Alto Dairy v. Veneman, Ann

In the

United States Court of Appeals

For the Seventh Circuit

____________

No. 02-3422

ALTO DAIRY, et al.,

Plaintiffs-Appellants,

v.

ANN VENEMAN, Secretary of Agriculture,

Defendant-Appellee,

and

CONTINENTAL DAIRY PRODUCTS, INC., et al.,

Intervening Defendants-Appellees.

____________

Appeal from the United States District Court

for the Eastern District of Wisconsin.

No. 02 C 750—William C. Griesbach, Judge.

____________

ARGUED MAY 21, 2003—DECIDED JULY 15, 2003

____________

Before FLAUM, Chief Judge, and POSNER and MANION,

Circuit Judges.

POSNER, Circuit Judge. Dairy farmers located mainly in

Wisconsin brought this suit to enjoin an amendment

(adopted by the Department of Agriculture after a formal

rulemaking proceeding; published at 7 C.F.R. § 1033.7(c)(2);

and explained in Milk in the Mideast Marketing Area; Interim

2 No. 02-3422

Order Amending the Order, 67 Fed. Reg. 48743 (July 26, 2002))

to the federal rules regulating the price of milk. These

rules are called “milk marketing orders,” and so the amend-

ment is also a milk marketing order. The district judge

held that the plaintiffs lacked standing to challenge the

amendment, not in the Article III sense that the plaintiffs

had suffered and would suffer no harm from the amend-

ment, or would derive no benefit from a judgment invali-

dating the amendment, but in the sense of having been

denied by Congress a right to sue. So he dismissed the

suit for lack of federal jurisdiction. But he went on to de-

clare that, if he was wrong about jurisdiction, the suit

would still have to be dismissed because the plaintiffs’

challenge lacked merit. The plaintiffs have appealed, chal-

lenging the judge’s ruling on standing and also arguing

that if there is standing we should reach the merits and

vacate the amendment because the Department of Agricul-

ture failed to give them proper notice concerning the re-

lief that might emerge from the rulemaking proceeding.

While the Department defends the judge’s ruling on stand-

ing, it has also responded to the plaintiffs’ argument on

the merits. The merits having thus been fully briefed, we

can decide them if there is standing.

The federal scheme for regulating the price of milk pivots

on the fact that milk is more highly valued by the market

when it is sold for fluid consumption than when it is sold

as an input into the manufacture of cheese or other dairy

products. If milk were perishable, as it was in the days

before refrigerated 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 manufac-

turers of cheese and other dairy products. But when refrig-

No. 02-3422 3

erated storage and transportation 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 located near

those cities.

This was a natural, procompetitive development, as in

other cases in which a reduction in the quality-adjusted

cost of transportation enlarges geographic markets. But

the federal regulatory scheme for milk, like so much

economic regulation adopted during the Great Depression

of the 1930s (much of it, however, since abolished as a

consequence of the deregulation movement), is premised

on dissatisfaction with the results of competition, polemi-

cally described as “ruinous” by those producer interests

that it pinches. (For a near unintelligible description of

conditions thought to render competition among dairy

farmers unworkable, see Nebbia v. New York, 291 U.S. 502,

517-18 (1934).) To limit the competition between remote

and proximate dairy farmers for the lucrative fluid-milk

business of the cities, Congress in the Agricultural Market-

ing Agreement Act of 1937, 50 Stat. 246, as amended,

7 U.S.C. §§ 601 et seq., authorized the Department of Agri-

culture to proceed as follows. The Department fixes a

minimum price for each “class” of milk, with class deter-

mined by end use: thus the price fixed for milk intended

for fluid consumption is higher than the price fixed for

milk intended for cheese. This “value of service” pricing,

conventional in regulated industries, is actually a form of

price discrimination, that is, pricing guided not by cost

(the cost of producing milk is the same regardless of the

use to which the milk is put by the purchaser), as under

competition, but by differences across consumers in willing-

ness to pay. Price discrimination increases sellers’ profits,

thus counteracting the alleged (though almost certainly

4 No. 02-3422

spurious) tendency of dairy farmers to destroy their busi-

ness by competing overvigorously. More realistically, milk

price discrimination is intended to redistribute wealth

from consumers to producers of milk.

Farmers of course do not sell directly to the ultimate

consumer. The direct purchasers of milk from dairy farmers

are referred to as “handlers.” They might be owners of

supply plants (of which more later), or milk distribu-

tors, cheese factories, or other intermediaries in the milk

market. It is the handlers who pay the prices fixed by the

federal regulators. The revenues generated by the dis-

criminatory pricing scheme and received in the first in-

stance by the handlers are pooled, and each dairy farmer

whose sales contributed to the pool receives a share of

the revenues that is equal to his percentage not of the

total revenues of the pool’s members but of their total

physical output. By virtue of this method of dividing up

the pot, each farmer receives the same price (called a

“blended” price) for each unit of milk that he sells regard-

less of the end use of his milk. A farmer who sold all

his milk to a cheese factory (in fact most milk produced

in Wisconsin is used to make cheese, rather than being

drunk) would receive from the pool the same price per

unit of output as a farmer who sold all his milk for fluid

consumption, even though the handler would have paid

a much lower price for the former than for the latter milk.

The result, or at least the intended result, is that the

first farmer in our example, the one who sells all his milk

to a cheese factory, will have no incentive to divert some

of his output to the fluid market, where the price is high-

er, because the price that he receives for the milk he sells

is independent of the use to which that milk is put. Such

a diversion, what economists call “arbitrage,” would un-

dermine and, if uncontrolled, eventually destroy the

scheme of discriminatory pricing and thus reduce the

No. 02-3422 5

incomes of dairy farmers as a group. The distant farmers

are “kept in their place,” as it were—kept selling locally to

the cheesemakers rather than trying to sell to fluid-milk

distributors in the cities—by being given a share of fluid-

milk revenues.

The fly in the ointment, and the cause of the present

litigation, is that the Agriculture Department has divided

the nation into regions and fixed different blended prices

in the different regions. The blended price is higher in

regions in which fluid-milk consumption is a higher frac-

tion of total milk use, because in such regions a higher

fraction of milk is sold to handlers at the high minimum

price that the Agriculture Department has set for milk

consumed in fluid form. The “Mideast,” which com-

prises Indiana, Michigan, Ohio, and parts of Pennsylvania

and West Virginia, is one of these regions. Wisconsin, which

is a large manufacturer of cheese, is not in the Mideast

region and the blended price in its region is lower because

of the high fraction of its milk output that goes to make

cheese rather than being drunk. Naturally, therefore,

Wisconsin dairy farmers would like to sell as much of

their milk in the Mideast as they can (and for the fur-

ther reason that the Department has fixed a higher mini-

mum price for milk sold for consumption in fluid form

in the Mideast states than in Wisconsin, see 7 C.F.R.

§ 1000.52)—or rather, they would like as many of their

sales as possible to be pooled with the Mideast producers’

sales and so be remunerated at the higher Mideast blended

price. For they have no wish to incur the costs of actually

shipping their milk to the Mideast; they would much

rather continue to ship it to nearby cheese factories in

Wisconsin, their traditional customers. To the extent that

Wisconsin milk production is pooled with that of the

Mideast dairy farmers, the latter will lose revenues be-

cause the Wisconsinites will be taking out revenue at the

6 No. 02-3422

Mideast blended price while contributing to the pool the

revenue generated by sales at lower prices to the cheese

factories. If all their output were sold to cheese factories,

the revenue they would be contributing to the pool would

be their output multiplied by the low price fixed for the

sale of milk destined for use as an input into the making

of cheese, while the revenues they would be receiving

as their share of the Mideast pool would be their output

multiplied by the Mideast blended price.

To limit the type of arbitrage described in the preced-

ing paragraph, the Agriculture Department has long re-

quired that a supply plant—a handler that buys milk from

the farmer for storage and redistribution—resell 30 percent

of its milk into a region in order to be eligible for the

blended price fixed for that region. If it does sell 30 percent

there, however, its entire output, not just the 30 percent,

qualifies for the region’s blended price. Moreover, the

Agriculture Department also authorizes a practice called

“paper pooling,” which permits a supply plant in one

region to “associate” with dairy farmers in another region,

who by virtue of the “association”—which can be com-

pletely informal—are treated as if they shipped their milk

to the supply plant. Thus, if a dairy farm in Indiana is

“associated” with a milk supply plant in Wisconsin, but

sells its milk to a milk distributor in Indiana and ships the

milk directly there rather than via the supply plant, its

sales, though entirely within Indiana, nevertheless are

counted as part of the 30 percent of the Wisconsin sup-

ply plant’s sales that must be made in the Mideast region

in order to allow the supply plant’s entire sales to be

included in the Mideast pool. Ten percent of the 30 percent

must actually be shipped into the distant region, but the

other 27 percent need not be. So the nominal 30 percent

requirement is reduced to 3 percent. A supply plant in

Wisconsin, buying all its milk from local farmers, need ship

No. 02-3422 7

only 3 percent of its milk to the Mideast to qualify for the

Mideast blended price for its entire output, so long as

another 27 percent is supplied by Mideast dairy farmers

associated with the Wisconsin plant.

The rationale for paper pooling, which makes perfectly

good sense, is that farmers should be permitted to ship

directly to distributors, without having to go through

supply plants. And until 2000, paper pooling did not

create significant arbitrage opportunities, because the

Agriculture Department forbade distant supply plants

to receive the full blended price in the region of their

associated dairy farmers. But the prohibition was rescinded

that year, see 7 C.F.R. § 1000.50, and with that rescission

paper pooling became a loophole through which the

Wisconsin dairy farmers rushed. The amendment they

challenge closes the loophole by forbidding the qualify-

ing 30 percent to include local shipments from distant

supply plants. 7 C.F.R. § 1033.7(c)(2). If a supply plant

in Wisconsin wants to associate with a dairy farmer in the

Mideast region, so that sales by that farmer will qualify

for the Mideast blended price, the plant must now re-

quire the farmer to ship his milk to the supply plant for

reshipment to customers in the Mideast. The plaintiffs

criticize the requirement because it is often more econ-

omical for the dairy farmer to bypass the supply plant,

especially as the quality of the milk may drop when it is

pumped into and then out of the supply plant, and espe-

cially when the farmer and the distributor are near each

other but distant from the supply plant. Were the blended

price in the Mideast sufficiently high, an Indiana dairy

farmer might be induced to ship his milk to a Wisconsin

supply plant for resale to an Indiana milk distributor, in

order that the dairy farmer’s output would contribute to

the supply plant’s making its 30 percent quota. That would

be a great waste. But the plaintiffs’ criticism is neither here

8 No. 02-3422

nor there, since the only challenge they mount in this court

to the amendment is that it was adopted without proper

notice to them.

Before we consider that issue, which is the issue on the

merits, we must satisfy ourselves that the plaintiffs have

a right to seek judicial review of the Agriculture Depart-

ment’s order amending the Mideast milk marketing order.

The district judge, as we mentioned, thought they did not.

The circuits have divided over the question. Compare

Minnesota Milk Producers Ass’n v. Madigan, 956 F.2d 816,

817-18 (8th Cir. 1992); Farmers Union Milk Marketing Co-op

v. Yeutter, 930 F.2d 466, 471-74 (6th Cir. 1991), and Suntex

Dairy v. Bergland, 591 F.2d 1063, 1065-67 (5th Cir. 1979),

all holding that milk producers (dairy farmers) do have a

right to judicial review of milk marketing orders, with

United Dairymen of Arizona v. Veneman, 279 F.3d 1160, 1165

(9th Cir. 2002), and Pescosolido v. Block, 765 F.2d 827, 832-

33 (9th Cir. 1985), holding that they do not. The judge

thought that this court had taken the latter position in

Uelman v. Freeman, 388 F.2d 308 (7th Cir. 1967) (see also

United Milk Producers v. Benson, 225 F.2d 527, 529 (D.C.

Cir. 1955), a similar case), and he felt bound by that deci-

sion, which in addition he thought bolstered by the Su-

preme Court’s ruling in Block v. Community Nutrition

Institute, 467 U.S. 340 (1984), that consumers do not have

standing to challenge milk market orders.

Uelman is not controlling. The Supreme Court had held

in Stark v. Wickard, 321 U.S. 288 (1944), that even though

the milk marketing law did not in so many words confer

on producers a right to judicial review of milk marketing

orders, they could challenge such an order if in issuing it

the Agriculture Department had exceeded the authority

delegated to it by Congress and in doing so had infringed

a definite right of the producer, id. at 307-10, criteria not

No. 02-3422 9

satisfied in Uelman. The plaintiffs in our case seek judicial

review not on the basis of the extrastatutory rule of Stark,

321 U.S. at 307-10, but on the basis of the Administrative

Procedure Act, which confers a right to mount a judicial

challenge to agency action on persons “adversely affected

or aggrieved by agency action within the meaning of a

relevant statute,” 5 U.S.C. § 702, unless the statute in

question “preclude[s] judicial review.” 5 U.S.C. § 701(a)(1).

Section 702 certainly describes these plaintiffs, who are

injured in their pocketbooks by having their access to the

Mideast blended price, which is higher than the blended

price in their region, curtailed. Moreover, dairy farmers,

the plaintiffs in this case, are, as the Court noted in Stark,

321 U.S. at 305-06, the very group that the milk marketing

law seeks to protect. “The right of judicial review is ordi-

narily inferred where congressional intent to protect the

interests of the class of which the plaintiff is a member

can be found; in such cases, unless members of the pro-

tected class may have judicial review the statutory objec-

tives might not be realized.” Barlow v. Collins, 397 U.S. 159,

167 (1970); see also American Federation of Government

Employees, Local 2119 v. Cohen, 171 F.3d 460, 469 (7th Cir.

1999); First National Bank & Trust Co. v. National Credit Union

Administration, 988 F.2d 1272, 1275 (D.C. Cir. 1993).

The Agriculture Department argues that the milk mar-

keting law repeals so much of the APA as would otherwise

entitle dairy farmers to challenge a milk marketing or-

der that harmed them. The milk marketing law expressly

authorizes judicial review of milk marketing orders at the

behest of handlers, 7 U.S.C. § 608c(15), but is silent on the

right of a dairy farmer (that is, a producer, rather than a

purchaser from the producer) to get judicial review. The

Department asks us to infer from this silence that Con-

gress meant to preclude judicial review by farmers, thus

bringing this case within 5 U.S.C. § 701(a)(1). But inferences

10 No. 02-3422

from congressional silence are treacherous; oversights

are common in the hurly-burly of congressional enact-

ment; omissions are not enactments; and even deliberate

omissions are often subject to alternative interpretations,

as here. Handlers are not indifferent to the price of milk,

since they are the purchasers of milk from the dairy farmers.

But as middlemen, able to pass on a portion, maybe a

very large portion, of any higher price to their custom-

ers—the milk distributors, cheese factories, and so forth—

they may be indifferent to many changes in milk market-

ing orders, including the one at issue in this case, which

basically transfers wealth from Mideast to Wisconsin

dairy farmers. No such indifference can attend the farmers

who have brought the present suit; every additional

cent they receive for their milk goes directly to their bottom

line. Congress may have thought it obvious that as the

intended beneficiaries of milk marketing orders, dairy

farmers could challenge those orders in court, but not

obvious that handlers could, and so it expressly author-

ized suits by them as well.

History supports this interpretation. What is now the

milk marketing law was originally a part of the first Agri-

cultural Adjustment Act, passed in 1933, 48 Stat. 31, and

that act contained no provision for judicial review of pric-

ing orders issued under it, including milk marketing or-

ders. The statutory provision authorizing handlers to

sue was added to the AAA in 1935 and was retained when

the Act’s provisions dealing with milk marketing were

split off and made the subject of a separate statute, the

statute involved in this case, the Agricultural Marketing

Agreement Act of 1937. Block v. Community Nutrition

Institute, supra, 467 U.S. at 346. This was years before the

Administrative Procedure Act was enacted. After it was

enacted, with the provision quoted earlier (5 U.S.C. § 702)

that by its terms would have seemed to entitle milk pro-

No. 02-3422 11

ducers as persons aggrieved by adverse milk marketing

orders to obtain judicial review, there was no urgent

need for Congress to revisit the milk marketing law and

add a provision expressly authorizing that review.

Now it is true that in denying standing to milk con-

sumers, the Supreme Court in Block had emphasized that

allowing them to challenge milk marketing orders in

court would cause the administrative remedies that the

milk marketing law had created to be bypassed; and the

concern extends to producers (though not in every case,

and specifically, as we’ll see, not in this case). The provi-

sion entitling handlers to judicial review starts off by say-

ing that “any handler subject to [a milk marketing order]

may file a written petition with the Secretary of Agriculture,

stating that any such order or any provision of any such

order or any obligation imposed in connection therewith

is not in accordance with law and praying for a modifica-

tion thereof or to be exempted therefrom. He shall there-

upon be given an opportunity for a hearing upon such

petition, in accordance with regulations made by the

Secretary of Agriculture, with the approval of the President.

After such hearing, the Secretary shall make a ruling

upon the prayer of such petition which shall be final, if

in accordance with law.” 7 U.S.C. § 608c(15)(A). The hand-

ler can seek review of that ruling in federal district court.

Id., § 608c(15)(B). There is no similar provision regarding

petitions for administrative review by consumers—or

producers. So if permitted to sue, consumers or pro-

ducers might raise in court objections to the milk market-

ing order that the regulators had not had a chance to

consider. “Nowhere in the [milk marketing] Act is there

an express provision for participation by consumers in

any proceeding. In a complex scheme of this type, the

omission of such a provision is sufficient reason to be-

12 No. 02-3422

lieve that Congress intended to foreclose consumer par-

ticipation in the regulatory process.” Block v. Community

Nutrition Institute, supra, 467 U.S. at 347.

The implication is less that judicial review should be

denied to all aggrieved persons except handlers than

that aggrieved persons should be required to exhaust

administrative remedies before suing. The distinction

was not important in Block. Consumers’ interests are

aligned with handlers’ interests, and handlers, who have

to exhaust their administrative remedies as we have just

seen, have express authority to sue. So there was little

need to complicate the administrative scheme by allowing

(more precisely, by imputing to Congress an intent to

allow) consumers to sue as well. Cf. Illinois Brick Co. v.

Illinois, 431 U.S. 720, 745-47 (1977), denying indirect pur-

chasers (generally consumers) the right to bring antitrust

suits seeking damages from remote sellers since direct

purchasers can do so. Milk producers’ interests, however,

tend to be antagonistic to handlers’ interests, producers

being the sellers and handlers the buyers.

All this is made clear in Block. “The structure of this Act

indicates that Congress intended only producers and

handlers, and not consumers, to ensure that the statutory

objectives would be realized. Respondents [i.e., the con-

sumers who had brought the suit in Block] would have

us believe that, while Congress unequivocally directed

handlers first to complain to the Secretary that the prices

set by milk market orders are too high, it was neverthe-

less the legislative judgment that the same challenge, if

advanced by consumers, does not require initial administra-

tive scrutiny . . . . Allowing consumers to sue the Secretary

[of Agriculture] would severely disrupt this complex

and delicate administrative scheme. It would provide hand-

lers with a convenient device for evading the statutory

No. 02-3422 13

requirement that they first exhaust their administrative

remedies. A handler . . . would need only to find a con-

sumer who is willing to join in or initiate an action in the

district court. The consumer or consumer-handler could

then raise precisely the same exceptions that the handler

must raise administratively. Consumers or consumer-

handlers could seek injunctions against the operation

of market orders that ‘impede, hinder, or delay’ enforce-

ment actions, even though such injunctions are expressly

prohibited in proceedings properly instituted under 7

U.S.C. § 608c(15) [i.e., by handlers].” Block v. Community

Nutrition Institute, supra, 467 U.S. at 347-48. Notice the

distinction that the Court draws between consumers and

producers, properly so since the stepping-on-the-heels-of-

the-handlers concerns that it expresses about allowing

consumers to sue do not arise when the suit is by a pro-

ducer.

The reasoning of Block, transposed from consumer to

producer suits, suggests that imposing a requirement

of exhausting administrative remedies would be greatly

preferable to abrogating the right to sue. Every federal court

and agency has inherent authority (unless abrogated by

Congress) to reexamine its decisions if asked to do so within

a reasonable time, Glass, Molders, Pottery, Plastics & Allied

Workers Int’l Union, AFL-CIO, CLC, Local 182B v. Excelsior

Foundry Co., 56 F.3d 844, 847 (7th Cir. 1995); In re Met-L-

Wood Corp., 861 F.2d 1012, 1018 (7th Cir. 1988); Isle Royale

Boaters Ass’n v. Norton, 330 F.3d 777, 786 (6th Cir. 2003); Dun

& Bradstreet Corp. Foundation v. United States Postal Service,

946 F.2d 189, 193-94 (2d Cir. 1991), including we assume

the Agriculture Department; and so the producers could

have complained to the Department about the loophole-

closing amendment. But the courts do not have the pow-

er to require an agency to make the persons subject to its

regulatory powers jump through procedural hoops not

14 No. 02-3422

found in its organic statute or implementing regulations,

as a precondition to obtaining judicial review. That’s what

5 U.S.C. § 704 says, and the Supreme Court explained

in Darby v. Cisneros, 509 U.S. 137, 146-47 (1993), that

adding those hoops would make it too difficult for ag-

grieved persons to determine when agency action was final

so that they could seek judicial review. The milk marketing

law authorizes only handlers to ask the Department for

relief from a milk marketing order. We cannot impose

a similar rule on producers.

But presumably the Department can by amending the

procedures that it has promulgated for milk-marketing

hearings. See 7 C.F.R. pt. 900; cf. 5 U.S.C. § 553(e); Auer

v. Robbins, 519 U.S. 452, 459 (1997). “Except as otherwise

expressly required by statute, agency action otherwise

final is final for purposes of this section whether or not

there has been presented or determined an application

for a declaratory order, for any form of reconsideration, or,

unless the agency otherwise requires by rule and provides that

the action meanwhile is inoperative, for an appeal to superior

agency authority.” 5 U.S.C. § 704 (emphasis added). This

provision, as the Court remarked in Darby, “by its very

terms, has limited the availability of the doctrine of ex-

haustion of administrative remedies to that which the

statute or rule clearly mandates.” 509 U.S. at 146 (empha-

sis added). “Agencies may avoid the finality of an initial

decision, first, by adopting a rule that an agency appeal be

taken before judicial review is available, and, second, by

providing that the initial decision would be ‘inoperative’

pending appeal. Otherwise, the initial decision becomes

final and the aggrieved party is entitled to judicial review.”

Id. at 152.

The absence of a requirement that the producers ex-

haust their administrative remedies weakens the argu-

ment for allowing them to seek judicial review. For the

No. 02-3422 15

argument if accepted creates a risk of their bypassing the

agency and raising objections that the agency might have

responded to more effectively than in its brief in the re-

viewing court—but not in this case. And maybe not in

any case, since as we have just seen the Agriculture Depart-

ment can impose a requirement of exhaustion, and it ought

not be allowed to use its failure to do so to block judicial

review of its orders. But let us set that point to one side

and focus narrowly on this case. Remember that the only

complaint the plaintiffs are pressing in this appeal is that

they didn’t receive adequate notice of the relief contem-

plated by the Department; they didn’t know what was

at stake for them in the proceeding and therefore they

didn’t participate fully in it, though some of them, as the

defendants stress, did participate to a greater or lesser

extent. Although the Department is in a better position

than we are to decide whether their objections to the

amendment have sufficient merit to warrant reopening

the rulemaking proceeding, they are not asking us to rule

on those objections. They are asking us to decide the

purely procedural question whether the Department gave

them adequate notice. Requiring them to tender this issue

first to the Department would be a waste of time.

The Department’s final argument against allowing

producers to sue is that many of them, dairy co-ops for

example, are both producers and handlers (that is, these

producers have cut out the middleman) and could sue

in the latter capacity. But these hybrids have no quarrel

as handlers with the order. If the Department nevertheless

believes, as it seems to, that they could sue to protect their

interests as producers, it is giving away the game; for

there is no reason to confine the right to sue to producers

adventitiously engaged in handling as well.

We conclude that producers can seek judicial review of

milk marketing orders that pinch them, and so we can

16 No. 02-3422

proceed at last to the merits, which is to say to the issue

of notice. The Administrative Procedure Act requires pub-

lished notice of proposed rulemaking, 5 U.S.C. § 553(b),

but does not specify how detailed the notice must be.

We have said that “notice is adequate if it apprises inter-

ested parties of the issues to be addressed in the rulemak-

ing proceeding with sufficient clarity and specificity to

allow them to participate in the rulemaking in a meaningful

and informed manner.” American Medical Ass’n v. United

States, 887 F.2d 760, 767 (7th Cir. 1987). But “while an agency

must explain and justify its departures from a proposed

rule, it is not straitjacketed into the approach initially

suggested on pain of triggering a further round of notice-

and-comment.” Id. at 769. “The law does not require that

every alteration in a proposed rule be reissued for notice

and comment. If that were the case, an agency could ‘learn

from the comments on its proposals only at the peril of’

subjecting itself to rulemaking without end.” First American

Discount Corp. v. CFTC, 222 F.3d 1008, 1015 (D.C. Cir. 2000).

The purpose of a rulemaking proceeding is not merely

to vote up or down the specific proposals advanced before

the proceeding begins, but to refine, modify, and supple-

ment the proposals in the light of evidence and argu-

ments presented in the course of the proceeding. If every

modification is to require a further hearing at which that

modification is set forth in the notice, agencies will be

loath to modify initial proposals, and the rulemaking

process will be degraded.

The notice that the Department issued, Milk in the

Mideast Marketing Area; Notice of Hearing on Proposed Amend-

ments to Tentative Marketing Agreement and Order, 66 Fed.

Reg. 49571 (Sept. 28, 2001), stated: “A public hearing is

being held to consider proposals that would amend certain

pooling and related provisions of the Mideast order.

No. 02-3422 17

Proposals include . . . decreasing the amount of producer

milk that can be diverted to nonpool plants for varying

months of the year; and increasing the minimum amount

of milk that a producer needs to deliver to pool plants

in order to qualify as a producer and to be eligible to be

pooled on the order . . . [and] eliminating a provision that

currently permits a pool plant to have both a pool and a

nonpool portion; [and] establishing a ‘net shipment’ pro-

vision for milk received at pool plants for determining

pooling eligibility.” Though this is gobbledygook to an

outsider, insiders such as the plaintiffs would realize

that the focus of the proceeding would be on their eligibil-

ity to be pooled with the Mideast producers (that is what

being “pooled on the [Mideast] order” means).

What is true is that none of the proposals was identical

to the amendment that the Department adopted at the

end of the proceeding, namely the prohibition of paper

pooling with distant plants. But paper pooling was one

of the principal methods by which the plaintiffs got to

pool with the Mideast producers, so that they had to as-

sume that it would be one of the issues in the proceeding

and a possible target for reform. They knew their aggressive

inroads into the Mideast were controversial; they knew

that in engaging in paper pooling with Mideast farmers

they were exploiting the loophole created by the Depart-

ment’s abolition in 2000 of the price penalties for such

pooling; they knew therefore that a curtailment of their

access to the Mideast blended price was a likely outcome

of a rulemaking proceeding expressly concerned with the

criteria for eligibility for pooling with the Mideast produc-

ers. They knew enough to know that if they wanted to

protect their participation in the Mideast pool they would

have to participate in the rulemaking proceeding. Their

choice not to do so cannot be attributed to a lack of notice.

18 No. 02-3422

The judgment dismissing the suit is modified to base

dismissal on the merits rather than on lack of jurisdiction,

and as so modified is affirmed.

A true Copy:

Teste:

_____________________________

Clerk of the United States Court of

Appeals for the Seventh Circuit

USCA-02-C-0072—7-15-03