Opinion ID: 511994
Heading Depth: 1
Heading Rank: 2

Heading: The Amendment to Order 33

Text: 13 Appellant Defiance Milk Products Company (Defiance), a handler, is not a general wholesaler of milk but operates a milk processing plant at Defiance, Ohio, which manufactures evaporated whole milk and condensed milk, both of which are priced as Class III milk. At all times relevant to this case, Defiance was a regulated pool supply plant under Order 33, which means that it would give up milk to the fluid market when there was a shortage. As a pool supply plant, Defiance gave up for Class I use 50% or more of its milk supply during designated months, generally September through February. Defiance bought milk from independent producers and from producers who were members of cooperative associations, primarily Milk Marketing, Inc. (MMI). 14 In early 1983, MMI, which represented about 75% of the producers in Order 33, recommended an amendment of the order which would, on a temporary basis, reduce by 40 cents per hundredweight the price that handlers had to pay for producer milk used to manufacture some Class III products: namely, butter, nonfat dry milk powder, and cheese. 3 All three of these products were classified as Class III, but MMI's proposal would have created a new Class III(A) limited to these three products. MMI stated that a recent surge in the volume of milk in the market, coupled with a decline in the demand for Class I milk, made the temporary amendment necessary. As a balancer of supply, it would take the glut of milk on the market and would lose money if its selling price were not reduced so that it could peddle its excess milk to manufacturers of butter, dry milk powder, and cheese. 15 The Secretary held a rulemaking proceeding. Defiance urged that any amendment adopted should include a price reduction for all Class III products, rather than only for butter, dry milk, and cheese. Defiance pointed out that the products it manufactures, evaporated and condensed milk, are interchangeable for many uses with dry milk. (In its post-hearing brief at the administrative level, the company modified its position by requesting that only evaporated and condensed milk be added to the product uses to be considered for a price reduction rather than all Class III products. On appeal, Defiance argues only that evaporated milk should have been included. The reason for this change is that Defiance did not manufacture any condensed milk during the period the amendment was effective, and thus only paid a higher price for milk used to manufacture evaporated milk.) 16 The Secretary of Agriculture agreed that some price reduction was necessary as a result of the glut of milk in the market. Because of the emergency marketing conditions, an amendment was adopted without the issuance of a recommended decision and the opportunity to file exceptions. See Decision on Proposed Amendment to Marketing Agreements and to Orders, 48 Fed.Reg. 22,313 (1983) (amendment codified at 7 C.F.R. 1033.60(h), 7 C.F.R. 1036.60(f) ). The amendment, which was effective in June and July 1983, granted pool handlers a $0.40 per hundredweight reduction in their pool obligation for milk used in processing butter, dry milk powder, and cheese. The Secretary stated that the price reduction did not apply to some storable products such as canned milk and blends of margarine and butter, for which there was no demonstration on the record that handlers incur losses in marketing milk for such uses. 48 Fed.Reg. at 22,316. 17 In September 1983, acting pursuant to 7 U.S.C. Sec. 608c(15)(A), Defiance filed a petition with the Secretary stating that the amendment was not in accordance with law and praying for either a modification of or exemption from the amendment. The petition requested a refund, with interest, of the extra $0.40 per hundredweight Defiance had paid for producer milk during the period that the amendment was effective. 18 A hearing on the petition was held before an administrative law judge. On October 15, 1984, the ALJ granted Defiance's petition and ordered a refund of $68,011.44, but did not order the payment of interest. 19 Both parties appealed to the Departmental Judicial Officer. By a decision and order dated January 24, 1985, the Judicial Officer reversed the decision of the ALJ and dismissed the petition. 20 Acting pursuant to 7 U.S.C. Sec. 608c(15)(B), Defiance filed a complaint in the District Court for the Northern District of Ohio. The complaint alleged that the amendment is not in accordance with law, is unsupported by substantial record evidence, is arbitrary, capricious, and an abuse of discretion, and is not authorized by the Act. After discovery, the case was submitted to the District Court on cross motions for summary judgment. The District Court granted the Secretary's motion and denied Defiance's motion. This appeal followed.