Arkansas Dairy Co-Op Ass'n v. U.S. Dept. of Agr.

• Decision Date: 24 July 2009
• Docket Number: No. 08-5406.,08-5406.
• Citation: 573 F.3d 815
• Parties: ARKANSAS DAIRY COOPERATIVE ASSOCIATION, INC., et al., Appellants v. UNITED STATES DEPARTMENT OF AGRICULTURE, et al., Appellees.
• Court: U.S. Court of Appeals — District of Columbia Circuit

573 F.3d 815

ARKANSAS DAIRY COOPERATIVE ASSOCIATION, INC., et al., Appellants v. UNITED STATES DEPARTMENT OF AGRICULTURE, et al., Appellees.

No. 08-5406.

United States Court of Appeals, District of Columbia Circuit.

Argued April 7, 2009.

Decided July 24, 2009.

Appeal from the United States District Court for the District of Columbia (No. 1:08-cv-01426-EGS).

Benjamin F. Yale argued the cause for appellants. With him on the briefs was Ryan K. Miltner.

John H. Vetne and Steven J. Rosenbaum argued the cause for appellees Agri-Mark, Inc., et al. and International Dairy Foods Association. Susan C. Silber entered an appearance.

Kelsi Brown Corkran, Attorney, U.S. Department of Justice, argued the cause for federal appellee. With her on the brief were Gregory G. Katsas, Assistant Attorney General, and Michael S. Raab, Attorney.

Before: ROGERS, TATEL and GRIFFITH, Circuit Judges.

Opinion for the Court by Circuit Judge ROGERS.

Opinion by Circuit Judge GRIFFITH dissenting in part and concurring in the judgment in part.

ROGERS, Circuit Judge:

The Secretary of Agriculture establishes formulas to calculate the minimum prices that dairy handlers (processors, manufacturers, and distributors) must pay dairy producers (farmers) for milk. 7 U.S.C. § 608c(5). As part of those formulas, the Secretary sets "make allowances," which represent the costs to handlers in making certain forms of dairy products. In July 2008, the Secretary promulgated an interim rule amending milk marketing orders to increase make allowances, thereby reducing the minimum price paid to producers. Several producers and producer cooperatives challenged the increases principally on the ground that the Secretary had failed to determine and consider their food and fuel costs, which they maintain was required by the Agricultural Marketing Agreement Act ("AMAA"), 7 U.S.C. §§ 601, et seq. The district court ruled the producers lacked standing for want of a cause of action and, alternatively, denied their motion for a preliminary injunction. We hold that the producers have standing to challenge the interim rule under the Administrative Procedure Act and that the Secretary was obliged under the AMAA to consider their feed and fuel costs. Because the Secretary met that obligation, however, the producers fail to show likelihood of success on the merits, and we affirm the denial of injunctive relief. Furthermore, in reaching that decision, we hold certain of their claims must be dismissed.

I.

The milk industry is highly regulated by the Secretary of Agriculture pursuant to the Agricultural Marketing Agreement Act of 1937, 7 U.S.C. §§ 601, et seq. ("AMAA"). See Hettinga v. United States, 560 F.3d 498, 501 (D.C.Cir.2009). At least two factors create variations in the supply and demand of milk. First, the dairy market values milk more highly when sold in fluid form than when used for dairy products like butter or cheese, which would encourage dairy farmers in an unregulated market to sell their milk for the premium fluid prices. See Zuber v. Allen, 396 U.S. 168, 172-73, 90 S.Ct. 314, 24 L.Ed.2d 345 (1969). Second, cows naturally produce more milk in the spring and summer, such that a herd size sufficient to generate an adequate supply during the fall and winter generates surpluses during the spring and summer, leading to the potential for further price swings in an unregulated market. See id. To prevent "destabilizing competition" among dairy farmers as a result, Congress enacted the AMAA. Block v. Cmty. Nutrition Inst., 467 U.S. 340, 341-42, 104 S.Ct. 2450, 81 L.Ed.2d 270 (1984). "The `essential purpose [of the scheme put in place by the AMAA is] to raise producer prices,' and thereby to ensure that the benefits and burdens of the milk market are fairly and proportionately shared by all dairy farmers." Id. (quoting S. REP. No. 74-1011, at 3 (1935)).

The AMAA and its implementing regulations use two regulatory mechanisms: price fixing and payment pooling. The minimum prices that handlers must pay vary according to the end use of the milk, as categorized in four classes. See 7 U.S.C. § 608c(5)(A); 7 C.F.R. § 1000.40 (Class I milk is sold in fluid form, Class II milk is used to make ice cream, soft cheeses, and related products, Class III milk is used to produce harder cheeses, and Class IV milk is used to make butter and related products.). Instead of setting specific prices to be paid for each Class, the Secretary has established a formula by which the price for each Class is determined monthly based on the average nationwide wholesale prices from the previous month. See 7 C.F.R. § 1000.50; Milk in the Northeast and Other Marketing Areas; Notice of Proposed Rulemaking and Tentative Partial Final Decision, 73 Fed.Reg. 35,306, 35,308 (June 20, 2008) ("Tentative Decision"). The formulas for Class III and IV milk are based on the nationwide average prices for butter, nonfat dry milk, cheese, and dry whey, minus a set dollar amount for each of those products, multiplied by a "yield factor." 7 C.F.R. § 1000.50(l)-(o). Class I and II prices are derived from the Class III and IV prices but Class I prices are adjusted for the location of the handler so that handlers pay different prices in different geographic areas. See 7 C.F.R. §§ 1000.50, 1000.52. The amounts subtracted from the average sale prices of Class III and IV products, known in the milk industry as "make allowances" or "manufacturing allowances," are intended to represent the costs to the handlers of making the end dairy products from raw milk. Tentative Decision, 73 Fed.Reg. at 35,308. In essence, handlers retain from the average wholesale price the amount set by the make allowance and transfer the balance to producers.

The second major component of dairy market regulation is payment pooling. Under this system, handlers pay prices according to the end use of milk, but all the producers in a geographic area receive the same monthly average or "blended" price per unit of milk sold, regardless of the use to which their milk is put. See 7 U.S.C. § 608(c)(5)(B); 7 C.F.R. §§ 1000.70, 1000.76. This payment equalization is accomplished through the "producer settlement fund" into which handlers pay, or from which handlers withdraw, according to whether their blend-price payments to producers are less or greater than the end-use-value of the milk they have purchased. 7 C.F.R. §§ 1000.70, 1000.76. Again, the effect of this regime is that handlers make payments which vary according to the market value of the milk they use (as reflected in minimum prices), while all producers in an area receive the same average, or blended, price per unit of milk.

Different geographic areas of the United States are regulated under slightly different conditions, although the formulas used to set prices of Class III and IV milk are the same in all areas. See 7 C.F.R. § 1000.50. Each of eleven areas, generally known as a "marketing area" or "milk marketing area," is governed by a different "Order" of the Secretary. See, e.g., 7 U.S.C. § 608c(5)(A); 7 C.F.R. § 1001.2. Before going into effect, the Secretary's orders must be approved by two-thirds of the producers or the producers of two-thirds of the milk volume in the affected area, as well as by the handlers of a majority of the milk volume in the area covered by the order, although the Secretary can put an order into effect without handler approval if the order is "the only practical means of advancing the interests of the producers." 7 U.S.C. § 608c(8)-(9).

Make allowances, unlike the wholesale prices used in the minimum price formulas for Class III and IV products, do not vary with market conditions. They are set as constants in a formula and can only be raised or lowered through a rulemaking. Tentative Decision, 73 Fed.Reg. at 35,323. Several events converged to shape the issues in the instant case. First, in January 2006, the Secretary issued notice of a hearing on a proposal in which the handler Agri-Mark advocated an increase in make allowances. See Milk in the Northeast and Other Marketing Areas; Notice of Hearing on Proposed Amendments to Tentative Marketing Agreements and Orders, 71 Fed.Reg. 545 (Jan. 5, 2006). In December 2006, after a hearing and the required producer approval, the Secretary promulgated an interim final rule increasing the make allowances. See Milk in the Northeast and Other Marketing Areas; Interim Order Amending the Orders, 71 Fed.Reg. 78,333 (Dec. 29, 2006). A number of producers sought an injunction in the district court for the Northern District of Ohio, on the ground that the Secretary had failed to consider their feed prices and feed supplies when adjusting the make allowance, as they argued was required by the AMAA, 7 U.S.C. § 608c(18), infra note 7. The district court set forth conflicting interpretations, noting, for example, that the Sixth Circuit had held in Lansing Dairy, Inc. v. Espy, 39 F.3d 1339, 1355 (6th Cir.1994), that the statute and legislative history were ambiguous. The district court found it unnecessary to decide whether § 608c(18) required the Secretary to consider such feed costs when amending make allowances because the Secretary's final decision showed he had, in fact, "given [these factors] appropriate consideration" under the product-price formulas. Bridgewater Dairy, LLC v. USDA, No. 3:07-cv-104, 2007 WL 634059, at *4-6 (N.D.Ohio Feb. 22, 2007).

Second, in 2008 Congress amended the AMAA to require the Secretary, as "part of any hearing" to adjust make allowances, to "determine" and "consider" producers' feed and fuel costs.¹ See 2008 Act, Pub.L. 110-246, § 1504, 122 Stat at 1721-72 (codified at 7 U.S.C. § 608c(17)(G)), see page 22. The amendment addressed ambiguities in § 608c(18) noted by the district court in Bridgewater Dairy. Under the amendment, the requirement to consider producers' costs explicitly applied when the Secretary was adjusting make allowances, and the Secretary was required to consider recent price...