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The Humane Society of United States v. Perdue

United States District Court, District of Columbia

February 1, 2018

SONNY PERDUE, [1] Secretary of the U.S. Department of Agriculture, Defendant.



         The U.S. Department of Agriculture (“USDA”) oversees multiple federal programs established by Congress to promote certain agricultural commodities. These programs are funded by “checkoffs” - mandatory assessments that producers and importers pay on the sale or import of the commodity. The assessments are used to pay for a range of activities, including research and marketing of the commodities, and they subsidize well-known advertising campaigns, such as “Got Milk?, ” “Beef: It's What's for Dinner, ” and “The Incredible, Edible Egg.” This case involves the pork checkoff program and the trademarks associated with the slogan “Pork The Other White Meat.” The National Pork Board (“Board” or “NPB”) is a fifteen-member board appointed by the Secretary of Agriculture that is responsible for developing and administering the pork checkoff program. Plaintiffs in this case challenge the Secretary's decision to approve the Board's purchase of the trademarks associated with “The Other White Meat” campaign.

         Beginning in 2001 until it purchased the trademarks in 2006, the Board gained access to the trademarks through a licensing agreement with the National Pork Producers Council (“NPPC”), the private industry trade association that developed the trademarks. The fee for the exclusive license to use the trademarks was one dollar per year, until 2004 when it increased to $818, 000 per year. In 2006, with the Secretary's approval, the Board entered into an agreement to purchase the trademarks from NPPC for approximately $34.6 million (the “Purchase Agreement”), which it agreed to finance over twenty years at an interest rate of 6.75%, for a total cost of $60 million including interest. Under the Purchase Agreement, the Board agreed to pay NPPC $3 million annually for twenty years.

         Pursuant to the Pork Promotion, Research, and Consumer Information Act, 7 U.S.C. § 4801 et seq. (“Pork Act” or “the Act”), which established the pork checkoff program, the Secretary is required to approve the Board's annual budget each year. Through that process, the Secretary has approved the $3 million payment every year since the Board purchased the trademarks. In 2016, the agency undertook a review of the annual payments under the Purchase Agreement and re-approved the annual payments.

         Plaintiffs challenge the Secretary's approval of the initial purchase of the trademarks and the subsequent approval of the annual payments under the Purchase Agreement on the grounds that they resulted in the use of pork checkoff dollars to influence legislation, which is prohibited by the Pork Act, and on the basis that the Secretary's actions were arbitrary, capricious, and contrary to law.

         Pending before the Court are plaintiffs' motion for summary judgment, [2] defendant's motion to dismiss for lack of subject matter jurisdiction or, in the alternative, motion for summary judgment, [3] and intervenor-defendant NPPC's motion to dismiss or motion for summary judgment, [4] all of which are fully briefed.[5] Upon review of the parties' submissions, the administrative record in this case, and the applicable law, the Court will grant in part and deny in part plaintiffs' motion for summary judgment and grant in part and deny in part defendant's and intervenor-defendant's motions for summary judgment. The Court agrees with defendants that plaintiffs' challenge to the approval of the 2006 Purchase Agreement itself was untimely, and that their claims concerning the approval of any annual payments made in the past are moot. But the Court concludes that decision to continue to approve the annual payments based on the review of the Purchase Agreement that was undertaken in 2016 was arbitrary and capricious and unmoored from the facts and circumstances before the agency, so it will rule in favor of the plaintiffs on that issue.

         The Secretary approved spending $3 million per year for the purchase of the trademarks for another ten years based on an expert's determination of their replacement cost, that is, what it would cost to develop and market an entirely new promotional campaign today. But neither the agency nor the expert adequately explains why this calculation sheds any light on what the 2016 review was supposed to ascertain: the current value of the set of four trademarks to the agency. The fundamental problem is that the three trademarks that include The Other White Meat slogan have been declared to be obsolete, and they have been retired from active use. So their value is minimal, or at best, undetermined. And the record contains no effort to ascertain the value of the fourth mark - the “Pork and Design” logo that consists of the word “pork” written across a blue triangular “pork loin silhouette” - at all.

         The Secretary's 2016 decision also fails to explain why it makes sense to predicate future payments on the cost of replacing The Other White Meat when the cost of replacing The Other White Meat has already been incurred. Moreover, while the agency states that the expert endeavored to calculate the value of the marks based upon the cost of developing a new trademark with the same level of effectiveness as the old trademarks, “as measured by aided awareness studies of the percentage of people who are aware of the trademark, ” there is no data in the record underlying the expert's selection of 40% awareness as the target measure. The expert simply cut the high level of awareness garnered by The Other White Meat slogan in its heyday in half and calculated what it would cost to buy something else that effective now. But without any analysis of how much The Other White Meat still resonates in the consumer consciousness today, or, more important, whether the blue triangular logo has gained any traction in the market at all, this approach to quantifying “current value” is completely arbitrary and cannot pass muster under the APA.



         Congress created the pork checkoff program when it passed the Pork Act in 1985. 7 U.S.C. § 4801 et seq. The Act's purpose is to “financ[e], through adequate assessments, . . . an effective and coordinated program of promotion, research, and consumer information” to “strengthen the position of the pork industry in the marketplace; and . . . maintain, develop, and expand markets for pork and pork products.” 7 U.S.C. § 4801(b) (2012). Pursuant to the Act, the Secretary issued the Pork Promotion, Research, and Consumer Information Order, which sets forth regulations to implement the Act. 7 U.S.C. § 4803; see 7 C.F.R. pt. 1230(A) (2013) (the “Pork Order” or “Order”).

         Under the terms of the Pork Act, defendant established the National Pork Board, made up of members who serve three-year terms. 7 U.S.C. § 4808(a)(1)-(3). The Board is responsible for developing “proposals for promotion, research, and consumer information plans and projects” for the Secretary's approval. 7 U.S.C. § 4808(a)-(b); 7 C.F.R. § 1230.60(a). It is also responsible for periodically reviewing plans or projects for effectiveness and terminating those that do not further the purposes of the Act. 7 C.F.R. § 1230.60(b) (“Each plan and project shall be periodically reviewed or evaluated by the Board to ensure that the plan and project contributes to an effective and coordinated program of promotion, research, and consumer information. If it is found by the Board that any such plan and project does not further the purposes of the Act, the Board shall terminate such plan and project.”). The Board's activities are funded by the assessments that pork producers and importers are required to pay to the Board. 7 U.S.C. §4809(a), (c); 7 C.F.R. § 1230.71(a)(1).

         The Act and the Order grant the Board certain powers to carry out its responsibilities. See 7 U.S.C. § 4808; 7 C.F.R. § 1230.58 (“Powers and duties of the Board”). These include the authority to incur expenses the Secretary finds “reasonable and likely to be incurred by the Board . . . to enable it to exercise its powers and perform its duties.” 7 C.F.R. 1230.70(a). Also, the Board, “with the approval of the Secretary, may enter into contracts . . . for the development and conduct of activities authorized under” the Pork Order. 7 U.S.C. § 4808(b)(4)(A)(i).

         Within the agency, the Secretary has delegated oversight responsibility for the pork and other checkoff programs to the USDA's Agricultural Marketing Service (“AMS”). AMS's role is “to ensure compliance with all applicable legislation, regulations, and policies, ” Admin. Record, Joint App. [Dkt. # 64] (“AR”) 778, [6] and to that end, has issued its Guidelines for AMS Oversight of Commodity Research and Promotion Programs (“Guidelines”). See AR 779-806. Among their requirements, the Guidelines allow for multi-year contracts only if “all funding is obligated during the budget year” or they “require extensions consistent with the budget year and include an ‘escape clause' - clear language that the board may cancel the project at any time and for any reason without incurring the full contract cost.” Guidelines IV.D, AR 782.

         The Pork Act, the Pork Order, and AMS's Guidelines all prohibit the Board from using assessment funds “for the purpose of influencing legislation.” 7 U.S.C. § 4809(e); 7 C.F.R. § 1230.74.


         Plaintiff Harvey Dillenburg is an individual pork producer who has paid assessments into the pork checkoff program since it began. Decl. of Harvey Dillenburg, Att. to Pls.' Mot. [Dkt. # 52-2] ¶ 3. Plaintiff Humane Society of the United States (“HSUS”) is an organization that works to “protect[ ] the interests of its farmer members who share the organization's values of humane animal care.” Am. Compl. [Dkt. # 3] ¶ 14. Plaintiff Iowa Citizens for Community Improvement is an organization that “advocates against practices and policies that are harmful to family and independent farmers, ” including its members who pay assessments and “are adversely affected by misuse of checkoff funds.” Am. Compl. ¶¶ 19-20. Together, plaintiffs challenge the Secretary of Agriculture's approval of the Board's purchase of The Other White Meat trademarks from NPPC, as well as the Secretary's approval of the annual payments made in accordance with the Purchase Agreement.

         The National Pork Producers Council is an trade association that lobbies on behalf of the industry, and it advocated in favor of the passage of the Pork Act. See NPPC's Am. Ans. to First Am. Compl. [Dkt. # 44] ¶¶ 1, 45; see also (stating the NPPC “fights for reasonable federal legislation and regulations, maintains and develops export market opportunities, and protects producers' livelihoods, ” focusing on “areas of agriculture and industry, animal well-being and food safety, environment and energy, and international trade”). Under the Pork Act, NPPC received a portion of the mandatory checkoff assessments early in the Act's and Order's implementation. 7 U.S.C. § 4809(c)(2) (providing for the association to receive declining amounts of assessment funds until the Board was established and other milestones were met and allowing “no funds thereafter except . . . such funds from the Board pursuant to sections 4808 or 4809 of this title”).

         In the 1980s, NPPC developed The Other White Meat slogan and registered the four separate trademarks that comprise the slogan and the logo as its intellectual property.[7] See NPPC's Mem. at 4, citing Am. Compl ¶¶ 46-53. Three of the four trademarks relate to the use of the slogan The Other White Meat, and the fourth is the “Pork and Design” logo, which consists of the word “pork” inside a blue stylized pork chop:

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AR 216; Def.'s Mem. at 2, 6, 19, 20. In 1987, the Board adopted The Other White Meat campaign and used it in a variety of advertisements to promote pork. AR 489, 217, 219; Am. Compl. ¶¶ 52, 99-100.

         In 2001, the USDA and NPPC settled a lawsuit brought by the Michigan Pork Producers Association that concerned a referendum by pork producers seeking to terminate the pork checkoff program. See Settlement Agreement (settling Michigan Pork Producers Ass'n, Inc. v. Campaign for Family Farms, 1:01-CV-34 (W.D. Mich.), [8] AR 524-32. As part of the agreement, the parties agreed not to terminate the checkoff program, but they specified that the Board “should operate independently of the NPPC” while the pork program remained in effect. Settlement Agreement, AR 524-26. The settlement agreement set forth certain requirements for how the two entities would operate, including that any contracts entered into between them would be “at fair market value.” Settlement Agreement, AR 524-25.

         At that time in 2001, NPPC owned the trademarks, and the Board had licensed the exclusive right to use them. AR 518. In 2001 and 2002, the Board paid $1 a year for the license. See AR 321 (2003 email suggesting increasing the license fee from “the current rate of $1/year”). In 2003, the Board and NPPC renegotiated the licensing agreement to increase the annual fee to $818, 451 until the last two years of the contract, when it would revert to $1 per year. AR 518. The licensing agreement was scheduled to end on June 30, 2009. Id. In early 2004, the Secretary approved the revised licensing agreement. See AR 347.

         In late 2005, the Board began negotiating with NPPC to purchase the trademarks. See Feb. 14, 2006 Acquisition Proposal, AR 489-90. The Board pursued purchasing the trademarks because it planned to make a “sizeable investment” in The Other White Meat brand; it feared that its planned investment in the brand would “work against . . . its ability to negotiate a favorable license fee in the future, ” and that the fee in any subsequent agreement would increase “substantially.” AR 489 (noting also that business experts would confirm “that no organization should build its business model around a brand it doesn't own”).

         As part of its efforts to purchase the trademarks, the Board sought appraisals from independent experts. AR 490. It received a “wide range of values, ” but decided to base its valuation on the replacement value approach, which involves estimating the cost of building an entirely new brand. AR 490. Mark Williams, whom plaintiffs allege created The Other White Meat slogan in the 1980s, Am. Compl. ¶ 46, advised the Board that the replacement value of the trademarks was “somewhere between $30, 000, 000 and $40, 000, 000.” Feb. 3, 2006 Letter from Williams to Board CEO Steve Murphy, AR 513-14.

         In early February 2006, Board and NPPC officials met and agreed to a purchase price of $34.597 million to be paid over twenty years at an interest rate of 6.75%, resulting in a total cost of $60 million. AR 11, 337, 492. The Agreement provided that this amount would be paid at the rate of $3 million per year for twenty years. Feb. 14, 2006 Acquisition Proposal, AR 490; Tentative Term Sheet, AR 492.

         On February 22, 2006, AMS issued a memorandum regarding the Board's proposal to acquire the trademarks. Decision Mem., AR 810-12. The Decision Memorandum, from the Deputy Administrator for the AMS Livestock and Seed Program to the AMS Administrator, set forth two options: Option 1 was to permit the Board to make the purchase and Option 2 would prohibit the purchase. AR 810-12. The Decision Memorandum listed the “Pros” and “Cons” of each and recommended Option 1. AR 811-12. There was a space prepared at the bottom of the Decision Memorandum where the “Decision by the Acting Undersecretary” could be entered, and the completed form bears a check mark next to “Approve, ” initialed and dated February 28, 2006. AR 812.

         With the Decision Memorandum in hand, the Board set about negotiating the specific terms of the purchase from NPPC. The record shows that the Board and NPPC reached agreement on the terms of the purchase on July 1, 2006. Purchase Agreement, AR 820-85. On July 18, 2006, the Board sent a letter to the agency “requesting approval of the business and legal terms” for its purchase of the trademarks. Sept. 13, 2006 AMS Letter, AR 862. The agency responded by letter dated September 13, 2006, stating that it “reviewed and approve[d] the terms of the Agreement.” Id. On a September 20, 2006 conference call, the Board approved the term sheet dated September 20, 2006. Sept. 20, 2006 Board Minutes, AR 861. On September 25, 2006, the Board and NPPC signed an agreement to defer the annual license fee that the Board owed NPPC under their existing licensing agreement while the negotiations continued. See Amendment to Payment Deferral Agreement [Dkt. # 11-1], Ex. A. An unsigned certification by NPPC's Secretary dated October 3, 2006 included a statement that NPPC's counsel confirmed that no substantive changes had been made to the Purchase Agreement and related documents during the agency's review. AR 878-79. The closing book for the purchase appears in the record, AR 820-885, with a cover letter dated October 9, 2006. AR 819.

         As required by AMS's Guidelines, AR 782, the Purchase Agreement authorizes the Board to terminate the agreement for any reason by giving advance written notice of 365 days. Purchase Agreement ¶ 1.7, AR 823-24. The Board would be obligated to make a one final payment, after which ownership of the trademarks would revert back to NPPC. Id. The Board has never exercised this right; the Secretary has approved and the Board has paid $3 million to NPPC each year under the agreement. See, e.g., AR 458-60, AR Suppl. 903 (Pork Board budget detail for Fiscal Year 2012 showing $3 million “TOWM Payment to NPPC”), AR Suppl. 1049 (approving budget).

         In March 2011, the Board announced that it was replacing The Other White Meat with a new slogan and campaign: “Pork Be Inspired.” AR 448-49. The Board explained that with the adoption of the Be Inspired campaign, The Other White Meat campaign will play a role as a heritage brand, ” and “will not be featured in advertising.” AR 448. The Be Inspired campaign does not use the words The Other White Meat, although it does incorporate the Pork and Design logo.

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         Be Aspired The Board's prior use of The Other White Meat slogan is described on the Board's website, and the record states that it appears on nutritional materials. AR 218.


         Plaintiffs filed this lawsuit on September 24, 2012, challenging the Secretary's 2006 approval of the Purchase Agreement, the subsequent approvals of the annual payments for the trademarks, and the agency's failure to terminate the agreement to pay for The Other White Meat trademarks after it launched a new campaign. Compl. [Dkt # 1]. Defendant moved to dismiss, and on September 25, 2013, the Court dismissed the case for lack of subject matter jurisdiction on standing grounds. Humane Soc'y v. Vilsack , 19 F.Supp.3d 24, 34-47 (D.D.C. 2013) (“Vilsack I”) (holding that individual plaintiff Dillenburg did not have Article III standing and that the two plaintiff organizations could not establish standing to sue in their own right or on behalf of their pork-producing members). Plaintiffs appealed, and on August 14, 2015, the Court of Appeals for the D.C. Circuit reversed. Humane Soc'y v. Vilsack, 797 F.3d 4, 6 (D.C. Cir. 2015) (“Vilsack II”) (holding that this “case involves a concrete and particularized harm caused by an agency's failure to confer a direct economic benefit on a statutory beneficiary” and rejecting defendant's argument that plaintiffs failed to exhaust their administrative remedies because the administrative remedies available would not provide adequate relief to plaintiffs).

         On December 9, 2015, after the case was remanded to this Court, NPPC moved to intervene. Mot. to Intervene [Dkt. # 25]. On December 31, 2015, plaintiffs and defendant filed a stipulation and motion to stay the case. Joint Stipulation & Req. for Stay of Proceedings [Dkt. # 29] (“Stipulation”). The Stipulation provided that the Secretary would, “consistent with [his] own independent judgment and authority, review the Pork Board's contract for the purchase of ‘The Other White Meat' trademark.” Id. It further provided that the review would “include a valuation” of the trademark and “consideration of relevant materials” submitted by plaintiffs, and that the Secretary would not authorize the July 1, 2016 annual payment until after the review was complete. See Id. At the same time, plaintiffs agreed to “dismiss with prejudice the portion of their request for relief seeking retrospective relief, namely, their request for an order requiring Defendant ‘to recover [] already distributed funds from NPPC.'” Id.

         On January 6, 2016, the Court granted the parties' motion to stay and denied NPPC's motion to intervene without prejudice. Min. Order of Jan. 6, 2016. The Court also ordered that both plaintiffs and NPPC should be permitted to submit materials for the Secretary to consider, and that defendant was required to consider those materials as part of his review. Id.

         On January 18, 2016, plaintiffs dismissed their request for retrospective relief, as agreed in the Stipulation. Notice of Dismissal of One Form of Requested Relief Pursuant to Terms of Joint Stipulation [Dkt. # 35] (“Notice of Dismissal”).

         As part of its review, the agency received information from plaintiffs and NPPC, and valuations from three experts: defendant's expert, Stout Risius Ross, Inc. (“SRR”); NPPC's expert, Cupitor Consulting; and plaintiffs' expert, CONSOR. AR 4-9. The agency concluded its review on April 20, 2016, and it decided to approve ongoing payments under the Purchase Agreement rather than terminate the agreement. See Review of Contract for the Purchase of Trademarks Related to Pork, AR 2-12 (“2016 Review”); Joint Status Report [Dkt. # 40] (advising the Court on May 4, 2016 that defendant had completed its review and decided to approve continuing annual payments).

         On May 5, 2016, the Court granted NPPC's motion to intervene, Min. Order of May 5, 2016, and on June 10, 2016, it set a schedule for the parties to brief summary judgment and any remaining jurisdictional issues. Min. Order of June 10, 2016.

         The Court heard oral argument on the summary judgment motions on September 27, 2017. In light of the 2016 Review, the Court asked whether the amended complaint needed to be further amended to reflect a challenge to that review and to ongoing payments made in accordance with the Secretary's recent decision. Both sides advised the Court that they did not believe the complaint needed to be amended, and they agreed that the Court should deem the amended complaint to contain such a challenge. Defs.' Joint Notice [Dkt. # 66]; Resp. to Court's Order re Amendment [Dkt. # 67].


         Summary judgment is appropriate when the pleadings and evidence show that “there is no genuine dispute as to any material fact and [that] the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). However, in cases involving review of agency action under the Administrative Procedure Act, Rule 56 does not apply due to the limited role of a court in reviewing the administrative record. Select Specialty Hosp.-Akron, LLC v. Sebelius, 820 F.Supp.2d 13, 21 (D.D.C. 2011). Under the APA, the agency's role is to resolve factual issues and arrive at a decision that is supported by the administrative record, and the court's role is to “determine whether or not as a matter of law the evidence in the administrative record permitted the agency to make the decision it did.” Occidental Eng'g Co. v. INS, 753 F.2d 766, 769-70 (9th Cir. 1985), citing Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 415 (1971); see also Richards v. INS, 554 F.2d 1173, 1177 & n.28 (D.C. Cir. 1977).

         A court must “hold unlawful and set aside agency action, findings, and conclusions” that are “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law, ” 5 U.S.C. § 706(2)(A), in excess of statutory authority, id. § 706(2)(C), or “without observance of procedure required by law.” Id. § 706(2)(D). “The court's role in reviewing agency contract decisions is limited to determining whether the agency acted in accord with applicable statutes and regulations and had a rational basis for its decisions.” LeBoeuf, Lamb, Greene & MacRae, LLP v. Abraham, 347 F.3d 315, 320 (D.C. Cir. 2003), quoting Delta Data Sys. Corp. v. Webster, 744 F.2d 197, 204 (D.C. Cir. 1984). “As with other agency cases, [the] review is limited to the administrative record, and the agency is entitled to a presumption of regularity.” Id. (citations omitted).


         The defense has raised a number of jurisdictional and procedural challenges that the Court must address before ...

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