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MANDEL v. BLOCK

November 3, 1983

JOHN C. MANDEL, JR., et al., Plaintiffs, against JOHN R. BLOCK, Secretary of Agriculture, et al., Defendants.


The opinion of the court was delivered by: LASKER

LASKER, D.J.

Plaintiffs, dairy farmers in New York, Connecticut and Massachusetts, move for a preliminary injunction to restrain the Secretary of Agriculture ("Secretary") from enforcing deductions totaling $1.00 per hundred pounds on the proceeds from sales of all milk marketed commercially in the United States. They contend that the deductions, which the Secretary implemented under the authority of Section 201 of the Agricultural Act of 1949, as amended by Section 101 of the Omnibus Budget Reconciliation Act of 1982, 7 U.S.C. § 1446, are unlawful because 1) the Secretary's actions are both substantively and procedurally defective under applicable administrative law standards and 2) the deductions violate the Constitution because they constitute a) a tax rather than a valid assessment and b) a taking in violation of the Fifth Amendment. Plaintiffs also move for summary judgment on the constitutional issues. The Secretary cross-moves for summary judgment dismissing the complaint. He argues that imposition of the deductions is a valid exercise of his statutory authority, and that none of plaintiffs' contentions present valid grounds for enjoining the deductions. For the reasons stated below, the motion for a preliminary injunction is denied and the Secretary's motion for summary judgment is granted as to the constitutional issues. Decision on the Secretary's motion for summary judgment is reserved as to the administrative law issues.

 I.

 Under the milk price support system established by the Agricultural Act of 1949, (the "Act") 7 U.S.C. § 1421 et seq., the federal government supports the price of milk by purchasing unlimited quantities of butter, cheese and dry milk at prices that are fixed each year by the Secretary. The purchases are made by the Commodity Credit Corporation ("CCC"), a federal corporate entity which is an arm of the Department of Agriculture. The CCC's purchases create a floor for the price of milk by assuring that excess supply will be purchased at a fixed price.

 The milk price support program has, in recent years, resulted in huge expenditures. According to the years, resulted in huge expenditures. According to the Secretary's figures, in fiscal year 1982 the milk price support program cost approximately $2.3 billion; the milk products purchased by the CCC in the last two marketing years accounted for 10 percent of the milk produced in the United States during those years. See 48 Fed. Reg. 3764, 3765-3766 (January 27, 1983).The increasing costs of this overproduction prompted Congress to enact legislation in 1982 authorizing the Secretary to impose a deduction of 50 cents per hundredweight on all commercial sales of milk during the period beginning October 1, 1982 and ending September 30, 1985, if the Secretary estimated that CCC purchases would amount to more than 5 billion pounds of milk during the fiscal year. *fn1" A second 50 cents per hundred-weight deduction by the Secretary was authorized during the period beginning April 1, 1983 and ending September 30, 1985, if the Secretary estimated that CCC purchases would amount to more than 7.5 billion pounds during the fiscal year. If the Secretary implemented the second 50-cent deduction, he was also to establish a refund program by which funds resulting from the deduction would be refunded to those milk producers who reduced their marketings during the base period established by the Secretary. Proceeds from the first 50-cent deduction, and the portion of the second 50-cent deduction that is not refunded to producers, are to be remitted to the CCC as a partial offset of the costs of the price support program. The 1982 amendments to the Act also established a price support level for CCC purchases of not less than $13.10 per hundredweight of milk containing 3.67 percent milkfat for the period beginning October 1, 1982 and ending September 30, 1984, and provided that the price support level be maintained at a comparable percentage of parity for the 1984 fiscal year. See 7 U.S.C. § 1446(d)(1).

 On September 24, 1982 the Secretary published a notice in the Federal Register setting the milk price support level at $13.10 for the period October 1, 1982 through September 30, 1983, and anouncing that as of December 1, 1982 he would implement the first 50 cents per hundred-weight deduction. 47 Fed. Reg. 42,128. The Secretary estimated that CCC purchases of milk products for the year beginning October 1, 1982 would amount to the equivalent of 12.6 billion pounds of milk, radically above the 5 billion pound triggering level set by Congress for implementation of the deduction. Id. at 42,129. The Secretary also published a proposed rule establishing a procedure to implement the deduction program, and called for comments on the proposed rule. Over 25,000 comments were received, including petitions containing approximately 23,000 signatures.Most of the comments opposed imposition of the deduction. See 47 Fed. Reg. 53,831 (November 30, 1982). On November 30, 1982 the Secretary published a final rule implementing the deduction. Id.

 In January 1983 the Secretary was enjoined from proceeding with the deduction program by the United States District Court for the Southern District of South Carolina. See State of South Carolina ex rel. Patrick v. Block, 558 F. Supp. 1004 (D.S.C. 1983). The Court held the Secretary's actions invalid for lack of compliance with the notice and comment procedures of the Administrative Procedure Act ("APA"). See 5 U.S.C. § 553. The Secretary did not appeal the decision. Instead, he published a further notice on January 27, 1983. 48 Fed. Reg. 3764. That notice, which provided a 30-day comment period, announced the Secretary's proposal to collect both of the 50-cent deductions authorized by the Act.On March 17, 1983 the Secretary published a Notice of Determination implementing the first 50 cents per hundredweight deduction, effective April 16, 1983 through September 30, 1983. 48 Fed. Reg. 11,253. The Secretary did not announce implementation of the second 50-cent deduction in the March 17, 1983 Notice of Determination, because he had not yet developed procedures for the refund program which the statute requires if the second 50-cent deduction is to be implemented. However, in a subsequent notice dated May 31, 1983, the Secretary proposed that both 50-cent deductions be collected for the period beginning August 1, 1983 through September 30, 1984. 48 Fed. Reg. 24,085. A final rule implementing those deductions was published on August 2, 1983, and the deductions were made effective September 1, 1983. 48 Fed. Reg. 34,933. *fn2"

 In this litigation plaintiffs challenge both the first 50-cent deduction established in the March 17, 1983 final rule for the period April 1983 through September 1983, and the second $1.00 deduction established in the August 2, 1983 final rule for the period September 1983 through September 1984, and seek a preliminary injunction based on the alleged irreparable harm that the deductions are causing to plaintiffs' financial solvency. As to the constitutional issues, both sides have moved for summary judgment as well, and it is appropriate for this court to merge the inquiry as to the likelihood of plaintiffs' success with the inquiry as to whether summary judgment should be granted, and to reach a final disposition of the matter. As to the APA issues, however, plaintiffs oppose summary judgment. *fn3" In the interest of an expeditious determination of defendants' motion for preliminary relief, our inquiry on the APA issues is confined to the likelihood of defendants' success on the merits, and decision on the Secretary's motion for summary judgment will be reserved.

 II.

 A. Alleged Violations of the APA

 Plaintiffs' primary argument concerning the Secretary's alleged violation of the APA is that the Secretary's actions were arbitrary, capricious, and an abuse of discretion, because he assessed the deductions on all producers' sales of milk regardless of whether the producer sells to the CCC. See 5 U.S.C. § 706(2)(A). According to plaintiffs, because the purpose of the legislation authorizing the deduction is to reduce overproduction of milk, the Secretary's failure to target the deductions only to those producers who sell excess milk products to the CCC is irrational. Plaintiffs argue that the determination that the deduction should be imposed is unlawful, not only because plaintiffs do not overproduce, but also because the deductions will force them to increase rather than decrease production to make up for the money lost through the deductions.

 These arguments are without merit, because they simply ignore the fact that the legislation authorizing the Secretary to establish the deduction program contains no provision requiring or allowing him to target the deductions selectively among milk producers. The statute permits the Secretary, if he estimates that CCC purchases will exceed a given level, to provide for a deduction "from the proceeds of sale of all milk marketed commercially by producers." See 7 U.S.C. § 1446(d)(2). The plain language of the statute indicates that the Secretary would be exceeding his powers by implementing the deductions on a regional or individual producer basis. The Secretary's failure to implement the deduction program in a manner which would not be within the scope of the authorizing statute is not subject to attack as arbitrary and capricious or as an abuse of discretion.

 Plaintiffs also argue that the deduction programs are invalid for the reasons set forth in the June 3, 1983 opinion of the United States District Court for the District of South Carolina, whose discussion plaintiffs incorporate by reference in their memorandum of law. See State of South Carolina ex rel. Tindal v. Block, 558 F. Supp. 1004 (D.S.C. 1983), reversed, 717 F.2d 874 (4th Cir. 1983). *fn4" That decision enjoined implementation of the first deduction program on grounds of the Secretary's failure to comply with the APA in various respects, primarily: 1) failure to consider, in deciding to implement the deduction program, the same factors that are considered in setting the milk price support level (e.g., the costs of milk production), as well as factors such as the impact of the deduction program on dairy farmers and on the economy; 2) failure to comply fully with the notice and comment provisions of the APA.

 The argument that, in deciding whether to impose the deduction programs, the Secretary must base his decision on the same factors as must be considered in setting the milk price support level, rests on a strained interpretation of the statutory provisions. The statutory scheme establishing a system of milk price supports was created by the Agricultural Act of 1949.Factors that the Secretary must consider in setting the price support level each year are set forth in various provisions of the Act, including 7 U.S.C. §§ 1421(b), 1446b and 1446(c). *fn5" These provisions speak in terms of general economic considerations such as the relationship of supply to demand, or recite the overall Congressional policy behind the milk price support system -- i.e., the importance of the dependability of production of dairy products, the goal of stabilizing the income of dairy farmers at a level providing a fair return for their labor and investment, and the like.It is true, as the South Carolina district court noted, that none of these provisions were repealed by the Omnibus Budget and Reconciliation Act of 1982, which for the first time authorized the Secretary to assess deductions from all producers's sales of milk in order to offset some of the costs of the price support program. 7 U.S.C. § 1446(d)(2). Nonetheless, we agree with the Court of ...


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