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November 27, 1972

Clifford M. HARDIN, Secretary of Agriculture of the United States Department of Agriculture, Defendant

Ditter, District Judge.

The opinion of the court was delivered by: DITTER

In this case the question is whether the Secretary of Agriculture may issue a milk-pricing order in the absence of credible evidence to support his decision.

 Objection to the abandonment of the bracketing system having been raised, the hearing was reopened on October 30, 1969, and a further decision issued on behalf of the Secretary of Agriculture on January 20, 1970, 35 F.R. 1017, retaining the penny-price adjustment method. As a representative of its trade organization, Abbotts Dairies first exhausted its administrative remedies and then brought the present action for judicial review under applicable provisions of the Agricultural Adjustment Act, 7 U.S.C. § 608c(15)(B).

 At the reopened hearing held on October 30, 1969, seven witnesses testified. Two appeared on behalf of the farm organizations which represent 75 percent of the relevant market. Two others, marketing experts, appeared on behalf of processors serving 70 percent of the relevant area. The fifth was a Professor of Agricultural Economics, involved in the study of milk marketing, from Penn State University. All of the testimony supported the bracketed pricing method and indicated that it would not cause price misalignment or market disruption. It was the opinion of these witnesses that bracketing would provide stability and avoid the consumer confusion that results from penny alterations in prices paid to farmers. A representative of a dairy in the Washington, D.C., area testified in favor of 40 cent brackets rather than 20 cent brackets. In addition, a representative of the Pennsylvania Milk Marketing Board, an agency of the Commonwealth, testified in favor of bracketing as a means of promoting stability and orderly market conditions. There were no witnesses who testified against the bracketing system or who gave evidence in favor of the penny for penny method of establishing milk prices. Thus, all of the evidence supported bracketing as the best method to achieve orderly marketing and insure adequate milk production in the Delaware Valley. Despite the unanimous opinions of all those who had testified at the hearing, the Secretary of Agriculture concluded that a bracketing system of prices should not be reinstituted.

 As part of the administrative appeal procedure, a hearing was held on June 16, 1970, before a Department of Agriculture Examiner. The only testimony on bracketing came from one of the experts who had previously appeared on behalf of the milk processors. He said that the instability and disadvantages which he had predicted had come to reality with the abandonment of the bracketing system. The Hearing Examiner refused the petition to reinstate bracketing by a decision dated December 31, 1970. He concluded that to amend a marketing order requires a two-fold consideration: first, whether the hearing record supports the proposal and, second, whether the amendment would help to achieve the objectives established by Congress. He held that no amendment was required because the Secretary had not determined that a return to bracketing would tend to effectuate the policies of the act.

 The final step in the administrative appeal process was a decision by a judicial officer of the Department of Agriculture. He reached two conclusions. First, he pointed out that the Hearing Examiner had sustained an objection to the incorporation of the record of the hearings that preceded the decision of August 20, 1969, 34 F.R. 13601. Since this record was not in evidence, he said the decision on which it was based carried the presumption of regularity and that the petitioner had not met its burden of proving its invalidity. Secondly, he said that the action of the Secretary in refusing to reinstitute the bracketing system was well within the discretionary powers allowed by law. This decision was dated February 22, 1971, and Abbotts' petition to this court followed.

 I. The Substantial Evidence Rule

 The Administrative Procedure Act provides that reviewing courts shall hold unlawful and set aside agency action found to be unsupported by substantial evidence: 5 U.S.C.A. § 706.

 The substantial evidence rule applies to milk-pricing under the Agricultural Adjustment Act: Fairmont Foods Company v. Hardin, 143 U.S.App.D.C. 40, 442 F.2d 762, 767 (1971). In Fairmont, the Secretary of Agriculture had established by geographic area certain differentials on the price of milk paid to farmers. The facts did not support his action, but the Secretary contended that nonetheless his decision should be sustained so that market disruption would be prevented. The court disagreed saying that while administrative and executive expertise encompasses powers of predictions not shared by those less familiar with the intricacies of the particular field, such powers, like those of any others, must be justified by reference to objective evidence. There must be a rational basis of record for invoking the concept of a preventative remedy. Since the decision of the Secretary did not meet that standard but contained only generalizations, it was set aside.

 The instant case is not one which requires a nice balancing to determine whether the record contains "substantial" evidence to support an administrative decision. To the contrary, Abbotts contends there was no evidence at all to support the original order of August 20, 1969, which set aside bracketing and it was therefore illegal. The Secretary does not maintain there was any such evidence. Rather, he argues the action of an administrative agency is presumed to be valid and here the presumption cannot be overcome because the transcript of the hearing which preceded the order, that of June 16 and 17, 1969, was not made a part of the appeal record now before the court. In brief, the Secretary does not answer -- he sidesteps.

 Abbotts has always maintained the witnesses who appeared at the hearing on June 16 and 17, 1969, favored the bracketing system and that no testimony was produced then, or later, which would have justified its removal. Furthermore, Abbotts points out the original hearing was not even called to consider the matter. *fn2" Abbotts also asserts the only testimony which dealt with bracketing was that produced before the Hearing Examiner on October 30, 1969, or at the subsequent hearing on June 16, 1970. *fn3"

 Abbotts made this position clear at the reopened hearing on October 30, 1969. On that occasion, general counsel for the Department of Agriculture asked the Hearing Examiner to take official notice of the decision issued August 20, 1969, 34 F.R. 13601. *fn4" Abbotts' attorney then asked if any factual determination referred to in the August 20 decision would be binding on the triers of fact on the record then being created. The Hearing Examiner replied official notice would be taken that a decision had been rendered and counsel for the Department of Agriculture said there was no other purpose in offering the decision. *fn5" In context, this could only mean the decision of August 20, 1969, and any testimony which preceded it were being divorced. The former was admitted; the latter was not even tendered. There was no statement thereafter to indicate any understanding or contention that the ultimate decision would be based on anything but the record which was being made at that time. *fn6"

 The question again arose at the hearing of June 16, 1970. Counsel for Abbotts offered the record compiled on October 30, 1969, and pointed out his position that the order removing bracketing was invalid because it was not based upon a proper hearing record. *fn7" At one point counsel for the Department of Agriculture indicated there was no objection to confining the proceeding to the record made October 30, 1969. *fn8" Shortly thereafter, however, he asked for "official recognition . . . of that record," referring to the testimony produced during the original hearing of June 16 and 17, 1969. Abbotts' counsel objected on the grounds that only the hearing of October 30, 1969, could form the basis of a decision, and was sustained by the Hearing Examiner ". . . with the warning that if any of the matters mentioned in that first paragraph number three in the petition to the present proceeding [this paragraph averred there was no evidence to ...

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