Arlington Oil Mills, Inc. v. Knebel

• Decision Date: 22 November 1976
• Docket Number: No. 76-3420,76-3420
• Citation: 543 F.2d 1092
• Parties: ARLINGTON OIL MILLS, INC., et al., Plaintiffs-Appellees, v. John A. KNEBEL, Acting Secretary of Agriculture, Defendant-Appellant, Birdsong Corporation et al., Defendants Intervenors Appellants, Robert W. Moore et al., Movants-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

Page 1092

543 F.2d 1092

ARLINGTON OIL MILLS, INC., et al., Plaintiffs-Appellees, v. John A. KNEBEL, Acting Secretary of Agriculture, Defendant-Appellant Birdsong Corporation et al., Defendants Intervenors Appellants Robert W. Moore et al., Movants-Appellants.

No. 76-3420.

United States Court of Appeals Fifth Circuit.

Nov. 22, 1976.

Rehearing and Rehearing En Banc Denied Dec. 20, 1976.

Robert Pennington, Daniel S. Reinhardt, Frederick E. Link, Atlanta, Ga., for Birdsong Corp., and others.

James H. Bratton, Jr., Jack O. Morse, Donald L. Rickertsen, Atlanta, Ga., for Borden Peanut Co., and others.

Robert E. Kopp, Thomas G. Wilson, Appellate Sec., Civ. Div., Dept. of Just., Washington, D. C., John A. Harris, Office of the General Counsel, U. S. Dept. of Agriculture, Washington, D. C., Jesse G. Bowles, Cuthbert, Ga., Greg J. Leonard, Asst. U. S. Atty., Macon, Ga., for movant.

D. R. Cumming, Jr., Bennett L. Kight, Carey P. DeDeyn, Atlanta, Ga., Albert W. Stubbs, Columbus, Ga., for Arlington Oil Mills, and others.

Denmark Groover, Jr., Frank H. Childs, Jr., Macon, Ga., for H. Emmett Reynolds.

Appeals from the United States District Court for the Middle District of Georgia.

Before COLEMAN, CLARK and TJOFLAT, Circuit Judges.

CLARK, Circuit Judge:

Defendant, the United States Secretary of Agriculture, and defendant-intervenors, individual and corporate peanut growers and shellers, ¹ appeal from the district court's preliminary injunction order which (1) prohibited the Secretary from implementing the amended peanut price support differential program announced on July 6, 1976 and (2) mandated the Secretary to implement the peanut price support differential program ² as originally announced on March 19, 1976. On September 10, 1976, we stayed the preliminary injunction, provided that the United States made it possible for peanut growers to receive peanut price support loans under an interim peanut price support differential program offered by the government. ³ The provision was complied with and the case is now before us on the merits of the appeal. We hold that the district court correctly concluded that the Secretary's March 19 announcement of 1976 price differentials was validly adopted under the Administrative Procedure Act, 5 U.S.C. §§ 551 et seq. and that the Secretary's July 6 announcement was defective because of its procedural inadequacies; however, the district court erred in ordering the Secretary to implement the March 19 announcement. The district court should have remanded the cause to the Secretary with directions to adopt a new program utilizing procedures which complied with the Administrative Procedure Act.

With the intent of providing stable economic conditions throughout the peanut industry and protecting producers, handlers, processors, and consumers of peanuts, Congress provided that peanut farmers who comply with acreage limitations on production are eligible to receive price supports for peanuts produced on their regulated acreage. 7 U.S.C. §§ 1281 et seq. The actual price support payable to a particular farmer in a given year depends upon determinations and calculations by the Secretary of a number of complex variables in accordance with formulas provided by this legislation. ⁴

The Secretary's determination which is key to the resolution of the case at bar is that he is permitted to make appropriate adjustments in the price support program under 7 U.S.C. § 1423. This section allows him to make appropriate adjustments in the support price for any commodity on account of differences in grade, type, staple, quality, location, and other factors. Insofar as practicable the statute requires any such adjustments to be made in such manner that the average support price for the commodity will equal the level of support provided by the act. The Secretary has traditionally made these adjustments, known as "differentials," for peanuts on the basis of the following types: Virginia, Runner, Southeast Spanish, Southwest Spanish, and Valencia. ⁵ The differentials also take into account variations in grade and condition of each type of peanut. Since 1972, the Secretary has followed the informal rulemaking procedures of the Administrative Procedure Act, 5 U.S.C. §§ 551 et seq. prior to announcing peanut differentials. ⁶ The statutory scheme expressly requires the Secretary, insofar as practicable, to announce "the level of price support" for peanuts prior to the planting season. 7 U.S.C. § 1426. No similar time stricture is mandated in connection with the determination of adjustments or "differentials" under 7 U.S.C. § 1423.

The funding of price supports is provided by the Commodity Credit Corporation (CCC), through loans, purchases, payments, or other means. Ordinarily, a covered farmer delivers his peanuts to a warehouse having a storage contract with a grower cooperative association and receives a draft for the peanuts' price support value. As these drafts are paid, the CCC lends money to the association in amounts equal to the drafts, the loans being secured by warehouse receipts which represent peanuts received by the association from the farmers. Peanuts may then be sold by the CCC for the association's account or by the association pursuant to a minimum sales policy approved by the CCC. The farmer-members of cooperatives which thus obtain price support funds share on a pro rata basis any profit the association may earn.

From 1971 through 1975, the "differentials" fixed by the Secretary remained constant. ⁷ Under these prior announcements, the average price support for Runners was higher than other peanut varieties. In January of 1976, the Department of Agriculture scheduled a meeting for February 23, 1976, to discuss the 1976 peanut differentials and sent notice of the meeting to peanut industry representatives, inviting their attendance and comments. Prior to the February 23 meeting, the Tobacco and Peanut Division of the Department of Agriculture conducted an analysis of available technical information and prepared several alternative proposals for 1976 differentials. At the February 23 meeting, officials of the Tobacco and Peanut Division proposed a differential program under which the average Virginia support prices would be approximately $30 higher than Runner support prices. The Division's proposed departure from differential programs of preceding crop years intended to encourage the increased production of Virginia peanuts and to discourage production of Runners peanuts. In the prior year, Runners had represented over 90 percent of the surplus purchases made by the CCC. At the February 23 meeting, all parties presented their views and comments concerning 1976 differentials in general and specifically with respect to the Division's proposal. Representatives from Virginia and the Carolinas and from the Southwest opposed the Division's proposal, arguing that the proposed changes would price their peanuts out of the market and would encourage surplus sales of their peanuts to the CCC. Representatives of the Southeast supported a change similar to the Division's proposal. Following the meeting, interested parties were given 2 weeks within which to submit additional written comments. On March 19, 1976, the Department of Agriculture issued a press release announcing that the 1976 Virginia differential would be 5 percent higher than Runners and that the Spanish differential would be 2.5 percent higher than Runners. ⁸

Following the March 19 differential announcement, farmers and shellers from the Virginia-Carolinas and the Southwest protested the Department of Agriculture's decision to the then Secretary of Agriculture Earl Butz and Assistant Secretary of Agriculture for Commodity Programs Richard E. Bell. Representatives of the Virginia-Carolinas area met with both Secretary Butz and Assistant Secretary Bell during April, arguing that the March 19 differentials would not encourage production of Virginia peanuts but would instead cause a substantial encroachment by Runners on the private market which had developed for Virginia Peanuts. After these meetings, although Assistant Secretary Bell had conferred with officials in the Department's Tobacco and Peanut Division about the March 19 differentials, representatives of growers and shellers from the Southeast were consistently being assured by other Department officials that no change in the March 19 differentials was contemplated and these differentials would be in effect for the 1976 peanut crop. One member of the southeastern group wrote Assistant Secretary Bell and offered to provide any additional information which the Department might wish to have if it were reviewing the March 19 announcement. Mr. Bell never responded to this offer.

After a review of the data upon which the March 19 differentials were based, Assistant Secretary Bell determined that the March 19 differentials would not increase the production of Virginia peanuts, as was intended, and that in fact the price of Virginia peanuts was raised so high that it would be difficult for Virginia peanuts to maintain their previously developed share of the private market, which was inconsistent with Secretary Butz's basic policy of developing free markets rather than government markets. In mid-April of 1976, Assistant Secretary Bell urged Secretary Butz to return to the 1975 differentials. A final decision on the matter was delayed, however, when the Secretary left on a trip abroad. Meanwhile, influential congressmen representing growers and shellers from the Southeast, the Virginia-Carolinas, and the Southwest exerted political pressure upon the Department of Agriculture either to change or refrain from changing the differentials as they felt was most advantageous to their particular constituency. When Secretary Butz returned from abroad, he concurred in the recommendation of Assistant Secretary Bell. At that same time, other Department officials were still assuring...