Edaleen Dairy, LLC v. Johanns

• Decision Date: 31 October 2006
• Docket Number: No. 06-5010.,06-5010.
• Citation: 467 F.3d 778
• Parties: EDALEEN DAIRY, LLC, Appellant v. Michael JOHANNS, Secretary, United States Department of Agriculture, et al., Appellees.
• Court: U.S. Court of Appeals — District of Columbia Circuit

467 F.3d 778

EDALEEN DAIRY, LLC, Appellant v. Michael JOHANNS, Secretary, United States Department of Agriculture, et al., Appellees.

No. 06-5010.

United States Court of Appeals, District of Columbia Circuit.

Argued September 25, 2006.

Decided October 31, 2006.

Benjamin F. Yale argued the cause for appellant. With him on the briefs were Kristine H. Reed and Ryan K. Miltner.

Mark R. Freeman, Attorney, U.S. Department of Justice, argued the cause for federal appellee. With him on the brief were Peter D. Keisler, Assistant Attorney General, and Michael S. Raab, Attorney.

Charles M. English, Jr. argued the cause for appellees United Dairymen of Arizona, et al. With him on the brief were Wendy M. Yoviene and Sara R. Pikofsky.

Marvin Beshore was on the brief for appellee Dairy Farmers of America, Inc.

Before: SENTELLE, ROGERS and GARLAND, Circuit Judges.

Opinion for the Court filed by Circuit Judge SENTELLE.

SENTELLE, Circuit Judge:

Edaleen Dairy, LLC ("Edaleen") appeals from a district court decision denying its motion for a preliminary injunction. Edaleen seeks to enjoin the Secretary of Agriculture from enforcing a new rule that changed the regulatory status of "producer-handlers" of milk, alleging that the rule exceeds the Secretary's authority under the Agricultural Marketing Agreement Act of 1937, 7 U.S.C. §§ 601-674 (2000) ("AMAA"). We need not reach the question whether Edaleen is entitled to preliminary injunctive relief because Edaleen has failed to exhaust its administrative remedies as required by the AMAA.

I.

Milk markets in the United States are governed by a complex system of price controls that dates back to the Depression era. The AMAA authorizes the Secretary of Agriculture to issue "milk marketing order[s]" to regulate milk sales in different regions of the country. 7 U.S.C. § 608c(5).

Under a typical milk marketing order, a "producer" (i.e., dairy farmer) supplies raw milk to a "handler" (i.e., processor or distributor), and the handler pays money into a "producer settlement fund" at fixed prices based on the intended use of the milk. See, e.g., Alto Dairy v. Veneman, 336 F.3d 560, 562-63 (7th Cir.2003). Handlers using their milk for "high-value" uses, such as fluid milk, must pay higher prices than handlers that engage in "low-value" uses, such as processing of butter and cheese. Id. The money that handlers pay into the producer settlement fund is then redistributed to milk producers at a uniform "blend price" per quantity of milk sold. See 7 U.S.C. § 608c(5)(B)(ii). This system ensures that all dairy farmers will receive the same price for their raw milk whether they sell to high-value handlers or low-value handlers.

A complication arises, however, when the same firm is both a producer and a handler. In such cases, there is no opportunity for the producer-handler to pay into the producer settlement fund because there is no intermediate sale of raw milk. The producer-handler simply processes the milk that it has already produced; it need not purchase milk from other dairy farmers. Historically, the Secretary of Agriculture has exempted producer-handlers from the pooling and pricing requirements of milk marketing orders. See Milk in the Pacific Northwest and Arizona-Las Vegas Marketing Areas; Final Decision on Proposed Amendments to Marketing Agreement and to Orders, 70 Fed.Reg. 74,166, 74,167-68 (Dec. 14, 2005) (to be codified at 7 C.F.R. pts. 1124, 1131) ("Proposed Rule").

Because they could process and sell high-value milk products without having to pay into the pool, producer-handlers often enjoyed a significant competitive advantage in milk markets. Initially, this raised little concern because most producer-handlers were small family operations that had little effect on the market. In recent years, however, several producer-handlers have grown much larger, which had a twofold effect on the pooling system. First, because they did not have to contribute to the producer settlement fund, the large producer-handlers could sell their milk at lower prices than their regulated rivals, thus gaining sales and market share. See Proposed Rule, 70 Fed.Reg. at 74,186-88. Second, the amount of money in the producer settlement fund was shrinking because fully-regulated handlers—who did contribute to the pool—were losing business to the unregulated producer-handlers. Id.

In response to these concerns, the Secretary of Agriculture initiated a formal, on-the-record rulemaking to determine whether the regulatory status of producer-handlers should be changed in the Pacific Northwest and Arizona-Las Vegas marketing areas. After two years of hearings, testimony, and data analysis, the Secretary issued a Recommended Decision on April 7, 2005. Recommended Decision and Opportunity to File Written Exceptions on Proposed Amendments, 70 Fed.Reg. 19,636 (Apr. 13, 2005). As required by the AMAA, this proposed rule was then approved by a referendum of milk producers in January 2006, after which it became final. See Milk in the Pacific Northwest and Arizona-Las Vegas Marketing Areas; Order Amending the Orders, 71 Fed.Reg. 9430 (Feb. 24, 2006) (codified at 7 C.F.R. pts. 1124, 1131 (2006)) ("Final Rule").

The final rule modified the definition of "producer-handler" to exclude dairies that produce, process, and distribute more than three million pounds of fluid milk per month within a given marketing area. 7 C.F.R. §§ 1124.10, 1131.10. These large producer-handlers—such as appellant Edaleen—are now required to pay into the producer settlement fund to the extent that their use-value of milk exceeds the blend price in a given region. See id. § 1124.71 (explaining how handler payments are calculated in the Pacific Northwest Marketing Area). The decision to eliminate the exemption for large producer-handlers was based upon evidence of "disorderly marketing conditions"—namely, that the large producer-handlers were obtaining a "competitive sales advantage" over fully-regulated handlers, and were causing a "measurabl[e] and significant[]" decrease in the blend price being paid to regulated producers. Proposed Rule, 70 Fed.Reg. at 74,186-88.

Edaleen is a large producer-handler that lost its exemption from the pricing-pooling system as a result of this rulemaking. Edaleen sued the Secretary of Agriculture in U.S. District Court for the District of Columbia to enjoin enforcement of the new rule on the grounds that it exceeded the Secretary's authority under the AMAA.

The district court denied preliminary injunctive relief in a statement read from the bench. Transcript of Hearing at 75-99, Edaleen Dairy, LLC v. Johanns, No. 05-cv-2442 (D.D.C. Dec. 29, 2005). First, the court noted that the case was probably not ripe at that time because the rule had not yet been approved by the required producer referendum. Id. at 81-83. This referendum has since been held, so ripeness is no longer an issue in this case. The district court then held that the arguments raised by Edaleen were "the very kind of thing that can be raised in the administrative process" and thus the court should not "hear this case before [plaintiffs] have exhausted their administrative remedies." Id. at 84-86. Finally, the district court also concluded that the plaintiffs were not entitled to a preliminary injunction. The court held that it was unlikely that this order exceeded the Secretary's statutory authority under the AMAA, and noted that the alleged injury—overpayment of funds into the pool—was "economic loss" that could be adequately addressed in a suit for damages. Id. at 86-94. The court also concluded that other producers were likely to be harmed if large producer-handlers like Edaleen did not begin to pay into the producer settlement fund. Id. at 95-96. Thus, the district court denied Edaleen's motion for a preliminary injunction.

Edaleen sought timely appeal, and now contends that the district court abused its discretion in denying preliminary injunctive relief.

II.

The first—and only—issue that we must address is whether Edaleen, a producer-handler of milk, may challenge the provisions of a milk marketing order in district court before exhausting its administrative remedies under the AMAA. We hold that it may not.

A.

The Agricultural Marketing Agreement Act provides for review of the Secretary's milk marketing orders as follows:

(A) Any handler subject to an order may file a written petition with the Secretary of Agriculture, stating that any such order or any provision of any such order or any obligation imposed in connection therewith is not in accordance with law and praying for a modification thereof or to be exempted therefrom. He shall thereupon be given an opportunity for a hearing upon such a petition .... After such hearing, the Secretary shall make a ruling upon the prayer of such petition, which shall be final, if in accordance with law.

(B) The District Courts of the United States in any district in which such handler is an inhabitant, or has his principal place of business, are vested with jurisdiction in equity to review such ruling, provided a bill in equity for that purpose is filed within twenty days from the date of the entry of such ruling.

7 U.S.C. § 608c(15).

The Supreme Court has held that these provisions of the AMAA impose a mandatory administrative exhaustion requirement upon milk handlers seeking to challenge the provisions of a milk marketing order. United States v. Ruzicka, 329 U.S. 287, 67 S.Ct. 207, 91 L.Ed. 290 (1946). In Ruzicka, the federal government sued a handler to enforce a milk marketing order, and the handler attempted to argue in defense that the order was unlawful. The Supreme Court, in an opinion by Justice Frankfurter, declined to consider this argument because the handler had not yet raised it in an administrative review proceeding. The Court stated:

And so Congress has provided that the remedy in the first instance must be sought from the Secretary of Agriculture. It is on the basis of...