Sugar Cane Growers Co-Op. of Florida v. Veneman

• Decision Date: 10 May 2002
• Docket Number: No. 01-5335.,01-5335.
• Citation: 289 F.3d 89
• Parties: SUGAR CANE GROWERS COOPERATIVE OF FLORIDA, et al., Appellants, v. Ann M. VENEMAN, in her official capacity as Secretary of the United States Department of Agriculture, et al., Appellees.
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 89

289 F.3d 89

SUGAR CANE GROWERS COOPERATIVE OF FLORIDA, et al., Appellants, v. Ann M. VENEMAN, in her official capacity as Secretary of the United States Department of Agriculture, et al., Appellees.

No. 01-5335.

United States Court of Appeals, District of Columbia Circuit.

Argued February 11, 2002.

Decided May 10, 2002.

COPYRIGHT MATERIAL OMITTED

Appeal from the United States District Court for the District of Columbia (01cv01904).

Raymond B. Ludwiszewski argued the cause for appellants. With him on the briefs were Peter E. Seley and Hassan A. Zavareei.

David J. Ball, Jr., Assistant United States Attorney, argued the cause for appellees. With him on the brief were Roscoe C. Howard, Jr., United States Attorney, and R. Craig Lawrence, Assistant United States Attorney.

William Bradford Reynolds and John F. Bruce were on the brief for amicus curiae United States Beet Sugar Association in support of appellees.

Before: TATEL and GARLAND, Circuit Judges, and SILBERMAN, Senior Circuit Judge.

Opinion for the Court filed by Senior Circuit Judge SILBERMAN.

SILBERMAN, Senior Circuit Judge:

Sugar Cane Growers Cooperative of Florida, Florida Crystals Corporation, and Refined Sugars, Inc., appeal from the district court's grant of summary judgment holding that appellants lacked standing. The court dismissed their claims that the United States Department of Agriculture failed to comply with the Administrative Procedure Act¹ and the Food Security Act of 1985² in implementing a payment-in-kind program for the 2001 sugar crop by press release. We think appellants have demonstrated standing and because the Department did not comply with the APA or the Food Security Act, we reverse the district court's grant of summary judgment and remand to that court to in turn remand to the Department.

I.

In the United States, sugar production, which the government supports through a variety of programs, is about evenly divided between sugar cane and sugar beet production. This suit involves the Department's choice of a particular method of support. Appellants are self-described small-, medium- and large-sized sugar cane growers, processors, refiners and marketers, who together make up a "significant" portion of the total domestic sugar cane production, which mostly occurs in the Gulf Belt and Hawaii. Sugar beets grow primarily in the North and West, and sugar beet farmers tend to harvest significantly fewer acres per producer than sugar cane farmers. The Department supports sugar production through a program of non-recourse loans; if the market price of sugar drops below the forfeiture price, producers may forfeit their crops to the Department in satisfaction of these loans rather than try to repay in cash, which effectively guarantees a minimum price for harvested and processed sugar. With the low sugar prices over the past several years, the Department has accumulated more than 700,000 tons of sugar, for which it pays approximately $1.35 million per month in storage fees. The presence of that potential supply (or "overhang") may depress somewhat sugar prices and it exacerbates the problem of limited sugar storage, which is particularly troublesome for sugar beet farmers.

The Food Security Act gives the Department authority to implement a payment-in-kind (PIK) program for sugar, which it did for sugar beet farmers in August 2000. For the 2000 PIK program, sugar beet farmers submitted bids to the Department offering to destroy (or "divert") a certain amount of their crops in return for sugar from USDA storage. A farmer's bid is his asking price for that amount of destruction; the price is expressed in terms of a percentage of the three-year average value of the crop yield for the acreage diverted. Thus, a farmer bidding 80 percent would receive eight dollars for every acre destroyed if an average acre of their farm produced ten dollars worth of sugar. In fact, the average bid was approximately 84 percent and resulted in the distribution of about 277,000 tons of government sugar and the diversion of approximately 102,000 acres. Participants were prohibited from participating in future PIK programs if they increased their acreage planted with sugar beets over 2000 levels. The Agency did not proceed by notice and comment, but no party challenged that decision or the program itself.

Appellants claim the 2000 PIK program unfairly provided participants with below-harvest-cost government sugar which gave them a competitive advantage over appellants. And they claim that the program depressed sugar prices. Actually, the price of sugar rose, but it is not clear what caused the increase. According to appellants, although initial forecasts predicted that the diverted acreage would lead to lower sugar crop volume in 2000, subsequent forecasts increased substantially in the months following implementation of the PIK program — to 23.6 tons per acre in December 2000 from 22.8 tons per acre before August 2000. Appellants contend that the yield increase (or "yield slippage") resulted in part from farmers taking their lowest-yielding crops out of production for the PIK program. With the yield slippage, additional beet sugar supplies ended up on the market, and PIK farmers received more sugar through the program than they would have if they had produced sugar on the diverted acres. And the greater supplies of sugar, it is argued, necessarily depressed sugar prices below that which would otherwise have obtained. The government insists that the program had a positive effect on the price of sugar, at least in part because it reduced the government's sugar supply and storage fees, ameliorating the overhang effect and storage scarcity problem.

In January 2001, the Department met with interested persons (including representatives of appellants) and indicated that while it was considering a PIK program for the 2001 sugar crop, it would not do so without notice and comment. The Agency also asked those present about the effectiveness of the 2000 PIK program and their thoughts on the desirability and structure of a potential 2001 program. Appellants claim that they were unable to comment satisfactorily because the data on the 2000 program was not yet available. Before August 2001, Department employees had approximately a dozen contacts with sugar industry representatives regarding the possibility of a 2001 program.

The Department announced by an August 31, 2001 press release, however, that it was implementing a PIK program for the 2001 sugar crop without using APA rulemaking. The Agency followed that announcement a week later with a "Notice of Program Implementation" in the September 7, 2001 Federal Register. For the 2001 PIK program, the Department set a 200,000 ton limit in order to encourage more competitive bidding and made both beet and cane sugar producers eligible. But a statutory restriction limiting payments to $20,000 per producer effectively eliminated appellants' opportunity to participate because of their size. Particularly troubling appellants, the government waived its 2000 PIK program restriction on future eligibility by participants who had increased their crop acreage; it merely included a similar restriction on 2001 participants. In contrast to the 2000 PIK program, in which the government disbursed all of the allotted sugar at the same time, in 2001 the Department indicated that it would stagger disbursement. After announcing the program, the Department received more than 6,000 bids and accepted 4,655 bids, some as high as 87.9931 percent. The final data on bids is not a part of the summary judgment record, nor is the disbursement schedule.

Appellants filed suit shortly after the press release appeared, seeking injunctive and declaratory relief. They argued that the Department did not comply with the APA because it promulgated a rule without notice-and-comment rulemaking; that it violated the Food Security Act of 1985 by not making required findings; and that the Department violated the Regulatory Flexibility Act³ because it did not consider the impact of the program on small businesses. It was argued that the 2001 PIK program caused appellants two injuries: first, it gave participants a competitive advantage by providing them with below-harvest-cost sugar; second, it had a depressive effect on prices.

The district court, with the agreement of the parties, converted appellants' motion for preliminary injunctive relief into a summary judgment motion. The court concluded that appellants failed to establish standing on two grounds: first, they had not shown an injury-in-fact; second, they had not established causation because they had not demonstrated that the Department would have decided against implementing the program following notice and comment. The court nevertheless decided the merits, holding that the 2001 PIK program was a rule subject to notice-and-comment procedures, but the Department's failure to comply with those procedures was harmless. Appellants' Food Security Act and Regulatory Flexibility Act claims were not addressed.

II.

We, of course, begin with standing. Appellants claim that the Department gave sugar beet farmer participants a competitive advantage by giving them below-harvest-cost sugar. Participants will use that competitive advantage to capture market share and customer good will, or so the argument goes. The government responds by pointing out (and appellants do not dispute) that refined sugar is a commodity market. In light of that, appellants have not explained how any cost advantage participants could gain would translate into a meaningful competitive advantage.⁴

On the other hand, appellants are on much sounder economic ground in claiming that the PIK program had a depressive effect on sugar prices — which would have clearly injured appellants. They produced an affidavit from Brian O'Malley and studies by two independent industry analysts, each of which indicated that the PIK programs have...