Livestock Marketing v. U.S. Dept. of Agriculture, Civ. 00-1032.

• Decision Date: 23 February 2001
• Docket Number: Civ. 00-1032.
• Citation: 132 F.Supp.2d 817
• Parties: LIVESTOCK MARKETING ASSOCIATION, an association of livestock markets, the Western Organization of Resource Councils, an association of grassroots of organizations that seek to protect natural resources, family farms, and rural communities, and Robert Thullner, Johnny Smith, and Ernie J. Mertz, on behalf of themselves and others similarly situated, Plaintiffs, v. UNITED STATES DEPARTMENT OF AGRICULTURE, Ann Veneman, Secretary of Agriculture, and the Cattlemen's Beef Board, an organization of cattle producers and importers charged with implementing the Beef Research and Promotion Order, Defendants.
• Court: U.S. District Court — District of South Dakota

Page 817

132 F.Supp.2d 817

LIVESTOCK MARKETING ASSOCIATION, an association of livestock markets, the Western Organization of Resource Councils, an association of grassroots of organizations that seek to protect natural resources, family farms, and rural communities, and Robert Thullner, Johnny Smith, and Ernie J. Mertz, on behalf of themselves and others similarly situated, Plaintiffs, v. UNITED STATES DEPARTMENT OF AGRICULTURE, Ann Veneman, Secretary of Agriculture, and the Cattlemen's Beef Board, an organization of cattle producers and importers charged with implementing the Beef Research and Promotion Order, Defendants.

Civ. 00-1032.

United States District Court, D. South Dakota, Northern Division.

February 23, 2001.

COPYRIGHT MATERIAL OMITTED

Philip C. Olsson, Naomi J.L. Halpern, Olsson, Frank & Weeda, P.C., Washington, DC, Scott N. Heidepriem, Ronald A. Parsons, Jr., Johnson, Heidepriem, Miner, Marlow & Janklow, Sioux Falls, SD, for Plaintiffs.

Ori Lev, Thomas Millet, U.S. Department of Justice, Washington, DC, Ted L. McBride, U.S. Attorney, Sioux Falls, Cheryl Schrempp Dupris, Assistant U.S. Attorney, Pierre, SD, for Defendants.

MEMORANDUM OPINION AND ORDER

KORNMANN, District Judge.

INTRODUCTION

[¶ 1] Plaintiffs instituted this action to challenge certain activities in connection with the Beef Promotion and Research Act (Title XVI, Subtitle A, of the Food Security Act of 1985), Pub.L. 99-198, Title XVI, § 1601, and certain actions and inaction on the part of the United States Secretary of Agriculture ("Secretary") and the Cattlemen's Beef Board ("Board"). Plaintiffs seek declaratory and injunctive relief. As required by law, Secretary Veneman has been substituted for Secretary Glickman as a party defendant.

FINDINGS OF FACT

[¶ 2] The Beef Promotion and Research Act of 1985, 7 U.S.C. §§ 2901-11 ("the Act"), authorizes the Secretary to promulgate a Beef Promotion and Research Order ("Order"), 7 U.S.C. § 2903, to establish a Cattlemen's Beef Promotion and Research Board ("Board"), 7 U.S.C. § 2904, and an Operating Committee, 7 U.S.C. § 2904(4)(A), to carry on a "program of promotion and research designed to strengthen the beef industry's position in the marketplace and to maintain and expand domestic and foreign markets and uses for beef and beef products." 7 U.S.C. § 2901(b). The program is funded by mandatory producer and importer contributions of one dollar per head on each transaction. 7 U.S.C. § 2904(8)(C). These mandatory contributions are referred to collectively as the "checkoff."

[¶ 3] On February 14, 1986, the Agricultural Marketing Service ("AMS") issued an invitation to submit proposals for the Order. One proposal was received from the National Cattlemen's Beef Association ("NCBA"). 51 Fed.Reg. 26,132, 26,133. Following publication and a comment period, a final Order was issued on July 18, 1986. 51 Fed.Reg. 26,132 (codified at 7 C.F.R. Part 1260, Subpart A, §§ 101-217). Assessments began on October 1, 1986. 53 Fed.Reg. 5,752.

[¶ 4] The 1985 Act required that, within the first 22 months after the Order was issued, the "trial period," the Secretary was required to conduct a referendum among the persons who were producers and importers during that trial period in order to determine whether the persons subject to the Order believed that it should continue to be in effect. 7 U.S.C. § 2906(a). On March 28, 1988, procedures for the conduct of the required referendum were adopted. 53 Fed.Reg. 9,854 (codified at 7 C.F.R. Part 1260, Subpart C, §§ 1260.401-1260.441). The required referendum was conducted on May 10, 1988. The Order was approved and assessments subsequently became mandatory. As to those subject to the Order, the only statutory mechanism available to seek suspension or termination of the Order would be for a "representative group comprising ten per centum or more" of the cattle producers subject to the Order to petition the Secretary to hold a referendum. See 7 U.S.C. § 2906(b).

[¶ 5] There are currently 13 research and promotion programs for agricultural commodities, namely beef, cotton, dairy, eggs, fluid milk, honey, mushrooms, peanuts, popcorn, pork (recently apparently "voted out" in a referendum but still the object of pending litigation), potatoes, soybeans, and watermelons. 65 Fed.Reg. 5,853. The AMS has developed guidelines to facilitate uniform oversight of the research and promotion programs.

[¶ 6] In 1995, as part of the National Performance Review program to eliminate unnecessary regulations, all references to "referendum" were removed from the research and promotion administrative regulations by the AMS. 60 Fed.Reg. 58,502 (eliminating minor references throughout the beef order regulations); 60 Fed.Reg. 61,196 (eliminating, among others, Subpart C, the procedure for the conduct of beef order referendums, 7 C.F.R. §§ 1260.401-1260.441). The AMS determined that, since referenda are conducted infrequently, it was not cost-effective to incur printing costs to publish the rules with respect to each of the marketing programs. 60 Fed.Reg. 61,196, 61,197. Consequently, referenda provisions were removed as to the then existing eleven programs. Id.

[¶ 7] Although the 1985 Act clearly intends that referenda may be conducted even after the initial referendum, there are no federal regulations or rules as to the conduct of such referenda. Questions of how to do it and when to do it cannot be answered by looking at any regulations or rules. Obviously, it follows that all questions as to procedures and any answers to the questions have not gone through a process in which notice is provided, as well as opportunities to comment.

[¶ 8] Since the establishment of the checkoff in 1986, more than $1 billion has been received from the beef checkoff. During 1997 and 1998, cattle prices were so low that frustrations of many cattle producers were heightened when they were required to deduct checkoff assessments from prices that did not even cover costs of production. In 1998, the Livestock Marketing Association ("LMA") initiated a petition drive to obtain a referendum on the continuation of the beef checkoff program. This was a drive allegedly to allow producers throughout the United States to "have a say" in the decision as to whether the program should be continued, terminated or revised. It would appear, however, that the only choice in a referendum is to vote the program "up or down." Provisions do not exist for an initiative petition to allow a vote on changes being made. The LMA explored the appropriate procedures for submitting such a petition and made inquiries to the Secretary concerning the petition process for a beef referendum.

[¶ 9] During the first full fiscal year that assessments were collected, the Board budgeted and spent just over $500,000 on so-called producer communications. During fiscal year 1988 (following the initial referendum), the board increased producer communications spending to $3,374,863. The following four fiscal years, producer communications expenditures were just over one million dollars per year. Between fiscal years 1993 and 1997, less than a half million dollars was spent annually on producer communications. (Doc. 23, Exh. A1)

[¶ 10] Beginning in mid-1998, the time LMA began the petition drive, the Board initiated a vastly expanded program of "producer communications." In fiscal year 1998, the producer communications budget jumped to $2,780,604. (Doc. 23, Exh. A1) The checkoff division of NCBA committed an additional $935,000 for producer communications in fiscal year 1998. (Doc. 6, Exh. 13) Defendants contend, however, that only $853,720 of checkoff money was actually spent for producer communications in fiscal year 1998. (Doc. 23, Exh. A1) In fiscal year 1999, the budget was $1,135,000 but $2,893,238 was spent on producer communications. (Doc. 23, Exh. A1) It is rather astounding that expenditures were over 250 percent of what had been actually budgeted. In fiscal year 2000, $3,100,000 was budgeted for producer communications but, as of December 31, 2000 (half-way through the fiscal year), only $366,320 had been actually spent. (Doc. 23, Exh. A1)

[¶ 11] Defendants contend that the increased budget for producer communications was not in response to the referendum petition drive but, rather, in response to concerns that the producers did not understand just what the Board was doing and where producers' checkoff dollars were being spent. The budgets and spending alone are not an indication that checkoff funds were spent illegally but, in conjunction with other findings set forth below, indicate that the purpose of the increased producer communications was to perpetuate the existence of the Board and the checkoff itself. Obviously, if the referendum is blocked or defeated, the Board and the checkoff continue. It is somewhat misleading to refer to extensive and expensive media campaigns as "producer communications" since anyone seeing the advertisements would be subject to political persuasion. This would include not only beef producers but also U.S. Senators, U.S. Representatives, Congressional staff and USDA officials.

[¶ 12] The Board has sent producers communications contending that the checkoff is "fair," "effective," and "accountable." (affidavit of Ronald A. Parsons, Jr., Doc. 6, Exh. 14) The Board's Web site boasted: the "The Beef Checkoff Program — It's Working!" www.beefboard.com/resources/ index.htm. The Web site has or had a link to checkoff information which boasts: "the Beef Checkoff — It's Working." www.beefboard.org/resources/cbb.chart. htm. That site states or stated that "a producer Attitude Survey conducted by Aspen Research showed that 68 percent of cattlemen approve of the checkoff." Id. That site also advises or did advise browsers that the referendum would cost:

$3 to $4 million, or about what the checkoff invested in foreign market development during 1997. A cost not figured here is the value of staff and volunteer...