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August 3, 1988

RICHARD E. LYNG, Defendant

Harold H. Greene, United States District Judge.

The opinion of the court was delivered by: GREENE

Plaintiff National Farmers Organization, Inc. (NFO), an organization which represents, among others, milk farmers, seeks reversal of a decision by the Department of Agriculture (DOA or Department) to exclude its frequency of payment proposals *fn1" from a multi-issue hearing *fn2" being held at the present time on three milk orders, claiming that the decision was arbitrary and capricious. 5 U.S.C. § 706(2). After consideration of the papers submitted, and following a hearing on July 13, 1988, at which time it denied defendant's motion to dismiss, the Court on July 19, 1988 issued a preliminary injunction.

 At the hearing, both sides represented that no genuine material fact remains in dispute and that summary judgment was appropriate. The Court agrees, and it concludes that plaintiff is entitled to judgment as a matter of law. *fn3"


 Over the last half-century, under the authority Congress provided him by the Agricultural Marketing Agreement Act of 1937, as amended (AMAA), 7 U.S.C. § 601 et seq., *fn4" the Secretary of Agriculture has regulated the prices that handlers pay producers for milk. *fn5" Not all regions of the country are under milk regulation, but with respect to each region that is so regulated, a federal milk marketing order is in effect which sets out the regulatory parameters applicable in that region.

 To effectuate the purposes of the AMAA, *fn6" the Act also provides inter alia for the amendment of milk marketing orders. Specifically the statute states that, whenever the Secretary "has reason to believe that the issuance of an [amended] order will tend to effectuate the declared policy of th[e AMAA]" with respect to milk, "he shall give due notice of and an opportunity for a hearing" upon one or more proposed amendments to that order. 7 U.S.C. § 608c(3) and (17).

 Following such notice and hearing, the Secretary issues an amended order, if he finds, and sets forth in the order, upon the evidence introduced at such hearing, that the issuance of the amended order and the terms and conditions thereof "will tend to effectuate the declared policy of th[e AMAA]" with respect to milk. 7 U.S.C. § 608c(4). *fn7" Before an amended order becomes effective, it must be approved by two-thirds of the particular region's milk producers. 7 U.S.C. § 608c(9)(B). *fn8"


 In January 1988, the Department announced to interested parties that it was considering conducting a multi-issue hearing *fn9" concerning proposed amendments to the orders governing the milk markets for New England, *fn10" New York-New Jersey, and the Middle Atlantic, Orders 1, 2, and 4, respectively. *fn11" At that time, the Department invited interested parties to submit proposals for amendments to any or all of the existing three marketing orders, and it set a deadline of April 8, 1988, for the submission of any proposals.

 On April 6, 1988, plaintiff submitted to the Department several proposals, including two regarding the frequency of payments from milk handlers to milk producers under the New York-New Jersey and the Middle Atlantic orders. Each of these proposals called for the handlers to pay the producers three times per month for shipments of milk, in lieu of the current one payment per month in New York-New Jersey region and the two payments per month in the Middle Atlantic region. Plaintiff claims that the existing payment schedules are inadequate to protect milk farmers from financial loss due to the rising tide of bankruptcies among milk handlers because during the period between payments farmers are extending unsecured lines of credit to milk handlers with whom they deal, the credits amounting to 35-53 days' milk production.

 On or before April 8, 1988, other interested persons submitted numerous other proposals to the Department concerning the three orders at issue. Among these submissions were two proposals to increase the frequency of payments for the New York-New Jersey region from one payment per month to two. Based on the proposals submitted to the Department, the Dairy Division of the Agricultural Marketing Service (AMS) prepared a draft notice of hearing for review by the Administrator of AMS, the official who has been delegated responsibility for the hearing by the Secretary under the AMAA. 7 C.F.R. Part 2.50. This draft contained several proposals relating to the frequency of payments, including both the proposals of others for twice-a-month payments for Order 2 and plaintiff's three-times-per-month payment proposals for Orders 2 and 4.

 After reviewing the draft notice of hearing, the Administrator of the AMS directed the Dairy Division to delete plaintiff's frequency of payment proposals. The Division complied, as it was required to do under the regulations. *fn12" The revised notice of hearing, noticing sixty-nine proposals applicable to one or more of the three marketing orders encompassed by the hearing, was signed by the Administrator of AMS on June 7, 1988, and was published in the Federal Register on June 10, 1988. 53 Fed. Reg. 21825 (June 10, 1988).

 On the day he signed the notice of hearing, the Administrator of AMS sent a letter to plaintiff informing it that its frequency of payment proposals for Orders 2 and 4 were not included in the hearing notice, despite the fact that there was "considerable discussion throughout the industry on this producer payment issue" as a "result of recent bankruptcy proceedings involving large dairy operations." The only explanation given for this negative decision was that "based on our discussions with industry representatives, we continue to find very limited support for a change to a three-times-a-month payment schedule under milk orders." *fn13" There was no indication in the letter or otherwise of the number or identity of the industry representatives contacted, whether they were producers or handlers, the substance of the discussions, and the time frame during which they occurred.

 When plaintiff's attempt to seek a reversal of the decision to exclude its frequency of payment proposals failed, it filed this action. Thereafter, on the day the Department filed a motion to dismiss or for summary judgment with respect to this action, an Assistant Secretary of Agriculture wrote to plaintiff's attorney representing that the Administrator's earlier decision was based on "a lack of overall support from the majority of producer groups in both markets to NFO's accelerated producer ...

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