Petition — Julius Goldman's Egg City v. United States

Supreme Court brief1983

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8 2 as J 6 4 5 Office- Supreme Court, U.S,

FiLED

No. APR 8 1983

ALEXANDER L. STEVAS,

CLERK

IN THE

Supreme Court of the United States

OCTOBER TERM, 1982

JULIUS GOLDMAN’S EGG CITY,

Petitioner,

THE UNITED STATES OF AMERICA,

Respondent.

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FEDERAL CIRCUIT

Of Counsel: JAMES A. DOBKIN

GEORGE A. LEONARD Counsel of Record

Vice President and EDGAR H. BRENNER

General Counsel THOMAS B. WILNER

The Kroger Company THOMAS D. FULLER

1014 Vine Street JAMES X. DEMPSEY

Cincinnati, Ohio 45201 ARNOLD & PORTER

(513) 762-4421 1200 New Hampshire Ave., N.W.

Washington, D.C. 20036

(202) 872-6700

Attorneys for Petitioner

April 8, 1983

WILSON - EPES PRINTING Co., INC. - 789-0096 - WASHINGTON. D.C. 20001

QUESTIONS PRESENTED *

1. May a federal agency disregard the standards of

fair market value it has adopted pursuant to a statutory

indemnification program and instead compensate an in-

demnitee on the basis of rigid formulas that, as applied,

are inconsistent with those standards?

2. May a court reviewing the actions of a federal

agency substitute its own standards of fair market value

for the standards promulgated by that agency pursuant

to statute?

*The Kroger Company is the parent corporation of petitioner

Julius Goldman’s Egg City.

(i)

TABLE OF CONTENTS

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JURISDICTION ...... I abitlisintatclescisanesscesscenseeocees

STATUTORY AND REGULATORY PROVISIONS

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REASONS FOR GRANTING THE WRIT ....................

I. The Secretary Failed To Indemnify Egg City

II.

for the Destruction of Its Poultry Flock in Ac-

cordance with the Indemnification Standards He

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The Courts Below Improperly Substituted Their

Own Definition of “Fair Market Value” for

That Adopted by the Secretary of Agriculture...

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APPENDIX

Opinion of the Court of Appeals 2.000.000.0000...

Opinion of the Court of Claims, Trial Division ......

Opinion of the Court of Claims .......... 2

Judgment of the Court of Appeals ......00.0...000000000....

Judgment of the Court of Claims, Trial Division...

21 U.S.C. §§ 114-114a, 184-184h (1970) .0000000....

9 C.F.R. $5 63.1-68.10 (1976) ...................................

Department of Agriculture Press Release ..............

(iii)

TABLE OF AUTHORITIES

Cases: Page

American-Hawaiian Steamship Co. v. United

States, 129 Ct. Cl. 365, 124 F. Supp. 378 (1954),

cert. denied, 350 U.S. 868 (1955) ......0000000000000..... 9

Federal Communications Commission V. Schreiber,

ER in, eee ee 13

Julius Goldman’s Egg City v. United States, 214

Ct. Cl. 345, 566 F.2d 1096 (1977) ...........0000000.. passim

Oklahoma Press Publishing Company v. Walling,

Se Tr CIEE icctntnceess pancccgntnencinicnsscertntinaenasis 13

Service V. Dulles, 354 U.S. 363 (1957) .........00000...... 9

Smith v. Resor, 406 F.2d 141 (2d Cir. 1969) ......... 9

United States v. Heffner, 420 F.2d 809 (4th Cir.

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United States ex rel. Accardi v. Shaughnessy, 347

U.S. 260 (1964) ................ Silicate imnpeeaaer eri Rtas old 9

Statutes:

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21 U.S.C. $§ 184-184h (1970) ........................0000.. 2, 8, 5, 6

28 U.S.C. § 1254 (1976) ....... eet hs See ee seed 2

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Regulations:

IN THE

Supreme Coot of the United States

OCTOBER TERM, 1982

JULIUS GOLDMAN’S Ecc CITy,

Petitioner,

Vv.

THE UNITED STATES OF AMERICA,

Respondent.

PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE FEDERAL CIRCUIT

The petitioner, Julius Goldman’s Egg City, respectfully

prays that a writ of certiorari issue to review the judg-

ment of the Court of Appeals for the Federal Circuit

that affirmed the dismissal of the petitioner’s claim by

the trial division of the United States Court of Claims

(now the United States Claims Court).

OPINIONS BELOW

The opinion of the United States Court of Appeals for

the Federal Circuit, 697 F.2d 1051 (Fed. Cir. 1983), is

reproduced below at App. la-12a. The unreported de-

cision of the trial division of the Court of Claims is re-

produced below at App. 13a-3la. The opinion of the

Court of Claims denying the respondent’s motion for

summary judgment, 214 Ct. Cl. 345, 556 F.2d 1096

(1977), is reproduced below at App. 32a-46a.

JURISDICTION

The judgment of the Court of Appeals sought to be

reviewed is dated January 10, 1988. This Court has

jurisdiction to review the judgment pursuant to 28 U.S.C.

$$ 1254 and 2101(c).

STATUTORY AND REGULATORY

PROVISIONS INVOLVED

This case involves 21 U.S.C. §§114-114a, 184-134h

(1970), reproduced below at App. 49a-56a, and 9 C.F.R.

§§ 53.1-53.10 (1975), reproduced below at App. 57a-62a.

STATEMENT OF THE CASE

This case arises from the failure of the United States

Department of Agriculture to comply with the standards

and regulations it had adopted for indemnifying poultry

owners for the forced destruction of their flocks.

The case involves the respondent’s program to control

an epidemic of exotic Newcastle disease that affected com-

mercial poultry ranches in southern California in 1972.

Acting pursuant to authority conferred by 21 U.S.C.

§ 114a, the respondent, through the Secretary of Agricul-

ture (the “Secretary’’), declared a national emergency in

March of that year and instituted a program to destroy

poultry flocks that it determined had been infected with

or exposed to the disease.

The petitioner, Julius Goldman’s Egg City, is the larg-

est egg ranch in the world. In 1972 it had some 3.4

million chickens, capable of producing 900,000 eggs daily,

and was about 50 times larger than the average poultry

ranch involved in the government’s exotic Newcastle dis-

ease eradication program. Unlike any other ranch in-

volved in the government program, Egg City controlled

all aspects of egg production from the hatching of baby

chicks through the packaging and processing of a va-

riety of finished egg products for sale directly to super-

markets and food manufacturers. For example, while

other poultry ranches obtained their birds from outside

companies, Egg City raised its own birds from hatching

eggs at its own facilities under the care and supervision

of its own full-time staff. It purposely spent more in

raising those birds in order to produce more productive

birds and, ultimately, more income. It fed its birds high

protein feed rations produced by its own feed mill, and

inoculated them with vaccines developed by its full-time

veterinary staff at its own laboratories. It was undis-

puted at trial that the expenses incurred by Egg City

in raising and caring for its birds were far higher than

those of the average ranch.

All of Egg City’s 3.4 million chickens were destroyed

pursuant to the exotic Newcastle disease eradication pro-

gram. Although it was but one of 159 ranches affected by

the program, Egg City’s flock accounted for more than

thirty percent of the 11 million chickens killed.

The statute authorizing the destruction of infected and

exposed animals requires that owners of such animals

be compensated for their “fair market value as deter-

mined by the Secretary.” 21 U.S.C. §134a(d) (1970).

Pursuant to that authority, the Secretary provided by

regulation that the “fair market value” of a laying hen

is to be measured by its “egg production” value. 9 C.F.R.

§ 53.3(b).

In his administration of the exotic Newcastle disease

emergency, the Secretary clearly announced and adopted

a two-part indemnification program to compensate poultry

owners as required by law. Initially, the government

paid an indemnity that was intended to reflect the cost

of obtaining replacement birds. Subsequently, the Sec-

retary determined that an indemnity based only on re-

placement costs was inadequate to compensate commercial

egg producers for the full “egg production” value of their

flocks. Accordingly, the Secretary instituted a separate,

supplemental indemnity program to compensate those

producers for their loss of income from egg sales during

the period necessarily required to replace their flocks.

Having adopted standards that were reasonable on

their face, however, the Secretary implemented them in

an arbitrary and unreasonable fashion with respect to

Egg City. The Department of Agriculture employees who

administered the program insisted on compensating Egg

City under both the initial and supplemental indemnities

on the basis of rigid formulas that were established early

in the program and keyed to the “average” poultry

ranch—that is, a ranch that was less than 1/50 the size

of Egg City and that obtained and raised its birds in a

significantly different way. More precisely, the Depart-

ment determined that an average ranch could obtain com-

parable replacement birds at a rate of $2.00 for a prime-

age bird and could totally repopulate within 26 weeks.’

While acknowledging that Egg City constituted a special

case, the Department insisted that its indemnity formulas

had to be applied uniformly and without exception to all

ranches involved in the program.’ As a result, Egg City

was paid an initial indemnity that was far below its

actual! cost of obtaining replacement birds.*® It was also

paid a supplemental indemnity that inadequately com-

pensated it for lost egg sales during the period required

for it to get back into full production, which was much

longer than that of any other egg ranch. (It was undis-

puted at trial that Egg City repopulated as fast as possi-

ble. Nevertheless, because there were not enough chickens

on the market, it took Egg City over two years to replace

its flock.) In short, in applying its formulas rigidly to

1The top $2.00 rate was adjusted downward based on the

chickens’ ages.

2It was undisputed at trial, however, that, contrary to the

announced requirement for uniform treatment, the indemnity

formulas were in fact altered to accommodate the special circum-

stances of ranches other than Egg City.

3 The indemnity paid was also less than the amount spent by

Egg City in raising the birds that were destroyed.

Egg City, the Department of Agriculture violated the

standards promulgated by the Secretary for compensat-

ing ranches under the disease eradication program. The

Secretary’s failure to adjust his indemnity formulas to

accommodate the special circumstances of Egg City de-

nied Egg City the compensation to which it was entitled

under the statute and regulations.

In October of 1975, Egg City filed a petition in the

United States Court of Claims seeking additional indem-

nification. Federal jurisdiction was invoked pursuant to

28 U.S.C. $1491. A motion for summary judgment by

the Government was denied by the Court of Claims.

Julius Goldman’s Egg City v. United States, 214 Ct. Cl.

345, 556 F.2d 1096 (1977). On remand, the lower court

judge (a trial] judge in the trial] division of the then Court

of Claims) dismissed the petition after trial. On January

10, 1988, the Court of Appeals for the Federal Circuit,

which had come into existence subsequent to the trial

judge’s decision, affirmed what had become the lower court

decision. 697 F.2d 1051.

REASONS FOR GRANTING THE WRIT

L THE SECRETARY FAILED TO INDEMNIFY EGG

CITY FOR THE DESTRUCTION OF ITS POULTRY

FLOCK IN ACCORDANCE WITH THE INDEMNI-

FICATION STANDARDS HE HAD ESTABLISHED

This case involves one question of overriding impor-

tance: whether a federal agency, having adopted and an-

nounced standards pursuant to its statutory authority,

may then disregard those standards in the course of

carrying out its statutory program. That is precisely

what the Department of Agriculture did in this case.

Congress granted the Secretary of Agriculture sweep-

ing authority to eradicate communicable diseases of poul-

try by any necessary means, including destroying dis-

eased or exposed birds. 21 U.S.C. §§ 114a, 1384a (1970).

It also expressly provided that the owners of destroyed

poultry must be indemnified for their loss:

“'T]he Secretary shall compensate the owner of any

animal, carcass, product, or article destroyed pursu-

ant to the provisions of this section. Such compensa-

tion shall be based upon the fair market value as

determined by the Secretary, of any such animal,

carcass, product, or article at the time of the de-

struction thereof.” 21 U.S.C. § 184a(d) (1970).

In accordance with his statutory mandate, the Secre-

_ tary adopted and promulgated a regulation requiring the

owners of egg-producing chickens to be indemnified for

the “fair market value” of their poultry determined by

the “egg production” value of that poultry. 9 C.F.R.

§ 53.3(b). Applying that standard to the exotic New-

castle disease eradication program, the Secretary, acting

pursuant to his statutory authority, further determined

that proper indemnification for the egg-producing flocks

destroyed during the program required payment of a two-

part indemnity: (1) an “initial” indemnity to reflect

the cost of obtaining replacement birds, and (2) a “sup-

plemental” indemnity to reimburse poultry owners for

egg income lost during the time required to replace their

flocks.

The regulation and the two-part indemnity implement-

ing it were adopted by the Secretary in recognition of the

fact that a commercial laying hen is a special animal. It

is, in effect, “an egg-laying machine.” Accordingly, the

Secretary determined that, in addition to the cost of re-

placing it, such a bird also has a value assignable to the

income potential attributable to the sale of its eggs until

a replacement bird can be obtained and become pro-

ductive.

There was no real dispute over the announced purpose

of either indemnity. A number of contemporaneous De-

partment of Agriculture documents and public state-

ments explaining the policies underlying the Secretary’s

two-part indemnification program were introduced into

evidence at trial.‘ In addition, the Court of Claims, in its

opinion denying the government’s motion for summary

judgment, confirmed that the Secretary of Agriculture

had determined that proper indemnification for destroyed

laying flocks required the payment of both (1) an initial

‘Although the courts below in their opinions conspicuously

ignored the stated purposes of either indemnity, they were clearly

set forth in the record. For example, the rationale adopted by the

Secretary as the basis for the supplemental indemnity was de-

scribed as follows in a contemporaneous memorandum by a govern-

ment economist:

“Loss of corollary income potential from eggs incurred by the

owner during the period required to get back into production

ought to be considered as well as the loss of the layer at the

time of appraisal.” (Plaintiff's Exhibit (“PX”) 34.)

The purpose of the second indemnity was further explained in a

Department of Agriculture press release issued on October 9, 1972

and reproduced at App. 63a-64a:

“The new indemnity schedule is designed to reimburse poul-

trymen for lost income from the sale of eggs their birds would

have produced had they not been killed... .

“A 26 week period, following the appraisal of a flock, is used

as the basis for the new indemnity formula. This is considered

the time period it will take a poultryman to safely restock and

get back into break-even operation.” (PX 10, p. 1.)

The Secretary affirmed these policies in an official Report on the

Newcastle disease program published in February of 1978:

“(The supplemental indemnity was] designed to reimburse

owners for profits they would have realized had their flocks not

been depopulated.” (Defendant's Exhibit (“DX”) 19, p. 28.)

* 7 * *

“Under the new schedule, poultrymen were paid an initial

sum—based, as previously, on the replacement value of the

bird—plus a supplemental indemnity calculated on the net

income from the sale of eggs the hens would have produced

had they not been killed. The supplemental indemnity was psid

after an evaluation of the 26-week period following appraisal—

the period considered necessary for a poultryman to safely

restock and get back into break-even operation.” (DX 19, p. 59.)

(Emphasis added.)

indemnity to reflect “the then current fair-market-value-

cost of obtaining replacement birds,” and (2) a supple-

mental indemnity “to reimburse ranchers for egg income

lost during repopulation.” Julius Goldman’s Egg City v.

United States, 214 Ct. Cl. 345, 350, 556 F.2d 1096, 1098

(1977). This two-part standard was adopted by the Sec-

retary as the measure of fair market value of the prop-

erty destroyed.

Although there was some dispute below over the pre-

cise figures involved, it was never disputed that the

amount ultimately received by Egg City under the initial

indemnity fell substantially short of the costs Egg City

incurred in replacing its flock, as well as substantially

short of the amount Egg City had spent in raising that

flock originally. This deficiency was due in part to the

obsolescence of the rigid indemnity formula by the time the

Egg City birds were destroyed, and in part to the higher

costs traditionally incurred by Egg City in raising birds

that were healthier and more productive than those at

other ranches. It was likewise undisputed that the re-

population of Egg City, though accomplished as quickly

as possible, took substantially longer than the 26-week

period which the government adopted as the time period

it would take for an average-size ranch to restock and

then insisted on applying to Egg City. In fact, because

there were simply not enough chickens available on the

market, it took Egg City more than two years to repopu-

late its massive flock. As a result, Egg City was never

fully compensated for either the cost of replacing its flock

or the income it lost until replacement.

These two factors, however—replacement cost and lost

income until replacement—are the two elements of “fair

market value as determined by the Secretary” for which

the statute requires owners to be compensated. It is

manifest that tue statute and regulations were not com-

plied with in Egg City’s case.

Instead of applying those standards to the particular

facts of Egg City, the Department of Agriculture used

uniform formulas based on an average ranch that were

simply inappropriate for a ranch of Egg City’s size and

complexity. In doing so, the Department deprived Egg

City of the indemnification to which it was entitled under

the statute.*

It is a settled principle of administrative law that

agencies are legally obligated to follow the regulations

they adopt. United States ex rel. Accurdi v. Shaughnessy,

347 U.S. 260 (1954); United States v. Heffner, 420 F.2d

809, 812 (4th Cir. 1969) (government bound by “News

Release’); Smith v. Resor, 406 F.2d 141, 148-46 (2d

Cir. 1969) (binding effect of Army’s “Weekly Bulletin’).

This obligation exists whether or not the agency was re-

quired, either by the Constitution or by statute, to adopt

the regulations at issue:

“While it is of course true that ... the Secretary

was not obligated to impose upon himself these more

rigorous subst-ntive and procedural standards, .. .

having done so he could not, so long as the Regula-

tions remained unchanged, proceed without regard to

them.” Service v. Dulles, 354 U.S. 363, 388 (1957).

This principle was recognized by the Court of Claims

when it stated, in denying the respondent’s motion for

summary judgment, that the Secretary’s indemnification

of the petitioner could not be upheld if it was arbitrary,

capricious, an abuse of discretion, or violative of the stat-

‘By rigidly adhering to uniform formulas and refusing to ac-

commodate the particular facts regarding Egg City, the Depart-

ment of Agriculture violated the specific provisions of its regula-

tions. The regulations governing the appraisal of animals and

materials under the exotic Newcastle disease eradication program

expressly prohibit the valuation of animals on a group or average

basis unless all the animals in the group are of the same value.

9 C.F.R. § 53.3(b). The Agriculture Department ignored that regu-

lation in administering the indemnification program. See also

American-Hawaiian Steamship Co. Vv. United States, 129 Ct. Cl. 365,

124 F. Supp. 878 (1954), cert. denied, 350 U.S. 863 (1955).

utory standard. 214 Ct. Cl. at 354, 556 F.2d at 1100.

Cf. 5 U.S.C. § 706 (1976).

In summary, pursuant to his statutory authority, the

Secretary determined that the proper measure of the fair

market value of destroyed commercial laying flocks re-

quired payment of both an initial indemnity for replace-

ment costs and a supplemental indemnity for egg income

lost until replacement. Having adopted those standards,

the Secretary was prohibited from blindly indemnifying

Egg City on the basis of rigid formulas applicable to an

average rancher. Rather, in applying the articulated

standards of the indemnities, he was required to take

the individual] circumstances and value of Egg City and

its flock into account. There can be no dispute in this

ease that he failed to do so. Accordingly, the writ of

certiorari should issue, and the Court should make it

clear that the Secretary is required to comply with his

announced standards.

Il. THE COURTS BELOW IMPROPERLY SUBSTI-

TUTED THEIR OWN DEFINITION OF “FAIR

MARKET VALUE” FOR THAT ADOPTED BY THE

SECRETARY OF AGRICULTURE

When the Court of Claims denied the government’s mo-

tion for summary judgment in 1977, it defined the issue

to be tried as a straightforward inquiry into whether the

Secretary had complied with his announced standards.

Specifically, the court wrote:

“TIt is plaintiff’s] position that (a) the formula for

the initial indemnity was unfair and unrepresenta-

tive of fair market value for an operation of plain-

tiff’s large size, and (b) the formula for the supple-

mental indemnity was likewise improper for Egg

City .... Plaintiff has the burden of demonstrating

the correctness of its allegations but it must be given

that opportunity.” 214 Ct.Cl. at 355, 556 F.2d at

1101.

The courts below denied Egg City that opportunity.

Instead, they abandoned the proper standard of review

enunciated in the Court of Claims’ original opinion in

favor of a different standard that permitted them to dis-

regard the method of measuring fair market value pro-

mulgated by the Secretary.

Rather than measure the payments made under the

two indemnities by the stated objectives of each, the

courts below simply lumped the two indemnity payments

together and held that, even if each was inadequate for

its intended purpose, the sum nevertheles seemed to them

to constitute adequate compensation. In other words, the

lower courts concluded that the whole exceeded the sum

of its parts. The following passage from the opinion of

the trial judge describes the standard of review that he

adopted and the Court of Appeals approved:

“The two indemnities paid by the Secretary must

be considered together, as a single total, in passing

on the fairness of the payment of market value. The

plaintiff’s tactic of a separate challenge to the for-

mula of each of the two indemnities is rejected.

Plaintiff was under the statute not entitled to a

logical and sound initial indemnity and, separately,

to a similar supplemental indemnity, but to compen-

sation equa] to fair market value. It is therefore

no matter that the initial indemnity may have been

inadequate. The Secretary himself recognized this

when he paid the supplemental indemnity. And it

misses the point doubly to say, as plaintiff does, that

the supplemental indemnity did not fully compensate

for the profits lost during the second 26-week period

following the appraisal and order for destruction of

plaintiff's flock. The supplemental indemnity was in-

tended, as its very name reveals, only to add to the

first indemnity, and thereby to pay full compensa-

tion. Compensation was not to be paid for lost prof-

its during any particular period; the statute re-

quired compensation not for lost profits, but for fair

market value, and for that value ‘at the time of the

destruction.’ Only the total payment may be at-

tacked as less than the statutory fair market value.”

(Opinion at 5-6.)

In other words, though neither the initial nor the sup-

plemental indemnity when applied to Egg City was ade-

quate for its intended purpose, the courts below nonethe-

less found that the total sum received by Egg City did in

fact represent the fair market value of the destroyed

flock. But fair market value measured by what standard?

Absent the standards announced by the Secretary—

which required both an adequate initial indemnity and an

adequate supplemental indemnity—the courts below lacked

any objective standard whatsoever against which to

measure fair market value on a combined basis. The

Secretary, who had the statutory authority to set the

standard of fair market value, never promulgated any

such combined standard.°

Accordingly, there is nothing in the record reflecting an

abstract fair market value for plaintiff’s flock unrelated

to the principles underlying each of the indemnities. It is

simply fallacious to suggest that plaintiff had the burden

of demonstrating, without reliance on an analysis of each

of the two indemnities, that the aggregate sum received

was inadequate compensation for the fair market value of

6 Notably, when the Court of Claims denied the government’s

original motion for summary judgment, it expressly admonished

the trial judge not to substitute his own notion of fair market

value for that of the Secretary. The Court wrote that the express

words of the statute “preclude the court’s deciding the issue of

‘fair market value’ independently and for itself.” Julius Goldman's

Egg City v. United States, supra, 214 Ct. Cl. at 354, 556 F.2d at

1100. The Court went on to state that “the ultimate standard of de-

cision here will not be the court’s own view of ‘fair market value’

but the propriety of the Secretary's determination under that statu-

tory criterion.” 214 Ct. Cl. at 354, 556 F.2d at 1101. Yet the

trial judge did decide the issue of fair market value “independently

and for himself,” and the new Court of Appeals for the Federal

Circuit affirmed.

the destroyed flock. The standards by which fair market

value was to be measured were expressly incorporated by

the Secretary in the two indemnities. To throw out the

notion of two separate indemnities not only disregards

the standards adopted by the Secretary, but also delib-

erately deprives a review tribunal of any scale by which

reasonableness can be measured.

In reviewing agency action, a court is bound to follow

validly promulgated regulations and procedures. It may

not substitute its judgment for that of the administrative

agency. Oklahoma Press Publishing Company v. Walling,

327 U.S. 186 (1946). The trial judge erred by doing pre-

cisely that, and the Court of Appeals erred when it found

that the trial judge’s conclusion was reasonable. As the

Supreme Court has stated:

“(I]n providing for judicial review of administrative

procedural rule-making, Congress has not empow-

ered district courts to substitute their judgment for

that of the agency. * * * The question for decision

was whether the exercise of discretion by the Com-

mission was within permissible limits, not whether

the District Judge’s substituted judgment was rea-

sonable.” Federal Communications Commission v.

Schreiber, 381 U.S. 279, 290-91 (1965) (emphasis

in original).

The writ of certiorari should issue to correct the erron-

eous standard of review adopted by the lower courts.

CONCLUSION

For the foregoing reasons, the petition for writ of cer-

tiorari should be granted.

Respectfully submitted,

Of Counsel: JAMES A. DOBKIN

GEORGE A. LEONARD Counsel of Record

Vice President and EDGAR H. BRENNER

General Counsel THOMAS B. WILNER

The Kroger Company THOMAS D. FULLER

1014 Vine Street JAMES X. DEMPSEY

Cincinnati, Ohio 45201 ARNOLD & PORTER

(518) 762-4421 1200 New Hampshire Ave., N.W.

Washington, D.C. 20036

(202) 872-6700

Attorneys for Petitioner

April 8, 1983

APPENDIX

UNITED STATES COURT OF APPEALS

FOR THE FEDERAL CIRCUIT

Appeal No. 364-75

JULIUS GOLDMAN’S EGG CITY,

Appellant,

Vv.

THE UNITED STATES,

Appellee.

DECIDED: January 10, 1983

James A. Dobkin argued for appellant. With him on

the brief were Edgar H. Brenner, Thomas B. Wilner,

Thomas D, Fuller, and Arnold & Porter.

Randall B. Weill argued for appellee. With him on the

brief was Assistant Attorney General J. Pawl McGrath.

Before: RIcH, Circuit Judge, COWEN, Senior Circuit

Judge, and KASHIWA, Circuit Judge.

PER CURIAM.

Appellant appeals from a judgment* of the United

States Claims Court dismissing appellant’s petition. We

affirm.

Appelant owned poultry which was destroyed on ap-

pellee’s order for the purpose of controlling an epidemic

* Pursuant to order of this court dated October 4, 1982, the

United States Claims Court, on October 6, 1982, entered « final

judgment in accordance with Trial Judge David Schwartz’s recom-

mended decision of January 18, 1982.

of an exotic poultry disease. The exotic disease, Velogenic

Viscerotropic Newcastle Disease, first appeared in com-

merical poultry flocks in southern California in November

1971. When the disease threatened to spread to the whole

country, the appellee, through the Secretary of Agricul-

ture (the “Secretary”), on March 14, 1972, acting with

statutory authority, declared a national emergency and

with the active collaboration of the California health au-

thorities instituted a program to quarantine and destroy

the infected flocks and pay the owners the fair market

value of their destroyed flocks. 21 U.S.C. §§ 114-114a,

134-134h (1970); ' 9 C.F.LR, §§ 58.1-58.10 (1975).

The flocks in eight affected counties were appraised and

destroyed, compensation was paid to the owners, and the

121 U.S.C. § 114a, in pertinent part, states:

The Secretary of Agriculture * * * is authorized to control

and eradicate any communicable diseases of livestock or poultry

* * * which in the opinion of the Secretary constitute an

emergency and threaten the livestock industry of the country,

including the payment of claims growing out of destruction of

animals (including poultry), and of materials, affected by or

exposed to any such disease, in accordance with such regula-

tions as the Secretary may prescribe.

21 U.S.C. § 134a(d), in pertinent part, states:

{T\he Secretary shall compensate the owner of any animal,

carcass, product, or article destroyed pursuant to the pro-

visions of this section. Such compensation shall be based upon

the fair market value as determined by the Secretary, of any

such animal, carcass, product, or article at the time of the

destruction thereof.

29 C.F.R. § 53.3(b), in pertinent part, states:

The appraisal of animals shall be based on the fair market

value and shal! be determined by the meat, egg production,

dairy or breeding value of such animals. Animals may be

appraised in groups providing they are the same species and

type and providing that where appraisal is by the head each

animal in the group is the same value per head or where

appraisal is by the pound each animal in the group is the

same value per pound.

approximately 160 ranches involved were cleaned and dis-

infected. This was done by a task force of 1500 persons,

including veterinarians and agricultural economists, as-

sembled from the Department of Agriculture’s Animal and

Plant Health Inspection Service and the California De-

partment of Food and Agriculture. The sum paid initially

to all the owners, the initial indemnity, came to $17.7

million, and was supplemented by a further payment of

$5.6 million, a total of over $23 million.

On September 7, 1972, the appellee determined that

appellant’s flock had been exposed to the disease. Appel-

lant operated, in Ventura County, California, the largest

egg ranch in the world. It housed some 3.4 million of the

11 million chickens destroyed, was 50 times larger than

the average ranch, and three times as large as the next

largest. Appellant was not only a tableegg enterprise

which could produce 900,000 eggs daily, but, unlike other

ranches, also had a feed mill, fertilizer plant, laboratories,

facilities for breaking, drying and freezing eggs and stor-

ing the product, as well as a distribution system which

took the eggs directly to retail supermarkets.

The destruction of appellant’s flock and the cleaning

and disinfection of its premises were completed on De-

cember 26, 1972. On February 1, 1973, the appellee per-

mitted the appellant to begin bringing replacement chick-

ens back into its premises. Appellant was paid approxi-

mately $5.2 million as an initial indemnity and $2 mil-

lion as a supplemental indemnity, a total of more than

$7.2 million.

In October, 1975, appellant filed a petition in the

United States Court of Claims for additional payments

of indemnities and for further payments under a contract

with the appellee by which the appellant undertook the

destruction of its flock and the cleaning and disinfection

of its premises. The appellee moved for summary judg-

ment which was denied by that court. Julius Goldman’s

Egg City v. United States, 556 F.2d 1096 (Ct. Cl. 1977).

On remand, the lower court (then the trial division of the

Court of Claims) dismissed appellant’s petition after a

trial of the facts.

Appellant now seeks review of the lower court’s de-

cision. In addition, appellant seeks to recover interest on

the amounts allegedly due and owing to it since 1972.

Appellant primarily argues that the trial judge incor-

rectly substituted his own standards of fair market

value * for those standards enunciated and adopted by the

Secretary. Appellant contends that the Secretary had

enunciated and adopted standards for two separate in-

demnities and the trial judge incorrectly lumped the two

indemnities together in a single sum as compensation for

the fair market value of its destroyed flock. Appellant

believes that the two indemnities should be considered

separately—the initial compensation for fair market value

of its destroyed flock and the supplemental compensation

for lost profits until its flock could be replaced. We dis-

agree. The trial judge correctly held that the two indem-

nities should be considered as a single total in order to de-

cide whether the Secretary had made a proper determina-

tion of the fair market value of the destroyed chickens as

required by statute and regulations.

The appellant also contends that the sum of the two

indemnities did not adequately compensate it for the

fair market value of its destroyed flock. The statute

provides that the Secretary “shall” compensate the own-

“Fair market value is generally defined as

the price at which property would change hands in a trans-

action between a willing buyer and a willing seller, neither

being under compulsion to buy or sell, and both being reason-

ably informed as to all relevant facts.

Miller v. United States, 620 F.2d 812, 825 (Ct. Cl. 1980).

ers of diseased animals, destroyed under the section; and

that “[s]uch compensation shall be based upon the fair

market value as determined by the Secretary, of any

animal * * * at the time of the destruction thereof.”

21 U.S.C. §184a(d) (1970). The fair market value

of chickens therefore “shall be determined by the * * *

egg production * * * value of such animals.” 9 C.F.R.

§ 58.3(b) (1975).

The Court of Claims has stated on numerous occasions

and in particular in its denial of summary judgment in

Julius Goldman’s Egg City, supra, at 1100-01, that the

Secretary’s determination of fair market value

[is] to be upheld unless it is found to have been arbi-

trary, capricious, an abuse of discretion, or violative

of the statutory standard. * * * [T]he ultimate

standard of decision here will not be the court’s own

view of ‘fair market value’ but the propriety of the

Secretary’s determination under the statutory cri-

terion. * * * Plaintiff has the burden of demon-

strating the correctness of its allegations.

In assessing the propriety of the Secretary’s determina-

tion made pursuant to statutory authority, the reviewing

court is guided by the

venerable principle that the construction of a statute

by those charged with its execution should be fol-

lowed unless there are compelling indications that it

is wrong....

Red Lion Broadcasting Co. v. FCC, 395 U.S. 367, 381

(1969). See also First Multifund for Daily Income, Inc.

v. United States, 602 F.2d 332, 336 (Ct. Cl. 1979), cert.

denied, 445 U.S. 916 (1980).

A similar standard has been established for the review

of an agency’s intepretation of its own regulations,

that is,

to sustain an administrative intepretation of a regu-

lation issued by it, it is not necessary to find that the

agency construction is the only reasonable one, or

even that it is the result a court would have reached

had the question arisen in the first instance in judi-

cial proceedings. * * * Where administrative con-

trol has been authorized by Congress, the judicial

function is exhausted when there is found to be a

rational basis for the conclusions approved by the

administrative body.

Nabisco, Inc. v. United States, 599 F.2d 415, 419° (Ct. Cl.

1979). See also Udall v. Tallman, 380 U.S. 1, 16 (1965).

And, when the Secretary’s determination involves the ex-

ercise of administrative discretion, the review court must

defer to his judgment as to where to draw the lines. The

Court of Claims has previously observed in Nabisco,

supra, at 422, that

[a]ny such line would be open to criticism. This

line-drawing, however, is precisely the task for

which administrative agencies, with their special ex-

pertise and experience, are peculiarly suited to per-

form effectively; and it is in deference to that experi-

ence and judgment that courts refuse to disturb such

determinations except when they are shown to be

arbitrary. Here, the indicia chosen by the Secretary

seem rational and appropriate, and afford a reason-

able basis for the difference in treatment. * * *

Even if the court itself might have drawn a differ-

ent line had the matter been left to us, the Secretary’s

action was clearly within the scope of discretion

granted him by the statute.

In its determination of fair market value, the Secre-

tary found that there was no actual market for chickens

of various ages in an egg rancher’s flock, but rather only

a market for day-old chicks or 20-week old pullets. In

light of this fact, the Secretary concluded that $2.00 was

a fair market value for an average prime-age 26-week-old

chicken, the age an egg-laying chicken becomes profitable.

This was calculated by adding the market price of $1.65

for a 20-week-old pullet to the 35-cent estimated average

cost of raising such a pullet to 26 weeks. Although $2.00

was the maximum allowable compensation per chicken,

that value was not absolute but rather a guideline for

negotiating with the ranchers. The value of $2.00 was ad-

justed upwards or downwards depending on greater or

lesser age of the chicken. Thus, each rancher was paid an

indemnity in accordance with an agreement reached on

the basis of the guidelines, i.e., the $2.00 value and the

adjustments.

There was no showing that the Secretary acted unrea-

sonably in basing the initial indemnity guidelines on the

value of the average chicken in light of the several fac-

tors involved such as the numbers of chickens involved,

the difficulties of any appraisal system, and the recrimina-

tions and claims inevitably resulting from a customized

appraisal. Since the applicable regulations permit the

appraisal of animals in groups, 9 C.F.R. § 53.3(b), the

Secretary decided the egg-laying chickens had the same

value per head. The valuation of domestic animals such

as chickens is a matter the Congress has delegated to the

Secretary in light of the Secretary’s expertise. See Na-

bisco, supra, at 422. There is no evidence that the Secre-

tary’s judgment was wrong. Red Lion, supra, at 381.

When egg prices rose following the payment of the

initial indemnity, the Secretary concluded that the guide-

lines for the initial indemnity had been inadequate in

compensating for the fair market value of the destroyed

chickens. Thus, each rancher was paid a supplemental

indemnity that was based on a formula which included

the rancher’s theoretical lost profits from his flock in the

26 weeks following destruction. The Secretary had cal-

culated that 26 weeks was necessary to raise a chicken

to profitable egg-laying age. The appellant believes the

supplemental indemnity was a separate payment in com-

pensation of its lost profits until its flock could be re-

placed. We disagree.

We conclude that the aggregate of the two indemnities

provided adequate compensation and that under the stat-

ute, the appellant was not entitled to separate indemni-

ties. The law required only that it be paid the fair mar-

ket value of its flock at the time of the destruction. It

did not matter that the initial indemnity may have been

inadequate. The supplemental indemnity was not, as

advanced by the appellant, to pay for lost profits during

the 26-week period following the appraisal and destruc-

tion of its flock. Rather, the supplemental indemnity was

an adjustment of one element in the initial determination

of fair market value, that is, lost profits from egg pro-

duction during the 26 weeks following destruction. The

supplemental indemnity was intended only to add to the

first indemnity in order to pay full compensation for the

destroyed chickens. The earlier determination of fair

market value, resulting in the initial indemnity, included

some recognition of lost profits as an element of fair

market value, 7.e., the values represented by the oppor-

tunity to make profits from a chicken. This is evidenced

by the guidelines of diminishing value for older chickens,

reflecting their decreasing productivity with age. Accord-

ingly, we conclude that the Secretary’s determination of

the initial and supplemental indemnities was both objec-

tive and reasonable. See United States v. 564.54 Acres of

Land, 441 U.S. 506, 511 (1979).

Further, the lower court found that the appellant, who

was paid an initial indemnity of $5,160,173.97 and a

supplemental indemnity of $1,975,255.88 for a sum of

$7,135,429.85 as the fair market value of its flock of

3,422,356 chickens, had failed to meet its burden of show-

ing inadequate compensation. In particular, the trial

court found the appellant’s actual loss was $5,943,462.

These findings are supported by the record and we adopt

them.

For the reasons previously stated, we conclude that

there was a rational basis for the Secretary’s determina-

tion of the fair market value of appellant’s flock, that

there was no abuse of discretion lodged in the Secretary,

and that there was no violation of the statutory standard.

Ill

Next, the appellant argues that the Secretary arbi-

trarily and unreasonably applied to it the compensation

standards enunciated and adopted by him. Appellant con-

tends that the Secretary should not have applied the uni-

form standards which may have been appropriate for the

typical poultry rancher but which were inappropriate

and inadequate when applied to it.

As to the initial indemnity, the appellant contends the

Secretary improperly used a formula that was based on

the average values of chickens and not on the merits

of individual chickens or flocks. Because it produced its

own baby chicks and raised them to 26 weeks while other

ranchers bought 20-week-old pullets from baby chick

growers, the appellant contends it incurred greater costs

in raising a chick to 26 weeks, $2.52 as compared to the

$2.00 average. Thus, appellant argues the initial indem-

nity it received was inadequate to compensate the fair

market value of its destroyed flock.

It is well established that the cost to a single entre-

preneur is not the equivalent of fair market value. See

United States v. Toronto, Hamilton & Buffalo Naviga-

tion Co., 338 U.S. 396, 406 (1949). Moreover, the ap-

pellant has failed to show that its flock had a fair market

value greater than the amount paid to it.‘ As previously

‘There were no objective data in the record which support

appellant’s claim that its chickens were more valuable or more

productive than sverage chickens. See Sternberger v. United

States, 401 F.2d 1012, 1016-17 (Ct. Cl. 1968).

10a

stated, there was no showing that the Secretary acted

unreasonably in basing the initial indemnity guidelines

on the value of the average chicken.

As to the supplemental indemnity, the appellant con-

tends that the Secretary improperly used a formula based

on hypothetical lost profits in determining its supple-

mental indemnity. The supplemental indemnity was cal-

culated on the basis of hypothetical, lost profits from egg

production at a typical ranch in the 26-week period fol-

lowing destruction of its flock during which a chicken

can be raised to profitable egg-laying age. The appellant

contends its flock was so large that it was impossible to

repopulate in 26 weeks.

As previously stated, the supplemental indemnity was

not intended as a payment of the entire fair market value

or as a replacement of all lost profits for egg production

following the destruction of the rancher’s flock. Rather,

the supplemental indemnity was intended as an adjust-

ment or addition to the initial determination of the fair

market value, to the extent only of the perceived inade-

quacy of the earlier payment to compensate for the egg-

producing profit element of the fair market value at the

time of destruction. Moreover, the statute required only

payment of fair market value of the chickens at the time

of destruction, not payment of profits after destruction.

Therefore, it was not unreasonable for the supplemental

indemnity to be based on the same economic yardstick

as the initial indemnity—the 26-week-old chicken. The

formulation for the supplemental indemnity was fair.

See Nabisco, supra, at 422. Moreover, the appellant failed

to show it was unable to repopulate its flock in 26 weeks

as had others. Again, the Secretary’s judgment is en-

titled to respect in the absence of “compelling indications

that it is wrong.” Red Lion, supra, at 381.

lla

Last, the appellant argues that a constructive change

occurred in the contract between the parties when the

appellee ordered the appellant to clean and disinfect its

manufacturing and support facilities in addition to the

“poultry premises” specified in the contract. Appellant

argues it is therefore entitled to additional compensation.

The appellant primarily contends that its cleaning and

disinfection of other buildings and facilities went beyond

the contract phrase “poultry premises” of “Item No. 1”

under “Services.” ® Appellant contends the plain meaning

of the contract terms required the cleaning and disinfec-

tion of only those premises containing poultry. The lower

court, however, found numerous references in the contract

requiring cleaning and disinfection of appellant’s entire

premises,® “buildings” and “premises.” Isolated in-

' Terms of Contract, in pertinent part, state:

SERVICES

ITEM NO. 1

Furnish all personnel, equipment, and services as required

for the depopulation of approximately 3,422,400 poultry and

the cleaning and disinfection of the poultry premises, for

the period September 8, 1972 through December 15, 1972, in

accordance with the following Terms of Contract. [Emphasis

added].

® Attachment #1 of Guidelines, in pertinent part, states:

4. Disinfection of Premises, Conveyances, and Materials

All premises, including barns, corral, stockyards, and pens,

and all cars, vessels, aircraft, and other conveyances, and the

materials therein shall be cleaned and disinfected * * *, [Em-

phasis added |.

7 Terms of Contract, in pertinent part, state:

5. Buildings prepared for cleaning and disinfection according

to the folowing:

* * * *

d. Premises sprayed with USDA approved disinfectant ac-

cording to Government requirements and as directed by a

State-Federal official. Disinfectant to be supplied by Contractor.

12a

stances of the phrase “poultry premises’ cannot over-

come the force of the repeated references indicating cov-

erage of the entire premises. Contract interpretation has

been consistently viewed as a harmonizing process in

which the various parts of a disputed contract are to be

construed as a whole to give meaning to all of its provi-

sions, In State of Arizona v. United States, 575 F.2d 855,

863 (1978), the Court of Claims held that

(wle follow the established general rules that pro-

visions of a contract must be so construed as to

effectuate its spirit and purpose, that it must be

considered as a whole and interpreted so as to har-

monize and give meaning to all of its provisions, and

that an interpretation which gives a_ reasonable

meaning to all parts will be preferred to one which

leaves a portion of it useless, inexplicable, inopera-

tive, void, insignificant, meaningless, superfluous, or

achieves a weird and whimsical] result.

Moreover, the appellant, when ordered, proceeded to

clean and disinfect its entire premises without protest.

A principle of contract interpretation is that the contract

must be interpreted in accordance with the parties’ under-

standing as shown by their conduct before the contro-

versy. See Macke Co. v. United States, 467 F.2d 1323,

1325 (Ct. Cl. 1972).

Thus, the appellant has failed to make the strong,

affirmative showing that is necessary to overcome the

presumption of correctness accorded to the lower court’s

findings of fact. See Petro-Chem Marketing Co. v. United

States, 602 F.2d 959 (Ct. Cl. 1979); Davis v. United

States, 164 Ct. Cl. 612 (1964). Moreover, we hold that

the legal conclusions of the lower court are correct as a

matter of law. Since this holding is dispositive, we do

not consider the issue of interest. The judgment of the

Claims Court is affirmed.

AFFIRMED.

13a

IN THE UNITED STATES COURT OF CLAIMS

TRIAL DIVISION

No. 364-75

(Filed: January 18, 1982)

JULIUS GOLDMAN’S EGG CITY

Vv.

THE UNITED STATES

Fair market value; Judicial review of adminis-

trative determination of Secretary of Agricul-

ture; Diseased animals, destruction by Depart-

ment of Agriculture; Contracts—Construction as

fixed price or cost plus; Changes as beyond

scope of work.

James A. Dobkin, attorney of record for plaintiff.

Thomas B, Wilner, Arnold & Porter, of counsel.

Richard J. Webber, with whom was Assistant Attor-

ney General Alice Daniel, for defendant. Elizabeth

Langer, of counsel.

OPINION *

SCHWARTZ, Trial Judge: This case arises from the

Government’s program for the control of an epidemic of

exotic Newcastle disease in the poultry egg industry in

Southern California in 1972. The proper name of the

disease is velogenic viscerotropic Newcastle disease

(VVND).

* The trial judge’s recommended decision and conclusion of law

are submitted in accordance with Rule 134(h).

l4a

When the disease threatened to spread to the whole

country, the Secretary of Agriculture on March 14, 1972,

acting with statutory authority, declared a national emer-

gency and with the active collaboration of the California

health authorities instituted a program to quarantine and

destroy the infected flocks and pay the owners their fair

market value. 21 U.S.C. $§ 114-1l4a, 134-134h (1970)';

9 C.F.R. § 53.3 (1975).

The flocks in the eight affected counties were appraised

at the approximately 160 ranches involved, compensation

was paid to the owners, and the ranches were cleaned

and disinfected. This was done by the task force of 1500

persons, including veterinarians and agricultural econo-

mists, assembled from the Department’s Animal and

Plant Health Inspection Service and the California De-

partment of Food and Agriculture. The sum paid ini-

tially, called in the record an indemnity, came to $17.7

million, and was supplemented by a further payment of

$5.6 million, a total of over $23 milliom

Plaintiff Julius Goldman’s Egg City cperates, in Ven-

tura County, California, the largest egg ranch in the

world. It housed some 3.4 million of the 11 million chick-

ens destroyed, was 50 times larger than the average ranch

and three times as large as the next largest. Plaintiff

operates not only a table-egg enterprise which can pro-

duce 900,000 eggs daily, but, unlike other ranches, also a

feed mill, fertilizer plant, laboratories, facilities for

breaking, drying and freezing eggs and storing the prod-

uct, as well as a distribution system which takes the eggs

directly to retail supermarkets.

Plaintiff was paid $5.2 million as an initial indemnity,

and $2 million as a supplemental indemnity, a total of

over $7.2 million. Here, the claim is for inadequate pay-

1A statutory provision for an indemnity for the destruction

of diseased animals appears first in the Department of Agriculture

Organic Act of 1944, c. 412, Title I, § 10la, 58 Stat. 734 (1944).

l5a

ment of both indemnities. Claim is also made for fur-

ther payments under a contract with the Department of

Agriculture by which plaintiff undertook the destruction

of its flock (called in the contract “depopulation”) and

the cleaning and disinfection of its premises.

A government motion for summary judgment was de-

nied by the court, in an opinion determining the stand-

ard for the review of the Secretary’s determination of

fair market value. Julius Goldman’s Egg City v. United

States, 214 Ct. Cl. 345, 556 F.2d 1096 (1977). The court

held that “the Secretary’s determination is to be upheld

unless it is found to have been arbitrary, capricious, an

abuse of discretion or violative of the statutory stand-

ard”; “the ultimate standard of decision here will not be

the court’s own view of ‘fair market value’ but the pro-

priety of the Secretary’s determination under that statu-

tory criterion.” Jd. at 354, 556 F.2d at 1100-1101. The

case was remanded to the trial division for trial of the

facts.

The case was tried in both Washington and Los An-

geles. The parties have since filed even more than the

usual over-voluminous and repetitious proposed findings

of fact. These have been culled for relevance and ac-

curacy and the still voluminous product filed as the find-

ings of fact.

On these findings of fact, it is concluded that plain-

tiff’s claims are without merit and that the complaint

should be dismissed. This opinion may be regarded as

the conclusions of law and fact intermediate between the

accompanying findings of fact and the conclusion of law

against the plaintiff, on the standard laid down by the

court for the review of the Secretary’s determinations.

l6a

Fair Market Value

A The Secretary’s Determination of Fair Market Value

The statute provides that the Secretary ‘‘shall’” com-

pensate the owners of the diseased animals, destroyed un-

der the section; and that “[s]uch compensation shall be

based upon the fair market value as determined by the

Secretary, of any such animal... at the time of the

destruction thereof.” 21 U.S.C. $134aid) (1970). Fair

market value of chickens “shall be determined by the. . .

egg production . .. value of such animals.” 9 C.F.R.

$ 53.3(b) (1975).?

There is no actual market for the chickens of various

ages in an egg rancher’s flock, but only a market for

day-old chicks and for pullets 22 weeks old. The Secre-

tary therefore constructed, from the $1.65 market price

of a 22 week-old pullet and the 35-cents estimated aver-

age cost of raising such a pullet to 26 weeks, a fair mar-

ket value of $2.00 for an average prime-age 26-week old

chicken. The value was kept at $2.00 for ages near 26

weeks, and adjusted gradually downwards for lesser and

greater ages. While $2.00 was the maximum allowable

per chicken, the values were not otherwise absolute but

rather guidelines for negotiating with ranchers. Ranchers

were paid an indemnity in accordance with agreements

reached with them on the basis of the guidelines.

29 C.F.R. §53.3(b) (1975) provides:

“The appraisal of animals shall be based on the fair market

value and shall be determined by the meat, egg production,

dairy or breeding value of such animals. Animals may be

appraised in groups providing they are the same species and

type and providing that where appraisal is by the head each

animal in the group is the same value per head or where

appraisal is by the pound each animal in the group is the

same value per pound.”

17a

When egg prices rose following the payment of the in-

demnity, the Secretary concluded that the guidelines had

been inadequate to pay fair market value and therefore

paid a supplemental indemnity, on a formula based upon

the rancher’s theoretical lost profits from his flock in the

26 weeks after destruction.

B_ The Claim of Inadequate Compensation For the Fair

Market Value

The two indemnities paid by the Secretary must be

considered together, as a single total, in passing on the

fairness of the payment of market value. The plaintiff’s

tactic of a separate challenge to the formula of each of

the two indemnities is rejected. Plaintiff was under the

statute not entitled to a logical and sound initial in-

demnity and, separately, to a similar supplemental in-

demnity, but to compensation equal to fair market value.

It is therefore no matter that the initial indemnity may

have been inadequate. The Secretary himself recognized

this when he paid the supplemental indemnity. And it

misses the point doubly to say, as plaintiff does, that the

supplemental indemnity did not fully compensate for the

profits lost during the second 26-week period following

the appraisal and order for destruction of plaintiff’s

flock. The supplemental indemnity was intended, as its

very name reveals, only to add to the first indemnity, and

thereby to pay full compensation. Compensation was not

to be paid for lost profits during any particular period;

the statute required compensation not for lost profits, but

for fair market value, and for that value “at the time of

the destruction.” Only the total payment may be attacked

as less than the statutory fair market value.

Plaintiff, paid $5,160,173.97 as an initial indemnity

and $1,975,255.88 as a supplemental indemnity, or a total

of $7,135.429.85 as the fair market value of its flock of

3,422,356 chickens, has not met its burden of proof of

showing that it was inadequately compensated for the

flock’s fair market value. The initial and the supplemen-

18a

tal indemnity, taken together, have not been shown to

have been otherwise than the product of a rational, bona

fide effort by the Secretary to fix the fair market value.

As such, they are not to be disturbed, by the standard for

judicial review laid down by the court in its decision on

the motion for summary judgment.

There is no evidence in the record showing that plain-

tiff’s flock had a value greater than the $7,135,429.85

paid. Plaintiff urged, as the estimated value of its flock,

$7,253,673.09, a sum derived from the costs of the re-

placement flock in the fiscal years 1973 and 1974, amor-

tized backwards in time, and, alternatively, $6,749,336, a

sum derived from the costs of the flock in the year be-

fore destruction. Necessarily, these sums are largely the

product of allocations to the cost of the flock of percent-

ages of various of plaintiff’s overall costs of its several

businesses. The first sum, based on replacement costs in

the ty.. years following appraisal and destruction, is re-

jected as too remote from the time of valuation to be a

reliable gauge. The second has been reduced, by success-

ful Government challenges to elements of the underlying

estimates, to $5,943,462. Having been paid $7.1 million

for a flock which cost it $5.9 million, and lacking other

acceptable proof of fair market value, plaintiff cannot

complain.

C The Separate Challenge to the Initial Indemnity

Plaintiff, unlike all other ranchers, produced its own

baby chicks and raised them to 26-week, profitable age.

(Other ranchers bought 22-week old pullets from growers

who had raised them from baby chicks). Plaintiff in-

curred costs of $2.52 in raising a 26-week old chicken, as

compared with the $2.00 average cost determined by the

Secretary in his guidelines for the initial indemnity. Put

in terms of the whole flock, plaintiff’s costs were $5,943,-

462, as compared with the $5,160,173.97 paid to it as an

initial indemnity.

19a

Plaintiff challenges, not the Secretary’s determination

in the initial indemnity of the fair market value of the

average chicken, but rather the fairness to plaintiff of

paying it an initial indemnity based on the fair market

value of an average chicken. The ground for the chal-

lenge is that plaintiff spent more in raising its chickens

and therefore they were superior in value to the average

chicken, presumably by the difference between $2.52 and

$2.00, or, in terms of damages, by the difference between

costs of $5.9 million and initial indemnity of $5.1 million.

The challenge is up to a point well-grounded. Plaintiff

gave its chickens if not the best feed and care than at

least very good feed and cure, better than that of the

average chicken whose cost was reflected in the initial

indemnity. Also, plaintiff’s costs were higher than the

costs of the average chicken.

Cost to a single entrepeneur, however, is not the equiv-

alent of market value, either generally or in the circum-

stances of this case. It is not inconceivable that for rea-

sons of its own, or from causes beyond its control, plain-

tiff spent amounts on its chickens to a total in excess of

their resulting fair market value. It would be profitless

to speculate on any such reasons and causes, but it is

noteworthy that plaintiff is essentially in a different busi-

ness than other ranchers. Unlike other ranchers, plaintiff

raises its own baby chicks to laying age, maintains, in

addition to its table-egg operations, large egg-breaking,

drying, freezing and storage facilities which can consume

up to 30 percent of plaintiff's maximum daily production

of 900,000 eggs, and markets its table eggs directly to

retail supermarkets. The difference between plaintiff’s

costs of $2.52 per chicken and the $2.00 cost of the aver-

age chicken or the difference between plaintiff’s costs of

$5.9 million for its flock and the initial indemnity of $5.1

million is not an acceptable measure of the excess of the

fair market value of plaintiff’s flock over that of the

average flock.

20a

Even if adequacy of compensation were to be measured

by the initial indemnity alone and even if plaintiff’s

chickens indeed had a greater value in the market (as-

suming there were a market) than the average chicken

on whose value the guidelines for the initial indemnity

were based, it nevertheless remains that plaintiff has not

shown exactly by how much its flock’s fair market value

exceeded the amount of the initial indemnity or by how

much the fair market value of its 26-week old chicken

exceeded that of the average such chicken. No evidence

was offered, fur instance, to show that plaintiff’s chickens

lay more or better eggs than the average chicken, or that

its eggs command higher prices than the eggs of average

chickens. Other than the amount paid by the Secretary

as a supplemental indemnity, there is no basis in the

record—plaintiff’s costs having been rejected as such a

basis—for the determination of any specific amount by

which the initial indemnity, alone, failed to compensate

for fair market value.

Finally, there has been no showing that the Secretary

acted unreasonably in basing the guidelines for the ini-

tial indemnity on the value of an average chicken, in the

light of the numbers of chickens involved, the difficulties

of any system of appraisal and compensation based on

variations in value among chickens and flocks, and the

recriminations and claims inevitable from a customized

appraisal. The applicable regulations recognize that some

animals come in large numbers and may be appraised in

groups. 9 C.F.R. § 53.3(b), supra, note 2. Essentially,

the Secretary decided that the egg-laying chickens, at

least in the area of the disease, had, in the words of the

regulations, “the same value per head.” Jd. The valua-

tion of domestic animals such as chickens is a matter in

the first instance confided by Congress to the Secretary.

It is a matter, further, in which the Secretary is presum-

ably expert. His judgment is therefore entitled to re-

spect, in the absence of “compelling indications that it is

2la

wrong” (Red Lion Broadcasting Co. v. FCC, 395 U.S.

367, 381 (1969)). There are no such indications, much

less compelling indications.

There has been no demonstration, much less any com-

pelling demonstration, of error in the administrative de-

termination, except in the unpersuasive fact of plaintiff's

greater-than-average costs. So far as can be seen, the

Secretary’s adjustment of the guidelines to the nature

and numbers of the animals involved was not unreason-

ably achieved by the use of average values. A homely

fact learned in the trial of the case is that it is very hard

to tell the age of a mature chicken. It is doubtless equally

hard to judge the relative merits of chickens of the same

age. In any event, plaintiff has not shown that it could

have been done, in its case. The Secretary accordingly

acted within the scope of his statutory powers in his

adoption of standards according to a formula based on

average values and not on judgments on the merits of

individual chickens or flocks. The separate challenge to

the initial indemnity fails.

D The Separate Challenge to the Supplemental Indem-

nity

The second round of indemnity payments, in which

plaintiff was paid $1.9 million, was motivated by the

Secretary’s conclusion that the rise in egg prices follow-

ing the destruction of the infected chickens had retro-

actively shown the initial indemnity to be inadequate in

not sufficiently considering lost profits from sales of eggs.

The supplemental indemnity was calculated on the basis

of the hypothetical, lost profits from egg production, in

the 26-week period following destruction of a flock, in

which a chicken can be raised to profitable egg-laying age

and a ranch thereby repopulated.

There is no merit to the contention that the supple-

mental indemnity so formulated was unfair as to plain-

tiff because plaintiff’s great size made it impossible for

it to repopulate in 26 weeks.

22a

As already noted, the supplemental indemnity was not

intended as a payment of entire fair market value or as

a replacement of all lost profits from egg production fol-

lowing destruction of the rancher’s flock. What had been

believed to be a fair market value had earlier been de-

termined and paid, in the initial indemnity. That earlier

judgment necessarily included some recognition of lost

profits as an element of fair market value, i.e., the values

represented by the opportunity to make profits from a

chicken, which is, after all, an egg-laying machine. This

is evidenced by, among other things, the guidelines for a

diminishing value for older chickens, reflecting their de-

creasing productivity with age.

Thereafter, the initial indemnity was seen to have in-

adequately recognized the element of lost profits. But,

withal, the statute required only payment of fair market

value at the time of the destruction of the diseased ani-

mals, not payment of profits after destruction, and espe-

cially not the profits inflated by the very scarcity created

by the destruction.

The supplemental indemnity was thus intended as an

increase in the earlier determined payment of fair mar-

ket value, to the extent only of the perceived inadequacy

of the earlier payment to compensate for the egg-

producing-profit element of fair market value at the time

of destruction. So understood, the supplemental indem-

nity was not unreasonably based on the same economic

unit as the initial indemnity—the 26-week old chicken—

by a formula based on the hypothetical time it would

take to replace a destroyed flock with 26-week old chick-

ens. In other words, since the supplemental indemnity

was intended to remedy a generalized inadequacy in the

initial indemnity, it was correct to base it on the same

considerations as the initial indemnity. Thus, the supple-

mental formula could just as well have been a percentage

of the initial indemnity.

28a

Any supposition in the supplemental indemnity that a

rancher could order baby chicks at the time of the de-

struction of his flock and in 26 weeks replace the de-

stroyed flock was, it is true, essentially artificial and

unrealistic—but it was equally so for all ranchers. It

was artificial and unrealistic for several reasons; in fact

29 weeks are needed for the development of a 26-week

old chicken—the hatching period is three weeks; the de-

struction of 11 million egg-laying chickens created a

shortage of baby chicks usable for repopulation, and

ranchers were faced with an acute shortage of baby

chicks.

Moreover, and this most of all made the supposition

unrealistic, repopulation with a flock of chickens all of

the same 26-week age (or of any other single age) was

not the objective of the rancher whose flock has been de-

stroyed. The chickens in such a flock would age equally

and in time become an over-age flock, sold off for meat.

The proper laying flock wanted by a rancher is a multi-

age group, whose ages vary from 26 weeks to about 110

weeks, from which the oldest chickens are periodically

sold for meat and are replaced with 26-week old laying

chickens. A rancher could not recreate such a multi-age

flock by purchasing the same number of baby chicks or

pullets as the chickens destroyed. Instead, a limited num-

ber of pullets would be purchased, but not so few as to

leave the rancher without eggs to sell, followed by peri-

odie further purchases of chicks and pullets, spaced over

a period of time, so that eventually there would be re-

constituted a multi-aged flock comparable to the rancher’s

flock prior to destruction.

This last is what plaintiff did. When its flock was

ordered destroyed, it bought 1.4 million pullets (there is

a failure to prove the allegation that more were not

available), and also ordered further shipments, at inter-

vals, of baby chicks and pullets, Other ranchers tried to

do the same, according to their size. All balanced their

24a

need for layers to produce eggs for sale with the objec-

tive of a multi-age flock and the state of the market for

chicks and pullets.

Plaintiff’s troubles were no worse than those of the

other ranchers. All necessarily required longer than 26

weeks to repopulate with flocks of the pre-destruction

variety of ages. It took plaintiff, in fact, almost three

years to re-create its pre-destruction multi-aged flock,

and it took 2 years to gather a flock of the same number

as before. One year after its birds were ordered de-

stroyed, however, plaintiff was doing almost as well as

before, with a flock of 2.3 million laying birds, all 26

weeks or older, but relatively young and so proportion-

ately more productive than the pre-destruction flock of

2.7 million layers, almost a million of which were older

birds.

The record gives no basis for the judgment plaintiff

seeks—that while others could repopulate in 26 weeks,

plaintiff was only able to repopulate its flocks in 52

weeks. There is no showing but that other, smaller

ranchers were as far from re-creation of their pre-

destruction flocks in 52 weeks as was plaintiff and

needed as much time as plaintiff did to re-create a flock

with the same age distribution as before.

The challenge to the supplemental indemnity fails, as

did the challenge of the initia] indemnity.

E Alleged Discrimination in the Administration of the

Indemnities

Plaintiff complains that with complete records of the

ages of its flock, it was in the first indemnity paid cor-

rect amounts based on the recorded ages of its chickens,

while other ranchers, without such records, understated

or misstated the age of their flocks and so obtained

greater payment than they were entitled to. It is true

that in the haste and urgency of the first indemnity nego-

25a

tiations, other ranchers were not required to seek out

records of age of their flocks. Still, no discrimination

against plaintiff wos intended and none was accom-

plished. The Secretary’s agents, in the belief that de-

struction of chickens could not begin until agreement

was obtained to appraisals, chose not to delay destruction

and thus the suppression of the disease by requiring that

records of ages be obtained. Their decision, if not sound

legally, was justified by the difficulties to be foreseen—

even perhaps resulting in delays in the destruction pro-

gram—in destroying the chickens without the ranchers’

agreement on the amount of compensation.

Nor was there discrimination against plaintiff in the

further circumstance that on the discovery of the over-

statements or misstatements, in the course of the applica-

tions for the more leisurely supplemental indemnity, the

Department of Agriculture made no efforts to recover

the overpayments of the initial indemnity. Again no dis-

crimination against plaintiff was intended or done. The

size of the possible recovery, the time and effort required,

relations with the industry and perhaps other considera-

tions were the Secretary’s to weigh. His decision is not

shown to be unreasonable, and certainly it created no

rights in plaintiff. What plaintiff seems to want is

equality with other, dishonest ranchers—a judgment for

the same amounts as the others made away with. The

record does not contain data on the amount of any such

award, even if morality permitted.

The next complaint of discrimination is that the ap-

praisers by their own admission occasionally paid “a

penny or two more” than the Department’s appraisal

guidelines, although the maximum was always observed.

The appraisers were there to bargain for an agreement

they deemed necessary for swift suppression of disease.

Their payment of a penny more than the guidelines called

for was an administrative judgment which cannot be

turned into a claim by others for the same penny. In-

26a

deed, for severa] age groups of its birds, plaintiff itself

was paid a penny or two or three more than the guide-

lines called for, and as to one group it was paid 10 cents

per bird less than the guideline figure. The guide lines

were just that—guidelines for a bargained agreement.

Lastly, it was not discrimination against plaintiff to

pay four neighboring ranchers additional sums _ based

upon the number of weeks after they were ready to start

replacing their destroyed flocks, but were ordered by the

task force not to do so until] plaintiff’s nearby ranch was

cleaned and disinfected. In the interest of preventing

reinfection, these four ranches were kept from resuming

business through no fault of their own, and the Secre-

tary’s decision to compensate them was neither unreason-

able nor any business of the plaintiff’s.

The Claims on the Contract

A The Contract—Fixed-Price or Cost-Plus

The contract between plaintiff and the Government,

effective as of September 7, 1972, provided that plaintiff

should destroy its flock and clean and disinfect its

premises, for a payment of $800,000. It is held to be a

fixed-price contract. There is no merit in plaintiff’s con-

tention that the contract is one for reimbursement of

cost plus a profit, that is, a “cost-plus,” no-risk contract.

The fixed-price nature of the contract may be seen in

the provision which states that the “total cost” of the

job is to be $800,000:

SERVICES

ITEM NO. 1

Furnish all personnel, equipment, and services as

required for the depopulation of approximately

3,422,400 poultry and the cleaning and disinfection

of the poultry premises, for the period September 8,

27a

1972 through December 15, 1972, in accordance with

the following Terms of Contract.

FOR THE JOB—Total Cost $800,000.00

In the clause requiring the submission of a cost break-

down it was stated that the cost breakdown need not be

observed “so long as the total contract price is not ex-

ceeded”:

3. Breakdown of Costs

A cost breakdown submitted by the Contractor,

Julius Goldman, is attached and forms a part of

this contract. There is no prohibition against

deviation from amounts within items, or for ex-

penditures under an item so long as the total

contract price is not exceeded and the purpose for

which the funds are used remains within the gen-

eral intent outlined and documented. [Emphasis

added].

The bottom line of the cost breakdown submitted by

plaintiff pursuant to the foregoing requirement showed,

again, a “Total Cost $800,000.”

Repeated confirmations that the contract is a fixed-

price contract are found in the following:

1. The contract omitted any reference to a rate of

profit, as would have been the case in a cost-plus-profit

contract.

2. The contract was not negotiated on the basis of

estimated costs, as would have been the case with a cost-

plus contract, but on a lump sum basis. In the bargain-

ing, plaintiff asked $900,000, the Government offered

$500,000, and agreement was reached on $800,000. The

breakdown of costs, required under the paragraph 3

quoted above, was neither requested nor seen by Govern-

ment until the contract was executed by plaintiff.

28a

8. Plaintiff did not establish an account on its books

for the costs of the contract, as it would have done, had

the contract been one for reimbursement of costs.

4. No government officer promised plaintiff that it

would make a profit or that if it lost money on the con-

tract it would be paid an additional sum.

It appears that Mr. Julius Goldman, the principal of

plaintiff, was allowed by the government negotiators to

believe that if he lost money he could seek further pay-

ments from the Department in Washington, and that the

Government would negotiate further. Mr. Goldman did in

fact seek further payment on the ground that his costs

exceeded the contract price. Officers of the Department

considered his claims, could not confirm them, and re-

jected his requests. The rejection seems to have been

justified. On the trial of the case, plaintiff was unable

to demonstrate that its costs exceeded $749,743, a sum

less than the contract price.

B. The Claimed Change

Plaintiff contends that by the use of the phrase ‘“‘poul-

try premises” in “Item No. 1,” under “Services,” quoted

above) ,” the contract limited cleaning and disinfection to

the buildings housing the chickens, excluding the clean-

ing and disinfection of the additional facilities—the

hatchery, the feed mill, the fertilizer plant, and the

breaking, drying, freezing and storage facilities. On this

theory, the cleaning and disinfection of these facilities

was a contract change for whose costs, plus a profit, the

Government is liable. The contention is rejected, and it

* Another reference to “poultry premises’ appears on the cover

page of the contract:

“DEPOPULATION, CLEANING, AND DISINFECTION OF

POULTRY PREMISES, in accordance with the attached con-

tract terms, for the USDA, APHIS, Newcastle Disease Head-

quarters, Riverside, California 92507.”

29a

is held that the contract required cleaning and disinfec-

tion of all the facilities at plaintiff’s ranch.

The obligation of the plaintiff to clean and disinfect

the entire premises of its ranch is to be seen in the

language, in paragraph 1, Introduction, under Terms of

Contract, describing the contract as one for “the com-

plete depopulation of the Julius Goldman Egg City

premises, Moorpark, California, due to the existence of

exotic Newcastle disease,’ * and in paragraph 5, to the

cleaning and disinfection of “Buildings” and “Premises,” °

and, finally, in the references to ‘All premises * * * and

the materials therein.” °

‘ “TERMS OF CONTRACT

‘1, Introduction

“This contract is being negotiated for the complete depop-

ulation, cleaning and disinfection of the Julius Goldman Egg

City premises, Moorpark, California, due to the existence of

exotic Newcastle disease. These services are required by the

U.S. Department of Agriculture, Animal and Plant Health

Inspection Service, Newcastle Disease Headquarters, Riverside,

California. This office is responsible for control and prevention

of the exotic Newcastle disease which has been declared a

national emergency the Secretary of Agriculture.”

“5. Buildings prepared for cleaning and disinfection according

to the following:

ie * * *

“d. Premises sprayed with USDA approved disinfectant

according to Government requirements and as directed by a

State-Federal official. Disinfectant to be supplied by Con-

tractor.”

“ATTACHMENT #1

“GUIDELINES

“nen x * -

“4, Disinfection of Premises, Conveyances, and Materials

“All premises, including barns, corral, stockyards, and pens,

and all cars, vessels, aircraft, and other conveyances, and the

80a

The phrase “poultry premises,’ elsewhere, cannot over-

come the force of the repeated references indicating cov-

erage of the entire premises. Only such complete clean-

ing, moreover, would prevent reinfection.

Plaintiff without protest proceeded to clean and dis-

infect the entire premises, including the facilities now

said to be beyond the scope of the contract. The principle

of interpretation of the contract in accordance with the

parties’ understanding, as shown by their conduct before

the controversy arose, Macke Co. v. United States, 199

Ct. Cl. 552, 556, 467 F.2d 1323, 1325 (1972), reinforces

the conclusion that the contract work was the cleaning

and disinfection of the entire premises and not just the

chicken houses.

The claim of a change is not proven.

III

The Claimed Offsets

In view of the conclusion that plaintiff is not entitled

to recovery, the three offsets claimed by the Government

need only the most brief mention. They are treated ex-

tensively in the accompanying findings of fact.

The first offset claimed is for $649,000, paid by the

Government for feed for the chickens awaiting destruc-

tion. The contention is that it was inequitable that the

Government should pay for feed for chickens whose eggs

were yielding plaintiff a profit. But the payment was

agreed to by the Government in a bargain in which

plaintiff promised a speed-up in depopulation. While the

promised speed-up was not fully realized, there is no

showing of deliberate slowdown or other breach; when

materials therein shall be cleaned and disinfected under the

supervision of a State-Federal employee whenever necessary

for the control and eradication of the disease.

+ _ * *

3la

plaintiff thereafter asked for an extension of time for

performance, the Government agreed, and plaintiff com-

pleted performance of the contract within the extended

time.

The second offset seeks credit for the $21,386 paid to

neighboring ranchers who were not allowed to resume

business, though ready to do so, until plaintiff had com-

pleted the disinfection of its ranch. This episode has

already been mentioned in connection with the plaintiff’s

claims of discrimination in the payment of the indemni-

ties, Part IE above. Plaintiff performed in time the con-

tract to destroy its chickens and clean and disinfect its

premises. It cannot be penalized for the consequences of

the } opinquity between ranches.

T 2 last offset sought is for $152,064, paid by the

Go -rnment as the cost of replacing rather than disin-

fecting metal water troughs in the chicken houses. This

payment was part of a hard-bargained agreement, not

breached. The insinuation of duress on the Government

is not proven.

For the foregoing reasons, the complaint is dismissed

as without merit.

32a

UNITED STATES COURT OF CLAIMS

No. 364-75

JULIUS GOLDMAN’S Ecc CITY

THE UNITED STATES

June 15, 1977

Edgar H. Brenner, Washington, D.C., atty. of record,

for plaintiff; James A. Dobkin, Thomas B. Wilner and

Arnold & Porter, Washington, D.C., of counsel.

Mare J, Fink, Washington, D.C., with whom was Act-

ing Asst. Atty. Gen., Irving Jaffe, Washington, D.C., for

defendant.

Before DAvis, Judge, SKELTON, Senior Judge, and

KASHIWA, Judge.

DAVIS, Judge.

A push for summary judgment is often pressed by one

party or the other as a short-cut to by-pass what looms

as a long or tedious trial on the facts. But we know

that such a short-cut is blocked where there are disputed

issues of material fact and the case cannot be decided as

a matter of law on the uncontroverted facts. This is just

such a litigation. The defendant alone has moved for

summary judgment; the plaintiff insists that a trial is

needed. Because we find summary judgment inappropri-

ate under the controlling standard, we must remand to

the Trial Division to determine most of the contested is-

sues. We decide only (1) a few legal questions now pre-

sented, and (2) that the factual issues are sufficiently

disputed to call for fact-finding.

83a

The case concerns a lesser-known but far-reaching fed-

eral authority. Congress has given the Secretary of Agri-

culture power “to control and eradicate any communicable

diseases of livestock or poultry * * * which in the opinion

of the Secretary constitute an emergency and threaten

the livestock industry of the country,” and has also au-

thorized ‘the payment [by the Secretary] of claims grow-

ing out of the destruction of animals (including poultry),

and of materials, affected by or exposed to any such

diseases, in accordance with such regulations as the Sec-

retary may prescribe.” 21 U.S.C. §114a. This power is

spelled out in more detail in 21 U.S.C. § 184a(a) and (b),

including the right to seize, quarantine, and dispose of

animals which are found to have been affected with or

exposed to any such dangerous or communicable disease.

Section 134a(d) of Title 21 provides that (with an ex-

ception not now pertinent) “the Secretary shall compen-

sate the owner of any animal, carcass, product, or article

destroyed pursuant to the provisions of this section. Such

compensation shall be based upon the fair market value

as determined by the Secretary, of any such animal, car-

cass, product, or article at the time of the destruction

thereof.”

This statutory scheme was invoked in 1971-1973 to

eradicate exotic Newcastle disease, a contagious sickness

of poultry and other birds, which only very recently came

to our shores and first appeared in southern California

in 1971. Both the Federal Government and the State of

California cooperated to impose quarantines and stamp

out the disease, efforts which eventually necessitated the

destruction of infected and exposed poultry. On March 14,

1972, the Government took over the eradication pro-

gram as the State’s funds allocated to the project had

been exhausted. The Secretary of Agriculture, acting

pursuant to the legislation described above, declared a

national emergency due to the Newcastle outbreak. With

that declaration the Government assumed responsibility

34a

for control of the disease and payment of indemnities

pursuant to 9 C.F.R. § 53.3(b)' to cover the cost of de-

stroying infected or exposed flocks and cleaning and dis-

infecting premises.

Plaintiff Julius Goldman’s Egg City, a California con-

cern, is the country’s largest commercial egg producer

with a poultry flock in 1972 of approximately 3,000,000

birds. Between August and September 1972, the Govern-

ment placed sentinel] birds (whose purpose was to detect

the presence of Newcastle disease on the ranch) at Egg

City. After a number of these birds died, laboratory tests

yielded a diagnosis of Newcastle disease. The Govern-

ment notified Mr. Goldman that his flock was infected

and demanded depopulation and disinfection of all build-

ings and equipment. This was done and plaintiff became

entitled to the indemnity contemplated by the statute and

the regulations. The regulations (9 C.F.R. § 53.3(a))

established an appraisal system whereby federal and state

appraisers evaluated the poultry before depupulation.

Under these regulations, one representative from the De-

partment of Agriculture and one from the State of

California appraised the flocks on all commercial egg

producing ranches. In September 1972 they valued the

Egg City chickens. The usual procedure involved counting

the number of chickens on a ranch but, with a facility

Egg City’s size, counting served as a spot check on the

numbers carried on the ranch’s own books. The Govern-

ment considered Egg City’s records accurate and used

them to determine the number and ages of the birds. The

19 C.F.R. § 53.38(b) provides:

The appraisal of animals shall be based on the fair market

value and shall be determined by the meat, egg production,

dairy or breeding, value of such animals. Animals may be ap-

praised in groups providing they are the same species and

type and providing that where appraisal is by the head each

animal in the group is the same value per head or where ap-

praisal is by the pound each animal in the group is the same

value per pound.

85a

number of chickens was multiplied by monetary indem-

nities based on the Government’s view of the then current

fair-market-value-cost of obtaining replacement birds of

various ages. The appraisers then presented Mr. Gold-

man with the appraisal and requested his signature so

that eradication of the flock could begin.

It is at this juncture that the present dispute between

the parties began. Simply put, the Government claims

that Mr. Goldman signed-off on the appraisal forms (after

asking for and receiving certain increases in appraised

value) and that his signature was a binding acceptance

of the indemnity amount he was to receive. Plaintiff,

however, claims that he clearly expressed disagreement

with the completed appraisal (and particularly with the

base used to make the evaluation). He says that he

signed the forms only because the Government told him

that his signature was necessary for commencement of

depopulation and, most important, because he was as-

sured by the appraisers that the appraisals were not

final and increased indemnification could be sought. De-

spite Mr. Goldman’s repeated requests, the Government

has refused to increase plaintiff’s indemnification under

this phase of the program.

During the summer of 1972 the Government decided

that the replacement-cost indemnity (the program’s in-

itial phase, just described) did not adequately compensate

poultrymen for the egg production value of their flocks.

As a result, there was instituted a supplemental indem-

nity program to reimburse ranchers for egg income lost

during repopulation. This supplemental indemnity was

designed to cover a 26-week repopulation period—an

amount of time plaintiff claims was clearly inadequate if

applied to its huge facility. Mr. Goldman also asserts

that he consistently protested the application of the 26-

week formula to his farm and that he was just as con-

sistently given to understand that his protests would be

considered by the Agriculture Department—and that they

36a

were, although always turned down. The defendant, on

the contrary, insists that Mr. Goldman accepted this sup-

plemental indemnity as final, without cavil at the time.

After failing to obtain redress from the Department

on both the initial and the supplemental indemnity, plain-

tiff filed this suit. Defendant seeks to guillotine the case

before trial on three grounds: (a) there can be no judi-

cial review at all of these indemnity payments; (b) in

any event, the defendant’s presentation shows conclu-

sively that the program conformed to all requirements

of statute and regulation; and (c) under the doctrine of

accord and satisfaction, plaintiff accepted both types of

indemnity and is now barred from seeking additional

compensation.

1. The Government’s motion does present one true

legal issue not calling for fact-finding—is the plaintiff’s

monetary claim amenable at all to judicial scrutiny?

We are concerned only with the legislative provisions re-

lating to the payment of the indemnity after poultry has

been destroyed, not with an effort to prevent, by injunc-

tion or suit for declaratory relief, the carrying out of

an order of eradication. On the monetary facet we hold

that judicial review is available but that plaintiff cannot

prevail unless it proves that the administrative computa-

tion, as applied to it, was arbitrary, capricious, an abuse

of discretion, or contrary to law.

Take first the language of the statute relating to the

indemnity. 21 U.S.C. § 114a, supra, authorizes “the pay-

ment of claims growing out of destruction of animals

(including poultry) * * * affected by or exposed to any

such disease * * *,” and 21 U.S.C. § 134a(d) directs,

first, that “the Secretary shall compensate the owner of

any animal * * * destroyed pursuant to the provisions

of this section,” and, second, that “[{s]uch compensation

shall be based upon the fair market value as determined

37a

by the Secretary, of any such animal * * * at the time of

the destruction thereof” (emphasis added). Thus, the

Secretary must pay an indemnity if compensable animals

are destroyed (Cumberland v. Dept. of Agriculture, 537

F.2d 959 (7th Cir. 1976)» and the general standard of

payment is expressly prescribed; in a case like this, the

Department does not have discretion whether or not to

pay nor can it decide for itself that something other than

“fair market value” shall be awarded. Also, it is im-

portant that there is no explicit provision in the statute

(or the regulations) precluding further review, or mak-

ing the administrative determination final, conclusive, or

binding. Cf. Panama Canal Co. v. Grace Line, Inc., 356

U.S. 309, 313, 78 S.Ct. 752, 2 L.Ed.2d 788 (1958).° The

only textual phrase on which the defendant can hang its

hat is that the measure of fair market value shall be

“as determined by the Secretary.” Those words as dis-

cussed below, go to show that, to the extent a determina-

tion of “fair market value” involves a span of discretion,

the court cannot substitute its own discretion for properly

exercised administrative discretion. But the language

does not carry the further burden of making the Secre-

tary’s exercise of his discretion conclusive even though

he abuses it, acts arbitrarily or capriciously, or fails to

follow the statutory standard by refusing to grant a

reasonable fair market value. As often pointed out,

judicial review is wholly precluded only if the adminis-

2In some instances of indemnity paid for destroyed corps or

animals, Congress has expressly declared that the Agriculture

Department’s award shall be final. 21 U.S.C. § 103 (indemnity for

diseased animals imported into the country); 7 U.S.C. § 150e

(compensation for certain crops destroyed because of infestation).

See also 7 U.S.C. $§ 217a, 610(e), 1385, 1785; 16 U.S.C. §§ 577g,

577g-1.

In general, explicit statutory provisions seeming to preclude

judicial review are not common and even when they are used the

courts have in many instances found some sort of review appro-

priate. See W. Gellhorn & C. Byse, Administrative Law 217-229

(6th ed. 1974), for a discussion of the cases in this area.

38a

trator enjoys absolute discretion and the determination is

totally committed to his judgment. On their face the

words of this statute command an award based on some-

thing which can reasonably and properly be denominated

“fair market value,” a general concept long known to the

law, with ascertainable outer boundaries and not unlim-

ited in its scope. The statute thus supplies a well-known

guideline instead of leaving the Secretary wholly at

large.®

Nor are we persuaded by any extra-textual indication

that it was Congress’s purpose to cut off judicial review.

See, e.g., Dunlop v., Bachowski, 421 U.S. 560, 567, 95

S.Ct. 1851, 44 L.Ed.2d 377 (1975); Abbott Laboratories

v. Gardner, 387 U.S. 136, 140, 87 S.Ct. 1507, 18 L.Ed.2d

681 (1967); Moore-McCormack Lines, Inc. v. United

States, 413 F.2d 568, 574-75, 188 Ct.Cl. 644, 655-56

(1969). Though judicial scrutiny is not mentioned in the

legislative history, nothing in it states or implies that

the Secretary’s discretion is unlimited, exclusive or final,

or that court review is excluded. Keeping the Secretary

within bounds, and within the law, is fully consistent

with what was said in Congress.

The defendant points out that the statute’s purpose is

to give the Secretary continuing authority for disease

control and eradication (an authority previously derived

* Questions of fair market value are of course commonplace to

the courts and especially to this court under our jurisdiction to hear

taking cases, tax claims, Indian claims and patent compensation

suits. We are not presented with a case in which there is no law

at all to apply (see Citizens to Preserve Overton Park, Inc. v.

Volpe, 401 U.S. 402, 410, 91 S.Ct. 814, 28 L.Ed.2d 136 (1971), nor

are we involved with special problems such as those presented in

cases like Chicago & Southern Air Lines, Inc. v. Waterman S.S.

Corp., 333 U.S. 103, 68 S.Ct. 431, 92 L.Ed. 568 (1948), Panama

Canal Co. v. Grace Line, Inc., supra, and Curran v. Laird, 136 U.S.

App.D.C. 280, 420 F.2d 122, 129 (1969), where the national de-

fense, foreign affairs, and concomitant presidential powers were

at issue. Instead we are concerned with fair market value, a ques-

tion traditionally considered and reviewed by the courts.

39a

only from annual appropriation bills), allowing him to

take swift action to eliminate the inherent dangers of

contagious livestock diseases. The argument is that the

purpose of the indemnity is not only to compensate the

owner but to engender owner cooperation with the Secre-

tary’s efforts. Defendant would have us conclude that

judicial intervention would improperly replace Secretarial

discretion with the court’s and thereby reduce severely

the Secretary’s ability to deal decisively and swiftly (as

Congress obviously contemplated) with the disease prob-

lem. We can accept the Government’s delineation of the

legislative aim without drawing the Government’s con-

clusion. To allow judicial oversight of the fixing of the

indemnity need not interfere at all with the prompt elimi-

nation of diseased animals. Nothing requires or suggests

that the final determination of the indemnity should or

must precede eradication; indeed, the owners’ cooperation

may well be enhanced by the knowledge that, if dissatis-

fied with the award, they will be free to seek court review

after destruction of the animals. As we have already

pointed out, we have here solely a post-destruction claim

for monetary relief, not an application to restrain the

contemplated elimination of diseased livestock or poultry.‘

2. Having decided that some review is permissible, we

must face two additional legal problems. The first is the

proper standard for that review. Shall the court decide

for itself what was the “fair market value” or is the

Secretarial determination to be upheld unless it is found

to have been arbitrary, capricious, an abuse of discretion,

or violative of the statutory standard? The answer lies

*To conduct disease eradication programs, the Secretary, pur-

suant to 21 U.S.C. §134a(c), has the authority to declare the

existence of an extraordinary emergency, dispose of affected poul-

try, and recover from owners the costs of any care, handling or

disposal incurred. This provision, under the appropriate conditions,

gives the Secretary formidable authority to act swiftly and prevent

further danger to public health and property even in the face of

owner resistance.

40a

in the legislative prescription that “fair market value”

is to be “as determined by the Secretary.”” Those words

call for the second standard referred to above, and pre-

clude the court’s deciding the issue of “fair market value”

independently and for itself. The legislative history

speaks regularly of a Secretarial determination and we

see no reason to depart from the normal rule that admin-

istrative determinations of this type are not to be dis-

placed by judicial determinations made entirely de novo.

See, e.g., Citizens to Preserve Overton Park v. Volpe, 401

U.S. 402, 413 ff., 91 S.Ct. 814, 28 L.Ed.2d 136 (1971).°

Nothing which can be called an administrative record

was made in the Agriculture Department and therefore

we shall have to have a trial in this court," but the ulti-

mate standard of decision here will not be the court’s own

view of “fair market value” but the propriety of the

Secretary’s determination under that statutory criterion.

3. The other remaining question is the disposition of

the case if it is ultimately decided by the court that the

Secretary’s determination was improper. The same statu-

tory words and the same principles which preclude the

court’s determining “fair market value” for itself re-

quire that, if the administrative award is overturned,

the matter be remanded to the Secretary for a proper

award—unless the record made here mandates only one

acceptable determination. That is comparable to the prac-

tice under the Wunderlich Act, 41 U.S.C. §§ 321-22, and

5 Though plaintiff challenges the amount of the departmental

award, it does not urge that it was entitled to any procedures other

than those followed by Agriculture. Nor does the claimant con-

tend that it is entitled to just compensation in the constitutional

sense. It is certainly doubtful that such a claim could stand. See

Miller v. Schoene, 276 U.S. 272, 48 S.Ct. 246, 72 L.Ed. 568 (1928)

(upholding the destruction, without just compensation, of cedar

trees passing on a communicable plant disease).

6 We hold in Part B, infra, that defendant has not shown con-

clusively, on this summary judgment motion, that the indemnities

were proper.

4la

it is appropriate for this case of a nonconstitutional in-

demnity which Congress has authorized the Secretary to

grant.

Defendant's secondary contention is that, if there can

be judicial review, the Government has conclusively

shown by its presentation on summary judgment that no

substantial violation occurred. We cannot accept this ar-

gument. Defendant has given us affidavits by government

officials and other materials tending to support its posi-

tion but plaintiff has countered with affidavits by plain-

tiff’s personnel and by a nongovernment expert (who

participated in a large portion of the eradication pro-

gram)" maintaining the conflicting position that (a) the

formula for the initial indemnity was unfair and unrep-

resentative of fair market value for an operation of

plaintiff’s large size, and (b) the formula for the supple-

mental indemnity was likewise improper for Egg City

and was in any event discriminatorily applied without

rational basis for the differentiation. Triable issues of

fact have been revealed by these opposing presentations.

We cannot, of course, resolve such disputed issues on a

motion for summary judgment, and a trial must be had

(or other fact-finding process followed). Plaintiff has the

burden of demonstrating the correctness of its allegations

but it must be given that opportunity.

The last defense proffered in the Government’s motion

is that plaintiff entered into an accord and satisfaction

(with the Department of Agriculture) accepting the

awarded indemnity in full satisfaction of its claims. This

is premised, with respect to the initial indemnity, on the

fact that in September 1972 Julius Goldman signed the

Government’s appraisal forms without reservation or

7 Plaintiff has also supplied some documentary materials in sup-

port of its position.

42a

written protest.* As we have indicated, Mr. Goldman has

submitted an affidavit swearing that (1) he had pro-

tested to the appraisers the bases used for the appraisal

of Egg City’s flocks, (2) the appraisers answered that

they had no authority to change the bases even if Gold-

man were correct, (3) the appraisers also “told me not

to worry about signing the appraisal forms. They ex-

plained that the forms had to be signed to get work under

way, but that the appraisals were not final. They ex-

plained that this was an emergency program and that

speed was essential. They said they couldn’t wait to ne-

gotiate the correct value of the birds at that point, but

that the appraisal guidelines were being reconsidered and

would be changed, and I would have the right to seek

increased indemnification later. They also told me that

discussions were under way to pay indemnification for

lost income for the time I would be out of business. Based

on these representations and on my trust in the Goverri-

ment, I signed the forms to authorize them to destroy the

poultry.” ®

As for the supplemental indemnity, Goldman signed the

same type of statement. His affidavit sets forth this ver-

sion of the sequence of events: In February 1978, after

repopulation had begun at Egg City, he visited Dr. Shar-

man, the official then in charge of Newcastle eradication.

When Goldman informed Sharman that more than 26

§ The statement signed by Mr. Goldman said: “I certify that I

own or am authorized to represent the owner of the animals or

materials identified in this claim. I make claim for all amounts due

me in accordance with all applicable laws and regulations governing

the payment of indemnities for the animals or materials identified

and to be destroyed because of the disease specified. I further agree

to slaughter of said animals and accept the appraisal value for

each,”

® Mr. Goldman also said in his affidavit that “I made clear to

them [the appraisers| that I did not agree to the values assigned

to the birds in those forms, and that I would continue after signing

those forms to claim increased indemnification to reflect the true

value of the birds. They [the appraisers} understood that.”

43a

weeks (the Government’s base for calculating the supple-

mental indemnity) would be needed for Egg City’s re-

population, the latter told him to make a written request

for an extension. Plaintiff thereupon wrote to Dr. Shar-

man requesting both an extension of the supplemental

indemnity period and an increase in initial indemnity

payments. A month later plaintiff received a reply (from

another Government official) denying its requests and

stating that the indemnification procedures had to be ap-

plied uniformly to all ranchers. Mr. Goldman again con-

tacted Dr. Sharman and asserts that he was reassured

that plaintiff's requests were still under consideration.

On March 80, 1973, plaintiff again approached Dr. Shar-

man about the supplemental indemnity and stated that it

needed those additional funds to repopulate the ranch.

Mr. Goldman avers that Dr. Sharman said that the funds

could only be released if Goldman signed the appropriate

forms but that the signed forms would not bar further

requests for increased indemnification. Mr. Goldman

signed and continued to press his claims, meeting with

Government officials who allegedly assured him that his

application for more funds was still under consideration.

Finally, on July 19, 1978, a Dr. Saulmon told plaintiff

(repeating the Government’s earlier rationale) that the

claims had to be denied because the indemnification for-

mulas applied uniformly to all depopulated ranches.

Goldman, however, continued to pursue his claims.

Through government records obtained under the Freedom

of Information Act, he discovered that other nearby

ranches had been given a repopulation period of more

than 26 weeks, extensions based on the time required to

depopulate, clean and disinfect Egg City. Armed with

this information, Mr. Goldman wrote to Agriculture Sec-

retary Butz, accusing the Department of inequitable

treatment toward Egg City. A meeting with Assistant

Secretary of Agriculture Feltner was arranged to review

Goldman’s claims for more money and two months later,

on September 29, 1975, Feltner denied plaintiff’s requests.

44a

On the basis of these averments in Mr. Goldman’s

affidavit, plaintiff urges that, for neither the initial nor

the supplemental indemnity, was there an accord and

satisfaction because the Government (a) assured Egg

City that signing the forms would not bar it from pur-

suing its claims, (b) actually considered plaintiff’s claims

on their merits well after the forms were signed, and

its claims by signing the appraisal forms.

We think that, here too, triable issues of fact—relevant

issues of fact—have definitely been raised by Goldman’s

affidavit. If plaintiff is proven correct in its factual pre-

dicates, there will have been no accord and satisfaction.

This court has said that even a general release will not

prevail “where the conduct of the parties in continuing

to consider a claim after the execution of the release

makes plain that they never construed the release as con-

stituting an abandonment of the claims” (J. G. Watts

Constr. Co. v. United States, 161 Ct.Cl. 801, 807 (1963) ),

and that claims included in a release are gone “unless by

its conduct the Government indicates a willingness to en-

tertain them regardless of the release.” Adler Constr. Co.

v. United States, 423 F.2d 1362, 1365, 191 Ct.Cl. 607,

618 (1970), cert. denied, 400 U.S. 993, 91 S.Ct. 461, 27

L.Ed.2d 441 (1971). In Jnland Trucking Corp. v. United

States, 281 F.2d 457, 460, 150 Ct.Cl. 642, 647 (1960),

the court ruled that signature of a form referring to

“complete and fina] settlement of the contractor’s claim”

did not bar recovery where “plaintiff in fact did protest

the deductions [orally]” and “did not intend to waive its

protest or abandon its claim when it accepted final pay-

ment and the defendant’s representatives so understood.”

See, also, Northern Helex Co. v. United States, 455 F.2d

546, 555, 197 Ct.Cl. 118, 182-33 (1972). Consideration of

such oral assurances by defendant’s representatives would

not be precluded by the parol evidence rule since plain-

tiff’s proof would (if credited) show that the unclear and

45a

less-than-explicit appraisal forms were not meant as fully

integrated and self-contained instruments, and therefore

that Goldman’s agreement to “accept the appraisal value”

for each type of poultry was not intended to preclude

additional monetary claims. See Restatement (Second)

of Contracts § 240 (Tent. Draft No. 6, 1971); Nippon

Hodo Co. v. United States, 160 F.Supp. 501, 502, 142

Ct.Cl. 1, 4 (1958); L. W. Packard & Co. v. United

States, 66 Ct.Cl. 184, 192 (1928); Murray v. Lichtman,

119 U.S.App.D.C. 250, 339 F.2d 749, 751 (1964).

We add one caveat. To be taken into account the oral

assurances by federal personnel on which plaintiff relies

must not have been beyond the authority of those who

spoke them. See Richards & Associates v. United States,

177 Ct.Cl. 1037, 1051 (1966). But this authority need

not be express; it may be implied from the scope of the

work delegated to the official or employee, as well as the

level and nature of his activities. See, e.g., Centre Mfg.

Co. v. United States, 392 F.2d 229, 236, 183 Ct.Cl. 115,

127-28 (1968) (plurality opinion).

In addition to its factual arguments, plaintiffs asks us

to pretermit any inquiry into the circumstances in which

it signed the appraisal forms by following a number of

the court’s decisions in which a claimant was allowed to

recover under a statute even though he had some sort of

consensual arrangement with the Government which

seemed to provide for less than the statute called for.’

19 Plaintiff cites: American Export Isbrandtsen Lines, Ine. v.

United States, 499 F.2d 552, 578, 204 Ct.Cl. 424, 468 (1974); South

Puerto Rico Sugar Co. Trading Corp. v. United States, 334 F.2d

622, 167 Ct.Cl. 236 (1964), cert. denied, 379 U.S. 964, 85 S.Ct.

654, 18 L.Ed.2d 558 (1965); American President Lines, Ltd. v.

United States, 291 F.2d 931, 936, 154 Ct.Cl. 695, 705 (1961);

Suwannee S. S. Co. v. United States, 279 F.2d 874, 150 Ct.Cl. 331

(1960) ; Southeastern Oil Florida, Inc. v. United States, 119 F.Supp.

731, 127 Ct.Cl. 409 (1953), cert. denied, 348 U.S. 834, 75 S.Ct.

56, 99 L.Ed. 658 (1954); A. H. Bull S. S. Co. v. United States, 108

F.Supp. 95, 123 Ct.Cl. 520 (1952).

46a

However, we do not accept this invitation to decide at

this time that in no foreseeable circumstances would

plaintiff be precluded from showing that it failed to re-

ceive statutory “fair market value.” That issue will not

arise if plaintiff succeeds in its factual contentions as to

the signing of the forms.'' But even if Egg City does not

prevail on those points, the particular facts found by the

Trial Division may well have a significant bearing on

Egg City’s entitlement to any further recovery which can

be shown under the statute—for example, whether plain-

tiff should be held to have waived its statutory rights

under conditions which make that waiver binding on it.

We leave this matter to the trial judge to consider, if it

becomes necessary, in the light of all tne facts he finds.

For these reasons, we deny the defendant’s motion for

summary judgment and remand the case to the Trial

Division for further proceedings consistent with this

opinion.

11 Nor will the issue be important if the defendant prevails on the

merits of the claim.

47a

UNITED STATES COURT OF APPEALS

FOR THE FEDERAL CIRCUIT

No. 364-75

JULIUS GOLDMAN’S Eac CITY,

Appellant,

Vv.

THE UNITED STATES,

Appellee.

JUDGMENT

On Appeal from the United States Claims Court

This CAUSE having been heard and considered, it is

ORDERED and ADJUDGED: AFFIRMED.

ENTERED BY ORDER OF THE COURT

GEORGE E. HUTCHINSON

Clerk

/s/ George E. Hutchinson

Clerk

DATED January 10, 1983

48a

UNITED STATES CLAIMS COURT

No. 364-75

JULIUS GOLDMAN’S EGG CITY

THE UNITED STATES

ORDER

Pursuant to the order of the United States Court of

Appeals for the Federal Circuit, issued October 4, 1982,

IT IS ORDERED that judgment is to be entered in ac-

cordance with my report, filed January 18, 1982, recom-

mending a decision to the judges of the United States

Court of Claims.

/s/ David Schwartz

DAVID SCHWARTZ

Judge

JUDGMENT

Pursuant to the above and Rule 58, IT IS ORDERED

AND ADJUDGED that judgment is entered this date in

this case as provided above.

/s/ Frank T. Peartree

FRANK T. PEARTREE

Clerk

Oct. 6, 1982

49a

$114. Regulations for suppression of diseases; coopera-

tion of States and Territories

It shall be the duty of the Secretary of Agriculture to

prepare such rules and regulations as he may deem nec-

essary for the speedy and effectual suppression and ex-

tirpation of pleuropneumonia and other dangerous, con-

tagious, infectious, and communicable diseases, and to

certify such rules and regulations to the executive au-

thority of each State and Territory, and invite said au-

thorities to cooperate in the execution and enforcement

of the provisions of sections 111, 112, 113 to 114a—1,

115, 117 to 120, and 130 of this title. Whenever the plans

and methods of the Secretary of Agriculture shall be

accepted by any State or Territory in which pleuropneu-

monia or other contagious, infectious, or communicable

disease is declared to exist, or such State or Territory

shal] have adopted plans and methods for the suppression

and extirpation of said diseases, and such plans and

methods shall be accepted by the Secretary of Agricul-

ture, and whenever the governor of a Stale or other

properly constituted authorities signify their readiness to

cooperate for the extinction of any contagious, infectious,

or communicable disease in conformity with the provi-

sions of said sections, the Secretary of Agriculture is au-

thorized to expend so much of the money appropriated for

carrying out the provisions of said sections as may be

necessary in such investigations, and in such disinfection

and quarantine measures as may be necessary to prevent

the spread of the disease from one State or Territory

into another.

§114a. Control and eradication of diseases; cooperation

of States and farmers’ associations; purchase

and destruction of diseased animals; definition

of State

The Secretary of Agriculture, either independently or

in cooperation with States or political subdivisions

50a

thereof, farmers’ associations and similar organizations,

and individuals, is authorized to control and eradicate

any communicable diseases of livestock or poultry, in-

cluding, but not limited to, tuberculosis and paratuber-

culosis of animals, avian tuberculosis, brucellosis of do-

mestic animals, southern cattle ticks, hog cholera and re-

lated swine diseases, scabies in sheep and cattle, dourine

in horses, scrapie and blue tongue in sheep, incipient or

potentially serious minor outbreaks of diseases of ani-

mals, and contagious or infectious diseases of animals

(such as foot-and-mouth disease, rinderpest, and con-

tagious pleuropneumonia) which in the opinion of the

Secretary constitute an emergency and threaten the live-

stock industry of the country, including the payment of

claims growing out of destruction of animals (including

poultry), and of materials, affected by or exposed to any

such disease, in accordance with such regulations as the

Secretary may prescribe. As used in this section, the

term “State” includes the District of Columbia, Puerto

Rico, and the Territories and possessions of the United

States.

§ 134. Definitions

As used in sections 134 to 134h of this title unless the

context indicates otherwise—

(a) The term “Secretary” means the Secretary of

Agriculture.

(b) The term “animals” means all members of the

animal kingdom including birds, whether domesticated or

wild, but not including man.

Rico, Guam, the Virgin Islands of the United States, and

the District of Columbia.

(d) The term “interstate” means from a State or other

area included in the definition of “United States” to or

through any other State or other such area.

Bla

$134a. Seizure, quarantine, and disposal of livestock or

poultry to guard against introduction or dis-

semination of communicable disease—Authority

of Secretary

(a) The Secretary, whenever he deems it necessary in

order to guard against the introduction or dissemination

of a communicable disease of livestock or poultry, may

seize, quarantine, and dispose of, in a reasonable manner

taking into consideration the nature of the disease and

the necessity of such action to protect the livestock or

poultry of the United States: (1) any animals which he

finds are moving or are being handled or have moved or

have been handled in interstate or foreign commerce con-

trary to any law or regulation administered by him for

the prevention of the introduction or dissemination of

any communicable disease of livestock or poultry; (2)

any animals which he finds are moving into the United

States, or interstate, and are affected with or have been

exposed to any communicable disease dangerous to live-

stock or poultry; and (3) any animals which he finds

have moved into the United States, or interstate, and at

the time of such movement were so affected or exposed.

Determination of extraordinary emergency due to dangerous com-

municable disease; seizure, quarantine, and disposal of animals; action

authorized only if adequate measures not taken by State or other

jurisdiction; notice to State or other jurisdiction

(b) Whereas the existence of any dangerous, communi-

cable disease of livestock or poultry, such as foot-and-

mouth disease, rinderpest, or European fow] pest, on any

premises in the United States would constitute a threat

to livestock and poultry of the Nation and would seriously

burden interstate and foreign commerce, whenever the

Secretary determines that an extraordinary emergency

exists because of the outbreak of such a disease anywhere

in the United States, and that such outbreak threatens

52a

the livestock or poultry of the United States, he may

seize, quarantine, and dispose of, in such manner as he

deems necessary or appropriate, any animals in the

United States which he finds are or have been affected

with or exposed to any such disease and the carcasses of

any such animals and any products and articles which he

finds were so related to such animals as to be likely to be

a means of disseminating any such disease: Provided,

That action shall be taken under this subsection only if

the Secretary finds that adequate measures are not being

taken by the State or other jurisdiction. The Secretary

shall notify the appropriate official of the State or other

jurisdiction before any action is taken in any such State

or other jurisdiction pursuant to this subsection.

Notice to owner to quarantine or to dispose of animal, carcass, product,

or article; action on failure to comply; costs

any animal, carcass, product, or article referred to in

subsection (a) or (b) of this section, or the agent of

such owner, to maintain in quarantine and to dispose

of such animal, carcass, product, or article in such man-

ner as the Secretary may direct pursuant to authority

vested in him by such subsections. If such owner or agent

fails to do so after receipt of such notice, the Secretary

may take action as authorized by said subsections (a)

and (b) and recover from such owner or agent the rea-

sonable costs of any care, handling, and disposal incurred

by the Secretary in connection therewith. Such costs

shall not constitute a lien against the animals, carcasses,

products, or articles involved. Costs collected under this

section shall be credited to the current appropriation for

carrying out animal disease and control activities of the

Department.

58a

Compensation of owner; fair market value; payments from State

or other source; availability of funds

(d) Except as provided in subsection (e) of this sec-

tion, the Secretary shall compensate the owner of any

animal, carcass, product, or article destroyed pursuant to

the provisions of this section. Such compensation shall

be based upon the fair market value as determined by

the Secretary, of any such animal, carcass, product, or

article at the time of the destruction thereof. Compensa-

tion paid any owner under this subsection shall not ex-

ceed the difference between any compensation received

by such owner from a State or other source and such fair

market value of the animal, carcass, product, or article.

Funds in the Treasury available for carrying out animal

disease control activities of the Department of Agricul-

ture shall be used for carrying out this subsection.

Restriction on payment of compensation in cases of

violation of law or regulation

(e) No such payment shall be made by the Secretary

for any animal, carcass, product, or article which has

been moved or handled by the owner thereof or his agent

knowingly in violation of a law or regulation adminis-

tered by the Secretary for the prevention of the inter-

state dissemination of the communicable disease, for

which the animal, carcass, product, or article was de-

stroyed or a law or regulation for the enforcement of

which the Secretary enters or has entered into a coopera-

tive agreement for the control and eradication of such

disease, or for any animal which has moved into the

United States contrary to such law or regulation admin-

istered by the Secretary for the prevention of the intro-

duction of a communicable disease of livestock or poultry.

54a

$134b. Regulations for clean and sanitary movement of

animals

The Secretary, in order to protect the health of the

livestock or poultry of the Nation, may promulgate regu-

lations requiring that railway cars; vessels; airplanes;

trucks; and other means of conveyance; stockyards; feed,

water, and rest stations; and other facilities, used in con-

nection with the movement of animals into or from the

United States, or interstate, be maintained in a clean

and sanitary condition, including requirements for inspec-

tion, cleaning, and disinfection.

$134c. Regulations for movement of animals affected

or exposed to communicable disease

The Secretary is authorized to promulgate regulations

prohibiting or regulating the movement into the United

States of any animals which are or have been affected

with or exposed to any communicable animal disease, or

which have been vaccinated or otherwise treated for any

such disease, or which he finds would otherwise be likely

to introduce or disseminate any such disease, when he

determines that such action is necessary to protect the

livestock or poultry of the United States.

$ 134d. Inspections and seizures; issuance of warrants

Employees of the Department of Agriculture desig-

nated by the Secretary for the purpose, when properly

identified, shall have authority (1) to stop and inspect,

without a warrant, any person or means of conveyance,

moving into the United States from a foreign country, to

determine whether such person or means of conveyance is

carrying any animal, carcass, product, or article regu-

lated or subject to disposal under any law or regulation

administered by the Secretary for prevention of the intro-

duction or dissemination of any communicable animal

disease; (2) to stop and inspect. without a warrant, any

55a

means of conveyance moving interstate upon probable

cause to believe that such means of conveyance is carry-

ing any animal, carcass, product, or article regulated or

subject to disposal under any law or regulation adminis-

tered by the Secretary for the prevention of the introduc-

tion or dissemination of any communicable animal dis-

ease; and (3) to enter upon, with a warrant, any prem-

ises for the purpose of making inspections and seizures

necessary under such laws and regulations. Any Federal

judge, or any judge of a court of record in the United

States, or any United States commissioner, may, within

his jurisdiction, upon proper oath or affirmation indicat-

ing probable cause to believe that there is on certain

premises any animal, carcass, product, or article regu-

lated or subject to disposal under any law or regulation

administered by the Secretary for the prevention of the

introduction or dissemination of any communicable ani-

mal disease, issue warrants for the entry upon such

premises and for inspections and seizures necessary under

such laws and regulations. Such warrants may be ex-

ecuted by any authorized employee of the Department of

Agriculture.

$134e. Penalties; enforcement provisions

(a) Whoever knowingly violates any regulation pro-

mulgated pursuant to the provisions of sections 134

through 134d of this title shall be punished by a fine not

exceeding $1,000 or by imprisonment not exceeding one

year, or both.

(b) The Secretary may bring an action to enjoin the

violation of, or to compel compliance with, any regulation

promulgated or order issued under said sections, or to

enjoin any interference by any person with an employee

of the Department of Agriculture in carrying out any

duties under said sections, whenever the Secretary has

reason to believe that such person has violated, or is

56a

about to violate, any such regulation or order, or has

interfered, or is about to interfere, with any such em-

ployee. Such action shall be brought in the United States

district court, or the United States court of any Terri-

tory or possession, for the judicial district in which such

person resides or transacts business or in which the viola-

tion, omission, or interference has occurred or is about

to occur. Process in such cases may be served in any

judicial district wherein the defendant resides or trans-

acts business or wherever the defendant may be found,

and subpenas for witnesses who are required to attend the

court in any judicial district in any such cases may run

into any other judicial district.

$134f. Promulgation of regulations

The Secretary is authorized to issue such regulations as

he deems necessary to carry out the provisions of sections

134 to 134h of this title.

§ 134g. Authority in addition to other laws; repeal of

inconsistent provisions

The authority conferred by sections 134 to 134h of

this title shall be in addition to authority conferred by

other statutes. Any provision of any other Act incon-

sistent with the provisions of sections 134 to 134h of this

title is repealed.

§$134h. Separability of provisions

If any provision of sections 134 to 134h of this title

or application theveof to any person or circumstances is

held invalid, the remainder of sections 134 to 134h of this

title and the application of such provision to other per-

sons and circumstances shall not be affected thereby.

57a

PART 53—FOOT-AND-MOUTH DISEASE, PLEURO-

PNEUMONIA, RINDERPEST, AND CERTAIN

OTHER COMMUNICABLE DISEASES OF LIVE-

STOCK OR POULTRY

$53.1 Definitions.

Words used in this part in the singular form shall be

deemed to import the plural and vice versa, as the case

may demand. Unless otherwise clearly indicated by the

context, whenever the following words, names, or terms

are used in the regulations in this part, they shall be

construed, respectively, to mean:

(a) “Department” means the United States Depart-

ment of Agriculture.

(b) “Secretary” means the Secretary of Agriculture

of the United States, or any officer or employee of the

Department to whom authority has heretofore been dele-

gated, or to whom authority may hereafter be delegated,

to act in his stead.

ices unit of the Animal and Plant Health Inspection Serv-

ice, United States Department of Agriculture.

(d) “Veterinary Services employee” means any inspec-

tor or other individual employed in the division who is

authorized by the Deputy Administrator, Veterinary

Services to do any work or perform any duty in connec-

tion with the control and eradication of disease.

(e) “Inspector in charge” means an inspector of Vet-

erinary Services who is designated by the Deputy Ad-

ministrator, Veterinary Services to take charge of work

in connection with the contro] and eradication of disease

as defined in this section.

(f) “Disease” means foot-and-mouth disease, rinder-

pest, contagious pleuropneumonia, or any other communi-

cable disease of livestock or poultry which in the opinion

58a

of the Secretary constitutes an emergency and threatens

the livestock industry of the country; or any other com-

municable disease of livestock or poultry referred to in

this paragraph:

The communicable disease of poultry presently existing

in the States of California, Florida, New Mexico, and

Texas and diagnosed as exotic Newcastle-disease, at the

time of slaughter, on the basis of clinical or laboratory

evidence, by a Veterinary Services employee or a repre-

sentative of the particular State involved.

(g) “Materials” means parts of barns or other struc-

tures, straw, hay, and other feed for animals, farm prod-

ucts or equipment, clothing, and articles stored or con-

tained in or adjacent to barns or other structures.

(h) “Person” means natura] person, firm, partnership,

corporation, company, society, and association, and every

officer, agent, or employee thereof.

(i) “State” means each and every one of the States

of the United States, the District of Columbia, and the

Territories and possessions of the United States.

(j) “Mortgage” means any mortgage, lien or other

security or beneficial interest held by any person other

than the one claiming indemnity.

(k) “Animals”—Livestock, poultry, and all other mem-

bers of the animal kingdom including birds whether

domesticated or wild, but not including man.

$53.2 Determination of existence of disease; agree-

ments with States.

(a) The Director of Division is hereby authorized to

invite the proper State authorities to cooperate with the

Department in the control and eradication of any disease

within the meaning of § 58.1(f)

(b) Upon agreement of the authorities of the State to

enforce quarantine restrictions and orders and directives

59a

properly issued in the control and eradication of such a

disease, the Director of Division is hereby authorized to

agree, on the part of the Department, to cooperate with

the State in the control and eradication of the disease,

and to pay 50 percent (and in the case of exotic New-

castle disease up to 100 percent) of the expenses of pur-

chase, destruction and disposition of animals and mate-

rials required to be destroyed because of being contami-

nated by or exposed to such disease: Provided, however,

That if the animals were exposed to such disease prior to

or during interstate movement and are not eligible to re-

ceive indemnity from any State, the Department may pay

up to 100 percent of the purchase, destruction, and dis-

position of animals and materials required to be de-

stroyed: Provided, further, That the cooperative pro-

gram for the purchase, destruction, and disposition of

birds shall be limited to birds as referred to in § 82.2(a)

of this chapter, and which are identified in documenta-

tion pursuant to Cooperative Agreements,’ as constitut-

ing a threat to the poultry industry of the United States:

And provided further, That the Secretary may authorize

other arrangements for the payment of such expenses

upon finding that an extraordinary emergency exists.

§ 53.3 Appraisal of animals or materials.

(a) Animals affected by or exposed to disease, and

materials required to be destroyed because of being con-

taminated by or exposed to disease shall be appraised by

a Veterinary Services employee and a representative of

the State jointly, or, if the State authorities approve, by

a Veterinary Services employee alone.

(b) The appraisal of animals shall be based on the

fair market value and shall be determined by the meat,

egg production, dairy or breeding value of such animals.

1 Agreements between the Departments and the particular State

involved relating to cooperative animal (including poultry) disease

prevention, control, and eradication.

60a

Animals may be appraised in groups providing they are

the same species and type and providing that where ap-

praisal is by the head each animal in the group is the

same value per head or where appraisal is by the pound

each animal in the group is the same value per pound.

furnished by Veterinary Services. Reports of appraisals

shall show the number of animals of each species and

the value per head or the weight and value by pound.

(d) Appraisals of materials shall be reported on forms

furnished by Veterinary Services. Reports of appraisals

of materials shall, when practicable, show the number,

size or quantity, unit price, and total value of each kind

of material appraised.

§ 53.4 Destruction of animals.

(a) Animals affected by or exposed to disease shall be

killed promptly after appraisal and disposed of by burial

or burning, unless otherwise specifically provided by the

Deputy Administrator, Veterinary Services in extra-

ordinary circumstances.

(b) The killing of animals and the burial, burning, or

other disposal of carcasses of animals pursuant to the

regulations in this part shall be supervised by a Veteri-

nary Services employee who shall prepare and transmit

to the Deputy Administrator, Veterinary Services a re-

port identifying the animals and showing the disposition

thereof.

$53.5 Disinfection or destruction of materials.

(a) In order to prevent the spread of disease, mate-

rials contaminated by or exposed to disease shall be dis-

infected: Provided, however, That in all cases in which

the cost of disinfection would exceed the value of the ma-

terials or disinfection would be impracticable for any rea-

6la

son, the materials shall be destroyed, after appraisal as

provided in § 53.3.

(b) The disinfection or destruction of materials under

this section shall be under the supervision of a Veteri-

nary Services employee who shall prepare and transmit

to the Deputy Administrator, Veterinary Services a cer-

tificate identifying all materials which are destroyed,

showing the disposition thereof.

$53.6 Disinfection of animals.

Animals of species not susceptible to the disease for

which a quarantine has been established, but which have

been exposed to the disease, shall be disinfected when nec-

essary by such methods as the Deputy Administrator,

Veterinary Services shall prescribe from time to time.

$53.7 Disinfection of premises, conveyances, and mate-

rials,

All premises, including barns, corrals, stockyards and

pens, and all cars, vessels, aircraft, and other convey-

ances, and the materials thereon, shall be cleaned and

disinfected under supervision of a Veterinary Services

employee whenever necessary for the control and eradica-

tion of disease. Expenses incurred in connection with

such cleaning and disinfection shall be shared according

to the agreement reached under § 53.2 with the State in

which the work is done.

$53.8 Presentation of claims.

Claims for (a) compensation for the value of animals,

(b) cost of burial, burning or other disposition of ani-

mals, (c) the value of material destroyed, and (d) the

expenses of destruction, shall each be presented, through

the inspector in charge, to Veterinary Services on sepa-

rate vouchers in form approved by the Deputy Adminis-

trator, Veterinary Services.

62a

§ 53.9 Mortgage against animals or materials.

When animals or materials have been destroyed pursu-

ant to the requirements contained in this part, any claim

for indemnity shall be presented on forms furnished by

Veterinary Services on which the owner of the animals

or materials shall certify that the animals or materials

covered thereby, are, or are not, subject to any mortgage

as defined in this part. If the owner states there is a

mortgage, forms furnished by Veterinary Services shall

be signed by the owner and by each person holding a

mortgage on the animals or materials, consenting to the

payment of any indemnity allowed to the person specified

thereon.

§ 53.10 Claims not allowed.

(a) The Department will not allow claims arising un-

der the terms of this part if the payee has not complied

with all quarantine requirements.

(b) Expenses for the care and feeding of animals held

for destruction will not be paid by the Department, un-

less the payment of such expense is specifically authorized

or approved by the Deputy Administrator, Veterinary

Services.

of the destruction of animals or materials unless they

shall have been appraised as prescribed in this part and

the owners thereof shall have executed a written agree-

ment to the appraisals.

63a

UNITED STATES DEPARTMENT OF AGRICULTURE

STATE-FEDERAL NEWCASTLE DISEASE HEADQUARTERS

1150 University Avenue

Riverside, California 92507

Phone: 714-684-9351

FOR IMMEDIATE RELEASE

NEWCASTLE TASK FORCE OUTLINES PROPOSED

INDEMNITY FORMULA CHANGES:

RIVERSIDE, Oct. 9—State-Federal Newcastle Task

Force officials today released further details on proposed

changes in the indemnity schedule used to compute pay-

ments to poultrymen whose egg laying flocks have been

destroyed because of exotic Newcastle disease.

The new indemnity schedule is designed to reimburse

poultrymen for lost income from the sale of eggs their

birds would have produced had they not been killed. The

plan was announced Thursday (Oct. 5) in Sacramento by

U.S. Department of Agriculture Ear] L. Butz.

A 26 week period, following the appraisal of a flock,

is used as the basis for the new indemnity formula. This

is considered the time period it will take a poultryman

to safely restock and get back into break-even operation.

Under the formula, the potential productivity of the

destroyed flock during the 26 weeks and the average

prices paid for various egg sizes during that period are

used to compute the additional indemnity. Costs of pro-

duction during the period will also be taken into account.

Task Force officials point out that the supplemental in-

demnity will only be paid if actual egg prices average

higher than the cost of production.

The initial indemnity paid for the birds at the time of

their destruction will remain the same under the new

formula, said Task Force officials. Currently this indem-

nity is set at a ceiling of $2.00 per bird for prime layers,

about 26 to 30 weeks of age.

64a

Application of the new indemnity schedule is retroac-

tive to March 14, when Secretary Butz declared the

southern California exotic Newcastle disease outbreaks a

national emergency. This means that flock owners who

had birds destroyed since the declaration of the emer-

gency may be eligible for additional indemnities based on

the new formula.

Actual egg prices during the 26-week periods will be

determined from quoted sources, Task Force officials said.

Data to determine the potential productivity of layers

during the period, as well as the costs of production, have

been supplied to the Task Force by the California Agri-

cultural Extension Service. The productivity information

is based on the age of the birds, since after a laying hen

has passed its prime it tends to lay fewer eggs.

In addition to providing the poultry industrymen with

a more equitable indemnity for their destroyed flocks,

Task Force officials said they hope the new formula will

encourage continued industry cooperation in the effort to

eradicate exotic Newcastle disease from southern Cali-

fornia.

The Task Force goal is to use its sentinel bird pro-

gram to remove the quarantine from areas where it is

still in effect. The sentinel birds recently aided in re-

moval of quarantines from Los Angeles and Orange

Counties. The next objective, said Task Force officials,

is to use the birds to lift the quarantines from western

Riverside, southwestern San Bernardino and Ventura

counties.

“With the cooperation of the poultrymen in the quar-

antined areas, we are sure we can rapidly release these

restrictions with the help provided by sentinel birds,”

Dr. R. E. Omohundro, director of the State-Federal Task

Force said. “We want to relieve the poultry industry and

associated businesses of the hardships of this quarantine

as quickly as possible,” he emphasized.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.