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January 9, 1975

EARL L. BUTZ, Secretary of Agriculture

The opinion of the court was delivered by: DITTER

 This case returns to the Court after being remanded to the Judicial Officer of the Department of Agriculture for a ruling as to whether there was substantial evidence to support a new milk-pricing system ordered for the Delaware Valley.

 Following a hearing in June, 1969, the Acting Secretary of Agriculture on August 20, 1969, abolished "bracketed pricing" of milk in Federal Milk Marketing Order No. 4, the Delaware Valley Marketing Area, *fn1" 34 Fed. Reg. 13601. Historically, the prices paid by dairies to farmers for milk in this region were fixed under applicable federal law by the movement of certain economic indices. Under this system the milk price did not change unless the index crossed a fixed boundary. When it did so, the price per hundred pounds of milk would be adjusted by twenty cents. The new pricing system involves penny-by-penny movements and is based upon the price paid for milk by dairies the previous month in the Wisconsin-Minnesota federal marketing area. As the price there moves up or down, the price in the Delaware Valley will be increased or decreased by the same amount. Under the bracketing system, price changes were more infrequent, but also more pronounced and more likely to affect retail prices immediately. Under the new system, price changes are less likely to be passed on to the consumer at once or on an entire line of dairy products.

 Objection to the abandonment of the bracketing system having been raised, the hearing was reopened on October 30, 1969, and a further decision issued by the Department's Judicial Officer on behalf of the Secretary of Agriculture, January 20, 1970, 35 Fed. Reg. 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).

 In a lengthy decision, the Judicial Officer concluded that the order of August 20, 1969, was supported by substantial evidence. He further held that substantial evidence was not required as a basis for the Secretary's action, that the decision is not reviewable by this Court, and that the issue is moot because of subsequent changes in federal milk pricing orders. *fn3"

 In going far beyond the scope of my remand, the Judicial Officer passed upon questions of jurisdiction and the power of this Court to review the Secretary's decision of August 20, 1969. While these are extraneous issues, I will discuss them because they constitute a strong and invalid challenge to the scope of judicial review and authority of the federal courts over milk pricing orders.

 I. Action by Secretary of Agriculture Purporting to Terminate Bracketed Pricing was Ineffective or Illegal.

 In detailing the recent price history of Order No. 4, the Delaware Valley Marketing Area, the Judicial Officer attempted to establish that by August 20, 1969, bracketed pricing was an obsolete concept that had been rendered inoperative by the Secretary's emergency actions during the previous three years.

 It is undisputed that "historically" (for twenty years) milk prices in the Delaware Valley had moved in substantial integers (brackets) of approximately twenty cents, triggered by changes in an economic formula. Prices in other Northeast areas, such as New York, also moved pursuant to changes in an economic formula but on a penny-by-penny basis.

 On March 2, 1966, the Secretary determined that an emergency situation existed in the dairy industry. He suspended *fn4" the pricing provisions of every marketing area which recognized seasonal declines during the spring and summer. In the Delaware Valley, the Secretary simply deleted certain figures in one column of the economic formula leaving the remaining language still effective.

 The Secretary then issued another emergency suspension order on March 31, 1966, that increased Class I *fn5" milk prices twenty-four cents across the nation. In the Delaware Valley, however, because of the peculiarities of bracketed pricing, the economic formula was suspended in part to allow for only a twenty cent price increase.

 From July 1, 1966 to March 31, 1967, in the Delaware Valley, the price was pegged at $6.20 by suspending a portion of the bracketed pricing formula.

 The Secretary determined in February, 1968, that another emergency increase was needed in the Class I price of milk. Thus, twenty-eight cents was immediately added to the bracketed price in the Delaware Valley. Subsequently, after a hearing, the price was increased another twenty-four cents in September, 1968. These emergency price increases were to be temporary and were effective only through April, 1969.

 Without a hearing, on December 26, 1968, the Secretary announced that he was terminating a portion of the latest emergency price increase. He eliminated the words "through April, 1969" thus purporting to create a permanent pricing order for the Delaware Valley. The Secretary claims that by removing these words from the temporary suspension of the bracketed pricing formula he rendered bracketed pricing permanently inactive and "effected a 'permanent' change in the order." Therefore, the Secretary maintains that when making his findings and decision of August 20, 1969, he could properly proceed on the basis that a valid bracketed pricing formula did not exist and there remained only "obsolete" bracketing language.

 Clearly every price increase in the Delaware Valley during this emergency period was in bracket type integers. No language was used to show that penny-by-penny price changes were contemplated, desirable, necessary, or intended for the Delaware Valley. In fact, several of the Secretary's decisions specifically took note of the particular bracketed pricing system and adjusted the emergency price increase to it. Only in his order of September 6, 1968, did the Secretary suggest that his prior decisions had "inactivated the formulas entirely in favor of specified prices." These words hardly qualify as a clear statement that prices will change thereafter on a penny-by-penny basis as prices in another market area go up or down.

 The Agricultural Adjustment Act requires that the Secretary's orders be based upon evidence introduced at a hearing called for the purpose of considering the proposed action. 7 U.S.C. § 608c (4). Here there was no hearing held to consider the abandonment of bracketed prices. The Act does not permit the Secretary to suspend temporarily a pricing formula for an emergency situation, then unilaterally terminate that portion of the emergency order which makes it temporary, thereby creating, without a hearing, a permanent order which drastically changes the milk pricing policy of a market area. The recital of the Secretary's actions regarding price changes demonstrates that a bracketing policy was followed during this prolonged emergency period and that bracketing was either still in force in the Delaware Valley prior to August, 1969, or that it had been eliminated illegally by the Secretary.

 As it is pointed out in Carnation Company v. Butz, 372 F. Supp. 883, 886 (D. D.C.), appeal dismissed, C.A. 74-1807 (D.C. Cir. , filed December 17, 1974), where the basic content of a pricing order has been altered so that a new order materially different from the old results, the Act requires proper notice and hearing.

 Section 10(e) of the Administrative Procedure Act, 5 U.S.C. § 706, mandates a reviewing court to

(2) hold unlawful and set aside agency action, findings, and conclusions found to be . . . .
(D) without observance of procedure required by law.

 Here the Secretary did not observe procedures required by law and the action by which he contends he eliminated bracketed pricing in the Delaware Valley cannot be ...

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