Humane Society of the United States v. Vilsack

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

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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

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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.