The opinion
In the
United States Court of Appeals
For the Seventh Circuit
No. 07-3545
W HITE E AGLE C OOPERATIVE
A SSOCIATION, et al.,
Plaintiffs-Appellants,
v.
C HARLES F. C ONNER, Acting
Secretary, United States Department
of Agriculture, et al.,
Defendants-Appellees.
A ppeal from the U nited States District Court
for the Northern District of Indiana, South Bend Division.
N o. 05 C 620— A llen Sharp, Judge.
A RGUED M A Y 15, 2008—D ECIDED JANUARY 12, 2009
Before R IPPLE, K ANNE and W ILLIAMS, Circuit Judges.
R IPPLE, Circuit Judge. The plaintiffs brought this action
against the United States Department of Agriculture
(“USDA” or “the Government”), challenging the USDA’s
rulemaking process and a resulting amendment to the
Mideast Milk Marketing Order. The plaintiffs alleged
2 No. 07-3545
violations of the Agricultural Marketing Agreement Act
of 1937, 7 U.S.C. § 601 et seq.; the USDA’s rules of prac-
tice, 7 C.F.R. § 900.1 et seq.; the Administrative Procedure
Act, 5 U.S.C. § 551 et seq.; the Regulatory Flexibility Act,
5 U.S.C. § 601 et seq.; and the Fifth Amendment’s Due
Process Clause. A number of dairy producers who sup-
ported the regulatory changes intervened to defend the
amended rule and the adoption process. The district
court granted summary judgment to the USDA and the
intervenors on all counts. For the reasons set forth in
this opinion, we affirm the judgment of the district court.
I
BACKGROUND
White Eagle Cooperative Association is a cooperative
made up of milk producers. Together with the other milk
producers (collectively, “White Eagle”), they challenge
the USDA’s rulemaking process and the resulting change
to the Mideast Milk Marketing Order. At the outset,
in order to assist our readers in understanding White
Eagle’s challenges, we must discuss briefly the dairy
industry and its market forces as well as the relevant
regulatory structure.1
1
Our discussion borrows heavily from Lamers Dairy, Inc. v.
USDA, 379 F.3d 466 (7th Cir. 2004). For additional background
discussions, see Zuber v. Allen, 396 U.S. 168, 172-74 (1969); Alto
Dairy v. Veneman, 336 F.3d 560, 562 (7th Cir. 2003); and Stew
Leonard’s v. Glickman, 199 F.R.D. 48, 49-50 (D. Conn. 2001).
No. 07-3545 3
A. The Dairy Industry
In the dairy industry, dairy farmers, also referred to as
“producers,” sell raw milk to “handlers.” Handlers, in
turn, prepare the milk product for resale to 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 “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 “manufac-
tured dairy products.” Consequently, the market into
which dairy farmers sell their product values more
highly (and pays a premium price for) Grade A milk
ultimately used to produce beverage milk. This market
premium based on end use creates an incentive among
producers to divert their Grade A product to fluid milk
handlers. Were this incentive not controlled, lower
market prices would result from the increased supply,
thereby harming milk production revenues.2
The dairy industry also is characterized by daily and
seasonal fluctuations in supply and demand. Consumer
demand fluctuates significantly on a daily basis, primarily
due to consumer buying patterns. On the other hand, milk
production, while relatively constant on a daily basis, does
vary seasonally: In fall and winter months, less milk is
produced; in spring and summer months, more milk is
2
See Alto Dairy, 336 F.3d at 563 (“Such a diversion, what
economists call ‘arbitrage,’ would undermine and, if uncon-
trolled, . . . reduce the incomes of dairy farmers as a group.”).
4 No. 07-3545
produced. Consequently, to meet consumer demand in
the winter, producers must maintain large herds, but
these herds result in a surplus of milk in the summer
months. Given the perishable nature of milk, handlers
historically were able to obtain summer supplies at
bargain prices.
B. The Regulatory Scheme
In the wake of the Great Depression, in an attempt to
address these unique industry characteristics, Congress
enacted various provisions governing the dairy industry
as part of the Agricultural Marketing Agreement Act of
1937 (“the AMAA”). The 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 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 producers receive a uniform mini-
mum 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 pro-
duction of classes of milk sold to handlers associated with
a marketing area. See id. Third, it requires handlers to pay
No. 07-3545 5
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 the handler
has purchased, according to the minimum prices estab-
lished. See id. § 608c(5)(C). As we shall explain more
precisely in the following paragraphs, the provisions
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
handlers 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 includes raw milk used for butter
and dry milk powder. As directed by the AMAA, the
Secretary has established a uniform pricing scheme for
each of these classes of milk, as 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 different classes of
milk on a monthly basis has come to be known as “pool-
ing.”
This uniform minimum pricing is intended to reduce the
incentive that producers otherwise would have to divert
all fluid milk to Class I handlers and, literally, to flood
6 No. 07-3545
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
the milk they purchase than its market value while
other handlers pay more. Handlers who pay less to pro-
ducers must make compensating payments into the
producer settlement fund; handlers who pay more to
producers 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 purchase. This simplified example of the
regulatory scheme by the United States 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 pur-
chases 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
No. 07-3545 7
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 “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 milk-marketing
orders. White Eagle is part of the USDA’s Mideast Milk
Marketing Order (“Mideast Order”), which includes
portions of Indiana, Ohio, Michigan, West Virginia,
Kentucky and Pennsylvania. Milk marketing orders
provide the details for fixing and enforcing minimum
classified prices that regulated plants and handlers must
pay for the milk they buy on a monthly basis. A marketing
order defines “pool plants” in order to identify the
plants that must pay classified prices and contribute to
the revenue pool. See 7 C.F.R. § 1033.7. Similarly,
marketing orders define “producer” and “producer milk”
in order to identify the producers and the farm milk that
may share in the market’s blend price. See 7 C.F.R.
§§ 1033.12, 1033.13. These rules are termed collectively
“pooling standards.” These standards determine whether
a particular milk supply should be included in the cal-
culation of the blend price and, relatedly, whether the
8 No. 07-3545
producer of that milk supply is entitled to receive the
blend price.
The regulation at issue here concerns, inter alia, “diver-
sion limits.” A diversion limit is the maximum percentage
of milk that a handler may divert to “nonpool plants” (i.e.,
plants that do not service the region’s Class I fluid milk
needs) without the milk being disqualified from treat-
ment as “producer milk” and from the attendant entitle-
ment to participation in the pool. See 7 C.F.R.
§ 1033.13(d)(4). If the amount of milk diverted to a
nonpool plant in a given month exceeds the diversion
limit, then the over-diverted milk is excluded from the
pool and is not entitled to the blend price. See id. Such
limits prevent the inclusion in the pool of excessive
quantities of milk diverted to nonpool plants; indeed,
excessive quantities of diverted milk often reflect op-
portunistic marketing rather than a surplus of the milk
that regularly services a region’s needs. See, e.g., 70 Fed.
Reg. 43335, 43338, 43340-41 (July 27, 2005).
C. The Challenged Rulemaking
In February 2005, in response to requests for amend-
ments to the Mideast Order’s pooling standards, the USDA
invited interested parties to submit proposals and initiated
formal rulemaking. See 70 Fed. Reg. 8043 (Feb. 17, 2005)
(hearing notice); 70 Fed. Reg. 10337 (Mar. 3, 2005)
No. 07-3545 9
(amended notice).3 The measures proposed included:
(1) prohibiting simultaneous pooling of the same milk
under both the Mideast Order and a State marketing order,
(2) increasing performance standards for supply plants,
and, most relevant here, (3) lowering diversion limit
standards for “producer milk” by ten percentage points
seasonally. 70 Fed. Reg. at 8044.
In March 2005, the USDA conducted a four-day eviden-
tiary hearing on the proposals. Interested parties, including
White Eagle, submitted both testimony and documentary
evidence. See 70 Fed. Reg. at 43337-38. The USDA also
received post-hearing briefs from interested parties,
including White Eagle. Id. at 43340. In its oral and written
submissions, White Eagle opposed the lowering of the
diversion limit standards.
In July 2005, the USDA issued a “tentative partial
decision on an interim final and emergency basis” (“in-
terim decision” or “proposed interim rule”). See 70 Fed.
Reg. 43335. At this time, the USDA both submitted the
proposed regulation for the producers’ referendum and
also invited public comment on it. See 70 Fed. Reg. at 43335,
3
The hearing notice stated that “Department employees
involved in the decision-making process are prohibited from
discussing the merits of the hearing issues on an ex parte basis
with any person having an interest in the proceeding.” It
also advised that, “[f]or this particular proceeding, the pro-
hibition applies to employees in the following organizational
units: . . . the Office of the Market Administrator of the Mideast
Milk Marketing Area.” 70 Fed. Reg. at 8048.
10 No. 07-3545
43336. The decision adopted the proposals to prohibit
simultaneous pooling and to tighten supply-plant stan-
dards, 70 Fed. Reg. at 43341, 43342 (proposed amendments
to 7 C.F.R. § 1033.7 and § 1033.13(e)), as well as the pro-
posal to reduce diversion limits for “producer milk” from
60% to 50% of a handler’s receipts for the months of
August through February, and from 70% to 60% for the
months of March through July. Id. (proposed 7 C.F.R.
§ 1033.13(d)(4)).
The USDA’s decision reasoned that lower diversion
limits were necessary because the Mideast Order’s
then-existing pooling standards were failing to “reasonably
accomplish” the Order’s “fundamental objective” of
properly identifying those producers who ought to share
in the economic benefits of the pool. 70 Fed. Reg. at 43340.
The decision explained that “[t]he Federal milk order
system has consistently recognized that there is a cost
incurred by producers in servicing an order’s Class I
market.” Id. It concluded that it was clear from the
hearing record that, due to inadequate diversion limits,
the milk of producers who do not regularly bear those
costs was nevertheless receiving the Order’s blend price,
resulting in the “unwarranted lowering of returns” to
producers willing to regularly and consistently service
the market’s fluid needs. Id. The decision explained that
the proposed provisions would “ensure that milk pooled
on the order is part of the legitimate reserve supply of
[the region’s] Class I handlers,” id. at 43341, and thereby
“ensure the more equitable sharing of revenue generated
from Class I sales among the appropriate producers,” id.
at 43340.
No. 07-3545 11
Two months later, on September 26, 2005, the USDA
announced that the proposed provisions had been ap-
proved by the producers and that the interim rule amend-
ing the Mideast Order would become effective October 1,
2005. See 70 Fed. Reg. 56111 (Sept. 26, 2005). Also on
September 26, 2005, White Eagle filed exceptions to
the interim rule. Shortly thereafter, White Eagle sent a
letter to the USDA suggesting a conflict of interest in
the rulemaking process. The letter alleged that the em-
ployees of the Mideast Milk Marketing Area (“Dairy
Program employees”), who had participated in the
rulemaking process, may have tainted the administrative
proceeding. It alerted the Secretary to the possibility that
Dairy Program employees “could be influenced by the
wishes of dominant producer groups, upon whose con-
tinued favor the professional future of career civil
servants depends.” R.84, ¶ 49 (internal quotation marks
omitted). In essence, White Eagle’s complaint is that,
because these individuals would not have a job in the
absence of a milk marketing order, and because the
majority of producers in a region can vote to terminate
an order, the employees are biased in favor of the
“majority view” with respect to any proposed amendment.
In January 2006, the agency issued a partial final decision
(“non-interim decision”) to replace the interim rule. The
decision fully adopted the interim rule; it also added a
plant pooling restriction, subject to referendum. See 71
Fed. Reg. 3435 (Jan. 23, 2006) (final agency decision pro-
posing final rule), 3440-41. Following a successful referen-
dum vote by the producers, that decision became a final
12 No. 07-3545
rule effective May 1, 2006. See 71 Fed. Reg. 20335 (Apr. 20,
2006) (final rule).
D. District Court Proceedings
Soon after the interim rule was published, White Eagle
filed an initial complaint in the district court chal-
lenging the USDA’s decision and rule. After the USDA’s
final decision was issued, White Eagle amended its com-
plaint to incorporate several new claims. The six-count
complaint contained the following allegations: (1) the
USDA had violated the Due Process Clause of the Fifth
Amendment by allowing employees of the Office of the
Market Administrator of the Mideast Milk Marketing
Area to participate in the decisionmaking process; (2) the
USDA had violated the Regulatory Flexibility Act (“RFA”)
by failing to undertake an analysis under the RFA and
failing to support its RFA certification with any
factual support; (3) the USDA violated the Administra-
tive Procedure Act (“APA”) by failing to provide factual
support for its emergency rule making; (4) the Secretary
of the USDA improperly had delegated rulemaking
authority to the Administrator of the Agricultural Market-
ing Service in violation of the APA; (5) the USDA had
violated the AMAA by considering the end use of Class I
milk in formulating the amendment to the milk marketing
order; and (6) the final partial decision on diversion
limits was made without adequate record support as
required by the APA. The Dairy Farmers of America
(“DFA”), Dean Foods and others intervened in support
of the rule.
No. 07-3545 13
The parties then filed cross-motions for summary
judgment. Following a hearing in March 2007, the district
court granted the defendant’s and the defendants-
intervenors’ motions for summary judgment and denied
the plaintiffs’ motions. The district court determined that
the USDA’s rulemaking was conducted in accord with all
relevant provisions of the APA. Additionally, the court
held that, although the plaintiffs, as producers, had
standing to challenge the USDA’s regulatory-flexibility
determination, the USDA had not violated the RFA
in certifying that the rule would not affect disproportion-
ately small businesses. Finally, the district court held
that the amendment did not violate the substantive
provisions of the AMAA.
White Eagle timely appealed.
II
DISCUSSION
We review de novo the district court’s grant of summary
judgment. Lamers Dairy, 379 F.3d at 472. All facts are
drawn and all inferences viewed in the light most favor-
able to the nonmoving party. Id. Summary judgment is
appropriate when there is no genuine issue as to any
material fact and the moving party is entitled to judg-
ment as a matter of law. Id.; Fed. R. Civ. P. 56(c).
The APA sets forth the limited review that a court may
undertake when a regulation is challenged. Specifically, an
agency action shall be set aside only if the court finds
that it is:
14 No. 07-3545
(A) arbitrary, capricious, an abuse of discretion, or
otherwise not in accordance with law;
(B) contrary to constitutional right, power, privilege,
or immunity;
(C) in excess of statutory jurisdiction, authority, or
limitations, or short of statutory right;
(D) without observance of procedure required by
law;
(E) unsupported by substantial evidence in a case
subject to sections 556 and 557 of this title or other-
wise reviewed on the record of an agency hearing
provided by statute; or
(F) unwarranted by the facts to the extent that the
facts are subject to trial de novo by the reviewing court.
5 U.S.C. § 706(2). The arbitrary and capricious standard is
a deferential one that “presumes that agency actions are
valid as long as the decision is supported by a ‘rational
basis.’ ” Pozzie v. U.S. Dep’t of Housing & Urban Dev., 48
F.3d 1026, 1029 (7th Cir. 1995); see Mt. Sinai Hosp. Med. Ctr.
v. Shalala, 196 F.3d 703, 709 (7th Cir. 1999) (explaining
that there must be a “rational relationship between the
facts as the [Secretary] finds them and [his] ultimate
conclusion” (internal quotation marks omitted)). A factual
finding satisfies the substantial evidence standard if the
record contains “such relevant evidence as a reasonable
mind might accept as adequate to support a conclusion.”
CAE, Inc. v. Clean Eng’g, Inc., 267 F.3d 660, 675 (7th Cir.
2001) (quoting Consol. Edison v. NLRB, 305 U.S. 197, 229
(1938)).
No. 07-3545 15
These standards do not allow a court to substitute its
judgment for that of the agency. See, e.g., Heartwood, Inc. v.
U.S. Forest Serv., 230 F.3d 947, 953 (7th Cir. 2000). More-
over, we are particularly circumspect when reviewing
challenges to agency actions within complex administra-
tive schemes such as milk-marketing. Lamers Dairy,
379 F.3d at 473.
With these standards in mind, we turn to the chal-
lenges levied by White Eagle against the amended milk
marketing order.
A.
White Eagle first contends that the USDA violated the
APA and the Due Process Clause of the Fifth Amend-
ment when it allowed Dairy Program employees to par-
ticipate in the rule’s decisionmaking process. In White
Eagle’s view, it was in the interest of Dairy Program
employees to adopt proposed changes to marketing
orders if those changes were supported by the majority of
producers. White Eagle reasons that Dairy Program
employees do not want to upset producers, who, by
majority vote, may terminate a milk marketing order4
4
7 U.S.C. § 608c(16)(B) states:
(B) The Secretary shall terminate any marketing agree-
ment entered into under section 608b of this title, or order
issued under this section, at the end of the then current
marketing period for such commodity, specified in such
(continued...)
16 No. 07-3545
thereby placing the jobs of Dairy Program employees at
risk. Consequently, the employees’ participation in the
rulemaking was improper.
The district court concluded that the claim was pro-
cedurally barred because White Eagle had not raised the
issue in a timely fashion. Specifically, at the time of the
initial notice of proposed rulemaking in February 2005,
White Eagle was aware that employees of the Office of the
Market Administrator of the Mideast Milk Marketing
4
(...continued)
marketing agreement or order, whenever he finds that such
termination is favored by a majority of the producers who,
during a representative period determined by the Secretary,
have been engaged in the production for market of the
commodity specified in such marketing agreement or order,
within the production area specified in such marketing
agreement or order, or who, during such representative
period, have been engaged in the production of such
commodity for sale within the marketing area specified in
such marketing agreement or order: Provided, That such
majority have, during such representative period, produced
for market more than 50 per centum of the volume of such
commodity produced for market within the production
area specified in such marketing agreement or order, or
have, during such representative period, produced more
than 50 per centum of the volume of such commodity sold
in the marketing area specified in such marketing agree-
ment or order, but such termination shall be effective
only if announced on or before such date (prior to the end
of the then current marketing period) as may be specified
in such marketing agreement or order.
No. 07-3545 17
Area would participate in the decisionmaking process;
however, White Eagle did not raise any objection until
September 26, 2005. Consequently, White Eagle had
failed to file a timely affidavit disclosing the conflict to
the agency as required by 5 U.S.C. § 556(b)(3).5
Section 556(b) of Title 5 requires an agency to consider
and determine issues of bias “[o]n the filing in good faith
of a timely and sufficient affidavit” raising the issue. As
5
Section 556 sets forth the requirements for hearings conducted
as part of the rulemaking process; it states in relevant part:
(b) There shall preside at the taking of evidence--
(1) the agency;
(2) one or more members of the body which comprises the
agency; or
(3) one or more administrative law judges appointed under
section 3105 of this title.
This subchapter does not supersede the conduct of specified
classes of proceedings, in whole or in part, by or before
boards or other employees specially provided for by or
designated under statute. The functions of presiding
employees and of employees participating in decisions in
accordance with section 557 of this title shall be conducted
in an impartial manner. A presiding or participating
employee may at any time disqualify himself. On the
filing in good faith of a timely and sufficient affidavit of
personal bias or other disqualification of a presiding or par-
ticipating employee, the agency shall determine the matter as
a part of the record and decision in the case.
5 U.S.C. § 556(b) (emphasis added).
18 No. 07-3545
the Court of Appeals for the District of Columbia has
explained, the rule that claims of bias must be timely
protects the efficiency and integrity of the administrative
process, as well as the reputations of the parties involved:
If the issue of bias is raised in a timely fashion, permit-
ting more prompt attention to the matter, each party’s
rights to a fair and impartial tribunal are better pro-
tected. On the other hand, when a party voices its
misgivings in tardy or dilatory fashion, not only
may time and effort be wasted in the event that dis-
qualification is ultimately required, but the good faith
of the claimant will quite naturally be placed in some
doubt.
Marcus v. Dir., Office of Workers’ Comp. Programs, 548 F.2d
1044, 1050 (D.C. Cir. 1976); see also Power v. Fed. Labor
Relations Auth., 146 F.3d 995, 1002 (D.C. Cir. 1998) (apply-
ing rationale to proceeding before the NLRB).
In the present case, the original notice of proposed rule
making, in February 2005, informed interested parties
that employees of the Office of the Market Administrator
of the Mideast Milk Marketing Area would be participating
in the decisionmaking process. See 70 Fed. Reg. at 8048.
However, despite White Eagle’s notice of the proposed
rulemaking, its participation in a four-day hearing in
March 2005, its filing of supplemental briefs after the
hearing and its notice of the proposed rule in July 2005, it
did not raise any issue with respect to the employees’
participation until September 2005, when the interim
final rule was published.
No. 07-3545 19
White Eagle does not contest directly its failure to
meet the requirement of 5 U.S.C. § 556(b) that claims of
bias be raised in a timely manner. It tacitly admits that it
was in “technical noncompliance” with the statute. Reply
Br. 21. Nevertheless, it believes that this failure should
be forgiven because the matter that it raised was a “struc-
tural conflict inherent in the process.” Appellant’s Br. 39
n.32.6
White Eagle’s claim of bias focuses on the participa-
tion of the employees in the decisionmaking process.
When it first raised its claim, the employees already had
participated in vital aspects of that process, namely the
taking and considering of evidence and the formulating
of an amended rule. Entertaining White Eagle’s claim of
bias under these circumstances would raise the con-
6
White Eagle also states, without elaboration, that the Agency
“eventually disclosed its reasons and basis for allowing em-
ployees . . . to participate” and, therefore, determined “the
matter as a part of the record and decision in the case.” Reply Br.
21. It is unclear what White Eagle would like us to draw from
this statement—that its letter substantially complied with the
APA, that the Government waived any objection, or some
other conclusion. However, it is not the province of the courts
to complete litigants’ thoughts for them, and we will not
address this undeveloped argument. See United States v.
Berkowitz, 927 F.2d 1376, 1384 (7th Cir. 1991) (“We repeatedly
have made clear that perfunctory and undeveloped arguments,
and arguments that are unsupported by pertinent authority, are
waived (even where those arguments raise constitutional
issues).”).
20 No. 07-3545
cerns—with respect to administrative integrity and White
Eagle’s motives—that Section 556(c)’s requirement of a
timely affidavit was meant to quell. As explained by the
court in Marcus:
It will not do for a claimant to suppress his misgivings
while waiting anxiously to see whether the decision
goes in his favor. A contrary rule would only counte-
nance and encourage unacceptable inefficiency in the
administrative process. The APA-mandated proce-
dures afford every party ample opportunity to
enforce and preserve its due process rights. Under
the present circumstances, however, petitioner must
be deemed to have waived his claim.
548 F.2d at 1051. Having failed to raise the bias claim in
a timely fashion, White Eagle waived its right to do so.
B.
White Eagle next contends that the USDA, in adopting
the amendments to the Mideast Milk Marketing Order,
violated the RFA. The RFA was adopted to “encourage
administrative agencies to consider the potential impact
of nascent federal regulations on small business.” Associ-
ated Fisheries of Maine, Inc. v. Daley, 127 F.3d 104, 111 (1st
Cir. 1997). Under the RFA, an agency that publishes a
notice of proposed rulemaking must prepare an initial
regulatory flexibility analysis describing the effect of the
proposed rule on small businesses and discussing alter-
natives that might minimize adverse economic conse-
quences. See 5 U.S.C. § 603. The initial analysis must
No. 07-3545 21
include: (1) a description of the reasons for the proposed
action; (2) a succinct statement of the proposed rule’s
objectives and legal basis; (3) a description of, and the
number of, small entities “to which the proposed rule will
apply”; and (4) a description of the “compliance require-
ments” of the proposed rule, “including an estimate of the
classes of small entities which will be subject to the re-
quirement.” Id. § 603(b)(1)-(4). When promulgating a
final rule, the agency not only must address the
regulatory flexibility comments submitted by the public,
it also must include “a description for the steps the
agency has taken to minimize the significant economic
impact on small entities consistent with the state objec-
tives of applicable statutes.” Id. § 604(a). However, Section
605 provides that this analysis need not be performed “if
the head of the agency certifies that the rule will not, if
promulgated, have a significant economic impact on a
substantial number of small entities”; if an agency head
makes this certification, however, he also must “provid[e]
the factual basis for such certification.” 5 U.S.C. § 605.
White Eagle contends that the Government violated
the RFA by failing to undertake a regulatory flexibility
analysis and by employing the certification option with-
out sufficient factual support. In response, the Govern-
ment and intervenors claim that White Eagle cannot
challenge the agency’s compliance with the RFA because
White Eagle’s conduct is not the subject of the Mideast
Marketing Order. They submit that the Order, including
the modified diversion limit at issue here, regulates the
conduct only of handlers—not producers. They argue that,
because White Eagle is an association of producers, not
22 No. 07-3545
handlers, White Eagle lacks standing to challenge the
agency’s compliance with the RFA.
We have not had occasion to consider who may bring
a challenge to a regulatory flexibility analysis or certifica-
tion under the RFA. The Court of Appeals for the Dis-
trict of Columbia, however, has developed a body of case
law in this area. Our colleagues in that circuit first con-
sidered the issue in Mid-Tex Electric Co-op, Inc. v. Federal
Energy Regulatory Commission, 773 F.2d 327 (D.C. Cir. 1985).
At issue in Mid-Tex Electric was a proposed rule that
would have allowed electric utilities to include in their
rate bases certain capital-improvement costs for projects
currently under construction. With respect to the pro-
posed rule, the Commission certified that its proposed
rule would not have a significant impact on a substan-
tial number of small entities because “virtually all of the
utilities it regulate[d] d[id] not fall within the meaning of
the term ‘small entities’ as defined in the RFA.” Id. at 341.
Wholesale customers of the utilities challenged this
certification; they claimed that the Commission, in promul-
gating the rule, was required “to consider[] the impact
of the proposed rule on wholesale and retail customers
of the jurisdictional entities subject to rate regulation by
the Commission.” Id. (internal quotation marks and
citations omitted). The Commission, however, main-
tained that it was not required to consider the effect of
the rule on “non-jurisdictional entities whose rates are not
subject to the rule.” Id. The court of appeals agreed with
the Commission. It observed that Congress was prompted
to pass the RFA by the “high cost to small entities of
compliance with uniform regulations.” Id. at 342. The
No. 07-3545 23
remedy Congress fashioned in response was “careful
consideration of those costs in [a] regulatory flexibility
analys[is],” an analysis, the court observed, which was
“limited to small entities subject to the proposed regula-
tion.” Id. The court further explained:
We find a clear indication of this limitation in sec-
tion 603 of the statute, which specifies the contents of
initial regulatory flexibility analysis. These initial
analyses are to include “a description of and, where
feasible, an estimate of the number of small entities
to which the proposed rule will apply,” 5 U.S.C. § 603(b)(3)
(emphasis added), and “a description of the pro-
jected reporting, recordkeeping and other compliance
requirements of the proposed rule, including an
estimate of the classes of small entities which will be
subject to the requirement.” 5 U.S.C. § 603(b)(4) (em-
phasis added). Since the scope of the final regulatory
flexibility analysis is limited to the issues raised by
the initial analysis, it is clear that Congress envisioned
that the relevant “economic impact” was the impact of
compliance with the proposed rule on regulated small
entities. Reading section 605 in light of section 603, we
conclude that an agency may properly certify that no
regulatory flexibility analysis is necessary when it deter-
mines that the rule will not have a significant economic
impact on a substantial number of small entities that are
subject to the requirements of the rule.
Id. at 342 (emphasis added).
The District of Columbia Circuit also had occasion to
consider a similar challenge under the RFA in Cement Kiln
24 No. 07-3545
Recycling Coalition v. EPA, 255 F.3d 855 (D.C. Cir. 2001).
Cement Kiln concerned a proposed rule that made more
stringent the emission limits for hazardous waste
combustors. The plaintiff challenged the proposed regula-
tion on various grounds, including that the EPA had
failed to meet the requirements of the RFA because the
agency had not conducted an RFA analysis to determine
its impact on small businesses that were generators of
hazardous waste (as opposed to hazardous waste
combustors). Again, the court rejected the claim:
As to Continental’s second claim regarding genera-
tors of hazardous waste, this court has consistently
rejected the contention that the RFA applies to small
businesses indirectly affected by the regulation of other
entities. EPA’s rule regulates hazardous waste
combustors, not waste generators. We explained in
Mid-Tex that the language of the statute limits its
application to the “small entities which will be
subject to the proposed regulation”—that is, those
“small entities to which the proposed rule will apply.”
Mid-Tex Elec. Coop., 773 F.2d at 342 (quoting 5 U.S.C.
§ 603(b)). Congress “did not intend to require that
every agency consider every indirect effect that any
regulation might have on small businesses in any
stratum of the national economy.” Id. at 343.
Continental acknowledges these precedents, but
seeks to distinguish this case on the basis that EPA
actually intended to affect the conduct of hazardous
waste generators by raising the cost of incineration.
This increase in cost would create an economic in-
centive to minimize waste production. . . .
No. 07-3545 25
Contrary to what Continental supposes, application
of the RFA does turn on whether particular entities are
the “targets” of a given rule. The statute requires
that the agency conduct the relevant analysis or
certify “no impact” for those small businesses that are
“subject to” the regulation, that is, those to which
the regulation “will apply.” Mid-Tex Elec. Coop., 773
F.2d at 342; 5 U.S.C. § 603(b)(3). EPA’s rule applies,
by its terms, only to HWCs. The rule will doubtless
have economic impacts in many sectors of the econ-
omy. But to require an agency to assess the impact on all
of the nation’s small businesses possibly affected by a
rule would be to convert every rulemaking process into a
massive exercise in economic modeling, an approach we
have already rejected. See Mid-Tex Elec. Coop., 773 F.2d
at 343.
Cement Kiln Recycling Coal., 255 F.3d at 869 (emphasis
added).
The District of Columbia Circuit most recently revisited
the issue in Aeronautical Repair Station Association, Inc. v.
FAA, 494 F.3d 161 (D.C. Cir. 2007). Before the court was
a challenge to the FAA’s drug and alcohol testing rule
which had been amended “to expressly mandate that air
carriers require drug and alcohol tests of all employees
of its contractors—including employees of subcontractors
at any tier—who perform safety-related functions such
as aircraft maintenance.” Id. at 163. In the initial stages of
rulemaking, the FAA had performed a tentative RFA
analysis that “counted among RFA small entities both air
carriers and Part 145 repair stations.” Id. at 175. However,
after receiving comments, the FAA disagreed with
26 No. 07-3545
commenters who raised RFA issues with respect to con-
tractors because the “contractors [we]re not among
entities regulated under the testing regulations for the
purpose of the RFA.” Id. In taking this approach, the
FAA claimed to be relying on Mid-Tex Electric and Cement
Kiln. The court of appeals determined, however, that the
factual situation was “materially different from th[ose]
cases.” Id. at 176. After reviewing the facts of both of
these cases, the court stated:
Unlike the parties claiming economic injury in the cited
cases, contractors and subcontractors are directly
affected and therefore regulated by the challenged
regulations. It may be true that the regulations are
immediately addressed to the employer air carriers
which are in fact the parties certified to operate air-
craft. See 14 C.F.R. pt. 121, app. I §§ I(B)-(C) (making
“employer” responsible party for ensuring drug
program is conducted properly), II (definition of
“employer”); 14 C.F.R. pt. 121, app. J §§ I(B)-(C)
(“employer” responsible for alcohol testing program),
I(D) (definition of employer). Nonetheless, the regula-
tions expressly require that the employees of contractors and
subcontractors be tested. See 14 C.F.R. pt. 121, apps. I § III,
J § II. Thus, the contractors and subcontractors (at
whatever tier) are entities “ ‘subject to the proposed
regulation’—that is, those ‘small entities to which
the proposed rule will apply.’ ” Cement Kiln, 255 F.3d
at 869 (quoting Mid-Tex, 773 F.2d at 342 (quoting 5
U.S.C. § 603(b))) (first emphasis in Cement Kiln; second
emphasis in original). In other words, the 2006 Final
Rule imposes responsibilities directly on the con-
No. 07-3545 27
tractors and subcontractors and they are therefore
parties affected by and regulated by it. . . .
Aeronautical Repair Station Ass’n, 494 F.3d at 177 (emphasis
added).
The rule that emerges from this line of cases is that
small entities directly regulated by the proposed stat-
ute—whose conduct is circumscribed or mandated—may
bring a challenge to the RFA analysis or certification of
an agency. This rule coincides with the statutory
language and congressional intent. However, when the
regulation reaches small entities only indirectly, they
do not have standing to bring an RFA challenge.
In this case, White Eagle maintains that its members
are like the contractors in Aeronautical Repair Station:
Th[e] underlying issue in this case is the question of
what dairy producers are entitled to participate in
the revenue pool of the Mideast Order. Milk producers
are “subject to” milk order regulations no less the
contractors in Aeronautical Repair Station were
“subject to” drug testing regulations. The rule here
is exactly like that in Aeronautical Repair Station; it
directly affects dairy producers by governing the
amount of their milk that must be delivered to a
pool plant to receive the Order 33 blend price. . . .
Reply Br. 3. However, the amendment to the marketing
order at issue, i.e., the diversion limit, addresses only the
amount of milk that a “handler” diverts to nonpool plants.
See 70 Fed. Reg. at 56113 (“the handler diverted to nonpool
plants not more than 50 percent in each of the months of
August through February and 60 percent in each of the
28 No. 07-3545
months of March through July”). Thus, it is the handlers,
not the producers, who are most akin to the contractor
employees in Aeronautical Repair Station, because the
regulation “expressly” addresses the handlers’ actions. See
Lamers Dairy, 379 F.3d at 469 (“Although it protects pro-
ducers, the AMAA regulates handlers only.”). Although
the new diversion limit may affect the actions of
producers, that is, they may sell to different handlers to
ensure that their milk qualifies as producer milk for
purposes of receiving the blend price, this is the same
type of effect as the regulation in Mid-Tex had on whole-
sale customers and the regulation in Cement Kiln had on
hazardous waste generators. In all of these situations, the
proposed regulation may affect the behavior or decisions
of the producers, the customers or the generators; how-
ever, the regulation does not directly address their activ-
ity. Consequently, because the amendment to the Mideast
Milk Marketing Order concerning diversion limits expressly
regulates only the conduct of handlers, only handlers have
standing to challenge the RFA analysis performed by the
agency. Because White Eagle instituted its RFA challenge
in its capacity as a producer, as opposed to a handler, it
does not have standing to maintain this challenge.
C.
The plaintiffs also point to a number of alleged proce-
dural infirmities in the rulemaking process. Among these
are improper invocation of emergency rulemaking and
improper delegation of rulemaking authority. We now
address each of these contentions.
No. 07-3545 29
1.
White Eagle first maintains that the Government’s
issuance of a final decision on an emergency basis violated
Section 557(b)(2) of the APA. We shall reverse an agency’s
determination that a rule ought to be made on an emer-
gency basis only if that decision is arbitrary and
capricious.7
The APA provides that an agency must issue a recom-
mended decision before it issues a final decision unless
it “finds on the record that due and timely execution of
its functions imperatively and unavoidably so requires.”
5 U.S.C. § 557(b)(2). The USDA Rules of Practice incorpo-
rate the statutory standard; they state in relevant part:
“Omission of recommended decision. The procedure in
this section may be omitted only if the Secretary finds
7
The Government argues that the controversy related to the
emergency rule is moot. It maintains that White Eagle seeks only
declaratory relief, specifically a ruling that the agency violated
the provisions of the APA and the AMAA in issuing the
emergency rule. However, the emergency rule was followed by
another comment period, after which time a final rule was
promulgated. Because a plea for declaratory relief only can be
granted if the controversy is ongoing and because a final
order now has been issued, there is no relief which can be
granted, and the claim is moot. The appellees further point
out that White Eagle never claimed that the issue was “capable
of repetition but evading review.” Although it is true that
White Eagle did not make the argument in its opening brief,
it did maintain in its reply brief that the issue fell within
this well-known exception to the mootness doctrine. We,
therefore, shall proceed to the merits of the claim.
30 No. 07-3545
on the basis of the record that due and timely execution
of his functions imperatively and unavoidably requires
such omission.” 7 C.F.R. § 900.12(d).
Presumably in response to the above requirement, the
agency included the following statement accompanying
the promulgation of the emergency rule:
Evidence presented at the hearing and in post-hearing
briefs establishes that current pooling standards of the
Mideast order are inadequate and are eroding the
blend price received by producers who are regularly
and consistently serving the Class I needs of the
Mideast marketing area and should be amended on
an emergency basis. The unwarranted erosion of the
blend price stems from inadequate supply plant
standards and the lack of appropriate limits on diver-
sions of milk. Additionally, the ability of a handler
to pool the same milk on the Mideast Federal milk
order and on a marketwide equalization pool ad-
ministered by another government entity serves to
potentially further erode the order’s blend price.
Consequently, it is determined that emergency mar-
keting conditions exist and the issuance of a recom-
mended decision is being omitted. The record clearly
establishes a basis as noted above for amending the
order on an interim basis and the opportunity to file
written exceptions to the proposed amended order
remains.
70 Fed. Reg. at 43341.
White Eagle contends that the USDA’s statements do
not satisfy the requirements of the statute or rule. It
No. 07-3545 31
takes issue with the agency’s failure to identify, on the
record, “specific facts and economic conditions that
impose on the Department the critical and temporal
pressures necessitating emergency action.” Appellants’
Br. 37.
The USDA’s explanation for the promulgation of an
interim, emergency order hardly can be characterized as a
textbook example of compliance with the statute and
regulations. These provisions certainly contemplate that
the agency will provide a more specific and careful delin-
eation of the reasons justifying such an exceptional
course. Nevertheless, in the context of these proceedings,
we cannot say that the lack of articulation justifies
vitiating the administrative proceedings. First of all, it is
apparent that, despite the USDA’s lack of attention to
detail, it did identify a problem that went to the heart of
the AMAA: lack of diversion limits was resulting in an
ongoing price erosion for producers. The USDA explained
how the proposed amendments addressed the condi-
tions and practices that presently were causing that
problem. Furthermore, the USDA noted that the record
supported amending the order on an interim basis. The
USDA was correct in that estimation. Several producer
witnesses asked the USDA to take immediate action to
preserve the blend price. Thus, the USDA’s statements, as
supported by the record, are marginally sufficient, in
the context of this administrative proceeding, to satisfy
the requirement of a “find[ing] on the record that due
and timely execution of its functions imperatively and
unavoidably . . . require[d]” an emergency rule. See 5
U.S.C. § 557(b)(2).
32 No. 07-3545
Moreover, after the issuance of the interim emergency
order, the parties were afforded additional opportunity
for comment and, in fact, did take advantage of that
opportunity. The parties therefore had the opportunity
to express completely their views on the final order of
the USDA that is before us today.
2.
White Eagle also submits that the manner in which the
Secretary of Agriculture delegated his authority with
respect to the amendment of the Mideast Marketing Order
violated the APA and the USDA rules of practice. Specifi-
cally, it contends that “the exercise of combined sub-
ordinate and superior functions in a single subordinate” is
“in excess of statutory authority.” Appellant’s Br. 35-36.
White Eagle makes clear that it is not arguing that an
improper delegation of authority occurred. It concedes
that, under the AMAA and its implementing regulations,
the Secretary had the authority to issue and amend milk
marketing orders, see 7 U.S.C. § 608c(1), (5), and that
authority has been delegated properly from the Secretary
to the Under Secretary of Agriculture for Marketing and
Regulatory Programs, see 7 C.F.R. § 2.22(a)(1)(viii)(G),
and again from the Under Secretary to the Adminis-
trator of the Agricultural Marketing Services, see id.
§ 2.79(a)(8)(viii).8
8
White Eagle similarly acknowledges that the USDA’s Rules of
Practice allow for the Secretary to delegate his authority,
(continued...)
No. 07-3545 33
Instead, White Eagle maintains that it is implicit in the
APA that, although a subordinate employee may be
delegated responsibility for a recommended decision
that is subject to further review, that same subordinate
may not also have responsibility for issuing the final
agency decision. In making this argument, White Eagle
relies solely on 5 U.S.C. § 557(c), which states that “[b]efore
a recommended, initial, or tentative decision, or a deci-
sion on agency review of the decision of subordinate employees,
the parties are entitled” to submit proposed findings,
exceptions to decisions and supporting reasons. 5 U.S.C.
§ 557(c) (emphasis added). This prefatory language, it
maintains, mandates that when a “subordinate employee”
has issued the interim decision, that same employee
cannot be responsible for issuing the final decision.
We do not believe that such a reading can be gleaned
from Section 557(c). First, Section 557(c) is a grant of a
right to those participating in the rule making to com-
ment at each stage of the process; the section is not dedi-
cated to defining the authority of the Secretary or his
subordinates. Second, the text of Section 557(c) belies the
interpretation pressed by White Eagle. The entire prefatory
clause on which White Eagle relies states: “Before a
recommended, initial, or tentative decision, or a decision
on agency review of the decision of subordinate employ-
ees, the parties are entitled to a reasonable opportunity
8
(...continued)
including the authority to issue a final agency decision, to
a subordinate.
34 No. 07-3545
to submit for the consideration of the employees participating
in the decisions . . . .” 5 U.S.C. § 557(c) (emphasis added).
This section, therefore, suggests that other individuals,
apart from the agency head, may be involved in review
of the decisions. We cannot conclude, therefore, that
the issuance of the final decision here violated 5 U.S.C.
§ 557(c). The action was not in “excess of statutory au-
thority.”
D.
White Eagle also raises two substantive issues with
respect to the amendment to the Mideast Marketing
Order. White Eagle first contends that the Government
violated the AMAA because it considered the classifica-
tion of milk as a condition for eligibility to receive the
market blend price. Specifically, it submits that the
USDA used the end use of milk as a consideration in
determining which dairy farmers are eligible for a particu-
lar pool under the milk marketing order. Additionally,
White Eagle maintains that the amendment to the
Mideast Marketing Order failed to address adequately
the facts as presented in the record. We evaluate both
of these arguments below.
1.
White Eagle first submits that the USDA’s consideration
of the end use of milk in amending the Mideast Milk
Marketing Order was in violation of the AMAA’s mandate
that prices “for milk purchased from producers . . . . shall
No. 07-3545 35
be uniform as to all handlers.” 7 U.S.C. § 608c(5)(A). The
AMAA requires that qualifying producers who
deliver milk to handlers in the pool must be paid the
“uniform prices for all milk so delivered irrespective of
the uses made of such milk by the individual handler to
whom it is delivered.” 7 U.S.C. § 608c(5)(B)(ii) (emphasis
added). White Eagle contends that the statutory scheme
does not permit the agency to discriminate among pro-
ducers in the pool on the basis of the end use to which
a particular producer’s milk actually is put. It submits
that the USDA’s action here attempts an end run around
this rule by excluding, in the first instance, a producer
from the pool on that very basis.
The Government contends, however, that the change in
the pooling standards of the Mideast Milk Marketing
Order was permissible. It submits that, in reaching its
decision, the USDA focused on the integrity of the
Mideast marketing region and its responsibility to the
producers who service the needs of that region. The USDA
identified and attempted to address a specific problem:
Some producers were taking advantage of the higher
Mideast blend price, but actually were diverting most of
their milk to nonpool plants. As a result, milk supplies that
were not reasonably associated with the region were
entering the market and driving down the blend price
for those producers regularly serving the needs of the
market. In short, lax diversion standards were not distin-
guishing between a legitimate market surplus and the
entry into the market of opportunistic producers.
We have held that non-pooled milk does not qualify as
milk purchased from producers. County Line Cheese Co. v.
36 No. 07-3545
Lyng, 823 F.2d 1127, 1135 (7th Cir. 1987) (differentiating
between “producers” and “dairy farmers not delivering
milk as producers”); see also 7 U.S.C. § 608c(5)(B)(ii)(f).
Thus, the question here is whether the USDA may
define a “pool plant” (a plant required to pay the pool
price) and “pooled milk” (the milk for which the pool
price must be paid) with reference to the fluid milk needs
of the region which it is regulating. See County Line, 823
F.2d at 1135 (stating that “nonpool milk is not subject to
the minimum price requirement and the requirement of
uniformity”).
White Eagle’s authorities support the idea that regional
fluid milk needs may be considered in defining the “pool.”
In Blair v. Freeman, 370 F.2d 229, 237 (D.C. Cir. 1966), the
court stated:
The core of the Congressional program was a uniform
minimum price for producers that did not turn on or
vary with the nature of the use for which a producer
was able to dispose of his milk. Hectic and unsettling
competition among producers impelled Congress to
formulate a device—uniform prices apportioned
irrespective of individual utilization—that would
recognize the use factor in the equation developed to
compute the marketwide pool, but which would not
distinguish between producers on the basis of the
use made of their milk.
Id. at 237 (emphasis added). According to the court,
Congress anticipated that the “use factor” would be
employed in determining the pool of a particular market
region; however, once the pool was defined, producers
No. 07-3545 37
would share in the proceeds of milk irrespective of how
their particular milk was used. Similarly, in describing the
regulatory scheme devised by Congress, the Court in
Zuber v. Allen, 396 U.S. 168 (1969)—on which White
Eagle also relies—stated:
[T]he present system . . . provides for a uniform market
price payable to all producers by all handlers. . . . The
total volume of milk channeled into the market in
each category is multiplied by the appropriate coeffi-
cient price and the two results are totaled and then
divided by the total number of pounds sold. The
result represents the average value of milk sold in the
marketing area and is the basic “uniform” price. . . .
Id. at 177 (emphasis added). In other words, the
marketing administrator must be able to assess the fluid
milk needs of the region, and the producers serving those
needs, in order to ensure an adequate milk supply to the
market. Concomitantly, the marketing administrator
must ensure that the producers who actually are sup-
plying to a given market are receiving the benefits of the
blend price. White Eagle has not pointed to any statutory
or case-law authority which undermines this principle.9
Indeed, if this Country’s milk supply and prices are to be
governed by regional milk marketing orders, as Congress
intended, then the only way to ensure the orderly ad-
ministration of that system is to allow the USDA to deter-
9
White Eagle also relies on 7 U.S.C. § 608c(5)(B); however, that
provision clearly addresses how proceeds are distributed
to producers in the pool, not how the pool is defined.
38 No. 07-3545
mine which producers serve the needs of a given
region and to grant those producers the benefit of the
blend price set for that region. Consequently, we do not
believe that the amendment to the Mideast Milk
Marketing Order transgresses the substantive provisions
of the AMAA.
2.
White Eagle also submits that, in reaching his decision,
the Secretary did not consider information that
historically has been considered in adjusting diversion
limits. Because this failure suggests a change in policy,
White Eagle continues, the Secretary ought to have ex-
plained his change of heart in greater detail. Specifically,
the Secretary should have addressed directly White
Eagle’s evidence and offered a reason why that evidence,
and the accompanying arguments, were rejected.
We cannot accept White Eagle’s characterization of the
Secretary’s action with respect to this amendment to the
Mideast Milk Marketing Order as a sea change in policy.
The need for diversion limits “to safeguard against exces-
sive milk supplies becoming associated with the market”
had been a matter of discussion for several years. See 69
Fed. Reg. 19292, 19303 (Apr. 12, 2004) (adopting as final
rule proposed changes on diversion limits first raised
in 2001). Indeed, in instituting the prior diversion limits,
the Secretary articulated the same concerns that justified
the further amendment of those limits in the order at issue:
The lack of a diversion limit standard applicable
to pool plants opens the door for pooling much more
No. 07-3545 39
milk and, in theory, an infinite amount of milk on the
market. While the potential size of the pool should
be established by the order’s pooling standards, the
lack of diversion limits renders the potential size of the
pool as undefined. With respect to the marketing
conditions of the Mideast marketing area evidenced
by the record, this decision finds that the lack of
year-round diversion limits on producer milk has
caused more milk to be pooled on the order than can
reasonably be considered as properly associated with
the market.
The lack of a diversion limit standard applicable for
diversions to nonpool plants has also resulted in the
pooling of milk that does not provide a service in
meeting the Class I needs of the Mideast marketing
area. Proposal 7 offers reasonable diversion limit
standards that would be adjusted seasonally to
reflect the changing supply and demand conditions of
the Mideast marketing area. Therefore, a 60 percent
diversion limit standard for each of the months of
August through February and a 70 percent diversion
limit standard for each of the months of March through
July is adopted. To the extent that these diversion
limit standards may warrant adjustments, the order
already provides the Market Administrator with
authority to adjust these diversion standards as mar-
keting conditions may warrant.
Id. at 19303. It is not the case, therefore, that the setting
of diversion limits to address the influx of milk that does
not regularly serve a market’s needs was a change in
direction for the USDA.
40 No. 07-3545
We also cannot agree with White Eagle’s characteriza-
tion of the USDA’s treatment of its arguments against
decreasing the diversion limits. The USDA did not
“simply dismiss[] all of Appellant’s arguments as ‘not
persuasive.’ ” Appellants’ Br. 32. The USDA recounted in
detail White Eagle’s objections to lowering diversion
standards, including that the action would “decrease the
volume of milk that manufacturing plants can pool, and
will remove milk located in Wisconsin, Illinois, Minnesota
and Iowa from pooling on the Mideast order.” 71 Fed. Reg.
at 3437. The USDA further noted that White Eagle’s
“witness was of the opinion that when the volume of milk
pooled in manufacturing uses is decreased, producer milk
that supplies manufacturing plants can face decreased
returns.” Id. It also noted White Eagle’s argument that
further adjudication of diversion standards was not
necessary because the fluid milk needs of the Mideast
market were being met.
In the discussion and findings associated with the rule,
the Secretary again reiterated White Eagle’s arguments
and, indeed, found them “unpersuasive.” However the
Secretary went on to explain his statement:
Providing for the diversion of milk to nonpool facilities
is a desirable and needed feature of an order because
it facilitates the orderly and efficient disposition of
milk when not needed for fluid use. Despite the
comments by White Eagle and NAJ, this decision
maintains that it is necessary to safeguard against
excessive milk supplies becoming associated with the
market through the diversion process. Associating
No. 07-3545 41
more milk than is actually part of the legitimate
reserve supply of the pooling handler unnecessarily
reduces the potential blend price paid to dairy
farmers who regularly and consistently service the
market’s Class I needs. Such milk should not be
pooled. Without reasonable diversion limit provi-
sions, the order’s performance standards are
weakened and give rise to disorderly marketing
conditions. Accordingly, diversion limit standards
for pool plants are permanently lowered by ten per-
centage points, from 60 percent to 50 percent for the
months of August through February, and from
70 percent to 60 percent for the months of March
through July.
Id. at 3440. In short, the USDA rejected White Eagle’s
arguments because they missed the mark. Although the
diversion limits may have decreased the volume of milk
available for manufacturing uses, with a resultant
decrease in returns for some producers, preserving
returns for every producer was not the USDA’s primary
goal. Instead, the problem that the USDA was attempting
to address through diversion limits was the oppor-
tunistic entry into the market by producers (to take ad-
vantage of the higher blend price) who did not regularly
serve the Class I needs of the market, with the resultant
additional costs. Thus, far from being a reason not to
implement the diversion limits, the fact that some pro-
ducers would be excluded from the pool (because they
did not serve regularly the fluid needs of that market),
and may suffer a decrease in returns (because they could
no longer benefit from the higher blend price), was con-
42 No. 07-3545
sistent with the policy approach the USDA had adopted
in its prior milk marketing orders and continued in
the order at issue.
We cannot say, therefore, that the USDA’s adoption of
the present order was arbitrary or capricious, nor do we
believe that the USDA failed to consider relevant evi-
dence in adopting the current rule.
Conclusion
For the foregoing reasons we affirm the judgment of
the district court.
A FFIRMED
1-12-09