Carlin v. Dairyamerica, Inc.

• Decision Date: 07 August 2012
• Docket Number: No. 10–16448.,10–16448.
• Parties: Gerald CARLIN, John Rahm, Paul Rozwadowski, and Bryan Wolfe, Plaintiffs–Appellants, v. DAIRYAMERICA, INC. and California Dairies, Inc., Defendants–Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

688 F.3d 1117

2012-2 Trade Cases P 78,004

12 Cal. Daily Op. Serv. 8907

2012 Daily Journal D.A.R. 10,877

Gerald CARLIN, John Rahm, Paul Rozwadowski, and Bryan Wolfe, Plaintiffs–Appellants,

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

No. 10–16448.

United States Court of Appeals,Ninth Circuit.

Argued and Submitted Aug. 31, 2011.

Filed Aug. 7, 2012.

Benjamin D. Brown (argued), Daniel A. Small, Victoria S. Nugent, George F. Farah and Brent W. Johnson, Cohen Milstein Sellers & Toll PLLC, Washington, D.C.; Joseph J. Tabacco, Jr., Christopher T. Heffelfinger and Anthony D. Phillips, Berman DeValerio, San Francisco, CA; Ron Kilgard, Keller Rohrback P.L.C., Phoenix, AZ; Jon A. Tostrud, Case Lombardi and Pettit, Honolulu, HI; Lynn L. Sarko, Mark A. Griffin, Juli E. Farris, Keller Rohrback P.L.C., Seattle, Washington; J. Barton Goplerud, Hudson, Mallaney, Shindler and Anderson, PC, West Des Moines, IA, for the plaintiffs-appellants.

Allison A. Davis, Davis Wright Tremaine LLP, San Francisco, CA; Charles M. English (argued), Wendy M. Yoviene and E. John Steren, Ober, Kaler, Grimes & Shriver, Washington, D.C., for defendant-appellee DairyAmerica, Inc.

John J. Vlahos (argued), Lawrence M. Cirelli and S. Anne Johnson, Hanson Bridgett LLP, San Francisco, CA, for defendant-appellee California Dairies, Inc.

Appeal from the United States District Court for the Eastern District of California, Anthony W. Ishii, United States District Judge, Presiding. USDC No. 1:09–CV–00430–AWI–DLB.

Before: RAYMOND C. FISHER and JOHNNIE B. RAWLINSON, Circuit Judges, and GEORGE H. WU, District Judge.^*

OPINION

WU, District Judge:

This appeal raises two issues: (1) whether the judicially created “filed rate doctrine,” ¹ which typically has been utilized in common carrier and public utility litigation, is applicable in a class action lawsuit seeking monetary and injunctive relief under state law arising from the misreporting of pricing data to the United States Department of Agriculture (“USDA”), where the data in turn were used to set a minimum price structure for raw milk sales; and (2) if the doctrine is applicable in that situation, whether the district court erred when it dismissed the plaintiffs' state causes of action on the ground that the filed rate doctrine barred such claims, even though the court found that “[i]t is not disputed that [the] USDA determined that the rates calculated ... were erroneous and that other rates should have applied based on corrected pricing inputs.” ²

BACKGROUND

I. Statutory and Regulatory Framework as to Milk Pricing

As observed in Zuber v. Allen, 396 U.S. 168, 172–73, 90 S.Ct. 314, 24 L.Ed.2d 345 (1969):

The two distinctive and essential phenomena of the milk industry are a basic two-price structure that permits a higher return for the same product, depending on its ultimate use, and the cyclical characteristic of production.

Milk has essentially two end uses: as a fluid staple of daily consumer diet, and as an ingredient in manufactured dairy products such as butter and cheese. Milk used in the consumer market has traditionally commanded a premium price, even though it is of no higher quality than milk used for manufacture. While cost differences account for part of the discrepancy in price, they do not explain the entire gap. At the same time the milk industry is characterized by periods of seasonal overproduction. The winter months are low in yield and conversely the summer months are fertile. In order to meet fluid demand which is relatively constant, sufficiently large herds must be maintained to supply winter needs. The result is oversupply in the more fruitful months. The historical tendency prior to regulation was for milk distributors, “handlers,” to take advantage of this surplus to obtain bargains during glut periods. Milk can be obtained from distant sources and handlers can afford to absorb transportation costs and still pay more to outlying farmers whose traditional outlet is the manufacturing market. [Footnote omitted.] To maintain income [,] farmers increase production and the disequilibrium snowballs.

Congress passed the Agricultural Marketing Agreement Act of 1937 (7 U.S.C. § 601 et seq.) (“AMAA”) “in order to establish and maintain orderly marketing conditions and fair prices for agricultural commodities.” Glickman v. Wileman Bros. & Elliott, Inc., 521 U.S. 457, 461, 117 S.Ct. 2130, 138 L.Ed.2d 585 (1997). Section 8c of the AMAA (7 U.S.C. § 608c) authorizes the Secretary of Agriculture to issue “orders” applicable to “handlers” who receive, process, package, or redistribute milk or milk products.³ “Marketing orders promulgated pursuant to the AMAA are a species of economic regulation that has displaced competition in a number of discrete markets....” Glickman, 521 U.S. at 461, 117 S.Ct. 2130. As stated in Block v. Cmty. Nutrition Inst., 467 U.S. 340, 104 S.Ct. 2450, 81 L.Ed.2d 270 (1984), “[t]he ‘essential purpose [of this milk market order scheme is] to raise producer prices,’ S.Rep. No. 1011, 74th Cong., 1st Sess., 3 (1935), and thereby to ensure that the benefits and burdens of the milk market are fairly and proportionally shared by all dairy farmers.” Id. at 342, 104 S.Ct. 2450 (second alteration in original); see also Ark. Dairy Coop. Ass'n v. U.S. Dep't of Agric., 573 F.3d 815, 818 (D.C.Cir.2009).

Milk, milk products, and prices paid by handlers to producers of raw milk ( i.e., dairy farmers) are regulated by what are commonly referred to as Federal Milk Marketing Orders (“FMMOs”) issued by the USDA pursuant to section 8c(5) of the AMAA. 7 U.S.C. § 608c(5). The promulgation process is described in Block as follows:

Under the scheme established by Congress, the Secretary must conduct an appropriate rulemaking proceeding before issuing a milk market order. The public must be notified of these proceedings and provided an opportunity for public hearing and comment. See 7 U.S.C. § 608c(3). An order may be issued only if the evidence adduced at the hearing shows “that [it] will tend to effectuate the declared policy of this chapter with respect to such commodity.” 7 U.S.C. § 608c(4). Moreover, before any market order may become effective, it must be approved by the handlers of at least 50% of the volume of milk covered by the proposed order and at least two-thirds of the affected dairy producers in the region. 7 U.S.C. §§ 608c(8), 608c(5)(B)(i). If the handlers withhold their consent, the Secretary may nevertheless impose the order. But the Secretary's power to do so is conditioned upon at least two-thirds of the producers consenting to its promulgation and upon his making an administrative determination that the order is “the only practical means of advancing the interests of the producers.” 7 U.S.C. § 608c(9)(B).

467 U.S. at 342, 104 S.Ct. 2450 (alteration in original).

Section 8c(5) of the AMAA requires that the FMMOs contain provisions which, inter alia: (1) classify milk in accordance with the purpose for which it is used, (2) set minimum prices for each such use that handlers must pay, (3) require that said prices be uniform except that adjustments can 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. 7 U.S.C. § 608c(5). The AMAA (and hence each FMMO) only requires a minimum price. As observed in Farmers Union Milk Mktg. Coop. v. Yeutter, 930 F.2d 466, 468–69 (6th Cir.1991):

Although the AMAA mandates a minimum price, it does not mandate a maximum price. Handlers cannot pay less than the blend price, but they are allowed to pay as much as they want. In times of relative scarcity, handlers can and do negotiate premiums, known as “over-order” prices, for the sale of the milk. These premiums are most typically paid for milk that is intended for Class I use, but they can apply to any of the three classes. Thus, market forces are allowed to intrude on this regime on occasion, though only in one direction.

FMMOs have been issued which cover some, but not all, regions of the United States.⁴See 7 C.F.R. pts. 1001, 1005–07, 1030, 1032–33, 1124, 1126, 1131, 1135 (2012) (setting price regulations for each designated region).

The Secretary of Agriculture has delegated his authority under the AMAA to the Under Secretary for Marketing and Regulatory Programs, see7 C.F.R. § 2.22(a)(1)(viii)(G) (2011), and, in turn, the Under Secretary has delegated it to the Administrator for the Agricultural Marketing Service (“AMS”). 7 C.F.R. § 2.79(a)(8)(viii) (2011); see also White Eagle Coop. Ass'n v. Conner, 553 F.3d 467, 482 (7th Cir.2009). As to each operative FMMO, there is a “market administrator” selected by the Secretary who is empowered, inter alia, to: (1) “[a]dminister the order in accordance with its terms and provisions”; (2) “[m]ake rules and regulations to effectuate the terms and provisions of the order”; (3) “[r]eceive, investigate, and report complaints of violations to the Secretary”; and (4) announce FMMO prices on designated days of each month. 7 C.F.R. §§ 1000.25(b), 1000.53 (2012).

The district court correctly observed that “[t]he method by which [the USDA has] accomplished [the framework for a minimum price structure for milk and milk products] is admittedly complex.” 690 F.Supp.2d at 1130. A description of part of that methodology is provided in Ark. Dairy Coop. Ass'n, 573 F.3d at 818–19, as follows:

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. See7 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...