Humane Soc'y of the U.S. v. Perdue

• Decision Date: 01 February 2018
• Docket Number: Civil Action No. 12–1582 (ABJ)
• Citation: 290 F.Supp.3d 5
• Court: U.S. District Court — District of Columbia
• Parties: The HUMANE SOCIETY OF the UNITED STATES, et al., Plaintiffs, v. Sonny PERDUE, Secretary of the U.S. Department of Agriculture, Defendant.

290 F.Supp.3d 5

The HUMANE SOCIETY OF the UNITED STATES, et al., Plaintiffs,

v.Sonny PERDUE,¹ Secretary of the U.S. Department of Agriculture, Defendant.

Civil Action No. 12–1582 (ABJ)

United States District Court, District of Columbia.

Signed February 1, 2018

Matthew Eric Penzer, Peter A. Brandt, Humane Society of the United States, Washington, DC, for Plaintiffs.

Kari E. D'Ottavio, Matthew J.B. Lawrence, Peter J. Phipps, U.S. Department of Justice, Washington, DC, for Defendant.

MEMORANDUM OPINION

AMY BERMAN JACKSON, United States District Judge

The U.S. Department of Agriculture ("USDA") oversees multiple federal programs established by Congress to promote certain agricultural commodities. These programs are funded by "checkoffs"—mandatory assessments that producers and importers pay on the sale or import of the commodity. The assessments are used to pay for a range of activities, including research and marketing of the commodities, and they subsidize well-known advertising campaigns, such as "Got Milk?," "Beef: It's What's for Dinner," and "The Incredible, Edible Egg." This case involves the pork checkoff program and the trademarks associated with the slogan "Pork The Other White Meat."

The National Pork Board ("Board" or "NPB") is a fifteen-member board appointed by the Secretary of Agriculture that is responsible for developing and administering the pork checkoff program. Plaintiffs in this case challenge the Secretary's decision to approve the Board's purchase of the trademarks associated with "The Other White Meat" campaign.

Beginning in 2001 until it purchased the trademarks in 2006, the Board gained access to the trademarks through a licensing agreement with the National Pork Producers Council ("NPPC"), the private industry trade association that developed the trademarks. The fee for the exclusive license to use the trademarks was one dollar per year, until 2004 when it increased to $818,000 per year. In 2006, with the Secretary's approval, the Board entered into an agreement to purchase the trademarks from NPPC for approximately $34.6 million (the "Purchase Agreement"), which it agreed to finance over twenty years at an interest rate of 6.75%, for a total cost of $60 million including interest. Under the Purchase Agreement, the Board agreed to pay NPPC $3 million annually for twenty years.

Pursuant to the Pork Promotion, Research, and Consumer Information Act, 7 U.S.C. § 4801 et seq. ("Pork Act" or "the Act"), which established the pork checkoff program, the Secretary is required to approve the Board's annual budget each year. Through that process, the Secretary has approved the $3 million payment every year since the Board purchased the trademarks. In 2016, the agency undertook a review of the annual payments under the Purchase Agreement and reapproved the annual payments.

Plaintiffs challenge the Secretary's approval of the initial purchase of the trademarks and the subsequent approval of the annual payments under the Purchase Agreement on the grounds that they resulted in the use of pork checkoff dollars to influence legislation, which is prohibited by the Pork Act, and on the basis that the Secretary's actions were arbitrary, capricious, and contrary to law.

Pending before the Court are plaintiffs' motion for summary judgment,² defendant's motion to dismiss for lack of subject matter jurisdiction or, in the alternative, motion for summary judgment,³ and intervenor-defendant NPPC's motion to dismiss or motion for summary judgment,⁴ all of which are fully briefed.⁵ Upon review of the parties' submissions, the administrative record in this case, and the applicable law, the Court will grant in part and deny in part plaintiffs' motion for summary judgment and grant in part and deny in part defendant's and intervenor-defendant's motions for summary judgment. The Court agrees with defendants that plaintiffs' challenge to the approval of the 2006 Purchase Agreement itself was untimely, and that their claims concerning the approval of any annual payments made in the past are moot. But the Court concludes that decision to continue to approve the annual payments based on the review of the Purchase Agreement that was undertaken in 2016 was arbitrary and capricious and unmoored from the facts and circumstances before the agency, so it will rule in favor of the plaintiffs on that issue.

The Secretary approved spending $3 million per year for the purchase of the trademarks for another ten years based on an expert's determination of their replacement cost, that is, what it would cost to develop and market an entirely new promotional campaign today. But neither the agency nor the expert adequately explains why this calculation sheds any light on what the 2016 review was supposed to ascertain: the current value of the set of four trademarks to the agency. The fundamental problem is that the three trademarks that include The Other White Meat slogan have been declared to be obsolete, and they have been retired from active use. So their value is minimal, or at best, undetermined. And the record contains no effort to ascertain the value of the fourth mark—the "Pork and Design" logo that consists of the word "pork" written across a blue triangular "pork loin silhouette"—at all.

The Secretary's 2016 decision also fails to explain why it makes sense to predicate future payments on the cost of replacing The Other White Meat when the cost of replacing The Other White Meat has already been incurred. Moreover, while the agency states that the expert endeavored to calculate the value of the marks based upon the cost of developing a new trademark with the same level of effectiveness as the old trademarks, "as measured by aided awareness studies of the percentage of people who are aware of the trademark," there is no data in the record underlying the expert's selection of 40% awareness as the target measure. The expert simply cut the high level of awareness garnered by The Other White Meat slogan in its heyday in half and calculated what it would cost to buy something else that effective now. But without any analysis of how much The Other White Meat still resonates in the consumer consciousness today, or, more important, whether the blue triangular logo has gained any traction in the market at all, this approach to quantifying "current value" is completely arbitrary and cannot pass muster under the APA.

BACKGROUND

I. LEGAL FRAMEWORK

Congress created the pork checkoff program when it passed the Pork Act in 1985. 7 U.S.C. § 4801 et seq. The Act's purpose is to "financ[e], through adequate assessments, ... an effective and coordinated program of promotion, research, and consumer information" to "strengthen the position of the pork industry in the marketplace; and ... maintain, develop, and expand markets for pork and pork products." 7 U.S.C. § 4801(b) (2012). Pursuant to the Act, the Secretary issued the Pork Promotion, Research, and Consumer Information Order, which sets forth regulations to implement the Act. 7 U.S.C. § 4803 ; see 7 C.F.R. pt. 1230(A) (2013) (the "Pork Order" or "Order").

Under the terms of the Pork Act, defendant established the National Pork Board, made up of members who serve three-year terms. 7 U.S.C. § 4808(a)(1)–(3). The Board is responsible for developing "proposals for promotion, research, and consumer information plans and projects" for the Secretary's approval. 7 U.S.C. § 4808(a) – (b) ; 7 C.F.R. § 1230.60(a). It is also responsible for periodically reviewing plans or projects for effectiveness and terminating those that do not further the purposes of the Act. 7 C.F.R. § 1230.60(b) ("Each plan and project shall be periodically reviewed or evaluated by the Board to ensure that the plan and project contributes to an effective and coordinated program of promotion, research, and consumer information. If it is found by the Board that any such plan and project does not further the purposes of the Act, the Board shall terminate such plan and project."). The Board's activities are funded by the assessments that pork producers and importers are required to pay to the Board. 7 U.S.C. § 4809(a), (c) ; 7 C.F.R. § 1230.71(a)(1).

The Act and the Order grant the Board certain powers to carry out its responsibilities. See 7 U.S.C. § 4808 ; 7 C.F.R. § 1230.58 ("Powers and duties of the Board"). These include the authority to incur expenses the Secretary finds "reasonable and likely to be incurred by the Board ... to enable it to exercise its powers and perform its duties." 7 C.F.R. 1230.70(a). Also, the Board, "with the approval of the Secretary, may enter into contracts ... for the development and conduct of activities authorized under" the Pork Order. 7 U.S.C. § 4808(b)(4)(A)(i).

Within the agency, the Secretary has delegated oversight responsibility for the pork and other checkoff programs to the USDA's Agricultural Marketing Service ("AMS"). AMS's role is "to ensure compliance with all applicable legislation, regulations, and policies," Admin. Record, Joint App. [Dkt. # 64] ("AR") 778,⁶ and to that end, has issued its Guidelines for AMS Oversight of Commodity Research and Promotion Programs ("Guidelines"). See AR 779–806. Among their requirements, the Guidelines allow for multi-year contracts only if "all funding is obligated during the budget year" or they "require extensions consistent with the budget year and include an 'escape clause'—clear language that the board may cancel the project at any time and for any reason without incurring the full contract cost." Guidelines IV.D, AR 782.

The Pork Act, the Pork Order, and AMS's Guidelines all prohibit the Board from using assessment funds "for the purpose of influencing legislation." 7 U.S.C. § 4809(e) ; 7 C.F.R. § 1230.74.

II. FACTUAL BACKGROUND

Plaintiff Harvey Dillenburg is an individual pork producer who has paid assessments into the pork checkoff program since it began. Decl. of Harvey Dillenburg, Att. to Pls.' Mot. [Dkt. # 52–2] ¶ 3. Plaintiff Humane Society of the United...