Summary of a Recent
Judicial Development in
Farm Commodity Programs

Regulations Limiting Transition Payments
Under Milk Loss Contract Upheld

Steven White
National AgLaw Center Graduate Assistant

Summary of Decision

In Fullenkamp v. Veneman, No. 03-3731, 2004 WL 1948759 (6th Cir. Sept. 2, 2004), the United States Court of Appeals for the Sixth Circuit held that the regulations that limited the amount of transition payments received by dairy producers under the Milk Loss Contract Program were valid.

Background

The Farm Security and Rural Investment Act of 2002 (hereinafter 2002 Farm Bill), enacted May 13, 2002, created a program that allowed dairy farmers to receive federal payments when prices fell below a stated level. See id. at *1 (citations omitted). For the dairy farmers to receive these payments, they were required to enter into a contract with the Secretary of Agriculture. See id.

The payments came in two types - a monthly payment and a transition payment. See id. The monthly payment was made for qualified production "beginning the month the farmer enters into the contract and ending September 20, 2005." Id. (citations omitted). The transition payment was a "lump-sum payment for production during the 'transition' period between December 2001 and the month the farmer enters into the contract and ending September 30, 2005." Id. (citations omitted).

The pertinent part of the 2002 Farm Bill, codified at 7 U.S.C. § 7982, provided the following:

(b) Payments. The Secretary shall offer to enter into contracts with producers on a dairy farm located in a participating State under which the producers receive payments on eligible production.
. . .
(d) Payment quantity.
(1) In general. Subject to paragraph (2), the payment quantity for a porducer [sic] during the applicable month under this section shall be equal to the quantity of eligible production marketed by the producer during the month.
(2) Limitation. The payment quantity for all producers on a single dairy operation during the months of the applicable fiscal year for which the producers receive payments under subsection (b) shall not exceed 2,400,000 pounds....
. . .
(f) Signup. The Secretary shall offer to enter into contracts under this section during the period beginning on the date that is 60 days after date of enactment of this Act [May 13,2002], and ending on September 30, 2005.
. . .
(h) Transition rule. In addition to any payment that is otherwise available under this section, if the producers on a dairy farm enter into a contract under this section, the Secretary shall make a payment in accordance with the formula specified in subsection (c) of the quantity of eligible production of the producer marketed during the period beginning on December 1, 2001, and ending on the last day of the month preceding the month the producers on the dairy farm entered into the contract. Id. at *1-2.

In 2002, the Secretary issued regulations setting out the parameters of the dairy assistance program. See id. at *2. Included in these regulations was language setting the § 7982(d)(2) cap of 2.4 million pounds of milk as the cap for the transition period payments for § 7982(h). See id. This amount was also set as the cap for "the monthly payments for milk produced after [the] contract [was] signed." Id.

The plaintiffs were "dairy farmers who annually produce over 2.4 million pounds of milk" and who had entered into contracts with the Secretary. Id. They filed suit in federal district court challenging the Secretary's regulations regarding both the monthly payments and the transition payment. See id. The district court held that under § 7982 Secretary's action was permissible. See id. The plaintiffs appealed the district court's decision to the Sixth Circuit. See id.

Arguments

The plaintiffs argued that the Secretary's interpretation of the statute was inaccurate. See id. at *3. They asserted that Congress had "intended that the [2.4 million] cap not apply to transition payments and that the Secretary's regulations therefore violate the statute." Id. They argued that the language of § 7982 required the Secretary to make the transition payments but not to put limits on them. See id. They supported this argument by referring to § 7982(h), which "requires payment of eligible production," and noted that § 7982(h) did not contain that capped the transition payments. Id. They further asserted that if Congress wanted a cap on the payments it would have included it in the statute. See id.

The plaintiffs also argued that the transition payments were not included as payments under § 7982(b). See id. They claimed that there were two separate payment programs under the statute, monthly payments and the transitional payment, and that to conclude that § 7982(b) includes both payments is superfluous because it could have been written to include both payments. See id.

The Secretary argued that it was Congress's intent that all payments in the statute would fall under the cap and that the regulations did not violate the statute. See id. The Secretary noted that "subsection (h) provides that payments shall be made according to the formula is subsection (c), which incorporates the payment quantity in subsection (d), the subsection that includes the payment cap." Id. (citations omitted). The Secretary concluded that although there is not specific cap language, it is still valid because of incorporation through subsection (d)(2). See id.

The Secretary also argued that the transition payments were included in § 7982(b). Id. at *4. It asserted that the transition payments can only be received by farmers if a contract is signed, as stated in § 7982, and that "subsection (g) contemplates that payments under subsection (h) are payments covered by the contract." Id. It further asserted that § 7982(b) also contained the payment limit language and that had Congress wanted the cap to only apply to the monthly payments they would have written it so as the limits "apply to 'payments under subsections (e)-(g)'" instead of applying to subsection (b). Id.

Analysis and Holding

The court explained that to interpret an unclear statute, it first must examine whether Congress has spoken on the issue, and if not, then it must decide whether the agency's decision is "based on a permissible construction of the statute." Id. at *2. (citations omitted). The court also explained that the main issue was whether the transition payments were included under § 7982 (b) and determined that "it is unclear whether the phrase 'payments under subsection (b)' includes transition payments or not." Id. It stated that Congress might have had this intent but that this intent was not clearly stated in the statute. See id.

Thus, the court next considered whether the Secretary's interpretation of the statute was reasonable. See id. at *6. It stated that the transition payments could be considered payments under § 7982(b) and that by capping both payments, the Secretary created "a consistency throughout the program." Id. The court therefore held that the Secretary's interpretation of the statute was reasonable and that the regulations were valid.

The case was decided on September 2, 2004; this summary was posted Feb. 16, 2005.