author: Justice Scalia

text:
    DASTAR CORP. v. TWENTIETH CENTURY FOX FILM CORP. et al.
    No. 02-428.
    Argued April 2, 2003
    Decided June 2, 2003

      Scalia, J., delivered the opinion of the Court, in which all other Members joined, except Breyer, J., who took no part in the consideration or decision of the case.

      David A. Gerber argued the cause for petitioner. With him on the briefs were Stewart A. Baker, Bennett Evan Cooper, and David Nimmer.

      Gregory G. Garre argued the cause for the United States as amicus curiae urging reversal. With him on the brief were Solicitor General Olson, Assistant Attorney General McCollum, Deputy Solicitor General Clement, Anthony J Steinmeyer, and Mark S. Davies.

      Dale M. Cendali argued the cause for respondents. With her on the briefs were Walter E. Dellinger, Pamela A. Harris, Jonathan D. Hacker, Jeremy Maltby, Pammela Quinn, and Gary D. Roberts.

      Briefs of amici curiae urging reversal were filed for the International Trademark Association by Bruce R. Ewing; and for Malla Pollack et al. by Ms. Pollack, pro se.

      Briefs of amici curiae urging affirmance were filed for the Association for Competitive Technology et al. by Paul Bender and Michael R. Klipper; and for the Directors Guild of America et al. by Rickard P. Bress.

      Briefs of amici curiae were filed for the American Intellectual Property Law Association by William G. Barber, Louis T. Pirkey, and Ronald E. Myrick; for the American Library Association et al. by Jonathan Band and Peter Jaszi; and for Intellectual Property Law Professors by Tyler T. Ochoa.

   Justice Scalia

delivered the opinion of the Court.

In this cáse, we are asked to decide whether § 43(a) of the Lanham Act, 15 U. S. C. § 1125(a), prevents the unaccredited copying of a work, and if so, whether a court may double a profit award under § 1117(a), in order to deter future infringing conduct.

I

In 1948, three and a half years after the German surrender at Reims, General Dwight D. Eisenhower completed Crusade in Europe, his written account of the allied campaign in Europe during World War II. Doubleday published the book, registered it with the Copyright Office in 1948, and granted exclusive television rights to an affiliate of respondent Twentieth Century Fox Film Corporation (Fox). Fox, in turn, arranged for Time, Inc., to produce a television series, also called Crusade in Europe, based on the book, and Time assigned its copyright in the series to Fox. The television series, consisting of 26 episodes, was first broadcast in 1949. It combined a soundtrack based on a narration of the book with film footage from the United States Army, Navy, and Coast Guard, the British Ministry of Information and War Office, the National Film Board of Canada, and unidentified “Newsreel Pool Cameramen.’' In 1975, Doubleday renewed the copyright on the book as the “ ‘proprietor of copyright in a work made for hire.’” App. to Pet. for Cert. 9a. Fox, however, did not renew the copyright on the Crusade television series, which expired in 1977, leaving the television series in the public domain.

In 1988, Fox reacquired the television rights in General Eisenhower’s book, including the exclusive right to distribute the Crusade television series on video and to sublicense others to do so. Respondents SFM Entertainment and New Line Home Video, Inc., in turn, acquired from Fox the exclusive rights to distribute Crusade on video. SFM obtained the negatives of the original television series, restored them, and repackaged the series on videotape; New Line distributed the videotapes.

Enter petitioner Dastar. In 1995, Dastar decided to expand its product line from music compact discs to videos. Anticipating renewed interest in World War II on the 50th anniversary of the war’s end, Dastar released a video set entitled World War II Campaigns in Europe. To make Campaigns, Dastar purchased eight beta cam tapes of the original version of the Crusade television series, which is in the public domain, copied them, and then edited the series. Dastar’s Campaigns series is slightly more than half as long as the original Crusade television series. Dastar substituted a new opening sequence, credit page, and final closing for those of the Crusade television series; inserted new chapter-title sequences and narrated chapter introductions; moved the “recap” in the Crusade television series to the beginning and retitled it as a “preview”; and removed references to and images of the book. Dastar created new packaging for its Campaigns series and (as already noted) a new title.

Dastar manufactured and sold the Campaigns video set as its own product. The advertising states: “Produced and Distributed by: Entertainment Distributing” (which is owned by Dastar), and makes no reference to the Crusade television series. Similarly, the screen credits state “DASTAR CORP presents” and “an ENTERTAINMENT DISTRIBUTING Production,” and list as executive producer, producer, and associate producer employees of Dastar. Supp. App. 2-3, 30. The Campaigns videos themselves also make no reference to the Crusade television series, New Line’s Crusade videotapes, or the book. Dastar sells its Campaigns videos to Sam’s Club, Costco, Best Buy, and other retailers and mail-order companies for $25 per set, substantially less than New Line’s video set.

In 1998, respondents Fox, SFM, and New Line brought this action alleging that Dastar’s sale of its Campaigns video set infringes Doubleday’s copyright in General Eisenhower’s book and, thus, their exclusive television rights in the book. Respondents later amended their complaint to add claims that Dastar’s sale of Campaigns “without proper credit” to the Crusade television series constitutes “reverse passing off” in violation of § 43(a) of the Lánham Act, 60 Stat. 441, 15 U. S. C. § 1125(a), and in violation of state unfair-competition law. App. to Pet. for Cert. 31a. On cross-motions for summary judgment, the District Court found for respondents on all three counts, id., at 54a-55a, treating its resolution of the Lanham Act claim as controlling on the state-law unfair-competition claim because “the ultimate test under both is whether the public is likely to be deceived or confused,” id., at 54a. The court awarded Dastar’s profits to respondents and doubled them pursuant to §35 of the Lanham Act, 15 U. S. C. § 1117(a), to deter future infringing conduct by petitioner.

The Court of Appeals for the Ninth Circuit affirmed the judgment for respondents on the Lanham Act claim, but reversed as to the copyright claim and remanded. 34 Fed. Appx. 312, 316 (2002). (It said nothing with regard to the state-law claim.) With respect to the Lanham Act claim, the Court of Appeals reasoned that “Dastar copied substantially the entire Crusade in Europe series created by Twentieth Century Fox, labeled the resulting product with a different name and marketed it without attribution to Fox[, and] therefore committed a ‘bodily appropriation’ of Fox’s series.” Id., at 314. It concluded that “Dastar’s ‘bodily appropriation’ of Fox’s original [television] series is sufficient to establish the reverse passing off.” Ibid. The court also affirmed the District Court’s award under the Lanham Act of twice Dastar’s profits. We granted certiorari. 537 U. S. 1099 (2003).

II

The Lanham Act was intended to make .“actionable the deceptive and misleading use of marks,” and “to protect persons engaged in . . . commerce against unfair competition.” 15 U. S. C. § 1127. While much of the Lanham Act addresses the registration, use, and infringement of trademarks and related marks, § 43(a), 15 U. S. C. § 1125(a) is one of the few provisions that goes beyond trademark protection. As originally enacted, § 43(a) created a federal remedy against a person who used in commerce either “a false designation of origin, or any false description or representation” in connection with “any goods or services.” 60 Stat. 441. As the Second Circuit accurately observed with regard to the original enactment, however — and as remains true after the 1988 revision — § 43(a) “does not have boundless application as a remedy for unfair trade practices,” Alfred Dunhill, Ltd. v. Interstate Cigar Co., 499 F. 2d 232, 237 (1974). “[B]ecause of its inherently limited wording, § 43(a) can never be a federal ‘codification’ of the overall law of ‘unfair competition,’ ” 4 J. McCarthy, Trademarks and Unfair Competition §27:7, p. 27-14 (4th ed. 2002) (McCarthy), but can apply only to certain unfair trade practices prohibited by its text.

Although a case can be made that a proper reading of § 43(a), as originally enacted, would treat the word “origin” ás referring only “to the geographic location in which the goods originated,” Two Pesos, Inc. v. Taco Cabana, Inc., 505 U. S. 763, 777 (1992) (Stevens, J., concurring in judgment), the Courts of Appeals considering the issue, beginning with the Sixth Circuit, unanimously concluded that it “does not merely refer to geographical origin, but also to origin of source or manufacture,” Federal-Mogul-Bower Bearings, Inc. v. Azoff, 313 F. 2d 405, 408 (1963), thereby creating a federal cause of action for traditional trademark infringement of unregistered marks. See 4 McCarthy §27:14; Two Pesos, supra, at 768. Moreover, every Circuit to consider the issue found § 43(a) broad enough to encompass reverse passing off. See, e.g., Williams v. Curtiss-Wright Corp., 691 F. 2d 168, 172 (CA3 1982); Arrow United Indus., Inc. v. Hugh Richards, Inc., 678 F. 2d 410, 415 (CA2 1982); F. E. L. Publications, Ltd. v. Catholic Bishop of Chicago, 214 USPQ 409, 416 (CA7 1982); Smith v. Montoro, 648 F. 2d 602, 603 (CA9 1981); Bangor Punta Operations, Inc. v. Universal Marine Co., 543 F. 2d 1107, 1109 (CA5 1976). The Trademark Law Revision Act of 1988 made clear that § 43(a) covers origin of production as well as geographic origin. Its language is amply inclusive, moreover, of reverse passing off — if indeed it does not implicitly adopt the unanimous court-of-appeals jurisprudence on that subject. See, e.g., Alpo Petfoods, Inc. v. Ralston Purina Co., 913 F. 2d 958, 963-964, n. 6 (CADC 1990) (Thomas, J.).

Thus, as it comes to us, the gravamen of respondents’ claim is that, in marketing and selling Campaigns as its own product without acknowledging its nearly wholesale reliance on the Crusade television series, Dastar has made a “false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which ... is likely to cause confusion... as to the origin... of his or her goods.” § 43(a). See, e.g., Brief for Respondents 8, 11. That claim would undoubtedly be sustained if Dastar had bought some of New Line’s Crusade videotapes and merely repackaged them as its own. Dastar’s alleged wrongdoing, however, is vastly different: It took a creative work in the public domain — the Crusade television series — copied it, made modifications (arguably minor), and produced its very own series of videotapes. If “origin” refers only to the manufacturer or producer of the physical “goods” that are made available to the public (in this case the videotapes), Dastar was the origin. If, however, “origin” includes the creator of the underlying work that Dastar copied, then someone else (perhaps Fox) was the origin of Dastar’s product. At bottom, we must decide what § 43(a)(1)(A) of the Lanham Act means by the “origin” of “goods.”

III

The dictionary definition of “origin” is “[t]he fact or process of coming into being from a source,” and “[t]hat from which anything primarily proceeds; source.” Webster’s New International Dictionary 1720-1721 (2d ed. 1949). And the dictionary definition of “goods” (as relevant here) is “[w]ares; merchandise.” Id., at 1079. We think the most natural understanding of the “origin” of “goods” — the source of wares — is the producer of the tangible product sold in the marketplace, in this case the physical Campaigns videotape sold by Dastar. The concept might be stretched (as it was under the original version of § 43(a)) to include not only the actual producer, but also the trademark owner who commissioned or assumed responsibility for (“stood behind”) production of the physical product. But as used in the Lanham Act, the phrase “origin of goods” is in our view incapable of connoting the person or entity that originated the ideas or communications that “goods” embody or contain. Such an extension would not only stretch the text, but it would be out of accord with the history and purpose of the Lanham Act and inconsistent with precedent.

Section 43(a) of the Lanham Act prohibits actions like trademark infringement that deceive consumers and impair a producer’s goodwill. It forbids, for example, the Coca-Cola Company’s passing off its product as Pepsi-Cola or reverse passing off Pepsi-Cola as its product. But the brand-loyal consumer who prefers the drink that the Coca-Cola Company or PepsiCo sells, while he believes that that company produced (or at least stands behind the production of) that product, surely does not necessarily believe that that company was the “origin” of the drink in the sense that it was the very first to devise the formula. The consumer who buys a branded product does not automatically assume that the brand-name company is the same entity that came up with the idea for the product, or designed the product — and typically does not care whether it is. The words of the Lan-ham Act should not be stretched to cover matters that are typically of no consequence to purchasers.

It could be argued, perhaps, that the reality of purchaser concern is different for what might be called a communicative product — one that is valued not primarily for its physical qualities, such as a hammer, but for the intellectual content that it conveys, such as a book or, as here, a video. The purchaser of a novel is interested not merely, if at all, in the identity of the producer of the physical tome (the publisher), but also, and indeed primarily, in the identity of the creator of the story it conveys (the author). And the author, of course, has at least as much interest in avoiding passing off (or reverse passing off) of his creation as does the publisher. For such a communicative product (the argument goes) “origin of goods” in § 43(a) must be deemed to include not merely the producer of the physical item (the publishing house Far-rar, Straus and Giroux, or the video producer Bastar) but also the creator of the content that the physical item conveys (the author Tom Wolfe, or — assertedly—respondents).

The problem with this argument according special treatment to communicative products is that it causes the Lanham Act to conflict with the law of copyright, which addresses that subject specifically. The right to copy, and to copy without attribution, once a copyright has expired, like “the right to make [an article whose patent has expired]— including the right to make it in precisely the shape it carried when patented — passes to the public.” Sears, Roebuck & Co. v. Stiffel Co., 376 U. S. 225, 230 (1964); see also Kellogg Co. v. National Biscuit Co., 305 U. S. 111, 121-122 (1938). “In general, unless an intellectual property right such as a patent or copyright protects an item, it will be subject to copying.” TrafFix Devices, Inc. v. Marketing Displays, Inc., 532 U. S. 23, 29 (2001). The rights of a patentee or copyright holder are part of a “carefully crafted bargain,” Bonito Boats, Inc. v. Thunder Craft Boats, Inc., 489 U. S. 141, 150-151 (1989), under which, once the patent or copyright monopoly has expired, the public may use the invention or work at will and without attribution. Thus, in construing the Lanham Act, we have been “careful to caution against misuse or over-extension” of trademark and related protections into areas traditionally occupied by patent or copyright. TrafFix, 532 U. S., at 29. “The Lanham Act,” we have said, “does not exist to reward manufacturers for their innovation in creating a particular device; that is the purpose of the patent law and its period of exclusivity.” Id., at 34. Federal trademark law “has no necessary relation to invention or discovery,” Trade-Mark Cases, 100 U. S. 82, 94 (1879), but rather, by preventing competitors from copying “a source-identifying mark,” “reduce[s] the customer’s costs of shopping and making purchasing decisions,” and “helps assure a producer that it (and not an imitating competitor) will reap the financial, reputation-related rewards associated with a desirable product,” Qualitex Co. v. Jacobson Products Co., 514 U. S. 159, 163-164 (1995) (internal quotation marks and citation omitted). Assuming for the sake of argument that Dastar’s representation of itself as the “Producer” of its videos amounted to a representation that it originated the creative work conveyed by the videos, allowing a cause of action under § 43(a) for that representation would create a species of mutant copyright law that limits the public’s “federal right to 'copy and to use’” expired copyrights, Bonito Boats, supra, at 165.

When Congress has wished to create such an addition to the law of copyright, it has done so with much more specificity than the Lanham Act’s ambiguous use of “origin.” The Visual Artists Rights Act of 1990, § 603(a), 104 Stat. 5128, provides that the author of an artistic work “shall have the right ... to claim authorship of that work.” 17 U. S. C. § 106A(a)(l)(A). That express right of attribution is carefully limited and focused: It attaches only to specified “work[s] of visual art,” §101, is personal to the artist, §§ 106A(b) and (e), and endures only for “the life of the author,” § 106A(d)(l). Recognizing in § 43(a) a cause of action for misrepresentation of authorship of noncopyrighted works (visual or otherwise) would render these limitations superfluous. A statutory interpretation that renders another statute superfluous is of course to be avoided. E. g., Mackey v. Lanier Collection Agency & Service, Inc., 486 U. S. 825, 837, and n. 11 (1988).

Reading “origin” in § 43(a) to require attribution of un-copyrighted materials would pose serious practical problems. Without a copyrighted work as the basepoint, the word “origin” has no discernable limits. . A video of the MGM film Carmen Jones, after its copyright has expired, would presumably require attribution not just to MGM, but to Oscar Hammerstein II (who wrote the musical on which the film was based), to Georges Bizet (who wrote the opera on which the musical was based), and to Prosper Mérimée (who wrote the novel on which the opera was based). In many cases, figuring out who is in thé line of “origin” would be no simple task. Indeed, in the present case it is far from clear that respondents have that status. Neither SFM nor New Line had anything to do with the production of the Crusade television series — they merely were licensed to distribute the video version. While Fox might have a claim to being in the line of origin, its involvement with the creation of the television series was limited at best. Time, Inc., was the principal, if not the exclusive, creator, albeit under arrangement with Fox. And of course it was neither Fox nor Time, Inc., that shot the film used in the Crusade television series. Rather, that footage came from the United States Army, Navy, and Coast Guard, the British Ministry of Information and War Office, the National Film Board of Canada, and unidentified “Newsreel Pool Cameramen.” If anyone has a claim to being the original creator of the material used in both the Crusade television series and the Campaigns videotapes, it would be those groups, rather than Fox. We do not think the Lanham Act requires this search for the source of the Nile and all its tributaries.

Another practical difficulty of adopting a special definition of “origin” for communicative products is that it places the manufacturers of those products in a difficult position. On the one hand, they would face Lanham Act liability for failing to credit the creator of a work on which their lawful copies are based; and on the other hand they could face Lan-ham Act liability for crediting the creator if that should be regarded as implying the creator’s “sponsorship or approval” of the copy, 15 U. S. C. § 1125(a)(1)(A). In this case, for example, if Dastar had simply “copied [the television series] as Crusade in Europe and sold it as Crusade in Europe,” without changing the title or packaging (including the original credits to Fox), it is hard to have confidence in respondents’ assurance that they “would not be here on a Lanham Act cause of action,” Tr. of Oral Arg. 35.

Finally, reading § 43(a) of the Lanham Act as creating a cause of action for, in effect, plagiarism — the use of otherwise unprotected works and inventions without attribution — would be hard to reconcile with our previous decisions. For example, in Wal-Mart Stores, Inc. v. Samara Brothers, Inc., 529 U. S. 205 (2000), we considered whether product-design trade dress can ever be inherently distinctive. Wal-Mart produced “knockoffs” of children’s clothes designed and manufactured by Samara Brothers, containing only “minor modifications” of the original designs. Id., at 208. We concluded that the designs could not be protected under § 43(a) without a showing that they had acquired “secondary meaning,” id., at 214, so that they “‘identify the source of the product rather than the product itself,’ ” id., at 211 (quoting Inwood Laboratories, Inc. v. Ives Laboratories, Inc., 456 U. S. 844, 851, n. 11 (1982)). This carefully considered limitation would be entirely pointless if the “original” producer could turn around and pursue a reverse-passing-off claim under exactly the same provision of the Lanham Act. Samara would merely have had to argue that it was the “origin” of the designs that Wal-Mart was selling as its own line. It was not, because “origin of goods” in the Lanham Act referred to the producer of the clothes, and not the producer of the (potentially) copyrightable or patentable designs that the clothes embodied.

Similarly under respondents’ theory, the “origin of goods” provision of § 43(a) would have supported the suit that we rejected in Bonito Boats, 489 U. S. 141, where the defendants had used molds to duplicate the plaintiff’s unpatented boat hulls (apparently without crediting the plaintiff). And it would have supported the suit we rejected in TrafFix, 532 U.S. 23: The plaintiff, whose patents on flexible road signs had expired, and who could not prevail on a trade-dress claim under § 43(a) because the features of the signs were functional, would have had a reverse-passing-off claim for unattributed copying of his design.

In sum, reading the phrase “origin of goods” in the Lan-ham Act in accordance with the Act’s common-law foundations (which were not designed to protect originality or creativity), and in light of the copyright and patent laws (which were), we conclude that the phrase refers to the producer of the tangible goods that are offered for sale, and not to the author of any idea, concept, or communication embodied in those goods. Cf. 17 U. S. C. § 202 (distinguishing between a copyrighted work and “any material object in which the work is embodied”). To hold otherwise would be akin to finding that § 43(a) created a species of perpetual patent and copyright, which Congress may not do. See Eldred v. Ashcroft, 537 U. S. 186, 208 (2003).

The creative talent of the sort that lay behind the Campaigns videos is not left without protection. The original film footage used in the Crusade television series could have been copyrighted, see 17 U. S. C. § 102(a)(6), as was copyrighted (as a compilation) the Crusade television series, even though it included material from the public domain, see § 103(a). Had Fox renewed the copyright in the Crusade television series, it would have had an easy claim of copyright infringement. And respondents’ contention that Campaigns infringes Doubleday’s copyright in General Eisenhower’s book is still a live question on remand. If, moreover, the producer of a video that substantially copied the Crusade series were, in advertising or promotion, to give purchasers the impression that the video was quite different from that series, then one or more of the respondents might have a cause of action — not for reverse passing off under the “confusion ... as to the origin” provision of § 43(a)(1)(A), but for misrepresentation under the “misrepresents the nature, characteristics [or] qualities” provision of § 43(a)(1)(B). For merely saying it is the producer of the video, however, no Lanham Act liability attaches to Dastar.

* * *

Because we conclude that Dastar was the “origin” of the products it sold as its own, respondents cannot prevail on their Lanham Act claim. We thus have no occasion to consider whether the Lanham Act permitted an award of double petitioner’s profits. The judgment of the Court of Appeals for the Ninth Circuit is reversed, and the case is remanded for further proceedings consistent with this opinion.

It is so ordered.

Justice Breyer took no part in the consideration or decision of this case.

       Passing off (or palming off, as it is sometimes called) occurs when a producer misrepresents his own goods or services as someone else’s. See, e. g., O. & W. Thum Co. v. Dickinson, 245 F. 609, 621 (CA6 1917). “Reverse passing off,” as its name implies, is the opposite: The producer misrepresents someone else’s goods or services as his own. See, e. g., Williams v. Curtiss-Wright Corp., 691 F. 2d 168, 172 (CA3 1982).

       As for the copyright claim, the Ninth Circuit held that the tax treatment General Eisenhower sought for his manuscript of the book created a triable issue as to whether he intended the book to be a work for hire, and thus as to whether Doubleday properly renewed the copyright in 1976. See 34 Fed. Appx., at 314. The copyright issue is still the subject of litigation, but is not before us. We express no opinion as to whether petitioner’s product would infringe a valid copyright in General Eisenhower's book.

       In the original provision, the cause of action for false designation of origin was arguably “available only to a person doing business in the locality falsely indicated as that of origin,” 505 U. S., at 778, n. 3. As adopted in 1946, § 43(a) provided in full:
      “Any person who shall affix, apply, or annex, or use in connection with any goods or services, or any container or containers for goods, a false designation of origin, or any false description or representation, including words or other symbols tending falsely to describe or represent the same, and shall cause such goods or services to enter into commerce, and any person who shall with knowledge of the falsity of such designation of origin or description or representation cause or procure the same to be transported or used in commerce or deliver the same to any carrier to be transported or used, shall be liable to a civil action by any person doing business in the locality falsely indicated as that of origin or the region in which said locality is situated, or by any person who believes that he is or is likely to be damaged by the use of any such false description or representation.” 60 Stat. 441.

       Section 43(a) of the Lanharn Act now provides:
      “Any person who, on or in connection with any goods or services, or any container for goods, uses in commerce any word, term, name, symbol, or device, or any combination thereof, or any false designation of origin, false or misleading description of fact, or false or misleading representation of fact, which—
      “(A) is likely to cause confusion, or to cause mistake, or to deceive as to the affiliation, connection, or association of such person with another person, or as to the origin, sponsorship, or approval of his or her goods, services, or commercial activities by another person, or
      “(B) in commercial advertising or promotion, misrepresents the nature, characteristics, qualities, or geographic origin of his or her or another person’s goods, services, or commercial activities,
      “shall be liable in a civil action by any person who believes that he or she is or is likely to be damaged by such act.” 15 U. S. C. § 1125(a)(1).

       Under the 1946 version of the Act, § 43(a) was read as providing a cause of action for trademark infringement even where the trademark owner had not itself produced the goods sold under its mark, but had licensed others to sell under its name goods produced by them — the typical franchise arrangement. See, e. g., My Pie Int’l, Inc. v. Debould, Inc., 687 F. 2d 919 (CA7 1982). This stretching of the concept “origin of goods” is seemingly no longer needed: The 1988 amendments to § 43(a) now expressly prohibit the use of any “word, term, name, symbol, or device,” or “false or misleading description of fact” that is likely to cause confusion as to “affiliation, connection, or association ... with another person,” or as to “sponsorship, or approval” of goods. 15 U. S. C. § 1125(a).


source: Caselaw Access Project

author: Justice Thomas

license: Public Domain

text:
    ENTERGY LOUISIANA, INC. v. LOUISIANA PUBLIC SERVICE COMMISSION et al.
    No. 02-299.
    Argued April 28, 2003
    Decided June 2, 2003

      Thomas, J., delivered the opinion for a unanimous Court.

      David W. Carpenter argued the cause for petitioner. With him on the briefs were Virginia A. Seitz, J. Wayne Anderson, and Kathryn Ann Washington.

      Austin C. Schlick argued the cause for the United States as amicus curiae urging reversal. With him on the brief were Solicitor General Olson, Deputy Solicitor General Kneedler, Cynthia A. Marlette, and Dennis Lane.

      Michael R. Fontham argued the cause for respondents. With him on the brief were Paul L. Zimmering, Noel J. Darce, Dana M. Shelton, and Jason M. Bilbe.

         Charles G. Cole, Edward H. Comer, and Barbara A. Hindin filed a brief for Edison Electric Institute as amicus curiae urging reversal.

   Justice Thomas

delivered the opinion of the Court.

The Federal Energy Regulatory Commission (FERC) regulates the sale of electricity at wholesale in interstate commerce. 16 U. S. C. § 824(b). In this capacity, FERC must ensure that wholesale rates are “just and reasonable,” § 824d(a). In Nantahala Power & Light Co. v. Thornburg, 476 U. S. 953 (1986), and Mississippi Power & Light Co. v. Mississippi ex rel. Moore, 487 U. S. 354 (1988) (MP&L), the Court concluded that, under the filed rate doctrine, FERC-approved cost allocations between affiliated energy companies may not be subjected to reevaluation in state rate-making proceedings. We consider today whether a FERC tariff that delegates discretion to the regulated entity to de-' termine the precise cost allocation similarly pre-empts an order that adjudges those costs imprudent.

I

Petitioner Entergy Louisiana, Inc. (ELI), is one of five public utilities owned by Entergy Corporation (Entergy), a multistate holding company. ELI operates in the State of Louisiana and shares capacity with its corporate siblings operating in Arkansas, Mississippi, and Texas (collectively, the operating companies). This sharing arrangement allows each operating company to access additional capacity when demand exceeds the supply generated by that company alone. But keeping excess capacity available for use by all is a benefit shared by the operating companies, and the costs associated with this benefit must be allocated among them. State regulators establish the rates each operating company may charge in its retail sales, allowing each company to recover its costs and a reasonable rate of return. Thus, the cost allocation between operating companies is critical to the setting of retail rates.

Entergy allocates costs through the system agreement, a tariff approved by FERC under § 205 of the Federal Power Act (FPA), 41 Stat. 1063, 16 U. S. C. §824d. The system agreement is administered by the Entergy operating committee, which includes one representative from each operating company and one from Entergy Services, a subsidiary of Entergy that provides administrative services to the system. Service Schedule MSS-1, which is included as § 10 of the system agreement, allows for cost equalization of shared capacity through a formula that dictates that those operating companies contributing less than their fair share, i. e., using more capacity than they contribute, make payments to the others that contribute more than their fair share of capacity. Those making such payments are known as “short” companies, and those accepting the payments are known as “long” companies. Each operating company’s capability is determined monthly, and payments are made on a monthly basis— a long company receives a payment equal to its average cost of generating units multiplied by the number of megawatts the company is long. Because the variables that determine the MSS-1 cost allocation can change monthly, Service Schedule MSS-1 is an automatic adjustment clause under § 205(f) of the FPA, 16 U. S. C. §824d(f), which exempts it from the FPA’s ordinary requirements for tariff changes.

In order to determine whether an operating company is long or short in a given month, one must know how much capacity that operating company is making available to its siblings. The question is not as easy as asking whether the generating facilities are on or off, however, because in the mid-1980’s the operating committee initiated the Extended Reserve Shutdown (ERS) program. Responding to system-wide overcapacity, ERS allowed some generating units to be identified as not immediately necessary for capacity needs and effectively mothballed. However, these units could be activated if demand increased, meaning that the capacity they represented was not forever placed out of reach of the operating companies. As a result, ERS units were considered “available” for purposes of calculating MSS-1 cost equalization payments. Counting ERS units as available has generally had the effect of making ELI, already a short company, even more short, thus increasing its cost equalization payments.

In December 1993, FERC initiated a proceeding under § 206 of the FPÁ, 16 U. S. C. § 824e, to decide whether the system agreement permitted ERS units to be treated as available. Respondent Louisiana Public Service Commission (LPSC), which regulates ELI’s retail rates in Louisiana, participated in the FERC proceeding and argued that customers of ELI were entitled to a refund as a result of MSS-1 overpayments made by ELI after the alleged misclassification of ERS units as available. FERC agreed that Entergy had violated the system agreement in its classification of ERS units as available, but determined that a refund was not supported by the equities because the resultant cost allocations, while violative of the tariff, were not unjust, unreasonable, or unduly discriminatory. Entergy Servs., Inc., 80 FERC ¶ 61,197, pp. 61,786-61,788 (1997) (Order No. 415). FERC also approved, over the objection of the LPSC, an amendment to the system agreement that allows an ERS unit to be treated as available under MSS-1 if the operating committee determines it intends to return the unit to service at a future date. The Court of Appeals for the District of Columbia Circuit denied the LPSC’s petition for review of FERC Order No. 415. Louisiana Public Service Comm’n v. FERC, 174 F. 3d 218 (1999). With respect to the amendment, the Court of Appeals found that “FERC understandably concluded that [it] set out the parameters of the operating committee’s discretion, and that discriminatory implementation of the amendment could be remedied in a proceeding under FPA § 206.” Id., at 231.

ELI made its annual retail rate filing with the LPSC in May 1997. One of the contested issues was “whether payments under the System Agreement for the cost of generating units in Extended Reserve Shutdown should be included or excluded from ELI’s revenue requirement.” App. to Pet. for Cert. 25a. Given FERC’s determination that the inclusion of ERS units as available prior to August 5, 1997 (the date FERC Order No. 415 issued), was just and reasonable, the LPSC confined its review to MSS-1 payments made after August 5, 1997. Its own staff argued before the LPSC that after August 5, 1997, ELI and the operating committee violated amended § 10.02(a) of the operating agreement by continuing to count ERS units as available. The LPSC concluded, however, that it was “pre-empted from determining whether the terms of a FERC tariff have been met, for the issue of violation of or compliance with a FERC tariff is peculiarly within FERC’s purview.” Id., at 64a.

Nevertheless, the LPSC held that it was not pre-empted from disallowing MSS-l-related costs as imprudent subsequent to August 5, 1997:

“[T]hough FERC has exclusive jurisdiction over the issue of whether the System Agreement has been violated, there currently exists no FERC order that has found that the Operating Committee’s decision is in compliance with the System Agreement. In the absence of such FERC determination, this Commission can scrutinize the prudence of the Operating Committee’s decision without violating the [Supremacy [C]lause insofar as that decision affects retail rates.” Id., at 65a.

The LPSC concluded that the operating committee’s treatment of ERS units after August 5, 1997, was imprudent and that ELI’s MSS-1 payments would not be considered when setting ELI’s retail rates in Louisiana. In other words, though ELI made the MSS-1 payments to its “long” corporate siblings, it would not be allowed to recoup those costs in its retail rates.

ELI petitioned for review of the LPSC’s decision in State District Court. That petition was denied, and ELI appealed to the Supreme Court of Louisiana, which upheld the LPSC’s decision. 2001-1725 (La. 4/3/02), 815 So. 2d 27. The Supreme Court of Louisiana held that the LPSC’s order was not barred by federal pre-emption because the LPSC was not “attempting to regulate interstate wholesale rates” or “challenging] the validity of the FERC’s declination to order refunds of amounts paid in violation of the System Agreement prior to the amendment.” Id., at 38. Further, the court reasoned, “FERC never ruled on the issue of whether ELI’s decision to continue to include the ERS units [after August 5, 1997, was] a prudent one” or made “it mandatory for the [operating committee] to include the ERS units in its MSS-1 calculations.” Ibid.

We granted ELI’s petition for writ of certiorari to address whether the Court’s decisions in Nantahala and MP&L lead to federal pre-emption of the LPSC’s order. 537 U. S. 1152 (2003). We hold that Nantahala and MP&L “res[t] on a foundation that is broad enough,” MP&L, 487 U. S., at 369, to require pre-emption of the order in this case.

II

A

The filed rate doctrine requires “that interstate power rates filed with FERC or fixed by FERC must be given binding effect by state utility commissions determining intrastate rates.” Nantahala, 476 U. S., at 962. When the filed rate doctrine applies to state regulators, it does so as a matter of federal pre-emption through the Supremacy Clause. Arkansas Louisiana Gas Co. v. Hall, 453 U. S. 571, 581-582 (1981).

In Nantahala and MP&L, the Court applied the filed rate doctrine to hold that FERC-mandated cost allocations could not be second-guessed by state regulators. Nantahala involved two corporate siblings, Nantahala Power & Light Company and Tapoco, Inc., the former of which served retail customers in North Carolina. Both Nantahala and Tapoco provided power to the Tennessee Valley Authority (TVA), which in turn sold power back to them pursuant to an agreement between all three parties. But the power was not purchased at a uniform price. Low-cost power was made available to both Nantahala and Tapoco in consideration for the right to pour all of their power into the TVA grid. This low-cost power was apportioned 80% to Tapoco, which served exclusively the corporate parent of Tapoco and Nan-tahala, and 20% to Nantahala. Nantahala purchased the remainder of its power requirements at higher prices. FERC approved this cost allocation with a slight modification, so that Nantahala received 22.5% of the low-cost entitlement power. However, the North Carolina Supreme Court upheld the North Carolina Utilities Commission’s (NCUC) determination that Nantahala’s share of the low-cost power was properly 24.5%. This resulted in a lower cost computation for Nantahala, and therefore lower rates for North Carolina retail customers, than would have obtained if FERC’s cost allocation had been respected by NCUC.

This Court held that the state cost allocation order was pre-empted:

“Nantahala must under NCUC’s order calculate its retail rates as if it received more entitlement power than it does under FERC’s order, and as if it needed to procure less of the more expensive purchased power than under FERC’s order. A portion of the costs incurred by Nantahala in procuring its power is therefore ‘trapped.’ ” 476 U. S., at 971.

Trapping of costs “runs directly counter,” id,,, at 968, to the rationale for FERC approval of cost allocations, the Court concluded, because when costs under a FERC tariff are categorically excluded from consideration in retail rates, the regulated entity “cannot fully recover its costs of purchasing at the FERC-approved rate . . . id., at 970.

In MP&L, the Court further defined the scope of filed rate doctrine pre-emption in the cost allocation context. Predecessors of the operating companies concerned here were jointly involved in the construction of the Grand Gulf nuclear power plant in Mississippi. The costs of the project turned out to be significantly higher than had been originally planned, and as a result the wholesale cost of power generated at Grand Gulf was much higher than power available from other system generating units. But the high fixed costs of building Grand Gulf had to be recouped, and the operating companies agreed that each of them would purchase a specific proportion of the high-cost power generated at Grand Gulf. The original allocation was challenged before FERC, which ultimately approved a modified tariff. That tariff required Mississippi Power and Light (MP&L, now Entergy Mississippi) to purchase 33% of the power produced at Grand Gulf.

Mississippi regulators allowed MP&L to pass along these costs to consumers through retail rate increases. The Mississippi Supreme Court, however, reasoned that “FERC’s determination that MP&L’s assumption of a 33% share of the costs associated with Grand Gulf would be fair to its sister operating companies did not obligate the State to approve a pass-through of those costs to state consumers without a prudence review.” MP&L, 487 U. S., at 367. The Mississippi Supreme Court distinguished Nantahala by limiting the scope of its holding to “matters actually determined, whether expressly or impliedly, by the FERC.” Mississippi ex rel. Pittman v. Mississippi Public Service Comm’n, 506 So. 2d 978, 986 (Miss. 1987) (citation omitted).

This Court disagreed, holding that the state court “erred in adopting the view that the pre-emptive effect of FERC jurisdiction turned on whether a particular matter was actually determined in the FERC proceedings.” MP&L, 487 U. S., at 374. Although FERC had not explicitly held that the construction of Grand Gulf was prudent, the cost allocation filed with FERC pre-empted any state prudence review, because “if the integrity of FERC regulation is to be preserved, it obviously cannot be unreasonable for MP&L to procure the particular quantity of high-priced Grand Gulf power that FERC has ordered it to pay for.” Ibid.

B

Applying Nantahala and MP&L to the facts of this case, we conclude that the LPSC’s order impermissibly “traps” costs that have been allocated in a FERC tariff. The amended system agreement differs from the tariffs in MP&L and Nantahala because it leaves the classification of ERS units to the discretion of the operating committee, whereas in Nantahala and MP&L the cost allocations were specific mandates. The Louisiana Supreme Court concluded that this delegated discretion provided room for the LPSC’s finding of imprudence where a mandated cost allocation would not. However, Congress has specifically allowed for the use of automatic, adjustment clauses in the FPA, and it is uncontested that the MSS-1 schedule constitutes such an automatic adjustment clause. We see no reason to create an exception to the filed rate doctrine for tariffs of this type that would substantially limit FERC’s flexibility in approving cost allocation arrangements.

The Louisiana Supreme Court’s other basis for upholding the LPSC’s order was that FERC had not specifically approved the MSS-1 cost allocation after August 5,1997, when it issued Order No. 415. See 815 So. 2d, at 38 (“The FERC never ruled on the issue of whether ELI’s decision to continue to include the ERS units is a prudent one”). In so holding, the Louisiana Supreme Court revived precisely the same erroneous reasoning that was advanced by the Mississippi Supreme Court in MP&L. There this Court noted that the “view that the pre-emptive effect of FERC jurisdiction turn[s] on whether a particular matter was actually determined in the FERC proceedings” has been “long rejected.” MP&L, supra, at 374. It matters not whether FERC has spoken to the precise classification of ERS units, but only whether the FERC tariff dictates how and by whom that classification should be made. The amended system agreement clearly does so, and therefore the LPSC’s second-guessing of the classification of ERS units is pre-empted.

Finally, we address respondents’ contention that the inclusion of ERS units in MSS-1 calculations was a violation of the amended system agreement and that, consequently, the LPSC’s order is shielded from federal pre-emption. Curiously, respondents advance this argument here despite the LPSC’s own prior holding that it .does not have jurisdiction to determine whether the system agreement was violated and the Louisiana Supreme Court’s acceptance of that concession. See App. to Pet. for Cert. 64a; 815 So. 2d, at 35-36. ELI and the United States maintain that the LPSC was correct when it initially held that FERC has exclusive jurisdiction to determine whether a FERC tariff has been violated and that state regulatory agencies may not, consistent with the FPA, disallow costs based on their own assessment of noncomplianee with a FERC tariff. But the question before us is whether the LPSC’s order is pre-empted under Nanta-hala and MP&L, and that order does not rest on a finding that the system agreement was violated. The LPSC’s express statement that it had no jurisdiction to conclude that there had been a violation of the system agreement confirms this. Consequently, we have no occasion to address the question of the exclusivity of FERC’s jurisdiction to determine whether and when a filed rate has been violated.

For the foregoing reasons, the judgment of the Louisiana Supreme Court is reversed.

It is so ordered.

       Where, as here, public utilities share capacity, the allocation of costs of maintaining capacity and generating power constitutes “the sale of electric energy at wholesale in interstate commerce.” 16 U. S. C. § 824(b)(1).

       Section 824d(f)(4) provides the definition of “automatic adjustment clause”:
      “a provision of a rate schedule which provides for increases or decreases (or both), without prior hearing, in rates reflecting increases or decreases (or both) in costs incurred by an electric utility. Such term does not include any rate which takes effect subject to refund and subject to a later determination of the appropriate amount of such rate.”

       Section 10.02 of the system agreement, as amended on August 5, 1997, pursuant to FERC Order No. 415 provides:
      “A unit is considered available to the extent the capability can be demonstrated and (1) is under the control of the System Operator, or (2) is down for maintenance or nuclear refueling, or (3) is in extended reserve shutdown (ERS) with the intent of returning the unit to service at a future date in order to meet Entergy System requirements. The Operating Committee’s decision to consider an ERS unit to be available to meet future System requirements shall be evidenced in the minutes of the Operating Committee and shall be based on consideration of current and future resource needs, the projected length of time the unit would be in ERS status, the projected cost of maintaining such unit, and the projected cost of returning the unit to service.” 80 FERC, at 61,788-61,789 (emphasis deleted).

       The MSS-1 payments that were disallowed were, in fact, those made in 1996, which were to be used in calculating 1997-1998 retail rates by the LPSC. App. to Pet. for Cert. 76a.


author: Per Curiam.

text:
    THE CITIZENS BANK v. ALAFABCO, INC., et al.
    No. 02-1295.
    Decided June 2, 2003
   Per Curiam.

The question presented is whether the parties’ debt-restructuring agreement is “a contract evidencing a transaction involving commerce” within the meaning of the Federal Arbitration Act (FAA). 9 U. S. C. § 2. As we concluded in Allied-Bruce Terminix Cos. v. Dobson, 513 U. S. 265 (1995), there is a sufficient nexus with interstate commerce to make enforceable, pursuant to the FAA, an arbitration provision included in that agreement.

Petitioner The Citizens Bank — an Alabama lending institution — seeks to compel arbitration of a financial dispute with respondents Alafabco, Inc. — an Alabama fabrication and construction company — and its officers. According to a complaint filed by respondents in Alabama state court, the dispute among the parties arose out of a series of commercial loan transactions made over a deeade-long course of business dealings. In 1986, the complaint alleges, the parties entered into a quasi-contractual relationship in which the bank agreed to provide operating capital necessary for Alafabco to secure and complete construction contracts. That relationship began to sour in 1998, when the bank allegedly encouraged Alafabco to bid on a large construction contract in Courtland, Alabama, but refused to provide the capital necessary to complete the project. In order to compensate for the bank’s alleged breach of the parties’ implied agreement, Alafabco completed the Courtland project with funds that would otherwise have been dedicated to repaying existing obligations to the bank. Alafabco in turn became delinquent in repaying those existing obligations.

On two occasions, the parties attempted to resolve the outstanding debts. On May 3, 1999, Alafabco and the bank executed “ ‘renewal notes’ ” in which all previous loans were restructured and redocumented. 872 So. 2d 798 (Ala. 2002). The debt-restructuring arrangement included an arbitration agreement covering “ ‘all disputes, claims, or controversies.’ ” That agreement provided that the FA A “ ‘shall apply to [its] construction, interpretation, and enforcement.’ ” Id., at 799. Alafabco defaulted on its obligations under the renewal notes and sought bankruptcy protection in federal court in September 1999.

In return for the dismissal of Alafabco’s bankruptcy petition, the bank agreed to renegotiate the outstanding loans in a second debt-restructuring agreement. On December 10, 1999, the parties executed new loan documents encompassing Alafabco’s entire outstanding debt, approximately $430,000, which was secured by a mortgage on commercial real estate owned by the individual respondents, by Alafabco’s accounts receivable, inventory, supplies, fixtures, machinery, and equipment, and by a mortgage on the house of one of the individual respondents. Id., at 800. As part of the second debt-restructuring agreement, the parties executed an arbitration agreement functionally identical to that of May 3, 1999.

Within a year of the December 1999 debt restructuring, Alafabco brought suit in the Circuit Court of Lawrence County, Alabama, against the bank and its officers. Ala-fabco alleged, among other causes of action, breach of contract, fraud, breach of fiduciary duties, intentional infliction of emotional distress, and interference with a contractual or business relationship. Essentially, the suit alleged that Ala-fabco detrimentally “ ‘incur[red] massive debt’ ” because the bank had unlawfully reneged on its agreement to provide capital sufficient to complete the Courtland project. Id., at 799. Invoking the arbitration agreements, the bank moved to compel arbitration of the parties’ dispute. The Circuit Court ordered respondents to submit to arbitration in accordance with the arbitration agreements.

The Supreme Court of Alabama reversed over Justice See’s dissent. Applying a test it first adopted in Sisters of the Visitation v. Cochran Plastering Co., 775 So. 2d 759 (2000), the court held that the debt-restructuring agreements were the relevant transactions and proceeded to determine whether those transactions, by themselves, had a “substantial effect on interstate commerce.” 872 So. 2d, at 801, 808. Because there was no showing “that any portion of the restructured debt was actually attributable to interstate transactions; that the funds comprising that debt originated out-of-state; or that the restructured debt was inseparable from any out-of-state projects,” id., at 805, the court found an insufficient nexus with interstate commerce to establish FAA coverage of the parties’ dispute.

Justice See in dissent explained why, in his view, the court had erred by using the test formulated in Sisters of the Visitation, in which the Supreme Court of Alabama read this Court’s opinion in United States v. Lopez, 514 U. S. 549 (1995), to require that “a particular contract, in order to be enforceable under the Federal Arbitration Act must, by itself, have a substantial effect on interstate commerce.” 872 So. 2d, at 808. Rejecting that stringent test and assessing the evidence with a more generous view of the necessary effect on interstate commerce, Justice See would have found that the bank’s loans to Alafabco satisfied the FAA’s “involving commerce” requirement.

II

The FAA provides that a

“written provision in any maritime transaction or a contract evidencing a transaction involving commerce to settle by arbitration a controversy thereafter arising out of such contract or transaction, or the refusal to perform the whole or any part thereof, or an agreement in writing to submit to arbitration an existing controversy arising out of such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U. S. C. §2 (emphasis added).

The statute further defines “commerce” to include “commerce among the several States.” §1. Echoing Justice See’s dissenting opinion, petitioner contends that the decision below gives inadequate breadth 'to the “involving commerce” language of the statute. We agree.

We have interpreted the term “involving commerce” in the FAA as the functional equivalent of the more familiar term “affecting commerce” — words of art that ordinarily signal the broadest permissible exercise of Congress’ Commerce Clause power. Allied-Bruce Terminix Cos., 513 U. S., at 273-274. Because the statute provides for “the enforcement of arbitration agreements within the full reach of the Commerce Clause,” Perry v. Thomas, 482 U. S. 483, 490 (1987), it is perfectly clear that the FAA encompasses a wider range of transactions than those actually “in commerce” — that is, “within the flow of interstate commerce,” Allied-Bruce Terminix Cos., supra, at 273 (internal quotation marks, citation, and emphasis omitted).

The Supreme Court of Alabama was therefore misguided in its search for evidence that a “portion of the restructured debt was actually attributable to interstate transactions” or that the loans “originated out-of-state” or that “the restructured debt was inseparable from any out-of-state projects.” 872 So. 2d, at 805. Such evidence might be required if the FAA were restricted to transactions actually “‘in commerce,’ ” Gulf Oil Corp. v. Copp Paving Co., 419 U. S. 186, 195-196 (1974), but, as we have explained, that is not the limit of the FAA’s reach.

Nor is application of the FAA defeated because the individual debt-restructuring transactions, taken alone, did not have a “substantial effect on interstate commerce.” 872 So. 2d, at 803. Congress’ Commerce Clause power “may be exercised in individual cases without showing any specific effect upon interstate commerce” if in the aggregate the economic activity in question would represent “a general practice . .. subject to federal control.” Mandeville Island Farms, Inc. v. American Crystal Sugar Co., 334 U. S. 219, 236 (1948). See also Perez v. United States, 402 U. S. 146, 154 (1971); Wickard v. Filburn, 317 U. S. 111, 127-128 (1942). Only that general practice need bear on interstate commerce in a substantial way. Maryland v. Wirtz, 392 U. S. 183, 196-197, n. 27 (1968); NLRB v. Jones & Laughlin Steel Corp., 301 U. S. 1, 37-38 (1937).

This case is well within our previous pronouncements on the extent of Congress’ Commerce Clause power. Although the debt-restructuring agreements were executed in Alabama by Alabama residents, they nonetheless satisfy the FAA’s “involving commerce” test for at least three reasons. First, Alafabco engaged in business throughout the southeastern United States using substantial loans from the bank that were renegotiated and redocumented in the debt-restructuring agreements. Indeed, the gravamen of Alafab-co’s state-court suit was that it had incurred “‘massive debt’ ” to the bank in order to keep its business afloat, and the bank submitted affidavits of bank officers establishing that its loans to Alafabco had been used in part to finance large construction projects in North Carolina, Tennessee, and Alabama.

Second, the restructured debt was secured by all of Ala-fabco’s business assets, including its inventory of goods assembled from out-of-state parts and raw materials. If the Commerce Clause gives Congress the power to regulate local business establishments purchasing substantial quantities of goods that have moved in interstate commerce, Katzenbach v. McClung, 379 U. S. 294, 304-305 (1964), it necessarily reaches substantial commercial loan transactions secured by such goods.

Third, were there any residual doubt about the magnitude of the impact on interstate commerce caused by the particular economic transactions in which the parties were engaged, that doubt would dissipate upon consideration of the “general practice” those transactions represent. Mandeville Island Farms, supra, at 236. No elaborate explanation is needed to make evident the broad impact of commercial lending on the national economy or Congress’ power to regulate that activity pursuant to the Commerce Clause. Lewis v. BT Investment Managers, Inc., 447 U. S. 27, 38-39 (1980) (“[B]anking and related financial activities are of profound local concern. . . . Nonetheless, it does not follow that these same activities lack important interstate attributes”); Perez, supra, at 154-155 (“Extortionate credit transactions, though purely intrastate, may in the judgment of Congress affect interstate commerce”).

The decision below therefore adheres to an improperly cramped view of Congress’ Commerce Clause power. That view, first announced by the Supreme Court of Alabama in Sisters of the Visitation v. Cochran Plastering Co., 775 So. 2d 759 (2000), appears to rest on a misreading of our decision in United States v. Lopez, 514 U. S. 549 (1995). Lopez did not restrict the reach of the FAA or implicitly overrule Allied-Bruce Terminix Cos. — indeed, we did not discuss that case in Lopez. Nor did Lopez purport to announce a new rule governing Congress’ Commerce Clause power over concededly economic activity such as the debt-restructuring agreements before us now. 514 U. S., at 561. To be sure, “the power to regulate commerce, though broad indeed, has limits,” Maryland v. Wirtz, supra, at 196, but nothing in our decision in Lopez suggests that those limits are breached by applying the FAA to disputes arising out of the commercial loan transactions in this case.

Accordingly, the petition for writ of certiorari is granted, the judgment of the Supreme Court of Alabama is reversed, and the case is remanded for further proceedings not inconsistent with this opinion.

It is so ordered.


author:
Justice Stevens
      Justice Thomas,

text:
    HILLSIDE DAIRY INC. et al. v. LYONS, SECRETARY, CALIFORNIA DEPARTMENT OF FOOD AND AGRICULTURE, et al.
    No. 01-950.
    Argued April 22, 2003
    Decided June 9, 2003

      Stevens, J., delivered the opinion of the Court, Parts I and III of which were unanimous, and Part II of which was joined by Rehnquist, C. J., and O’Connor, Scalia, Kennedy, Souter, Ginsburg, and Breyer, JJ. Thomas, J., filed an opinion concurring in part and dissenting in part, post, p. 68.

      Roy T Englert, Jr., argued the cause for petitioners in both cases. With him on the briefs were Lawrence S. Robbins, Charles M. English, Jr., Wendy M. Yoviene, and Nicholas C. Geale.

      Barbara McDowell argued the cause for the United States as amicus curiae urging reversal. With her on the brief were Solicitor General Olson, Assistant Attorney General

      McCollum, Deputy Solicitor General Kneedler, and Mark B. Stern.

      Mark J. Urban argued the cause for respondents in both cases. With him on the brief were Bill Lockyer, Attorney General of California, Manuel M. Medeiros, State Solicitor General, Richard M. Frank, Chief Assistant Attorney General, Bruce F. Reeves and Mark J. Urban, Deputy Attorneys General, and Andrea Hackett Henningsen.

      Together with No. 01-1018, Ponderosa Dairy et al. v. Lyons, Secretary, California Department of Food and Agriculture, et al., also on certiorari to the same court.

      Briefs of amici curiae urging reversal were filed for the State of Nevada et al. by Brian Sandoval, Attorney General of Nevada, and by the Attorneys General for their respective States as follows: Mike Hatch of Minnesota, Mike McGrath of Montana, Hardy Myers of Oregon, Christine Ó. Gregoire of Washington, and Peggy A. Lautenschlager of Wisconsin; for Continental Dairy Products, Inc., et al. by Benjamin F. Yale; and for the Dairy Institute of California by Thomas S. Knox.

        John J. Vlahos filed a brief for Western United Dairymen as amicus curiae urging affirmance.

   Justice Stevens

delivered the opinion of the Court.

In most of the United States, not including California, the minimum price paid to dairy farmers producing raw milk is regulated pursuant to federal marketing orders. Those orders guarantee a uniform price for the producers, but through pooling mechanisms require the processors of different classes of dairy products to pay different prices. Thus, for example, processors of fluid milk pay a premium price, part of which goes into an equalization pool that provides a partial subsidy for cheese manufacturers who pay a net price that is lower than the farmers receive. See West Lynn Creamery, Inc. v. Healy, 512 U. S. 186, 189, n. 1 (1994).

The California Legislature has adopted a similar program to regulate the minimum prices paid by California processors to California producers. In the cases before us today, out-of-state producers are challenging the constitutionality of a 1997 amendment to that program. They present us with two questions: (1) whether § 144 of the Federal Agriculture Improvement and Reform Act of 1996, 110 Stat. 917, 7 U. S. C. § 7254, exempts California’s milk pricing and pooling regulations from scrutiny under the Commerce Clause; and (2) whether the individual petitioners’ claim under the Privileges and Immunities Clause is foreclosed because those regulations do not discriminate on their face on the basis of state citizenship or state residence.

I

Government regulation of the marketing of raw milk has been continuous since the Great Depression. In California, three related statutes establish the regulatory structure for milk produced, processed, or sold in California. First, in 1935, the State enacted the Milk Stabilization and Marketing Act, Cal. Food & Agric. Code Ann. §§61801-62403 (West 2001), “to establish minimum producer prices at fair and reasonable levels so as to generate reasonable producer incomes that will promote the intelligent and orderly marketing of market milk . . . § 61802(h). Then, California created requirements for composition of milk products in the Milk and Milk Products Act of 1947. §§ 32501-39912. The standards created under this Act mandate minimum percentages of fat and solids-not-fat in dairy products and often require fortification of milk by adding solids-not-fat. In 1967, California passed another milk pricing Act, the Gonsalves Milk Pooling Act, §§ 62700-62731, to address deficiencies in the existing pricing scheme. Together, these three Acts (including numerous subsequent revisions) create the state milk marketing structure: The 1935 and 1967 Acts establish the milk pricing and pooling plans, while the 1947 Act governs the composition of milk products sold in California.

While it serves the same purposes as the federal marketing orders, California’s regulatory program is more complex. Federal orders typically guarantee all producers the same minimum price and create only two or three classes of end uses to determine the processors’ contributions to, or withdrawals from, the equalization pools, whereas under the California scheme some of the farmers’ production commands a “quota price” and some receives a lower “overbase price,” and the processors’ end uses of the milk are divided into five different classes.

The complexities of the California scheme are not relevant to these cases; what is relevant is the fact California processors of fluid milk pay a premium price (part of which goes into a pool) that is higher than either of the prices paid to the producers. During the early 1990’s, market conditions made it profitable for some California processors to buy raw milk from out-of-state producers at prices that were higher than either the quota prices or the overbase prices guaranteed to California farmers yet lower than the premium prices they had to pay when making in-state purchases. The regulatory scheme was at least partially responsible for the advantage enjoyed by out-of-state producers because it did not require the processors to make any contribution to the equalization pool on such purchases. In other words, whereas an in-state purchase of raw milk resold as fluid milk required the processor both to pay a guaranteed minimum to the farmer and also to make a contribution to the pool, an out-of-state purchase at a higher price would often be cheaper because it required no pool contribution.

In 1997, the California Department of Food and Agriculture amended its plan to require that contributions to the pool be made on some out-of-state purchases. It is the imposition of that requirement that gave rise to this litigation. Petitioners in No. 01-950 operate dairy farms in Nevada; petitioners in No. 01-1018 operate such farms in Arizona. They contend that the 1997 amendment discriminates against them. In response, the California officials contend that it merely eliminated an unfair competitive advantage for out-of-state producers that was the product of the regulatory scheme itself.

Without reaching the merits of petitioners’ constitutional claims, the District Court dismissed both cases and the Court of Appeals for the Ninth Circuit affirmed. 259 F. 3d 1148 (2001). Relying on its earlier decision in Shamrock Farms Co. v. Veneman, 146 F. 3d 1177 (1998), the court held that a federal statute enacted in 1996 had immunized California’s milk pricing and pooling laws from Commerce Clause challenge. It also held that the corporate petitioners had no standing to raise a claim under the Privileges and Immunities Clause, and that the individuals’ claim under that Clause failed because the 1997 plan amendments did not, “on their face, create classifications based on any individual’s residency or citizenship.” 259 F. 3d, at 1156. We granted certiorari to review those two holdings, 537 U. S. 1099 (2003), but in doing so we do not reach the merits of either constitutional claim.

II

In some respects, the State’s composition standards set forth in the 1947 Act exceed those set by the federal Food and Drug Administration (FDA). For example, California’s minimum standard for reduced fat milk requires that it contain at least 10 percent solids-not-fat (which include protein, calcium, lactose, and other nutrients). Cal. Food & Agric. Code Ann. §38211 (West 2001). Federal standards require that reduced fat milk contain only 8.25 percent solids-not-fat. See 21 CFR §§131.110, 101.62 (2002). Some of California’s standards were arguably pre-empted by Congress’ enactment of the Nutrition Labeling and Education Act of 1990, 104 Stat. 2353, which contains a prohibition against the application of state quality standards to foods moving in interstate commerce. See 21 U. S. C. § 343-l(a). The District Court so held in Shamrock Farms Co. v. Veneman, No. Civ-S-95-318 (ED Cal., Sept. 25, 1996). In response to that decision, California sought an exemption from both the FDA and Congress. See Shamrock Farms, 146 F. 3d, at 1180. Before the FDA acted, Congress responded favorably with the enactment of the statute that governs our disposition of these cases. That statute, § 144 of the Federal Agriculture Improvement and Reform Act of 1996, provides:

“Nothing in this Act or any other provision of law shall be construed to preempt, prohibit, or otherwise limit the authority of the State of California, directly or indirectly, to establish or continue to effect any law, regulation, or requirement regarding—
“(1) the percentage of milk solids or solids not fat in fluid milk products sold at retail or marketed in the State of California; or
“(2) the labeling of such fluid milk products with regard to milk solids or solids not fat.” 7 U. S. C. § 7254.

Thereafter, Shamrock Farms brought another suit against the Secretary of the California Department of Food and Agriculture challenging the validity of both the State’s compositional standards and its milk pricing and pooling laws. In that case, the Court of Appeals held that § 144 had immunized California’s marketing programs as well as the compositional standards from a negative Commerce Clause chai-lenge. Shamrock Farms, 146 F. 3d, at 1182. In adhering to that ruling in the cases before us today, the Ninth Circuit erred.

The text of the federal statute plainly covers California laws regulating the composition and labeling of fluid milk products, but does not mention laws regulating pricing. Congress certainly has the power to authorize state regulations that burden or discriminate against interstate commerce, Prudential Ins. Co. v. Benjamin, 328 U. S. 408 (1946), but we will not assume that it has done so unless such an intent is clearly expressed. South-Central Timber Development, Inc. v. Wunnicke, 467 U. S. 82, 91-92 (1984). While § 144 unambiguously expresses such an intent with respect to California’s compositional and labeling laws, that expression does not encompass the pricing and pooling laws. This conclusion is buttressed by the separate California statutes addressing the composition and labeling of milk products, on the one hand, and the pricing and pooling of milk on the other. See supra, at 62-65 and this page. The mere fact that the composition and labeling laws relate to the sale of fluid milk is by no means sufficient to bring them within the scope of §144. Because §144 does not clearly express an intent to insulate California’s pricing and pooling laws from a Commerce Clause challenge, the Court of Appeals erred in relying on § 144 to dismiss the challenge.

III

Article IV, § 2, of the Constitution provides:

“The Citizens of each State shall be entitled to all Privileges and Immunities of Citizens in the several States.”

Petitioners, who include both individual dairy farmers and corporate dairies, have alleged that California’s milk pricing laws violate that provision. The Court of Appeals held that the corporate petitioners have no standing to advance such a claim, and it rejected the individual petitioners’ claims because the California laws “do not, on their face, create classifications based on any individual’s residency or citizenship.” 259 F. 3d, at 1156. Petitioners do not challenge the first holding, but they contend that the second is inconsistent with our decision in Chalker v. Birmingham & Northwestern R. Co., 249 U. S. 522 (1919). We agree.

In Chalker, we held that a Tennessee tax imposed on a citizen and resident of Alabama for engaging in the business of constructing a railroad in Tennessee violated the Privileges and Immunities Clause. The tax did not on its face draw any distinction based on citizenship or residence. It did, however, impose a higher rate on persons who had their principal offices out of State. Taking judicial notice of the fact that “the chief office of an individual is commonly in the State of which he is a citizen,” we concluded that the practical effect of the provision was discriminatory. Id., at 527. Whether Chalker should be interpreted as merely applying the Clause to classifications that are but proxies for differential treatment against out-of-state residents, or as prohibiting any classification with the practical effect of discriminating against such residents, is a matter we need not decide at this stage of these cases. Under either interpretation, we agree with petitioners that the absence of an express statement in the California laws and regulations identifying out-of-state citizenship as a basis for disparate treatment is not a sufficient basis for rejecting this claim. In so holding, however, we express no opinion on the merits of petitioners’ Privileges and Immunities Clause claim.

* * *

The judgment of the Court of Appeals is vacated, and these cases are remanded for further proceedings consistent with this opinion.

It is so ordered.

Justice Thomas,

concurring in part and dissenting in part.

I join Parts I and III of the Court’s opinion and respectfully dissent from Part II, which holds that § 144 of the Federal Agriculture Improvement and Reform Act of 1996, 7 U. S. C. § 7254, “does not clearly express an intent to insulate California’s pricing and pooling laws from a Commerce Clause challenge.” Ante, at 66. Although I agree that the Court of Appeals erred in its statutory analysis, I nevertheless would affirm its judgment on this claim because “[t]he negative Commerce Clause has no basis in the text of the Constitution, makes little sense, and has proved virtually unworkable in application,” Camps Newfound/Owatonna, Inc. v. Town of Harrison, 520 U. S. 564, 610 (1997) (Thomas, J., dissenting), and, consequently, cannot serve as a basis for striking down a state statute.

       The history and purpose of federal regulation of milk marketing is described in some detail in Zuber v. Allen, 396 U. S. 168, 172-187 (1969).

       Because processors of fluid milk typically manufacture some other products as well, their respective pool contributions reflect the relative amounts of those end uses. Each processor’s mix of end uses produces an individual monthly “blend price” that is multiplied by its total purchases. Under federal orders the term “blend price” has a different meaning; it usually refers to the price that the producer receives. See West Lynn Creamery, Inc. v. Healy, 512 U. S. 186, 189, n. 1 (1994).

       After the 1997 amendment, processors whose blend price exceeds the quota price must make contributions to the pool on their out-of-state purchases as well as their in-state purchases.