Opinion ID: 757355
Heading Depth: 1
Heading Rank: 4

Heading: the class i differential

Text: 25 Our review of the Secretary's decision to maintain the existing system of Class I differentials is governed by Chevron v. Natural Resources Defense Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). Under the Chevron standard, the first inquiry is whether Congress has directly spoken to the precise question at issue, in which case we must give effect to the unambiguously expressed intent of Congress. Id. at 842-43, 104 S.Ct. 2778. If the statute does not provide specific guidance, we then consider whether the agency's answer is based on a permissible construction of the statute. Id. at 843, 104 S.Ct. 2778. 26
27 We hold that the AMAA has not spoken directly to the specific issue of when and how the Secretary should seek to amend the Class I differentials prescribed by Congress in § 608c(5). Section 608c(5)(A) provides that its differentials will remain unchanged unless modified by amendment to the order involved. However, it does not require the Secretary to propose or adopt any such amendment within any particular time. Moreover, the plain language of the statute weighs against the MMPA's assertion that [t]he 1985 Act only relieved the Secretary of the duty of monitoring the Class I prices for compliance with the § 608c(18) pricing mandates for the two years in which the Act explicitly prohibited modification, Appellees' Br. (in Nos. 97-4145, 97-4241) at 32, even accepting its contention that the 1985 amendments were implemented within an Act designed to permanently reduce surplus production of milk. Appellees' Br. (in Nos. 97-4220, 97-4224, 97-4226, 97-4331, 97-4334, 97-4361, 97-4362) at 22. 28 The crux of the MMPA's argument lies in § 608c(18) of the statute, but this reliance is misplaced. Section 608c(18) lays down requirements that the Secretary must meet before changing or amending marketing agreements or orders: prior to prescribing any term in any marketing agreement or order, or amendment thereto, ... or prior to modifying the price fixed in any such term. In that case--that is, when the Secretary wishes to amend an order--he must then: 29 ascertain the parity prices of [the milk]. The prices which it is declared to be the policy of Congress to establish in section 602 of this title [setting forth goals of statute] shall ... be adjusted to reflect the price of feeds, the available supplies of feeds, and other economic conditions which affect market supply and demand for milk or its products in the marketing area to which the contemplated marketing agreement, order, or amendment relates. Whenever the Secretary finds ... that the parity prices of such commodities are not reasonable in view of [these economic conditions], he shall fix such prices as he finds will reflect such factors, insure a sufficient quantity of pure and wholesome milk to meet current needs and further to assure a level of farm income adequate to maintain productive capacity sufficient to meet anticipated future needs, and be in the public interest. Thereafter, as the Secretary finds necessary on account of changed circumstances, he shall, after due notice and opportunity for hearing, make adjustments in such prices. 30 (Emphases added.) In this case, the Secretary has not found that the prices set by Congress are unreasonable, nor that changed circumstances make adjustments necessary. The statute leaves that decision to his discretion. 31 The MMPA also contends that other sections of the statute--specifically § 608c(3), § 608c(16)(A), and § 608c(17)--place a burden on the Secretary to continuously monitor the orders and their impact to ensure that they effectuate the stated purposes of the AMAA and comply with its substantive provisions. Appellees' Br. (in Nos. 97-4145, 97-4241) at 6-7. We find the contention overstated. Section 608c(3) requires the Secretary to give notice of and opportunity for hearing on a proposed order [w]henever [he] has reason to believe that the issuance of an order will tend to effectuate the declared policy of this chapter. (Emphasis added.) Section 608c(16)(A)(i) provides that the Secretary of Agriculture shall, whenever he finds that any order issued under this section ... obstructs or does not tend to effectuate the declared policy of this chapter, terminate or suspend the operation of such order.... (Emphasis added.) These provisions, like § 608c(18), are implicated only after the Secretary has decided that changes to the marketing orders are warranted, a situation this case does not present. Similarly, § 608c(17) requires only that the Secretary hold a hearing under specific conditions--if one-third or more of the producers as defined in a milk order apply in writing for a hearing on a proposed amendment of such order ... [and] if the proposed amendment is one that may legally be made to such order--that do not amount to an ongoing general duty of monitoring and adjustment. Ultimately, the only provision specific to milk price regulation that addresses the Secretary's duty to amend is § 608c(1): The Secretary of Agriculture shall, subject to the provisions of this section, issue, and from time to time amend, orders.... We cannot hold this statement to be a specific directive. 32 Nor does a specific duty of adjustment arise from the general precatory statements of policy in §§ 602(1) and (4), which require the Secretary to establish and maintain ... orderly marketing conditions effectuating the statute's goals of parity prices and orderly flow of market supply. These provisions are generally applicable to all the agricultural commodities covered by the AMAA, and cannot override the statutory scheme specifically devised for the regulation of milk, which has left the initiation of amendment to the Secretary's discretion. 33 We therefore hold that Congress has placed no specific conditions on the Secretary's power to maintain the status quo. Specifically, to apply § 608c(18) to the Secretary's decision not to pursue amendment--that is, to hold that the Secretary may not decline to change the differentials unless he finds that the differentials prescribed in the statute are still valid under current economic conditions--would reverse the statute's intended procedure for amendment. The burden, that is, is on those who advocate change to show that it is required; it is not on the Secretary to show that no change is necessary.
34 The Secretary's decision not to amend is therefore given controlling weight unless [it is] arbitrary, capricious, or manifestly contrary to the statute. Chevron v. Natural Resources Defense Council, Inc., 467 U.S. at 844, 104 S.Ct. 2778. See also 5 U.S.C. § 706 (1994). Although this inquiry into the facts is to be searching and careful, the ultimate standard of review is a narrow one. The court is not empowered to substitute its judgment for that of the agency. Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 416, 91 S.Ct. 814, 28 L.Ed.2d 136 (1971). 35 In this case, several considerations add to the already considerable weight [that] should be accorded to an executive department's construction of a statutory scheme it is entrusted to administer, and the principle of deference to administrative interpretations. Chevron, 467 U.S. at 844, 104 S.Ct. 2778 (footnote omitted). First, the Supreme Court itself has noted the intricacy of the labyrinth of the federal milk marketing regulation provisions. Zuber v. Allen, 396 U.S. at 172, 90 S.Ct. 314. A court's deference to administrative expertise rises to zenith in connection with the intricate complex of regulation of milk marketing. Any court is chary lest its disarrangement of such a regulatory equilibrium reflect lack of judicial comprehension more than lack of executive authority. Blair v. Freeman, 370 F.2d 229, 232 (D.C.Cir.1966). 36 Second, Congress, not the Secretary, established the existing differentials, and we must presume them lawful and effective to reach the statute's goals. That the dairy provisions of the Agricultural Market Transition Act of 1996, 7 U.S.C.A. § 7253 (West Supp.1998), do not reject the differential system outright indicates that Congress continues to deem it an acceptable, if not necessarily the preferred, system. The 1996 statute requires the Secretary to amend and consolidate the milk marketing orders and specifically identifies as relevant issues (A) [t]he use of utilization rates and multiple basing points for the pricing of fluid milk [and] (B) [t]he use of uniform multiple component pricing when developing 1 or more basic formula prices for manufacturing milk. 7 U.S.C.A. § 7253(a)(3). Though it prohibits the Secretary from considering, or basing any decision on, the Class I differentials currently set by § 608c(5)(A), 7 U.S.C.A. § 7253(a)(4), the new statute does not preclude him from reinstituting transportation-based differentials more generally. We therefore believe that the current system should continue to be given especial deference as the product of legislative judgment. 37 Third, the burden in this case is upon the MMPA to show that a change was required, and not upon the Secretary to defend his decision to retain the status quo. We have held that the Secretary bears the burden of presenting substantial evidence when he seeks amendment of a milk order. Walmsley v. Block, 719 F.2d 1414 (8th Cir.1983). When another party, here the MMPA, is the proponent of amendment, it should bear the same burden. See also 5 U.S.C. § 556(d) (in formal rulemaking, [e]xcept as otherwise provided by statute, the proponent of a rule or order has the burden of proof). The inquiry therefore is not whether the Secretary established that the differentials should remain unchanged, but whether the MMPA established that they should not. The deference due the Secretary's decision is the greater for the MMPA's failure to follow through, before the District Court and on this appeal, with its initial proposal for change, leaving it in the weak position of attacking the present system without presenting an alternative. 38 Finally, case law suggests that agency inaction is presumptively unreviewable. An agency's decision not to take enforcement action should be presumed immune from judicial review.... Heckler v. Chaney, 470 U.S. 821, 832, 105 S.Ct. 1649, 84 L.Ed.2d 714 (1985). The general exception to reviewability provided by [5 U.S.C.] § 701(a)(2) for action 'committed to agency discretion' remains a narrow one, but within that exception are included agency refusals to institute investigative or enforcement proceedings, unless Congress has indicated otherwise. Id. at 838, 105 S.Ct. 1649. Though the untaken action in this case is amendment, and not enforcement, the principle remains that a decision to do nothing is entitled to more deference than a decision to act. 39
40 We believe that the Secretary's decision to maintain the existing Class I differentials was not arbitrary and capricious. The record indicates that the Secretary based his decision on numerous factors relevant to the statute's goals of insur[ing] a sufficient quantity of pure and wholesome milk to meet current needs and further to assure a level of farm income adequate to maintain productive capacity sufficient to meet anticipated future needs, and be in the public interest, 7 U.S.C. § 608c(18), and further that his decision was not a clear error of judgment. See Citizens to Preserve Overton Park v. Volpe, 401 U.S. at 416, 91 S.Ct. 814 (in deciding whether agency action was arbitrary and capricious, the court must consider whether the decision was based on a consideration of the relevant factors and whether there has been a clear error of judgment). 41 The Secretary's 1990 rulemaking hearings, which were held at various locations throughout the country and lasted 43 days in all, encompassed careful consideration of the Class I differential system. Thirty-five proposals for amendment were considered, 42 portray[ing] a wide range of views regarding how Federal orders should be changed or not changed. Altogether, nearly 200 persons, including dairy farmers, cooperative association representatives, members of other general farm organizations, proprietary handlers, state officials, members of the United States Congress, and others, testified at the hearing. Thus, the record contains the views and testimony of a broad cross-section of the dairy industry and other interested parties. 43 Secretary's Decision I at 12645. 44 The Secretary considered the proposals of the Midwest producers, as well as opposing testimony from other hearing participants. He noted that Midwestern producers held markedly different views from the country's other producers: 45 In general, the testimony reflects one of two basic views. The first is one of basic support for the order program as is. This point of view was expressed by virtually all parties from areas of the country other than the Midwest.... The second point of view reflected in the testimony of most parties from the Midwest also expressed strong support for the Federal order program, but was critical of the system of Class I prices that now operates in all the orders. 46 Secretary's Decision I at 12645. The relative unpopularity of the Midwest's views was relevant, in light of the statute's requirement that no amending order be effective without the approval of at least two-thirds of the producers who supply the marketing area, or of producers who produce at least two-thirds of the milk in the marketing area. 7 U.S.C. § 608c(8), (9). 47 The hearings included analysis of the supplies and utilization of producer milk ... order by order and region by region. Id. at 12646. This analysis showed that: 48 (1) The orders in the Southeast ... have very high levels of Class I use ... [,] low levels of Class II ... and very low Class III utilizations. Some of these markets are deficit markets, that is, they do not produce enough milk to supply the Class I needs, including reserves on a year-round basis. (2) [Seven] Midwest and Far West and Northwest markets ... have far more milk available than is needed for Class I and Class II use, plus reserves.... (3) The remaining markets exhibit essentially a balance between supply and demand.... 49 Id. at 12647. These findings were relevant to whether the statute was achieving its goal of ensuring an adequate supply in each marketing area. The meaning of these findings is contested by the parties. In particular, MMPA contends that there is an inherent contradiction in using differentials to encourage the movement of milk into balanced or surplus marketing orders. However, the Secretary articulated a rational connection between the facts found and the choice made, Motor Vehicle Mfrs. Ass'n v. State Farm Mutual Ins. Co., 463 U.S. 29, 43, 103 S.Ct. 2856, 77 L.Ed.2d 443 (1983) (citation omitted): that the Class I differentials were at least partially responsible for keeping those markets out of deficit. We therefore defer to the Secretary's interpretation of the marketing data. 50 The Secretary's decision also addressed more technical aspects of the Class I differential system, including those now raised by the MMPA on appeal. For example--in response to exceptions filed by the UMFOC, representing the MMPA--it discussed the measurement of reserve, supply, and demand, as well as the marketing efficiency of the Class I pricing system. Id. at 12647-49. This discussion showed consideration of further relevant factors. We believe that it was not then clear error for the Secretary to conclude: 51 [T]he present Class I differential should remain in place. The underlying basis for the level of Class I prices under the order program is the statutory pricing standard which requires that prices reflect the supply and demand for milk. Within this context, the present Class I differentials appear to be set at a reasonably satisfactory level. Although there might be a basis for some downward adjustments in certain markets, such as in the heavy production areas of the Midwest, it is difficult to determine from this record what the adjustments should be. This is particularly so when the industry has strongly supported over the years a coordinated set of differentials based on fairly constant rates of change from market to market. 52 Id. at 12646. 53 We recognize that the current Class I differential system is imperfect. Its heavy-handed reliance on a marketing area's distance from the Upper Midwest probably justifies characterizing it as a single-basing-point system, as the District Court, the MMPA, and several hearing witnesses did. Even so, it is not so rough an approximation that, under our deferential standard of review, we could find that the Secretary was compelled to undertake amendment. However, as the Secretary himself states, [t]his is not to say that the Secretary lacks a continuing duty to investigate and respond to changed circumstances that warrant modification of the existing orders. Appellant's Br. at 37 (footnote omitted) (emphasis added). We hold only that the Secretary's conclusion in this case, that circumstances had not changed to that critical extent, was not arbitrary and capricious. 54
55 We also believe that the Secretary sufficiently explained his decision to maintain the existing differential system. Because he did not bear the burden of proof, and because of the resulting deferential standard of review due his inaction, the Secretary's burden of explanation was not heavy. 56 In his first decision, the Secretary summarized the 35 proposals for changing the Class I pricing system, and the supporting testimony for each. Secretary's Decision I at 12637--12645. He then analyzed the major concerns reflected by those proposals. Id. at 12645 -12652. We agree with the Secretary that [t]he basic issue is whether a compelling case was made that some other Class I pricing system is needed. After a review of the supply and demand situation in the various markets, it is concluded that no changes are needed. Having concluded that the current Class I pricing system is appropriate and is in accord with the pricing standard in the Act, it is not necessary to then proceed to discuss in detail why each of numerous proposals should not be adopted, id. at 12649, the MMPA's (through the UMFOC) included. 57 Moreover, at the Court's request, the Secretary provided further explanation of the Class I price, in his amplified decisions of 1994 and 1996. In response to the Court's first remand order, the Secretary explained that the other component of the Class I price, the M-W base price, accounted for many of the local market factors listed in § 608c(18): because it reflects the competitive market price for raw milk, it automatically reflects the price and availability of supplies of feed and all other economic factors that affect the supply and demand for milk and dairy products. Secretary's Decision II at 42425. He then explained that the Class I differential is intended to partially reflect the cost of transporting milk ... [and] serves as an incentive to move milk from supply areas to demand centers. Ibid. He acknowledged that [b]ecause some milk is produced just about everywhere, the mix of milk produced near consumption centers with milk shipped from distant areas varies among orders, id. at 42426--a fact on which the MMPA's argument is built--but explained that [a]s the mobility of milk increased, a transition necessarily occurred from considering only isolated local markets to considering a system of regional markets that are linked through class price coordination. Individual markets that previously set class prices based on local supply-demand conditions now are part of larger regional markets whose prices are coordinated through the M-W price.... Ibid. 58 The 1996 amplified decision addressed the further concerns of the Court as to both the differential and base-price components of the Class I price. The Secretary contended with some plausibility that the present differentials are not a single-basing-point system: 59 the mere fact that real-world market forces necessarily yielded, over time, an aligned Class I pricing system that correlates to geography simply does not mean that the enormous reserve quantities of milk in the Upper Midwest relative to other marketing areas (east of the Rocky Mountains) constitute a single basing point. The high degree of correlation between distance from the Upper Midwest, and another area's supply-demand relationship is reflective of this reality. It justifies the current Class I differentials, not the other way around. 60 Id. at 49085. Regarding the Court's question of how the M-W price accounted for local market conditions, the amplified decision explained that the M-W price served the statute's goals by incorporating the fluctuations in supply and demand, as reflected by free market transactions, into classified pricing. Class I pricing therefore responds to, rather than dictates, supply and demand. Ibid.