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July 17, 1986


The opinion of the court was delivered by: TROUTMAN


 The above named plaintiffs instituted these actions, consolidated for purposes of disposition, seeking relief in the form of a preliminary injunction prohibiting the Secretary of Agriculture from implementing regulations which would amend the Middle Atlantic (Order 4) and New York-New Jersey (Order 2) Milk Marketing Orders so as to include twenty (20) additional counties of East-Northeast Pennsylvania within the boundaries of said orders. *fn1" See 50 Fed. Reg. 45595 (1985). This Court granted the preliminary injunction on November 22, 1985, following four (4) days of hearings. The plaintiffs presently seek a permanent injunction prohibiting implementation of said regulations on the grounds that: (1) the Secretary's "Findings and Conclusions" in support of his decision are unsupported by substantial record evidence as required by the Administrative Procedure Act (APA), 5 U.S.C. § 706(2)(E), and the Agricultural Marketing Agreement Act of 1937 (AMAA), 7 U.S.C. § 608c(4); (2) the Secretary's decision is arbitrary and capricious, 5 U.S.C. § 706(2)(A); and (3) the Secretary's decision was based upon extra-record evidence in violation of the APA, 5 U.S.C. § 556(e), and the AMAA, 7 U.S.C. § 608c(4). *fn2" Prior to addressing the plaintiffs' challenges to the Secretary's decision, we must first dispose of the government's motion to dismiss certain of the plaintiffs and outstanding motions to intervene in support of and in opposition to the Secretary's decision.


 A number of parties sought to intervene in this dispute subsequent to the plaintiffs' initiation of these actions. Motions to intervene as defendants were filed by four (4) different groups: the Pennmarva Dairymen's Cooperative Federation on behalf of its member cooperatives, Eastern Milk Producers Cooperative Association, Inc., the State of New Jersey's Department of Agriculture, Division of Dairy Industry, and a group of private, independently owned proprietary handlers. Motions to intervene as plaintiffs have been filed by three (3) private, independently owned proprietary handlers: Freeman's Dairy, Stocker Brothers Dairy, and Clover Farms Dairy. The Chief Counsel for Advocacy of the Small Business Administration also sought to intervene as amicus curiae in opposition to the decision of the Secretary. He has since withdrawn his motion without explanation. We granted the Pennmarva motion to intervene as a defendant on November 22, 1985. We took the remaining motions to intervene under advisement and instructed the parties to proceed as though such motions had been granted. We also took under advisement the government's motion to dismiss those plaintiffs which function as handlers on the ground that they lacked standing to prosecute this case because they failed to exhaust the administrative remedies available to them under the AMAA. See 7 U.S.C. § 608c(15)(A). *fn3" The government for the same reason objects to the intervention on behalf of the plaintiffs of any of the proprietary handlers, viz., Freeman's, Stocker Brothers and Clover Farms.

 The parties to these actions, both potential and actual, represent the entire spectrum of entities involved in the dairy industry: producers (dairy farmers), handlers -- both independently and cooperatively owned, and the government. The dispute as to standing centers on those entities which function as handlers, i.e., those who process raw milk for consumer consumption.

 The Supreme Court in United States v. Ruzicka, 329 U.S. 287, 91 L. Ed. 290, 67 S. Ct. 207 (1946), held that a handler had no standing to challenge the validity of a marketing order promulgated by the Secretary of Agriculture as a defense to an enforcement proceeding brought by the USDA since the AMAA provided handlers with an administrative forum for a determination of the handlers' obligations. The Supreme Court's holding in Ruzicka has been construed to require that a handler in all cases first exhaust his formal administrative remedies before obtaining judicial review of any rule promulgated by the Secretary pursuant to the AMAA. See Block v. Community Nutrition Institute, 467 U.S. 340, 81 L. Ed. 2d 270, 104 S. Ct. 2450 (1984). The Supreme Court had earlier stated, however, that producers of milk who met all other criteria had standing to challenge a rule promulgated by the Secretary since the AMAA provided them with no administrative remedy comparable to that available to handlers. See Stark v. Wickard, 321 U.S. 288, 64 S. Ct. 559, 88 L. Ed. 733 (1944); see also, Block v. Community Nutrition Institute, supra; Suntex Dairy v. Bergland, 591 F.2d 1063 (5th Cir. 1979); and Dairylea Cooperative, Inc. v. Butz, 366 F. Supp. 1335 (N.D. N.Y. 1973), aff'd. 504 F.2d 80. It is also entirely reasonable to conclude that an organization representing and composed of such producers possesses standing to challenge a rule promulgated by the Secretary pursuant to the AMAA. However, a potential problem is created by the fact that many of the entities described above are "hybrid" in nature. For example, Atlantic Processing, Inc., (API), is a handler as defined under the AMAA. API is also a federation of cooperatives, qualified under the Capper Volstead Act, 7 U.S.C. § 608b, as is Pennmarva. Similarly, Farmers' Cooperative Dairy is a handler, but it is also the representative of its member producers. The government has made no motion to dismiss Farmers' Cooperative, presumably because it recognizes that the producers who own the Cooperative could simply have been named as individual plaintiffs rather than bringing their action as a collective entity. Applying the same logic to API, we see no need to distinguish between a single cooperative and a collection of cooperatives. In either case, the member producers could simply have brought these actions in their own names. Hence, we deny the government's motion to dismiss API from these actions.

 Two of the plaintiffs, however, are simply proprietary handlers, as are the three (3) dairies seeking to intervene on the plaintiffs' behalf. For the reasons stated above, i.e., failure to exhaust, we must grant the government's motion to dismiss Guers Dairy, Inc., and Valley Farms, Inc., and deny the motions to intervene filed on behalf of Clover Farms Dairy, Stocker Brothers and Freeman's. The plaintiffs' primary argument in contending that we should allow these proprietary handlers to participate in this litigation is that some injustice will be worked upon them if they are denied status as parties and we grant the motion to intervene filed on behalf of the proprietary handlers which support the Secretary's decision. This may be the case; however, such has always been true since United States v. Ruzicka, supra, and it is not the result of any deliberate injustice but rather of the statutory and regulatory scheme established by Congress. Section 608c(15)(A) of the AMAA would be rendered meaningless by F.R.Civ.P. 24(a)(2) were we to accept the plaintiffs' arguments since in almost all cases there would be producers willing to initially put forth the handler's position so as to open the courthouse doors for those handlers. Their arguments in this regard are without merit, as are their arguments that if they are dismissed and/or denied intervention, the proprietary handlers seeking to intervene on behalf of the government should be similarly denied intervention. It is obvious that those who support the government's position stand in different shoes than those who challenge it; the proponent proprietary handlers need only satisfy the requirements of F.R.Civ.P. 24(a) or (b). The motion of those proprietary handlers seeking to intervene on behalf of the government will be granted, as will the motion of Eastern Milk Producers Cooperative Association, Inc., because we find them to have satisfied the requirements of F.R.Civ.P. 24(a)(2). The motion to intervene filed on behalf of the State of New Jersey will be denied, however, because we find that it fails to fulfill the requirements of either F.R.Civ.P. 24(a) or (b). Regarding Rule 24(a)(2), the State has alleged no harm which will result to the State itself as a result of this litigation. Further, the State's proposed answer expresses nothing that is not already before this Court. Similarly, the State has expressed no interest in the outcome of this litigation which would justify its intervention under Rule 24(b). Finally, under either Rule 24(a) or (b), the State's motion to intervene is untimely.


 The regulatory scheme created by the AMAA has been fully analyzed by fellow courts, and we see no need for a lengthy review of the Act and the regulations promulgated pursuant thereto. See e.g., Smyser v. Block, 760 F.2d 514 (3d Cir. 1985). It suffices to say the Act's purposes are:

to establish and maintain orderly marketing conditions for the covered commodities that will result in parity prices to farmers, to protect consumers in approaching the parity prices, to establish and maintain standards for commodities, to insure an orderly flow of the supply of commodities to market, and to avoid the disruption of orderly marketing through continued regulation. Regulation is accomplished, in part, by the issuance of orders by the Secretary of Agriculture ("the Secretary") that establish a uniform minimum price to be paid to "producers" by "handlers", (i.e., those dairy farmers who manufacture raw milk into bottled milk and other products).

 Suntex Dairy v. Block, 666 F.2d 158 at 160.

 Congress enacted the AMAA to halt, inter alia, competition between producers for sales of milk which would be utilized by handlers for fluid purposes. Milk utilized in this manner, commonly referred to as Class I milk, has traditionally brought a higher price than milk used for "manufacturing" purposes, e.g., cheese, ice cream, butter, etc. The Secretary of Agriculture, through the AMAA, seeks to prevent such competition by forcing all producers in a defined market to share equally in the burden created by excess milk, i.e., milk in excess of that needed for fluid purposes. By forcing handlers to pay producers an average or "blend" price based most commonly on a marketwide pool, the producers no longer have cause to attempt to underprice their neighbors, thereby driving down the price of milk, and handlers can no longer play fellow producers off against one another.

 In this instance, as stated earlier, the Secretary seeks to amend Orders 2 and 4 so as to include twenty (20) previously federally unregulated counties within the geographic boundaries of said orders. The Secretary in the form of "Findings and Conclusions" sets forth a number of reasons as to why he believes expansion of Orders 2 and 4 is necessary to effectuate the purposes of the AMAA. *fn4" We discern them to be as follows:

(1) the ability of some plants under Order 2 to distribute "unpriced" milk in the expansion area has had an adverse competitive impact upon those handlers regulated by Order 2 who do not use unpriced milk for their distribution in the area and upon all handlers regulated by Order 4 who distribute in the area. 50 Fed. Reg. 32720 (1985);
(2) "some of the reserve milk supplies associated with Schuylkill Haven plant's fluid sales in the (20)- county area is (sic) carried by Order 4 producers". 50 Fed. Reg. 32721 (1985);
(3) when certain conditions prevail, "some of the non-federally regulated handlers in the (20)-county area have ceased receiving milk from some dairy farmers" to maintain their high Class-I utilization and at least some of these farmers now deliver milk to Federal handlers, "which is another example of Federal order producers carrying the burden of the reserve supplies for these local dealers". 50 Fed. Reg. 32721-32722. (1985);
(4) "since the Class I sales in (the 20-county area) have now become an integral part of the Middle Atlantic and New York-New Jersey markets, it is only reasonable to provide that all dairy farmers associated with each of these two Federally regulated markets share equally in each respective market's total Class I sales". 50 Fed. Reg. 32723 (1985); and
(5) "the reasons given by the Assistant Secretary in his 1975 decision for not including under Federal regulation the (20)-county area no longer exist today", i.e., market conditions have changed. 50 Fed. Reg. 32722 (1985).

 Based on these Findings and Conclusions, the Secretary reasoned that Orders 2 and 4 should be expanded so as to encompass the 20-county area. *fn5"

 The AMAA provides little or no guidance as to how a marketing area should be defined. See 7 U.S.C. § 608c(11)(A). Thus, the burden has fallen upon the Secretary of Agriculture to draw boundaries for marketing orders pursuant to his administrative discretion. Counsel for the government has made no argument that the Secretary's authority to define the geographic boundaries of marketing areas is committed to the agency's discretion so as to preclude judicial review of his decision. See Suntex Dairy v. Block, supra, and 5 U.S.C. § 701(a). Rather, counsel for the government argues that the Secretary in his decision has operated within criteria which have already received judicial approval. Specifically, he states that the Secretary's decision is based upon an analysis of the interrelationships between Orders 2 and 4 and the expansion area in terms of intermarket competition in distribution, common production areas and common reserve supply. (Brief of USDA, pp. 10-11). See Suntex Dairy v. Block, supra, and United States v. Mills, 315 F.2d 828 (4th Cir. 1963), cert. denied, 375 U.S. 819, 11 L. Ed. 2d 54, 84 S. Ct. 57 (1963). Implicit in the government's recognition of these standards of common areas of production, distribution and reserve supply is its realization that absent these factors, the Secretary's order would not tend to effectuate the policies of the AMAA, viz., "that in an interrelated market there should be uniform handler cost and a uniform price to producers based on all producers sharing equally in the benefits of the fluid milk and the burden of the manufacturing milk" associated with that market. (Brief of USDA, p. 12). (Emphasis added). It is to these component factors that the Secretary's Findings and Conclusions refer.

 This analysis creates two issues which circumscribe these entire proceedings. The first issue: whether the administrative record before us contains substantial evidence to support the Secretary's factual determination that the Class I sales in the expansion area have become an integral part of the Order 2 and 4 markets in terms of distribution and reserve supply. The second issue: assuming the expansion area has not become an integral part of Orders 2 and 4 because Order 2 and 4 handlers cannot compete with non-federally regulated handlers in the expansion area by reason of the fact that they are federally regulated, does the Secretary have the authority to include the expansion area within the federal orders so as to eliminate the alleged competitive advantage of certain non-federally regulated handlers.


 The plaintiffs argue that the Secretary's Findings are not supported by substantial evidence and that his decision is arbitrary and capricious. Thus, we are required to carefully review the extensive administrative record upon which the Secretary relied to determine whether his factual findings are supported by "such relevant evidence as a reasonable mind might accept as adequate to support a conclusion", i.e., substantial evidence. Suntex Dairy v. Block, 666 F.2d at 162, quoting Consolidated Edison Co. v. N.L.R.B., 305 U.S. 197, 229, 59 S. Ct. 206, 217, 83 L. Ed. 126, 140 (1938). See also, Jones v. Bergland, 456 F. Supp. 635 (E.D. Pa. 1978). The decision of the Secretary may be invalidated on the grounds that it is arbitrary and capricious only if we can find "no rational connection between the facts found and the choice made". Sargent v. Block, 576 F. Supp. 882, 892 (D.C. D.C. 1983). We may only examine whether the agency's decision "was based on a consideration of the relevant factors and whether there has been a clear error of judgment". Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 416, 91 S. Ct. 814, 823-824, 28 L. Ed. 2d 136, 153 (1971).

 We begin our analysis with a presumption that the Secretary's action is valid and, therefore, the burden is upon those who challenge the agency's action to prove the invalidity of that action. Further, we must accord great deference to the Secretary's interpretation of the AMAA and his authority thereunder, particularly in light of the statutory and regulatory scheme's extremely complicated structure. With these principles in mind, we now address the plaintiff's specific challenges to the Secretary's decision.

 1. The burden of excess milk

 Two of the Secretary's Findings as delineated above involved the claim of the proponents of area expansion that Federal order producers carry the burden of the reserve supplies associated with the expansion area, thereby deteriorating the federal order blend prices. This problem primarily involved Order 4. The Secretary first found that API, the dominant distributor of fluid milk in the expansion area, at certain times shifted non-Federal order producers and/or milk associated with API's Schuylkill Haven plant to its plant in Allentown, which is an Order 4 reserve processing facility. If such is the case and assuming the milk so shifted would be pooled on Order 4, API would thereby theoretically lower the Order 4 blend price since this milk would be treated as Class II milk. At the same time, API would maintain its high Class I utilization at its Schuylkill Haven plant. The proponents of area expansion argued that this created a gross inequity which harmed Order 4 producers.

 Two witnesses presented testimony on this issue, James Fraher, an economist employed by Interstate Milk Producers Cooperative, a member of Pennmarva, and George O'Brien, an economist who testified on behalf of the Dairylea Cooperative, a member of API. Based on the testimony of these two men, the Secretary concluded as follows:

The record evidence also indicates that some of the reserve milk supplies associated with the Schuylkill Haven plant's fluid sales in the (20)-county area is (sic) carried by Order 4 producers. Pennmarva's witness (Fraher) testified that although Order 4 producers are not sharing in the Schuylkill Haven plant's Class I sales a large portion of the reserve milk supply [i.e., excess milk] associated with those sales in the (20)-county area is pooled as producer milk on the Middle Atlantic market through API's Allentown pool manufacturing plant. The pooling of this excess milk on the Middle Atlantic market lowers the uniform prices to those Order 4 producers who regularly supply the market because API accounts to the pool for this milk at the order's lower valued Class II price (which averaged $12.51 in 1982) and receives the higher valued uniform base price ($13.81 in 1982) for 50 percent or more of this milk and the uniform excess price ($12.37 in 1982) for the remainder of the milk. Thus, API retains for itself the sales of the higher valued Class I milk sold in the (20)-county area from its Schuylkill Haven plant and causes Order 4 producers to subsidize its excess milk supplies by pooling such milk on this market.
API's witness did not refute the above described testimony of Pennmarva's witness. The witness agreed that if a non-federal order producer delivering to the Schuylkill Haven plant had some milk delivered to API's Allentown plant such milk would be considered producer milk under Order 4. Although he thought that most of the reserve milk API might move to Allentown from Schuylkill Haven would be producer milk under Order 2, he was not certain how Lehigh Valley Farmers handled their excess milk that was associated with the Schuylkill Haven plant.

 50 Fed. Reg. 32721 (1985). (Emphasis added).

 Examining the testimony of these two men, we fail to see how the Secretary could have concluded that even some of the reserves associated with API's Schuylkill Haven plant's fluid sales in the expansion area are carried by Order 4 producers. Further, it is unclear exactly what finding the Secretary intended to convey. While he states the record evidence shows that "some" of such reserve supplies are carried by Order 4, he refers at length to Fraher's testimony that a "large portion" of such excess milk is pooled on Order 4 and goes on to state that API's witness, O'Brien, failed to refute this testimony. This creates two problems. First, since the Secretary has failed to somehow "quantify" the term "some", it becomes impossible for this Court to determine that the Secretary's conclusion is supported by substantial evidence. Second, it is impossible for us to determine whether the Secretary's decision, with regard to this Finding, may be arbitrary and capricious since we cannot determine whether such "dumping" of excess milk on Order 4 is a factor relevant to the Secretary's decision. If the amount of such milk is so minute that it has no affect on the Order 4 blend price, then this Finding would be irrelevant. However, even though the Secretary by the manner in which he has stated this Finding has created serious questions regarding the availability of effective judicial review, Saylor v. U.S. Department of Agriculture, supra, we will assume that the Secretary concluded that such quantities of milk were involved as would erode the Order 4 blend price, and we, therefore, also assume that this Finding was relevant to his decision. Even making these assumptions in favor of and in support of the Secretary's Conclusion, we find that the Secretary's Conclusion is not supported by substantial evidence.

 Fraher made his initial allegation that such shifting occurred during his direct testimony, i.e., his statement in support of expansion of the federal orders. Fraher stated that:

The large disparity in Class I utilizations between PMMB (Pennsylvania Milk Marketing Board) Areas 2 and 3 (the expansion area) and the adjoining Order 4 market indicates that the necessary reserve supply for a large Order 4 producers through marketing practices by Order 4 cooperatives, (sic) Inter-State Milk Producers Cooperative supplies a portion of the Class I needs of some Federally unregulated buyers located in "the Area" from the Federal Order 4 portion of its supply when such handlers need milk. In addition, virtually all of the Class II purchases by a handler, operating a Schuylkill Haven, Pennsylvania plant in "the Area" with substantial volumes of Federal unregulated milk, are pooled under Order 4 at an Order 4 reserve processing plant located in Allentown, Pennsylvania.

 (See Administrative Record [A.R.] p. 154) (Emphasis added). *fn6"

 Fraher provided no specifics, however, to support his general assertions. Further, upon cross-examination, Fraher agreed that if a non-federal order handler does not dispose of his excess producer milk to federal order plants or purchases any spot loads or needed supplies for his operation from federal order plants, the federal order is not carrying any of the necessary reserves associated with that non-federal order handler. (See A.R., pp. 1430-33).

 O'Brien, on the other hand and contrary to the Secretary's statement, refuted Fraher's claim that API moved large quantities of non-federally regulated milk from Schuylkill Haven to Allentown. The following is illustrative of O'Brien's testimony:

Q. With respect to again the API operation at Schuylkill Haven, when the milk of Lehigh Farmers Association is in excess of the needs of the Schuylkill Haven Plant where does that milk move and where is it processed?
A. I believe it goes to Allentown.
Q. Is that moved on a plant basis, is that a plant movement basis or is that a producer movement basis?
A. No, it would be like a diversion of Order 2 Bulk Tank milk. . .
Q. But suppose some of these non order producers' milk ended up at the Lehigh plant -- or at the API plant at Allentown, how would that be treated under Federal Order 4?
A. I'd have to go back and study my pooling provision to determine whether it's pooled or not. I hesitate to answer that question because I'd have to review the Order to be sure, whether it be (sic) pooled or not . . . . I'm sure they attempt to keep the milk associated with that facility clear from involvement with another federal order. So that it can continue to be utilized fully at the Schuylkill Haven plant.
Q. Now your question, your response to my question is only regarding the treatment of milk associated with the API plant at Schuylkill Haven that is Federal Order 2 milk. Is that right?
A. Yes . . . I'm inclined to think perhaps if a non Order producer delivered to that location he may be pooled under Federal Order Number 4. I'm not one hundred percent clear on that. I think that's why they attempt to do their balancing with Order 2 milk so it stays pooled under Order 2.

 (A.R., 3503-3506). (Emphasis added).

 O'Brien also testified as follows:

Q. . . . In other words, there would be no situation where milk that is PMMB regulated, if you will non-federally regulated milk, being shipped to Allentown as surplus milk of the Schuylkill Haven plant?
A. Yes, the attempt has been to keep the non federal milk and the federal milk fairly constant on a year round basis as far as producers are concerned. As I understand it there is no classic pool riding, unquote, as a result of this operation. . .

 (A.R., 3359-3360). (Emphasis added).

Q. Is it your testimony that no milk from Schuylkill Haven which is unregulated and unpriced under federal order ever goes to Allentown?
A. I did not say that. But to the extent that that does happen it is very minute, a very small quantity, because as you can understand if a producer who is a non-- not a producer under any other federal order, is delivered to an Order 4 plant it is treated as a producer . . . it ends up in a loss to the organization and therefore that quantity of milk is kept to almost zero if possible in order to avoid losses of that type . . . The result of that is that it does not end up with any of the nonorder milk being delivered onto or taken off of the federal order market. It is the other way around, if anything. . .

 (A.R., 3807). (Emphasis added).

Q. . . . in response to previous questions, particularly mine of yesterday, I think you did indicate with some of the nonorder producers, and it was your belief that they were associated ...

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