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Koretoff v. Vilsack

March 9, 2009

NICK KORETOFF, D/B/A NICK KORETOFF RANCHES, ET AL., PLAINTIFFS,
v.
THOMAS VILSACK, SECRETARY,*FN1 UNITED STATES DEPARTMENT OF AGRICULTURE, DEFENDANT.



The opinion of the court was delivered by: Ellen Segal Huvelle United States District Judge

MEMORANDUM OPINION

Plaintiff almond growers, handlers, and grower-handlers in the State of California bring this action pursuant to the Agricultural Marketing Agreement Act of 1937 ("AMAA"), 7 U.S.C. § 601 et seq., and the Administrative Procedure Act ("APA"), 5 U.S.C. § 706, against the Secretary of the United States Department of Agriculture ("USDA") to challenge a USDA regulation requiring almond handlers to treat raw almonds in order to reduce the risk of Salmonella bacteria contamination. This matter is before the Court on defendant's motion to dismiss the complaint. For the reasons set forth below, the Court will grant the motion.

BACKGROUND

The AMAA authorizes the Secretary of Agriculture to promulgate marketing orders designed to establish and maintain orderly marketing conditions for agricultural commodities. See 7 U.S.C. §§ 602, 608c. Marketing orders regulate the activities of processors, associations of producers, and others engaged in the handling of certain agricultural commodities, known under the Act as "handlers." Id. § 608c(1), see also 7 C.F.R. §§ 981.13, 981.16 (defining "handler" and "to handle" for purposes of the California almond market). They do not regulate farmers in their capacity as producers (or growers). See id. § 608c(13)(B). The AMAA specifies the terms and conditions that a marketing order may contain, including provisions "[l]imiting, or providing methods for the limitation of, the total quantity of any such commodity or product, or of any grade, size, or quality thereof . . . ." Id. § 608c(6)(A). Before issuing or amending a marketing order, the Secretary must conduct a formal rulemaking proceeding with prior notice and hearing. Id. § 608c(3). In addition, before a marketing order or amendment may become effective, its provisions must be adopted in a marketing agreement by handlers of not less than 50% of the volume of the commodity covered by the proposed order or amendment and approved by at least two-thirds of affected growers,*fn2 or it may be adopted by the Secretary without consent of a handler majority subject to certain findings by the Secretary and grower approval. See id. §§ 608c(8), (9).

The almond marketing order, 7 C.F.R. § 981.1 et seq., regulates the handling of almonds grown in California and is administered locally by the Almond Board of California (the "Board"), a ten-member board composed of growers and handlers nominated by the industry and selected by the Secretary. 7 C.F.R. §§ 981.22, 981.30- 981.33. The Board has the power to "make rules and regulations to effectuate the terms and provisions" of the almond marketing order, id. § 981.38(b); see also 7 U.S.C. § 608c(7)(C), and "to establish, with the approval of the Secretary, such minimum quality and inspection requirements . . . as will contribute to orderly marketing or be in the public interest." 7 C.F.R. § 981.42(b). The administrative rules and regulations implementing the order are codified at 7 C.F.R. §§ 981.401-981.481.

In August 2006, in response to Salmonella outbreaks in 2001 and 2004 and pursuant to its authority under the almond marketing order to set outgoing quality control requirements, the Board recommended a mandatory treatment program to reduce the potential for Salmonella bacteria in almonds. See Outgoing Quality Control Requirements, 72 Fed. Reg. 15,021, 15,022 (Mar. 30, 2007). Specifically, the Board recommended, with certain exceptions, that handlers subject their almonds to a process that would achieve a minimum 4-log reduction in Salmonella bacteria prior to shipment.*fn3 Id. In December 2006, the Secretary published the Board's recommendation as a proposed rule, 71 Fed. Reg. 70,683 (proposed Dec. 6, 2006), and following a 45-day comment period, adopted the final rule without substantial change on March 30, 2007. 72 Fed. Reg. 15,021.

Plaintiffs allege that the almond treatment regulation (1) exceeds the authority granted by 7 C.F.R. § 981.42 to establish quality control requirements; (2) creates a substantive rule adopted without the use of a formal rulemaking process and grower approval as required by the AMAA and by USDA Rules of Practice; (3) regulates food safety, an area beyond the limited authority granted to the Secretary under the AMAA; (4) is arbitrary, capricious, and not in accordance with law, in violation of the APA; (5) depends upon the lapsed authority of 7 C.F.R. § 981.42 and is therefore void; and (6) improperly regulates the retail market for almonds in violation of the AMAA. (See Am. Compl. ¶¶ 4-5, 74-93.)

ANALYSIS

I. The Claims of Almond Handlers Must be Dismissed for Lack of Subject Matter Jurisdiction

Defendant argues that plaintiff almond handlers' claims must be dismissed for failure to exhaust their administrative remedies. The AMAA authorizes an aggrieved handler to file a petition with the Secretary "stating that any [marketing] order or any provision of any such order or any obligation imposed in connection therewith is not in accordance with law and praying for a modification thereof or to be exempted therefrom." 7 U.S.C. § 608c(15)(A). After a hearing, the Secretary will rule on the petition, which ruling "shall be final, if in accordance with law." Id. If unsatisfied with the Secretary's decision, the handler may seek judicial review in federal district court. Id. § 608c(15)(B).

These provisions have been interpreted by the Supreme Court to require handlers to exhaust their administrative remedies prior to seeking judicial review. See United States v. Ruzicka, 329 U.S. 287, 294 (1946) ("Congress has provided that the remedy in the first instance must be sought from the Secretary of Agriculture. It is on the basis of his ruling, and of the elucidation which he would presumably give to his ruling, that resort may be had to the courts."). Consistent with Ruzicka, the D.C. Circuit has unequivocally held that "the AMAA's administrative appeal process is a mandatory procedure that handlers must follow prior to seeking judicial review" and from which they "may not be excused from complying." Edaleen Dairy, LLC v. Johanns, 467 F.3d 778, 784-85 (D.C. Cir. 2006) (emphasis in original); see also Block v. Community Nutrition Institute, 467 U.S. 340, 346 (1984) (noting in the context of a consumer suit that "Section 608c(15) requires handlers first to exhaust the administrative remedies made available by the Secretary" prior to seeking judicial review); Hershey Foods Corp. v. Dep't of Agric., 293 F.3d 520, 526 (D.C. Cir. 2002) (stating that pursuant to § 608c(15), "the remedy in the first instance must be sought from the Secretary"); Saulsbury Orchards & Almond Processing, Inc. v. Yeutter, 917 F.2d 1190 (9th Cir. 1990) (affirming dismissal of suit by almond handlers for failure to exhaust).

Faced with this clear precedent, plaintiffs turn to Avocados Plus, Inc. v. Veneman, 370 F.3d 1243 (D.C. Cir. 2004), which they claim mandates the conclusion that the AMAA's exhaustion requirement is non-jurisdictional. In that case, plaintiff importers of avocados and avocado products sued alleging that the Hass Avocado Promotion, Research, and Information Act, 7 U.S.C. § 7801 et seq., violated their First Amendment right to be free of compelled speech. The district court, relying on the Act's exhaustion requirement, which was virtually identical to the AMAA's exhaustion provision, dismissed the complaint because plaintiffs had not exhausted their administrative remedies. The D.C. Circuit reversed. In doing so, the Court distinguished between judicially-created non-jurisdictional exhaustion, which may be excused by a court, and statutorily mandated jurisdictional exhaustion, which cannot be excused. 370 F.3d at 1247. The Court concluded that the statutory provision at issue did not mandate exhaustion because it failed to contain "sweeping and direct statutory language indicating that there is no federal jurisdiction prior to exhaustion." Id. at 1248 (quoting Weinberger v. Salfi, 422 U.S. 749, 757 (1975)). The Court therefore remanded the case to the district court to determine whether exhaustion should be excused.

Despite the similarities between the exhaustion provision at issue in Avocados Plus and the one at issue here, it is Edaleen Dairy that controls this case. In Edaleen Dairy, the D.C. Circuit specifically rejected plaintiff's argument that the AMAA exhaustion requirement should be excused because the issue presented had been "fully framed" in the rulemaking process, the Secretary's "full expertise" had already been brought to bear, and it would be "utterly duplicative" to require administrative review prior to suit. 467 F.3d at 784. The Court concluded that "[t]here is no need to address these arguments . . . because courts have held on numerous occasions that the AMAA's exhaustion requirement is mandatory. Thus, we hold that Edaleen may not be excused from complying with this requirement." Id. (emphasis added); see also Hettinga v. United States, 518 F. Supp. 2d 58, 62 (D.D.C. 2007) (dismissing producer-handler claims for lack of subject matter jurisdiction based on their failure to exhaust administrative remedies), appeal docketed, No. 07-5403 (D.C. Cir. Dec. 19, 2007); Nw. Indep. Producers Ass'n v. Veneman, 312 F. Supp. 2d 23, 25 (D.D.C. 2004) (dismissing handler claims for same reason). "[A] mandatory [but non-jurisdictional] exhaustion requirement may be excused in appropriate circumstances, whereas a jurisdictional exhaustion requirement never may be excused by a court." Munsell v. USDA, 509 F.3d 572, 579 (D.C. Cir. 2007).*fn4 Thus, while the Court in Edaleen Dairy did not explicitly state that the exhaustion requirement was jurisdictional, it did refuse to consider plaintiff's reasons why exhaustion should be waived, instead finding that the requirement could not be excused. This Court is bound by Edaleen Dairy.

Moreover, although the D.C. Circuit in Avocados Plus rejected the argument that Ruzicka compelled the conclusion in that case that exhaustion was jurisdictional, the Court recognized that Avocados Plus dealt with a statutory enforcement scheme that "[u]nlike the AMAA . . . does not provide for comprehensive market regulation that could be disrupted by ill-timed judicial interference." 467 F.3d at 1249. In addition, although the Court also opined that under precedents more modern than Ruzicka, the AMAA's exhaustion requirement would be considered non-jurisdictional, it ultimately relied on the Ruzicka Court's own limitation of its holding to "the precise problem before us in relation to the provisions of the particular Act immediately relevant." Id. at 1250 (quoting ...


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