Humane Society of the U.S. v. Thomas Vilsack , 797 F.3d 4 ( 2015 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
Argued May 7, 2015 Decided August 14, 2015
No. 13-5293
HUMANE SOCIETY OF THE UNITED STATES,
APPELLANT
HARVEY DILLENBURG AND IOWA CITIZENS FOR COMMUNITY
IMPROVEMENT,
APPELLEES
v.
THOMAS J. VILSACK, SECRETARY OF THE U.S. DEPARTMENT
OF AGRICULTURE,
APPELLEE
Consolidated with 13-5307
Appeals from the United States District Court
for the District of Columbia
(No. 1:12-cv-01582)
Matthew E. Penzer argued the cause for appellants. With
him on the briefs was Jonathan R. Lovvorn. Ralph E. Henry
entered an appearance.
Abby C. Wright, Attorney, U.S. Department of Justice,
argued the cause for appellee. With her on the brief were
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Ronald C. Machen Jr., U.S. Attorney at the time the brief was
filed, and Scott R. McIntosh, Attorney.
Before: GRIFFITH, SRINIVASAN and PILLARD, Circuit
Judges.
Opinion for the Court filed by Circuit Judge PILLARD.
PILLARD, Circuit Judge: The plaintiffs, a pork producer
named Harvey Dillenburg and two animal welfare
organizations who count pork producers among their
members, claim that the National Pork Board has
misappropriated millions of dollars from a fund for pork
promotion into which pork producers are required to pay.
The plaintiffs filed suit in federal district court and the court
dismissed their claim for a lack of standing. We reverse.
I.
The National Pork Board is a quasi-governmental entity
responsible for administering a federal regulatory scheme
known as the “Pork Order.” See 7 U.S.C. § 4808; see also
7 C.F.R. Part 1230. The Order implements the Pork Act,
7 U.S.C. §§ 4801-19, the purpose of which is to promote pork
in the marketplace, see 7 U.S.C. § 4801(b)(1). The Board
strengthens, maintains, develops, and expands markets for
pork and pork products through research and consumer
information campaigns. In exchange for the Board’s efforts
on behalf of their industry, pork producers pay the Board a
special assessment on each hog they import or sell. See
7 C.F.R. § 1230.71(b).
In 2006, the Board, with the approval of the Secretary of
the Department of Agriculture, bought four trademarks
associated with the slogan Pork: The Other White Meat
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(hereinafter “the slogan” or “the mark”) from the National
Pork Producers Council, an industry trade group, for $60
million.1 The payment terms provide that the Board will pay
the Council $3 million annually for twenty years. The Board
can terminate the payments at any time with one year’s
notice, in which case ownership of the phrase reverts back to
the Council. Five years after buying the mark, the Board
replaced it with a new motto, Pork: Be Inspired. Now the
Board keeps the initial slogan around as a “heritage brand”
that it does not feature in its advertising.
The plaintiffs claim that the Board did not buy the slogan
for its value as a marketing tool. They allege that the Board
used the purchase of the slogan as a means to cut a sweetheart
deal with the Council to keep the Council in business and
support its lobbying efforts. They maintain that the Board
overpaid for the slogan and that the Board’s shift to the Pork:
Be Inspired campaign makes the initial slogan all but
worthless. According to the plaintiffs, the purchase of the
mark and continued payment for it was and is arbitrary and
capricious. The plaintiffs also argue that the Board’s
purchase of the slogan with the purpose of supporting the
Council’s lobbying efforts violates the Pork Act and Order’s
prohibitions against the Board spending funds to influence
legislation. See 7 U.S.C. § 4809(e); 7 C.F.R. § 1230.74.
The plaintiffs sued the Secretary of the Department of
Agriculture under the Administrative Procedure Act seeking
1
The Secretary of the Department of Agriculture is charged with
reviewing and approving the Board’s actions. See
7 U.S.C. § 4808(b)(3); 7 C.F.R. § 1230.60(a). In this opinion, for
clarity and concision, we attribute Board-recommended, Secretary-
approved actions to the Board even though ultimate authority and
liability for those actions runs against the Secretary.
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an order enjoining the Board’s further payments to the
Council and directing the Secretary to claw back what
payments he can from the deal. The district court dismissed
the plaintiffs’ suit for lack of Article III standing. See
Humane Soc’y v. Vilsack, 19 F. Supp. 3d 24, 29 (D.D.C.
2013). The court held that Dillenburg failed to establish an
injury in fact fairly traceable to the Board’s actions that is
likely to be redressed by a favorable decision. Id. at 34-42. It
also held that the two plaintiff organizations could not
establish standing to sue in their own right or on behalf of
their pork-producing members. Id. at 42-47. The plaintiffs
appealed via separate notices and we consolidated the cases
for review.
For the reasons that follow, we reverse and remand. This
case involves a concrete and particularized harm caused by an
agency’s failure to confer a direct economic benefit on a
statutory beneficiary. We also reject the government’s
argument that the plaintiffs have failed to exhaust their
administrative remedies. The statute’s provision for
administrative review would not offer the plaintiffs adequate
relief, and therefore they were not required to pursue it.
II.
This suit ended on a motion to dismiss. We review such
dismissals de novo. Mendoza v. Perez, 754 F.3d 1002, 1010
(D.C. Cir. 2014). To survive a motion to dismiss for lack of
standing, a complaint must state a plausible claim that the
plaintiff has suffered an injury in fact fairly traceable to the
actions of the defendant that is likely to be redressed by a
favorable decision on the merits. See Lujan v. Defenders of
Wildlife, 504 U.S. 555, 560-61 (1992); see also Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009). Determining a claim’s
plausibility is “a context-specific task that requires the
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reviewing court to draw on its judicial experience and
common sense.” Iqbal, 556 U.S. at 679. We accept facts
alleged in the complaint as true and draw all reasonable
inferences from those facts in the plaintiffs’ favor. Bell Atl.
Corp. v. Twombly, 550 U.S. 544, 556-57 (2007).
A.
Dillenburg has made out a plausible claim to Article III
standing. His argument is simple. He says that his return on
his investment has been diminished by the Board’s unlawful
payments of $3 million per year for Pork: The Other White
Meat. If the Board stopped paying for the slogan, recouped
funds unlawfully channeled to the Council, and devoted the
money saved to more effective pork promotions, Dillenburg’s
alleged harm would be at least partially redressed. Amend.
Compl. ¶¶ 15, 128, J.A. 11, 34. That claim, if supported by
sufficient factual allegations to “nudge [it] . . . from
conceivable to plausible,” Twombly, 550 U.S. at 570, is
sufficient to establish Article III standing. Dillenburg’s claim
readily clears that line.
As an initial matter, Dillenburg has alleged a “concrete
and particularized” injury. Lujan, 504 U.S. at 560. He has
alleged facts plausibly showing that the mark was worth less
than its $60 million purchase price. Between 2001 and 2004,
the Board paid the Council one dollar per year to license the
slogan. Amend. Compl. ¶ 59, J.A. 20. In 2004, the Board
negotiated a new five-year license with the Council, providing
that payments would increase from one dollar per year to
$818,000 for three years before reverting back to one dollar
per year for the final two years. Id. ¶¶ 63, 109, J.A. 21-22,
30-31. The plaintiffs allege that the Board’s CEO wrote that
the increased license fee was negotiated to “allow the
[Council] to get the money they need for the next four years.”
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Id. ¶ 63, J.A. 21-22. Before the Board entered the new
licensing agreement, the Board’s own economist
recommended that the Board pay no more than $375,000
annually to license the mark. Id. ¶ 64, J.A. 22. He also
advised the Board that it was in a powerful position to dictate
favorable terms to the Council because there would be few
other buyers willing to purchase a generic slogan closely
identified with the promotion of pork. Id. ¶ 83, J.A. 25-26.
Indeed, there were no competing offers to purchase the
slogan. Id. ¶ 84, J.A. 26. Those facts raise a plausible
inference that the slogan was not worth its purchase price at
the time, and is not worth $3 million per year now.
Dillenburg also alleged facts tending to show that the
Board’s purchase of the mark was not negotiated at arm’s
length, which increased the plausibility of allegations that the
Board paid too much. According to the complaint, the
Council and the Board have been intertwined intimately since
the Board’s formation in the mid-1980s. Id. ¶¶ 43-45, 55,
J.A. 17, 19-20. The Council lobbied for passage of the Pork
Act, and it proposed the text that ultimately served as the
foundation for the Pork Order. Id. ¶¶ 43, 45, J.A. 17. The
Council played an instrumental role in developing the slogan,
vetting possible promotions for the Board to undertake, and
engaging with advertising agencies to develop them. Id.
¶¶ 46-54, J.A. 18-19. Even though the Board paid for the
mark’s development, the Council registered the mark in its
own name and as its sole owner. Id. ¶¶ 52-53, J.A. 19. The
Board and the Council were so enmeshed that, in 1986 when
the Board voted to adopt the campaign and so committed
itself to spend tens of millions of dollars in assessment funds
over two decades on the promotion, it did not execute any
licensing agreement or fee contract to formalize that
arrangement. Id. ¶ 51, J.A. 19. The Department of
Agriculture’s Office of Inspector General concluded in a 1999
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audit that the Board had “relinquished too much authority to
its primary contractor, the [Council], and ha[d] placed the
[Council] in a position to exert undue influence over Board
budgets and grant proposals.” Id. ¶ 55, J.A. 19-20. That
history, as alleged, raises a plausible inference that the
Board’s purchase was not the product of arm’s-length
negotiation.
Dillenburg has also alleged facts plausibly showing that,
whatever its value when the Board purchased it, the mark is
no longer worth $3 million per year. In 2011, the Board
replaced the slogan with a “proud new brand identity”—Pork:
Be Inspired. Id. ¶ 100, J.A. 28. In the same press release in
which it announced that it would be adopting Pork: Be
Inspired, the Board stated that the initial mark would be
treated as a “heritage brand,” and that “The Other White Meat
campaign will not be featured in advertising.” Id. ¶ 101,
J.A. 29. The Board’s replacement of the mark with Pork: Be
Inspired justifies the inference that the mark is no longer
worth $3 million annually.
That inference is strengthened by the fact that when the
Board valued the mark and negotiated its purchase in 2006, it
expressly assumed that it would be using the slogan as its
primary brand identity for the indefinite future. Id. ¶¶ 105-
106, J.A. 29-30. At that time, the Board reasoned that it could
either purchase the mark from the Council, or spend millions
of dollars building a new brand identity. Id. ¶¶ 68-72,
J.A. 22-23. The Board chose to purchase the slogan. Id. ¶ 71,
J.A. 23. In a letter seeking approval for the purchase from the
Department of Agriculture, the Board stated that its “primary
objective” was to purchase the mark for less than the
estimated cost of establishing the new brand identity. Id.
¶ 72, J.A. 23. The Board’s valuation of the slogan
incorporated the assumption that it would serve as the Board’s
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primary brand identity in the future. Now that it is no longer
the Board’s primary brand identity, the slogan is likely worth
substantially less than the $3 million per year the Board pays
for it.
Those allegations establish Dillenburg’s Article III
standing. Dillenburg’s injury is a classic form of concrete and
particularized harm: actual economic loss. See Sierra Club v.
Morton, 405 U.S. 727, 736-37 (1972); Shaw v. Marriott Int’l,
Inc., 605 F.3d 1039, 1042 (D.C. Cir. 2010). The Board’s
allegedly unlawful overpayments for an advertising campaign
it does not use divert funds from other promotions. Because
of that pork demand is lower, and thus the price at which pork
producers can sell their hogs is lower than it would be if the
Board were spending those funds on legitimate promotions
and other demand-enhancing campaigns rather than
squandering them with the Council. The misuse of the
assessment funds cognizably harms Dillenburg’s bottom line.
See, e.g., United Transp. Union v. ICC, 891 F.2d 908, 912 n.7
(D.C. Cir. 1989) (explaining that “courts routinely credit”
allegations founded on the “application of basic economic
logic”); see also Clinton v. City of New York, 524 U.S. 417,
432-33 (1998) (explaining that a “petitioner who is likely to
suffer economic injury as a result of [governmental action]
that changes market conditions satisfies” Article’s III injury-
in-fact requirement) (alterations in original) (quoting
3 Kenneth Culp Davis & Richard J. Pierce, Jr., Administrative
Law Treatise 13-14 (3d ed. 1994)).
Traceability and redressability readily follow.
Dillenburg’s harm is caused by the Board’s failure to spend
his mandatory assessment funds on legitimate promotions.
The harm is thus “fairly traceable” to the challenged action.
Lujan, 504 U.S. at 560 (internal quotation marks omitted).
Furthermore, if the Board were ordered to stop paying $3
9
million annually for the mark, it would be required by law to
use those funds reasonably and for legitimate purposes, an
outcome likely at least partially to redress his injury. See
Massachusetts v. EPA, 549 U.S. 497, 525-26 (2007)
(explaining that litigation success need only partially redress a
plaintiff’s injury to meet the redressability requirement). The
close relationship between a holding that the funds are being
unlawfully used and a remedy that would make them
available for lawful, more effective uses makes it “likely, as
opposed to merely speculative, that the injury will be
redressed by a favorable decision.” Lujan, 504 U.S. at 561
(internal quotation marks omitted).
We therefore conclude that Dillenburg has alleged a
plausible claim to Article III standing. Because we find that
Dillenburg has standing, we need not and do not reach the
arguments of the other plaintiffs regarding their standing. See
Mendoza, 754 F.3d at 1010; In re Navy Chaplaincy, 697 F.3d
1171, 1178 (D.C. Cir. 2012).
B.
The government argues that we should affirm the district
court’s order dismissing the complaint on the alternative
ground that the plaintiffs failed to exhaust their administrative
remedies. We reject that argument because the statute offers
administrative relief that, in the context of this case, is too
“doubtful and limited” to justify requiring the plaintiffs to
pursue it. Bowen v. Massachusetts, 487 U.S. 879, 901 (1988).
Under the relevant provision of the Pork Act, any person
subject to “an order” may petition the Secretary of the
Department of Agriculture (1) “stating that such order, a
provision of such order, or an obligation imposed in
connection with such order is not in accordance with law” and
(2) “requesting a modification of such order or an exemption
10
from such order.” 7 U.S.C. § 4814(a)(1). The government
contends that the plaintiffs were required to petition the
agency to exempt them from their payment obligations under
the Pork Order, or seek a modification of the Pork Order
prohibiting the Board from making the expenditures to which
they objected. Appellee Br. 17-19.
There is reason to doubt that the exhaustion provision
applies to the plaintiffs’ claims at all. The statute provides
that an individual subject to the Pork Order must “stat[e]” in
his petition for relief “that such order, a provision of such
order, or an obligation imposed in connection with such order
is not in accordance with law.” 7 U.S.C. § 4814(a)(1)(A).
But the plaintiffs are not claiming that any provision of the
Pork Order itself is “not in accordance with law.” The
government asserts, however, that the plaintiffs fall within the
provision because the Board’s misappropriation of assessment
funds transforms otherwise lawful assessments into
“obligation[s] imposed in connection with” the Pork Order
“not in accordance with law.” Id. That is a strained reading
of the provision.
Even assuming the plaintiffs came within the Pork Act’s
administrative relief provision, the only relief they could
obtain would be inadequate. See Bowen, 487 U.S. at 901.
The Act provides only two administrative remedies: “an
exemption from” the Pork Order, or “a modification” of it.
7 U.S.C. § 4814(a)(1)(B). Neither of those remedies would
provide plaintiffs anything like the relief they seek. See
Garcia v. Vilsack, 563 F.3d 519, 522 (D.C. Cir. 2009)
(explaining that administrative relief must be of the “same
genre” as Administrative Procedure Act relief sought).
An exemption from assessments would not remedy the
plaintiffs’ harms. The plaintiffs seek specific performance.
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An exemption is more akin to rescission. The two are not
equivalent. Moreover, making exemptions from payment the
only relief available to pork producers would undermine the
program: Producers who identify actionable abuses of the
Board’s discretion would be exempted, narrowing the Board’s
base even as it failed to correct its malfeasance.
Alternatively, a modification of the Pork Order would
offer the plaintiffs only doubtful relief. The plaintiffs’ claim
is that the Secretary is failing to comply with the Pork Act and
Order. The plaintiffs do not want to change the rules; they
want to see the existing rules enforced. Modifying the Order
will not get them that. Because neither an exemption nor a
modification of the Pork Order would offer the plaintiffs
adequate relief, they were not required to pursue an
administrative path that offered only those two remedies.
***
For the foregoing reasons, we reverse and remand for
further proceedings consistent with this opinion.
So ordered.