Arkansas Dairy Coop., Inc. v. U.S. Dept. of Agr.
| Citation | 576 F.Supp.2d 147 |
| Decision Date | 19 September 2008 |
| Docket Number | Civ. No. 08-1426(EGS). |
| Parties | ARKANSAS DAIRY COOPERATIVE, INC., et al., Plaintiffs, v. UNITED STATES DEPARTMENT OF AGRICULTURE, Defendant, and International Dairy Foods Association, and Agri-Mark, Inc., et al., Defendant-Intervenors. |
| Court | United States District Courts. United States District Court (Columbia) |
Benjamin F. Yale, Yale Law Office, L.P., Waynesfield, OH, Ryan K. Miltner, The Miltner Law Firm, LLC, for Plaintiffs.
Kyle Renee Freeny, U.S. Department of Justice, Washington, DC, for Defendant.
Steven J. Rosenbaum, Covington & Burling, LLP, Washington, DC, Susan Clare Silber, Silber, Perlman, Sigman & Tilev, P.A., Takoma Park, MD, John H. Vetne, Attorney at Law, Raymond, NH, for Intervenor Defendants.
This case was filed by a group of dairy producers and cooperatives seeking declaratory and injunctive relief from an interim final order of the U.S. Department of Agriculture ("USDA") that reduces the minimum prices dairy farmers receive under federal milk marketing orders ("FMMO").1 Plaintiffs contend that they would be irreparably harmed by allegedly unlawful changes to the minimum price formulas used to determine prices paid to dairy farmers. They maintain that the interim final rule that increases the "make allowance"2 factors in the formulas that establish the federal minimum milk price are unlawful and must be set aside because the regulation failed to consider factors mandated by the Food, Conservation, and Energy Act of 2008 ("FCEA"), Pub L. 110-246, § 1504, 122 Stat. 1651, 1721 (2008), codified at 7 U.S.C. § 608c(17)(G) and the Agricultural Marketing Act of 1937, as amended 7 U.S.C. §§ 602, et seq. ("AMAA"). Plaintiffs originally argued that the order was unlawful because it was scheduled to take effect only twenty-two days after it was promulgated, whereas the statute requires at least thirty days notice. After this lawsuit was filed, USDA postponed the effective date of the amendment; Plaintiffs and Defendants agree that the notice issue is now moot.
Plaintiffs further allege that USDA's decision was based on speculation, was arbitrary and capricious, and that the USDA denied them the right to participate in the hearing process when making its decision.
USDA argues that Plaintiffs are improperly attempting to set aside extensive and careful decision-making by USDA in the complex area of milk price regulation. USDA contends that Plaintiffs' motion should be denied because they have failed to make any of the required showings for such relief. USDA maintains that Plaintiffs have not accurately evaluated the harm to dairy manufacturers nationwide if their motion is granted and that the public interest strongly favors permitting the new regulations to go into effect. Intervenor-Defendant International Dairy Foods Association ("IDFA") argues that this Motion should be denied for lack of standing.
Upon consideration of the motion, the responses and replies thereto, oral argument made at the hearing, and the applicable law, the Court DENIES Plaintiffs' Motion for Preliminary Injunction.
The USDA administers and modifies FMMOs under the authority of the AMAA, which was first enacted by Congress in 1937. See 7 U.S.C. § 608c(7). USDA regulates milk prices in order to advance market stability, supply adequacy, milk cost equity between handlers, and milk price equity between producers. See 64 Fed.Reg. 16,026, 16,109 (April 2, 1999). USDA is concerned with a "more efficient pricing structure that offers cost savings in the organization of the nation's milk supply and in the transportation of milk and dairy products." Id. at 16, 113.
FMMOs "provide[] a uniform blend price for sellers of raw milk while imposing nonuniform obligations on the dealers purchasing that milk." West Lynn Creamery, Inc. v. Healy, 512 U.S. 186, 189 n. 1, 114 S.Ct. 2205, 129 L.Ed.2d 157 (1994). "[S]ince Federal order prices are minimum prices, handlers may increase their pay prices in response to changing supply/demand conditions even when Federal order prices do not increase." 67 Fed.Reg. 67,905, 67,911 (Nov. 7, 2002). "The formulas are used to establish minimum prices for milk used in making particular dairy products, not for determining payments to dairy farmers." Id.
Since fluid milk commands a higher price than milk that is used in the manufacture of other dairy products, the price of milk is determined by the end use of it, even when the milk is of the same quality. See Alto Dairy v. Veneman, 336 F.3d 560, 562 (7th Cir.2003). For the purposes of the FMMOs, however, USDA classifies milk according to its end use: Class I (for fluid milk products); Class II (for soft dairy products like yogurt and cottage cheese); Class III (for hard and spreadable cheeses); and Class IV (for butter, evaporated milk, and dried milk). See 7 C.F.R. § 1000.40.
The "make allowances" used in Class III and Class IV prices are uniform throughout the country because USDA determined that manufactured dairy products compete in a national market. See 59 Fed.Reg. 42,422 42,424 (Mar. 10, 1994). The make allowance rate remains constant even as product prices may increase or decrease substantially. Though Class I prices begin with the uniform Class III and IV calculations, Class I prices vary by milk marketing order because Class I prices are adjusted by location-specific "differentials" that account for local supply and demand. See 7 C.F.R. § 1000.52. The minimum price for milk components used to make Class II products is determined by adding seventy cents per hundredweight (100 pounds) to the Class IV price, Id. § 1000.50(e), and the minimum prices for milk components used to make Class I products is determined by adding a fixed "differential" (which varies by geographic location) to the higher of the Class III or IV price in a given month, id. §§ 1000.50(a), 1000.52.
After USDA sets make allowances, milk producers are then guaranteed to be paid a uniform minimum price for the milk they sell to handlers, regardless of the end use. This ensures that producers who sell milk to a fluid processor do not get a higher price than producers who sell to a cheese plant. See 7 U.S.C. § 608c(5)(B)(ii). Only two-thirds of milk production in the United States is subject to the orders; the other one-third is subject to state orders, or no orders. USDA issues regional milk orders that govern terms and conditions for the sale of dairy products in specific geographical regions. See § 608c (11)(C).
Under the FMMOs, a dairy plant pays, and a dairy producer receives, minimum prices in the form of federally established "component prices" for butterfat, protein, solids not fat, and other solids, or skim-fat prices that are derived from those component prices. See 7 C.F.R. § 1000.50. There are three factors that are used in the pricing formulas: (1) prices of certain dairy products surveyed by the National Agricultural Statistics Service ("NASS"); (2) a make allowance; and (3) a yield. See id. The levels of each of these factors affect the price that plants pay for raw milk and, ultimately, how much producers received for their milk. Adjustments in any of these factors will impact pricing.
The make allowance and the yield are fixed by rule; the product prices are determined weekly by NASS. See id. Every Friday morning, NASS reports the prices of certain cheeses, butter, non-fat dry milk, and dry whey. USDA then announces the advanced prices based on the weighted average of two weeks of NASS prices. Id. The make allowances represent the allowance for manufacturing raw milk into a finished product. Changes to the make allowance have an inverse relationship to the resulting changes in the minimum prices. Producers benefit from lower make allowances, and manufacturers benefit from higher make allowances. The yield factor represents the amount of a manufactured dairy product that can be produced per hundredweight (100 pounds) of milk. USDA accounts for the portion of the price of milk that is attributable to the costs of the manufacturing process through the make allowance. When the price of manufactured goods is raised, however, USDA recaptures the cost by reporting a higher price for the wholesale product prices to NASS. As a result, any increase in the selling price of manufactured goods used to produce milk will increase the price manufacturers must pay producers for raw milk. Id.
The pricing formulas are changed through formal rule-making hearings. See 7 C.F.R. §§ 900.3-900.18. After the close of the evidentiary portion of the hearing, exceptions and comments are filed by interested parties and an administrative law judge certifies the transcript to USDA. See id. §§ 900.9-900.10. Dairy Programs, a division of USDA, then prepares and submits a recommendation to USDA. The recommendation details the findings of fact, rationale, and the legal authority for its decision. See id. § 900.12. After Dairy Programs has issued its recommendation, another round of comments follow, and a referendum on the order, as amended, is held. Producers facing a referendum must choose between voting out the entire marketing order or approving the amended order. There is no vote on the amendment itself. If the referendum passes, the order is adopted and becomes a final rule. See id. §§ 900.300-311.
In the instant case, the USDA announced its original hearing to address only the proposed adjustments to the make allowances in the pricing formulas in January 2006. An on-the-record hearing was held that month and post-hearing briefs were filed. On September 6, 2006 however, USDA announced that it had insufficient evidence to issue a decision changing the make allowances. Another hearing was reconvened for September 14, 2006. USDA announced a tentative final decision on November 2, 2006 and required comments to be filed by January 22, 2007. See 71 Fed.Reg. 67,467,...
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