Summary of a Recent
Judicial Development in
Administrative Law

Dairy Farmers May Challenge Milk Marketing
Order, Received Adequate Notice of Rulemaking

Harrison M. Pittman
Staff Attorney

Summary of Decision

In Alto Dairy v. Veneman, 336 F.3d 560 (7th Cir. 2003), the United States Court of Appeals for the Seventh Circuit ruled that several dairy farmers had a right to challenge a final rule issued by the United States Department of Agriculture (USDA) in federal court and that the farmers were given sufficient notice of the USDA's rulemaking proceeding.

Background

The minimum price that dairy producers receive for milk they produce is determined by a complex pricing mechanism in which the USDA Secretary issues federal milk marketing orders that govern the minimum price of milk in different geographic areas of the United States. See Alto, 336 F.3d at 562-63. The prices established by federal milk marketing orders are separated into four classes. See id. at 563. Class I milk is milk that is to be used for fluid purposes, such as bottled milk; Class II, III, and IV milk is milk that is used for manufacturing purposes, such as to make cheese, butter, nonfat dry milk, or ice cream. See id.

Although the price received for Class I milk is higher than the price received for Class, II, III, or IV milk, dairy farmers within a milk marketing order region all receive the same price-a "blended price"- for their milk. See id. The blended price is the weighted average of the price paid for all milk received in a particular milk marketing order region and is higher in regions where Class I milk is a higher fraction of total milk use. See id. The "Mideast" milk marketing order-the order at issue in this case-includes Indiana, Michigan, Ohio, and portions of West Virginia and Pennsylvania and is a region in which Class I milk is a higher fraction of total milk use. See id.

Wisconsin, where most of the plaintiffs reside, is not included in the Mideast region, and the blended price in its region is lower due to the high fraction of its milk output that is used for manufacturing Class II, III, and IV milk products. See id. at 564. Consequently, Wisconsin dairy farmers "would like as many of their sales as possible to be pooled with the Mideast producers' sales and be so remunerated at the higher Mideast blended price," which they are permitted to do, subject to certain exceptions. Id. Thus, the more that milk produced by Wisconsin dairy farmers is blended with the milk produced by farmers in the Mideast region, the lower the blended price farmers in the Mideast region will receive for their milk. See id.

Recognizing the potential for abuse, the USDA

has long required that a supply plant-a handler that buys milk from the farmer for storage and redistribution-resell 30 percent of its milk into a region in order to be eligible for the blended price fixed for that region. If it does not sell 30 percent there, however, its entire output, not just the 30 percent, qualifies for the region's blended price.

Id.

The USDA also authorizes "a practice known as 'paper pooling,' which permits a supply plant in one region to 'associate' with dairy farmers in another region, who by virtue of the 'association'-which can be completely informal-are treated as if they shipped their milk to the supply plant." Id. Ultimately, however, the requirement that a supply plant resell 30 percent of its milk into the distant region is reduced to three percent because only 10 percent of the 30 percent must actually be shipped into the distant region. See id. Under the "paper pooling" mechanism, "[a] supply plant in Wisconsin, buying all its milk from local farmers, need ship only 3 percent of its milk to the Mideast to qualify for the Mideast blended price for its entire output, so long as another 27 percent is supplied by Mideast dairy farmers associated with the Wisconsin plant." Id. Until 2000, the potential for abuse with the "paper pooling" system did not exist because USDA prohibited distant supply plants from receiving "the full blended price in the region of their associated dairy farmers." Id. In 2000, this prohibition was repealed, creating "a loophole through which the Wisconsin dairy farmers rushed." Id. at 564-65 (citing 7 C.F.R. § 1000.50).

Consequently, on September 28, 2001, the USDA issued a notice to close this loophole titled, Milk in the Mideast Marketing Area; Notice of Hearing on Proposed Amendments to Tentative Marketing Agreement and Order, 66 Fed. Reg. 49571 (Sept. 28, 2001). See id. at 570. The notice provided, in part, the following:

A public hearing is being held to consider proposals that would amend certain pooling and related provisions of the Mideast [milk marketing] order. Proposals include . . . decreasing the amount of producer milk that can be diverted to nonpool plants for varying months of the year; and increasing the minimum amount of milk that a producer needs to deliver to pool plants in order to qualify as a producer and to be eligible to be pooled on the order . . . [and] eliminating a provision that currently permits a pool plant to have both a pool and a nonpool portion; [and] establishing a 'net shipment' provision for milk received at pool plants for determining pooling eligibility.

Id. (citation omitted). On July 26, 2002, after a formal rulemaking proceeding, the USDA adopted the amendment as an interim final rule. See id. at 562 (citing 7 C.F.R. § 1033.7(c)(2)).

The plaintiffs, comprised mostly of Wisconsin dairy farmers, brought an action in federal district court seeking to enjoin this amendment. See id. The district court dismissed the action for lack of jurisdiction, ruling that the plaintiffs lacked standing to challenge the amendment because Congress had denied them a right to sue. See id. The district court also ruled that even if the plaintiffs did not lack standing, their action would still require dismissal because it lacked merit. See id. The plaintiffs appealed the district court's decision to the Seventh Circuit. See id.

Arguments

The plaintiffs argued that they had standing pursuant to § 702 of the Administrative Procedure Act, "which confers a right to mount a judicial challenge to agency action on persons 'adversely affected or aggrieved by agency action within the meaning of a relevant statute' . . . unless the statute in question 'preclude[s] judicial review.'" Id. (citing 5 U.S.C. §§ 701(a)(1) & 702)). The plaintiffs also argued that the final rule should be vacated because the USDA "failed to give them proper notice concerning the relief that might emerge from the rulemaking proceeding." Id.

The USDA argued that the plaintiffs lacked standing because "the milk marketing law expressly authorizes judicial review of milk marketing orders at the behest of handlers, 7 U.S.C. § 608c(15), but is silent on the right of a dairy farmer (that is, a producer, rather than a purchaser from the producer) to get judicial review." Id. at 566.

Analysis and Holdings

The court first examined whether the plaintiffs had a right to seek judicial review of the USDA's order that amended the Mideast milk marketing order. See id. at 565. The court held that APA § 702 "certainly describes these plaintiffs, who are injured in their pocketbooks by having their access to the Mideast blended price, which is higher than the blended price in their region, curtailed. Moreover, dairy farmers, the plaintiffs in this case, are . . . the very group that the milk marketing law seeks to protect." Id. at 565-66. See also id. at 566 (quoting Barlow v. Collins, 397 U.S. 159 (1970) (holding that "'[t]he right of judicial review is ordinarily inferred where congressional intent to protect the interests of the class of which the plaintiff is a member can be found; in such cases, unless members of the protected class may have judicial review the statutory objectives might not be realized.'") (citations omitted). Thus, the court held that the plaintiffs, as producers, could seek judicial review. See id. See also id. at 569 ("We conclude that producers can seek judicial review of milk marketing orders that pinch them . . . .").

Turning to the issue of whether the plaintiffs received adequate notice, the court explained that the APA "requires published notice of proposed rulemaking . . . but does not specify how detailed the notice must be." Id. at 569. It also explained that "'notice is adequate if it apprises interested parties of the issues to be addressed in the rulemaking proceeding with sufficient clarity and specificity to allow them to participate in the rulemaking in a meaningful and informed manner.'" Id. (citation omitted). After examining the language of the notice of proposed rulemaking issued by the USDA on September 28, 2001, the court stated that "[t]hough this is gobbledygook to an outsider, insiders such as the plaintiffs would realize that the focus of the proceeding would be on their eligibility to be pooled with the Mideast producers (that is what being 'pooled on the [Mideast] order' means)." Id. at 570. It added that

What is true is that none of the proposals was identical to the amendment that the Department adopted at the end of the proceeding, namely the prohibition of paper pooling with distant plants. But paper pooling was one of the principal methods by which the plaintiffs got to pool with the Mideast producers, so that they had to assume that it would be one of the issues in the proceeding and a possible target for reform. . . . They knew enough to know that if they wanted to protect their participation in the Mideast pool they would have to participate in the rulemaking proceeding. Their choice not to do so cannot be attributed to a lack of notice.

Id.

The case was decided on July 15, 2003; this summary was posted May 17, 2004.