Dairylea Cooperative, Inc. v. Butz

504 F.2d 80
Court of Appeals for the Second Circuit·Decided October 1, 1974·No. No. 1185, Docket 74-1160·Published·Cited by 9 cases

Opinion

BARTELS, District Judge:

Dairylea Cooperative, Inc. (“Dairy-lea”) is an association of dairy farmers organized pursuant to 7 U.S.C. § 291 (1970) which, in addition to representing producers, acts as a milk handler.1 Its members are producers located in New' York, New Jersey, Pennsylvania and elsewhere and subject generally to Federal Milk Marketing Order 2 (7 C. F.R. §§ 1002.1 et seq. (1974)). Penn-marva Dairymen’s Cooperative Federation, Inc. (“Pennmarva”), which was permitted to intervene as a defendant in support of the challenged provisions of Federal Milk Marketing Order 4, is a federation of three cooperatives, allegedly representing forty-five hundred dairy farmers subject to Order 4.

In May, June and October of 1972 Dairylea was required, in order to meet the increased demands of one of its customers in Flemington, New Jersey, to shift milk produced by its members in other areas previously regulated and priced under Order 2, to the Flemington, New Jersey handler, and the milk thus became regulated and priced under Order 4. As hereafter explained, there are important differences between Order' 2 and Order 4, though both were adopted by the Secretary of Agriculture (“Secretary”) to effectuate the purposes of the Agricultural Marketing Agreement Act of 1937 (“the Act”)2 focusing primarily upon the seasonal adjustment of milk production in accordance with the market’s needs. Dairylea claims that in shifting the milk of some of its member-producers from the Order 2 to the Order 4 area, they were penalized in a discriminatory manner by the imposition of an arbitrary low base for Class I sales for a period of from five to ten months resulting in a loss in excess of $262,500.

‘ Accordingly, Dairylea challenges the Order 4 base-excess plan generally upon the grounds that it (a) violates the Act because it provides for substantially reduced returns to newly entering producers for a minimum period of five months and a maximum period of sixteen months, and (b) is not a reasoned decision supported by substantial evidence in the record. The Secretary not only asserts that the challenged section is fully authorized by the Act and supported by substantial evidence, but contends further that the District Court erred in accepting jurisdiction over the subject matter without requiring Dairy-lea to exhaust its administrative remedy. Before reaching the merits, it is necessary to turn to the threshold question of jurisdiction.

Jurisdiction

We reluctantly conclude that Dairylea is a producer and as such was not required to exhaust any administrative remedy before invoking the jurisdiction of the District Court and indeed had no administrative remedy to exhaust. Considering the complicated nature of the provisions of the Act and the labyrinthi-an regulations issued thereunder, it would be most appropriate for Dairy-lea’s complaint to be considered first by the Secretary, who possesses the facilities and the expertise to review and interpret the Act and regulations herein involved.3 While a remand is most in[83]*83viting and would permit a dismissal of the complaint without reaching the merits, we regretfully find no authority which would justify such action.

Though the Act affects producers, it was not designed to regulate producers but to regulate handlers only.4 Thus, while handlers may apply for judicial review of agricultural orders only after exhausting their administrative remedies, the Act is silent as to both judicial and administrative remedies for producers. 7 U.S.C. § 608c(15) (1970). The Supreme Court, however, has held that this silence does not bar producers from judicial remedies. Stark v. Wickard, 321 U.S. 288, 308-311, 64 S.Ct. 559, 88 L.Ed. 733 (1944); see Zuber v. Allen, 396 U.S. 168, 90 S.Ct. 314, 24 L.Ed.2d 345 (1969).

The Government argues that Dairylea not only is a producer but also a handler and therefore must exhaust its administrative remedies under 7 U.S.C. § 608c(15) (1970) before instituting this action. It is true that Dairylea has acted as a handler to the extent of payments made by it to the Order 4 Producer-Settlement Fund, but it is not acting as such in this case. In fact, the Secretary has treated cooperatives as either handlers or producers on the basis of the interests they represent in the action then pending. See In re Producers Creamery Co. of Springfield, 23 A.D. 515 (1964).5 In his testimony before Judge Carter, the Federal Milk Market Administrator for Order 4, Alexander St. Clair, admitted that a cooperative which is both a producer and a handler routinely may be treated as a producer.6 The concern of Dairylea in this action is not the money which it paid into the Producer-Settlement Fund, since its total payments will remain constant whatever the outcome of the case, but with the money collected on behalf of its producer-members as authorized by 7 U.S.C. § 610(b)(1) (1970) which will increase if the action succeeds. See Inter-State Milk Producers’ Cooperative, Inc. v. St. Clair, 314 F.Supp. 108, 111 (D.Md.1970). Thus, for purposes of this suit, Dairylea must be deemed a producer suing in its representative capacity and accordingly the jurisdiction asserted below was proper.7

This is true even though the Secretary by letter from an Agricultural Department attorney abruptly offered to provide Dairylea with an administrative hearing two and one-half months after this action was commenced. In light of the regulations which restrict such remedies to handlers, 7 C.F.R. § 900.52 (1974), and the administrative decisions which have done the same, In re Producers Creamery Co. of Springfield, supra, such a letter does not satisfy the publi[84]*84cation requirements of the Administrative Procedure Act, 5 U.S.C. § 552(a)(1) (1970).8 Upon this review it is our function to determine whether the Secretary’s order is within his granted power, issued pursuant to proper procedure, and adequately supported by substantial evidence and reason. Davis, Administrative Law, § 5.03, p. 299 (1958 ed.); Fairmont Foods Co. v. Hardin, 143 U.S.App.D.C. 40, 442 F.2d 762, 767 (1971); Lewes Dairy, Inc. v. Freeman, 401 F.2d 308, 317 (3d Cir. 1968), cert. denied 394 U.S. 929, 89 S.Ct. 1187, 22 L.Ed.2d 455 (1969).

Milk Regulation under the Act

The rationale and scheme of milk regulation under the Act have been succinctly and fully described by the Supreme Court in Zuber v. Allen, supra,

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Dairylea Cooperative, Inc. v. Butz
504 F.2d 80 (Second Circuit, 1974)