Delano Farms Co. v. California Table Grape Commission (546 F. Supp. 2d 859, 2008)

MEMORANDUM DECISION GRANTING IN PART AND DENYING IN PART DEFENDANT’S MOTION FOR SUMMARY JUDGMENT (Doc. 289) AND GRANTING IN PART AND DENYING IN PART PLAINTIFFS’ MOTION FOR PARTIAL SUMMARY JUDGMENT (Docs. 311 & 312)

OLIVER W. WANGER, District Judge.

Plaintiffs Delano Farms Company, Susan Neill Company, and Lucas Bros. Partnership (hereinafter referred to as Plaintiffs) have filed a motion for partial summary judgment and/or summary adjudication of issues: (1) regarding the “government speech” defense; (2) whether Glickman v. Wileman Brothers & Elliott, Inc. or United Foods, Inc. v. United States applies; and (3) whether Central Hudson intermediate “scrutiny is not applicable.” Defendant California Table Grape Commission (hereinafter referred to as the Commission) has filed a cross— motion for summary judgment on the grounds that (1) requiring Plaintiffs to fund the government speech of the Commission does not implicate the First Amendment; (2) the Ketchum Act is constitutional under Abood’s “germaneness” test; (3) the Ketchum Act is constitutional under intermediate scrutiny; and (4) Plaintiffs First Amendment rights are not implicated by compelled funding of most of the Commission’s activities.

A. PROCEDURAL BACKGROUND.

Plaintiffs commenced this action in the fall of 1996 by bringing two separate complaints against the Commission, alleging, inter alia, that the Commission’s regulation and the statute establishing the Commission — the Ketchum Act, California Food & Agrie. Code §§ 65500 et seq. (the Act) — violate Plaintiffs’ rights under the First and Fourteenth Amendments to the United States Constitution and their civil rights under 42 U.S.C. § 1983. Plaintiffs initially sought preliminary injunctive relief to permit them to pay the disputed assessments into escrow, and in November 1996 and March 1997, the Court issued two preliminary injunctions granting that relief.

In June 1997, the United States Supreme Court decided Glickman v. Wile-man Brothers & Elliott, Inc., 521 U.S. 457, 117 S.Ct. 2130, 138 L.Ed.2d 585 (1997), reversing the Court of Appeal’s decision that reversed the trial court’s grant of summary judgment for defendant against the Plaintiff growers who were challenging a generic advertising program for tree fruit under the Agricultural Marketing Agreement Act (AMAA) on First Amendment grounds. The Supreme Court held that because the generic advertising program was germane to a broader regulatory scheme and did not involve the funding of ideological activities, id. at 473, 117 S.Ct. 2130, it should be reviewed “under the standard appropriate for the review of economic regulation” rather than “under a heightened standard appropriate for the review of First Amendment issues,” id. at 469,117 S.Ct. 2130.

In light of Glickman, the Commission sought dismissal of Plaintiffs’ complaints under Rule 12(b)(6), Federal Rules of Civil Procedure. In September 1997, Plaintiffs’ First Amendment claim was dismissed to the extent that it alleged that the Commission’s program as a whole, as opposed to particular acts in administering the program, violated Plaintiffs’ rights. (Doc. 96). The preliminary injunctions were modified to require Plaintiffs pay 98% of the disputed assessments to the Commission and to pay only 2% into escrow.

In 1999, the Court of Appeals for the Sixth Circuit decided United Foods, Inc. v. United States, 197 F.3d 221 (6th Cir.1999), reversing a grant of summary judgment for the United States. The Sixth Circuit distinguished Glickman and held that a generic mushroom advertising program was subject to First Amendment scrutiny. Id. at 224-225.

In light of the Sixth Circuit’s decision in United Foods, and contemporaneous Ninth Circuit authority, Plaintiffs moved for reconsideration of the dismissal order. In June 2000, the Court denied Plaintiffs’ motion for reconsideration, relying on the Ninth Circuit’s recent decisions in Gallo Cattle Co. v. California Milk Advisory Board, 185 F.3d 969 (9th Cir.1999), and Cal Almond Inc. v. U.S. Department of Agriculture, 192 F.3d 1272 (9th Cir.1999), cert. denied, 530 U.S. 1213, 120 S.Ct. 2215, 147 L.Ed.2d 248 (2000), distinguishing the Commission’s table grape program from the mushroom program at issue in United Foods. (Doc. 125). On August 14, 2000, the parties stipulated to dismiss all remaining causes of action with prejudice except Plaintiffs’ cause of action under the First and Fourteenth Amendments and 42 U.S.C. § 1983, which the parties and the Court agreed could proceed to appeal. Plaintiffs then appealed to the Ninth Circuit.

After briefing in the Ninth Circuit but before any oral arguments or decision, the Supreme Court affirmed the Sixth Circuit’s decision in United Foods. United States v. United Foods, Inc., 533 U.S. 405, 121 S.Ct. 2334, 150 L.Ed.2d 438 (2001). The Supreme Court held that the challenged mushroom advertising program was distinguishable from the tree fruit advertising program in Glickman.

On January 27, 2003, the Ninth Circuit reversed the dismissal of Plaintiffs’ claims in this case. Delano Farms Co. v. California Table Grape Commission, 318 F.3d 895 (9th Cir.2003).

Thereafter, the Commission amended its Answer and Plaintiffs filed a motion for judgment on the pleadings. By Order filed on December 11, 2003, Plaintiffs’ motion for judgment on the pleadings was denied. (Doc. 260).

The Scheduling Conference Order summarizes the parties’ factual and legal contentions. Only the First Cause of Action remains. It alleges that the Ketchum Act violates Plaintiffs’ free speech and association rights under the First and Fourteenth Amendments and Section 1983. Plaintiffs seek declaratory and injunctive relief and a refund of their assessments. They further contend that the Ninth Circuit’s decision in this case is dispositive and that each of the Commission’s affirmative defenses lack legal and factual merit. The Commission contends that it has not violated Plaintiffs’ constitutional rights; that the advertisements at issue are government speech and therefore not subject to First Amendment restrictions; or that the program is part of a comprehensive regulatory scheme and therefore exempt from First Amendment scrutiny; or, to the extent that its program is or implicates speech, the program passes scrutiny under Central Hudson Gas & Electric Corp. v. Public Service Commission of New York, 447 U.S. 557, 100 S.Ct. 2343, 65 L.Ed.2d 341 (1980) and/or Abood v. Detroit Board of Education, 431 U.S. 209, 97 S.Ct. 1782, 52 L.Ed.2d 261 (1977). The Commission further maintains that the Ketchum Act is severable, and that if any section, clause, or part of the Act, or any part of the Commission’s activities, is held unconstitutional, such holding does not affect the remaining portions of the Act or any part of the Commission’s activities. The Commission raises a number of affirmative defenses to defeat Plaintiffs’ claims, in whole or in part, including that Plaintiffs are guilty of unclean hands; they have waived any rights regarding any alleged acts or omissions by the Commission; they are estopped from asserting any rights for alleged acts or omissions by the Commission; their claims are barred by the applicable statute of limitations; their claims are barred by the doctrine of laches; they have not been damaged; their assessments have not been spent for non-germane, ideological or political speech; and that Plaintiffs would be unjustly enriched if they are not assessed for the Commission’s programs but continue to benefit from them.

B. STANDARDS GOVERNING RES- ■ OLUTION OF SUMMARY JUDGMENT OR SUMMARY ADJUDICATION MOTIONS.

Summary judgment is proper when it is shown that there exists “no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56. A fact is “material” if it is relevant to an element of a claim or a defense, the existence of which may affect the outcome of the suit. T.W. Elec. Serv., Inc. v. Pacific Elec. Contractors Ass’n, 809 F.2d 626, 630 (9th Cir. 1987). Materiality is determined by the substantive law governing a claim or a defense. Id. The evidence and all inferences drawn from it must be construed in the light most favorable to the nonmoving party. Id.

The initial burden in a motion for summary judgment is on the moving party. The moving party satisfies this initial burden by identifying the parts of the materials on file it believes demonstrate an “absence of evidence to support the non-moving party’s case.” Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The burden then shifts to the nonmoving party to defeat summary judgment. T.W. Elec., 809 F.2d at 630. The nonmoving party “may not rely on the mere allegations in the pleadings in order to preclude summary judgment,” but must set forth by affidavit or other appropriate evidence “specific facts showing there is a genuine issue for trial.” Id. The nonmoving party may not simply state that it will discredit the moving party’s evidence at trial; it must produce at least some “significant probative evidence tending to support the complaint.” Id. The question to be resolved is not whether the “evidence unmistakably favors one side or the other, but whether a fair-minded jury could return a verdict for the plaintiff on the evidence presented.” United States ex rel. Anderson v. N. Telecom, Inc., 52 F.3d 810, 815 (9th Cir.1995). This requires more than the “mere existence of a scintilla of evidence in support of the plaintiffs position”; there must be “evidence on which the jury could reasonably find for the plaintiff.” Id. The “more implausible the claim or defense asserted by the nonmoving party, the more persuasive its evidence must be to avoid summary judgment.” Id. As explained in Nissan Fire & Marine Ins. Co. v. Fritz Companies, 210 F.3d 1099, 1102-1103 (9th Cir.2000):

The vocabulary used for discussing summary judgments is somewhat abstract. Because either a plaintiff or a defendant can move for summary judgment, we customarily refer to the moving and nonmoving party rather than to plaintiff and defendant. Further, because either plaintiff or defendant can have the ultimate burden of persuasion at trial, we refer to the party with and without the ultimate burden of persuasion at trial rather than to plaintiff and defendant. Finally, we distinguish among the initial burden of production and two kinds of ultimate burdens of persuasion: The initial burden of production refers to the burden of producing evidence, or showing the absence of evidence, on the motion for summary judgment; the ultimate burden of persuasion can refer either to the burden of persuasion on the motion or to the burden of persuasion at trial.

A moving party without the ultimate burden of persuasion at trial — usually, but not always, a defendant — has both the initial burden of production and the ultimate burden of persuasion on a motion for summary judgment ... In order to carry its burden of production, the moving party must either produce evidence negating an essential element of the nonmoving party’s claim or defense or show that the nonmoving party does not have enough evidence of an essential element to carry its ultimate burden of persuasion at trial ... In order to carry its ultimate burden of persuasion on the motion, the moving party must persuade the court that there is no genuine issue of material fact

If a moving party fails to carry its initial burden of production, the nonmoving party has no obligation to produce anything, even if the nonmoving party would have the ultimate burden of persuasion at trial ... In such a case, the nonmoving party may defeat the motion for summary judgment without producing anything ... If, however, a moving party carries its burden of production, the nonmoving party must produce evidence to support its claim or defense ... If the nonmoving party fails to produce enough evidence to create a genuine issue of material fact, the moving party wins the motion for summary judgment ... But if the nonmoving party produces enough evidence to create a genuine issue of material fact, the nonmoving party defeats the motion.

1. BURDEN OF PROOF.

Plaintiffs assert the following contentions regarding the respective burdens of proof in connection with these motions:

Since the [Supreme] Court made clear in United Foods and Johanns, that it is Defendant’s burden of proof re ‘government speech,’ the Table Grape Commission must persuade this Court, through undisputed material facts that the Table Grape Commission law and its operations are government speech ... Further, Plaintiffs, as the moving party with respect to this motion, carry their initial burden of summary judgment by ‘showing’ that the Table Grape Commission lacks sufficient evidence to carry its ultimate burden of persuasion at trial with respect to not only the government speech affirmative defense, but that Glickman, not United Foods applies. That is because those are affirmative defenses.

The Commission argues that Plaintiffs are wrong about which party has the burden of proving that the Commission’s speech is government speech and that the table grape industry is collectivized:

... Wileman Bros, and Livestock Marketing make clear that the First Amendment is not even implicated if the table grape industry is collectivized or if the speech of the Commission is government speech. In order to make a First Amendment claim,- Plaintiffs must show that the First Amendment is at least implicated by the challenged speech, and it is therefore Plaintiffs’ burden to demonstrate that the table grape industry is not collectivized and that the speech of the Commission is not government speech.

Noting that Rule 8(c), Federal Rules of Civil Procedure lists specific affirmative defenses, including “any other matter constituting an avoidance or affirmative defense”, the Commission cites Zivkovic v. Southern California Edison Co., 302 F.3d 1080, 1088 (9th Cir.2002):

A defense which demonstrates that plaintiff has not met its burden of proof is not an affirmative defense. See FlavO-Rich v. Rawson Food Service, Inc. (In re Rawson Food Service, Inc.), 846 F.2d 1343, 1349 (11th Cir.1988) (recognizing that a defense which points out a defect in the plaintiffs prima facie case is not an affirmative defense).

The Commission correctly asserts the burden of proof is on Plaintiffs. Plaintiffs have the burden to prove that the Commission’s program pursuant to the Ketchum Act is subject to the First Amendment and that the program violates the First Amendment.

C. STATEMENTS OF UNDISPUTED FACTS.

The parties’ Undisputed Stipulated Facts are 63 pages long and include 170 separately numbered paragraphs containing a multitude of facts.

The Commission’s Statement of Undisputed Facts is 83 pages long, is comprised of 235 facts (with numerous subparts) and has a table of contents. Plaintiffs’ Objections and Response to the Commission’s Statement of Undisputed Facts is 137 pages long, and uses the following abbreviated keys: “‘Stip.’ stands for stipulated; ‘Undis.’ stands for undisputed; ‘Disp.’ stands for disputed; ‘Obj.’ stands for objection; and ‘Rel.’ stands for not relevant.” In addition, Plaintiffs assert:

When Plaintiffs ... respond with an undisputed, it is only for the purposes of the instant cross-motions for summary judgment, and Plaintiffs reserve the right, at trial, or any further additional motions for summary judgment to dispute the same alleged fact, or to object, or object on other or additional grounds. In addition, when Plaintiffs and Defendant stipulated to various facts, it was done on the condition that any fact ‘stipulated’ to could be explained, expounded upon, or state how things were different or have changed.

Also, to the greater extent, Plaintiffs’ objections to or disputes with the Commission’s Statement of Undisputed Facts are string-cite objections, i.e., not relevant, hearsay, lack of foundation, improper lay opinion, conclusory, violation of best evidence rule, with no supporting law or analysis.

Plaintiffs Statement of Undisputed Facts is 8 pages long and is comprised of 43 facts.

Because of the magnitude of the factual positions of the parties, in the interests of economy, a separate Statement of Undisputed Facts will not be provided, instead the relevant undisputed facts and certain disputed facts necessary to ruling on the motions will be included in this Memorandum Decision.

D. UNDISPUTED STIPULATED FACTS.

1. California has the largest agricultural production of any state in the nation.

2. The California Department of Food and Agriculture (“CDFA”) estimated that in 2004, California’s growers produced almost $32 billion in agricultural commodities, valued at the farm-level.

3. Of that figure, grape growers as a whole, including wine, raisin, and table type grapes, accounted for 8.6%.

4. The volume of California table grapes shipped has increased from the equivalent of approximately 37 million 19-pound boxes of grapes per year when the Commission was first created to approximately 94 million 19-pound boxes in 2005.

5. Approximately 97%-99% of the table grapes grown in the United States are grown in California.

6. The total F.O.B. value (value at the point of shipping including picking, packing, and extra services such as cold storage and placing on pallets, as voluntarily reported to the United States Department of Agriculture (“USDA”)) of the California table grapes shipped to buyers in 2004 was just over $1 billion.

7. Table grapes are grown in California in the Coachella and San Joaquin valleys on approximately 110,000 acres of land.

8. According to the United States Department of Agriculture, farm and farm-related employment accounted for 2.75 million jobs in California in 2002-over 13.8 % of the state’s total employment.

9. In sum, agriculture and the table grape industry are important parts of the California economy.

10. At present, there are 35 active federal regional marketing orders in place and 17 national programs that cover blueberries, beef, cotton, dairy, eggs, milk, Hass avocados, honey, lamb, mangoes, mushrooms, peanuts, popcorn, pork, potatoes, soybeans, and watermelons.

11. In addition to the federal marketing orders covering the state, California currently has 53 active commodity marketing programs. These programs cover about 65% of the value of California’s agricultural production, and include programs for four of California’s top five agricultural products (dairy products, greenhouse/nursery products, grapes, almonds, and cattle/calves).

12. The California Table Grape Commission was established in 1967 by an act of the California Legislature called the Ketchum Act. Its purposes include expanding and maintaining demand for California table grapes worldwide and preventing economic waste of the agricultural wealth of the State of California. The California Legislature has also declared that the Commission’s activities (and those of other commissions) are essential to the goals and interests of the State of California in, among other things, marketing research and trend analysis, elimination of tariff and non-tariff barriers, consumer education relating to the health and other benefits of consuming agricultural products, and “Cooperative crisis resolution.”

13. The Commission is comprised of 18 commissioners representing the six active table grape growing districts in the State of California and one “public member,” all of whom are appointed and subject to removal by the Secretary of the California Department of Food and Agriculture (“CDFA”). Prior to appointment, the CDFA inquires into whether potential commissioners are suitable for appointment.

14. The Commission’s work is funded primarily through assessments that are imposed on all shipments of California table grapes pursuant to the Ketchum Act. Those assessments are paid to the Commission by shippers who are authorized to collect the assessments from the grower of the fruit shipped.

15. The Commission office is located in Fresno, California, where it employs 17 people. It has one employee in Texas. In addition, the Commission contracts for the services of a number of consultants, including one domestic representative who works out of Canada and international representatives in Australia, New Zealand, the United Kingdom, Germany, Japan, South Korea, Hong Kong, Singapore, India, Venezuela, Costa Rica, Mexico, the Philippines, Taiwan, and the United Arab Emirates.

16. The Commission’s fiscal year runs from May 1 to April 30. The 2004-2005 fiscal year therefore closed on April 30, 2005. The Commission’s expenditures for the 2004-2005 fiscal year were $12,015,653. Its adjusted carryover and revenue was $12,497,031. Assessments paid to the Commission (and not into an escrow account) for California table grapes shipped in 2004-2005 accounted for $8,367,429 of that amount. The remaining revenues came principally from federal international marketing grants.

17. The season for California table grapes runs from May through January. In the early part of the season, retailers purchase grapes grown in the Coachella Valley of California. During this early part of the California season, late season and storage table grapes from Chile and South Africa are still in the market and new crop grapes from Mexico have entered the market. As the season progresses, California table grapes from the Bakersfield area and then farther north are available. By the middle of July, usually only California table grapes are in the domestic market. By November, grapes from a number of southern hemisphere countries (including Brazil, Peru, and Chile) are back in the market.

18. There are at least four different principal paths for California table grapes to travel from the vineyard to the final end retail consumer in the domestic market.

19. All four principal paths start with a grower who harvests the table grapes and a shipper who packs the grapes and finds a first buyer for them. Sometimes growers act as their own shippers. Other times growers contract with a separate entity to act as the shipper.

20. All four principal paths end with a retailer making a sale to a customer. While there are different, kinds of retailers (large supermarket chains, mom-and-pop grocery stores, fruit stands, farmers’ markets etc.), the vast majority of grapes are sold by large retail chains such as Safeway, Albertson’s, Kroger, or Wal-Mart.

21. The distinction between the four principal paths is in how the grapes go from the grower/shipper to the retailer.

a.The first path is directly from shipper to retailer. For large retailers, such as Vons, this is the most common way to purchase grapes. Approximately 70% of all California grapes sold in the United States travel along this path.

b. The second path is from shipper to a broker and then to a retailer. The broker may or may not take ownership or physical custody of the grapes. Approximately 10% of all California grapes sold in the United States travel along this path.

c. The third path is from shipper to a distributor and then from the distributor to the retailer. The distributor may take physical possession of the grapes and generally takes ownership of the grapes. Approximately 10% of all California grapes sold in the United States travel along this path.

d. Finally, the fourth path is from shipper to “terminal market wholesalers.” As the name suggests, these wholesalers operate in so-called “terminal markets” — generally large cities where a large volume of grapes is sold. Terminal market wholesalers take physical possession of the grapes and most often take ownership of them. Approximately 10% of all California grapes sold in the United States travel along this path.

22. California grapes travel along similar paths to consumers in international markets.

23. Although there are four distinct paths along which California table grapes generally travel from vineyard to consumer, there are ultimately two distinct markets for California table grapes. First, there is the market in which retailers and wholesalers purchase California table grapes from grower/shippers (the “wholesale market”). Second, there is the market in which consumers purchase California table grapes from retailers (the “retail market”). These markets operate very differently.

24. Produce retailers, such as supermarket chains like Vons, purchase table grapes in the wholesale market, either from grower/shippers, brokers, distributors, or wholesalers. Retailers make four principal decisions when participating in the wholesale market: (1) what quantity of table grapes to put on their shelves, (2) from which production area (Chile, Mexico, California) to buy table grapes, (3) from which specific shippers to buy table grapes, (4) and what price they will pay. Retailers also consider the color and level of fruit quality (e.g., “A” box, “B” box, etc.) of the grapes they sell and whether grapes are seedless.

25. In deciding what quantity of table grapes to put on their shelves and where to put them, retailers must weigh the value of selling grapes versus the value of selling other products. Every square foot allocated to table grapes means one less square foot allocated to something else in the produce department. And every square foot allocated to produce is one square foot less available in the store for toothpaste, coffee, and everything else.

26. California table grapes compete with grapes from other countries (during certain parts of the year) and other fruits (like apples) for shelf space within the produce department. California table grapes and other “snack” produce also compete with “salty snacks,” like potato chips and pretzels and with snacks like candy and ice cream, for overall snack shelf space.

27. Competition for shelf space between different types of produce and among different types of products (produce vs. dairy, for example) is fierce. There is competition across departments and within departments. Foods and non-foods compete for space. Moreover, there is competition for the best shelf space in a grocery store.

28. The goal of individual grower/shippers of table grapes is to obtain the highest price and maximize their own sales. That is, individual grower/shippers are interested only in expanding their slice of the overall table grape market.

29. Every year, each grower/shipper has different levels of fruit quality to sell to his/her customers. A common method of identifying quality is to designate a box of grapes as an “AA” box (highest quality), an “A” box, a “B” box, and a “C” box. Most grower/shippers offer all four levels. It is possible for different grower/shippers to have more- — or less — of the highest quality fruit than their competitors. A particular grower/shipper may generally have a higher percentage of the highest quality fruit than another grower/shipper. But it is possible for that grower/shipper to suffer from adverse weather patterns in a particular year and thus have less highest quality fruit than the grower/shipper whose fruit is generally not as good.

30. Consumers do not shop for grapes with brand names in mind. Rather, table grape consumers consider primarily the ripeness and freshness (ie., quality) of the grapes, the taste of the grapes, the variety and whether the grapes are seeded, and the price of the grapes.

31. Consumer survey evidence indicates that when shoppers buy produce generally, brand is typically not an important factor. While for some types of produce, such as bananas and oranges, brand is more important than it is for grapes, it is still subordinate to a host of other factors like ripeness and freshness (ie., quality), color, and price.

32. In large retail stores, grapes are typically not sold in their boxes, so customers never see the labels on those boxes. Store signage typically does not indicate the name of the grower/shipper of the table grapes being displayed. And most of the time grapes’ packaging does not reveal the grower/shipper’s name.

a. In general, most retailers do not want the produce they sell to be branded. They find branding on packaging clutters their produce section and confuses consumers because of the different print sizes, colors, and logos fighting for the consumer’s eye. Retailers want the grapes themselves to be the focus of the consumer’s eye. For a product like table grapes — which are produced at different times of the year by different growers in different parts of the world and are shipped to market by multiple shippers who each have multiple labels — this problem of customer confusion is exacerbated. Retailers do not want to be tied to any one grower/shipper or any one label because throughout the year a retailer will buy its grapes from a number of different grower/shippers, both domestic and international.

38. In general, there is less consumer recognition of brands of produce than other food products.

34. Individual California table grape growers and shippers conduct virtually no direct advertising to consumers in the retail market.

35. To achieve its statutory objective of maintaining and expanding demand for California table grapes worldwide, preventing economic waste of the agricultural wealth of the State of California, and promoting the health of the people of California, the Commission conducts a variety of activities that fall into five general categories: (1) Research, (2) Trade Management, (3) Issues Management, (4) Advertising, and (5) Education/Outreach.

36. The Commission’s research activities are broad ranging and include consumer, trade, viticulture, industry statistical, and nutrition research.

a.In 2004-2005, the Commission spent $1,776,950 in assessment dollars on research.

37. The Commission’s trade management activities focus on working with the retail and wholesale produce trade, domestically and internationally, to create demand for the volume of fresh California grapes grown each season.

a. Using the results of its category management (discussed below) and consumer research, as well as analysis of retail chain activities (in the aggregate and individually) and using financial and/or media incentives, the Commission works around the year to attempt to create demand for California table grapes.

b. In 2004-2005, the Commission spent $1,987,783 in assessments on trade management.

38.The Commission’s issue management work is varied, as the issues that might impact demand for the crop can vary week-to-week, month-to-month, and season-to-season.

a. Issue management is an important element of all demand-creation work.

b. Fundamentally, the focus of issue management is working with interested parties and decision makers to keep trade flowing both in the United States and internationally, and to respond to short-term incidents and long-term issues that could impair the economic strength of California’s fresh grape industry.

c. Specifically, issue management typically involves working with other governmental agencies at the county, state, and federal levels and their counterparts in export markets — as well as with industry groups, health authorities, and non-industry organizations.

d. It involves using a variety of disciplines to ensure the long-term continued movement of fresh California grapes from field to market.

e. Categories of issue management on which the Commission works on an ongoing basis include (but are not limited to) food safety, market access, tariff reduction, standardization of packaging, labeling, pesticide registration, pest infestations, and all litigation involving the Commission. Within each category numerous types of issues can, and do, arise.

f. In 2004-2005, the Commission spent $1,493,192 in assessment dollars on issue management.

39. The Commission conducts advertising campaigns to reach consumers with paid messages designed to increase overall demand for fresh California grapes.

a. Paid media is used in an attempt to keep fresh California grapes “top-of-mind” for consumers in a way that motivates increased purchase.

b. The messages revolve around healthy snacking, positioning grapes as a healthy alternative to products like buttered popcorn, fries, and ice cream. This message is intended to increase demand but also furthers the state interest in public health.

c. In 2004-2005, the Commission spent $2,032,440 in assessment dollars on paid advertising.

40. The Commission’s education and outreach activities are designed to provide education, training, analysis, and general information to retailers, wholesalers, food-service operators, grower/shippers, researchers, consumers, and others such as teachers, editors, authors, doctors, and nutritionists.

a. The Commission provides information about, among other things, nutrition, usage, storage, handling, availability, retail merchandising techniques, product characteristics, technological advances, and statistical analysis through a variety of outreach methods.

b. This work is intended to increase demand. Credible information is required by those who make decisions about what products to place on grocery shelves, what nutritional information to share with patients or clients, what foods to include in classroom lessons, what foods to include in restaurant menu items, what to advise readers about recipes or storing and handling of food, and what to advise viewers to watch for in terms of quality and safety.

c.In 2004-2005, the Commission spent $847,619 in assessment dollars on education and outreach.

41. The Commission operates five principal ongoing programs: Viticulture and Technical Issues, Advertising, Domestic Marketing, International Marketing, and Consumer Education. Each program involves activities that fall within one or more of the categories described above in paragraphs 36-40.

42. The viticulture and technical issues program has three areas of focus: viticulture research, technical issues management, and patenting/licensing. The program includes activities falling within the following categories: research, issue management, and education and outreach.

43. The viticulture research program involves directing and overseeing the funding and implementation of viticulture research performed by scientists from a variety of research institutions including the University of California, USDA, and California State University. The research is designed to increase grower efficiency and improve table grape production and fruit quality.

a. The Commission has developed a process for receiving and evaluating research proposals.

b. The program includes the funding of cultural (horticultural farming) practices research that is intended to improve fruit maturity, storability, and overall quality. It includes work in areas such as pruning techniques, trellising/ training methods, crop/cluster and canopy management, crop load regulation, and irrigation strategies.

c. The program also includes the funding of pest and disease management research. Research studies in this category attempt to develop biological and reduced-risk chemical control methods for destructive vineyard pests and diseases such as mealybugs, molds/mildews and grapevine measles. Biological control methods being examined include releasing beneficial insect predators or parasites to reduce the targeted pest population and using pheromones or sex attractants to disrupt mating cycles. The Commission also funds research regarding the application of reduced risk pesticides that target harmful pests without eliminating beneficial insects.

d. The program also funds post-harvest research. The research is intended to improve storing, handling/shipping procedures, shelf life, and overall fruit quality. It includes research on modernizing storage room and phytosanitary fumigations, temperature/humidity requirements, and new packaging methods.

e. Finally, the program funds new grape and grape rootstock variety research. The goal of this research is the development and evaluation of new varieties of grapes and grapes rootstocks with improved characteristics and pest/disease resistance.

i. The Commission has been funding efforts to breed new, better varieties of table grapes since the inception of the research program in 1972, first with the University of California and then with USDA. The Commission currently supports the USDA’s table grape variety breeding program run by Dr. David Ramming, providing approximately one-third of the program’s funding.

ii. Since the Commission began funding the USDA program and advising its breeder in 1981, it has developed over 10 new varieties of grapes that are currently being marketed, including the Crimson Seedless variety that constitutes over half of Delano Farms’ sales as well as the Princess variety sold by Delano Farms,

f.The Commission makes the results of its viticulture research available to grower/shippers in a number of ways that include seminars, field tours, newsletters, and publications. (The new varieties are made available through the patenting and licensing program described below.)

44. Technical issues management encompasses the Commission’s work related to pesticides, pest exclusion, production, packaging, distribution, and quarantines. It includes technical analysis related to the Commission efforts to expand international market access by, among other things, developing international shipping protocols and participating in trade barrier negotiations.

a. The Commission monitors chemical Maximum Residue Level (“MRL”) restrictions proposed by other countries or the international standard-setting body (the Codex Alimentarius Commission) to determine whether the chemicals to be regulated are registered for use on grapes in California and are in fact used, whether the proposed MRL is lower than the U.S. or the Codex MRLs, and if so whether the proposed MRL is likely to disrupt shipments of California table grapes to the country in question. Depending on what is learned, the Commission works with the U.S. government and the country involved to negotiate the best possible solution for California’s table grape grower/shippers.

b. The Commission also conducts research to support its efforts to develop and streamline shipping protocols that allow California table grapes to access foreign markets. The research can also support efforts to eliminate those protocols when they are no longer necessary.

45.The patenting and licensing program revolves around the Commission’s efforts to develop new varieties of table grapes jointly with the USDA and to protect the intellectual property developed through U.S. patents, international plant protection, and domestic and international licenses.

a. In 2001, the Commission and USDA signed a Memorandum Of Understanding that outlined an agreement to patent future USDA-developed table grape varieties with the intent that the Commission will become the exclusive licensee of the varieties in domestic and international markets.

b. In 2004 and 2005, at the recommendation of the Commission, the USDA sought patent protection for and then released three newly developed varieties of grapes: Sweet Scarlet, Scarlet Royal, and Autumn King. The USDA has already obtained patents for the Sweet Scarlet and Scarlet Royal varieties, and patent is pending for the Autumn King variety.

c. As the exclusive licensee, the Commission, in turn, has sublicensed the varieties to a number of nurseries that sell the varieties to any domestic grower that wishes to purchase them. The amount of domestic production of the newly developed varieties is not limited. Nurseries that wish to sell the new varieties, however, must pay the Commission a yearly fee and a per-vine fee, a portion of which is remitted to the USDA.

d. The Commission is also charged with applying for intellectual property protection abroad, setting the terms on which the new varieties are made available abroad, and enforcing foreign intellectual property rights obtained.

46. In 2004-2005, the Commission’s viticulture and technical issues program spent $807,377 in assessment dollars on the following categories of activities $548,711 on viticulture research, $12,370 on outreach, and $246,296 on issue management.

47. Since the Commission began funding the USDA breeding program, USDA has developed 10 new varieties of grapes that are currently being marketed and two varieties that are not yet in production. Together, the 10 varieties being currently marketed account for approximately 30% of California grape shipments.

48. The following varieties were developed under the joint USDA/Commission program: Autumn Seedless, Autumn Black, Crimson Seedless, Autumn Royal, Fantasy Seedless, Fresno Seedless, Black Emerald, Princess, Summer Royal, Sweet Scarlet, Scarlet Royal (not yet in production) and Autumn King (not yet in production).

49. The Commission has also helped to fund the development of the Red Globe and Christmas Rose varieties. In total, varieties funded by the Commission account for approximately 45% of the volume of California table grapes shipped to market, and California produces approximately 97%-99% of the commercially grown table grapes in the United States.

50. The Commission’s initiative to obtain patent protection for newly developed varieties has the potential to be beneficial to the California table grape industry.

a. As the exclusive licensee of varieties patented by the USDA, the Commission attempts to ensure that varieties developed by California growers are not misappropriated by foreign growers to unfairly compete with California grapes. The Commission also attempts to ensure that the genetic quality of the new varieties is maintained.

51. The California Legislature has directed the Commission to undertake advertising that “promote[s] the sale of fresh grapes” and the Commission has consistently followed that legislative directive.

52. The consumer advertising undertaken by the Commission is known as “generic advertising” because it promotes the entire category of fresh grapes from California. It does not specify any one type of fresh California grape or any one producer of fresh California grapes. Instead, it speaks to the general characteristics of all fresh California grapes — that they are flavorful, convenient, and healthful.

53. All of the Commission’s radio, television, print media, and billboard advertisements are intended to “promote the sale of fresh grapes.” Commission advertisements have not promoted products other than grapes and have not disparaged other California agricultural products. The Commission has not run political or ideological advertisements, and all of the Commission’s advertisements have been in good taste and have not been false or misleading.

54. The development of the Commission’s advertising campaign begins with consumer research.

a. Initially, secondary research on consumer attitudes and buying habits is obtained from a variety of sources to determine the general consumer mindset about the foods they purchase and consume.

b. Next, the Commission conducts primary research to determine how consumers view grapes, why they do and do not purchase them, where and when they purchase them, what they look for when purchasing grapes, how, when and where they consume them, their specific views of fresh grapes from California as opposed to grapes from other sources, what foods they might consume instead of fresh California grapes, and what qualities about fresh California grapes are most and least motivating for their purchase and consumption of fresh California grapes.

55. The research is then analyzed by the Commission staff and its advertising agency — currently McCann Erickson, San Francisco — to develop potential advertising messages to “promote the sale of fresh grapes” and the most effective medium to transmit that message. The potential messages are then taken to additional focus groups to determine their effectiveness in motivating consumers to purchase and consume more fresh California grapes.

56. The current advertising campaign takes into account the fact that fresh California grapes are consumed primarily as a snack and emphasizes that fresh California grapes are a more healthful alternative to other snack food such as ice cream, french fries, chips, and buttered popcorn.

57. The advertising is done primarily in outdoor billboards and in 10-second traffic radio commercials. The Commission also ran a limited amount of television advertising in the fall of 2005 on the Food Network.

58. The Commission’s outdoor billboards use beautiful images of grapes contained in packaging typically associated with less healthful snack foods such as popcorn, potato chips, french fries, and ice cream to remind consumers that grapes are a healthy alternative to these other snack foods.

a. In 2005, the Commission ran 284 billboards for seven months. The billboards were placed in the following major markets: Baltimore, Boston, Chicago, Dallas-Ft. Worth, Denver-Boulder, Los Angeles, New York, Philadelphia, San Francisco, and Seattle-Tacoma. On average, there were 18 billboards in each market.

59. The Commission’s radio advertisements are in the form of short radio messages that air during radio traffic reports when consumers are thought to be paying close attention to what they hear on the radio. The messages remind consumers where to go to get the fresh California grapes they enjoy and encourage consumers, while they are out on the road, to stop into the featured store and buy grapes. Like the billboards, these advertisements emphasize that California table grapes are a healthy alternative to other snack foods.

a. One script, for example, reads: “Hold the burger, the fries, and the shake and drive up to (Name of Store) because the fresh California grapes are in season now. This is your window to pick up the grapes everyone likes best— at your local (Name of Store).”

b. Another reads: “Have a sweet tooth that won’t let go? Forget the ice cream and head to (Name of Store). Scoop up a bunch of sweet, fresh California grapes from (Name of Store) and in a few luscious bites you’ll know why California grapes are preferred over any other.”

c. Other radio scripts emphasize the health benefits of table grapes more generally. One reads: “It’s easy to get your recommended five servings of fruits and vegetables a day with fresh California grapes. They come in three colors and fresh California grapes from (Name of Store) are part of a smart, healthy diet. Pick up some sweet, delicious grapes from (Name of Store) and live better.”

60. In 2004 and 2005, the Commission ran two 15-second advertisements on the cable channel the Food Network during the seven-day-a-week cooking program “Sara’s Secrets” featuring renowned chef Sara Moulton.

a. The television advertisements, like the billboards and radio advertisements, emphasized that grapes are a healthy alternative to traditional snack foods.

b. One advertisement showed three colors of grapes in an ice cream cone and the other shows grapes in a popcorn bag. A voiceover declared that “Good Things Come in Bunches.”

61. Past themes of the Commission’s advertising include: (a) “Good things come in bunches.”; (b) “Share some California grapes.”; (c) “Life is complicated. Grapes are simple.”; and (d) “California grapes. The Natural Snack.”

62. The Commission’s advertising is designed to be as motivating to consumers as possible, but it is also used as an incentive for retailers.

63. The Commission’s advertising is meant to work in conjunction with the Commission’s other efforts.

a. The Commission’s efforts with retailers are intended to “push” California table grapes into the stores, and the Commission’s advertising is intended to “pull” consumers into the stores to buy the grapes.

b. Similarly, the Commission’s advertising is intended to build on the research efforts of the Commission. The current advertising campaigns emphasize the health benefits of table grapes and the Commission’s research efforts are focused, in part, on discovering and documenting the health benefits of grapes.

64. In 2004-2005, the Commission’s advertising program spent $2,042,247 in assessment dollars on the following categories of activities: $229,003 on consumer research and $1,813,244 on direct advertising.

65. Most of the advertising on television, in print, or on the radio is “branded product” advertising. Advertising for “Pepsi” soda, “Tide” laundry detergent, and “Crest” toothpaste are familiar examples. The goal of this type of advertising is almost entirely to increase sales of the particular product advertised, not to increase overall consumption of a category of product.

66. Product differentiation can stem from actual differences between products — the Microsoft Windows operating system works differently from the operating systems of its competitors. Or product differentiation can result from an extensive advertising campaign that creates perceived differences between products— some consumers prefer Coke while others prefer Pepsi, yet the actual differences between the products may be slight.

67. The California table grape industry is estimated to have 550 growers currently, including grower-shippers. Large growers have market shares only in the single digits.

68. Unlike “branded product” advertising, which often seeks to create preferences in the minds of consumers even absent substantial differences in the products sold, generic advertising often promotes actual characteristics of a category of products. Table grapes, for example, are promoted for their health benefits, convenience of consumption, and good taste.

69. Generic regional advertising is intended to promote all table grapes from a particular region, such as California. This advertising is still generic in that it does not distinguish between different California producers, but it does seek to distinguish California table grapes from grapes grown in other regions.

70. Generic regional advertising allows producers in a region who feel they are too small to run their own advertising to band together and fund efforts to run advertisements focusing on the general attributes of the category of products.

71. Economists have been modeling and measuring the impacts of commodity programs for at least 20 years.

72. The Commission’s current advertising campaign (“Snacks”) was designed to target women aged 25 to 54 and to convey the message that grapes are a healthy alternative to other snack foods based on market data that revealed that the primary shoppers in most households are women in that age range and these women were concerned with providing healthy, tasty, convenient foods to their families.

73. According to consumers in focus group studies, the Commission’s generic “California” advertising campaign motivates consumers to want to purchase more California table grapes.

74. In a focus group study, the “Snacks” campaign was viewed favorably by participants. All participants readily discerned the message that grapes are a healthy alternative to other snack foods.

a. Participants described the campaign as “brilliant” and “clever.” People selected the words, “happy,” “pleased,” “surprised,” “playful,” “joyful,” “amused,” “interested,” and “delighted” to describe their feelings to this campaign. The campaign appeals to adults as individuals and as parents. And the campaign is intended to make consumers think about grapes in a new way, establishing in their minds more occasions for using grapes.

75. Any additional revenue to farmers that might be realized due to the Commission’s advertising, trade management, and education and outreach generally results in additional jobs in the agricultural industry.

76. Like other states, California and its citizens face a number of significant health problems related to poor diets.

a. For example, more than half of California adults are overweight or obese. Physically inactive, obese, and overweight individuals cost California billions of dollars every years in medical care, workers’ compensation, and lost productivity.

b. Heart disease is the leading cause of death in California and the nation. In 1999, there were almost 60,000 deaths due to heart disease in California.

c. Stroke is the third leading cause of death in California and the nation. In 1999, there were approximately 18,000 deaths due to stroke in California.

d. Cancer is the second leading cause of death in California and the nation. Cancer accounted for approximately 25% of all deaths in California in 2002.

e. Diabetes is also as significant health problem afflicting Californians and Americans generally.

77. Eating more fruits and vegetables helps to reduce diseases. Eating five to nine servings of fruit and vegetables each day helps protect against heart disease and cancer. Eating fruits and vegetables also has the potential to reduce the risk of obesity and many other chronic diseases including stroke and diabetes.

78. California adults consume, on average, fewer than four daily servings of fruits and vegetables, well below the five to nine daily servings recommended for good health. As a result, efforts to encourage people to eat more fruits and vegetables are important to the future of the state and to the country.

79. Any increase in demand for California table grapes benefits California table grape grower/shippers and the State of California generally.

80. The domestic marketing program is implemented by a staff of 4 people, which includes Cindy Plummer, Jane Lytle, Karen Hearn, and Brad Brownsey (a consultant).

81. The domestic marketing program conducts domestic trade management as well as research and education and outreach.

82. The purpose of the program is to increase the movement of fresh California grapes from field to market or professional kitchen. The program targets (1) retailers and wholesalers of fresh grapes and (2) foodservice entities.

83. The Commission works with retailers and wholesalers to increase the quantity of California table grapes sold during a season, the square feet of display space that will be allocated to California table grapes, the number of varieties displayed, the effectiveness of the displays, and the number and effectiveness of table grape advertisements run by retailers.

84. Among other things, the Commission works to “educate and instruct the ... retail trade with respect to proper methods of handling and selling fresh grapes,” as contemplated by the California Legislature.

85. The portion of the Commission’s trade management program directed toward domestic retailers can be divided into the following subcategories: (a) category management; (b) promotional agreements; (c) tagged advertising, and (d) training.

86. Conducting category management research is one way the Commission seeks to encourage retail grocery stores to sell a greater volume of table grapes. Category management involves the development of a comprehensive strategy for expanding sales of a category of product, in this case California table grapes. Category management research — on which the Commission spent nearly a quarter of a million dollars in both 2004 and 2005 — allows the Commission to provide retailers information about the value of selling fresh California grapes and the tactics that research has indicated increase sales of fresh grapes.

a. To conduct some of this research, the Commission contracts with a company called The Perishables Group, one of the country’s top retail produce category management research firm.

b. The results of the Commission’s category management research are then conveyed to the top 75 retailers (which together constitute approximately 80% of the market) in the United States and Canada. Commission staff meet with representatives from retailers at least twice during the growing season. Additionally, every year retailers are provided the Commission’s marketing materials, which summarize the Commission’s category management findings.

c. The Commission also conducts consumer research. For this work, the Commission contracts with Fleishman-Hillard, a national public relations and advertising firm.

d. In addition to the general category and consumer research data provided to retailers, the Commission also shares with retailers data related to that retailer’s performance in the grape category. This information is provided to encourage retailers to increase grape ad activity.

87.Every year the Commission enters into promotional agreements with retailers and wholesalers.

a. Retailers that earn an award are required to spend the award through a third party. For example, retailers frequently use their promotion award funds to have the Commission book flights and hotel rooms for their employees attending the annual Produce Marketing Association (“PMA”) Fresh Summit Conference.

b. Under the promotion agreement, retailers also agree to share with the Commission information about their grape sales and advertising. This allows the Commission to evaluate effectiveness of the efforts overall and to ensure that the retailers have met all of their commitments.

88. The domestic marketing program offers retailers tagged advertising to encourage them to run more advertisements for grapes.

a. The three retailers with the highest volume of grape sales in a market are given the opportunity to have their store name featured in the billboard and radio ads- if it agrees to conduct a certain level of advertising (running more grape ads, increasing size of grape ads) for grapes in the upcoming year. Retailers also must use California logos showing the California origin of the grapes they sell.

b. The retailer’s logo, for example, might be placed on Commission billboard advertisements in the proximity of the retailer’s stores. Similarly, the names of retailers can be used in the Commission’s radio advertisements.

89. Because consumers prefer table grapes that are in good condition, the Commission also provides training or training materials to targeted retailers in the proper procedures for handling, storing, and displaying table grapes.

a. Each year the Commission makes available to retailers (via its website, on CDROMs, and in its Marketing Training Guide) materials providing information about grape displays, storage temperatures, backroom handling, and grape delivery.

b. Because there is constant turnover in produce departments, the Commission believes it must continually reach out to retailers.

c. In addition to providing training materials, the Commission also encourages retailers to put the Commission’s advice to use by creating attractive grape displays for entry in the Commission’s seasonal display contests. It is the Commission’s goal to encourage retailers to use the techniques learned during the display contests throughout the California grape season.

90.The Commission devotes significant efforts to encourage foodservice providers to increase the amount of fresh grapes they use.

a. Because people today eat out in restaurants more frequently than ever before, the Commission’s work targeting food service providers is thought to be important.

b. One way the Commission attempts to increase the volume of grapes used by foodservice providers is by working with menu developers. In order to encourage menu developers to use fresh grapes, the Commission has developed numerous recipes featuring fresh grapes that it sends to foodservice providers.

c. Commission representatives also meet with menu developers as frequently as possible. For example, in 2005, a Commission representative attended a leadership retreat for menu developers at the Culinary Institute of America in Napa.

d. In addition to developing and distributing recipes featuring grapes and contacting menu developers, the Commission contacts editors and writers for foodservice publications. For example, every year a Commission representative attends an international foodservice editors’ council in order to meet with editors and tell t