58 F.3d 1367 (9th Cir. 1995), 93-16977, Wileman Bros. & Elliott, Inc. v. Espy

Docket Nº:93-16977.
Citation:58 F.3d 1367
Party Name:WILEMAN BROTHERS & ELLIOTT, INC.; Kash, Inc.; Gerawan Farming, Inc.; Asakawa Farms, Inc.; Chiamori Farms, Inc.; Phillips, Inc.; Kobashi Farms, Inc.; Tange Bros., Inc.; Nagao Farms; Nilmeier Farms; Chosen Enterprises; George Huebert Farms; Wilmer Huebert Farms; Kobashi Farms; Nakayama Farms, Inc.; and Mihara Farms, Plaintiffs-Appellants, v. Michael
Case Date:June 27, 1995
Court:United States Courts of Appeals, Court of Appeals for the Ninth Circuit

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58 F.3d 1367 (9th Cir. 1995)


Farming, Inc.; Asakawa Farms, Inc.; Chiamori Farms, Inc.;

Phillips, Inc.; Kobashi Farms, Inc.; Tange Bros., Inc.;

Nagao Farms; Nilmeier Farms; Chosen Enterprises; George

Huebert Farms; Wilmer Huebert Farms; Kobashi Farms;

Nakayama Farms, Inc.; and Mihara Farms, Plaintiffs-Appellants,


Michael ESPY, Secretary of Agriculture, Defendant-Appellee.

No. 93-16977.

United States Court of Appeals, Ninth Circuit

June 27, 1995

        Argued and Submitted February 13, 1995.

        As Amended on Denial of Rehearing Sept. 18, 1995.

        As Amended Oct. 3, 1995.

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        Thomas E. Campagne, Thomas E. Campagne & Associates, Fresno, CA, for plaintiffs-appellants.

        Daniel Bensing, Asst. U.S. Atty., Fresno, CA, for defendant-appellee.

        Appeal from the United States District Court for the Eastern District of California.

        Before: TANG and O'SCANNLAIN, Circuit Judges; ROBERT R. MERHIGE, Jr., [*] District Judge.

        O'SCANNLAIN, Circuit Judge:

        We must delve into one of the more byzantine, and all-encompassing, areas of federal administrative regulation--that governing fruits and vegetables. In the process, we decide whether various regulations governing the size, maturity, and advertising of California tree fruits are arbitrary and capricious or otherwise in violation of the rights of those who handle and process the fruits.


        Wileman Brothers & Elliott, Inc. and other growers, handlers, and processors of tree fruits in California (collectively "the handlers") challenge various regulations contained in the nectarine and peach marketing orders, 7 C.F.R. pts. 916, 917, promulgated by the Secretary of Agriculture pursuant to the Agricultural Marketing Agreement Act of 1937, 7 U.S.C. Sec. 601 et seq. The marketing orders set standards for, among other things, fruit maturity and minimum size. The marketing orders also impose assessments on handlers for the costs of a generic advertising program. The handlers claim that several of these regulations violate their free speech rights, due process rights, the Agricultural Marketing Agreement Act, and the Administrative Procedure Act.


        The Agricultural Marketing Agreement Act of 1937 (the "Act") is the offspring of the Agricultural Adjustment Act, one of the pillars of the New Deal legislative program. The purpose of the Act is "to establish and maintain ... orderly marketing conditions for agricultural commodities in interstate commerce." 7 U.S.C. Sec. 602(1). The Act authorizes the Secretary of Agriculture to promulgate marketing orders for certain fruits and vegetables. The marketing orders regulate the quality of the commodity and the quantity that may be shipped to market. 7 U.S.C. Secs. 608c(6), (7). Everything from avocados to prunes may fall within the reach of these orders.

        Marketing orders must be subjected to the notice and comment requirements of the Administrative Procedure Act ("APA"). 7 U.S.C. Secs. 608c(3), (4). In addition, marketing orders must be approved by either two-thirds of the affected producers or by producers who market at least two-thirds of the volume of the commodity. 7 U.S.C. Sec. 608c(9)(B).

        Marketing orders are implemented by committees composed of members of the regulated industry. 7 U.S.C. Secs. 608c(7)(C), 610. Committee members are appointed by the Secretary and supervised by the Agricultural Marketing Service, an agency within the United States Department of Agriculture ("USDA"). 7 C.F.R. Secs. 916.23, 916.62, 917.25, 917.30. The committees recommend rules and regulations to the Secretary to effectuate the marketing orders and to govern such matters as fruit size, fruit maturity, and advertising. The Secretary may then adopt the committees' recommendations through informal rulemaking. 7 C.F.R. Secs. 916.51-52, 917.40-41. All committee rules and regulations are "subject to the continuing right of the Secretary to disapprove of the same at any time." 7 U.S.C. Sec. 608c(7)(C); 7 C.F.R. Secs. 916.30, 917.62.

        The expenses to administer the marketing orders are funded through assessments imposed on fruit handlers based upon the volume of fruit they ship. 7 U.S.C. Sec. 610(b)(2)(ii). Expenses fall into four general

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categories: administration, inspection services, research, and advertising and promotion. The committees are required to submit annual budgets to the Secretary, along with a recommendation as to the rate of assessment for the year. 7 C.F.R. Secs. 916.31(c), 917.35(f). The Secretary approves the committees' budgets and the assessments to be imposed on handlers each year in the form of a regulation.

        Any handler may file a petition with the Secretary requesting a modification of the marketing order or an exemption. 7 U.S.C. Sec. 608c(15)(A). An administrative law judge ("ALJ") hears the petition initially, and appellate review is available from the Judicial Officer ("JO") of the USDA. The Secretary's decision, as made by the JO, may be appealed to the district court. 7 U.S.C. Sec. 608c(15)(B). The Secretary is also authorized to seek injunctive relief to compel compliance with all marketing order requirements. 7 U.S.C. Sec. 608a(6).


        In 1958, the Secretary promulgated Marketing Order 916, which regulates nectarines grown in California. 7 C.F.R. pt. 916. The Nectarine Administrative Committee administers the order. The Committee has authority to make rules governing the production and quality of nectarines within its jurisdiction. 7 C.F.R. Sec. 916.30(c). In 1959, the Secretary promulgated Marketing Order 917, which regulates the handling of peaches, pears, and plums grown in California. 1 7 C.F.R. pt. 917. The Peach Commodity Committee and the Pear Commodity Committee administer the order. These committees also have authority to make rules governing the production and quality of peaches and pears within their jurisdiction. 7 C.F.R. Sec. 917.33(b).

        The marketing orders are primarily quality control measures, and each order contains numerous specific regulations. The handlers challenge three particular regulations: (1) the assessments imposed upon handlers to support a generic advertising program; (2) the "well-matured" standard for fruit maturity; and (3) the fruit minimum size standards. These regulations will be discussed in greater detail below.

        Appellant Wileman Bros. & Elliott, Inc. ("Wileman") farms approximately 3000 acres of tree fruits. Appellant Kash, Inc. farms approximately 1300 acres of peaches, plums, and nectarines. Both farms pack and market their own fruit, as well as the fruit of other farms, through their own packing houses. Wileman, Kash, and the other appellants have encountered problems with some of their fruit varieties under the maturity and minimum size standards. Beginning in 1987, Wileman and the other handlers began withholding the assessments they were required to pay under the marketing orders. 2

        The complexity of the legal proceedings in this case have been matched by their prolixity. In April 1987, Wileman filed a petition pursuant to 7 U.S.C. Sec. 608c(15)(A) with the USDA challenging the maturity standards and several other portions of the marketing orders. In June 1988, Wileman filed a second petition challenging the maturity standards as amended in 1988 and the generic advertising regulations. In May 1989, the ALJ issued a 400-page final decision on the first petition and ruled for Wileman. In May 1991, the ALJ issued a 369-page final decision on the second petition and again ruled for Wileman.

        In the interim, Wileman had also filed a complaint in district court challenging the maturity standards and seeking a temporary restraining order. On August 7, 1987, the district court concluded that it lacked subject matter jurisdiction because Wileman had not exhausted its administrative remedies. On appeal, this court affirmed in an unpublished disposition. Wileman Bros. & Elliott, Inc. v.

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Yeutter, 917 F.2d 29 (9th Cir.1990). We noted, however, that we were "appalled by the failure of the Secretary to deal expeditiously with the substantial grievances alleged in this complaint."

        In September 1991, the JO of the USDA ruled on Wileman's consolidated petitions, as well as similar claims by fifty-one other handlers, and reversed both of the ALJ's decisions. In a voluminous two-part decision, the JO ruled in favor of the Secretary on all issues.

        Over the course of these proceedings, the Secretary also brought a total of fifteen enforcement actions against the handlers pursuant to 7 U.S.C. Sec. 608a(6) to compel payment of the assessments and compliance with the maturity standards. By order of the district court, all assessments due from 1987 to the present have been paid into a trust fund pending resolution of the handlers' claims.

        Wileman, along with fifteen other handlers, sought review of the JO's decision in district court pursuant to 7 U.S.C. Sec. 608c(15)(B). The Secretary's enforcement actions were consolidated with the handlers' civil case. On January 27, 1993, on cross-motions for summary judgment, the district court granted summary judgment to the Secretary. The district court also entered judgment for the Secretary for $3.1 million in past due assessments from the handlers. The handlers appeal.


        The handlers challenge the generic advertising program administered under the marketing orders on the grounds that it (1) is arbitrary and capricious...

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