Organic Cow v. Center for New England Dairy

• Decision Date: 08 July 2003
• Docket Number: No. 02-7762.,02-7762.
• Citation: 335 F.3d 66
• Parties: The ORGANIC COW, LLC, a Vermont Corporation, Plaintiff-Appellant, v. CENTER FOR NEW ENGLAND DAIRY COMPACT RESEARCH, Defendant-Appellee.
• Court: U.S. Court of Appeals — Second Circuit

335 F.3d 66

The ORGANIC COW, LLC, a Vermont Corporation, Plaintiff-Appellant, v. CENTER FOR NEW ENGLAND DAIRY COMPACT RESEARCH, Defendant-Appellee.

No. 02-7762.

United States Court of Appeals, Second Circuit.

Argued: March 6, 2003.

Decided: July 8, 2003.

Jane Osborne McKnight, Burlington, VT, for Plaintiff-Appellant.

Daniel J. Smith, Montpelier, VT, for Defendant-Appellee.

Before: WALKER, JACOBS, and CALABRESI, Circuit Judges.

CALABRESI, Circuit Judge.

The Organic Cow, LLC ("Organic Cow"), an organic dairy in Vermont, appeals from an order of the United States District Court for the District of Vermont (Sessions, J.), which granted summary judgment to the substituted Appellee, The Center for New England Dairy Compact Research ("the Center"). The Center became a party to this suit when the district court allowed it to take the place of the original appellee, The Northeast Dairy Compact Commission ("the Commission"). The Commission had been the governing body of an interstate dairy compact, whose congressional authorization had expired about three weeks before the Center filed a motion to substitute for the Commission, pursuant to Fed.R.Civ.P. 25.

We find that the district court erred in granting the Center's motion for substitution. Because the Commission no longer exists and there is currently no entity duly authorized to conduct the Commission's affairs, we vacate the district court's order granting the substitution and its summary judgment order, and we remand the case to the district court with instructions to dismiss the suit.

I.

In the late 1980s and early 1990s, six northeastern states — Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, and Vermont — negotiated an interstate agreement to regulate milk prices, and sought Congressional approval of the agreement, as required by the Compact Clause of the United States Constitution, U.S. Const. art. I, § 10, cl. 3 ("No State shall, without the Consent of Congress ... enter into any Agreement or Compact with another State...."). See New York State Dairy Foods, Inc. v. Northeast Dairy Compact Comm'n, 26 F.Supp.2d 249, 253 (D.Mass.1998). In June 1996, as part of the Federal Agriculture Improvement and Reform Act of 1996, Pub.L. No. 104-127, Title I, § 147, 110 Stat. 888 (codified at 7 U.S.C. § 7256), Congress consented to the Northeast Interstate Dairy Compact, S.J. Res. 28, 104th Cong. (1995) (enacted) ("the Compact"),¹ subject to certain conditions. See Federal Agriculture Improvement and Reform Act § 147. Congress originally provided that its consent to the Compact would expire concurrently with the reform of the federal milk pricing scheme, no later than April 4, 1999. See id. §§ 143, 147. Congress later adjusted the expiry date to September 30, 2001. See Pub.L. No. 106-113, 113 Stat. 1501 (1999).

The Compact established the Northeast Interstate Dairy Compact Commission ("the Commission"), which was made up of delegations from each of the Compact states. The Commission had authority to administer the Compact. See Compact, Art. III, § 4. The Compact, in turn, defined and limited the Commission and its authority. For example, (1) the Compact included specific criteria governing the composition of each state's delegation to the Commission, see id.; (2) it mandated that the Commission conduct informal rulemaking proceedings before promulgating or amending certain regulations, see id. Art. V, § 11; (3) it required that the Commission report on its activities annually to the United States Secretary of Agriculture and to the governors, legislatures, and departments of agriculture of each member state, see id. Art. III, § 6; (4) it set the Commission's quorum for conducting business, and established the number of votes needed for approval of different types of Commission business, see id. Art. III, § 5; (5) it mandated that the Commission's bylaw and notices of its meetings be published in each participating state, see id. Art. III, § 6; and (6) it directed that the Commission consider specific criteria and follow certain procedures, all of which were detailed in the Compact, before adopting any written price regulation. See, e.g., id. Art. III, § 5; Art. IV, § 9(e); Art. V, § 11.

On May 30, 1997, the Commission promulgated a regulatory scheme that was effective July 1997. See 7 C.F.R. §§ 1300-1308 (1998). The scheme established an "over-order price" of $16.94 per hundred weight (cwt) of Class I milk.² See 7 C.F.R. § 1305.1 (1998). This was the minimum price required to be paid for Class I milk, and was higher than the price set by the U.S. Secretary of Agriculture through the Federal Milk Marketing Orders. The difference between the Commission's over-order price and the Federal Milk Marketing Order price was called the "over-order obligation." The Commission was authorized to collect the over-order obligation from all milk handlers that sold Class I milk within the Compact region. The collected funds were then returned to the handlers, i.e. processors, according to a complex allocation formula, for distribution to the producers. See 7 C.F.R. §§ 1307.1-1307.4 (1998); New York State Dairy Foods, 26 F.Supp.2d at 256-57.

Organic Cow is a "pool plant" — a milk handler and processor in Vermont — which, by 1997, processed milk from sixty certified organic dairy farmers, pursuant to two-year, automatically renewable, output contracts. Under the contracts, Organic Cow guaranteed a price to its organic dairy farmers of $18.00 per cwt ($18.25 in Maine). Given the additional fees paid by Organic Cow, including premiums for certain butterfat and trucking charges, the organic farmers who contracted with Organic Cow were paid an effective price of between $19.36 and $24.00 per cwt.

When this action began, Organic Cow was selling more than 1,000,000 pounds (10,380 cwt) per month of Class I organic milk within the Compact region. In August 1997, soon after the Commission's regulatory scheme was enacted, Organic Cow petitioned the Commission for an exemption from the over-order obligation. Organic Cow argued that, because it was already paying its producers rates far in excess of the over-order price, it should not be assessed the "over-order obligation" as were the average processors (most of whom were then paying the federal market order minimum price of $13.95 per cwt). In March 1998, the Commission denied Organic Cow's petition for an exemption, and ordered Organic Cow to pay to it, in escrow pending any appeal, the amounts it owed the Commission under the over-order obligation.

Meanwhile, in December 1997, the Commission had instituted an enforcement proceeding in the Federal District Court in Vermont to collect the amounts due from Organic Cow under the regulation, and sought a preliminary injunction requiring Organic Cow to pay its over-order obligation. In March 1998, the district court stayed the order with respect to past due payments (about $152,000), but ordered that Organic Cow pay all future assessments into an escrow account, established with the Commission, pending resolution of the enforcement action.

In April 1998, Organic Cow appealed to the federal district court the Commission's denial of its request for an exemption from the assessment. The district court consolidated the administrative appeal with the Commission's enforcement action. A year later, the district court reversed the Commission's denial of Organic Cow's request for exemption, and remanded the case to the Commission for further proceedings. The court concluded that the record did not indicate "whether the Commission considered Organic Cow's argument that organic milk producers and handlers should be treated differently than non-organic producers and handlers under the Compact; [or,] if it did consider the argument, on what basis it rejected it," and that, therefore, the court was "unable to conclude that the Commission's decision on this point is supported by substantial evidence."

Following the remand and after further proceedings, the Commission issued a final report in June 2000. In it, Organic Cow's request for an exemption from the over-order obligation again was denied. The report reviewed in detail the Commission's deliberations at the time of the initial rulemaking, and concluded that the Commission's decision to treat conventional and organic milk alike was supported by "the evidence on the record and sound principles of regulatory judgment."

Organic Cow again appealed the Commission's denial to the federal court in Vermont and the Commission filed a counterclaim for the assessments it alleged to be due. This time, the district court rejected Organic Cow's appeal. The court first denied a due process claim made by Organic Cow, and then reviewed the Commission's decision to treat conventional milk and organic milk alike. After making clear that it disagreed with the Commission's decision, the court held that, because it could not conclude that the decision was "arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law," it was required to defer to the Commission. The district court therefore affirmed the Commission's decision, dissolved its own March 9, 1998 stay, and ordered that the funds in escrow be released for disbursement by the Commission pursuant to the Compact and its regulations. The district court's ruling was entered on September 24, 2001, but the court did not then resolve the Commission's counterclaim. As a result, it did not enter a final judgment in the suit.

Congress's consent to the Compact expired six days later, on September 30, 2001. Shortly before the expiration and in anticipation of it, the Commission held a special meeting at which its members voted to transfer and donate all "right, title, and interest in any and all records and assets of the Commission" to the Center for New England Dairy Compact Research, Inc., a not-for-profit Vermont corporation that had been formed on September 20, 2001. The...