Lamers Dairy Inc v. AGRI

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