Edaleen Dairy v. Johanns, Mike

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued September 25, 2006 Decided October 31, 2006
No. 06-5010
EDALEEN DAIRY, LLC,
APPELLANT
v.
MICHAEL JOHANNS, SECRETARY, UNITED STATES
DEPARTMENT OF AGRICULTURE, ET AL.,
APPELLEES
Appeal from the United States District Court
for the District of Columbia
(No. 05cv02442)
Benjamin F. Yale argued the cause for appellant. With him
on the briefs were Kristine H. Reed and Ryan K. Miltner.
Mark R. Freeman, Attorney, U.S. Department of Justice,
argued the cause for federal appellee. With him on the brief
were Peter D. Keisler, Assistant Attorney General, and Michael
S. Raab, Attorney.
Charles M. English, Jr. argued the cause for appellees
United Dairymen of Arizona, et al. With him on the brief were
Wendy M. Yoviene and Sara R. Pikofsky.
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Marvin Beshore was on the brief for appellee Dairy Farmers
of America, Inc.
Before: SENTELLE, ROGERS and GARLAND, Circuit Judges.
Opinion for the Court filed by Circuit Judge SENTELLE.
SENTELLE, Circuit Judge: Edaleen Dairy, LLC (“Edaleen”)
appeals from a district court decision denying its motion for a
preliminary injunction. Edaleen seeks to enjoin the Secretary of
Agriculture from enforcing a new rule that changed the
regulatory status of “producer-handlers” of milk, alleging that
the rule exceeds the Secretary’s authority under the Agricultural
Marketing Agreement Act of 1937, 7 U.S.C. §§ 601-674 (2000)
(“AMAA”). We need not reach the question whether Edaleen
is entitled to preliminary injunctive relief because Edaleen has
failed to exhaust its administrative remedies as required by the
AMAA.
I.
Milk markets in the United States are governed by a
complex system of price controls that dates back to the
Depression era. The AMAA authorizes the Secretary of
Agriculture to issue “milk marketing order[s]” to regulate milk
sales in different regions of the country. 7 U.S.C. § 608c(5).
Under a typical milk marketing order, a “producer” (i.e.,
dairy farmer) supplies raw milk to a “handler” (i.e., processor or
distributor), and the handler pays money into a “producer
settlement fund” at fixed prices based on the intended use of the
milk. See, e.g., Alto Dairy v. Veneman, 336 F.3d 560, 562-63
(7th Cir. 2003). Handlers using their milk for “high-value” uses,
such as fluid milk, must pay higher prices than handlers that
engage in “low-value” uses, such as processing of butter and
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cheese. Id. The money that handlers pay into the producer
settlement fund is then redistributed to milk producers at a
uniform “blend price” per quantity of milk sold. See 7 U.S.C.
§ 608c(5)(B)(ii). This system ensures that all dairy farmers will
receive the same price for their raw milk whether they sell to
high-value handlers or low-value handlers.
A complication arises, however, when the same firm is both
a producer and a handler. In such cases, there is no opportunity
for the producer-handler to pay into the producer settlement
fund because there is no intermediate sale of raw milk. The
producer-handler simply processes the milk that it has already
produced; it need not purchase milk from other dairy farmers.
Historically, the Secretary of Agriculture has exempted
producer-handlers from the pooling and pricing requirements of
milk marketing orders. See Milk in the Pacific Northwest and
Arizona-Las Vegas Marketing Areas; Final Decision on
Proposed Amendments to Marketing Agreement and to Orders,
70 Fed. Reg. 74,166, 74,167-68 (Dec. 14, 2005) (to be codified
at 7 C.F.R. pts. 1124, 1131) (“Proposed Rule”).
Because they could process and sell high-value milk
products without having to pay into the pool, producer-handlers
often enjoyed a significant competitive advantage in milk
markets. Initially, this raised little concern because most
producer-handlers were small family operations that had little
effect on the market. In recent years, however, several
producer-handlers have grown much larger, which had a twofold
effect on the pooling system. First, because they did not have to
contribute to the producer settlement fund, the large producer-
handlers could sell their milk at lower prices than their regulated
rivals, thus gaining sales and market share. See Proposed Rule,
70 Fed. Reg. at 74,186-88. Second, the amount of money in the
producer settlement fund was shrinking because fully-regulated
handlers – who did contribute to the pool – were losing business
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to the unregulated producer-handlers. Id.
In response to these concerns, the Secretary of Agriculture
initiated a formal, on-the-record rulemaking to determine
whether the regulatory status of producer-handlers should be
changed in the Pacific Northwest and Arizona-Las Vegas
marketing areas. After two years of hearings, testimony, and
data analysis, the Secretary issued a Recommended Decision on
April 7, 2005. Recommended Decision and Opportunity to File
Written Exceptions on Proposed Amendments, 70 Fed. Reg.
19,636 (Apr. 13, 2005). As required by the AMAA, this
proposed rule was then approved by a referendum of milk
producers in January 2006, after which it became final. See
Milk in the Pacific Northwest and Arizona-Las Vegas Marketing
Areas; Order Amending the Orders, 71 Fed. Reg. 9430 (Feb. 24,
2006) (codified at 7 C.F.R. pts. 1124, 1131 (2006)) (“Final
Rule”).
The final rule modified the definition of “producer-handler”
to exclude dairies that produce, process, and distribute more
than three million pounds of fluid milk per month within a given
marketing area. 7 C.F.R. §§ 1124.10, 1131.10. These large
producer-handlers – such as appellant Edaleen – are now
required to pay into the producer settlement fund to the extent
that their use-value of milk exceeds the blend price in a given
region. See id. § 1124.71 (explaining how handler payments are
calculated in the Pacific Northwest Marketing Area). The
decision to eliminate the exemption for large producer-handlers
was based upon evidence of “disorderly marketing conditions”
– namely, that the large producer-handlers were obtaining a
“competitive sales advantage” over fully-regulated handlers, and
were causing a “measurabl[e] and significant[]” decrease in the
blend price being paid to regulated producers. Proposed Rule,
70 Fed. Reg. at 74,186-88.
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Edaleen is a large producer-handler that lost its exemption
from the pricing-pooling system as a result of this rulemaking.
Edaleen sued the Secretary of Agriculture in U.S. District Court
for the District of Columbia to enjoin enforcement of the new
rule on the grounds that it exceeded the Secretary’s authority
under the AMAA.
The district court denied preliminary injunctive relief in a
statement read from the bench. Transcript of Hearing at 75-99,
Edaleen Dairy, LLC v. Johanns, No. 05-cv-2442 (D.D.C. Dec.
29, 2005). First, the court noted that the case was probably not
ripe at that time because the rule had not yet been approved by
the required producer referendum. Id. at 81-83. This
referendum has since been held, so ripeness is no longer an issue
in this case. The district court then held that the arguments
raised by Edaleen were “the very kind of thing that can be raised
in the administrative process” and thus the court should not
“hear this case before [plaintiffs] have exhausted their
administrative remedies.” Id. at 84-86. Finally, the district
court also concluded that the plaintiffs were not entitled to a
preliminary injunction. The court held that it was unlikely that
this order exceeded the Secretary’s statutory authority under the
AMAA, and noted that the alleged injury – overpayment of
funds into the pool – was “economic loss” that could be
adequately addressed in a suit for damages. Id. at 86-94. The
court also concluded that other producers were likely to be
harmed if large producer-handlers like Edaleen did not begin to
pay into the producer settlement fund. Id. at 95-96. Thus, the
district court denied Edaleen’s motion for a preliminary
injunction.
Edaleen sought timely appeal, and now contends that the
district court abused its discretion in denying preliminary
injunctive relief.
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II.
The first – and only – issue that we must address is whether
Edaleen, a producer-handler of milk, may challenge the
provisions of a milk marketing order in district court before
exhausting its administrative remedies under the AMAA. We
hold that it may not.
A.
The Agricultural Marketing Agreement Act provides for
review of the Secretary’s milk marketing orders as follows:
(A) Any handler subject to an order may file a written
petition with the Secretary of Agriculture, stating that any
such order or any provision of any such order or any
obligation imposed in connection therewith is not in
accordance with law and praying for a modification thereof
or to be exempted therefrom. He shall thereupon be given
an opportunity for a hearing upon such a petition . . . .
After such hearing, the Secretary shall make a ruling upon
the prayer of such petition, which shall be final, if in
accordance with law.
(B) The District Courts of the United States in any district
in which such handler is an inhabitant, or has his principal
place of business, are vested with jurisdiction in equity to
review such ruling, provided a bill in equity for that purpose
is filed within twenty days from the date of the entry of
such ruling.
7 U.S.C. § 608c(15).
The Supreme Court has held that these provisions of the
AMAA impose a mandatory administrative exhaustion
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requirement upon milk handlers seeking to challenge the
provisions of a milk marketing order. United States v. Ruzicka,
329 U.S. 287 (1946). In Ruzicka, the federal government sued
a handler to enforce a milk marketing order, and the handler
attempted to argue in defense that the order was unlawful. The
Supreme Court, in an opinion by Justice Frankfurter, declined to
consider this argument because the handler had not yet raised it
in an administrative review proceeding. The Court stated:
And so Congress has provided that the remedy in the first
instance must be sought from the Secretary of Agriculture.
It is on the basis of his ruling, and of the elucidation which
he would presumably give to his ruling, that resort may be
had to the courts.
Id. at 294 (emphasis added). Similarly, in Block v. Community
Nutrition Institute, 467 U.S. 340, 346 (1984), the Court
explained the AMAA’s judicial review provisions as follows:
Section 608c(15) requires handlers first to exhaust the
administrative remedies made available by the Secretary
. . . . After these formal administrative remedies have been
exhausted, handlers may obtain judicial review of the
Secretary’s ruling . . . .
This Court has also held on several occasions that handlers must
exhaust their administrative remedies prior to seeking judicial
review of a milk marketing order. See Hershey Foods Corp. v.
Dep’t of Agric., 293 F.3d 520, 526-27 (D.C. Cir. 2002); Am.
Dairy of Evansville v. Bergland, 627 F.2d 1252, 1259 (D.C. Cir.
1980); Benson v. Schofield, 236 F.2d 719, 722 (D.C. Cir. 1956).
There is, however, a narrow exception to the exhaustion
requirement for certain milk producers who seek to challenge a
milk marketing order. In Stark v. Wickard, 321 U.S. 288, 289
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(1944), several milk producers sued the Secretary of
Agriculture, alleging that the Secretary was “unlawfully
diverting funds” from the producer settlement pool. The
Supreme Court held that these producers could seek judicial
review of the Secretary’s actions in district court even though
they had not sought administrative relief first. Id. at 307-11.
However, Stark was a limited holding that turned on the unique
circumstances of that case. As the Court explained:
When . . . definite personal rights are created by federal
statute . . . , the silence of Congress as to judicial review is,
at any rate in the absence of an administrative remedy, not
to be construed as a denial of authority to the aggrieved
person to seek appropriate relief in the federal courts in the
exercise of their general jurisdiction.
Id. at 309 (emphasis added). Thus, the direct right of action that
was allowed in Stark turned on two key factors. First, the Court
emphasized that the producers were not merely objecting to a
regulation; rather, they were suing to protect their “definite
personal rights” in the settlement pool fund. Id. at 308 (“It is
because every dollar of deduction comes from the producer that
he may challenge the use of the fund.”). Second, the Court
stated that these producers were able to sue directly in district
court because they did not have access to an administrative
remedy under the AMAA. Id. at 309. See also Ruzicka, 329
U.S. at 295 (holding that the Stark direct right of action is not
available to handlers because they have an administrative
remedy under the AMAA). Overall, while handlers are always
required to exhaust their administrative remedies prior to
seeking judicial review, id. at 294, producers may be able to
avoid the exhaustion requirement if they are suing to protect
“definite personal rights” for which there is no access to an
administrative remedy. Stark, 321 U.S. at 309.
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Thus, with respect to producer-handlers, the crucial
question is whether a producer-handler is bringing suit in its
capacity as a producer or as a handler. If a producer-handler
asserts an injury in its capacity as a handler, then it is bound by
the administrative exhaustion requirements of the AMAA. For
example, in Rasmussen v. Hardin, 461 F.2d 595, 596-97 (9th
Cir. 1972), a producer-handler brought suit in district court to
challenge a rule that required producer-handlers to pay into the
settlement pool if they purchased powdered milk from other
producers and reconstituted the powder into fluid milk. This
affected the plaintiffs’ interests as handlers because it required
them to make payments into the settlement fund for their use-
value of milk, which is an obligation that is only borne by
handlers. Accordingly, the Ninth Circuit affirmed the district
court’s dismissal of the case because the plaintiffs had not
exhausted their administrative remedies before bringing suit. Id.
at 598. In contrast, when a producer-handler asserts an injury in
its capacity as a producer, then it may be able to immediately
bring suit in district court. In Dairylea Cooperative v. Butz, 504
F.2d 80, 82-83 (2d Cir. 1974), a cooperative that both produced
and handled milk brought suit in district court alleging that a
milk marketing order unlawfully reduced the amount of money
that producers would receive for certain types of milk sales. The
court held that this producer-handler was suing to protect its
interests as a producer:
The concern of Dairylea in this action is not the money
which it paid into the Producer-Settlement Fund . . . , but
with the money collected on behalf of its producer-
members . . . , which will increase if the action succeeds.
Id. at 83. Only producers are eligible to receive money from the
settlement fund, and thus any action by the Secretary that
reduces the amount of money in the fund will cause injury
exclusively to producers. Thus, the Second Circuit held that the
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plaintiff was not required to exhaust administrative remedies
before bringing suit. Id.Here, Edaleen is clearly bringing suit in its capacity as a
handler. Prior to the adoption of the rule being challenged in
this case, producer-handlers were fully exempt from the pricing
and pooling provisions of the milk marketing orders. See
Proposed Rule, 70 Fed. Reg. at 74,167. The final rule
eliminates this exemption for producer-handlers with in-area
route disposition of more than three million pounds of milk per
month. Final Rule, 71 Fed. Reg. at 9430. In other words, large
producer-handlers – just like all other milk handlers – must now
pay into the producer settlement fund to the extent that their use-
value of milk exceeds the blend price in a given region. See,
e.g., 7 C.F.R. § 1124.71 (explaining how handler payments are
calculated in the Pacific Northwest Marketing Area). As the
Final Rule states, “[t]he amendments will place entities currently
considered to be producer-handlers . . . on the same terms as all
other fully regulated handlers.” 71 Fed. Reg. 9430 (emphasis
added). Edaleen is not challenging the amounts being paid out
of the pool, nor is it challenging the Secretary’s management of
funds in the pool – arguments that would be raised if it were
suing in its capacity as a producer. Cf. Stark, 321 U.S. at 308-10(holding that a producer may seek immediate judicial review of
the Secretary’s deductions from the settlement pool funds);
Dairylea, 504 F.2d at 83 (noting that a producer-handler that
disputes the amount of money being received from the fund is
suing in its capacity as a producer). Rather, Edaleen objects to
the new rule because it will now be forced to pay into the
producer settlement fund. See Appellant’s Br. at 32 (arguing
that Edaleen has suffered irreparable injury because it must now
pay “hundreds of thousands of dollars per month and millions of
dollars per year” into the settlement fund). Producers do not pay
into the settlement fund; only handlers bear this obligation.
Thus, we hold that Edaleen has brought this suit in its capacity
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as a handler, and therefore Edaleen was required to exhaust its
remedies under the AMAA before seeking judicial review.
We emphasize that this holding is entirely consistent with
the Seventh Circuit’s decision in Alto Dairy v. Veneman, 336
F.3d 560 (7th Cir. 2003). In that case, the court held that the
plaintiffs – a group of producers and producer-handlers – were
entitled to judicial review even though they had not sought
administrative relief prior to bringing suit. Id. at 568-69. The
plaintiffs argued that a new rule – which limited when producers
could qualify for the blend price in certain marketing areas –
was adopted without proper notice from the Secretary. Id. at
564-65. Given that the plaintiffs were seeking access to pooling
funds, they were clearly bringing suit in their capacity as
producers. Indeed, the Seventh Circuit specifically noted that
the plaintiffs “have no quarrel as handlers with the order.” Id.
at 569. Thus, the plaintiffs in Alto Dairy were not bound by the
AMAA’s exhaustion requirement. In contrast, Edaleen seeks
relief in its capacity as a handler, and therefore it is required to
exhaust administrative remedies prior to challenging the
Secretary’s actions in district court.
B.
Edaleen argues that we should excuse the exhaustion
requirement in this case. It contends that the issue was “fully
framed” in the rulemaking process, that the Secretary’s “full
expertise” has already been brought to bear on this issue, and
that it would be “utterly duplicative” to require Edaleen to seek
administrative review prior to bringing suit. Appellant’s Br. at
41-42. There is no need to address these arguments, however,
because courts have held on numerous occasions that the
AMAA’s exhaustion requirement is mandatory. Thus, we hold
that Edaleen may not be excused from complying with this
requirement.
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Since the AMAA was enacted in 1937, courts have
repeatedly held that its exhaustion requirement is mandatory,
and that aggrieved handlers may not seek judicial review of milk
marketing orders until they have exhausted their administrative
remedies. See Block, 467 U.S. at 346 (stating that “handlers
may obtain judicial review” only after exhausting the AMAA’s
“formal administrative remedies”); Ruzicka, 329 U.S. at 294(holding that “resort may be had to the courts” only after
administrative remedies have been exhausted); Hershey Foods,
293 F.3d at 527 (“A handler of milk thus must petition the
Secretary before seeking judicial review of a milk marketing
order . . . .”) (emphasis added); United States v. United Dairy
Farmers Ass’n, 611 F.2d 488, 490 (3d Cir. 1979) (“It has long
been established that the administrative relief provided in the
[AMAA] is not merely permissive but exclusive in the first
instance: any challenge to the applicability of an order must first
be made administratively.”) (emphasis added); Dairylea Coop.,
504 F.2d at 80 (holding that “handlers may apply for judicial
review of agricultural orders only after exhausting their
administrative remedies”).
Consistent with this long line of cases, we hold that the
AMAA’s administrative appeal process is a mandatory
procedure that handlers must follow prior to seeking judicial
review of a milk marketing order. Therefore, we decline to
excuse the exhaustion requirement in this case.
III.
Although Edaleen is both a producer and a handler, in this
case, it is suing to protect its interests as a handler. A handler
may not seek judicial review of a milk marketing order until it
has exhausted its administrative remedies under the AMAA.
Edaleen has failed to pursue these administrative remedies.
Therefore, we remand the case to the district court with
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instructions to dismiss the complaint.
So ordered.