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Nature of Suit Code: 890
Nature of Suit: Other Statutory Actions
Cause of Action: 

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued February 11, 2002 Decided May 10, 2002

No. 01-5335

Sugar Cane Growers Cooperative of Florida, et al.,

Appellants

v.

Ann M. Veneman, in her official capacity as

Secretary of the United States Department of

Agriculture, et al.,

Appellees

Appeal from the United States District Court

for the District of Columbia

(01cv01904)

Raymond B. Ludwiszewski argued the cause for appellants. With him on the briefs were Peter E. Seley and

Hassan A. Zavareei.

David J. Ball, Jr., Assistant United States Attorney, argued the cause for appellees. With him on the brief were

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Roscoe C. Howard, Jr., United States Attorney, and R. Craig

Lawrence, Assistant United States Attorney.

William Bradford Reynolds and John F. Bruce were on

the brief for amicus curiae United States Beet Sugar Association in support of appellees.

Before: Tatel and Garland, Circuit Judges, and

Silberman, Senior Circuit Judge.

Opinion for the Court filed by Senior Circuit Judge

Silberman.

Silberman, Senior Circuit Judge: Sugar Cane Growers

Cooperative of Florida, Florida Crystals Corporation, and

Refined Sugars, Inc., appeal from the district court's grant of

summary judgment holding that appellants lacked standing.

The court dismissed their claims that the United States

Department of Agriculture failed to comply with the Administrative Procedure Act1 and the Food Security Act of 19852 in

implementing a payment-in-kind program for the 2001 sugar

crop by press release. We think appellants have demonstrated standing and because the Department did not comply with

the APA or the Food Security Act, we reverse the district

court's grant of summary judgment and remand to that court

to in turn remand to the Department.

I.

In the United States, sugar production, which the government supports through a variety of programs, is about evenly

divided between sugar cane and sugar beet production. This

suit involves the Department's choice of a particular method

of support. Appellants are self-described small-, mediumand large-sized sugar cane growers, processors, refiners and

marketers, who together make up a "significant" portion of

the total domestic sugar cane production, which mostly occurs

in the Gulf Belt and Hawaii. Sugar beets grow primarily in

the North and West, and sugar beet farmers tend to harvest

__________

1 5 U.S.C. ss 551-559, 701-706.

2 7 U.S.C. s 1308a.

significantly fewer acres per producer than sugar cane farmers. The Department supports sugar production through a

program of non-recourse loans; if the market price of sugar

drops below the forfeiture price, producers may forfeit their

crops to the Department in satisfaction of these loans rather

than try to repay in cash, which effectively guarantees a

minimum price for harvested and processed sugar. With the

low sugar prices over the past several years, the Department

has accumulated more than 700,000 tons of sugar, for which it

pays approximately $1.35 million per month in storage fees.

The presence of that potential supply (or "overhang") may

depress somewhat sugar prices and it exacerbates the problem of limited sugar storage, which is particularly troublesome for sugar beet farmers.

The Food Security Act gives the Department authority to

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implement a payment-in-kind (PIK) program for sugar, which

it did for sugar beet farmers in August 2000. For the 2000

PIK program, sugar beet farmers submitted bids to the

Department offering to destroy (or "divert") a certain amount

of their crops in return for sugar from USDA storage. A

farmer's bid is his asking price for that amount of destruction; the price is expressed in terms of a percentage of the

three-year average value of the crop yield for the acreage

diverted. Thus, a farmer bidding 80 percent would receive

eight dollars for every acre destroyed if an average acre of

their farm produced ten dollars worth of sugar. In fact, the

average bid was approximately 84 percent and resulted in the

distribution of about 277,000 tons of government sugar and

the diversion of approximately 102,000 acres. Participants

were prohibited from participating in future PIK programs if

they increased their acreage planted with sugar beets over

2000 levels. The Agency did not proceed by notice and

comment, but no party challenged that decision or the program itself.

Appellants claim the 2000 PIK program unfairly provided

participants with below-harvest-cost government sugar which

gave them a competitive advantage over appellants. And

they claim that the program depressed sugar prices. Actually, the price of sugar rose, but it is not clear what caused the

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increase. According to appellants, although initial forecasts

predicted that the diverted acreage would lead to lower sugar

crop volume in 2000, subsequent forecasts increased substantially in the months following implementation of the PIK

program--to 23.6 tons per acre in December 2000 from 22.8

tons per acre before August 2000. Appellants contend that

the yield increase (or "yield slippage") resulted in part from

farmers taking their lowest-yielding crops out of production

for the PIK program. With the yield slippage, additional

beet sugar supplies ended up on the market, and PIK farmers received more sugar through the program than they

would have if they had produced sugar on the diverted acres.

And the greater supplies of sugar, it is argued, necessarily

depressed sugar prices below that which would otherwise

have obtained. The government insists that the program had

a positive effect on the price of sugar, at least in part because

it reduced the government's sugar supply and storage fees,

ameliorating the overhang effect and storage scarcity problem.

In January 2001, the Department met with interested

persons (including representatives of appellants) and indicated that while it was considering a PIK program for the 2001

sugar crop, it would not do so without notice and comment.

The Agency also asked those present about the effectiveness

of the 2000 PIK program and their thoughts on the desirability and structure of a potential 2001 program. Appellants

claim that they were unable to comment satisfactorily because

the data on the 2000 program was not yet available. Before

August 2001, Department employees had approximately a

dozen contacts with sugar industry representatives regarding

the possibility of a 2001 program.

The Department announced by an August 31, 2001 press

release, however, that it was implementing a PIK program

for the 2001 sugar crop without using APA rulemaking. The

Agency followed that announcement a week later with a

"Notice of Program Implementation" in the September 7,

2001 Federal Register. For the 2001 PIK program, the

Department set a 200,000 ton limit in order to encourage

more competitive bidding and made both beet and cane sugar

producers eligible. But a statutory restriction limiting payUSCA Case #01-5335 Document #676980 Filed: 05/10/2002 Page 4 of 14
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ments to $20,000 per producer effectively eliminated appellants' opportunity to participate because of their size. Particularly troubling appellants, the government waived its 2000

PIK program restriction on future eligibility by participants

who had increased their crop acreage; it merely included a

similar restriction on 2001 participants. In contrast to the

2000 PIK program, in which the government disbursed all of

the allotted sugar at the same time, in 2001 the Department

indicated that it would stagger disbursement. After announcing the program, the Department received more than 6,000

bids and accepted 4,655 bids, some as high as 87.9931 percent.

The final data on bids is not a part of the summary judgment

record, nor is the disbursement schedule.

Appellants filed suit shortly after the press release appeared, seeking injunctive and declaratory relief. They argued that the Department did not comply with the APA

because it promulgated a rule without notice-and-comment

rulemaking; that it violated the Food Security Act of 1985 by

not making required findings; and that the Department

violated the Regulatory Flexibility Act3 because it did not

consider the impact of the program on small businesses. It

was argued that the 2001 PIK program caused appellants two

injuries: first, it gave participants a competitive advantage by

providing them with below-harvest-cost sugar; second, it had

a depressive effect on prices.

The district court, with the agreement of the parties,

converted appellants' motion for preliminary injunctive relief

into a summary judgment motion. The court concluded that

appellants failed to establish standing on two grounds: first,

they had not shown an injury-in-fact; second, they had not

established causation because they had not demonstrated that

the Department would have decided against implementing the

program following notice and comment. The court neverthe-

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3 5 U.S.C. s 601 et seq. On appeal, appellants failed to raise

their Regulatory Flexibility Act claim--a footnote at the end of

their opening brief does not suffice. We therefore do not reach the

government's argument that appellants, primarily large producers,

lack prudential standing to raise such a claim.

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less decided the merits, holding that the 2001 PIK program

was a rule subject to notice-and-comment procedures, but the

Department's failure to comply with those procedures was

harmless. Appellants' Food Security Act and Regulatory

Flexibility Act claims were not addressed.

II.

We, of course, begin with standing. Appellants claim that

the Department gave sugar beet farmer participants a competitive advantage by giving them below-harvest-cost sugar.

Participants will use that competitive advantage to capture

market share and customer good will, or so the argument

goes. The government responds by pointing out (and appellants do not dispute) that refined sugar is a commodity

market. In light of that, appellants have not explained how

any cost advantage participants could gain would translate

into a meaningful competitive advantage.4

On the other hand, appellants are on much sounder economic ground in claiming that the PIK program had a

depressive effect on sugar prices--which would have clearly

injured appellants. They produced an affidavit from Brian

O'Malley and studies by two independent industry analysts,

each of which indicated that the PIK programs have harmed

appellants. O'Malley, who has spent over 20 years in the

refined sugar industry, testified that Refined Sugars suffered

at least part of its $22 million loss last year as a result of the

government "flooding" the market with 277,000 tons of PIK

sugar. The Sparks Companies, Inc. concluded that the 2000

PIK program resulted in "a substantial amount of yield

slippage," which meant more sugar on the market and thereby depressed prices. Similarly, Gregory Harnish, a research

analyst for Sparks Companies, concluded in a different report

that the 2000 PIK program "increased free supplies of sugar

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4 We dismiss appellants' unsubstantiated argument that sugar

beet farmers will use the PIK program to access stores of refined

sugar cane--an argument predicated on the unproven (and dubious)

proposition that there is a difference between refined sugar cane

and refined sugar beet.

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due to a substantial amount of slippage and the timing of

USDA's release of PIK sugar." And the government, in an

internal options memorandum, acknowledged that "some analysts believe that the 2000 PIK was, at least partially, responsible for the yield increase."

The government's response to this injury claim was to

demonstrate that after the PIK program sugar prices went

up, not down, so appellants could not have been injured. This

led the district court to conclude that appellants' injury was

speculative. But the government's contention is a snare

because the relevant question is not whether sugar prices

actually went up or down but whether the PIK program had a

depressive effect. A number of other factors led to reduced

supply and thereby presumably an increased price. For

instance, the Federal Circuit limited the import of "foreign

stuffed molasses," a product that was allegedly used by

Canadian producers to export sugar into this country. Similarly, the Department adjusted the Mexican sugar quota and

eliminated 200,000 tons of imported sugar. The government

does not really dispute appellants' claim that because of the

"yield slippage" (that appellants contend the PIK program

induced) more sugar was produced than would otherwise be

in the market. Indeed, the government had no response to

appellants' particular argument that the Department's waiver

of disqualifications for those producers who, contrary to the

2000 restrictions had increased their acreage, would inevitably lead to more sugar production. Prior violators would

presumably continue their practice.

In sum, appellants have made a prima facie showing that

the PIK program caused them injury by increasing the

supply of U.S. sugar. To be sure, the government suggests

that even an increase in the direct supply of sugar would not

have had a depressive effect on prices because the PIK

program at least depleted sugar stores, thereby reducing

what could be thought an ancillary supply (the overhang). It

seems rather doubtful to us that the amount of government

sugar in storage would have anywhere near the effect on

prices as would sugar available for sale. In any event, the

government never sought a hearing on that issue nor on its

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dispute of appellants' affidavits and studies, the credibility of

which it attacked; instead, like appellants, it moved for

summary judgment. Since appellants presented a prima

facie claim of injury based on basic economic logic (as set

forth and supported in the contested affidavits and studies), it

was the government's burden, if it wanted a trial on the

question of sugar price movements, to seek a factual hearing.

Because it did not, we think appellants established injury.

The district court's alternative ground that appellants lack

standing because "it is not at all clear that the Department

would have decided against the PIK program had it received

[appellants'] additional comments" simply misstates the law.

A plaintiff who alleges a deprivation of a procedural protection to which he is entitled never has to prove that if he had

received the procedure the substantive result would have

been altered. All that is necessary is to show that the

procedural step was connected to the substantive result. In

Defenders of Wildlife v. Lujan, 504 U.S. 555, 573 n.7 (1992),

the Supreme Court explained that an individual living next to

a federally licensed dam "has standing to challenge the

licensing agency's failure to prepare an environmental impact

statement, even though he cannot establish with any certainty

that the statement will cause the license to be withheld or

altered." See also Florida Audubon Society v. Bentsen, 94

F.3d 658, 669 (D.C. Cir. 1996) (en banc). If a party claiming

the deprivation of a right to notice-and-comment rulemaking

under the APA had to show that its comment would have

altered the agency's rule, section 553 would be a dead letter.

III.

Turning to the merits, we take up first appellants' APA

claim. The APA sets forth several steps an agency must take

when engaged in rulemaking: it must publish a general notice

of proposed rulemaking in the Federal Register; give an

opportunity for interested persons to participate in the rulemaking through submission of written data, views, or arguments; and issue publication of a concise general statement

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of the rule's basis and purpose. 5 U.S.C. s 553(b), (c). The

government defends the Department's failure to engage in

notice-and-comment rulemaking by asserting the PIK announcement was not really a rule and, even if it were, the

failure to engage in rulemaking was a harmless error.5

The APA defines a rule very broadly as

the whole or a part of an agency statement of general or

particular applicability and future effect designed to implement, interpret, or prescribe law or policy or describing the organization, procedure, or practice requirements

of an agency and includes the approval or prescription

for the future of rates, wages, corporate or financial

structures or reorganizations thereof, prices, facilities,

appliances, services or allowances therefor or of valuations, costs, or accounting, or practices bearing on any of

the foregoing.

5 U.S.C. s 551(4). We have recognized that notwithstanding

the breadth of the APA's definition an agency pronouncement

that lacks the firmness of a proscribed standard--particularly

certain policy statements--is not a rule. See Syncor Int'l

Corp. v. Shalala, 127 F.3d 90, 94 (D.C. Cir. 1997). Compare

also Appalachian Power Co. v. EPA, 208 F.3d 1015, 1021-22

(D.C. Cir. 2000), with Tozzi v. HHS, 271 F.3d 301, 312-13

(D.C. Cir. 2001) (Silberman, J. concurring). (Of course, general statements of policy are exempt from notice-andcomment procedures anyway. 5 U.S.C. s 553(b)(A)). But

the government does not claim that its package of announcements is a policy statement. Instead, the government argues

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5 Although the government also implies that it had good cause

not to follow notice-and-comment rulemaking, it does not rely on

that position, presumably because the Department did not assert it.

Nor do we address amicus' argument that the 2001 PIK program

was exempt from APA rulemaking requirements under 5 U.S.C.

s 553(a)(2) because it constitutes agency action relating to "public

property, loans, grants, benefits, or contracts." As the Department

acknowledged, it has essentially waived that APA exemption. See

36 Fed. Reg. 13,804 (July 24, 1971); Rodway v. United States Dep't

of Agric., 514 F.2d 809, 814 (D.C. Cir. 1975).

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that because the announcement of the 2001 PIK program was

an "isolated agency act" that did not propose to affect subsequent Department acts and had "no future effect on any other

party before the agency" it was not a rule. (Quoting Daingerfield Island Protective Soc'y v. Babbitt, 823 F. Supp. 950,

957 (D.D.C.), aff'd in relevant part, 15 F.3d 1159 (D.C. Cir.

1993)). The government would have us see its announcement

of the PIK program as analogous to an agency's award of a

contract pursuant to an invitation of bids or an agency's

decision to approve an application or a proposal--in administrative law terms an informal adjudication (which is the

technical term for an executive action). See, e.g., United

States v. Mead Corp., 533 U.S. 218, 239 n.1 (Scalia, J.,

dissenting).

We have little difficulty--as did the district court--in rejecting this argument. The August 31 press release, the

September Questions and Answers and most notably the

September 7 Notice of Program Implementation set forth the

bid submission procedures which all applicants must follow,

the payment limitations of the program, and the sanctions

that will be imposed on participants if they plant more in

future years than in 2001. It is simply absurd to call this

anything but a rule "by any other name."6

As a variation on the government's second standing argument--that appellants have not demonstrated injury because

they cannot show that if the Department had acted pursuant

to section 553 the result would have been altered--the government alternatively claims harmless error. We are told

that appellants cannot identify any additional arguments they

would have made in a notice-and-comment procedure that

they did not make to the Department in the several informal

sessions. And we are reminded that the Department did

make certain changes to the 2001 PIK program in response

__________

6 The government's suggestion that because participation in the

program is "voluntary" the announcement and accompanying documents should not be considered a rule is not worth a response.

Similarly, the notion that the government "essentially complied with

section 553 of the APA" borders on the frivolous.

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to appellants' concerns. It is true that we have recognized

certain technical APA errors as harmless. For example, in

Sheppard v. Sullivan, 906 F.2d 756, 761-62 (D.C. Cir. 1990), a

challenge to an agency adjudication in a benefits case, we

held that a failure to undertake formal notice and comment

with respect to a program manual was harmless. But, in so

doing, we applied the standard set out in McClouth Steel

Prods. Corp. v. Thomas, 838 F.2d 1317, 1324 (D.C. Cir. 1988),

under which an utter failure to comply with notice and

comment cannot be considered harmless if there is any

uncertainty at all as to the effect of that failure. And in

Sheppard, we initially observed that the agency did not even

rely on that program manual in its challenged order; furthermore, we expressly concluded that the agency's substantive

approach was "the only reasonable one." Sheppard, 906 F.2d

at 762. See also First Am. Discount Corp. v. CFTC, 222 F.3d

1008, 1015 (D.C. Cir. 2000) (holding that agency's failure to

give adequate notice was harmless because the final rule was

a logical outgrowth of the proposed rule).

Here the government would have us virtually repeal section

553's requirements: if the government could skip those procedures, engage in informal consultation, and then be protected

from judicial review unless a petitioner could show a new

argument--not presented informally--section 553 obviously

would be eviscerated. The government could avoid the necessity of publishing a notice of a proposed rule and perhaps,

most important, would not be obliged to set forth a statement

of the basis and purpose of the rule, which needs to take

account of the major comments--and often is a major focus of

judicial review.

In any event, although they need not have, appellants have

indicated additional considerations they would have raised in

a comment procedure. For example, they would have argued

that the Agency should have bound itself to a gradual disbursement of the sugar, rather than merely allowing itself

that option. And, they would have challenged the Department's decision to waive the 2000 PIK program restriction on

participants who had increased their acreage.

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In their final claim, appellants argue that the Department

violated the Food Security Act because the Secretary did not

make four required findings before implementing a PIK

program. See 7 U.S.C. s 1308a. Section 1308a(a) requires

the Secretary to consider whether an action "will reduce the

total of the direct and indirect costs to the Federal Government of a commodity program administered by the Secretary" but "without adversely affecting income to small- and

medium-sized producers participating in such program."

Section 1308a(e) requires the Secretary to find that "changes

in domestic or world supply or demand conditions have

substantially changed after announcement of the program for

that crop," and "without action to further adjust production,

the Federal Government and producers will be faced with a

burdensome and costly surplus."7

In response, the Department directs our attention to the

Federal Register Notice of Implementation, in which it "expressly refers" to each of the required findings, and argues

that this reference is sufficient. That too is absurd. Referencing a requirement is not the same as complying with that

requirement. The Department then turns to the post hoc

affidavit of Thomas Hunt Shipman, the Deputy Under Secretary for Farm and Foreign Agricultural Services. But the

declaration merely states that Shipman "participated" in the

decision, not that he was the final decisionmaker. Shipman is

not the Secretary of Agriculture, and there is no evidence on

either the administrative or summary judgment record that

the Secretary delegated decisionmaking authority to Shipman. The internal options memoranda the government also

relies on suffer the same fatal defect. The record is devoid of

any evidence that the Secretary, or a Department employee

with final decisionmaking authority, ever complied with section 1308a.

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7 Appellants also claim that the Department could not have

made three of the four findings. We need not decide that now.

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In sum, this government argument has no more substance

than the second standing argument.

* * * *

There remains the question of remedy. Normally when an

agency so clearly violates the APA we would vacate its

action--in this case its "non-rule rule"--and simply remand

for the agency to start again. Unfortunately, because we

denied preliminary relief in this case, the 2001 program was

launched and crops were plowed under. The egg has been

scrambled and there is no apparent way to restore the status

quo ante. Appellants suggested that if we were to vacate, the

Federal Court of Claims would have the responsibility of

allocating damages. But that seems an invitation to chaos.

Moreover, although the government did not--and could not

have for the first time on appeal--assert a good cause for

omitting notice and comment, it is at least possible that the

Department could establish good cause because of timing

exigencies.

Appellants insist that we have no discretion in the matter;

if the Department violated the APA--which it did--its actions

must be vacated. But that is simply not the law. Instead,

"[t]he decision whether to vacate depends on 'the seriousness

of the order's deficiencies (and thus the extent of doubt

whether the agency chose correctly) and the disruptive consequences of an interim change that may itself be changed.' "

Allied-Signal, Inc. v. United States Nuclear Regulatory Commission, 988 F.2d 146, 150-51 (quoting International Union

UMW v. FMSHA, 920 F.2d 960, 966-67 (D.C. Cir. 1990)).

We have previously remanded without vacating when the

agency failed to follow notice-and-comment procedures. See,

e.g., Fertilizer Institute v. EPA, 935 F.2d 1303, 1312 (D.C.

Cir. 1991); see also American Medical Ass'n v. Reno, 57 F.3d

1129 (D.C. Cir. 1995); County of Los Angeles v. Shalala, 192

F.3d 1005, 1023 (D.C. Cir. 1999) (remanding without vacating

because the panel did not perceive any "rare circumstances"

that would warrant a break from that "established administrative practice").

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Accordingly, we reverse the district court's grant of summary judgment and remand to that court to in turn remand

to the Department.

So ordered.

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