Farmers Union Milk Marketing Co-op v. Yeutter

• Decision Date: 24 July 1991
• Docket Number: No. 89-2298,89-2298
• Citation: 930 F.2d 466
• Parties: FARMERS UNION MILK MARKETING COOPERATIVE, Gerald Piche, Peter J. Kleiman & Edward O. Kleiman, Art J. Corey, Jr., Raymond J. Marsicek, Ralph Brock, Ed E. Hanchek, Robert S. Hanchek d/b/a Hanchek Bros., Raymond S. Huber, Benjamin C. Huber, George A. Huber, on behalf of themselves and all members of Farmers Union Milk Marketing Cooperative pooled under Federal Order 40, Plaintiffs-Appellants, v. Clayton YEUTTER, Secretary of Agriculture, United States Department of Agriculture, Defendant-Appellee, Producers Equalization Committee, Defendant-Intervenor-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 466

930 F.2d 466

59 USLW 2637

FARMERS UNION MILK MARKETING COOPERATIVE, Gerald Piche,

Peter J. Kleiman & Edward O. Kleiman, Art J. Corey, Jr.,

Raymond J. Marsicek, Ralph Brock, Ed E. Hanchek, Robert S.

Hanchek d/b/a Hanchek Bros., Raymond S. Huber, Benjamin C.

Huber, George A. Huber, on behalf of themselves and all

members of Farmers Union Milk Marketing Cooperative pooled

under Federal Order 40, Plaintiffs-Appellants, v. Clayton YEUTTER, Secretary of Agriculture, United States

Department of Agriculture, Defendant-Appellee,

Producers Equalization Committee, Defendant-Intervenor-Appellee.

No. 89-2298.

United States Court of Appeals, Sixth Circuit.

Argued Sept. 17, 1990.

Decided April 11, 1991.

Rehearing and Rehearing En Banc Denied July 24, 1991.

Mark W. Reinke (argued), Grief, Bus & Blacklidge, Chicago, Ill., for plaintiffs-appellants.

Edward R. Cohen (argued), Dept. of Justice, Appellate Staff, Civ. Div., Washington, D.C., Edith A. Landman, Office of U.S. Atty., Grand Rapids, Mich., for defendant-appellee.

David VanderHaagen (argued), Foster, Swift, Collins & Coey, Lansing, Mich., for intervenor-appellee.

Marvin Beshore, Harrisburg, Pa., for amicus curiae Nat. Farmers Organization, Inc.

Before KRUPANSKY and BOGGS, Circuit Judges, and CONTIE, Senior Circuit Judge.

BOGGS, Circuit Judge.

This case concerns a fight between two different groups of dairy farmers over who will get certain benefits of federal milk price regulations. The Producers Equalization Committee ("PEC") persuaded the Department of Agriculture to enact regulations that help its members at the expense of the plaintiff, Farmers Union, and its members. Having lost before the Department of Agriculture, Farmers Union sued to overturn the Secretary's decision. The district court held that Farmers Union did not have the right to sue over this particular type of regulation (promulgated pursuant to the Agricultural Marketing Agreement Act ("AMAA"), 7 U.S.C. Sec. 601, et seq.) and dismissed the case.

The milk industry has long been subject to extensive government regulation. These regulations cover every aspect of the industry and are not limited to regulations designed to assure that only pure wholesome milk is sold. Since the 1930s, Congress has eschewed reliance on market forces to price milk and has substituted a complex regulatory scheme to control the prices paid to producers.

In this case, the Department of Agriculture has modified the price regulations in a way that adversely affects the plaintiffs. The PEC and the Department of Agriculture maintain that the plaintiffs can't sue because review is precluded by law. The district court agreed and dismissed the case. Because we believe that the purpose of the statutory scheme--raising the price that milk producers receive for their milk--would be undermined if producers could not challenge regulations of this type in federal court, we now reverse.

I

Government regulation of the milk industry is, according to the conventional wisdom, based on a number of facts that are unique to that particular industry. The degree to which these facts mirror economic reality is not before us; the belief, on the part of Congress and federal regulators, that the milk industry is subject to certain deficiencies that are incurable by market forces has led to a particular regulatory structure. This regulatory structure makes sense only when viewed against the backdrop of the perceived exigencies that have given rise to it. This court has previously had occasions to discuss the structure of milk industry regulation. Defiance Milk Products Co. v. Lyng, 857 F.2d 1065 (6th Cir.1988). There, we explained the underlying basis and structure of the price regulatory scheme set out in the AMAA:

Two conditions peculiar to the milk industry led to the establishment of a federally regulated price structure. The first is that raw milk has essentially two end uses: as fluid milk and as an ingredient in manufactured dairy products such as butter or cheese. The second condition is seasonality. Dairy cows produce more milk in the spring "flush" season than they do in the fall and winter.

The confluence of these two conditions created problems which Congress decided necessitated regulation. Raw milk to be used as fluid milk commands a higher price than milk to be used in manufactured products. Fluid milk is highly perishable, and if it cannot be marketed quickly it must be manufactured into other dairy products.

Id. at 1066.

Dairy farmers would obviously prefer selling milk at a higher price than at a lower price. Accordingly, they would like to sell all of their milk for use as fluid milk. Unfortunately, "[a] dairy herd sufficient to produce a supply of fluid milk adequate for consumer needs in the fall and winter will produce a glut in the spring." Ibid. Absent some sort of regulatory regime, it is likely that some sort of market equilibrium would develop. The parties tell us that, prior to regulation, milk producers would compete with each other to assure themselves of selling all their milk during the flush periods. "Before regulation, milk distributors ('handlers') would obtain bargains during glut periods, engendering cutthroat competition among diary farmers ('producers'). To maintain income, farmers would increase production even more." Ibid. We assume that, as with most products, the increased production led to a drop in prices. The AMAA sets up a complex scheme in order to prevent this competition among milk producers.

The key portion of this regulatory scheme allows individual producers of milk to receive a uniform price for their milk regardless of the ultimate end use while handlers pay different rates depending on the ultimate end use to which the milk is put. The device by which this is accomplished is the producer settlement fund.

The AMAA allows the Secretary of Agriculture to promulgate "market orders" regulating the minimum price of milk to be paid to producers. 7 U.S.C. Sec. 608c(5). The Secretary can do so only after formal, on-the-record rulemaking. 7 U.S.C. Sec. 608c(3) & (4). The location where the handler sells the majority of its milk to the ultimate consumers determines which market order governs the particular handler. This case concerns Market Order No. 40, which governs the price of milk sold in the Southern Michigan area. Though all of the handlers governed by the order sell a majority of their milk in the Southern Michigan area, some handlers located in the upper peninsula and in Wisconsin are governed by Market Order No. 40. This appeal involves producers located in the upper peninsula of Michigan and Wisconsin who sell their product to handlers regulated by Order 40.

Order 40 divides all milk sold to handlers into three categories. Class I milk is the most expensive and includes fluid milk commonly used for drinking. Class II milk is milk used to produce intermediate-level milk products such as yogurt and cottage cheese. And class III milk is used for the production of manufactured milk products such as cheese and butter. 7 C.F.R. Sec. 1040.40. The regulations set out a complicated pricing mechanism by which the price for milk sold for ultimate use in each different category is calculated. See 7 C.F.R. Secs. 1040.50, 1040.51, 1040.51(a).

Although the regulatory scheme sets out different prices for each category of milk, the purpose of the statute is, as we have said, to eliminate competition among producers to place milk with handlers who are believed to be willing to pay more because they are using the milk for fluid milk purposes. Accordingly, producers receive from purchasing handlers a uniform minimum "blend price" that is determined by a complicated formula that approximates the weighted average class price of all milk sold in the Order 40 area. 7 C.F.R. Sec. 1040.60. As individual handlers generally do not sell milk for use in each class in the same proportion as the market as a whole, some handlers end up paying too much and some end up paying too little to the dairy farmers. This is where the producer settlement fund comes into play. Those handlers whose class price obligations exceed the blend price must pay into the producer settlement fund, while those with class price obligations below that of the blend price receive payments from the producer settlement fund. ¹ Thus, for example, a handler whose milk is sold for fluid consumption will pay into the producer settlement fund while a handler who makes cheese will receive payments from the producer settlement fund. But both are obligated to pay the same minimum uniform price to the producer.

There are more complications. The system outlined above sets the blend price, which is subject to various adjustments, including so-called location adjustments, at issue in this case. ² The theory behind location adjustments is that milk further away from the market where it is to be sold (in this case, Southern Michigan) is less valuable. Location adjustments therefore adjust the blend price down as one gets further away from the market where the milk is consumed. Under Order 40, the portion of the lower peninsula outside of the Detroit-Saginaw-Flint market area is divided into zones. The further the zones are away from the main market, the larger the location adjustment (and hence the lower the minimum price). Outside of the lower peninsula of Michigan, there is a mileage rate added on top of the adjustment for the zone located furthest from the Detroit-Saginaw-Flint area.

Obviously, a producer's attitude toward location adjustments depends on location. The type and amount of location adjustments will have significant distributive consequences. A large location adjustment will have an effect both on the minimum price that must be paid by handlers located further away and on the distribution of money from the producer settlement fund.

One more detail of the regulatory scheme is necessary to complete the picture. Although the...