it is “erroneous” to
assume that “a small, incremental step, because it is
incremental” is legally—or truly—insignificant.
Massachusetts v. EPA, 549 U.S. 497, 524 (2007). Just as a
journey of 1,000 miles begins with a single step, so too must
legislative action to fight global warming start somewhere.
Further, once other states appreciate the benefits of the LCFS,
there may be a cascade of similar laws throughout the
country—and perhaps federal action—aimed at stemming the
tide of global warming. Indeed, proposed legislation in
12 ROCKY MOUNTAIN FARMERS UNION V. COREY

Oregon and Washington is an example of this. See Rocky
Mtn. Farmers Union, 730 F.3d at 1104 n.14; Michael Wines,
Climate Pact Is Signed by 3 States and Partner, N.Y. TIMES,
Oct. 30, 2013, at A18 (noting an agreement between
California, Oregon, and Washington, as well as British
Columbia, to “raise the cost of greenhouse gas pollution,
promote zero-emission vehicles and push for the use of
cleaner-burning fuels in transportation” as part of a “broad
alliance to combat climate change”).

Meanwhile, global temperatures are increasing, storms are
intensifying, polar ice caps are melting, and seas are rising.
If California’s experiment with the LCFS is to succeed in
inducing increased production of alternative fuels and/or
decreased carbon impact of existing fuels, the sooner it can
proceed, the better; it could take years, or decades, for other
states to recognize the benefits of the LCFS, to react to it, and
to engage in similar experiments themselves. Justice
Brandeis recognized the importance of this sort of state
experimentation in his now-famous dissent in New State Ice
Co. v. Liebmann, when he wrote: “It is one of the happy
incidents of the federal system that a single courageous state
may, if its citizens choose, serve as a laboratory; and try
novel social and economic experiments without risk to the
rest of the country.” 285 U.S. 262, 311 (1932) (Brandeis, J.,
dissenting). This is what California has done with the LCFS.
The benefits that may flow from such cooperative state action
do not, as the dissent urges, threaten to “Balkanize our
national economy.” Dissent at 14. Rather, the development
of alternative fuels and a market system regulating carbon
emissions would likely benefit the national economy.

Sixth, the dissent’s argument that California’s “economic
clout” means that the “practical effect” of the LCFS is to
 ROCKY MOUNTAIN FARMERS UNION V. COREY 13

regulate commerce beyond California’s borders misstates the
law. Dissent at 24. In fact, Supreme Court precedent points
in a contrary direction. See, e.g., Walsh, 538 U.S. at 669
(refusing to apply the extraterritoriality doctrine to a law that
“does not regulate the price of any out-of-state transaction,
either by its express terms or by its inevitable effect” (internal
quotation marks omitted)). While a state may not mandate
compliance with its preferred policies in wholly out-of-state
transactions, it may regulate commerce within its boundaries
even if one of its goals is to influence the out-of-state choices
of market participants. See id. This is what California
permissibly has done with the LCFS.2

A majority of active judges on our court wisely refused to
grant en banc consideration in this case. I concur in the order
denying rehearing en banc.

2
If the dissent’s position were adopted, it would spell the end of much
beneficent state legislation. Let us assume, for example, that a safety-
conscious state regulates automobiles, preventing them from being sold
in that state absent certain safety protections like airbags or a performance
standard requiring a minimum survival rate from a crash at 40 miles per
hour. The dissent apparently would say that the safety-conscious state is
regulating extraterritorially because its restrictions provide incentives to
automakers in other states to make their cars safer if they wish to sell them
in the safety-conscious state. I respectfully disagree. The Supreme Court
has not said anything to that effect, and, as explained above, its precedent
points in the opposite direction.
14 ROCKY MOUNTAIN FARMERS UNION V. COREY

M. SMITH, Circuit Judge, with whom O’SCANNLAIN,
CALLAHAN, BEA, IKUTA, and N.R. SMITH, Circuit
Judges, join, and with whom MURGUIA, Circuit Judge, joins
as to Part III, dissenting from the denial of rehearing en banc:

In upholding California’s ethanol regulations, the 2-1
majority in this case finds at least facially constitutional a
protectionist regulatory scheme that threatens to Balkanize
our national economy. In so doing, the majority disregards
longstanding dormant Commerce Clause doctrine, and places
the law of this circuit squarely at odds with Supreme Court
precedent.

The deleterious effects of California’s scheme on our
national economic union are not speculative. The states of
Nebraska, Illinois, Iowa, Kansas, Michigan, Missouri, North
Dakota, Ohio, and South Dakota (which are major producers
of corn and ethanol) filed an amicus brief in support of en
banc rehearing.1 They argue that California’s ethanol
regulations “impinge[] on the sovereign interests of the Amici
States to regulate farming, ethanol production, and other
activities within their own borders as they see fit.” These
states further observe that California’s regulations “close[]
the California border to ethanol produced in Amici States in
favor of chemically-identical ethanol produced within
California . . . .” These are the very types of concerns that
generated the Supreme Court’s dormant Commerce Clause
case law, and the panel majority ignores them.

1
In his concurrence in the denial of rehearing en banc, Judge Gould
notes that 41 states did not join in the amicus brief seeking en banc
rehearing. This should be no surprise since one of those states is
California, which promulgated the offending regulations, and most of the
other states are not major corn or ethanol producers.
 ROCKY MOUNTAIN FARMERS UNION V. COREY 15

Our federal system grants states substantial discretion to
remedy perceived local problems. But the Constitution
sharply constrains their power to do so at the expense of other
states. Because the majority opinion nullifies any such
limitations, I respectfully dissent from our failure to rehear
this case en banc.

I.

In the Global Warming Solutions Act of 2006, California
pledged to reduce its greenhouse gas emissions to 1990 levels
by the year 2020. To implement this goal, the California Air
Resources Board (CARB) promulgated the Low Carbon Fuel
Standard (Fuel Standard). The Fuel Standard requires
businesses that sell transportation fuels in California to
reduce the “carbon intensity” of their fuels by ten percent
before 2020. As CARB describes it, “[c]arbon intensity is not
an inherent chemical property of a fuel, but rather it is
reflective of the process in making, distributing, and using
that fuel.”

The Fuel Standard explicitly treats in-state and out-of-
state ethanol differently in calculating carbon intensity.2
Indeed, a fuel’s carbon intensity depends in part on the
location where it is produced. All else equal, the regulations
always assign a higher carbon intensity to Midwestern
ethanol than ethanol from California. As such, CARB
predicts that the Fuel Standard will soon eliminate
Midwestern ethanol from the California market. Further, the
regulations sweep beyond the borders of California. Because

2
For the sake of brevity, I focus on the majority’s endorsement of
California’s ethanol regulations. But the panel’s approval of California’s
sweeping crude oil regulations also merited en banc review.
16 ROCKY MOUNTAIN FARMERS UNION V. COREY

a fuel’s carbon intensity depends largely on out-of-state
production and land use decisions, California’s scheme
necessarily affects those processes.

On December 23, 2009, and February 2, 2010, Plaintiffs-
Appellees filed suit in the United States District Court for the
Eastern District of California, contending that California’s
regulations violate the dormant Commerce Clause.
Specifically, two groups of Plaintiffs led by the Rocky
Mountain Farmers Union (Rocky Mountain) and the
American Fuels & Petrochemical Manufacturers Association
challenged the Fuel Standard’s ethanol regulations. On
December 29, 2011, the district court agreed that the ethanol
regulations violate the dormant Commerce Clause, awarded
summary judgment on that basis, and granted Rocky
Mountain’s motion for a preliminary injunction.

On September 18, 2013, a divided panel of our court
reversed and remanded in principal part. According to the
majority, the Fuel Standard’s ethanol regulations do not
facially discriminate against interstate commerce because
California has “good and non-discriminatory reason[s]” for
treating out-of-state ethanol differently. Rocky Mountain
Farmers Union v. Corey, 730 F.3d 1070, 1107 (9th Cir.
2013). The majority further concluded that the regulations do
not have extraterritorial reach because they merely provide
incentives to out-of-state firms. The majority therefore
reversed the judgment of the district court in relevant part,
vacated the preliminary injunction, and remanded to the
district court for consideration of whether the ethanol
regulations “discriminate in purpose or in practical effect.”
Id. at 1078. The panel instructed the district court to apply
strict scrutiny if it finds that they do, and to apply the
balancing test established in Pike v. Bruce Church, Inc.,
 ROCKY MOUNTAIN FARMERS UNION V. COREY 17

397 U.S. 137 (1970), if it determines that they do not. Rocky
Mountain Farmers Union, 730 F.3d at 1078. However, the
majority made clear that the outcome of this analysis is
predestined, instructing the district court that the regulations
“incorporate state boundaries for good and non-
discriminatory reason[s].” Id. at 1107.

Judge Murguia concurred in part and dissented in part.
While she agreed with the majority in some respects, she
disagreed regarding the ethanol regulations. Judge Murguia
determined that the ethanol regulations were facially
discriminatory, and she concluded that they failed to
withstand strict scrutiny because California could attempt to
mitigate climate change through non-discriminatory means.

II.

In the name of combating “a new type of harm,” the
majority rejects longstanding dormant Commerce Clause
precedent as mere “archaic formalism.” Rocky Mountain
Farmers Union, 730 F.3d at 1107. I therefore begin with a
brief survey of the doctrine, and its critical place in our
constitutional order.

“During the first years of our history as an independent
confederation, the National Government lacked the power to
regulate commerce among the States,” and “each State was
free to adopt measures fostering its own local interests
without regard to possible prejudice to nonresidents . . . .”
Camps Newfound/Owatonna, Inc. v. Town of Harrison, Me.,
520 U.S. 564, 571 (1997). This “conflict of commercial
regulations, destructive to the harmony of the States . . . . was
the immediate cause that led to the forming of a
[constitutional] convention.” Id. (quoting Gibbons v. Ogden,
18 ROCKY MOUNTAIN FARMERS UNION V. COREY

22 U.S. (9 Wheat.) 1, 224 (1824) (Johnson, J., concurring in
the judgment)). Thus, as Justice Cardozo observed long ago,
the Constitution “was framed upon the theory that the peoples
of the several states must sink or swim together, and that in
the long run prosperity and salvation are in union and not
division.” Baldwin v. G.A.F. Seelig, Inc., 294 U.S. 511, 523
(1935).

To implement the Constitution’s objective of national
economic unity, the Supreme Court “has consistently held
that the Constitution’s express grant to Congress of the power
to ‘regulate Commerce . . . among the several States,’ Art. I,
§ 8, cl. 3, contains ‘a further, negative command, known as
the dormant Commerce Clause . . . .’” Am. Trucking Ass’ns
v. Mich. Pub. Serv. Comm’n, 545 U.S. 429, 433 (2005)
(quoting Okla. Tax Comm’n v. Jefferson Lines, Inc., 514 U.S.
175, 179 (1995)).3 The dormant Commerce Clause promotes
economic integration by “significantly limit[ing] the ability
of States and localities to regulate or otherwise burden the
flow of interstate commerce.” McBurney v. Young, 133 S. Ct.
1709, 1719 (2013) (quoting Maine v. Taylor, 477 U.S. 131,
151 (1986)). “It is driven by a concern about ‘economic
protectionism—that is, regulatory measures designed to
benefit in-state economic interests by burdening out-of-state

3
“The ‘negative’ aspect of the Commerce Clause was considered the
more important by the ‘father of the Constitution,’ James Madison. In one
of his letters, Madison wrote that the Commerce Clause ‘grew out of the
abuse of the power by the importing States in taxing the non-importing,
and was intended as a negative and preventive provision against injustice
among the States themselves, rather than as a power to be used for the
positive purposes of the General Government.’” W. Lynn Creamery, Inc.
v. Healy, 512 U.S. 186, 193 n.9 (1994) (quoting 3 M. Farrand, Records of
the Federal Convention of 1787, at 478 (1911)).
 ROCKY MOUNTAIN FARMERS UNION V. COREY 19

competitors.’” McBurney, 133 S. Ct. at 1719 (quoting New
Energy Co. of Ind. v. Limbach, 486 U.S. 269, 273–74 (1988)).

In upholding California’s sweeping and discriminatory
ethanol regulations, the majority brushes aside two
foundational tenets of dormant Commerce Clause
jurisprudence. First, the majority gives short shrift to the
principle that “[s]tate laws that discriminate against interstate
commerce face ‘a virtually per se rule of invalidity.’”
Granholm v. Heald, 544 U.S. 460, 476 (2005) (quoting
Philadelphia v. New Jersey, 437 U.S. 617, 624 (1978)).
Second, the majority abjures the rule that “a state law that has
the ‘practical effect’ of regulating commerce occurring
wholly outside that State’s borders is invalid . . . .” Healy v.
Beer Inst., 491 U.S. 324, 332 (1989).

Until recently, our circuit faithfully applied these
doctrines, striking down parochial state laws that burdened
interstate commerce. See, e.g., Birth Hope Adoption Agency,
Inc. v. Ariz. Health Care Cost Containment Sys., 218 F.3d
1040, 1044–45 (9th Cir. 2000); NCAA v. Miller, 10 F.3d 633,
640 (9th Cir. 1993); BFI Med. Waste Sys. v. Whatcom Cnty.,
983 F.2d 911, 913 (9th Cir. 1993). The majority opinion
represents a dramatic and unwarranted change of course.

III.

The majority’s most basic, and perhaps most
consequential, error is its contention that California’s
regulatory scheme does not facially discriminate against out-
of-state commerce. The majority concludes, in essence, that
the regulations are not discriminatory on their face because
California has “some reason, apart from [its] origin, to treat
[out-of-state ethanol] differently.” Rocky Mountain Farmers
20 ROCKY MOUNTAIN FARMERS UNION V. COREY

Union, 730 F.3d at 1089 (quoting Philadelphia, 437 U.S. at
627). As Judge Murguia observes in dissent, however, this
reasoning “puts the cart before the horse,” and is therefore
“inconsistent with Supreme Court precedent.” Rocky
Mountain Farmers Union, 730 F.3d at 1108 (Murguia, J.,
concurring in part and dissenting in part).

Contrary to the majority’s analytical framework,
“[d]etermining whether a regulation facially discriminates
against interstate commerce begins and ends with the
regulation’s plain language.” Id. Under the dormant
Commerce Clause, “‘discrimination’ simply means
differential treatment of in-state and out-of-state economic
interests that benefits the former and burdens the latter.” Or.
Waste Sys., Inc. v. Dep’t of Envtl. Quality, 511 U.S. 93, 99
(1994). “[T]he purpose of, or justification for, a law has no
bearing on whether it is facially discriminatory.” Id. at 100
(citing Chem. Waste Mgmt., Inc. v. Hunt, 504 U.S. 334,
340–41 (1992)).

Further, the language from Philadelphia, 437 U.S. at 627,
on which the majority relies has nothing to do with
determining whether a regulation facially discriminates
against interstate commerce. Rather, it merely shows that
some discriminatory regulations may ultimately survive strict
scrutiny. See United Haulers Ass’n v. Oneida-Herkimer Solid
Waste Mgmt. Auth., 550 U.S. 330, 366 (2007) (Alito, J.,
dissenting) (citing quoted passage from Philadelphia as
example of applying strict scrutiny). Thus, whether
California has good reasons for penalizing Midwestern
ethanol simply has nothing to do with whether the state’s
regulations are facially discriminatory.
 ROCKY MOUNTAIN FARMERS UNION V. COREY 21

It is clear that the challenged regulations discriminate
against interstate commerce. Most blatantly, the Fuel
Standard expressly assigns a higher carbon intensity to
Midwestern ethanol, based in part on the greenhouse gas
emissions arising from its transportation to California.
Ethanol produced in-state faces no such penalty. As Judge
Murguia notes, the regulatory scheme therefore
“differentiates between in-state and out-of-state ethanol,
according more preferential treatment to the former at the
expense of the latter.” Rocky Mountain Farmers Union,
730 F.3d at 1108 (Murguia, J., concurring in part and
dissenting in part). Because ethanol from Midwestern states
faces a regulatory burden that chemically identical in-state
ethanol does not, California’s regime is facially
discriminatory. See Or. Waste, 511 U.S. at 99–100. In
concluding otherwise, the majority contravenes black letter
law and renders our dormant Commerce Clause jurisprudence
incoherent.

IV.

The majority compounds its error by concluding that
legitimate local concerns support California’s regulation of
the interstate ethanol market. Because the regulations are
facially discriminatory, any justifications for them must “pass
the ‘strictest scrutiny.’” Id. at 101 (quoting Hughes v.
Oklahoma, 441 U.S. 322, 337 (1979)). To withstand this
searching review, “the statute must serve a legitimate local
purpose, and the purpose must be one that cannot be served
as well by available nondiscriminatory means.” Maine,
477 U.S. at 140. “This is an extremely difficult burden, ‘so
heavy that facial discrimination by itself may be a fatal
defect.’” Camps Newfound, 520 U.S. at 582 (quoting Or.
Waste, 511 U.S. at 101)).
22 ROCKY MOUNTAIN FARMERS UNION V. COREY

California fails to carry its heavy burden. According to
the majority, “[i]f [greenhouse gas] emissions continue to
increase, California may see its coastline crumble under
rising seas, its labor force imperiled by rising temperatures,
and its farms devastated by severe droughts.” Rocky
Mountain Farmers Union, 730 F.3d at 1097. When viewed
against this backdrop, California’s regulatory justifications
appear weighty indeed. But the majority overlooks a critical
fact—the Fuel Standard will not remedy the problem. To the
contrary, CARB acknowledges that “[greenhouse gas]
emission reductions by the [Fuel Standard] alone will not
result in significant climate change.” In other words,
California admits that its scheme will have little to no effect
in averting the environmental catastrophe envisioned by the
majority. This concession alone shows that the regulations
fail strict scrutiny.4

And the defects in California’s ethanol regime go well
beyond its ineffectiveness. While the regulations may not
slow climate change, they will assuredly promote California’s
energy industry at the expense of out-of-state competitors.
CARB acknowledges that the Fuel Standard will “reduc[e]
the volume of transportation fuels that are imported from
other states . . . .” As such, CARB expects that the
regulations will “keep[] more money in the State,” and that
they “will provide needed employment, [and] an increased
tax base for the State . . . .” In short, CARB admits that it

4
As Judge Murguia observes in dissent, the ethanol regulations also fail
strict scrutiny because California could endeavor to reduce greenhouse gas
emissions through non-discriminatory means. California could, for
instance, “treat[] ethanol produced in efficient plants more favorably than
ethanol from inefficient plants . . . .” Rocky Mountain Farmers Union,
730 F.3d at 1109 (Murguia, J., concurring in part and dissenting in part).
 ROCKY MOUNTAIN FARMERS UNION V. COREY 23

purposefully “developed the [Fuel Standard] in a manner that
minimizes costs and maximizes the total benefits to
California.”

Of course, states may pass legislation that benefits local
industry. But, “in all but the narrowest circumstances,” they
may not do so at the expense of other states. Granholm,
544 U.S. at 472. In concluding that California’s ethanol
regulations are facially neutral in spite of their overt and
unjustified discrimination against interstate commerce, the
majority departs from settled law and cuts this circuit’s
dormant Commerce Clause jurisprudence loose from its
moorings.

V.

California’s ethanol regulations suffer from another
constitutional defect: they seek to control conduct in other
states. The Supreme Court has clearly and consistently
instructed that “a state law that has the ‘practical effect’ of
regulating commerce occurring wholly outside that State’s
borders is invalid . . . .” Healy, 491 U.S. at 332; see also
Baldwin, 294 U.S. at 521–22. And the ethanol regulations
plainly have extraterritorial reach, as they seek to influence
out-of-state land use decisions and production methods. In
concluding otherwise, the majority disregards controlling
precedent and departs from the holdings of the Supreme
Court and our sister circuits. More fundamentally, the
majority approves a regime that threatens the very sort of
“economic Balkanization that had plagued relations among
the Colonies and later among the States under the Articles of
Confederation.” Granholm, 544 U.S. at 472 (quoting
Hughes, 441 U.S. at 325–26)).
24 ROCKY MOUNTAIN FARMERS UNION V. COREY

The rule that one state “has no power to project its
legislation into” another state, Baldwin, 294 U.S. at 521, is
fundamental to our federal system. It embodies “the
Constitution’s special concern both with the maintenance of
a national economic union unfettered by state-imposed
limitations on interstate commerce and with the autonomy of
the individual States within their respective spheres.” Healy,
491 U.S. at 335–36 (footnotes omitted). Thus, “the
‘Commerce Clause . . . precludes the application of a state
statute to commerce that takes place wholly outside of the
State’s borders, whether or not the commerce has effects
within the State . . . .’” Id. at 336 (quoting Edgar v. MITE
Corp., 457 U.S. 624, 642–43 (1982) (plurality opinion)).
California’s ethanol regulations fail this test.

It is no answer to assert, as the majority does, that the
Fuel Standard merely provides “incentives” that might
influence out-of-state conduct. See Rocky Mountain Farmers
Union, 730 F.3d at 1103–04. By penalizing certain out-of-
state practices, California’s regulations control out-of-state
conduct just as surely as a mandate would, particularly in
view of California’s economic clout. Thus, whether
California’s scheme is characterized as providing
“incentives” or establishing “mandates,” it has the practical
effect of regulating interstate commerce. And, under the
dormant Commerce Clause, “[t]he critical inquiry is whether
the practical effect of the regulation is to control conduct
beyond the boundaries of the State.” Healy, 491 U.S. at 336
(citing Brown-Forman Distillers Corp. v. N.Y. State Liquor
Auth., 476 U.S. 573, 579 (1986)) (emphasis added).5

5
Other courts of appeals have correctly held that Commerce Clause
analysis turns on a law’s practical consequences, not on semantics. See,
e.g., Nat’l Foreign Trade Council v. Natsios, 181 F.3d 38, 69 (1st Cir.
 ROCKY MOUNTAIN FARMERS UNION V. COREY 25

Finally, the majority significantly underestimates the risk
that California’s ethanol scheme will spur other states to
enact “the kind of competing and interlocking local economic
regulation that the Commerce Clause was meant to preclude.”
Healy, 491 U.S. at 337. For example, now that the panel
majority has blessed California’s experiment in
extraterritorial regulation, Oregon may move forward with its
own Clean Fuels Program. The majority assures us that the
Oregon program and those of other states will merely
“complement[]” California’s, Rocky Mountain Farmers
Union, 730 F.3d at 1104, but there is no guarantee that this is
so.6 In any event, ethanol producers will soon face the
daunting prospect of navigating several interlocking, if not
entirely contradictory, regulatory regimes. Fragmentation of
the national economy may ensue.

Two brief examples illustrate the point. If California
may, consistent with the dormant Commerce Clause, seek to
influence out-of-state ethanol production, it may just as
legitimately seek to influence any out-of-state conduct with
perceived local effects. Under the majority’s reasoning,

1999), aff’d sub nom. Crosby v. Nat’l Foreign Trade Council, 530 U.S.
363 (2000); Nat’l Solid Wastes Mgmt. Ass’n v. Meyer, 63 F.3d 652,
661–62 (7th Cir. 1995).
6
California recently pledged to align its energy policies with Oregon,
Washington, and British Columbia. Michael Wines, Climate Pact Is
Signed by 3 States and Partner, N.Y. Times, Oct. 30, 2013, at A18. If, as
the majority holds, the Constitution poses no obstacle to California’s
regulation of interstate commerce, there is little reason to doubt that
California may regulate foreign commerce as well. Unsurprisingly, this
conclusion puts us squarely at odds with our sister circuits. See Natsios,
181 F.3d at 69. Further, the grouping of states in this fashion represents
the type of “economic Balkanization” that the Commerce Clause was
intended to prevent. Hughes, 441 U.S. at 325.
26 ROCKY MOUNTAIN FARMERS UNION V. COREY

California could impose regulatory penalties (or grant
“incentives”) to require manufacturers in Texas to pay higher
wages to their employees if they intend to sell their products
in California. Such a measure would, of course, benefit
California to the extent that it would minimize the risk of
competition from Texas businesses, with their lower labor
costs. But under the same logic, Texas could—and assuredly
would—respond in kind, perhaps by penalizing California
agriculture on account of its reliance on costly irrigation
methods.

Similarly, California could—under the majority’s
reasoning—penalize out-of-state wineries to account for the
environmental effects of transporting their wines to
California. Like the Fuel Standard, such a regulation would
promote California businesses at the expense of out-of-state
interests. And, also like the Fuel Standard, such a regulation
could lead to destructive interstate retaliation.7

The very purpose of the dormant Commerce Clause is to
ensure that “[r]ivalries among the States are . . . kept to a
minimum, and a proliferation of trade zones is prevented.”
Granholm, 544 U.S. at 472 (citing C & A Carbone, Inc. v.
Town of Clarkstown, N.Y., 511 U.S. 383, 390 (1994)). Until
the majority’s ruling, the dormant Commerce Clause guarded
against such economic fragmentation. See Baldwin, 294 U.S.
at 524 (explaining that a state may not “condition importation

7
In his concurrence in the denial of rehearing en banc, Judge Gould
relies on Pharmaceutical Research & Manufacturers of America v. Walsh,
538 U.S. 644, 669 (2003), for the proposition that California may
legitimately regulate in-state commerce with the goal of influencing out-
of-state conduct. But nothing in Walsh repudiates the principle that a state
may not close its borders to out-of-state goods unless exporters alter their
out-of-state conduct. See Baldwin, 294 U.S. at 524.
 ROCKY MOUNTAIN FARMERS UNION V. COREY 27

upon proof of a satisfactory wage scale in factory or shop”).
Now, the dormant Commerce Clause has been rendered
toothless in our circuit, and we stand in open defiance of
controlling Supreme Court precedent.

VI.

The majority opinion in this case upholds a regulatory
scheme that, on its face, promotes California industry at the
expense of out-of-state interests. The majority opinion also
sanctions California’s clear attempt to project its authority
into other states. Because the Constitution forbids such an
expansive and discriminatory exercise of state power over
interstate commerce, I respectfully dissent from our failure to
rehear this case en banc.