Wileman Bros. & Elliott, Inc. v. Giannini, 88-15731

Decision Date10 July 1990
Docket NumberNo. 88-15731,88-15731
Citation909 F.2d 332
Parties1990-2 Trade Cases 69,098 WILEMAN BROS. & ELLIOTT, INC., Frank Thomas Elliott, Jr., dba Elliott Farms, Frank Thomas Elliott III, Kash, Inc., Rodney Chang, and Edward Ogawa, Plaintiffs-Appellants, v. Leroy GIANNINI, Giannini Packing Corporation, Virgil Rasmussen, Ballantine Produce Co., Inc., Patrick Pinkham, and Gary Van Sickle, Defendants-Appellees.
CourtU.S. Court of Appeals — Ninth Circuit

Thomas E. Campagne, Fresno, Cal., for plaintiffs-appellants.

Mark E. Cullers, Asst. U.S. Atty., Fresno, Cal., for defendants-appellees.

Appeal from the United States District Court for the Eastern District of California.

Before WIGGINS and NOONAN, Circuit Judges, and TASHIMA, * District Judge.

TASHIMA, District Judge:

BACKGROUND

Appellants (plaintiffs) are growers of nectarines and plums who also pack, ship, and market their fruit and that of other growers. Under the Agricultural Marketing Agreement Act of 1937 (the "Act"), 7 U.S.C. Sec. 601 et seq., therefore, they are both "producers" and "handlers." 7 U.S.C. Sec. 608c(1). Appellees (defendants) are nectarine and plum producers who compete with plaintiffs, and who served either as members of administrative committees appointed by the Secretary of Agriculture (the "Secretary") pursuant to his authority under the Act, 7 U.S.C. Sec. 610(b)(1), or as employees of such a committee. 1 The composition, duties, and powers of these committees are set forth in marketing orders issued by the Secretary based on marketing agreements with the handlers and subject to a referendum of producers. Under these orders, regulations such as those at issue in this case--governing the size and grade of fruit--may be promulgated by the Secretary upon a finding that such regulations will tend to effectuate the policies of the Act.

The complaint alleges that beginning in 1980, defendants substituted heightened standards for the "maturity" required of each variety 2 of plums and nectarines before it could be picked. They issued and enforced a "well-matured" standard, without authorization from the Secretary, to improve their own profitability and diminish the earnings of plaintiffs. Pursuant to this standard, a system of color chips (ranging from fairly green to bright yellow) and descriptive tables, enabled defendants to require some varieties to remain on the tree longer. This was accomplished through the committees established by the Secretary, an agency established by the committees (the California Tree Fruit Agreement), employees of the committees and the Federal-State Inspection Service. In addition to discriminating against the varieties of nectarines and plums grown by plaintiffs, defendants discriminated against plaintiffs by refusing to grant color variances which were granted to producers favored by defendants. By requiring yellower colors, defendants constricted supply during certain parts of the season, capturing for themselves the "marketing windows" in which tree fruit commanded premium prices, and causing significant losses to plaintiffs in wasted fruit and reduced revenues.

This action was brought in California state court under the Cartwright Act, the state antitrust statute. Cal.Bus. & Prof.Code Sec. 16700, et seq. Defendants removed the action to federal court. The district court granted defendants' motion to dismiss the action on the basis of: (1) an antitrust exemption in the Act, 7 U.S.C. Sec. 608b; and (2) approval of defendants' activities by the Secretary. This appeal followed. The district court's jurisdiction was based on 28 U.S.C. Sec. 1442(a)(1). We have jurisdiction under 28 U.S.C. Sec. 1291.

Prior to filing this action, plaintiffs sued the Secretary directly, seeking injunctive relief. That action was dismissed for failure to exhaust administrative remedies, and an appeal, still pending, was taken. 3 Plaintiffs, concurrently with the instant action, are now pursuing their administrative remedies under the Act.

STANDARD OF REVIEW

Dismissal for failure to state a claim is reviewed de novo, Massey v. Inland Boatmen's Union, 886 F.2d 1188, 1189 (9th Cir.1989), assuming the truth of all factual allegations made by the plaintiff, Shah v. County of Los Angeles, 797 F.2d 743, 745 (9th Cir.1986).

ANALYSIS
I. Absolute Immunity Under Section 608b.

The purpose of the Act is to regulate the prices of agricultural commodities to assure farmers a reasonable standard of living. 7 U.S.C. Sec. 602(1). The Act provides for marketing orders as the means by which the Secretary is to promulgate regulations. Such an order becomes effective when two-thirds of the producers approve it by referendum, and when either (1) a majority of handlers (by volume of business) sign a marketing agreement, 7 U.S.C. Sec. 608c(8), or (2) the Secretary determines that the refusal or failure of handlers to sign such an agreement tends to prevent the effectuation of the policy of the Act, and that issuance of the order is the only practical means of advancing the interests of producers, 7 U.S.C. Sec. 608c(9). To prevent antitrust suits against handlers who signed marketing agreements--arguably agreements in restraint of trade--Congress exempted such agreements from the antitrust laws.

[T]he Secretary of Agriculture shall have the power ... to enter into marketing agreements.... The making of any such agreement shall not be held to be in violation of any of the antitrust laws of the United States, and any such agreement shall be deemed to be lawful: Provided, That no such agreement shall remain in force after the termination of this chapter.

7 U.S.C. Sec. 608b. Although by its terms this immunity does not extend to collective activity undertaken by handlers or producers other than marketing agreements, it may in some cases reach activity directed by the Secretary through marketing orders. See United States v. Borden Co., 308 U.S. 188, 201-02, 60 S.Ct. 182, 189-90, 84 L.Ed. 181 (1939) (immunity for activity "validly agreed upon or directed by the Secretary"). 4

Any immunity for actions directed by marketing orders extends only to "such qualified authorization and such requirements as they contain." Borden, 308 U.S. at 198, 60 S.Ct. at 188; accord Berning I, 643 F.Supp. at 29 (committee members "immune for acts committed within their statutory authority"). The Secretary's interpretation of the statute is consistent with Borden. In guidelines jointly prepared by the Department of Agriculture and the Department of Justice for the benefit of members and employees of all marketing order committees, those agencies clearly limited this immunity:

The exemption provided committee members and employees from antitrust prosecution is limited to those acts within the confines of their official committee obligations, as defined by terms of the marketing order and regulations issued pursuant to the Agricultural Marketing Agreement Act of 1937. Conduct that falls outside the range of activities authorized by the Federal marketing order regulations may be subject to antitrust prosecution.

Guidelines for Compliance with the Antitrust Laws 4 (unpublished manuscript date stamped July 13, 1982); see also 7 C.F.R. Sec. 989.801 (1989) ("Members and employees of the Raisin Administrative Committee are immune from prosecution under the United States antitrust laws only insofar as their conduct in administering the Raisin Marketing Order is authorized by the Agricultural Marketing Agreement Act of 1937, 7 U.S.C. 601 et seq., or the provisions of the order."). The immunity provided by section 608b thus is not absolute as a matter of law. 5

The record on this motion to dismiss permits review only of the marketing orders themselves. Absent authority therein for raising maturity standards, the judgment must be reversed.

In May 1980, the Secretary published Nectarine Regulation 12 and Plum Regulation 16, amending the respective marketing orders. Both provided that the fruit must grade at least U.S. No. 1 and, for the first time, that "maturity shall be determined by the application of color standards by variety or such other tests as determined to be proper by the Federal or Federal-State Inspection Service." Nectarine Reg. 12, 45 Fed.Reg. 32,308 (1980) (to be codified at Sec. 916.354(b)(1)); Plum Reg. 16, 45 Fed.Reg. 33,596 (1980) (to be codified at Sec. 917.453(a)). 6 This new language governing standards and tests is ambiguous as to whether the maturity standards themselves were being or would subsequently be modified and, if so, by whom. No other language in the regulations supports departing from the basic maturity standard: that stage of growth at which, after picking, the fruit will ripen properly. E.g., 7 C.F.R. Secs. 2851.1530, 2851.3153 (1980).

The regulations amending the marketing order did not remove existing limits on the authority of committees to change maturity standards. The marketing order provides that the Secretary may issue regulations upon the recommendation of the administrative committees:

Such regulations may: (1) Limit, during any period or periods, the shipment of any particular grade, size, quality, maturity, or pack, or any combination thereof, of any variety or varieties of nectarines grown in the production area; (2) Limit the shipment of nectarines by establishing, in terms of grades, sizes, or both, minimum standards of quality and maturity during any period when season average prices are expected to exceed the parity level

....

7 C.F.R. Sec. 916.52(a) (emphasis added); 7 C.F.R. Sec. 917.41(a) (plums). The provision for committee recommendations provides that: "Whenever the committee deems it advisable to regulate the handling of any variety or varieties of nectarines in the manner provided in Sec. 916.52, it shall so recommend to the Secretary." 7 C.F.R. Sec. 916.51(a); 7 C.F.R. Sec. 917.40(a). These sections require that "whenever" the committee seeks to impose particular...

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