Lamers Dairy Inc v. AGRI ( 2004 )

In the
United States Court of Appeals
For the Seventh Circuit
____________
Nos. 03-2308 & 03-2661
LAMERS DAIRY INCORPORATED,
Plaintiff-Appellant,
v.
UNITED STATES DEPARTMENT OF AGRICULTURE,
Defendant-Appellee.
____________
Appeals from the United States District Court
for the Eastern District of Wisconsin.
No. 01 C 890—William C. Griesbach, Judge.
____________
ARGUED FEBRUARY 10, 2004—DECIDED AUGUST 13, 2004
____________
Before RIPPLE, ROVNER and DIANE P. WOOD, Circuit Judges.
RIPPLE, Circuit Judge. Lamers Dairy (“Lamers”) sought an
exemption from Milk Marketing Order No. 30, promulgated
under the Agricultural Marketing Agreement Act of 1937, 7
U.S.C. § 601 et seq. After the Secretary of the United States
Department of Agriculture (“the USDA”) denied the
petition in a final administrative order, Lamers sought
review in the district court. The USDA counterclaimed for
enforcement of the Secretary’s decision and for a judgment
against Lamers in an amount equal to the unpaid monetary
assessments due under the terms of the marketing order.
2 Nos. 03-2308 & 03-2661
The district court granted summary judgment to the USDA
on Lamers’ complaint and on the USDA’s counterclaim. It
ordered further proceedings on the amount due. Subse-
quently, the district court denied a motion for reconsidera-
tion by Lamers and entered an amended judgment awarding
the Government $850,931.26. Lamers appeals. For the reasons
set forth in the following opinion, we affirm the judgment of
the district court.
I
BACKGROUND
A. Facts
Lamers Dairy, a Wisconsin family-operated dairy, has as
its principal business the handling and packaging of fluid
milk. In this appeal, Lamers challenges aspects of the federal
milk-marketing regulatory scheme. To understand the
nature of Lamers’ challenges, we must discuss briefly the
dairy industry and the regulatory and market forces gov-
1
erning it.
1. The Dairy Industry
In the dairy industry, dairy farmers, also referred to as
“producers,” produce and sell raw milk to “handlers.”
Handlers, in turn, prepare the milk product for resale to
1
For additional background discussions, upon which this opinion
has relied substantially, see Zuber v. Allen, 396 U.S. 168, 172-74
(1969); Alto Dairy v. Veneman, 336 F.3d 560, 562 (7th Cir. 2003);
Stew Leonard’s v. Glickman, 199 F.R.D. 48, 49-50 (D. Conn. 2001);
and Alden C. Manchester & Don P. Blayney, Milk Pricing in the
United States, Market & Trade Economics Div., Dep’t of Agric.,
Agric. Info. Bull. No. 761 (Feb. 2001).
Nos. 03-2308 & 03-2661 3
consumers or serve as intermediaries to those who do.
Consumer dairy products, such as fluid milk beverages, ice
cream and cheese, can all be produced from “Grade A” or
2
“fluid grade” raw milk. In the consumer market, however,
milk beverages generally command a higher price than non-
fluid products, which are known also as “manufactured dairy
products.” For this reason, the market into which dairy
farmers sell their product more highly values (and pays a
premium price for) Grade A milk ultimately used to pro-
duce beverage milk. This market premium based on end use
creates an incentive among producers to divert their Grade
3
A product to fluid milk handlers. Were this incen-
2
Grade B milk, on the other hand, which is subject to slightly
less stringent sanitary standards, cannot be used to produce fluid
milk beverages. In 1999, only about three percent of milk
marketed failed to meet Grade A standards. See Manchester &
Blayney, supra note 1, at 2.
3
Prior to refrigeration, not all producers could pursue these pre-
mium prices. We have discussed previously the change to the
market precipitated by refrigeration:
If milk were perishable, as it was in the days before refriger-
ated storage and transportation, dairy farmers serving urban
markets (where milk is more likely to be consumed in fluid
form than made into cheese or butter) would get higher prices
for their output than dairy farmers remote from cities, who
being unable to ship their milk a long distance would
perforce sell most of it to manufacturers of cheese and other
dairy products. But when refrigerated storage and transpor-
tation arrived on the scene, it became feasible for the remote
dairy farmers—Wisconsin dairy farmers, for example—to
ship milk to cities in other states, pushing down the price of
fluid milk there and so hurting the dairy farmers who were
(continued...)
4 Nos. 03-2308 & 03-2661
tive not controlled, lower market prices would result, harming
4
milk production revenues.
The dairy industry also is characterized by daily and sea-
sonal fluctuations in supply and demand. Consumer demand
fluctuates significantly on a daily basis, primarily due to
consumer buying patterns; milk production, on the other
hand, is relatively constant on a daily basis. Conversely, milk
production varies seasonally based on the animals’ nutritional
health. In fall and winter months, less milk is produced, but in
spring and summer months, more milk is produced. To meet
consumer demand in the winter, producers must maintain
large herds; these same herds over-produce in the summer.
Given milk’s perishable quality, the supply must go to mar-
ket at least every other day. Historically, handlers were thus
able to obtain summer supplies at bargain prices.
2. The Regulatory Scheme
In the wake of the Great Depression, in an attempt to ad-
dress these unique industry characteristics, Congress en-
acted various provisions governing the dairy industry as
part of the Agricultural Marketing Agreement Act of 1937
(“the AMAA”). A driving purpose of the AMAA was “to
remove ruinous and self-defeating competition among the
producers and permit all farmers to share the benefits of
3
(...continued)
located near those cities.
Alto Dairy, 336 F.3d at 562. This change in the competitive en-
vironment provided an impetus for regulation. See id. at 562-63.
4
See Alto Dairy, 336 F.3d at 563 (“Such a diversion, what econo-
mists call ‘arbitrage,’ would undermine and, if uncontrolled, . . .
reduce the incomes of dairy farmers as a group.”).
Nos. 03-2308 & 03-2661 5
fluid milk profits according to the value of goods produced
and services rendered.” Zuber v. Allen, 396 U.S. 168, 180-81
(1969). The AMAA, as amended, thus ensures that produc-
ers receive a uniform minimum price for their product,
regardless of the end use to which it is put.
To accomplish this objective, the statute contains several
mechanisms. First, it authorizes the Secretary to classify
milk according to its end use and to establish minimum prices
for each end-use classification. See 7 U.S.C. § 608c(5)(A).
Second, it authorizes the Secretary to establish a uniform
minimum price, termed the “blend price,” based on a
weighted average of all units of production of classes of
milk sold to handlers associated with a marketing area. See
id. Third, it requires handlers to pay producers the blend
price, regardless of the end use to which the milk will be
put. See id. § 608c(5)(B). Fourth, it authorizes a method for
adjustments in payments among handlers so that the final
amount paid by each handler equals the value of the milk
that handler has purchased, according to the minimum
prices established. See id. § 608c(5)(C). Overall, the provi-
sions attempt to promote orderly milk-marketing by main-
taining minimum prices for producers and limiting the
competitive effects of excess supply of Grade A milk.
Although it protects producers, the AMAA regulates han-
dlers only. Pursuant to the AMAA directives, the Secretary
has classified milk into the following classes of utilization:
Class I milk includes fluid milk processed and bottled as a
beverage; Class II milk includes soft milk products such as
cottage cheese, sour cream, yogurt and ice cream; Class III
includes hard cheese and cream cheese; and Class IV in-
cludes raw milk used for butter and dry milk powder. As
directed by the AMAA, the Secretary has established a uni-
form pricing scheme for each of these classes of milk, as
6 Nos. 03-2308 & 03-2661
5
well as the average blend price. Handlers governed by
milk-marketing orders must pay producers this uniform
blend price. The process of blending the prices of the dif-
ferent classes of milk on a monthly basis has come to be
known as “pooling.”
This uniform minimum pricing is intended to reduce the
incentive producers would have to divert all fluid milk to
Class I handlers and, literally, to flood that market. As the
system operates, dairy producers within a marketing area
receive the guaranteed uniform blend price for their milk,
regardless of the end use to which it is put. Because the
uniform price is a weighted average, some handlers pay
producers less for their milk than its market worth while other
handlers pay more. Handlers who pay less to producers
must make compensating payments into the producer
settlement fund while handlers who pay more to producers
6
may withdraw compensating payments from the fund.
Thus, within the regulatory scheme, handlers ultimately pay
an amount equal to the utilization value of the milk they
5
The minimum prices are derived from regulatory formulas, the
exact intricacies of which are not relevant here. Speaking
generally, Class III and Class IV prices are derived by surveying
the retail price of products such as cheese and butter and then
factoring out certain manufacturing costs. Class I prices are
computed by adding appropriate location differentials to Class III
and IV prices. See 7 C.F.R. § 1000.50. Because of this pricing
system, it is sometimes said that Class III and IV handlers receive
“make allowances” based on their manufacturing costs.
6
Compensating payments to and from the settlement fund are
actually determined by more complicated formulas that account
for the total value of the handler’s milk utilization as well as var-
ious credits and adjustments for transportation, assembly and
plant location.
Nos. 03-2308 & 03-2661 7
7
purchase. This simplified example of the regulatory scheme
by the district court for the District of Connecticut is helpful:
Suppose Handler A purchases 100 units of Class I (fluid)
milk from Producer A at the minimum value of $3.00 per
unit. Assume further that Handler B purchases 100 units
of Class II (soft milk products) milk from Producer B at the
minimum value of $2.00 per unit, and that Handler C
purchases 100 units of Class III (hard milk products) milk
from Producer C at $1.00 per unit. Assuming that this
constitutes the entire milk market for a regulatory district,
during this period the total price paid for milk is $600.00,
making the average price per unit of milk $2.00. Thus,
under the regulatory scheme, Producers A, B, and C all
receive $200.00 for the milk they supplied, irrespective of
the use to which it was put. However, Handler A must, in
addition to the $200.00 that it must tender to Producer A,
pay $100.00 into the settlement fund because the value of
the milk it purchased exceeded the regulatory average
price. Along the same vein, Handler C will receive $100.00
from the settlement fund because it will pay Producer C
more than the milk it received was worth.
Stew Leonard’s v. Glickman, 199 F.R.D. 48, 50 (D. Conn. 2001).
The system of compensating payments into and out of the
settlement fund thereby fulfills the AMAA requirement that
7
Outside the regulatory system, economic realities may require
some handlers to pay out-of-pocket premiums to producers, over
and above the uniform blend price, in order to acquire their milk
supply. These out-of-pocket premiums are not taken into
consideration in the calculation of amounts owed to the settle-
ment fund. See Manchester & Blayney, supra note 1, at 7 (“The
prices set are minimums—market conditions can and often do
lead to prices higher than the minimums.”).
8 Nos. 03-2308 & 03-2661
“the total sums paid by each handler shall equal the value
of the milk purchased by him at the prices fixed.” 7 U.S.C.
§ 608c(5)(C).
The country is divided into regional milk-marketing areas,
which are governed by different marketing orders. Milk
Marketing Order No. 30 governs the Upper Midwest mar-
keting area, including portions of Illinois, Iowa, Michigan,
Minnesota, North Dakota, South Dakota and Wisconsin. As
a Wisconsin dairy that bottles milk for fluid consumption,
Lamers is subject to regulation under Milk Marketing Order
No. 30 as a Class I handler.
3. Price Inversions
As discussed, Class I prices are generally higher than
Class III prices. Thus, the blend price usually falls above the
Class III price, and Class III handlers typically are entitled
to withdraw compensating payments from the settlement
fund after paying producers the blend price. However, oc-
8
casionally, periods of “price inversion” occur, in which
8
The record in this case does not contain documentation of any
periods of price inversion. However, throughout the litigation of
this case, the USDA has addressed arguments regarding this
occasional market occurrence. Furthermore, the Secretary of the
USDA has issued statements recognizing the disruption to the
regulatory scheme caused by price inversion. See Milk in the New
England and Other Marketing Areas, Dep’t of Agric., 64 Fed. Reg.
16,026, 16,102 (Apr. 2, 1999) (“The first problem is readily evident
in class price relationships during the latter part of 1998. The
frequent occurrence of price inversions during that period
indicates that some alteration to both the proposed and current
methods of computing and announcing Class I prices may be
(continued...)
Nos. 03-2308 & 03-2661 9
Class III prices exceed Class I prices. Price inversions occur
in part because of differences in how and when classes of
milk are priced. Class I milk prices are set prospectively
while Class III and IV prices are set retrospectively, based
on actual market prices during the pertinent time period.
The USDA has explained:
Class price inversion occurs when a markets’s [sic] reg-
ulated price for milk used in manufacturing exceeds the
Class I (fluid) milk price in a given month, and causes
serious competitive inequities among dairy farmers and
regulated handlers. Advanced pricing of Class I milk actu-
ally causes this situation when manufactured product
prices are increasing rapidly.
Milk in the New England and Other Marketing Areas, Dep’t
of Agric., 64 Fed. Reg. 16,026, 16,102 (Apr. 2, 1999). Thus,
price inversions occur during times of increased demand for
manufactured products, primarily cheese.
Under Order No. 30, Class III handlers are not required to
participate in the regulatory pooling. They may either join
the pool or remain outside the minimum price structure.
(This is true to some extent under other milk-marketing
orders as well.) When Class III handlers withdraw from the
pool, or “de-pool,” they are not obligated to make com-
pensating payments to the settlement fund. During times of
price inversion, then, Class III handlers have an incentive to
withdraw from the pool. The USDA has explained the effect
of price inversions on the dairy industry:
8
(...continued)
necessary.”). This court may take judicial notice of reports of
administrative bodies, see Menominee Indian Tribe of Wisconsin v.
Thompson, 161 F.3d 449, 456 (7th Cir. 1998), and it is therefore
appropriate for this court to consider the reality of this occasional
market occurrence.
10 Nos. 03-2308 & 03-2661
In the past when price inversions have occurred, the
industry has contended with them by taking a loss on
the milk that had to be pooled because of commitments
to the Class I market, and by choosing not to pool large
volumes of milk that normally would have been asso-
ciated with Federal milk order pools. When . . . [price
inversions occur], it places fluid milk processors and
dairy farmers or cooperatives who service the Class I
market at a competitive disadvantage relative to those
who service the manufacturing milk market.
Milk used in Class I in Federal order markets must be
pooled, but milk for manufacturing is pooled voluntarily
and will not be pooled if the returns from manufacturing
exceed the blend price of the marketwide pool. Thus, an
inequitable situation has developed where milk for manu-
facturing is pooled only when associating it with a mar-
ketwide pool increases returns.
Id. When producers prefer to sell outside the pool due to
higher manufacturing returns, Class I handlers may have to
pay out-of-pocket premiums to attract their supply.
Thus, during times of price inversion, Class III handlers
who de-pool may pay less than the Class III price. At the
same time, Class I handlers inside the pool may be forced
practically to pay more than the Class I price because of ex-
tra-regulatory premiums. In sum, the ability of Class III
handlers to de-pool under Order No. 30 has negative eco-
nomic consequences on Class I handlers who must remain
within the pool.
B. Administrative and District Court Proceedings
In September 1999, Lamers stopped making required
compensating payments into the settlement fund. Instead,
Nos. 03-2308 & 03-2661 11
Lamers filed an administrative petition with the USDA for
exemption and/or modification of the provisions of Order
No. 30. Lamers’ petition alleged that Order No. 30 violated
equal protection and contravened the AMAA by permitting
“unfair trade practices.” Lamers sought relief in the form of
an order exempting it from pooling and from the obligation
to make payments into the producer settlement fund. After
an evidentiary hearing, an administrative law judge (“ALJ”)
sustained Order No. 30 and dismissed Lamers’ petition.
Lamers appealed to a USDA judicial officer. The judicial
officer affirmed the ALJ. Lamers then brought an action in
the district court, and the USDA counterclaimed for enforce-
ment of the Secretary’s decision.
The district court affirmed the Secretary. It determined
that, as to Lamers’ “unfair trade practices” claim, Lamers
was attempting to sue under a non-existent right. As to
Lamers’ equal protection claim, the district court noted that
the economic regulation was subject to rational basis scru-
tiny and concluded that the provisions of the regulatory
scheme survived challenge under that standard. The district
court subsequently ordered Lamers to pay $850,931.26 to the
settlement fund. Lamers timely appeals.
II
DISCUSSION
A. Standard of Review
We review de novo the district court’s grant of summary
judgment. See Indiana Family & Soc. Servs. Admin. v.
Thompson, 286 F.3d 476, 479 (7th Cir. 2002). All facts are
drawn and all inferences viewed in the light most favorable
to the nonmoving party. See Anderson v. Liberty Lobby, Inc.,
477 U.S. 242, 255 (1986). Summary judgment is appropriate
12 Nos. 03-2308 & 03-2661
when there is no genuine issue of material fact, and the
moving party is entitled to judgment as a matter of law. See
Fed. R. Civ. P. 56(c).
B. Equal Protection Claims
Lamers contends that the ability of Class III handlers to
“de-pool,” and its inability to do so, violates its right to
equal protection of the law. When considering an equal
protection claim, we first must ask whether the governmental
action involves fundamental rights or targets a suspect class.
See, e.g., Eby-Brown Co., LLC v. Wisconsin Dep’t of Agric., 295
F.3d 749, 754 (7th Cir. 2002). The distinction drawn by the
Secretary between Class I and Class III handlers is based
upon the end use to which these handlers put producer
milk. It therefore clearly does not involve fundamental rights
or target a suspect class and is merely an economic regula-
tion. See, e.g., id. Such an economic classification “is ac-
corded a strong presumption of validity.” Heller v. Doe, 509
U.S. 312, 319 (1993). The presumption applies not only to
legislative actions, but also extends to administrative action.
See Pac. States Box & Basket Co. v. White, 296 U.S. 176, 185-86
(1935); see also Steffan v. Perry, 41 F.3d 677, 685 (D.C. Cir.
1994).
We therefore review the Secretary’s difference in treatment
to determine whether there is a conceivably rational relation-
ship to a legitimate interest. See FCC v. Beach Communications,
Inc., 508 U.S. 307, 313 (1993); United States R.R. Ret. Bd. v.
Fritz, 449 U.S. 166, 174-79 (1980). Practically, our review
must be highly deferential:
[E]qual protection is not a license for courts to judge the
wisdom, fairness, or logic of legislative choices. In areas
of social and economic policy, a statutory classification
that neither proceeds along suspect lines nor infringes
fundamental constitutional rights must be upheld against
Nos. 03-2308 & 03-2661 13
equal protection challenge if there is any reasonably
conceivable state of facts that could provide a rational
basis for the classification.
Beach Communications, 508 U.S. at 313. Governmental action
only fails rational basis scrutiny if no sound reason for the
action can be hypothesized. See Northside Sanitary Landfill,
Inc. v. City of Indianapolis, 902 F.2d 521, 522 (7th Cir. 1990).
Furthermore, a circumspect approach is especially appropri-
ate in reviewing a challenge to the federal milk-marketing
regime. See Blair v. Freeman, 370 F.2d 229, 232 (D.C. Cir. 1966)
(“A court’s deference to administrative expertise rises to zenith
in connection with the intricate complex of regulation of
milk-marketing. Any court is chary lest its disarrangement
of such a regulatory equilibrium reflect lack of judicial com-
prehension more than lack of executive authority.”); see also
Zuber v. Allen, 396 U.S. 168, 172 (1969) (describing federal
milk-marketing regime as a “labyrinth”).
The USDA submits that the different treatment of Class I
and Class III handlers is rationally based because of the
purposes of regulation and the differing marketing condi-
tions faced by fluid milk and cheese producers. We agree.
The AMAA charges the Secretary of Agriculture with es-
tablishing and maintaining orderly marketing conditions so
as to establish parity prices to farmers. See 7 U.S.C. § 602(1).
The Secretary also is charged with establishing and main-
taining orderly marketing conditions so as to ensure an
orderly flow of supply and thereby prevent unreasonably
fluctuating prices. See id. In order to achieve these legitimate
marketing objectives, it is conceivably rational for the
Secretary to treat Class I and Class III handlers differently
with respect to pooling requirements.
In assessing the rationality of the Secretary’s action, we
must recall the relevant supply and demand characteristics
of the market. As we have noted previously, the milk pro-
duction industry is highly subject to seasonal fluctuations
14 Nos. 03-2308 & 03-2661
and characterized by excess supply. That excess cannot be
stored by producers; it must be marketed. Fluid milk pro-
ducts less easily are stored and transported than milk in
other forms. They are more perishable and thus more sub-
ject to the fluctuations in daily demand. They are generally
more highly valued. These circumstances affect the market
for producer milk in critical ways and thus provide a rational
basis for different pooling requirements among fluid milk
and manufacturing handlers. To maintain stability in the
milk market, the Secretary reasonably can require that milk
used to produce fluid products be pooled while exempting
other handlers from obligatory pooling. Indeed, the AMAA
is premised on obligatory pooling of Class I milk, so that all
producers may partake of its economic benefits. See Zuber,
396 U.S. at 180-81 (“The plain thrust of the federal statute was
to remove ruinous and self-defeating competition among
the producers and permit all farmers to share the benefits of
fluid milk profits according to the value of goods produced
and services rendered.”).
Next, we must keep in mind that “pooling” essentially
requires handlers to pay out a uniform minimum price for
their supply and is required, in part, to maintain prices for
producers. See Alto Dairy v. Veneman, 336 F.3d 560, 563 (7th
Cir. 2003) (describing milk-pricing system as means of “redis-
tribut[ing] wealth from consumers to producers of milk”).
Class I handlers’ end use typically represents the “cream of
the crop,” or the highest end use of Grade A producer milk,
and so Class I purchases in the pool generally raise the blend
price. Class III handlers, however, can use lower-standard
Grade B milk in their products, and their purchases in the
pool of higher-standard Grade A milk generally lower the
blend price. It is relatively unsurprising, then, that the
Secretary deems pooling by Class I handlers vital to the
regulatory scheme but deems pooling by Class III handlers
less essential, even though price inversions sometimes occur
that disrupt normal marketing conditions.
Nos. 03-2308 & 03-2661 15
Finally, we note that the history of the milk-marketing
regime evidences primary concern with producer competi-
tion to make sales to the fluid milk market, not the manufac-
turing market. See Zuber, 396 U.S. at 180-81 (discussing
AMAA purpose “to remove ruinous and self-defeating com-
petition” among producers for sales in the fluid milk market);
see also Block v. Cmty. Nutrition Inst., 467 U.S. 340, 343 (1984)
(discussing pooling requirements as means “[t]o discourage
destabilizing competition among producers for the more
desirable fluid milk sales”); United States v. Rock Royal Co-
Op., Inc., 307 U.S. 533, 572 (1939) (characterizing system of
compensating payments under the settlement fund as “rea-
sonably adapted” device “designed . . . to foster, protect and
encourage interstate commerce by smoothing out the difficul-
ties of the surplus and cut-throat competition which bur-
9
dened” the fluid milk market). Given this driving concern
over “ruinous and self-defeating” producer competition in
the fluid milk market, Zuber, 396 U.S. at 180, it is not irratio-
nal for the Secretary to allow Class III de-pooling when
market incentives are reversed and when sales to the
manufacturing market become more attractive to
10
producers.
Lamers’ challenge to the exemption of Class III handlers
from pooling requirements is essentially one to the breadth
9
Cf. Alto Dairy v. Veneman, 336 F.3d 560, 563 (7th Cir. 2003)
(describing system of uniform pricing as “price discrimination”
and noting that price discrimination increases profits, “thus coun-
teracting the alleged (though almost certainly spurious) tendency
of dairy farmers to destroy their business by competing overvig-
orously”).
10
This conclusion is not affected by the fact that price inversion
itself may be perceived of as a “disorderly marketing situation.”
Milk in the New England and Other Marketing Areas, Dep’t of
Agric., 64 Fed. Reg. at 16,103.
16 Nos. 03-2308 & 03-2661
of the regulatory regime, i.e., the Secretary’s failure to re-
quire Class III handlers to make compensating payments to
the settlement fund when price inversions occur. However,
it is well-established that “reform may take one step at a
time, addressing itself to the phase of the problem which
seems most acute to the legislative mind” without creating
an equal protection violation. Williamson v. Lee Optical, Inc.,
348 U.S. 483, 489 (1955). As such, “scope-of-coverage pro-
visions” are “virtually unreviewable” because the govern-
ment “must be allowed leeway to approach a perceived
problem incrementally.” Beach Communications, 508 U.S. at
316.
Similarly, equal protection does not require a governmen-
tal entity to “choose between attacking every aspect of a
problem or not attacking the problem at all.” Dandridge v.
Williams, 397 U.S. 471, 487 (1970). Indeed, “[m]ere underin-
clusiveness is not fatal to the validity of a law under the
Fifth Amendment’s guarantee of equal protection.” SeaRiver
Mar. Fin. Holdings, Inc. v. Mineta, 309 F.3d 662, 679 (9th Cir.
2002) (internal quotation and citation omitted); see also
Minnesota ex rel. Pearson v. Probate Court of Ramsey County,
309 U.S. 270, 275 (1940) (“If the law presumably hits the evil
where it is most felt, it is not to be overthrown because there
are other instances to which it might have been applied.”
(internal quotation and citation omitted)). Furthermore,
“broad legislative classification must be judged by reference
to characteristics typical of the affected classes.” Califano v.
Jobst, 434 U.S. 47, 55 (1977).
In light of these governing principles, it is clear that
Congress and the Secretary can regulate based upon typical
milk-marketing conditions without thereby violating equal
protection. Here, Congress and the Secretary have chosen to
address the perceived problem of excess milk supply in the
dairy industry by requiring Class I handlers to pool all their
Nos. 03-2308 & 03-2661 17
supply while exempting other handlers from that same
requirement, based on an assumption that Class I milk car-
ries the highest market value. They have chosen, in effect, to
address the usual situation while not addressing the
abnormal, aberrant situation in which Class I milk does not
carry the highest market price. Such incremental regulation
11
does not violate equal protection. See Beach Communications,
508 U.S. at 316; see also Brazil-Breashears v. Bilandic, 53 F.3d
789, 793 (7th Cir. 1995) (noting that the Illinois Supreme
Court could act incrementally in restricting judicial employ-
ees’ political activities, while exempting sitting judges from
that restriction, “regardless of the probability that the gov-
ernment will ever address the rest of the problem”).
We recognize that the Secretary’s exemption of Class III
handlers from pooling requirements effectively gives them
a competitive advantage. They may participate in pooling
when it is beneficial and withdraw when it is not. See Milk
in the New England and Other Marketing Areas, Dep’t of
Agric., 64 Fed. Reg. at 16,102. Thus, the Class III pooling
exemption is economically harmful to Lamers and other
Class I handlers (as well as to producers committed to deal-
ing with them) who must suffer the effects of Class III de-
pooling. That harm, however, does not rise to the level of
“invidious discrimination.” Williamson, 348 U.S. at 489.
Therefore, it is not a harm we can redress. See Dandridge, 397
U.S. at 485 (noting that “[i]n the area of economics and
11
We note further that what Lamers seeks is exemption from the
pooling requirement. See R.1 at 7. Presumably, Lamers seeks to
“de-pool” when the Class I price is higher than the blend price,
which is most of the time. Lamers would thereby avoid compen-
sating payments while taking advantage of the controlled market
prices. To permit all Class I handlers to so act would vitiate the
regulatory scheme devised by Congress.
18 Nos. 03-2308 & 03-2661
social welfare,” a governmental entity does not violate equal
protection “merely because the classifications made by its
laws are imperfect,” and further stating, “[i]f the clas-
sification has some ‘reasonable basis,’ it does not offend the
Constitution simply because the classification ‘is not made
with mathematical nicety or because in practice it results in
some inequality’ ” (quoting Lindsley v. Natural Carbonic Gas
Co., 220 U.S. 61, 78 (1911))); see also Heller v. Doe, 509 U.S.
312, 319 (1993) (“[R]ational-basis review in equal protection
analysis ‘is not a license for courts to judge the wisdom,
fairness, or logic of legislative choices.’ ” (quoting Beach
Communications, 508 U.S. at 313)).
In cases involving economic and social regulation, so long as
distinctions are conceivably rational, the recourse of a
12
disadvantaged entity lies in the democratic process. See
Beach Communications, 508 U.S. at 314 (“ ’The Constitution
presumes that, absent some reason to infer antipathy, even
12
By way of example, we note that, in 1999, the Secretary re-
sponded to industry complaints about price inversions by ad-
justing the Class I advanced pricing procedure in an attempt to
limit the price-inversion phenomenon:
The advanced pricing procedure provided in this final deci-
sion results in a Class I price that is based on a more recent
manufacturing use price, thus reducing (but not eliminating)
the time lag that contributes to class price inversion . . . .
....
. . . [R]educing the time period for which Class I pric-
ing is advanced should reduce the potential [of price
inversions] considerably, allowing Class I handlers to
compete more effectively with manufacturing plants for
fluid milk.
Milk in the New England and Other Marketing Areas, Dep’t of
Agric., 64 Fed. Reg. at 16,103.
Nos. 03-2308 & 03-2661 19
improvident decisions will eventually be rectified by the
democratic process and that judicial intervention is generally
unwarranted no matter how unwisely we may think a
political branch has acted.’ ” (quoting Vance v. Bradley, 440
U.S. 93, 97 (1979) (footnote omitted))); see also Eby-Brown,
295 F.3d at 754 (noting that improvident decisions “should
be rectified through the democratic process and not the
courts”). Lamers’ equal protection claim based on the
different pooling regulations governing Class I and Class III
handlers must therefore fail.
We briefly address one additional issue under the rubric
of equal protection analysis. Lamers submits that the failure
of the regulations to account for certain out-of-pocket
premiums it must pay to attract its supply violates its right
to equal protection. Lamers’ equal protection claim based on
these premiums is fundamentally flawed because Lamers
presents no distinction for this court to review. Specifically,
Lamers has demonstrated no difference between it and any
other handler as to the Secretary’s treatment of these out-of-
pocket premiums; the regulations simply do not take them
13
into account.
13
Lamers argues distinction based on the AMAA requirement
that “the total sums paid by each handler shall equal the value
of the milk purchased by him at the prices fixed.” 7 U.S.C.
§ 608c(5)(C) (emphasis added). Because the Secretary does not
account for out-of-pocket premiums, the calculation of the “total
sums paid” does not accurately reflect the cost of some handlers’
supplies. In the case of handlers not obligated by market realities
to pay such premiums, the Secretary’s “total sums paid” calcula-
tion more accurately reflects the cost of their supply. This
practical effect results: Handlers paying out-of-pocket premiums
owe larger compensating payments to the settlement fund than
they would owe if the Secretary took supply premiums into
account.
20 Nos. 03-2308 & 03-2661
Even if we treat Lamers’ complaint as somehow raising an
equal protection claim, it fails. Although some handlers may
be able to attract supply without paying such premiums, the
Secretary’s decision not to give any handler credit for such
competitive costs does not thereby rise to an equal protec-
tion violation. Cf. Eby-Brown, 295 F.3d at 754-55 (determin-
ing that statute, which prohibited certain tobacco wholesal-
ers from deducting “trade discounts” from costs but
permitted other wholesalers to deduct such costs, did not
violate equal protection). It is conceivably rational that
accounting for such extra-regulatory costs of competition
would hinder the objectives of the regulatory scheme, in that
it would reduce payments to the settlement fund. Further-
more, as we have discussed, the Secretary is permitted to
engage in incremental regulation. See, e.g., Williamson, 348
U.S. at 489 (“The legislature may select one phase of one
field and apply a remedy there, neglecting the others. . . .
The prohibition of the Equal Protection Clause goes no further
than the invidious discrimination.” (citation omitted)). Thus,
the Secretary’s treatment of premiums survives scrutiny.
C. “Unfair Trade Practices” Claim
Lamers argues that four aspects of Order No. 30 constitute
“unfair trade practices” prohibited by 7 U.S.C. § 608c(7)(A): (1)
the ability of Class III handlers to de-pool; (2) the require-
ment that Class I handlers pay into the settlement fund
when competing handlers dealing in both the fluid milk and
the manufacturing markets may draw upon those funds; (3)
the allowance of some manufacturing costs in the calcula-
tion of Class III and IV utilization prices; and (4) the ability
of some processing plants to receive “kickbacks” for
qualifying milk under the order.
Lamers’ claim of “unfair trade practices” warrants only brief
discussion, however, because, as the district court concluded,
Nos. 03-2308 & 03-2661 21
Lamers attempts to proceed under a non-existent statutory
right. Under 7 U.S.C. § 608c(7)(A), the prohibition of “unfair
methods of competition and unfair trade practices in the
handling of” agricultural commodities is one of several
“terms and conditions” that the Secretary may incorporate
14
in orders issued under the AMAA. It is not an independent
statutory prohibition, and the Secretary is not required to
include it in any order. Furthermore, the Secretary did not
include the prohibition in Order No. 30. Therefore, Lamers
lacks a statutory basis upon which to bring this claim.
Were it possible to construe Lamers’ claim as an argument
that the Secretary has advanced an unreasonable interpreta-
tion of the AMAA by enacting regulations that permit these
allegedly “unfair trade practices,” we first would be re-
quired to determine the appropriate level of deference that
must be accorded the Secretary’s interpretation of the
AMAA, assuming that interpretation did not contravene
statutory directives, and next would be required to determine
whether the Secretary’s interpretation represented a permis-
15
sible construction under the appropriate level of deference.
14
The relevant text of 7 U.S.C. § 608c(7) provides:
In the case of the agricultural commodities and the products
thereof specified . . . orders shall contain one or more of the
following terms and conditions:
(A) Prohibiting unfair methods of competition and un-
fair trade practices in the handling thereof.
...
15
The USDA submits that Lamers must establish that its actions
are “so arbitrary or patently inconsistent with congressional
purposes as to exceed [the] statutory delegation of legislative
authority.” See Appellee’s Br. at 33. It further submits that none
of the complained-of practices are arbitrary or patently inconsis-
(continued...)
22 Nos. 03-2308 & 03-2661
See Chevron U.S.A. Inc. v. Natural Res. Def. Council, Inc., 467
U.S. 837, 842-44 (1984). We need not decide this issue, how-
ever, because it is not possible to construe Lamers’ argu-
ments as reaching beyond a claim that the Secretary has
failed to enforce an AMAA prohibition on “unfair trade
16
practices.” See Appellant’s Br. at 20 (“[T]he USDA is not
15
(...continued)
tent with congressional purposes because each is related to the
objective of stabilizing competition among farmers for sales in the
fluid market: First, because Congress was concerned about
competition among farmers competing in the fluid milk market
and not in the cheese market, it is permissible for cheese pro-
cessors to de-pool. Second, marketwide pooling expressly is
authorized by 7 U.S.C. § 608c(5) and cannot be an unfair trade
practice under that statute even though some handlers competing
in the fluid market are entitled to draw payments from the fund
in relation to their manufacturing purchases. Third, the manufac-
turing allowance is simply a factor used to compute the utiliza-
tion price of Class III and Class IV raw milk. See 7 C.F.R.
§ 1000.50. Fourth, the arrangements between large processors and
other plants enable additional plants to qualify for the order and
constitute efficient systems of supply in the market. For these
reasons, the USDA contends that the Secretary’s decision to allow
these practices withstands review. See Appellee’s Br. at 32-35. We
need not and do not decide these issues although we note that
significant deference would be accorded the Secretary’s interpre-
tation of the statute it is charged with administering. See Chevron
U.S.A. Inc. v. Natural Res. Def. Council, Inc., 467 U.S. 837, 842-44
(1984).
16
We shall not make the argument for Lamers. Cf. Franklin v.
Gilmore, 188 F.3d 877, 884 (7th Cir. 1999) (noting that plaintiff
failed to make an argument excusing procedural default and de-
clining to “make it for him”); Stagman v. Ryan, 176 F.3d 986, 995
n.2 (7th Cir. 1999) (declining to make admissibility arguments for
(continued...)
Nos. 03-2308 & 03-2661 23
enforcing the specific prohibition contained in the AMAA
as to unfair competition.”); Appellant’s Reply Br. at 14 (“[T]he
USDA is not administering the AMAA in such a manner as
to avoid violating the specific prohibition contained in the
AMAA as to unfair competition.”). As noted, no such pro-
hibition exists.
Conclusion
Lamers has not established an equal protection violation
and cannot bring an “unfair trade practices” claim. For the
foregoing reasons, the judgment of the district court is
affirmed.
AFFIRMED
16
(...continued)
plaintiff when on appeal plaintiff relied on evidence found
inadmissible by the district court).
24 Nos. 03-2308 & 03-2661
A true Copy:
Teste:
_____________________________
Clerk of the United States Court of
Appeals for the Seventh Circuit
USCA-02-C-0072—8-13-04