Excel Corp. v. U.S. Dept. of Agriculture, No. 04-9540.

CourtUnited States Courts of Appeals. United States Court of Appeals (10th Circuit)
Writing for the CourtBriscoe
Citation397 F.3d 1285
PartiesEXCEL CORPORATION, Petitioner, v. UNITED STATES DEPARTMENT OF AGRICULTURE, Respondent.
Docket NumberNo. 04-9540.
Decision Date15 February 2005
397 F.3d 1285
EXCEL CORPORATION, Petitioner,
v.
UNITED STATES DEPARTMENT OF AGRICULTURE, Respondent.
No. 04-9540.
United States Court of Appeals, Tenth Circuit.
February 15, 2005.

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COPYRIGHT MATERIAL OMITTED

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John R. Fleder, of Hyman, Phelps & McNamara, P.C., Washington, DC (Timothy B. Mustaine and Jeff P. DeGraffenreid, of Foulston Siefkin LLP, Wichita, Kansas, and Philip C. Olsson and Brett T. Schwemer, of Olsson, Frank and Weeda, P.C., Washington, DC, with him on the briefs), for Petitioner.

Stephen M. Reilly, Senior Counsel (James Michael Kelly, Deputy General Counsel, and Margaret M. Breinholt, Assistant General Counsel, with him on the brief), Office of the General Counsel, United States Department of Agriculture, Washington, DC, for Respondent.

Before BRISCOE, MURPHY, and O'BRIEN, Circuit Judges.

BRISCOE, Circuit Judge.


Petitioner Excel Corporation seeks review of a decision and order issued by respondent United States Department of Agriculture (USDA) finding that Excel violated § 202(a) of the Packers and Stockyards Act (P & S Act), 7 U.S.C. § 192(a), and an implementing regulation, 9 C.F.R. § 201.99(a), by failing to disclose to hog producers a change in Excel's formula for computing the "lean weight" of hog carcasses. Excel also challenges the decision and order to the extent it directs Excel to cease and desist from engaging in certain related practices. Exercising jurisdiction pursuant to 28 U.S.C. § 2342(2), we grant Excel's petition for review for the sole purpose of modifying the cease and desist language of the decision and order. As so modified, the decision and order is enforced.

I.
Factual background

Excel, a corporation based in Wichita, Kansas, is estimated to be the fourth or fifth largest hog slaughterer in the United States. ROA, Vol. V, Doc. 155 at 13, 82. Excel purchases hogs from numerous hog producers using one of two methods. First, Excel purchases some hogs on a "spot" market basis, meaning that it negotiates a specific price for a specific lot of hogs. Id. at 13. Second, Excel purchases other hogs through short-and long-term contracts with hog producers, pursuant to which the producers agree to sell a given number of hogs to Excel for a set base price. Id.

Most of the hogs purchased by Excel fall within its "carcass merit" program. Id. Under the carcass merit program, hog producers deliver hogs to Excel's buying stations where the hogs are placed into a holding pen, tattooed for identification, given a lot number, weighed, and inspected. Id. at 13-14. The hogs are then transported to one of Excel's three slaughtering facilities (located in Illinois, Iowa, and Missouri).

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There, the hogs are "killed, bled, eviscerated, de-haired, washed, and inspected...." Id. at 14. Afterwards, the carcasses are evaluated for their "estimated percentage of lean (red) meat." Id. Because hogs with a high percent of lean meat have a higher market value than hogs with a low percent of lean meat, Excel "applies th[ese] percentage figure[s] to a pricing table called the `lean percent matrix' to determine whether the hog producer receives a discount for the carcass — a deduction from the base price — or a premium — an addition to the base price." Id.

Some of the producers who supply hogs to Excel also sell to other packers. Id. at 20. Generally speaking, these producers sell "trial lots" to various packers, including Excel, to determine where they can obtain the best price. Id. Because USDA no longer has in place an official grading system for hogs, id. at 16, "[a]ll packers appear to base the prices they pay for hogs on base price, lean percent, and a matrix...." Id. at 20. However, no industry standard exists for estimating lean percent and it is generally impractical for slaughterers to dissect and examine each carcass for fat and lean meat percentages. Id. at 14. Thus, slaughterers use a variety of less accurate, but more practical, methods of estimating lean percent. Id. The result is that each packer "has a slightly different grading program," i.e., "[t]hey use slightly different means of getting to the same point for the end value." Id. at 20.

Excel had used the "Fat-O-Meat'er" method for estimating lean percent for approximately ten years. Id. at 14. "The Fat-O-Meat'er," which was developed in Denmark from a study of European hogs, "is a hand-held device with a probe that is inserted in the carcass." Id."A light measures the difference between the loin-eye and back fat depth." Id. "A regression formula or equation embedded in the Fat-O-Meat'er, commonly referred to as the `Danish formula'.., then uses this measurement to estimate the lean percent of the carcass." Id. at 14-15. The device has been approved for use by the USDA and is used by approximately thirty-two packers in the United States. Id. at 15. It is unclear, however, how many of these packers rely solely on the Danish formula to estimate lean percent. Id.

After Excel determined the lean percent and weight of each carcass, those figures were applied to Excel's "Lean Value Matrix" to determine the "meat PX factor." Aplee. Br. at 12. The matrix generated a higher "meat PX factor" for standard-sized carcasses (163 to 206 pounds) with a higher lean percent. Conversely, the matrix produced a lower "meat PX factor" for non-standard-sized carcasses (greater than 206 pounds or less than 163 pounds) and for carcasses with a lower lean percent. Id. To determine the exact price to be paid for a particular carcass, Excel multiplied the "meat base" (i.e., the price per hundred weight quoted to the producer) by the "meat PX factor." Id.

The producers from whom Excel purchased hogs on a carcass merit basis were aware that Excel used the Fat-O-Meat'er to estimate lean percent and that the lean percentage figure was used by Excel to determine the price paid for each carcass. Generally speaking, however, Excel did not inform producers of the details of the formula utilized for estimating lean percent.

In 1997, Excel decided to switch from the Danish formula for estimating lean percent to "a formula developed by Purdue University and promoted by the National Pork Producers Council," i.e. "the Purdue formula." Id. at 17. "The Purdue formula uses hot carcass weight as a variable with the Danish formula to estimate lean percent...."

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Id. In contrast to the Danish formula, which was estimated to be 72-73 percent accurate, the Purdue formula was estimated to be approximately 90 percent accurate. Id.

At the time it adopted the Purdue formula, Excel knew that the "change could affect the price it paid for hogs," and thus "considered the" change's "economic effect on hog producers...." Id. Excel "concluded, based on a study of 1.5 million hogs, that there would be only a `minimal impact' on hog producers...." Id. at 17-18. In turn, Excel "decided not to tell hog producers about the change in the formula because, while it was not a secret, company officials believed that the formula, like the process methods and technology it used, was not a factor that interested hog producers or formed a basis for whether they sold hogs to" Excel. Id. at 18. "Another consideration was the corporate belief that hog producers who received more because of a change to a more accurate formula would be unhappy because they had been selling in the past under an inaccurate formula, while hog producers who received less because of the change would be upset...." Id.

Although Excel concluded that none of its written contracts with hog producers required it to provide notification of the formula change, Excel nevertheless notified Tyson Foods, the main supplier of hogs for Excel's Missouri facility, of the formula change. Id. at 19. Tyson objected to the change. Id. In turn, Excel agreed not to use the Purdue formula to estimate the lean percent of Tyson's hogs. Id.

Excel implemented the formula change at its Iowa and Illinois slaughtering facilities in October 1997, and at its Missouri slaughtering facility (for all non-Tyson hogs) in April 1998. Id. at 20. Following implementation of the formula change, some hog producers noticed a difference in the prices they were receiving from Excel for hogs. Id. at 21. Some hog producers began asking managers at Excel's slaughtering facilities about the matter. Id. In response, Excel told these producers about the formula change. Id.

In April 1998, the Grain Inspection, Packers and Stockyards Administration (GIPSA), a division of the USDA, "initiated what appears to have been a routine investigation of [Excel's] use of the Fat-O-Meat'er." Id. at 22. During the course of this audit, GIPSA "found the prices that hog producers should have been paid using the Danish formula were not those that appeared on the kill sheets." Id. at 23. Excel then informed GIPSA that it had changed the formula for estimating lean percent. Id. As a result of the 1998 audit, GIPSA decided that Excel's "failure to disclose its change of the formula to hog producers prior to the purchase of hogs from those producers" was a violation of the P & S Act and one of its implementing regulations. Id. at 25. Excel was informed of the alleged violation in June 1998. Id. In July 1998, Excel "sent a letter to hog producers notifying them that the formula had changed...." Id. Excel "also adjusted the matrix so that hog producers received the same price under the Purdue formula as they would have received had [Excel] used the Danish formula." Id.

Procedural background

On April 9, 1999, the Deputy Administrator of GIPSA instituted a disciplinary administrative proceeding against Excel by filing a complaint and notice of hearing. The complaint alleged that, between October 23, 1997, and June 1, 1998, Excel violated § 202(a) of the P & S Act, 7 U.S.C. § 192(a), and § 201.99 of the Act's implementing regulations, 9 C.F.R. § 201.99, by failing to make known to hog

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producers a change in the formula used by Excel to...

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    • United States
    • United States Courts of Appeals. United States Court of Appeals (10th Circuit)
    • April 14, 2009
    ...Bowles v. Seminole Rock & Sand Co., 325 U.S. 410, 414, 65 S.Ct. 1215, 89 L.Ed. 1700 (1945) (same); Excel Corp. v. U.S. Dep't of Agric., 397 F.3d 1285, 1295 (10th Cir.2005) (same).5 Congress delegated to the EPA the authority to promulgate regulations as necessary to carry out the objectives......
  • Moreland Properties, LLC v. City of Thornton, Civil Action No. 07-cv-00716-EWN-MEH.
    • United States
    • United States District Courts. 10th Circuit. United States District Court of Colorado
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  • Knapp v. U.S. Dep't of Agric., No. 14-60002
    • United States
    • United States Courts of Appeals. United States Court of Appeals (5th Circuit)
    • July 31, 2015
    ...Secretary inPage 6AWA hearings, his decisions qualify for Auer deference. 7 C.F.R. § 2.35(a); see Excel Corp. v. U.S. Dep't of Agric., 397 F.3d 1285, 1296 (10th Cir. 2005) (deferring to the Judicial Officer's interpretation of a Department regulation intended to implement another statute ad......
  • Knapp v. U.S. Dep't of Agric., No. 14–60002.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (5th Circuit)
    • July 31, 2015
    ...of the Secretary in AWA hearings, his decisions qualify for Auer deference. 7 C.F.R. § 2.35(a) ; see Excel Corp. v. U.S. Dep't of Agric., 397 F.3d 1285, 1296 (10th Cir.2005) (deferring to the Judicial Officer's interpretation of a Department regulation intended to implement another statute ......
  • Request a trial to view additional results
14 cases
  • Arizona Public Service Co. v. U.S. E.P.A., No. 07-9546.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (10th Circuit)
    • April 14, 2009
    ...Bowles v. Seminole Rock & Sand Co., 325 U.S. 410, 414, 65 S.Ct. 1215, 89 L.Ed. 1700 (1945) (same); Excel Corp. v. U.S. Dep't of Agric., 397 F.3d 1285, 1295 (10th Cir.2005) (same).5 Congress delegated to the EPA the authority to promulgate regulations as necessary to carry out the objectives......
  • Moreland Properties, LLC v. City of Thornton, Civil Action No. 07-cv-00716-EWN-MEH.
    • United States
    • United States District Courts. 10th Circuit. United States District Court of Colorado
    • June 4, 2008
    ...v. Cent. Hanover Bank & Trust Co., 339 U.S. 306, 314, 70 S.Ct. 652, 94 L.Ed. 865 (1950)); see also Excel Corp. v. U.S. Dep't of Agri., 397 F.3d 1285, 1297 (10th Cir.2005) (citation omitted). To satisfy due process requirements, notice "be of such a nature as reasonably to convey the require......
  • Knapp v. U.S. Dep't of Agric., No. 14-60002
    • United States
    • United States Courts of Appeals. United States Court of Appeals (5th Circuit)
    • July 31, 2015
    ...Secretary inPage 6AWA hearings, his decisions qualify for Auer deference. 7 C.F.R. § 2.35(a); see Excel Corp. v. U.S. Dep't of Agric., 397 F.3d 1285, 1296 (10th Cir. 2005) (deferring to the Judicial Officer's interpretation of a Department regulation intended to implement another statute ad......
  • Knapp v. U.S. Dep't of Agric., No. 14–60002.
    • United States
    • United States Courts of Appeals. United States Court of Appeals (5th Circuit)
    • July 31, 2015
    ...of the Secretary in AWA hearings, his decisions qualify for Auer deference. 7 C.F.R. § 2.35(a) ; see Excel Corp. v. U.S. Dep't of Agric., 397 F.3d 1285, 1296 (10th Cir.2005) (deferring to the Judicial Officer's interpretation of a Department regulation intended to implement another statute ......
  • Request a trial to view additional results

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