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CHAMBER OF COMMER. OF THE UNITED STATES v. USDA

October 10, 1978

CHAMBER OF COMMERCE OF THE UNITED STATES, et al., Plaintiffs,
v.
UNITED STATES DEPARTMENT OF AGRICULTURE, et al., Defendants.



The opinion of the court was delivered by: FLANNERY

MEMORANDUM OPINION

This matter comes before the court on plaintiffs' motion for a preliminary injunction, opposed by defendants. It presents a significant question of administrative law: whether in the absence of explicit statutory authority a federal agency can fund a study by a consumer group of the probable impact of proposed rules upon consumers. The court believes it can, and will deny the motion for a preliminary injunction.

 Plaintiffs, The American Meat Institute (AMI) and the National Broiler Council (NBC) are composed primarily of packers and processors of meat and poultry products who are regulated by the Department of Agriculture. They are members of plaintiff Chamber of Commerce of the United States. Plaintiff Citizen's Choice characterizes itself as a voluntary association of consumers of meat and poultry products, opposed to federal regulations that increase the cost of meat and poultry products without commensurate benefit. The defendants are the United States Department of Agriculture (USDA) and the Consumer Federation of America (CFA), a consumer-oriented advocacy organization.

 Plaintiffs seek to enjoin the USDA from paying for, using, receiving or considering a study which would be provided by the CFA pursuant to a contract entered into in June, 1978. The study would analyze the economic impact, particularly on consumers, of regulations presently under consideration by the Department of Agriculture. It is plaintiff's position that the contract was illegally entered into and that the contract constitutes arbitrary and capricious preference of one participant over another in a rulemaking proceeding. The defendants contend that the contract is entirely legal, that it was issued pursuant to USDA's implied powers, and that even if it constitutes a certain amount of preference, the preference is only proper to redress a long-standing imbalance between industry and consumer representation in federal regulatory proceedings.

 FACTUAL BACKGROUND

 The USDA is empowered by Congress to regulate the quality of meat and poultry products. The Department enforces the Federal Meat Inspection Act, 21 U.S.C. §§ 601-95 (1976), and the Federal Poultry Inspection Act, 21 U.S.C. §§ 451-70 (1976). Pursuant to these Acts it has the authority to prohibit the misbranding of poultry products, 21 U.S.C. §§ 457(b), 458(a)(2), the misbranding of meat products, 21 U.S.C. §§ 607(b), (c), and to issue regulations governing the net weight of poultry and meat products including provisions for reasonable variations between stated and actual weight. 21 U.S.C. §§ 453(h)(5), 601(n)(5). One aspect of this regulation is the setting of standards for permissible variations in weight caused by moisture loss, shrinkage during handling, and other causes between the time of packing and the time of retail sale. Because recent litigation *fn1" made it appear that existing federal standards inadequately address the problem of shrinkage during distribution, the USDA has been engaged in informal rulemaking to establish standards. In September, 1977, the USDA received a petition requesting stricter standards in the weight of meat and poultry products and less variation in a given lot. *fn2" Proposed regulations were issued on December 2, 1977; they are substantially stricter than the previous federal standards. *fn3" Plaintiffs in this action have consistently opposed these rules, contending that they are economically unsound and extremely difficult to comply with without overpacking. The USDA provided a comment period of ninety days for interested persons to file submissions.

 In the course of a hearing on February 9, 1978, the USDA learned that several industry groups were planning to test moisture loss to determine how much overpacking would be required to comply with the proposed standards. At the hearing several parties, including the AMI and the NBC, requested a six-month extension of the comment period, until September 2, 1978. The USDA denied these requests, although it did grant a three-month extension until June 2, 1978. A subsequent request for an extension was denied. The AMI and the NBC both submitted moisture loss studies within the prescribed period, although both contend that the results could have been considerably more complete had they received a longer extension.

 Also in early February, a review by the USDA of the comments on file indicated that insufficient data existed with respect to the economic impact of the existing and proposed regulations. Foreman affidavit P 15. Department officials expected that industry submissions would be limited to the impact upon industry. Consequently, on March 27, 1978, the USDA announced that it wished to receive bids on a "Study to Provide an Analysis of the Impact on Consumers of Proposed Regulations on Net Weight Labeling." *fn4" The bids were to be limited to $ 10,000 or less, and the study was to be completed by June 2, 1978. The "request for bids" notice stated:

 
The Food Safety and Quality Service feels that the issues surrounding the proposed action on net weights are of such importance to consumers that a comprehensive picture of consumer benefits and cost resulting from implementation of this proposal should be developed. Since consumer-oriented organizations are faced with chronic shortages of money and personnel, they are not able to garner the resources required for in-depth investigations on every issue they might wish to pursue. In the case of net weight regulations, detailed input from industry and the USDA has been made available to the Agency. However, the consumer perspective has not been given the attention essential to creating a fair and effective balance among the views of interested parties. The study described above would correct this deficiency allowing FSQS to conduct its final net weight deliberations on the basis of complete and well-rounded information regarding anticipated impacts.

 In a subsequent memorandum, the Food Safety and Quality Service (FSQS) was asked to change the bid request to indicate that FSQS only wanted bids from "recognized consumer advocacy organizations". *fn5" FSQS officials refused to add this language, characterizing it as overly restrictive. *fn6"

 The request was sent to the Commerce Business Daily on March 20, 1978. Fifty-one vendors responded and received copies of the bid request. In addition, the FSQS sent a request for quotation to ten organizations (including five consumer groups) thought to be both capable of and interested in the study.

 The initial request produced only one bid, however, for $ 60,000.00. The USDA rejected this bid on May 18, 1978. On May 17, however, the Consumer Federation of America (CFA) had submitted a proposal to conduct an impact study of the proposed regulations. The contract was awarded to CFA on June 7, 1978, with an August 31 completion date and a price of $ 23,536.

 The record is replete with plaintiffs' allegations concerning alleged improprieties committed by USDA officials, especially Assistant Secretary Foreman, *fn7" in contracting with the CFA. Upon a review of the record, it is evident that CFA received 90 days to complete the study, while the original proposal allowed only 30 days for completion; that CFA was promised over $ 23,000 although the original bid proposal specified a maximum bid of $ 10,000; and that CFA received the vigorous support of Assistant Secretary Foreman, who stated on numerous occasions that the CFA was qualified to perform the study. The court notes, however, that by the time CFA was contacted, the USDA was attempting to procure the needed study under its negotiation authority, rather than by bids, as permitted by federal procurement regulations. Moreover, the USDA Inspector General conducted an investigation at the request of industry representatives and concluded:

 
Our review revealed no improper action by Assistant Secretary Foreman. We did note certain inadequacies in the FSQS procurement process, particularly with respect to record keeping. We do not believe they warranted ...

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