Burnette Foods, Inc. v. U.S. Dep't of Agric. ( 2019 )

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit I.O.P. 32.1(b)
File Name: 19a0066p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
BURNETTE FOODS, INC., A Michigan Corporation, ┐
Plaintiff-Appellee, │
│
> No. 18-1541
v. │
│
│
UNITED STATES DEPARTMENT OF AGRICULTURE; │
SONNY PERDUE, Secretary of Agriculture, │
Defendants-Appellants. │
┘
Appeal from the United States District Court
for the Western District of Michigan at Grand Rapids.
No. 1:16-cv-00021—Gordon J. Quist, District Judge.
Decided and Filed: April 8, 2019
Before: GRIFFIN, WHITE, and BUSH, Circuit Judges.
_________________
COUNSEL
ON BRIEF: Mark B. Stern, John S. Koppel, UNITED STATES DEPARTMENT OF JUSTICE,
Washington, D.C., for Appellants. John J. Rosloniec, VERITY LAW, PLC, Grand Rapids,
Michigan, G. Thomas Williams, MCGARRY BAIR PC, Grand Rapids, Michigan, for Appellee.
_________________
OPINION
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GRIFFIN, Circuit Judge.
Cherries, both tart and sweet, are among the many agricultural products that American
farmers proudly produce and American shoppers fondly consume. Every year, half a million or
so festival-goers descend upon Traverse City, Michigan for the National Cherry Festival to eat
No. 18-1541 Burnette Foods, Inc. v. AGRI, et al. Page 2
cherries, take part in cherry-pit-spitting and cherry-pie-eating competitions, cheer on three
separate parades, crown a “Cherry Queen,” and generally celebrate this beloved crop. 1 But
regardless of this fruit’s treasured status, and much like other crops, the Department of
Agriculture heavily regulates the cherry market. It does so through the Cherry Industry
Administrative Board. And the Board’s composition is the subject of this appeal.
Federal regulations prohibit the Board from having too many members of the same “sales
constituency”—i.e., an organization that represents a group of cherry handlers or growers. At
one time, eleven of the eighteen Board members were affiliated with CherrCo, Inc., an
organization that markets for its members and sets minimum prices for various tart cherry
products. Plaintiff, Burnette Foods, Inc., a tart cherry handler that is not a member of CherrCo,
claims CherrCo is a “sales constituency,” and thus the Board’s composition violates the
regulations. The Secretary of Agriculture found that CherrCo was not a “sales constituency,” but
the district court disagreed. Because the Secretary had substantial evidence to support his
decision and the district court misapplied the law in its review, we reverse and remand for entry
of judgment in defendants’ favor.
I.
To understand Burnette’s claim, we need to understand the relationship between the
farming industry (and the cherry farming industry in particular) and the federal government,
before turning to the particulars of this dispute.
A.
Seeking to ensure a steady supply and price of food, Congress has exempted American
farmers and food producers from many of the prohibitions on anticompetitive business practices
and agreements that unreasonably restrain trade. In 1922, for example, Congress passed a law
allowing farmers “to organize together, set association policy, fix prices at which their
cooperative will sell their produce, and otherwise carry on like a business corporation without
1National Cherry Festival Fun Facts, National Cherry Festival,
https://www.cherryfestival.org/p/about/mission-and-vision/302 (last visited Feb. 11, 2019); National Cherry
Festival Events, National Cherry Festival, https://www.cherryfestival.org/events (last visited Feb. 11, 2019).
No. 18-1541 Burnette Foods, Inc. v. AGRI, et al. Page 3
thereby violating the antitrust laws.” Md. & Va. Milk Producers Ass’n v. United States, 362 U.S.
458, 466 (1960) (discussing the Capper-Volstead Act); see also 7 U.S.C. § 291 (Capper-Volstead
Act of 1922). Congress went a step further during the depths of the Great Depression. In the
Agricultural Marketing Agreement Act of 1937 (AMAA), 7 U.S.C. § 602(4), Congress
announced a national policy of price stabilization. Horne v. Dep’t of Agric., 569 U.S. 513, 516
(2013). “The AMAA authorizes the Secretary of Agriculture to promulgate marketing orders
that regulate the sale and delivery of agricultural goods.” Id. (citing 7 U.S.C. § 608(c); Block v.
Cmty. Nutrition Inst., 467 U.S. 340, 346 (1984)). And the AMAA allows the Secretary to
delegate the authority to administer marketing orders to industry committees. Id. at 517.
The AMAA does not regulate farmers; it regulates “handlers.” 7 U.S.C. § 608c(1),
(13)(B). Handlers are defined as “processors, associations of producers, and others engaged in
the handling” of covered agricultural commodities—things like milk, tobacco, hops, honeybees,
and numerous fruits (including cherries). § 608c(1)-(2); see also 7 C.F.R. § 930.11.
Through this Congressional authorization, the Secretary of Agriculture issued the Tart
Cherry Order in 1996. Tart Cherries Grown in the States of Michigan, New York, Pennsylvania,
Oregon, Utah, Washington, and Wisconsin; Order Regulating Handling, 61 Fed. Reg. 49939,
49939 (Sept. 24, 1996) (codified at 7 C.F.R. § 930). The order seeks “to improve producer
returns by strengthening consumer demand through volume control and quality assurance
mechanisms.” Id. In plain English, that means emphasizing quality over quantity. One way to
accomplish this goal is to cap cherry sales at an “optimum” amount. 7 C.F.R. § 930.50(a).
The Cherry Industry Administrative Board implements the order. Its members hail from
nine districts: Northern Michigan, Central Michigan, Southern Michigan, New York, Oregon,
Pennsylvania, Utah, Washington, and Wisconsin. See 7 C.F.R. § 930.20(c). Some districts have
multiple Board members. 7 C.F.R. §§ 930.2, 930.20(b). To help achieve “a fair and balanced
representation on the Board,” the Secretary limits Board membership. In a district with multiple
Board members, only one member may be from a given sales constituency (unless it’s
impossible to avoid a conflict). § 930.20(g).
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In 1996, a “sales constituency” was “a common marketing organization or brokerage firm
or individual representing a group of handlers and growers.” § 930.16 (1996). CherrCo, a
“federated grower cooperative” whose members account for a large share of Michigan’s tart
cherry production, formed thereafter. Tart Cherries Grown in the States of Michigan, et al.;
Order Amending Marketing Agreement and Order No. 930, 66 Fed. Reg. 35891, 35893 (July 10,
2001). The Department of Agriculture in 2001 later determined that
the primary function of CherrCo is to establish minimum prices for certain tart
cherry products. The record indicates that CherrCo is not directly involved in the
actual sales of its members’ products. There is intense competition among its
members (as well as between its members and non-members) to sell tart cherries.
The competition for sales is on the basis of individual handlers’ reputations, on
the quality and mix of the products they offer, on any special services they
provide to their customers, and on whether or not their processing plants are
certified to conform with certain sanitation standards.
Id. Despite this unique purpose, CherrCo arguably qualified as a sales constituency under the
then-applicable regulation. This concerned the Department because at the time eleven of the
eighteen Board members were affiliated with CherrCo. Id. So the Department amended the
definition of “sales constituency” to clarify that an organization such as CherrCo was not one.
66 Fed. Reg. at 35,893–94. The amendment said: “An organization which receives
consignments of cherries and does not direct where the consigned cherries are sold is not a sales
constituency.” 7 C.F.R. § 930.16. This definition endures today.
To summarize, Congress delegated authority to the Secretary of Agriculture to stabilize
food supply and price. The Secretary issued an order to cap cherry sales. The Board implements
that order. The Secretary has limited the Board’s membership. And the Secretary has changed
that limitation to account for entities that hold cherries for growers but don’t control where the
cherries go once they leave.
B.
With that background in mind, we turn back to this case. Plaintiff Burnette is a Michigan
corporation that handles canned tart cherries. It is not a member of CherrCo. Because Burnette
specializes in canned cherries, it takes raw cherries and immediately converts them into a
No. 18-1541 Burnette Foods, Inc. v. AGRI, et al. Page 5
finished, canned product, which has a shelf life of about one year. Unlike Burnette, many other
cherry handlers freeze their cherries immediately, which gives the cherries a multi-year shelf life.
This shelf-life disparity puts Burnette at a disadvantage when the Board caps cherry sales.
While other cherry handlers can freeze their excess cherries, Burnette loses any cherries it
doesn’t use or sell. This costs Burnette as much as $3 million per year in wasted inventory.
Unhappy with this continual loss of inventory due to the Board’s sales restrictions,
Burnette sought a legal remedy. In mid-2011, it filed a petition with the Department of
Agriculture, alleging numerous complaints with the Tart Cherry Order and related regulations.
See 7 C.F.R. § 900.52(a). Burnette asked the Secretary of Agriculture to exempt Burnette from
the Tart Cherry Order in its entirety. Burnette also sought a declaration that CherrCo was a
“sales constituency.” Because many Board members were affiliated with CherrCo and some of
those members were from the same district, if CherrCo was a “sales constituency,” the Board’s
composition would violate § 930.20(g)’s one-member-per-sales-constituency rule. In other
words, Burnette sought to shake up who was on the Board in hopes that new Board members
would mean fewer sales restrictions and thus fewer wasted cherries.
The parties appeared before an administrative law judge (ALJ) for a six-day evidentiary
hearing. The ALJ determined that CherrCo was not a “sales constituency” under § 930.16, and
rejected Burnette’s challenge to the composition of the Board. Burnette appealed this ruling to
the Department of Agriculture, but a judicial officer affirmed.
Displeased with the outcome of the administrative proceedings, Burnette filed suit in the
United States District Court for the Western District of Michigan. It sued the Department of
Agriculture and its Secretary, challenging the judicial officer’s decision on numerous grounds.
Following cross-motions for summary judgment, the district court reversed the administrative
findings of fact, concluding that the judicial officer’s decision was not supported by substantial
evidence. Specifically, the district court ruled that CherrCo was a sales constituency because it
directed where its members’ cherries were sold. It did so, said the court, because CherrCo’s
members sign agreements that allow it to process, prepare for market, handle, pack, store, dry,
manufacture, and sell its members’ tart cherries. The court also noted that, pursuant to its
No. 18-1541 Burnette Foods, Inc. v. AGRI, et al. Page 6
agreement with sales representatives, CherrCo was listed as the seller for all orders, had the
authority to approve all orders, and could reject an order for any reason. So as the district court
saw it, these aspects of CherrCo’s operation amounted to substantial evidence that CherrCo
qualified as a sales constituency under 7 C.F.R. § 930.16. On this basis, the court granted
plaintiff’s motion for summary judgment and ruled that CherrCo could not have more than one
seat on the Board.2
Defendants now timely appeal the district court’s ruling that CherrCo is a sales
constituency and the corresponding grant of summary judgment in plaintiff’s favor.
II.
We review de novo a district court’s decision on motions for summary judgment. Keith
v. Cty. of Oakland, 703 F.3d 918, 923 (6th Cir. 2013). Summary judgment is proper “if the
movant shows that there is no genuine dispute as to any material fact and the movant is entitled
to judgment as a matter of law.” Fed. R. Civ. P. 56(a).
But because this lawsuit stems from administrative proceedings, our review is more
limited. Like the district court, we review the Secretary’s decision—here the judicial officer’s
decision—only to determine “whether [it] is in accordance with law and whether [it] is supported
by substantial evidence.” Lansing Dairy, Inc. v. Espy, 39 F.3d 1339, 1355 (6th Cir. 1994)
(quoting Defiance Milk Prods. Co. v. Lyng, 857 F.2d 1065, 1068 (6th Cir. 1988)). “The
Secretary’s decision thus must be upheld if the record contains ‘such relevant evidence as a
reasonable mind might accept as adequate to support the agency’s conclusion.’” Lehigh Valley
Farmers v. Block, 829 F.2d 409, 412 (3d Cir. 1987) (brackets omitted) (quoting Consol. Edison
Co. v. NLRB, 305 U.S. 197, 229 (1938)).
2Defendants later asked the district court to amend its ruling because the regulations limit “the affiliation of
a sales constituency to members on the [Board] within ‘those districts having more than one seat on the Board.’” 7
C.F.R. § 930.20. The district court recognized its error and amended its opinion to clarify that “[n]ot more than one
Board member (including an alternate Board member) [could] be from, or affiliated with, CherrCo in those districts
having more than one seat on the Board.”
No. 18-1541 Burnette Foods, Inc. v. AGRI, et al. Page 7
III.
The issue we address and resolve is whether the district court erred in reversing the
Secretary’s determination that CherrCo is not a “sales constituency” under the applicable
regulations.3 As noted previously, a “sales constituency” is:
[A] common marketing organization or brokerage firm or individual representing
a group of handlers and growers. An organization which receives consignments
of cherries and does not direct where the consigned cherries are sold is not a sales
constituency.
7 C.F.R. § 930.16. So there is both a general definition (the first sentence) and an exception (the
second sentence). Defendants have never contended that CherrCo falls outside the general rule;
they argue the organization falls within the exception. Thus, we must determine whether the
judicial officer had substantial evidence to conclude that CherrCo: (1) receives consignments of
cherries from its members and (2) does not direct where those consigned cherries are sold.
Receives Consignments of Cherries. The district court and the Secretary’s judicial officer
agreed that CherrCo receives cherry consignments from its members, but Burnette argues that
CherrCo really owns the cherries. The relevant regulations don’t define “consignments,” so we
give the words “their ordinary, contemporary, common meaning, absent an indication” that they
were intended to bear some different meaning. Grand Traverse Band of Ottawa & Chippewa
Indians v. Office of the U.S. Attorney for the W. Dist. of Mich., 369 F.3d 960, 967 (6th Cir. 2004)
(quoting Williams v. Taylor, 529 U.S. 420, 431–32 (2000)). The pertinent editions of Black’s
Law Dictionary define “consignment” identically: “The act of consigning goods for custody or
sale.” Consignment, Black’s Law Dictionary 327 (8th ed. 2004); Consignment, Black’s Law
Dictionary 303 (7th ed. 1999). And each defines “consign” identically: “To transfer to
another’s custody or charge[,] . . . [t]o give (goods) to a carrier for delivery to a designated
recipient[,] . . . [or] [t]o give (merchandise or the like) to another to sell, usu[ally] with the
understanding that the seller will pay the owner for the goods from the proceeds.” Consign,
3Defendants also raise whether the prohibition, in multi-member districts, of multiple Board members from
the same sales constituency applies to alternate Board members. Because we agree with defendants that there is
substantial evidence that CherrCo is not a “sales constituency,” we need not reach that issue.
No. 18-1541 Burnette Foods, Inc. v. AGRI, et al. Page 8
Black’s Law Dictionary 327 (8th ed. 2004); Consign, Black’s Law Dictionary 303 (7th ed.
1999).4
Given these definitions, the evidence presented during the agency proceedings supports
the conclusion that CherrCo “receives consignments of cherries.” § 930.16. For example, James
Jensen, CherrCo’s president, testified that while CherrCo may have control over a member’s
consigned cherries and can attach a collateral value to them, that product is merely held by
CherrCo and remains the fungible property of the member. Glenn LaCross, a member of
CherrCo’s board of directors representing a grower-member and cherry handler (Leelanau Fruit
Company), testified that individual members owned the cherries sold through CherrCo. And
James Nugent, a grower-member of the Board and owner of an independent orchard that joined
CherrCo (Graceland Fruit, Inc.), specifically testified that members consign their cherries to
CherrCo. In short, three witnesses familiar with how CherrCo operates testified that it takes
cherries on consignment.
Burnette’s arguments on this issue do not negate this evidence of consignment. Burnette
claims that Steven Nugent testified that CherrCo owns the cherries in its possession. This is a
mischaracterization—Nugent testified that the members’ product would merely be “transfer[red]
. . . into CherrCo’s name and then [the member] could borrow against that inventory.” This
testimony is consistent with the other evidence suggesting that CherrCo uses its consigned cherry
stock as collateral for loans to its members. In short, and as determined at every level of
proceedings, substantial evidence supported the judicial officer’s determination that CherrCo
“receives consignments of cherries.” § 930.16.
Direct Where Cherries Are Sold. On this issue, the judicial officer and district court
disagreed. The judicial officer found that CherrCo “does not direct where the consigned cherries
are sold,” see 7 C.F.R. § 930.16, while the district court found that CherrCo does. As with the
term “consignment,” the regulations do not define “direct.” Thus, we again must turn to a
4The Secretary amended 7 C.F.R. § 930.16 in 2001, so the seventh and eighth editions of Black’s Law
Dictionary bookend the amendment and are particularly relevant as contemporary understandings of the term’s
meaning. See, e.g., Antonin Scalia & Brian A. Garner, Reading Law: The Interpretation of Legal Texts 78–92
(2012) (discussing the fixed-meaning canon of interpretation).
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dictionary to discern the term’s plain meaning. See Grand Traverse Band of Ottawa &
Chippewa Indians, 369 F.3d at 967. Again, the contemporary editions of Black’s Law
Dictionary define the term identically: “To aim (something or someone)[,] . . . [t]o cause
(something or someone) to move on a particular course[,] . . . [or] [t]o instruct (someone) with
authority.” Direct, Black’s Law Dictionary 491 (8th ed. 2004); Direct, Black’s Law Dictionary
471 (7th ed. 1999). But these definitions, if applied to the regulation, would make little
grammatical sense. One does not “aim” sales, “cause [sales] to move on a particular course,” or
“instruct [sales] with authority.” So we must turn to lay dictionaries. Webster’s, for example,
provides a better definition: “[T]o manage or guide by advice, helpful information, instruction,
etc.[;] . . . to regulate the course of; control[;] . . . to administer[,] manage[,] supervise[;] [or] to
give authoritative instructions to; command; order or ordain[.]” Direct, Random House
Webster’s Unabridged Dictionary 558–59 (2001). Thus, we must determine whether the judicial
officer had substantial evidence to support a finding that CherrCo did not control, manage, or
command sales.
And the judicial officer’s finding was supported by such evidence. Roy Hackert, the
owner of Michigan Food Processors (a CherrCo member), testified that even when CherrCo
maintained a security interest in his cherries to cover financing it provided to Michigan Food
Processors, CherrCo did not “have the ability to direct the sale of those cherries based on that
security interest.” James Nugent, again of Graceland Fruit, agreed that CherrCo “doesn’t say
[Graceland Fruit] ha[s] to sell to a particular entity,” and instead merely sets minimum pricing
for Graceland Fruit’s products. Glenn LaCross testified that affiliates can sell their product
through independent (meaning non-CherrCo) sales agents and that CherrCo’s input is limited to
invoicing and minimum-sales requirements. In fact, LaCross testified that members pick their
own sales agents “based on [their] own business interests” and that the CherrCo board does not
even discuss the possibility of telling members how or where to sell their product. LaCross
further testified that “[w]e have always [] had the right to direct our own sales if it be through a
sales brokerage constituent or an independent broker. And James Jensen testified that each
member of CherrCo appoints its own, independent agent to sell its product. Jensen also testified
that after CherrCo determines that the price and terms of a sale meet its requirements, it holds the
product and “authorize[s] a release when a member requests us to release the product to their
No. 18-1541 Burnette Foods, Inc. v. AGRI, et al. Page 10
customer.” On the basis of this testimony, the judicial officer’s determination that CherrCo is
not a “sales constituency” was supported by substantial evidence. See Lansing Dairy, 39 F.3d at
1355.
In reaching the opposite conclusion, the district court made two legal errors. First, it
flipped the standard of review on its head. The court first found substantial evidence for the
conclusion that CherrCo did direct the sale of cherries; then it disregarded the judicial officer’s
contrary determination in a single, conclusory, and legally unsupported sentence: “Th[ere] is
substantial evidence that CherrCo ‘directs where the consigned cherries are sold’ and therefore
qualifies as a sales constituency under 7 C.F.R. § 930.16. The Judicial Officer’s conclusion was
not supported by substantial evidence.” As we have long held in appeals from agency
determinations, if substantial evidence supports the agency’s conclusion, the district court must
affirm, even if substantial evidence also exists for the opposite conclusion. See Defiance Milk
Prods. Co., 857 F.2d at 1069–70.
Second, the district court conflated whether CherrCo had contractual authority to do
things with whether CherrCo actually did them. For example, the district court noted that
CherrCo is authorized to sell cherries itself under the “Membership and Marketing Agreement”
each affiliate signs, and whether it does so or licenses sales agents to do so is determined solely
by its Board of Directors. Yet the record reflects—regardless of what its members have
theoretically authorized CherrCo to do—that CherrCo does not sell cherries on its own. And the
“sales constituency” regulation applies to what an organization does, not what it could do.
If CherrCo were ever to direct the sales of its members’ cherries—as it seems to have the
authority to do under the membership and marketing agreements its members sign—a future
challenge might well succeed. But that is not the record before us. Here the record contains
substantial evidence to support the finding that CherrCo doesn’t direct cherry sales. Thus,
substantial evidence supports the Secretary’s conclusion that CherrCo falls within the exception
to the regulatory definition of a “sales constituency,” and its numerous members’ presence on the
Board poses no legal issue.
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Because there was substantial evidence to support the judicial officer’s finding that
CherrCo (1) receives consignments of cherries and (2) does not direct where the consigned
cherries are sold, the district court erred in overruling the judicial officer’s conclusion that
CherrCo is not a sales constituency. And because the judicial officer’s conclusion was
permissible, there is no limit on the number of CherrCo members who can serve on the Board.
See 7 C.F.R. § 930.20(g).
IV.
For these reasons, we reverse the district court’s judgment and remand for entry of
judgment in defendants’ favor.