Carlin v. Dairyamerica, Inc.

• Decision Date: 16 October 2013
• Docket Number: Nos. 1:09–cv–0430 AWI DLB, 1:09–cv–0556 AWI DLB, 1:09–cv–0558 AWI DLB, 1:09–cv–0607 AWI DLB.,s. 1:09–cv–0430 AWI DLB, 1:09–cv–0556 AWI DLB, 1:09–cv–0558 AWI DLB, 1:09–cv–0607 AWI DLB.
• Citation: 978 F.Supp.2d 1103
• Court: U.S. District Court — Eastern District of California
• Parties: Gerald CARLIN, John Rahm, Paul Rozwadowski and Brian Wolfe, individually and on behalf of themselves and all others similarly situated, Plaintiffs, v. DAIRYAMERICA, INC. and California Dairies, Inc., Defendants.

978 F.Supp.2d 1103

Gerald CARLIN, John Rahm, Paul Rozwadowski and Brian Wolfe, individually and on behalf of themselves and all others similarly situated, Plaintiffs,

v.DAIRYAMERICA, INC. and California Dairies, Inc., Defendants.

Nos. 1:09–cv–0430 AWI DLB, 1:09–cv–0556 AWI DLB, 1:09–cv–0558 AWI DLB, 1:09–cv–0607 AWI DLB.

United States District Court, E.D. California.

Oct. 16, 2013.

Anthony David Phillips, Christopher Heffelfinger, Berman Devalerio, San Francisco, CA, Benjamin Doyle Brown, Brent W. Johnson, George F. Farah, Cohen Milstein Sellers & Toll PLLC, Washington, DC, for Plaintiffs.

Charles M. English, Davis Wright Tremaine LLP, Washington, DC, E. John Steren, Wendy M. Yoviene, Ober Kaler, Washington, DC, Joseph Michael Marchini, Baker, Manock & Jensen, Fresno, CA, Allison Ann Davis, Davis Wright Tremaine LLP, San Francisco, CA, for Defendants.

ORDER ON DEFENDANTS' RENEWED MOTION TO DISMISS PLAINTIFFS' FIRST AMENDED COMPLAINT

ANTHONY W. ISHII, Senior District Judge.

In this action in diversity for damages, defendants Dairy America, Inc. (“DairyAmerica”) and California Dairies, Inc. (“California Dairies”) (collectively “Defendants”) moved on June 2, 2009, to dismiss the First Amended Complaint of Plaintiffs Gerald Carlin, John Rahm, Paul Rozwadowski, and Brian Wolfe (“Plaintiffs”). Defendants' motion to dismiss alleged, among other defenses, that each of Plaintiffs' claims is barred by the judicially-created “filed rate doctrine.” On February 9, 2010, the court granted Defendants' motion to dismiss solely on the basis of Defendants' filed rate doctrine argument with the understanding that the contours of the filed rate doctrine were unclear in the context of federal programs for dairy product price support and regulation and that the applicability of that doctrine to the facts of Plaintiffs' action should be settled by the appellate court before the action could proceed further. On August 7, 2012, the Ninth Circuit Court of Appeals issued its decision holding that the filed rate doctrine applies generally to minimum prices for milk and milk products set by the United States Department of Agriculture (“USDA”) pursuant to the Agricultural Marketing Agreement Act of 1937 (7 U.S. § 601 et seq.) (“AMAA”). The appellate court ruled however that where, as in this action, the USDA later repudiates the minimum price determination because excludable pricing inputs were wrongly submitted by dairy product producers, the filed rate doctrine does not bar state law claims as are alleged in this action. See generally, Carlin v. DairyAmerica, 688 F.3d 1117 (9th Cir.2012) and as amended by Carlin v. DairyAmerica, 705 F.3d 856 (9th Cir.2013).

Currently before the court are Defendants' renewed motions to dismiss Plaintiffs' First Amended Complaint (“FAC”) on the legal theories other than filed rate doctrine that were argued in Defendants' original motions to dismiss. Diversity jurisdiction exists pursuant to 28 U.S.C. § 1332. Venue is proper in this court.

PROCEDURAL HISTORY

The FAC was filed in this court on April 3, 2009. On May 29, 2009, the Magistrate Judge granted Plaintiffs' motion to consolidate this case with cases numbered 09cv0556, 09cv0558 and 09cv0607. The motions to dismiss which are the subject of this order were filed by California Dairies on June 2, 2009, and by DairyAmerica on June 2, 2009, in a pleading that was amended on June 4, 2009. Plaintiffs filed oppositions to Defendants' motions to dismiss on July 16, 2009, and Defendants filed their replies on August 13, 2009. This court's decision granting Defendants' motion to dismiss as barred by the filed rate doctrine was filed on February 9, 2010. Pursuant to the stipulation of the parties, the court, which had granted the prior motion to dismiss without prejudice, granted the parties' stipulated motion to dismiss the action with prejudice and entered judgment on June 25, 2010. The mandate of the appellate court's decision reversing this court's dismissal was filed on January 22, 2013. On March 29, 2013, Defendants filed pleadings renewing and supplementing their motions to dismiss. Plaintiffs filed responses and to Defendants' supplemental filing and opposition to the renewed motion to dismiss on April 19, 2013. Defendants filed their reply on April 26, 2013. The matter was taken under submission as of May 13, 2013.

FACTUAL BACKGROUND

The facts of this case have been summarized on several occasions, but the most complete summary is set forth in the Ninth Circuit case, Carlin, 705 F.3d at 856. For purposes of this discussion the court will draw upon the facts alleged in Plaintiff's FAC and on the facts as compiled by the appellate court in Carlin.

This action concerns parties participating in a federal program that regulates the minimum price paid to dairy farmers who produce raw milk (“Producers”) by those who receive and handle the raw milk for the purpose of producing dairy consumer products such as liquid milk, ice cream, cheese, butter, and other milk products (“Handlers”). In this action, Plaintiffs are several milk Producers from states other than California. Defendant DairyAmerica is a nonprofit agricultural cooperative association that functions as a sales agent for Defendant California Dairies and eight other dairy Handler associations.

Under the AMAA, the means for regulating prices paid to Producers, and thereby achieving a more even distribution of profits between Producers and Handlers are the Federal Milk Marketing Orders (“FMMOs”). Pursuant to the AMAA, the promulgation of FMMOs is delegated by the Secretary of the Department of Agriculture to the Administrator for the Agricultural Marketing Service (“AMS”). Standard rule-making procedures apply to the formulation of FMMO's, including hearings and input from stake-holders. The A MS requires that FMMOs “contain provisions which: (1) classify milk in accordance with the purpose for which it is used, (2) set minimum prices for each use that a handler must pay, (3) require that said process be uniform except that adjustmentscam be made for production differentials, grade or quality of the milk and locations of delivery, and (4) provide for the use of “blended” prices such that all Producers of milk subject to a particular FMMO receive a uniform price for the milk delivered to Handlers regardless of the ultimate use of the milk.” Carlin, 705 F.3d at 859 (citing 7 U.S.C. § 608c(5)) (italics added).

While all parties have agreed that the actual administration of the program involves fairly complex data manipulation, the overall plan by which Producers receive payment for the raw milk they sell to Producers is fairly straightforward. Milk products are divided into four classes: Class I milk is milk to be sold in liquid form, Class II is milk 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. Each Handler purchasing raw milk pays a price that is specific to the class of products for which the milk is to be used and that is calculated by the application of average wholesale prices of certain dairy consumer products during the previous two months to formulas set within the FMMO. The Handlers' payments do not go directly to the Producers from whom the raw milk is purchased, but go to a payment pool called the “producers' settlement fund.” Milk Producers are paid a “blended price” from the fund. The price paid to the Producers may vary according to qualities of the milk such as butterfat and protein content, but the rate paid for a given quality of milk is the same within the same geographic area regardless of the end use of the milk. The blended price set by the FMMO is a minimum price that can be adjusted upward based on premiums set by the Handlers. Funds remaining in the settlement fund after the producers are paid are distributed according to formulas that are governed by the end use of the raw milk and are not important to this discussion.

Prior to the enactment of the Dairy Market Enhancement Act of 2000 (“DMEA”), 7 U.S.C. § 1637, wholesale price inputs used to calculate blended payment rates for milk were collected from monthly average prices on the Chicago and New York Mercantile Exchanges. Following the enactment of the DMEA, and during the time period relevant to this action, wholesale price inputs for FMMOs were collected by the National Agricultural Statistical Service (“NASS”) through weekly surveys of Handlers who produced more than one million pounds of manufactured product per year. Each year between 2000 and 2008, the relevant time period for this action, NASS required each producer submitting wholesale price and volume information through the weekly surveys to complete an “ ‘Annual Validation Worksheet’ which included the question [w]hen reporting nonfat dry milk sales data to NASS, did you or can you: exclude forward pricing sales (sales in which the selling price is established, and not adjusted, 30 or more days before the transactions is completed)?' ” Carlin, 705 F.3d at 863.

The appellate court summarized the enforcement obligations/powers under the 2000 version of the DMEA as follows:

For enforcement purposes, the DMEA provides that “[e]ach [reporting firm] ... shall maintain, and make available to the Secretary, on request, original contracts, agreements, receipts, and other records associated with the sale or storage of any dairy products during the 2–year period beginning on the date of the creation of the records.” 7 U.S.C. § 1637b(c)(6). The 2000 version of the DMEA also provided that “[t]he Secretary shall take such actions as the Secretary considers necessary to verify the accuracy of the information submitted or reported under this subtitle.” Pub.L. No. 106–532, § 273(c)(3), 114 Stat. 2541.

Id.

Whether USDA had the authority to conduct audits of information submitted under the DMEA prior to 2008, it was not until 2008 that the DMEA...