Appendix — Department of Agriculture v. Cal-Almond, Inc.

OFFICE OF THE CLERK

In the Supreme Court of the Gnited States

OCTOBER TERM, 1995

UNITED STATES DEPARTMENT OF AGRICULTURE,

PETITIONER

v.

CAL-ALMOND, INC., ET AL.

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

APPENDIX TO THE

PETITION FOR A WRIT OF CERTIORARI

Drew S. Days, III

Solicitor General

FRANK W. HUNGER

Assistant Attorney General

EDWIN S. KNEEDLER

Deputy Solicitor General

RICHARD H. SEAMON

Assistant to the Solicitor

General

BARBARA C. BIDDLE

JEFFRICA JENKINS LEE

Attorneys

Department of Justice

Washington, D.C. 20530

(202) 514-2217

TABLE OF CONTENTS

Page

Appendix A (opinion of the court of appeals,

SES GOOG, ets: STD steseneaissassiccnskensciaiintaecninainasiin la

Appendix B (district court order, filed Sept.

i tn ciieiicsscadisesttamiiaticeneetephiadpeiniineanaibesadattoeh 18a

Appendix C (district court judgment and

order, dated Sept. 19, 1994) ......ccccccsseesesseeees 43a

Appendix D (opinion of the court of appeals,

ee I ND seeks diiciniiisiiciabecesitennetnsiobilecs 49a

Appendix E (district court order in No.

CV-F-91-064-REC, filed June 3, 1992) ...... 32a

Appendix F (district court order in No.

CV-F-91-123-REC, filed June 3, 1992) ...... 15la

Appendix G (district court order in No.

CV-F-91-122-REC, filed June 3, 1992) ...... 186a

Appendix H (district court order in No.

CV-F-91-685 REC, filed July 9, 1992) ....... 198a

Appendix I (decision and order of Depart-

ment of Agriculture in AMA Docket No.

F&V 981-4, filed Jan. 23, 1991) 2.0... 200a

Appendix J (decision and order of Depart-

ment of Agriculture in 89 AMA Docket

No. F&V 981-7, filed Feb. 28, 1991) ........... 408a

Appendix K (decision and order of Depart-

ment of Agriculture in 89 AMA Docket

Nos. F&V 981-5 and 981-6, filed Mar. 8,

UNO siishianbadeienbistbstleniistestiaiebiedimaphitiininisdiictceionstia 426a

Appendix L (order of court of appeals deny-

ing petition for rehearing and rejecting

suggestion of rehearing en banc, dated

kk See eee 474a

Appendix M (statutory provisions) .............. 476a

Appendix N (regulatory provisions) ............ 490a

(I)

We remanded the case to the district court to conduct

APPENDIX A

UNITED STATES COURT OF APPEALS

NINTH CIRCUIT

Nos. 94-17160, 94-17163, 94-17164, 94-17166,

94-17167 and 94-17182

CAL-ALMOND, INC., A CALIFORNIA CORPORATION;

SAULSBURY ORCHARD AND ALMOND

PROCESSING INC.; CARLSON FARMS, A SOLE

PROPRIETORSHIP, PLAINTIFFS-APPELLEES

v.

DEPARTMENT OF AGRICULTURE,

DEFENDANT-APPELLANT

Argued and Submitted May 11, 1995

Decided Oct. 10, 1995

Before: CHOY, SCHROEDER, and BRUNETTI, Circuit

Judges.

BRUNETTI, Circuit Judge:

In a previous appeal for these cases, we held that

certain provisions of the California Almond Market-

ing Order (Order), 7 C.F.R. § 981, violated the free

speech and free association rights of several almond

handlers. Cal-Almond, Inc. v. Department of Agri-

culture, 14 F.3d 429 (9th Cir.1993) (Cal-Almond I ).

the fact-intensive inquiry necessary to determine the

appropriate remedy. On remand, the district court

(la)

2a

ordered the United States Department of Agriculture

(USDA) to refund the full amount the almond

handiers had paid to the Board since 1980, to release

all of the advertising assessments that had been

placed in escrow accounts, and to reimburse the

almond handlers all of the money they spent on

creditable advertising. The USDA appeals the pro-

priety of the district court’s award. We have juris-

diction, see 28 U.S.C. § 1291, and we affirm in part and

reverse in part.

L

In our previous opinion, we held that certain

provisions of the Order, which was issued by the

Secretary of Agriculture pursuant to the Agri-

cultural Marketing Agreement Act of 1937, 7 U.S.C.

§ 601-674 (AMAA), to regulate the California almond-

handling industry, violated the almond handlers’ free

speech and free association rights. Jd. at 440.

Specifically, we examined the Order’s provisions that

required almond handlers to contribute to a generic

pro-almond public relations, advertising, and pro-

motion program (Program). The Program, adminis-

tered by the California Almond Board (Board), was

funded by assessments collected from almond hand-

lers on the basis of the volume of almonds handled. 7

C.F.R. §§ 981.41(a), 981.81(a). The assessments could

be reduced, at least in part, by the amount a handler

spent on creditable advertising and other promotional

activities as provided in 7 C.F.R. § 981.441(d)(1)(i)-(iii).

In order to be approved by the Board, the promotional

activity had to have as its “clear and evident purpose”

the promotion of “the sale, consumption, or use of

California almonds.” 7 C.F.R. § 981.441(e)(2).

a oe OP erence a

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In Cal-Almond I, we held that the Board’s assess-

ments implicated the almond handlers’ First Amend-

ment rights because the handlers, who constitute a

“publicly identified group,” were forced to fund the

“‘dissemination of a particular message associated

with that group.’” Cal-Almond I, 14 F.3d at 435

(quoting United States v. Frame, 885 F.2d 1119, 1132

(8rd Cir.1989), cert. denied, 493 U.S. 1094, 110 S.Ct.

1168, 107 L.Ed.2d 1070 (1990)). We found that the

assessments implicated the handlers’ rights to free

speech and free association, regardless of whether the

assessments were paid directly to the Board or

satisfied by expenditures on creditable advertising

and promotional activities. Jd. Applying the three

prong test from Central Hudson Gas & Elec. Corp. v.

Public Serv. Comm’n of N.Y., 447 U.S. 557, 100 S.Ct.

2343, 65 L.Ed.2d 341 (1980), we concluded that the

Almond Marketing Program violated the handlers’

First Amendment rights. Cal-Almond I, 14 F.3d at

440. Consequently, we remanded to the district court

the fact-intensive determination of the appropriate

remedy. Id. at 449.

On remand, the parties stipulated regarding the

various amounts that each handler paid to the Board

for creditable advertising, that had been placed in

escrow for payment of creditable advertising assess-

ments, that had been paid to third parties (7.e.,

newspapers, magazines, etc.) for creditable advertis-

ing, and the portion of each handler’s annual assess-

ments that was applied toward the Board’s generic

promotional activities. The district court ordered the

USDA to refund approximately $135,000, which

represents the full amount handlers paid to the Board

since 1980, to release approximately $1.7 million of

4a

advertising assessments that had been placed in '

escrow accounts, and to reimburse the $2.5 million |

that they had paid third parties for creditable adver-

tising. The USDA timely appeals this order.

We first address whether the doctrine of sovereign

immunity bars the reimbursement of money the

handlers spent on creditable advertising ordered by

the district court.' We review questions involving

principles of sovereign immunity de novo. United

States v. Woodley, 9 F.3d 774, 781 (9th Cir.1993).

It is well established that “[i]n a suit against the

United States, there cannot be a right to money .

damages without a waiver of sovereign immunity... .”

United States v. Testan, 424 U.S. 392, 400, 96 S.Ct. |

948, 954, 47 L.Ed.2d 114 (1976). It is also clear that

waivers of sovereign immunity must be “unequi-

vocally expressed.” United States v. Nordic Village,

Inc., 503 U.S. 30, 33-34, 112 S.Ct. 1011, 1014, 117

L.Ed.2d 181 (1992). Claims for specific relief, how-

ever, are not subject to sovereign immunity. Navel

Orange Admin. Comm. v. Exeter Orange Co., 722

F.2d 449, 452 (9th Cir.1983). The question we must :

decide, therefore, is whether reimbursement of the )

money that the handlers paid for creditable advertis-

ing is best characterized as damages, and thus barred

by the doctrine of sovereign immunity, or as specific

relief. |

1 The USDA does not, and indeed could not, contend that

refund of assessments paid to the Board would be damages and

therefore barred by sovereign immunity. See Wileman Bros. &

Elliott, Inc. v. Espy, 58 F.3d 1367, 1386 (9th Cir.1995).

———

5a

The distinction between money damages and

specific monetary relief is that “[djamages are given

to the plaintiff to substitute for a suffered loss. .. .

specific remedies ‘are not substitute remedies at all,

but attempt to give the plaintiff the very thing to

which he is entitled.”” Maryland Dep’t of Human

Resources v. Department of HHS, 763 F.2d 1441, 1446

(D.C.Cir.1985) (quoting D. Dobbs, Handbook on the

Law of Remedies 135 (1973)); see also Bowen v.

Massachusetts, 487 U.S. 879, 914, 108 S.Ct. 2722, 2742,

101 L.Ed.2d 749 (Sealia, J., dissenting) (“Whereas

damages compensate a plaintiff for a loss, specific

relief prevents or undoes the loss—for example, by

ordering return to the plaintiff of the precise

property that has been wrongfully taken. .. .”).

Requiring the USDA to reimburse the handlers for

money they expended on creditable advertising would

oblige the USDA to “substitute” money from its

coffers for money the handlers had paid to third

parties. Unlike the assessments paid directly to the

Board, in the situation of the money paid for

creditable advertising, the USDA cannot return the

“precise property wrongfully taken” because that

money was not paid to the USDA. Reimbursement

for the money handlers spent on creditable advertis-

ing would therefore constitute damages. Since

nothing in the Act demonstrates congressional intent

to waive sovereign immunity for the claims raised by

the handlers, see Wileman, 58 F.3d at 1385, the

handlers’ claims for reimbursement for money spent

on creditable advertising are barred by sovereign

immunity.

The handlers cite several cases in which monetary

remediation was not barred by sovereign immunity,

6a

arguing that those cases compel the conclusion that

reimbursement in this case would not constitute

damages. See, e.g., Bowen v. Massachusetts, 487 U.S.

879, 910, 108 S.Ct. 2722, 2740, 101 L.Ed.2d 749 (1988);

Katz v. Cisneros, 16 F.3d 1204, 1208 (Fed.Cir.1994);

Alaska Airlines, Inc. v. Johnson, 8 F.3d 791, 797

(Fed.Cir.1993); Zellous v. Broadhead Assoc., 906 F.2d

94, (3d Cir.1990). In those cases, however, the mone-

tary awards were made to plaintiffs because they

were statutorily entitled to amounts that had been

wrongfully withheld, not to reimburse them for

money spent. For example, in Zellows—the case

primarily relied upon by the handlers and the district

court—plaintiffs were tenants of a housing project

whose rent was subsidized under federal law. Zellous,

906 F.2d at 95. The tenants claimed that the Depart-

ment of Housing and Urban Development (HUD),

together with the housing project’s owners and

managers, violated the Housing Act and associated

federal regulations as well as the Administrative

Procedure Act (APA) by failing to make timely

adjustments in their utilities allowance. Jd. As a

consequence of these violations, the tenants did not

receive from HUD money to which they were entitled

under the Housing Act and they paid more in rent

than they should have. Jd.

At first glance, Zellows and the other cases on

which the handlers rely, appear to resemble the

situation in this case. Like this case, plaintiffs in

Zellous paid money to third parties (i.e., private land-

lords). However, the plaintiffs in Zellous were not

compensated for the money they were wrongfully

forced to pay in excess rent. Instead, the court in

Zeilous “‘merely require[d] [HUD] to belatedly pay

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expenses that it should have paid all along and would

have borne in the first instance had it [implemented

timely utility allowance adjustments.]’” Jd. at 99

(second and third alterations in original) (internal

quotation marks omitted).

It is true the amount the Zellous plaintiffs paid to

the landlords was equal to the amount wrongfully

withheld, but that fact does not blur the distinction

between the different theories of recovery. Had the

plaintiffs in Zellows framed their request for relief as

seeking recovery of money wrongfully paid, their

recovery would have been barred by sovereign

immunity. They avoided this problem by instead

framing their claim as one seeking to have the

government pay them money to which they were

statutorily entitled. The coincidence that the two

amounts (the amount of excess rent paid and the

amount owed to plaintiffs by HUD) were the same

does not change the fact that the Zellows plaintiffs

had a separate remedial theory that did not seek

compensation for money they paid in excess rent.

The availability of an alternative remedial theory

allowed them to avoid the roadblock that sovereign

immunity otherwise would have presented. By con-

trast, no alternative theory exists in this case to

entitle the handlers to recover moneys spent on credi-

table advertising.

The almond handlers also argue that the doctrine of

the law of the case precludes us from addressing the

appropriateness of the district court’s order requir-

ing reimbursement of money spent on creditable

advertising. The law of the case doctrine requires

that a decision rendered by an appellate court on a

legal issue be followed in all subsequent proceedings

8a

in the same case. Waggoner v. Dallaire, 767 F.2d 589,

593 (9th Cir.1985), cert. denied, 475 U.S. 1064, 106

S.Ct. 1374, 89 L.Ed.2d 601 (1986). The almond hand-

lers urge that we implicitly contemplated the reim-

bursement of the $2.5 million spent on creditable

advertising in our decision in Cal-Almond I, and are

therefore precluded from reconsidering it. To but-

tress their argument, the almond handlers point out

that in Cal-Almond I, we found that the Order was

unconstitutional regardless of whether the handlers

made direct payment to the Board or expended money

on pre-approved advertising. This argument confuses

the distinction between right and remedy.

In Cal-Almond I, we defined the First Amendment

rights infringed by the Program. For the purpose of

that analysis, it did not matter to whom the money

was paid; it only mattered that the payments were

coercive and required the handlers to fund dissemina-

tion of a particular message. However, when analyz-

ing what remedies are available, it matters a great

deal whether the recovery would require the USDA

to reimburse the handlers for money they paid to

third parties because of the doctrine of sovereign

immunity.

Our analysis regarding sovereign immunity leads

us to a somewhat awkward result: although the hand-

lers’ compelled expenditures on creditable advertising

violated their First Amendment rights, there is no

individual remediation available for those violations.

Despite the celebrated dictum in Marbury v.

Madison, 5 U.S. (1 Cranch) 137, 177, 2 L.Ed. 60 (1803),

in the law of modern constitutional remedies, not

every right comes equipped with a guarantee of

individual remediation for every violation of that

9a

right. As this case demonstrates, the doctrine of sov-

ereign immunity provides a formidable limitation on

the availability of individual remedies. While it is

“{djecried as irrational and immoral by some, .

criticized on historic grounds by others, ,

recognized by all to have little doctrinal coherence,

the doctrine of sovereign immunity nonetheless

retained the endorsement of the two institutions that

matter—the Supreme Court and Congress.” Jnter-

first Bank of Dallas, N.A. v. United States, 769 F.2d

299, 303 (5th Cir.1985), cert. denied, 475 U.S. 1081, 106

S.Ct. 1458, 89 L.Ed.2d 716 (1986). Under the doctrine

of sovereign immunity, we are compelled to conclude

that the handlers’ claims for reimbursement of the

amounts they were wrongfully compelled to pay for

creditable advertising is a right for which there is no

individual remedy.

Il.

We now turn to the USDA’s argument that any

refund to the almond handlers must be offset or

reduced by the amount of benefit the handlers re-

ceived from the Board's activities.

As a primary matter, the almond handlers assert

that the USDA either waived, or should be estopped

from asserting, its claim for offset of the refund. The

almond handlers argue that the USDA waived its

argument regarding offset because it did not raise the

issue until we remanded the case for determination of

the remedies. However, it was not until our remand

that the specifics of fashioning remedial relief came

into focus. The USDA did not waive its opportunity

to raise the issue of offset by letting the determina-

tion of remedies occur without it. For this reason,

the cases relied on by the handlers are distinguish-

10a

able. In both Laffey v. Northwest Airlines, Inc., 740

F.2d 1071, 1089 (D.C.Cir.1984), cert. denied, 472 U.S.

1021, 105 S.Ct. 3488, 87 L.Ed.2d 622 (1985), and

Williamsburg Wax Museum, Inc. v. Historic Fig-

ures, Inc., 810 F.2d 243, 250-51 (D.C.Cir.1987), defen-

dants failed to raise objections to courts’ remedial

determinations at the time those determinations were

being made. In this case, the USDA did not waive its

opportunity to raise the issue of offset.

Nor is it precluded by the doctrine of judicial

estoppel. Judicial estoppel “‘is invoked to prevent a

party from changing its position over the course of

judicial proceedings when such positional changes

have an adverse impact on the judicial process.’”

Russell v. Rolfs, 893 F.2d 1033, 1037 (9th Cir.1989)

(quoting Religious Technology Ctr. v. Scott, 869 F.2d

1306, 1311 (9th Cir.1989) (Hall, J., dissenting)), cert.

denied, 501 U.S. 1260, 111 S.Ct. 2915, 115 L.Ed.2d 1078

(1991).

The almond handlers contend that the USDA

previously conceded that the handlers would be

entitled to receive a full refund if the assessments

were found to have been wrongfully imposed. In

support, the handlers refer us to the USDA brief for

Cal-Almond I, in which the USDA stated, “{T]he

AMAA, through its provisions for judicial review,

provides handlers with an opportunity to recoup

assessments found to have been wrongfully imposed.”

The almond handlers also cite the USDA's cross-

motion for summary judgment in the original

proceeding before the district court, in which the

USDA stated, “The AMAA ..._ provides handlers

with an opportunity to recoup assessments found to

have been wrongfully imposed.” The handlers over-

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state the USDA’s concessions. These statements

merely indicate that the USDA acknowledges that a

refund is available for wrongfully imposed assess-

ments, not an admission that the handlers are entitled

to a full refund. The USDA cannot be judicially es-

topped from arguing against a full refund.

The handlers’ primary contention is that the law of

the case precludes us from reviewing the question of

whether the handlers’ refund from the Board should

be reduced. Whether an appellate court previously

decided an issue of law, precluding the district court

from reconsidering the same issue, is a mixed

question of fact and law in which legal questions

predominate. Cf. United States v. Geophysical Corp.,

732 F.2d 693, 697 (9th Cir.1984). A mixed question of

law and fact in which legal issues predominate is

reviewed de novo. United States v. McConney, (28

F.2d 1195, 1202 (9th Cir. (en banc)), cert. denied, 469

U.S. 824, 105 S.Ct. 1061, 83 L.Ed.2d 46 (1984).

The USDA contends that the law of the case

doctrine does not preclude consideration of this issue

because Cal-Almond I acknowledged that plaintiffs

received some benefit from the unconstitutionally

compelled advertising. Our prior acknowledgment

that the handlers received some benefit from the

coerced advertising, the USDA contends, implies that

we did not intend for the handlers to be refunded all of

the money they paid to the Board. This time it is the

USDA who confuses right and remedy.

In applying the Central Hudson balancing test to

determine whether the almond handlers’ First

Amendment right was violated, we weighed the

benefit handlers derived from the coercive advertis-

ing. Cal-Almond I, 14 F.3d at 437-38. Once we applied

— ee mee

12a

the balancing test and determined that the assess-

ments failed the balancing, however, we concluded

that the entire amount of assessments spent in

advertising were unconstitutional, not merely the

portion that failed to advance the handlers’ efforts to

sell their almonds. Jd. at 438. In other words, our

consideration of the benefit to the handlers was for

the purposes of analyzing the right, not the remedy.

In Cal-Almond I, we decided that “a sufficient

remedy for handlers who prevail in their admini-

strative petitions is a refund of any assessments

found not to have been due.” Jd. at 448. Our decision

was simply an application of existing law. “[T]his

court, on several occasions, has suggested that a re-

fund of improper assessments is the appropriate

remedy for prevailing handlers.” Wileman, 58 F.3d at

1385 (citing Cal-Almond I, 14 F.3d at 448; Riverbend

Farms, 847 F.2d at 559; Navel Orange Admin.

Comm., 722 F.2d at 452).

Despite the well established law in this area, and

our reliance on it in Cal-Almond I, the USDA at-

tempts to have us consider the benefit to the handlers

with respect to remedies by proffering a very novel

argument. The USDA contends that unless we

discount the handlers’ refund by the amount by which

they benefitted by the Board’s unconstitutional

conduct, they will be unjustly enriched. However, the

USDA cannot point to, nor can we find, any case in

which the theory of unjust enrichment has been

relied upon in fashioning a constitutional remedy.

The fact that the assessments may have conferred

some benefit on the handlers does not change the fact

that the entire amount of the assessments used

for advertising was improper and, as we held in

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)

Cal-Almond I, that the handlers are entitled to

refund of any improper assessments.

IV.

The USDA’s final argument is that the district

court erred by refusing to remand to the Secretary

for creation of a supplemental administrative record.

The USDA asserts that a remand is required by the

AMAA, or in the alternative, by the doctrine of pri-

mary jurisdiction.

a

We review the district court’s interpretation of the

AMAA de novo. See cf. [sic] Abedini v. INS, 971 F.2d

188, 190-91 (9th Cir.1992) (reviewing de novo the

deter-mination of purely legal questions regarding

statu-tory requirements).

“Congress has provided a special procedure for

ascertaining whether {a marketing] order is or is not

in accordance with the law.” United States v.

Ruzicka, 329 U.S. 287, 294, 67 S.Ct. 207, 210, 91 L.Ed.

290 (1946). The AMAA gives handlers of agricultural

commodities the express right to seek administrative

review of “any [marketing] order or a provision of

such order or any obligation imposed in connection

therewith.” 7 U.S.C. § 608c(15)(A). A handler con-

tending that such a provision is “not in accordance

with law” is entitled to a hearing on that question

before the agency and a ruling by the Secretary, id.,

and the remedy must be sought from the Secretary in

the first instance. Ruzicka, 329 U.S. at 294, 67 S.Ct.

at 210. The Secretary’s final ruiing is then review-

able by a district court. 7 U.S.C. § 608¢c(15)(B). “If

the court determines that [a] ruling [by the Secre-

tary] is not in accordance with law, it shall remand

such proceedings to the Secretary with directions

l4a

either (1) to make such ruling as the court shall

determine to be in accordance with law, or (2) to take

such further proceedings as, in its opinion, the law

requires.” Id.

This scheme has been complied with in this case.

The handlers filed administrative petitions pursuant

to 7 U.S.C. § 608¢e(15)(A). Cal-Almond I, 14 F.3d at

434. Following hearings, USDA administrative law

judges issued decisions, which were appealed to

USDA Judicial Officers. After the Judicial Officers

rendered their decisions, the handlers brought their

claims to the district court. This is all the Act

requires.

The USDA nevertheless contends that the district

court erred by refusing to remand to the Secretary

for creation of a supplemental administrative record.

There is no reason to remand to the USDA for

determination of the scope of the remedy. To the

contrary, we have held on numerous occasions,

including the prior appeal in this case, that an

appropriate remedy for handlers who prevail in their

administrative petitions is a refund of assessments

wrongfully paid. See Cal-Almond I, 14 F.3d at 448;

United States v. Riverbend Farms, 847 F.2d 553, 559

(9th Cir.1988) (“If the Secretary or courts (upon

proper appeal) substantiated the challenge, the

handler would be entitled to a refund.”). The parties

here stipulated regarding all relevant amounts. Since

a determination of the remedy flows directly from our

decision in Cal-Almond I and the parties’ stipulation,

there is no need to remand to the Secretary. The

district court did not err by declining to remand the

issue of remedies to the Secretary.

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In the alternative, the USDA argues that the

doctrine of primary jurisdiction requires a remand.

The doctrine of primary jurisdiction allows courts to

exercise their discretion to route certain issues for a

threshold decision to the supervising agency of a

particular industry. United States v. General Dy-

namics Corp., 828 F.2d 1356, 1362 (9th Cir.1987).

Four common factors are considered when determin-

ing whether to invoke the doctrine of primary

jurisdiction: “(1) the need to resolve an issue that (2)

has been placed by Congress within the jurisdiction of

an administrative body having regulatory authority

(3) pursuant to a statute that subjects an industry or

activity to a comprehensive regulatory scheme that

(4) requires expertise or uniformity in administra-

tion.” Jd. at 1362.

It is true that “Congress channeled disputes con-

cerning marketing orders to the Secretary in the

first instance because it believed that only he has the

expertise necessary to illuminate and _ resolve

questions about them.” Block v. Community Nutri-

tion Inst., 467 U.S. 340, 347, 104 S.Ct. 2450, 2454, 8&1

L.Ed.2d 270 (1984). However, the remedies in this

case do not involve “technical questions of fact

uniquely within the expertise and experience of [the

USDA|]....” Nader v. Allegheny Airlines, Inc., 426

U.S. 290, 304, 96 S.Ct. 1978, 1987, 48 L.Ed.2d 643

(1976), superseded by statute (on another ground) as

stated in, Trans World Airlines, Inc. v. Mattox, 897

F.2d 773 (5th Cir.), cert. denied, 498 U.S. 926, 111

S.Ct. 307, 112 L.Ed.2d 261 (1990). Nor do they require

complicated calculations that require the expertise of

the Secretary. We therefore find that the district

l6a

court did not abuse its discretion by declining to

invoke the doctrine of primary jurisdiction.

V.

Before closing, we note that a wide cross-section of

the almond industry, including other handlers not

directly involved in this appeal (“Amici”), filed an

amicus brief requesting that we not only determine

the scope of the remedies to which the handlers are

entitled, but also the means by which the USDA

should satisfy the judgment. Amici argue that the

appropriate source from which the judgment against

the USDA should be satisfied is the Judgment Fund,

pursuant to 28 U.S.C. § 2414. Amici contend that if

the judgment is satisfied either by imposing a supple-

mental assessment on the industry or by taking

money from the reserve fund created pursuant to 7

C.F.R. § 981.81(c), their First and Fifth Amendment

rights would be violated. None of Amici’s consti-

tutional claims are ripe and we therefore do not con-

sider them.

Although we have held that remand to the

Secretary is unnecessary for determination of the

scope of the remedy, it is the province of the USDA to

determine how a judgment against it should be

satisfied. Certainly if Amici believe that the USDA

has chosen an unconstitutional method, Amici can

challenge this action before the USDA.

17a

VI.

The handlers request an award of attorney’s fees

pursuant to the Equal Access to Justice Act, 28

U.S.C. § 2412. Attorney’s fees are not appropriate in

this case because, even though it did not prevail on all

of its claims, the USDA brought a justified appeal

from the district court’s decision. We also find that

the handlers are not entitled to post-judgment in-

terest pursuant to 28 U.S.C. § 1961.

VII.

The district court’s decision that the USDA refund

the full amount the almond handlers had paid to the

Board since 1980 is affirmed. There is no offset for

the Board’s claim of unjust enrichment. The almond

handlers have a right to reimbursement for payment

to third parties for creditable advertising, but there is

no individual remedy for these violations. Therefore,

the district court’s decision that the USDA reim-

burse the $2.5 million that had been paid to third

parties for creditable advertising is reversed. We

affirm the district court’s refusal to remand the issue

of remedies to the Secretary for supplemental admini-

strative record, or failure to invoke the doctrine of

primary jurisdiction.

AFFIRMED in part, REVERSED in part.

18a

APPENDIX B

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

No. CV-91-122 REC !

CAL-ALMOND, INC., PLAINTIFF

v.

UNITED STATES DEPARTMENT OF AGRICULTURE,

DEFENDANT

[Filed: Sept. 6, 1994]

ORDER RE PLAINTIFF’S POST-REMAND

MOTION FOR REFUND AND DEFENDANT'S

MOTION FOR REMAND

On July 18, 1994 the court heard plaintiffs’ re-

spective Post-Remand Motiens for Refund of Almond

Board Assessments and defendant’s respective Mo-

tions for Remand.

Upon due consideration of the written and oral

arguments of the parties and the record herein, the

court issues its orders with respect to these motions

as and for the reasons set forth herein.

A. Background |

The Ninth Circuit, in Cal-Almond, Inc. v. U.S.

Department of Agriculture, 14 F.3d 429, 433-440 (9th

Cir. 1993), held that the Almond Marketing Program

described in the pertinent provisions of the Almond

Marketing Order violated the First Amendment,

19a

thereby reversing this court’s decision in factor of

the U.S.D.A. on this issue. However, the Ninth Cir-

cuit affirmed this court’s rulings rejecting other

challenges made by plaintiffs to the Almond Market-

ing Order and its implementation. Jd. at 440-449. The

Ninth Circuit then concluded:

We are now faced with the question of what rem-

edy to grant to appellants. Appellants request a

full refund of the assessments imposed upon them

from 1980 to the present, as well as attorneys’ fees

and costs pursuant to the Equal Access to Justice

Act (EAJA’), 28 U.S.C. § 2412. Because of the

fact-intensive nature of the inquiry, we find that

‘(t]he determination of the appropriate remedy in

this case is a matter that should be addressed

in the first instance by the District Court.’

Chicago Teachers Union v. Hudson, 475 U.S. 292,

310... (1986). See also Ellis v. Brotherhood of

Ry. Clerks, 466 U.S. 435... (1984), The case is re-

manded for further proceedings consistent with

this opinion.

Id. at 449.

B. Refund of Assessments

Plaintiffs now move the court to refund to plaintiffs

the creditable advertising assessment imposed on

each of the respective plaintiffs for the years at issue

with respect to each plaintiff and to refund to

plaintiffs that percentage of the annual assessment

for the years at issue attributable to the advertising

and promotion budget for that year. In addition,

plaintiffs seek interest on the refunded amounts at

the rate of 5% per annum. Plaintiffs essentially take

the position that resolution of the remand is a simple

20a

matter of accounting. * * * The Department argues

that certain components of the recovery sought by

plaintiffs are barred by the doctrine of sovereign

immunity, that others should be determined in the

first instance by administrative proceedings, and/or

that the court must conduct an evidentiary hearing to

determine the total amount of any refund to be paid to

plaintiffs.

A. Sovereign Immunity.

1. Creditable Advertising Amounts.

A portion of the monies that plaintiffs now seek to

have refunded to them by the Department are

amounts that plaintiffs spent on advertising through

the creditable advertising provisions (as opposed to

amounts turned over to the Almond Marketing Board

as assessments a portion of which was spend [sic] by

the Almond Marketing Board on advertising).’

Although recognizing that a return of assessments

does not necessarily implicate sovereign immunity,

the Department argues that a request to be com-

pensated for sums previously spent but not remitted

to the government constitutes a request for money

damages which is barred by sovereign immunity. In

' The Almond Marketing Order provided that handlers’

assessments collected from handlers based on the volume of

almonds they handle could be reduced by the amount that a

handler spends on authorized advertising. Before a handler

could receive credit for his marketing promotion expenditures,

the California Almond Board must have determined that such

expenditures meet the requirements of the creditable advertis-

ing regulations.

er ae

Zila

so arguing, the Department cites Bowen v. Massa-

chusetts, 487 U.S. 895 (19838).

In Bowen, the United States Supreme Court

construed Section 702 of the Administrative Proce-

dure Act as not foreclosing judicial review of an

auction brought by a state challenging a disallowance

order under the Medicaid provisions. In so ruling, the

Supreme Court stated in pertinent part as follows:

Our cases have long recognized the distinction

between an action at law for damages—which are

intended to provide a victim with monetary

compensation for an injury to his person, property,

or reputation—and an equitable action for specific

relief—which may include an order providing for

the reinstatement of an employee with back pay, or

for ‘the recovery of specific property or monies,

ejectment from land, or injunction either directing

or restraining the defendant officer’s actions.’ .. .

The fact that a judicial remedy may require one

party to pay money to another is not a sufficient

reason to characterize the relief as ‘money

damages.’

487 U.S. at 893.

Bowen cited with approval its decision in School

Committee of Burlington v. Department of Educa-

tion of Massachusetts, 471 U.S. 359 (1985). In Bur-

lington, the Supreme Court held that relief that

ordered a town to reimburse parents for educational

costs that Congress intended the town to pay is not

“damages”, stating in pertinent part as follows:

22a

In this Court, the Town repeatedly characterizes

reimbursement as “damages,” but that simply is

not the case. Reimbursement merely requires the

Town to belatedly pay expenses that it should have

paid all along and would have borne in the first

instance had it developed a proper IEP.

Burlington, 471 U.S. at 370-371.

In addition, Bowen cited Maryland Dept. of Hu-

man Resources v. Department of Health and Human

Services, 763 F.2d 1441 (D.D.C. 1985), wherein it was

stated in pertinent part as follows:

We begin with the ordinary meaning of the words

Congress employed. The term ‘money damages,’ 5

U.S.C, § 702, we think, normally refers to a sum of

money used as compensatory relief. Damages are

given to the plaintiff to substitute for a suffered

loss, whereas specific remedies ‘are not substitute

remedies at all, but attempt to give the plaintiff

the very thing to which he was entitled.’ . . . Thus,

while in many instances an award of money is an

award of damages, ‘[o]ecasionally a money award is

also a specie remedy.’ .. .

The Ninth Circuit has suggested that the remedy

to a handler who successfully challenges a marketing

order or its implementation is the “refund of any paid

assessments found not to have been due... .” See

Saulsbury Orchards & Almond Processing v.

Yeutter, 917 F.2d 1190, 1195 (9th Cir. 1990); United

States v. Riverbend Farms, Inc., 847 F.2d 553, 559

23a

(9th Cir. 1988); Naval Orange Admin. Committee v.

Exeter Orange Co., 722 F.2d 449, 452 (9th Cir. 1983).”

The Department argues, however, that this sug-

gestion cannot be applied here because, for those

years in which the plaintiffs spent amounts equiva-

lent to what their creditable advertising assessments

would have been, those portions of the assessments

never in fact became due and were never actually ten-

dered to the Board.

Plaintiffs argue that the Department’s position

ignores the conclusion by the Ninth Circuit that the

creditable advertising regulations violated the First

Amendment because, among other things, “if handlers

do not advertise according to the regulations, they

must contribute their assessment to the Board, which

is itself a type of compulsion implicating Appellants’

First Amendment rights.” 14 F.3d at 435-436.

Plaintiffs further assert that the Department’s

argument that amounts spent pursuant to the

creditable advertising regulations never became due

begs the question. Because the assessments became

obligations of the handlers when announced by the

Secretary each crop year, the Almond Marketing

Order and its regulations forced the plaintiffs into a

choice of either paying that portion of the assessment

attributable to advertising to the Board or to spend

some portion of assessment on advertising which had

to be approved by the Board in order to obtain a credit

toward the annual assessment.

2 These cases do not hold that this is the exclusive remedy.

The cases were rejecting various arguments attempting to get

around the application of United States v. Ruzicka, 329 U.S.

287 (1946).

24a

in this regard, plaintiffs refer the court to Zellous

v. Broadhead Associates, 906 F.2d 94 (8d Cir. 1990),

In Zellous, the plaintiffs were former, present and

prospective tenants of a housing project whose rent

was subsidized under federal law. * * * The tenants

contended that HUD, together with the housing

project’s owners and managers, violated the Housing

Act and associated federal regulations as well as the

APA by failing to make timely adjustments in their

utilities allowance. This caused the tenants to pay

a higher share of their income as rent than was

permitted under the Brooke Amendment, which

places a cap on the total of rent plus utilities for

which tenants are responsible. In their complaint,

the tenants requested “declaratory, injunctive and

monetary relief or in the alternative restitution.”

The tenants contended that the retrospective aspect

of this relief should require HUD reimbursement for

the rent they paid beyond that which would have been

due if the utilities allowance had been set higher. The

Third Circuit rejected the claim that this requested

relief constituted a request for money damages. In so

doing, the Third Circuit stated in pertinent part as

follows:

We recognize that in Bowen, the plaintiff state

sought specific relief under a statute that main-

tains direct payment to the state of a percentage of

its Medicaid expenses ... Here, neither section 8

nor the Brooke Amendment mandates direct pay-

ments to the plaintiff tenants. Instead, the ten-

ants rental obligations is reduced through a

system of government subsidies to property

owners. We do not believe that this scheme of in-

——T

= ee

25a

direct support for tenants transforms the charac-

ter of the requested reimbursement as damages.

It appears that Zellous, although not exactly on

point, does support the plaintiffs’ position that what

they seek are not money damages, but reimbursement

for monies wrongfully expended pursuant to a

government program. However, although it may be

semantics, there may be a difference between the

term refund and the term reimbursement. The fact

that the monies at issue were not actually paid to the

Board but were actually spent by plaintiffs implies

that the concept at issue is one of reimbursement. In

this regard, although plaintiffs focus on the term

“due” when speaking of refunded assessments, it

must be noted that the Ninth Circuit cases upon

which plaintiffs rely actually use the phrase “refund

of any paid assessments found not to have been

es...

The court finds this to be a difficult question to

resolve. Upon reflection, however, the court con-

cludes that the refund or reimbursement of the credi-

table advertising amounts is not barred by sovereign

immunity on the ground that the amounts represent

money damages. The court is persuaded that the

refund or reimbursement of these amounts is part of

an equitable remedy designed to give to these plain-

tiffs what the Ninth Circuit has held they were

entitled to because of the violation of the First

Amendment. As noted by plaintiffs, they would not

have spent this money were it not for the fact that

both aspects of the advertising provisions of the

Almond Marketing Order were unconstitutional.

26a

2. Prejudgment Interest.

Plaintiffs assert that the court should award them

prejudgment interest at the rate of 5% on those

assessments to be refunded to plaintiffs which have

not already been placed by plaintiffs in escrow

accounts.

However, an award of interest against the United

States is barred by the doctrine of sovereign im-

munity. As reiterated in Library of Congress v.

Shaw, 478 U.S. 310, 317 (1988):

In cases not in the Court of Claims, this Court has

reaffirmed the notion: ‘Apart from constitutional

requirements, in the absence of specific provision

by statute, or “express consent ... by Congress,”

interest does not run on a claim against the

United States.’

The Supreme Court further explains the qualification

of “constitutional requirements”:

The ‘constitutional requirement’ arises in a

taking under the Fifth Amendment. To satisfy the

constitutional mandate, ‘just compensation’ in-

cludes a payment for interest ... The no-interest

rule is similarly inapplicable where the Govern-

ment has cast off the cloak of sovereignty and

assumed the status of a private commercial

enterprise ....

Id. at 317 n.d.

Plaintiffs argue that this doctrine does not apply in

cases involving First Amendment violations. How-

ever, plaintiffs cite no cases in support of this con-

tention and the court could [sic] locate any in its

ete te

27a

research. The cases upon which plaintiffs rely in

asserting that they are entitled to prejudgment

interest in cases involving deductions from dues in

violation of the First Amendment are cases involving

non-governmental defendants. See Ellis v. Brother-

hood of Ry. Clerks, 466 U.S. 435 (1984); Grunwald v.

San Bernardino City Unified School District, 994

F.2d 1370 (9th Cir. 1993). Although in remanding

this action to this court for further proceedings, the

Ninth Circuit cited Ellis, it did so by a “see also”

citation with no particular page reference. The Ninth

Circuit also cited Chicago Teachers Union v.

Hudson, 475 U.S. 292, 309 (1986). However, there is

no suggestion in this citation that the court was to

award prejudgment interest. Rather, the citation was

to clarify that the determination of the appropriate

remedy should be made in this court first because of

the factual nature of the relevant inquiries.

Therefore, the court rules that plaintiffs are not

entitled to prejudgment interest because of the

doctrine of sovereign immunity.

3 In Ellis, the Supreme Court held that, to avoid forced

subsidies forbidden by the First Amendment, unions must

adopt procedures ‘such as advance reduction of dues and/or

interest-bearing escrow accounts.’ 466 U.S. at 448.

28a

B. Supplemental Fact Finding.’

The Department takes issue with plaintiffs’ con-

tentions that no further fact finding is permitted by

the Ninth Circuit’s opinion and the remand order.

The Department argues that the determination of the

appropriate remedy in this case will require an

examination of several equitable considerations and

important issues concerning the operation of the

Order under the AMAA, many of which cannot be

evaluated based on the present administrative record.

1. Motion to Remand.

If it is concluded that supplemental fact finding is

required in order to determine the appropriate

remedy, the Department argues that the court should

remand this matter to the Department “to craft such

a remedy consistent with the future operation of the

Order under the AMAA, based on a supplemental

‘ Plaintiffs repeatedly argue that the Department conceded

in pleadings filed in the Ninth Circuit that plaintiffs would be

entitled to a full refund of the advertising assessments should

plaintiffs prevail on the First Amendment issue. The court

concludes that plaintiffs are reading more into these briefs than

was intended by the Department. Moreover, the court ques-

tions that a statement made in the course of briefing an issue

which did not address the specifics of fashioning a remedy can

be deemed to be a concession. Finally, the portion of the De-

partment’s brief set forth as Exhibit K to plaintiffs’ reply brief

merely quotes the Department’s response to plaintiffs’ appeal

of this court’s ruling that plaintiffs’ due process rights were

not violated by the length of the administrative and review

proceedings. The Department merely was referring to the

Ninth Circuit law rejected [sic] such challenges because of the

provisions of the AMAA providing handlers with an opportu-

nity to recoup assessments found to have been wrongfully

imposed.

29a

factual record created in an administrative pro-

ceeding and subject to judicial review of the award-

determination by the Secretary.”

a. AMAA.

The Department argues that such a remand is

required by the statutory scheme of the AMAA and

United States v. Ruzicka, 329 U.S. 287 (1946). Any

challenge to the applicability of a marketing order

must be made in the first instance administratively

pursuant to section 8(c)(15) of the AMAA, 7 U.S.C. §

608(c)(15). Ruzicka, id. at 294; Pescosolido v. Block,

765 F.2d 827, 831 (9th Cir. 1985). The Department

argues:

Here, any determination of the amount of any

award requires specialized knowledge of the in-

dustry and the effect of various types of advertis-

ing. Perhaps even more importantly, any decision

as to how to fashion a remedy, given the bar of

sovereign immunity for damages, will entail an

assessment of how best to effectuate the purposes

of the AMAA while complying with the Ninth

Circuit’s mandate. The requirement that judicial

review of legal issues pertaining to the marketing

order be limited to an administrative record should

apply to situations such as this one where a new

set of facts must be established and reviewed in

order to determine the appropriate remedy for a

successful legal challenge to a marketing order.

Section 608c(15)(B) does provide in pertinent that

“{ilf the court determines that such a ruling [by the

Secretary] is not in accordance with law, it shall

remand such proceedings to the Secretary with

directions either (1) to make such ruling as the court

30a

shall determine to be in accordance with law, or (2) to

take such further proceedings as, in its opinion, the

law requires.” However, the court does not read this

provision to require that this court remand this

matter to the Department for further administrative

proceedings. Plaintiffs have already complied with

the AMAA in bringing their challenges to the Almund

Marketing Order. Plaintiffs have prevailed on the

merits of two of their challenges. The Department

cites no cases even suggesting that the AMAA

requires that the remedy for a determined violation of

law with respect to a marketing order must also be

determined in the first instance by the Department.

Absent specific case authority, this portion of the

Department’s motion to remand should be denied.

b. Pri Jurisdiction.

As an alternate basis for remanding this action to

the Department to determine an appropriate remedy,

the Department invokes the doctrine of primary

jurisdiction.

The doctrine of primary jurisdiction is explained in

United States v. General Dynamics Corp., 828 F.2d

1356, 1362 (9th Cir. 1987):

The doctrine of primary jurisdiction operates as

follows: ‘When there is a basis for judicial action,

independent of agency proceedings, courts may

route the threshold decision as to certain issues to

the agency charged with primary responsibility

for governmental supervision or control of the

particular industry or activity involved.’ ... The

doctrine applies when ‘protection of the integrity

of a regulatory scheme dictates preliminary re-

sort to thé agency which administers the scheme.’

3la

. . . Thus, it is the extent to which congress, in

enacting a regulatory scheme, intends an admin-

istrative body to have the first word on issues

arising in judicial proceedings that determines the

scope of the primary jurisdiction doctrine ... .

There are four factors uniformly present in cases

where the doctrine properly is invoked: (1) the

need to resolve an issue that (2) has been placed by

Congress within the jurisdiction of an administra-

tive body having regulatory authority (3) pursuant

to a statute that subjects an industry or activity

to a comprehensive regulatory scheme that (4) re-

quires expertise or uniformity in administration.

The Department asserts that each of these factors

is satisfied here and that the court should remand.

Plaintiffs respond that the invocation of the

primary jurisdiction doctrine is not appropriate or

necessary to the resolution of the issues presently

before this court.

The court is not persuaded that remand to the

Department as an exercise of primary jurisdiction is

necessary. It seems to the court that, assuming the

amounts to be refunded or reimbursed to plaintiffs can

be determined from the record already before the

court, see discussion infra, the mechanics of making

payment(s), although perhaps requiring some evi-

dence from the Board, do not require any particular

expertise of the Department.

2. Ability to Conduct Supplemental Fact Finding.

The parties dispute whether this court is per-

mitted to conduct any supplemental fact finding by

the terms of the Ninth Circuit’s remand. Plaintiffs

32a

take the position that the Ninth Circuit has already

held that plaintiffs did not receive any benefit from

the creditable advertising and the generic promotion

programs.

The Department argues that not only did the

Ninth Circuit’s decision not preclude supplemental

factual findings about the extent of the benefits

enjoyed by the plaintiffs, but it expressly contem-

plated further factuai findings. The Department

takes the position that supplemental fact finding is

required to determine the following issues:

(1) the extent to which plaintiffs benefitted

from the creditable advertising program;

(2) the extent to which plaintiffs benefitted

from the generic promotion program;

(3) the extent to which plaintiffs’ administra-

tive assessments were applied to the Almond

Board’s generic promotion efforts; and

(4) the extent to which plaintiffs have already

“passed through” the costs imposed on them by

the advertising assessments.

Plaintiffs take the position that the Ninth Circuit

did fashion a remedy and left the mechanical mathe-

matical calculation to the District Court, ie., all

advertising assessments, whether creditable or the

administrative portion that the Board assessed for its

generic program must be refunded because the Plain-

tiffs’ remedy is a refund of all assessments ‘found not

to have been due’.

Although the court believes that plaintiffs are

quoting the Ninth Circuit’s opinion out of context in

33a

an effort to imply that the Circuit actually held as

argued by plaintiffs, see Cal-Almond, Inc., supra, 14

F.3d at 448-449, plaintiffs’ assertion that the only

reason that the Ninth Circuit’s remand order

referred to “fact-intensive nature of the inquiry” is

because plaintiffs had requested of a refund of the

entire amount of the assessments at issue is a valid

comment. Plaintiffs contend that the Ninth Circuit’s

citations to Chicago Teachers Union v. Hudson and

Ellis v. Ry. Clerks establishes that the Ninth Circuit

rejected that assertion and concluded that plaintiffs

were entitled only to a refund of that portion of the

assessments at issue attributable to the unconsti-

tutional advertising programs, a fact-intensive in-

quiry.

The court is persuaded that plaintiffs’ interpre-

tation of the reason that the Ninth Circuit referred to

the two Supreme Court cases is a fair one. In both of

these cases, but in particular Ellis, there was a

combination of union dues imposed for legal and

illegal reasons. In Ellis, the Supreme Court

remanded for a recalculation of damages. In holding

that the union would bear the burden of proving by a

preponderance of the evidence what proportion of

union expenditures went to activities that could be

charged to dissenters, the Supreme Court noted that

absolute precision in the calculation of such

proportion is not expected or required because of the

difficult accounting problems that may arise. Ellis,

466 U.S. at 457 n.15.

In disputing whether the Ninth Circuit’s opinion

forecioses or allows supplemental fact finding as

argued by the Department, both parties refer the

court to the concept of the “law of the case.” The law

34a

of the case is explained in Waggoner v. Dallaire, 767

F.2d 589, 593 (9th Cir. 1985):

The law of the case doctrine states that the

decision of an appellate court on a legal issue

‘must be followed in all subsequent proceedings in

the same case.’ ... The law of the case controis

unless the first decision is clearly erroneous and

would result in manifest injustice, there has been

an intervening change in the law, or the evidence

on remand is substantially different ....

On remand, the trial court should only . . . consider

‘“matters left open by the mandate of [the appel-

late] court.”’....

The court concludes that its ability to conduct

further supplemental fact-finding pursuant to the

Ninth Circuit’s remand is extremely limited. In the

context of this action, the court concludes that the

court may conduct supplemental fact-finding only

with respect to the application of the assessments to

the generic program. See discussion infra.

3. Benefit from Creditable Advertising Program.

The Department argues that the only issue

foreclosed by the Ninth Circuit’s decision is whether

the benefit derived by plaintiffs from the two advertis-

ing programs was greater than the benefit plaintiffs

could have secured if they had been free to spend that

same money in any manner they chose. However, the

Department contends, the Ninth Circuit’s opinion

does not address whether there was some benefit

realized by the plaintiffs that should properly be

Pe NA Re TE NS

oun *.

35a

considered in making an equitable award determina-

tion.

However, the court agrees with plaintiffs that the

supplemental fact finding sought to [sic] conducted

here is foreclosed by the Ninth Circuit’s opinion. The

court does not read the opinion as allowing the

Department to re-visit an issue determined against it.

4. Application of Assessments to Generic

Program.

In their opening briefs, plaintiffs contended that

the amount of the refund should be determined by the

percentage of the Board’s projected budget for a rele-

vant crop year that was allocated for generic advertis-

ing purposes. Plaintiffs argued that if, for example,

25% of an [sic] projected budget was allocated tu the

generic advertising program, then 25% of plaintiffs’

assessments for that year should be refunded.

However, the Department has presented evidence

by way of a declaration of Michael L.H. Marsh, C.P.A.,

asserting that each year’s generic promotion activi-

ties were largely funded not from administrative

assessments, but from monies received during the

previous crop years from handlers who did not fully

utilize their advertising credit and instead remitted

an amount equivalent to their unused credit to the

Board. Since neither Cal-Almond nor Saulsbury

Orchard and Almond Processing (SOAP) ever

remitted such funds to the Board during the period in

question, they can have no claim to that portion of the

generic promotion budget paid from those carry-over

funds. Although asserting that a final accounting has

not yet been conducted, the Department asserts that

a preliminary examination of the Board’s financial

36a

records suggest that approximately 81% of the

generic promotion program was funded by these

carry-over funds. The Department argues that a

supplemental factual inquiry is necessary in order to

fully resolve these accounting issues.

In their reply briefs, plaintiffs concede that a

supplemental factual inquiry will be necessary to

resolve this issue.

5. “Passed Through” Costs.

The Department argues that the court must

conduct a supplementary factual hearing to determine

the extent to which the plaintiffs have “passed

through” the costs of the advertising assessments to

the growers for whom they handle almonds. The

Department contends that if plaintiffs have passed

through any of these costs, then a complete refund of

advertising assessments to the handlers would

unjustly enrich the plaintiffs.

In making this argument, the Department refers

the court to cases involving refunds of excise taxes.

See Rothman v. District Director of Internal

Revenue, 483 F.2d 1079, 1080-1081 (9th Cir. 1973);

Travel Industries of Kansas, Inc. v. United States,

425 F>2d 1297, 1298 (10th Cir. 1970).

However, plaintiffs refer the court to McKesson v.

Div. of Alcoholic Beverages & Tobacco, 496 U.S. 18

(1990). In McKesson, wholesale liquor distributors

filed suit challenging the Florida excise tax that gave

preferential treatment to beverages that were manu-

factured from Florida agricultural crops and then

bottled in Florida. The Florida Supreme Court invali-

dated the excise tax as violating the Commerce

Clause but refused to provide a refund or any other

37a

form of postpayment relief. In pertinent part, the

United States Supreme Court rejected the Florida

Supreme Court’s reliance on two equitable considera-

tions as grounds for denying retroactive relief:

The Florida Supreme Court also speculated that

‘if given a refund [petitioner] would in all pro-

bability receive a windfall, since the cost of the tax

has likely been passed on to [its] customers.’

The court’s premise seems to be that the State,

faced with an obligation to cure its discrimination

during the contested tax period and choosing to

meet that obligation through a refund, could

legitimately choose to avoid generating a ‘windfall’

for petitioner by refunding only that portion of the

tax payment not ‘passed on’ to customers (or even

suppliers). Even were we to accept this premise,

the State could not refuse to provide a refund

based on sheer speculation that a ‘pass-on’ oc-

curred. We repeatedly have recognized that deter-

mining whether a particular business cost has in

fact been passed on to customers or suppliers en-

tails a highly sophisticated theoretical and factual

inquiry; a court certainly cannot withhold part of

a refund otherwise required to rectify an uncon-

stitutional deprivation without first satisfactorily

engaging in this inquiry.

in any event, however, we reject respondents’

premise that ‘equitable considerations’ justify a

State’s attempt to avoid bestowing a so-called

‘windfall’ when redressing a tax that is uncon-

stitutional because discriminatory. In United

States v. Jefferson Electric Mfg. Co., 291 U.S. 386

. . - (1934), we enforced a statutorily created pass-

on defense in a refund action designed to redress a

38a

tax overassessment. Comparing such an action to

one in assumpsit for ‘money had and received,’ we

affirmed the Federal Government’s power in this

equitable action to withhold the amount that the

taxpayer had already passed or to others, on the

theory that the taxpayer ought not to be ‘unjustly

enriched’ by his recovery from the Government

after he has already ‘recovered’ his losses through

the pass-on. We observed that if the taxpayer ‘has

shifted the [economic] burden [of the tax] to the

purchasers, they and not he have been the actual

~—sufferers and are the real parties in interest,’ ...

and he ought not receive a windfall for their

injury.

But petitioner does not challenge here a tax

assessment that merely exceeded the amount

authorized by statute; petitioner’s complaint was

that the Florida tax scheme unconstitutionally

discriminated against interstate commerce. The

tax injured petitioner not only because it left

petitioner poorer in an absolute sense than before

(a problem that might be rectified to the extent

that petitioner passed on the economic incidence of

the tax to others), but also because it placed

petitioner at a relative disadvantage in the

marketplace vis-a-vis competitors distributing

preferred local products ... To whatever extent

petitioner succeeded in passing on the economic

incidence of the tax through higher prices to its

customers, it most likely lost sales to the favored

distributors or else incurred other costs (e.g., for

advertising) in an effort to maintain its market

share. The State cannot persuasively claim that

‘equity’ entitles it to retain tax moneys taken

L

39a

unlawfully from petitioner due to its pass-on of the

tax where the pass-on itself furthers the very

competitive disadvantage constituting the Com-

merce Clause violation that rendered the depriva-

tion unlawful in the first place. We thus reject

respondents’ reliance on a pass-on defense in this

context.

496 U.S. at 46-49.

Plaintiffs argue that McKesson applies to preclude

a pass through inquiry any time an assessment is

found to be unconstitutional. Plaintiffs further argue

that, because the Ninth Circuit has found that the

regulations were designed to benefit Blue Diamond

and since Blue Diamond benefitted from the regula-

tions, Blue Diamond was able te out-compete plain-

tiffs for growers, offer the growers a better return,

and cause economic injury to the plaintiffs.

At oral argument, defendant argues that plaintiffs’

reliance upon McKesson is misplaced. Defendant con-

tended that the nature of the constitutional violation

must be examined in determining whether McKesson

is applicable. In the case before the court, the First

Amendment violations found to exist by the Ninth

Circuit imposes [sic] the same burden on all handlers.

In McKesson, however, the constitutional violation at

issue was a discrimination in violation of the Com-

merce Clause.

The court concludes that McKesson is controlling.

Although the constitutional violations are different

and the First Amendment does not normally involve

discrimination, it cannot be gainsaid that the Ninth

Circuit was of the opinion that the advertising

program benefitted Blue Diamond to the detriment of

|

40a

other handlers, thereby placing those other handlers

in a competative [sic] disadvantage.

6. Profit.

The Department further argues that the court

should conduct a supplementary fact finding hearing

to determine the extent to which plaintiffs profited

from their own advertising expenditures incurred in

order to receive credit against their annual assess-

ments. In making this argument, the Department ;

refers the court to the statement in the Ninth |

Circuit’s opinion that “Saulsbury estimated that

every dollar spent on creditable advertising returned

less than fifty cents in sales.” 14 F.3d at 438. In

addition, the Department refers to the statement that

“in 1987 Cal-Almond spent nearly $300,000 advertis-

ing the business but its gross mail order sales were

less than $100,000.” Jd. at 438 n.8. The Department

implies from these two statements that the Ninth

Circuit explicitly conceded that the creditable ad-

vertising engaged in by the plaintiffs was not wholly

ineffective. The Department asserts that the record

establishes that plaintiffs made some sales as a result

of their advertising expenditures that they would not

have realized without those expenditures and that

plaintiffs should subtract the sales actually resulting

from creditabie advertising from any request for a

refund of monies spent on creditable advertising.

ee

Plaintiffs oppose this request, calling it “just

another distorted and depraved effort by the Gove: .-

ment to delay and deprive Plaintiffs of their victory in

ee |

4la

the landmark Ninth Circuit decision.” Plaintiffs

further assert that the reference to Sauisbury’s evi-

dence was to gross sales and not to net sales. Plain-

tiffs also argue that “if Saulsbury and Cal-Almond

were not required to wastefully spend hundreds of

thousands of dollars per year on Government ordered

advertising, there can be no facts, other than utterly

speculative facts, as to how much money the Plain-

tiffs would have made without said unconstitutional

assessments, and if left with their money and with

their own devices to promote their product in their

own targeted markets.”

Although the court can understand the logic of the

Department’s position, it is foreclosed by the Ninth

Circuit’s opinion just as the determination of the

extent to the benefit to plaintiffs from the invalidated

programs should be foreclosed. As discussed by the

Ninth Circuit, the programs did not benefit the

participants sufficiently to overcome the constitu-

tional infirmities. That being the case, the court

agrees with plaintiffs that any further inquiry into

profit moves into the realm of speculation.

ACCORDINGLY, IT IS ORDERED that the re-

spective plaintiffs’ Post-Remand Motions for Refund

of Almond Board Assessments are granted.

IT IS FURTHER ORDERED that defendant’s

respective Motions for Remand are denied.

IT IS FURTHER ORDERED that the parties

appear on Monday, September 26, 1994 at 1:30 p.m. for

5 Depraved, by the way, means marked by corruption,

perversion or deterioration. I think that Brian is pitching it

pretty strong.

42a

further proceedings in connection with the applica-

tion of assessments to the generic program. The

parties are ordered to be prepared to present their

respective factual positions to the court with respect

to this issue at this hearing.®

Dated: September 6, 1994

/s) ROBERT E, COYLE

ROBERT E. CoyLe

United States District

Judge

© The court advises the parties that it will not issue any final

orders with respect to refunds until this factual issue is

resolved.

ea i,

48a

APPENDIX C

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

AT FRESNO

D.C. Docket No. CV-F-91-064-REC

CAL-ALMOND, INC., SAULSBURY ORCHARDS AND

ALMOND PROCESSING, INC. AND CARLSON FARMS,

PLAINTIFFS

v.

UNITED STATES DEPARTMENT OF AGRICULTURE,

DEFENDANT

D.C. Docket No. CV-F-91-122-REC

JUDGMENT AND ORDER THEREON

CAL-ALMOND, INC. PLAINTIFF

v.

UNITED STATES DEPARTMENT OF AGRICULTURE,

DEFENDANT

D.C. Docket No. Cv-F-91-123-REC

CAL-ALMOND, INC., A CALIFORNIA CORPORATION:

GOURMET PACKING COMPANY, INC., A CALIFORNIA

CORPORATION; AND GOLD HILLS NuT COMPANY, INC., A

CALIFORNIA CORPORATION, PLAINTIFFS

v.

UNITED STATES DEPARTMENT OF AGRICULTURE AND

THE UNITED STATES OF AMERICA, DEFENDANTS

44a

D.C. Docket No. CV-F-91-685-REC

CAL-ALMOND, INC. AND GOLD HILLS Nut CoMPANY,

INC., PLAINTIFFS

v.

UNITED STATES DEPARTMENT OF AGRICULTURE,

DEFENDANT

D.C. DocKeT No. CV-F-92-5684-REC

JUDGMENT AND ORDER THEREON

CAL-ALMOND, INC.; GOLD HILLS NuT CoMPANY, INC.;

AND FRAZIER NUT FARMS, INC., PLAINTIFFS

v.

UNITED STATES DEPARTMENT OF AGRICULTURE,

DEFENDANT

[Lodged Sept. 19, 1996]

JUDGMENT AND ORDER

The above entitled cases came on for a hearing on

July 18, 1994 as a result of the above entitled

Plaintiffs’ respective post-remand motions for refund

of Almond Board assessments and the Defendants’

respective motions on remand, following the Ninth

Circuit Court of Appeals opinion in Cai-Almond Inc.

et al. vs. The United States Department of Agri-

culture (and related cases), 14 F.3d 429 (9th Cir. 1993),

which resulted in an order of this Court of September

2 CAAT Mia me

PD GP OES BPD PO A, +m

a ne es He, co OF oe

45a

6, 1994 in the above entitled cases. The issues to be

resolved were the extent to which advertising

assessments assessed against each of the Plaintiffs in

the above entitled action should be _ refunded.

Following this Court’s order of September 6, 1994

parties agreed that the following sums of money were

at issue for the almond crop years of 1980-1981

through 1991-1992 crop years.

CAL-ALMOND, INC,

A. Amounts spent on creditable advertising

$1,433,619.96

B. Creditabie advertising assessments paid to Al-

mond Board $22,650.00

C. Amount of creditable advertising assessments

placed in or credited to an attorney/client trust fund

account $1,147,549.03

D. Portion of annual assessments applied towards

the Aimond Board’s generic promotional activity

$45,637.41

IT IS HEREBY ORDERED AND ADJUDGED THAT:

The Defendants in the above entitled action are to

forthwith pay to Cal-Almond, Inc. through its attor-

ney, Brian C. Leighton at 701 Pollasky, Clovis,

California 93612, the collective sums in paragraphs A,

B and D above, the total amount of which is

$1,501 ,907.37. IT IS FURTHER ORDERED the

amounts in paragraph C above, the amounts credited

to the attorney/client trust fund account, are hereby

released to Cal-Almond, Inc.

46a

A. Amounts deposited with the Clerk of the Court

in that certain case entitled United States of America

vs. Saulsbury Orchards & Almond Processing, No.

CV-F-86-87 (EDP) now REC $529,406.25 plus accrued

interest.

B. Amounts spent on creditable advertising

$807,327.53

C. Portion of annual assessments applied towards

the Almond Board’s generic promotional activities

$23,984.00

IT IS HEREBY ORDERED AND ADJUDGED that

the Defendants in the above entitled case forthwith

pay to the Trustee, Ellen Briones at P.O. Box 14173,

Pinedale, California 93650, Trustee of Saulsbury

Orchards & Almond Processing in that certain bank-

ruptcy action entitled In Re: Saulsbury Orchards &

Almond Processing, Inc., a California corporation,

Debtor, Case No. 91-10898A-11F (Chapter 11 proceed- |

ing now converted to a Chapter 7 proceeding) the

sums listed in paragraph B above the total of which is

$831,311.98. A separate court order and judgment

thereon is being issued in case No. 86-87, described

above, with respect to paragraph A above and directed

to the Clerk of the Court.

ee es

CARLSON FARMS

. ‘

A. Amount of creditable advertising assessments

paid to Almond Board $38,128.19 )

B. Portion of annual assessments applied towards |

the Almond Board’s generic promotional activities

$00.00 .

———————

47a

IT IS HEREBY ORDERED AND ADJUDGED that

the sum of $38,128.19 be forthwith paid by the Defen-

dant in the above entitled action to Carlson Farms,

through its attorney, Brian C. Leighton, 701 Pollasky

Avenue, Clovis, California 93612.

A. Amount spent on _ creditable advertising

$180,438.50

B. Portion of annual assessments applied towards

the Almond Board’s generic promotional activities

$3,399.42

IT IS HEREBY ORDERED AND ADJUDGED the

total sums above, $183,837.92 be paid by the Defendant

in the above entitled actions to Gold Hills Nut Com-

pany, Inc. through its attorney, Brian C. Leighton,

701 Pollasky, Clovis, California 93612.

A. Amount spent on _ creditable advertising

$64,468.67

B. Creditable advertising assessments paid to the

Board $60.00

C. Amount of creditable advertising assessments

placed in escrow (attorney/client trust fund account)

$32,024.90

D. Portion of annual assessments applied towards

the Almond Board’s generic promotional activities

$1,627.79

IT IS HEREBY ORDERED AND ADJUDGED that

the total sums of money stated in paragraphs A and D,

the total of which is $66,096.46 be forthwith paid by

the Defendant in the above entitled actions to Frazier

48a

Nut Farms, Inc. through its attorney, Brian C.

Leighton, 701 Polasky, Clovis, California 93612. It is

further ordered that the amounts of creditable adver-

tising assessments placed in the attorney/client trust

fund account be released to Frazier Nut Farms, Inc.

The Clerk of the Court is hereby directed to place a

conformed copy of this ordert in the files of each of

the above entitled cases.

September 19th, 1994

/s/ ROBERT FE. COYLE

ROBERT E. COYLE

United States District Judge

ee ee

J ee om

Eb a OS tee

49a

APPENDIX D

UNITED STATES COURT OF APPEALS,

NINTH CIRCUIT

Nos. 92-16033, 92-16034, 92-16031 AND 92-16527

CAL-ALMOND, INC., A CALIFORNIA CORPORATION

PLAINTIFF-APPELLANT

Vv.

UNITED STATES DEPARTMENT OF AGRICULTURE

DEF ENDANT-APPELLEE

CAL-ALMOND, INC., A CALIFORNIA CORPORATION,

SAULSBURY ORCHARD AND ALMOND

PROCESSING, INC., CARLSON FARMS, A SOLE

PROPRIETORSHIP, PLAINTIFFS-APPELLANTS

Vv.

UNITED STATES DEPARTMENT OF AGRICULTURE

DEFENDANT-APPELLEE

CAL-ALMOND, INC., A CALIFORNIA CORPORATION,

GOURMET PACKING Co., A CALIFORNIA

CORPORATION, GOLD HILLS Nut Co., INC.,

A CALIFORNIA CORPORATION,

PLAINTIFFS-APPELLANTS

Vv.

UNITED STATES DEPARTMENT OF AGRICULTURE

DEFENDANT-APPELLEE

CAL-ALMOND, INC., A CALIFORNIA CORPORATION,

GOLD HILLS Nut Co., INc., A

CALIFORNIA CORPORATION, PLAINTIFFS-APPELLANTS

Vv.

UNITED STATES OF AMERICA

DEFENDANT-APPELLEE

50a

Argued and Submitted Jan. 12, 1993

Decided Dec. 22, 1993.

Before: CHOY, SCHROEDER, and BRUNETTI, Circuit

Judges.

BRUNETTI, Circuit Judge:

Two groups of almond handlers are challenging

various provisions of the California Almond Market-

ing Order, which regulates the California almond

handling industry. Both groups challenge the United

States Department of Agriculture (“USDA”) almond

marketing program administered by the California

Almond Board (the “Board”). The first group is also

separately challenging the assessment imposition

procedure used by the Board from 1980 to 1986. The

second group is separately challenging the validity of

the reserve requirement rules for the crop years

1988-89 and 1990-91. The district court affirmed a

USDA Judicial Officer decision upholding the Almond

Marketing Order against these challenges, and the

handlers appeal. We affirm the district court’s

decision on the assessment imposition procedure and

the reserve requirement rules, but hold that the

marketing program violates appellants’ First Amend-

ment rights to freedom of expression and association.

ee

5la

I. THE ALMOND MARKETING PROGRAM

A. Facts and proceedings below.

Appellants Cal-Almond, Saulsbury Orchards, and

Carlson Farms are “handlers” of California almonds.

They receive almonds from growers, process them,

and sell the resulting product, primarily for use as

ingredients in candy, ice cream, and cereal. Cal-

Almond and Sauisbury also operate mail-order

businesses through which they seli whole almonds.

The California almond handling industry is regu-

lated by the Almond Marketing Order, 7 C.F.R. § 981

(the “Order”). The Order was established in 1950 by

USDA pursuant to the Agricultura! Marketing

Agreement Act of 1937, 7 U.S.C. § 608c¢ (the “Act”).

The purpose of the Act is to “establish and maintain

such orderly marketing conditions for agricultural!

commodities in interstate commerce” as “to avoid

unreasonable fluctuations in supplies and prices.” 7

U.S.C. §§ 602(1), 602(4) (1988). The Act authorizes the

Secretary of Agriculture (the “Secretary”) to issue,

following notice and an opportunity for hearing,

marketing orders that will “tend to effectuate the

declared policy of [the Act]” with respect to the

particular commodity. 7 U.S.C. § 608c(4) (1988).

The Order is administered by the Board, which has

the power to “make rules and regulations to effec-

tuate the terms and provisions” of the Order. 7

C.F.R. § 981.38 (1993). The Board has ten members,

all of whom are industry representatives appointed by

the Secretary. The Board engages in a variety of

activities, including research and development, mar-

keting, quality control, and volume regulation. The

Act specifically provides that the Order may establish

5° a

“marketing research and development projects de-

signed to assist, improve, or promote the marketing”

of almonds. 7 U.S.C. § 608¢(6)(I) (1988). Pursuant to

this authorization, the Board funds a generic pro-

almond public relations program, consisting of such

items as newspaper inserts containing almond /

recipes, leaflets and magazine articles about the

:

;

benefits of almonds, promotional materials for school |

lunch programs, and press kits for industrial custo- |

mers.

The money to pay for the Board’s activities, includ-

ing the marketing program, comes from assessments

collected from handlers, based on the volume of

almonds they handle. However, the Act and the Order

provide that a handler’s assessment will be reduced,

up to a point,’ by the amount that the handler spends

on authorized advertising.’ Before a handler can

receive credit for his marketing promotion expendi-

tures, the Board must determine that such expendi-

tures meet the requirements of the “creditable

' A handler may receive credit against his assessment in an

amount not to exceed “that portion of his assessment de-

signated for marketing promotion including paid advertising.”

7 C.F.R. § 981.41(c) (1993). For example, for the 1986-87 crop =)

year, the overall assessment was 2.6 ¢ per pound, and the maxi- |

mum credit was 2.5 ¢ per pound, y

The Act provides that handlers may receive credit “for

such marketing promotion including paid advertising as may

be authorized by the [Ojrder.” 7 U.S.C. § 608c(6)(1) (1988).

The Order authorizes the Board, with the approval of the

Secretary, to provide “for crediting all or any portion of a

handler’s direct expenditures for marketing promotion in-

cluding paid advertising, that promotes the sale of almonds,

almond products, or their uses.” 7 C.F.R. § 981.41(c) (1998).

nee

53a

advertising regulations” set forth in 7 C.F.R.

§ 981.441.

The Order thus establishes an overall almond

marketing program, which combines generic almond

promotion conducted by the Board with Board-

approved handler advertising. Beginning in 1984,

appellant Saulsbury, which strongly opposed this

program, refused to pay its annual assessments to the

Board. In 1986, the United States sought an injunc-

tion in federal district court, pursuant to 7 U.S.C.

§ 608a(6), to compel payment of some $300,000 in

assessments which Saulsbury allegedly owed and had

not paid to the Board. Saulsbury Orchards and

Almond Processing, Inc. v. Yeutter, 917 F.2d 1190,

1193 (9th Cir.1990). The district court granted sum-

mary judgment in favor of the government, and

ordered Saulsbury to comply with the Order and pay

the assessments. /d. The court refused to entertain

Saulsbury’s affirmative First Amendment defenses

because it found that Saulsbury had not exhausted its

administrative remedies pursuant to 7 U.S.C.

§ 608e(15)( A).

In Aprii 1987, Saulsbury, joined by appellants

Cal-Almond and Carlson Farms, filed an admini-

strative petition, pursuant to 7 U.S.C. § 608¢(15)(A),

challenging numerous parts of the Order (including

the almond marketing program) for the crop years

1980-87.° Following a hearing in the summer of 1989,

% Saulsbury, believing that it would suffer irreparable in-

jury if it were forced to exhaust its administrative remedies,

also filed a complaint in district court, again alleging that the

Order was unconstitutional. The district court again dismissed

the action on the ground that Saulsbury had failed to exhaust

54a

a USDA administrative law judge (“ALJ”) issued a

decision on June 22, 1990 upholding some of appel-

lants’ challenges but rejecting others, including the

challenge to the marketing program. Both sides ap-

pealed the ALJ’s decision to the USDA Judicial

Officer (“JO”). On January 23, 1991, the JO upheld the

Order in all respects.

Meanwhile, Cal-Almond had filed another petition

pursuant to 7 U.S.C. § 608¢(15)(A), challenging a spe-

cific section of the creditable advertising regulations,

7 C.F.R. § 981,441(c)(2), for the crop year 1988. The

ALJ upheld the challenge, but his decision was

reversed by the JO. The two petitions were consoli-

dated for cross-motions for summary judgment to the

district court. On June 3, 1992, the district court

issued an order upholding the JO’s decisions in their

entirety. Appellants appeal this order.

B. Standard of review.

We review de novo a district court’s grant of

summary judgment. T7.W. Electrical Serv., ine. v.

Pacific Elec. Contractors Ass’n, 809 ¥ .2d 626, 629 (9th

Cir.1987). We must determine, viewing the evidence

in the light most favorable to the nonmoving party,

whether there are any genuine issues of material fact

and whether the district court correctly applied the

relevant substantive law. Tzung v. State Farm Fire

and Casualty Co., 873 F.2d 1338, 1339-40 (9th

Cir.1989).

its administrative remedies. Saulsbury, 917 F.2d at 1193. We

affirmed the dismissal in Saulsbury. Id. at 1197.

ae ee ll =

-— ——s Pe a RO os ts

eta,

Se tliat,

55a

C. Discussion.

1. Infringement on appellants’ First Amendment

rights.

The district court held that the almond marketing

program did not even implicate, let alone violate,

appellants’ First Amendment rights, “because plain-

tiffs are not ‘compelled’ to advertise.” However, while

the Order clearly does not compel appellants to

advertise, it does compel them to expend a certain

sum of money every year, on either assessments or

creditable advertising. Since either alternative

burdens appellants’ First Amendment rights, these

rights are clearly implicated by a program containing

both.

Assume first that the creditable advertising

regulations did not exist and that handlers paid the

fuil amount of their assessment to the Board. A

substantial portion of that amount would be used by

the Board for the generic almond promotion program,

which infringes on appellants’ First Amendment

right to be free from compelled speech and associa-

tion. See United States v. Frame, 885 F.2d 1119 (3d

Cir.1989), cert. denied, 493 U.S. 1094, 110 S.Ct. 1168,

107 L.Ed.2d 1070 (1990). Frame involved a First

Amendment challenge to the Beef Promotion and

Research Order, 7 C.F.R. §§ 1260.101-.217, promul-

gated by USDA pursuant to the Beef Promotion and

Research Act, 7 U.S.C. §§ 2901-11. The Beef Pro-

motion Order established a “Cattlemen’s Board,”

whose goal would be to increase beef sales, and

authorized it to collect an assessment of $1.00 per

head of cattle from cattle producers and importers.

Id. at 1122-23. Frame, a cattle breeder and auctioneer,

refused to pay the assessment, and, when sued by the

56a

federal government, asserted that the Beef Promotion

Act violated his First Amendment rights of free

association and free speech. 7d. at 1129.

The Third Circuit noted first that citizens

arguably do not have the right to refuse to support

financially government programs that involve speech

they find objectionable. /d. at 1131. However, the

court also found that the promotional expression

sponsored by the Cattlemen’s Board could not pro-

perly be characterized as “government speech”

Both the right to be free from compelled expres-

sive association and the right to be free from

compelled affirmation of belief presuppose a

coerced nexus between the individual and the

specific expressive activity. When the govern-

ment allocates money from the general tax fund to

controversial projects or expressive activities, the

nexus between the message and the individual is

attenuated. In contrast, where the government

requires a publicly identified group to contribute

to a fund earmarked for the dissemination of a

particular message associated with that group,

the government has directly focused its coercive

power for expressive purposes ... This sort of

funding scheme [establishes a] close nexus be-

tween the individual and the message funded.

Id. at 1132 (citations omitted) (emphasis added). The

court found that the Beef Promotion Act implicated

Frame’s First Amendment rights because it re-

sembled other funding schemes that the Supreme

Court had held to implicate individuals’ First

Amendment rights. /d. at 1132-33, citing Abood v.

Detroit Bd. of Educ., 431 U.S. 209, 97 S.Ct. 1782, 52

L.Ed.2d 261 (1977) (union-management agency shop

57a

agreements, which require that every employee pay

the union a service charge equal in amount to union

dues, impinge on employees’ rights to be free from

compelled affirmation of belief and compelled associa-

tion for expressive purposes) and Wooley v. May-

nard, 430 U.S. 705, 97 S.Ct. 1428, 51 L.Ed.2d 752 (1977)

(state law requiring citizens to bear state slogan,

“Live Free or Die,” on automobile license plates,

implicates First Amendment rights because law

requires individuals to participate in the dissemina-

tion of an ideological message).

The Board’s almond promotion program ciosely

resembles the beef promotion program at issue in

Frame. In both cases, a “publicly identified group”

(cattlemen or almond handlers) must contribute

money to fund the “dissemination of a particular

message associated with that group.” For the same

reason that the beef program implicated Frame’s

First Amendment right to be free from compelled

speech and association, then, the Board’s promotional

efforts implicate appellants’.

Assume next that the Order imposed on handlers no

assessment or other compelled contribution to the

Board whatsoever, but only required that they spend

the equivalent sum every year on advertising that

met the requirements of 7 C.F.R. § 981.441. Such an

Order also would clearly implicate appellants’ First

Amendment rights, both because it would compel

them to speak and because it would impose content-

based restrictions on that speech. See Wooley, 430

U.S. at 714, 97 S.Ct. at 1435 (“the right of freedom of

thought protected by the First Amendment against

state action includes both the right to speak freely

and the right to refrain from speaking at all.”).

58a

Thus, both an assessment-only program and an

advertising-only progra™ would implicate appellants’

First Amendment rights. Because the Order is a

combination of both, it implicates those rights as well.

USDA’s argument that the creditable advertising

regulations do not implicate those rights because

they do not “compel” appellants to advertise ignores

the fact that if handlers do not advertise according to

the regulations, they must contribute their assess-

ment to the Board,’ which is itself a type of compul-

sion implicating appellants’ First Amendment rights.

2. Type of speech restricted.

Having determined that the almond marketing pro-

gram implicates appellants’ First Amendment rights,

we must now select the proper standard to evaluate

the constitutionality of the program. Appellants

claim, and we agree, that the program infringes on

both their right to free speech and their right to free

association. The Supreme Court has established

different tests for each of these. Restrictions on

* Handlers may also earn credits by engaging in other pro-

motional activities, such as distributing sample packages of

almonds to charitable or educational outlets, purchasing

promotional materials available from the Board, or certain

direct mail promotions. 7 C.F.R. 981.441(d)(1)(i)-(iii) (1993).

The availability of such options does not change the First

Amendment analysis; they simply represent other types of

expressive activity the only alternative to which is the

compelled assessrsent. In practice, the “vast majority” of cred-

itable advertising expenditures are spent on advertisements

and not on these alernatives.

2 a

59a

lawful and non-misleading commercial speech’ are

evaluated using the three-prong standard of Centrai

Hudson Gas & Elec. Corp. v. Public Serv. Comm’n of

N.Y., 447 U.S. 557, 100 S.Ct. 2343, 65 L.Ed.2d 341

(1980). First, the asserted government interest be-

hind the restrictions must be “substantial.” Jd. at

566, 100 S.Ct. at 2351. Second, the restrictions must

“directly advance[ | the governmental interest as-

serted.” Jd. Third, the restrictions must be “not

more extensive than is necessary to serve that in-

terest.” Id.

Government programs that compel association are

evaluated under a more stringent standard. The

Supreme Court has recognized that “{flreedom of

association ... plainly presupposes a freedom not to

associate.” Roberts v. United States Jaycees, 468

U.S. 609, 623, 104 S.Ct. 3244, 3252, 82 L.Ed.2d 462

(1984). See also IDK, Inc. v. Clark County, 836 F.2d

1185, 1192 (9th Cir.1988) (“[t]he first amendment...

gives us the freedom not to assemble with those

whose goals we do not share.”). In Roberts, the

Supreme Court held that infringements on the right

of free association must be “adopted to serve compel-

ling state interests, unrelated to the suppression of

ideas, that cannot be achieved through means signifi-

5 “Commercial speech” is that which “propose[s] a com-

mercial transaction.” Posadas de Puerto Rico Assoc. v.

Tourism Co. of Puerto Rico, 478 U.S. 328, 340, 106 S.Ct. 2968,

2976, 92 L.Ed.2d 266 (1986) (quotation omitted). All of the pro-

motional efforts undertaken by the Board, whether directly

(through its own activities) or indirectly (through the induce-

ments of the creditable advertising regulations), are aimed at

increasing almond sales. The program therefore deals with

commercial speech.

60a

cantly less restrictive of associational freedoms.”

Roberts, 468 U.S. at 623, 104 S.Ct. at 3252. The

Frame majority applied this test to the Beef Pro-

motion Act. See Frame, 885 F.2d at 1134. However,

because we hold the almond marketing program

unconstitutional even under the less stringent Cen-

tral Hudson standard, we do not decide which of these

two should apply. See id. at 1146 (Sloviter, J., dissent-

ing).

Appellants contend that their own almond advertis-

ing contains a mixture of commercial and political

speech and is therefore entitled to a higher level of

protection under Riley v. National Fed’n of Blind,

487 U.S. 781, 108 S.Ct. 2667, 101 L.Ed.2d 669 (1988).

Riley addressed a First Amendment challenge to a

North Carolina requirement that professional fund-

raisers disclose to potential donors, before an appeal

for funds, the percentage of charitable contributions

collected during the previous twelve months that

were actually turned over to charity. Jd. at 795, 108

S.Ct. at 2676-77. The Supreme Court found the

regulation unconstitutional under strict scrutiny.

Id. at 798, 108 S.Ct. at 2678. The Court applied strict

scrutiny because although the speech at issue was

arguably commercial, and thus subject to a more

deferential standard of review, “the speech [does not]

retain| ] its commercial character when it is

inextricably intertwined with otherwise fully pro-

tected speech”—in that case, charitable solicitation.

Id. at 796, 108 S.Ct. at 2677 (emphasis added).

In the present case, however, the commercial

speech, although arguably “compelled,” is not inez-

tricably intertwined with higher-value noncom-

mercial speech. Appellants’ political appeals are not

6la

essential components of their advertisements.

“|Ajdvertising which links a product to a current

public debate is not thereby entitled to the consti-

tutional protection afforded noncommercial speech.”

Zauderer v. Office of Disciplinary Counsel, 471 U.S.

626, 637 n. 7, 105 S.Ct. 2265, 2274 n. 7, 85 L.Ed.2d 652

(quotation omitted). Thus, the Riley rationale for

applying strict scrutiny is not present here.

3. Application of the Central Hudson test.

Once again, for the almond marketing program to

be constitutional, (a) the asserted government in-

terest behind it must be “substantial,” (b) the

program must “directly advance” that interest, and

(c) the program must not be more extensive than

necessary to serve that interest. Central Hudson,

447 U.S. at 566, 100 S.Ct. at 2351. USDA has the

burden of justifying the program by presenting

evidence sufficient to satisfy these requirements.

Edenfield v. Fane, —- US. , , 113 8.Ct. 1792,

1800, 123 L.Ed.2d 543 (1993).

(a) Substantial government interest.

We “must identify with care the interests the State

itself asserts.” Edenfield, at ——, 113 S.Ct. at 1798.

USDA claims that the government has a “compelling

and important interest in promoting the consumption

of almonds” in order to “provide for greater stability

in the products of agriculture” and “protect the

income of farmers.” Brief for the Appellee at 32. The

Act itself states that the purpose of the creditable

advertising program is to “assist, improve, or pro-

mote the marketing, distribution, and consumption of

62a

[almonds].” 7 U.S.C. § 608¢(6)(1) (1988). See also 36

Fed.Reg. 20,887, 20,888 (1971) (the program will

“provide an additional method of stimulating almond

consumption”); 35 Fed.Reg. 7428, 7432 (1970) (the

program will provide the “opportunity to stimulate

the demand for almonds”). We agree that stimulating

the demand for almonds in order to enhance returns

to almond producers and stabilize the health of the

almond industry is a substantial state interest. See

Frame, 885 F.2d at 1134 (government has a compel-

ling interest in “maintaining and expanding beef

markets” in order to “prevent [ | further decay of an

already deteriorating beef industry).

(b) Direct advancement of the interest.

Next, USDA must show that the program “directly

advances the governmental interest asserted.”

Central Hudson, 447 U.S. at 566, 100 S.Ct. at 2351.

“(T]he regulation{s] may not be sustained if [they]

provide[ ] only ineffective or remote support for the

government’s purpose.” Jd. at 564, 100 S.Ct. at 2350.

Furthermore, we may not simply defer to legislative

and executive judgment on this question; we must

determine ourselves whether the program directly

advances USDA’s asserted interests. City Council

v. Taxpayers for Vincent, 466 U.S. 789, 803 n. 22, 104

S.Ct. 2118, 2127 n. 22, 80 L.Ed.2d 772 (1984). We apply

this test first to the creditable advertising regula-

tions specifically, and then to the overall almond

promotion program.

Because the Order forces each handler to fund

Board promotiona] efforts with every assessment

dollar not spent on creditable advertising, USDA

63a

must show both that the advertising for which credit

is granted is better at selling almonds than the

Board’s own efforts and that the advertising for

which credit is denied is worse at selling almonds

than the Board’s own efforts. As a starting point for

our analysis, therefore, we must determine how

effective the Board’s own almond promotion efforts

are. USDA has presented little solid evidence on this

question. The following exchange, which occurred at

the hearing before the ALJ between counsel for Cal-

Almond and Skip Hubbard, chairman of the Board’s

Public Relations and Advertising Committee, is

highly instructive:

@: [H]Jas the Public Relations and Advertising

Committee since you have been chairman, ever hired

somebody to analyze whether or not the creditable

advertising rules and the assessment amount spent

on advertising, have caused more sales of almonds?

A: It has not been—we have not ha{d] a survey

conducted.

Q: So would it be safe to say that you don’t have any

empirical data as to whether or not the advertising

assessments have assisted in the .. . sale and

consumption of almonds?

A: No study has been made on that.

Q: Has any study been made as to whether or not

certain provisions of section 981.441 have created

more sales or less sales than other provisions?

64a

A: We have not commissioned any study for that.

Save

Q: [| ...] Has the Almond Board, the Public Re-

lations and Advertising Committee, ever made a

determination as to whether or not the advertising

itself, or the promotion itself, done by the Board has

increased grower returns?

A: The Committee believes that the promotional

activities are beneficial to grower returns.

Q: [...] Has any study been conducted?

A: No.

Transcript of 1/25/90 hearing before USDA ALJ

Hunt at 158-60.° Because USDA has presented little

or no evidence regarding the effectiveness of the

Board’s promotional efforts, it cannot show that the

creditable advertising regulations “directly advance”

the government’s interest in increased almond sales

by enhancing the effectiveness of those efforts.’ See

6 Roger Baccigaluppi, the president and chief executive

officer of Blue Diamond, testified that a professor at the Uni-

versity of California-Davis had conducted a study whose results

demonstrated that the advertising program had been successful

in increasing grower returns. However, this study is not part

of the record.

7 USDA asserts that creditable advertising may “reason-

ably be expected to increase the sale of almonds,” Brief for the

Appellee at 31, and cites to the rule-making records underlying

the regulations to support its assertion. However, these re-

cords address only minor amendments to the regulations made

65a

Edenfield, — U.S. at ——, 113 S.Ct. at 1800 (Florida

Board of Accountancy fails to justify ban on personal

solicitation of prospective business clients by

accountants when it provides no studies or anecdotal

evidence suggesting that such solicitation creates

the asserted dangers of fraud, overreaching, or com-

promised independence).

In fact, most of the evidence in the record indicates

that the regulations hinder the handlers’ efforts to

increase sales and returns to growers. For example,

most of appellant Saulsbury’s sales were to cereal

companies, but Saulsbury could not receive credit for

advertising the cereals containing its almonds be-

cause the regulations deny credit for products that do

not contain at least 50 percent raw shelled almonds by

weight and do not display the handler’s brand. See 7

C.F.R. § 981.441(c)(3)(iv). When a chain of mini-

markets in the Boise, Idaho area agreed to carry

Saulsbury almonds, Saulsbury could not receive

credit for advertisements directing consumers to

those stores because the regulations deny credit for

advertisements directing consumers to retail outlets

not “operated” by a handler. See 7 C.F.R. §

981.441(c)(5)(iii). Because of these restrictions,

Saulsbury estimated that every dollar spent on

during the past decade, and not to the initial adoption of the

bulk of the regulations, including the most restrictive ones.

See, e.g., 49 Fed.Reg. 19,978 (May 10, 1984) (increasing the

amount of credit handlers receive for advertising almond

butter); 50 Fed.Reg. 16,451 (April 26, 1985) (doubling the por-

tion of creditable advertising that may be carried over from

one crop year to the next); 52 Fed.Reg. 13,427 (April 23, 1987)

(allowing credit for the cost of purchasing mailing lists,

envelopes and postage used in mail order promotions).

66a

creditable advertising returned less than fifty cents

in sales.

Cal-Almond’s experience with the regulations was

similarly disappointing. Cal-Almond exports approxi-

mately 90 percent of its almonds for use as ingredient

items, and nearly all of the almonds it sells domesti-

cally are used in ice cream. However, like Saulsbury

and cereal, Cal-Almond cannot obtain credit for

advertising this ice cream because the regulations

forbid it. The only creditable advertising of any use to

Cal-Almond is that promoting its mail order business,

which is not a profitable undertaking.*® Overall, the

evidence indicates that the regulations hinder, rather

than help, appellants’ efforts to sell their almonds.

Finally, there is no evidence that the regulations

stimulate additional or more effective advertising

from other handlers. Blue Diamond is by far the

largest handler and overwhelmingly dominates the

retail market;’ to “directly advance” the government

interest in increasing almond sales, the regulations

would have to give Blue Diamond an incentive to

advertise more. The record indicates, however, that

they do not. Roger Baccigaluppi, the president and

chief executive officer of Blue Diamond, testified that

Blue Diamond would “probably” continue to spend

just as much money advertising even if the regula-

tions did not exist. Walter Payne, Blue Diamond’s

vice president for sales, marketing and distribution,

8 For example, in 1987 Cal-Almond spent nearly $300,000

advertising the business but its gross mail order sales were less

than $100,000.

9 As of July 1987, Blue Diamond had a 92 percent share of

almonds sold in grocery stores.

67a

testified that Blue Diamond would advertise the same

amount and in the same manner in the absence of the

regulations.

In sum, the record indicates that the regulations do

not stimulate additional or more effective advertising

from Blue Diamond. Appellants have presented

evidence showing that the regulations hinder their

own marketing efforts, and USDA has presented no

evidence that the regulations assist the efforts of

other handlers. Therefore, we hold that the regula-

tions do not “directly advance” the government’s

asserted interest in increased almond sales and are

therefore an unconstitutional restriction on appel-

lants’ First Amendment rights.

Whether the entire assessment-funded almond

promotion program “directly advances” the govern-

mental interests in increased almond sales and

returns to growers is a more difficult question. The

Supreme Court assumes as a matter of law that

advertising increases consumption of the product or

service being advertised. See Posadas de Puerto

Rico Assoc. v. Tourism Co. of Puerto Rico, 478 U.S.

328, 342, 106 S.Ct. 2968, 2977, 92 L.Ed.2d 266 (1986)

(“[wle think [that] the legislature’s belief [that ad-

vertising of casino gambling would serve to increase

the demand for the product advertised] is a reasonable

one”); Central Hudson, 447 U.S. at 569, 100 S.Ct. at

2353 (“[t]here is an immediate connection between

advertising and demand for electricity.”). Therefore,

we may reasonably assume that the Board’s pro-

motional efforts have some positive effect on almond

demand (although, as noted above, the Board does not

know how significant the effect is).

68a

However, because these efforts are funded with

money that handlers would presumably have spent on

their own advertising, we cannot compare the Board’s

program with a no-advertising situation; we must

compare it to a situation where handlers spent their

assessments on their own marketing. USDA has pre-

sented no evidence tending to show that the generic

Board promotion financed by that money sells

almonds more effectively than the specific, targeted

marketing efforts of individual handlers.” We agree

with appellants’ argument that each handler knows

best how to sell his own almonds; we are unwilling to

presume, in the absence of hard evidence to the

contrary, that a government agency is better at

marketing than an individual businessperson. The

USDA has failed to meet its burden of showing that

the overall almond marketing program “directly

advances” its stated goals of selling more almonds and

increasing returns to producers.”

” Once again, appellants have presented evidence to the

contrary. Cloyd Angle, the president of Cal-Almond, testified

that the best way for him to sell almonds is to bring potential

customers to his plant and show them the cleanliness and

efficiency of his processing facilities. Spending money on ge-

neric Board promotion does not help him do this.

i The “rame majority held that mandatory assessments to

the Cattlemen’s Board advanced the goals of the Beef Pro-

motion Act because they “preventi[ed] ‘free riders’ from

receiving the benefits of the promotion and research program

without sharing the cost.” Frame, 885 F.2d at 1135. USDA

could make a similar argument here (although it has not).

Such a conclusion, however, presumes that the promotion itself

advances the goals of the Act, a presumption that we have re-

jected.

69a

(c) Not more extensive than necessary.

USDA must prove that the regulations are no more

extensive than necessary to serve the interest of

increasing almond sales. The Supreme Court held in

Board of Trustees of State Univ. v. Fox that this

standard is not as strict as a “least restrictive

means” test:

What our decisions require is a fit between the

legislature’s ends and the means chosen to

accomplish those ends—a fit that is not necessar-

ily perfect, but reasonable; that represents not

necessarily the single best disposition but one

whose scope is in proportion to the interest

served; that employs not necessarily the least

restrictive means but ... a means narrowly

tailored to achieve the desired objective. 492 U.S.

469, 480, 109 S.Ct. 3028, 3035, 106 L.Ed.2d 388

(1989).

USDA asserts that “{a]lthough it 1s possible that

some forms of advertising, though ineligible for

credit, might also increase the sale of almonds, the

regulations reflect a reasonable judgment that the

Board will make better use of those monies in its

market promotion programs.” However, once again,

USDA offers no evidence in support of this

“reasonable judgment.” It certainly seems reason-

able to assume that the advertisements for which

credit is explicitly permitted—generic advertise-

ments, expenditures for advertisements announcing

future promotion activities, and in-store supermarket

advertisements—will increase almond sales. How-

ever, USDA offers no justifications for the restric-

tions that deny credit for certain advertisements: ads

70a

promoting more than two complementary branded

products (§ 981.441(c)(5)(i)), ads promoting a product

that also has “competing nuts” (§ 981.441(c)(5)(ii)), or

ads promoting retail stores not owned by handlers

(§ 981.441(c)(5)(iii)). It is true that the fit between

means and ends need not be perfect, but there seems

to be no logical justification for these types of

restrictions other than the restrictions are designed

to benefit Blue Diamond, who overwhelmingly domi-

nates the retail almond market, at the expense of

smaller handlers such as appellants, who sell

primarily to ingredient manufacturers. This court

has interpreted Fox as holding that “restrictions

which disregard far less restrictive and more precise

means are not narrowly tailored.” Project 80’s, Inc. v.

City of Pocatello, 942 F.2d 635, 638 (9th Cir.1991). The

creditable advertising regulations disregard such

means, and therefore are more extensive than

necessary to serve the interest of increasing almond

sales. As the USDA has failed to present sufficient

evidence to satisfy the requirements of the Central

Hudson test, the Almond Marketing Program

violates appellants First Amendment rights.

Il. THE ASSESSMENT IMPOSITION

PROCEDURES

A. Facts and proceedings below.

As noted above, the funds required to finance the

Board’s activities are generated through assessments

authorized by the Act. The Order specifically pro-

vides that the assessment shall be “such rate per

pound of almonds. . . received by [the handler] for his

own account ... as the Secretary finds is necessary to

Tila

provide funds to meet the authorized |Bloard expenses

and the operating reserve requirements.” 7 C.F.R.

§ 981.81(a) (1993).

For the crop years 1980 through 1986, USDA

issued final rules containing budget estimates and

assessment rates without first publishing a proposed

rule and requesting comments. Appellants contend

that this procedure violated the rule making require-

ments of the Administrative Procedure Act (APA),

which requires “[gleneral notice of proposed rule

making... unless persons subject thereto are named

and either personally served or otherwise have actual

notice thereof.” 5 U.S.C. § 553(b) (1988) (the “notice”

requirement). The agency is also required to give

“interested persons an opportunity to participate in

the rule making” (the “comment” requirement) and

“{ajfter consideration of the relevant matter pre-

sented ... incorporate in the rules adopted a concise

general statement of their basis and purpose.”

5 U.S.C. § 553(c) (1988). In addition to the time re-

quired for the notice-and-comment procedure, an

additional thirty days must pass between the time the

final rule is passed and the time it takes effect.

5 U.S.C. § 553(d) (1988).

Following appellants’ administrative challenges to

the assessment imposition procedure,” the ALJ found

that notice and comment pursuant to the APA should

have been allowed. The JO disagreed and ruled that

“good cause” existed for dispensing with notice and

comment because the Secretary had discretion to

authorize such expenses as were reasonable and

2 Outlined in section I.A. above.

72a

likely to be incurred and because arriving at the

assessment rate was a ministerial and mechanical

calculation. The district court agreed with the JO.

B. Discussion.

1. Notice and comment.

We review de novo “the district court’s determina-

tions on issues of statutory interpretation, including

the scope of the notice-and-comment and publication

requirements imposed by the APA.” Mada-Luna v.

Fitzpatrick, 813 F.2d 1006, 1011 (9th Cir.1987). We

hold that although the assessments are “rules” sub-

ject to the notice-and-comment requirement of the

APA, the Secretary’s failure to give notice and re-

quest comments was harmless.

The APA defines a “rule” as

the whole or a part of an agency statement of

general or particular applicability and future

effect designed to implement, interpret, or pre-

scribe law or policy or describing the organiza-

tion, procedure, or practice requirements of an

agency and includes the approval or prescription

for the future of rates.

5 U.S.C. § 551(4) (1988) (emphasis added). We agree

with appellants that establishing an assessment is a

“prescription for the future of rates.” The Order

itself defines the assessment as a “rate per pound of

almonds.” 7 C.F.R. § 981.81(a) (1993). USDA’s argu-

ment that the assessment procedure is not a rule

because it is simply the mechanical result of the

Secretary’s approving an agency’s budget fails under

the D.C. Circuit’s opinion in Batterton v. Marshall,

73a

648 F.2d 694 (D.C.Cir.1980). There, the court held

that the exemption for budgetary approval does not

apply “where the agency action trenches on sub-

stantial private rights and interests.” Jd. at 708

(footnote omitted). Because the assessment rate

directly affects the financial interests of appellants

and other almond handlers, it is not exempt from the

notice-and-comment requirements of the APA.

The district court held that the Secretary’s failure

to follow the notice-and-comment procedure was

excused by the “good cause” exception to the APA,

which excuses such failure

when the agency for good cause finds (and incor-

porates the finding and a brief statement of

reasons thereof in the rules issued) that notice

and public procedure thereon are impracticable,

unnecessary, or contrary to the public interest.

5 U.S.C. § 553(b)(B) (1988) (emphasis added). The an-

nouncement accompanying the rules provided the

following justification for dispensing with the notice-

and-comment procedure:

To enable the Board to meet crop year obligations,

approval of the expenses and assessment rate is

necessary without delay. Handlers and other in-

terested persons were given an opportunity to

submit information and views on the expense and

assessment rate at an open meeting of the Board.

To effectuate the declared purposes of the [A]ct it

is necessary to make these provisions effective as

specified.

45 Fed.Reg. 56,794 (1980). USDA contends that since

the Board’s annual harvest forecast and proposed

budget both depend on crop projections for that year,

74a

the formulation of a recommended budget and assess-

ment rate cannot be accomplished early enough to

allow for both notice and comment and the postpone-

ment of the effective date of the rule until 30 days

after publication, as required by the APA."

We disagree, based on our opinion in Riverbend

Farms Inc. v. Madigan, 958 F.2d 1479 (9th Cir.), cert.

denied, —- U.S. ——, 113 S.Ct. 598, 121 L.Ed.2d 535

(1992). In Riverbend Farms, handlers of navel or-

anges challenged the procedure used by the Secre-

tary to set weekly volume restrictions on the market-

ing of the oranges. We first noted that

the good cause exception goes only as far as its

name implies: It authorizes departure from the

APA’s requirements only when compliance would

interfere with the agency’s ability to carry out its

mission. The agency thus must minimize conflict

with the APA by complying with those APA

requirements it is capable of complying with.

Id. at 1485. We then held that even though the

volume-setting meetings were conducted weekly, the

Secretary had no reason not to give notice of them (by

means of publication in the Federal Register) or allow

written comments before promulgating weekly

volume restrictions. /d. at 1486. Because we found no

reason in Riverbend Farms to depart from the

notice-and-comment procedure for weekly meetings

and rules, we can discern no good cause here for the

The Board recommended assessment rates at the annual

July meeting. However, in the years from 1980 to 1986, the

earliest the Secretary issued the final rule was August 26 in

1980, and the latest was October 19 in 1982.

— — —_

*

75a

Secretary’s failure to follow the procedure for annual

meetings and rules.

We also cannot find good cause for the failure to

wait thirty days before allowing the rule to take

effect. In Riverbend Farms, we noted two reasons

for the waiting period: it gives affected parties time to

adjust their behavior before the final rule takes effect,

and it usually causes no harm. /d. at 1485. These

reasons apply to the almonds context. From 1980 to

1986, delaying the effective date of the rules by thirty

days would have caused no harm, because the

Secretary always waited at least thirty days before

adopting a final rule anyway. Furthermore, the

thirty days would have given handlers an opportunity

to estimate their future costs and prices before the

rule went into effect. Therefore, we can see no reason

not to follow this requirement, and hold that the

Secretary has failed to provide good cause for his

failure to follow the procedure mandated by the APA.

However, we find this failure to be harmless. “We

have held that the failure to provide notice and

comment is harmless only where the agency’s mis-

take ‘clearly had no bearing on the procedure used or

the substance of decision reached.” Riverbend

Farms, 958 F.2d at 1487 (quoting Sagebrush

Rebellion, Inc. v. Hodel, 790 F.2d 760, 764-65 (9th

Cir.1986)). Our harmless error analysis “must

therefore focus on the process as well as the result.”

Id. (emphasis added). In Riverbend Farms, we

ultimately concluded that the Secretary’s failure to

comply with the APA’s notice-and-comment require-

ments in promulgating the weekly navel orange

volume restrictions was harmless because the

handlers knew that there would be meetings every

76a

Tuesday, that proposed restrictions would be con-

tained in a position paper issued prior to the

meetings, and that the meetings would provide the

opportunity for public comment. Therefore, the

handlers were not prejudiced by the Secretary’s

failure to follow the notice and comment procedure,

and the error was harmless. Jd. at 1488.

The Secretary’s error in the instant case is

harmless for the same reasons. The Board holds open

meetings in July of each year to gather information

relevant to estimating its budget and the resulting

assessment rate. During these meetings, the Board

receives comments and testimony from any and all

interested parties. After deciding on its recom-

mendations, the Board directly notifies each almond

handler of the proposed assessment rate. The Board

then submits its recommendations to the Secretary

for approval; from 1980 to 1986, the assessment rate

set by the Secretary in the final rule was the same as

the rate that had been recommended by the Board.

Therefore, under Riverbend Farms, any error made

by the Secretary in not following the notice and

comment procedure was harmless.

2. Validity of allegedly “retroactive” assessments.

From 1980 to 1986, the final rules establishing the

annual assessments were not issued by the Secretary

until at least several weeks after the beginning of the

crop year. However, appellants had by that time

already received a significant quantity of almonds,

and the assessments were applied to those almonds as

well. Appellants claim that doing so transformed the

assessments into impermissible “retroactive” rules.

— PO ee ee

77a

The Supreme Court has noted that administrative

rules must be statements that have legal conse-

quences only for the future. Bowen v. Georgetown

Univ. Hosp., 488 U.S. 204, 217, 109 S.Ct. 468, 476, 102

L.Ed.2d 493 (1988) (Scalia, J., concurring). “Retro-

active” rules—those that alter the past legal status of

past actions—are “not favored in the law.” Jd. at 208,

109 S.Ct. at 471. However, they are permitted if the

power to promulgate them “is conveyed by Congress

in express terms.” Id. (emphasis added).

We agree with the district court that even if the

assessments are retroactive rules, Congress ex-

pressly granted the Secretary the power to

promulgate them. The Act provides that handlers

shall pay assessments for such expenses “as the

Secretary may find are reasonable and are likely to be

incurred by such authority or agency, during any

period specified by him.” 7 U.S.C. § 610(b)(2)Gi)

(1988). Since the Order specifies the crop year to be

the relevant “period,” the Secretary may impose the

assessment on all almonds received during that time.

As the district court pointed out,

[t]he statutory language of Section 610(b)(2)(ii)

mandates that each handler’s pro rata share of the

Almond Board’s expenses must be based on the

volume of all of the commodity covered by the

marketing order. The focus of the statute is on

the ‘expenses likely to be incurred ... during any

period specified by [the Secretary].’ The period

specified by the Secretary is the crop year July 1

through June 30. Therefore, the statute requires

a handler to share pro rata in any expenses likely

to be incurred by the Almond Board during a crop

year.

78a

We hold that even if the assessment rules are

“retroactive,” they are permissible because they were

authorized by Congress in the Act.

79a

3. Statement of basis and purpose.

Appellants contend that the final 1980-1986 assess-

ment rules failed to comply with the substantive

requirements of the APA because they did not include

a “general statement of their basis and purpose” as

required by 5 U.S.C. § 553(c). However, regulations

with no statement of basis and purpose have been

upheld where the basis and purpose was considered

obvious. See Citizens to Save Spencer County v.

E.P.A., 600 F.2d 844, 884 (D.C.Cir.1979). This is just

such a case. The “purpose” of the assessment is

clearly to fund the Board’s operations, and the “basis”

of the rate is the mechanical application of the

statutory formula. Because the basis and purpose of

the assessment rate are obvious, no express state-

ment was necessary to comply with the APA.

Ili. THE RESERVE REQUIREMENTS

A. Facts and proceedings below.

The reserve requirement is the mechanism the

Board uses to regulate the volume of almonds enter-

ing the market, pursuant to the Act’s goals of

protecting almond prices and maintaining an orderly

flow of almonds to market. 7 U.S.C. § 608c¢(6)(A), (C)

(1988). Every year, the Board recommends to the

Secretary what percentage of the total almond crop

should be “salable” and what percentage should be

held in “reserve” by handlers. 7 C.F.R. § 981.49

(1993). Handlers may only sell the salable percentage

of almonds they receive; they must withhold from

marketing an amount equal to the reserve per-

centage. 7 C.F.R. § 981.50 (1993). The Secretary des-

ignates the final percentage based on the Board’s

80a

recommendation and “any other available informa-

tion.” 7 C.F.R. § 981.47 (1993).

The almond crop year begins on July 1 and ends

June 30. 7 C.F.R. § 981.19 (1993). For the 1988 crop

year, the Board recommended a 25 percent reserve

requirement on July 20, 1988; the Secretary issued a

proposed rule incorporating this recommendation on

September 16, 1988, allowing 15 days for comment; and

issued the final rule establishing the 25 percent

reserve requirement on January 25, 1989. For the

1990-91 crop year, the Board recommended a 35 per-

cent reserve requirement; the Secretary issued a

proposed rule on August 10, 1990, with the same

15-day comment period; and the Secretary issued the

final rule on September 21, 1990.

Appellants Cal-Almond, Gourmet Packing, and Gold

Hills filed administrative petitions, pursuant to 7

U.S.C. § 608c(15)(A), challenging the lawfulness of

the procedures used by the Secretary to establish the

25 percent reserve requirement for the 1988-89 crop

year; the validity of certain actions that the Board

and Secretary require handlers to take to comply

with the reserve requirement; and the validity of

Secretary’s imposing assessments on reserve al-

monds. After consolidation, the ALJ rejected most of

the challenges, but held that the 1988-89 reserve and

assessment rules were invalidly retroactive. On

appeal, the JO upheld the Secretary’s actions in all

respects and the district court did the same.

Appellants Cal-Almond and Gold Hills had also filed

an administrative petition challenging various USDA

actions under the Order for the crop year 1990-91.

The ALJ rejected their challenges and the JO

affirmed. After appellants filed suit in district court,

8la

the parties stipulated that the district court should

grant summary judgment for USDA without pre-

judice to appellants’ right to appeal, which the district

court did. Appellants appeal both judgments.

B. Discussion.

1. Lawfulness of 1989-90 and 1990-91 reserve

obligation rules.

(a) Retroactivity.

Appellants claim that the 1988-89 and 1990-91 re-

serve obligation rules were unauthorized retroactive

rules. We hold that even if the rules were retroactive,

they were expressly authorized by Congress and

were therefore valid. Georgetown Univ. Hosp., 488

U.S. at 208, 109 S.Ct. at 471-72. The Act provides that

marketing orders may contain terms

[ajllotting, or providing methods for allotting, the

amount of [a] commodity ... which each handler

may market ... under a uniform rule based upon

the amounts which each such handler has available

for current shipment, or upon the amounts shipped

by each such handler in such prior period as the

Secretary determines to be representative, or

both, to the end that the total quantity of such

commodity ... to be marketed ... during any

specified period or periods shall be equitably

apportioned among all of the handlers thereof.

7 U.S.C. § 608¢(6)(C) (1988). The focus of the statute

is on the total quantity of almonds to be marketed

during any period specified by the Secretary—in this

case, the July 1-June 30 crop year. The statute re-

quires the total quantity of almonds salable during

82a

this period to be allotted “equitably” among the hand-

lers. To do so, the Secretary has to take into account

almonds shipped between the beginning of the crop

year and the issuance of the final reserve rule. Thus,

the reserve obligation rules, even if retroactive, are

authorized by the Act.

(b) Arbitrariness.

We may set aside an agency’s decision if it was

“arbitrary, capricious, an abuse of discretion, or

otherwise not in accordance with law.” Citizens for

Clean Air v. E.P.A., 959 F.2d 839, 844 (9th Cir.1992)

(quotation omitted). Appellants contend that the final

1988-89 reserve obligation rule was arbitrary and

capricious because it was issued after undue delay.

The Board recommended the 25 percent reserve

obligation on July 20, 1988. The Secretary issued a

proposed rule on September 16, 1988, but did not issue

a final rule until January 25, 1989, over four months

later, and seven months into the crop year. According

to appellants, the most active times for almond sales

are in late summer and early fall; consequently,

appellants argue, it was arbitrary and capricious for

the Secretary to have waited until well after this time

had passed to issue a final reserve obligation rule.

However, appellants have cited no cases, and we

have found none, holding that an agency’s delay in

issuing a rule makes the rule itself arbitrary or

capricious. Therefore, although the delay was

83a

certainly unfortunate and should be avoided in the

future, it was not arbitrary or capricious.“

Appellants also contend that the 1988-89 and 1990-91

reserve obligation rules were arbitrary and capri-

cious because they did not include a sufficient state-

ment of basis and purpose as required by 5 U.S.C.

§ 553(c). We disagree. In the 1988-89 rule, USDA set

out its calculations of supply and demand for Califor-

nia almonds and explained why a 25 percent reserve

obligation was necessary:

While this rule may restrict the amount of

almonds which handlers may sell in normal do-

mestic and expert markets, the salable and reserve

percentages are needed to lessen the impact of the

projected oversupply situation facing the industry

and to promote stronger marketing conditions,

thus avoiding unreasonable fluctuations in prices

and supplies and improving grower returns. The

reserve percentage is designed to reduce the

oversupply situation in the industry in the 1988-89

crop year by holding off the market a percentage of

the available almonds that could be added to an

already fully supplied market. If the reserve were

zero and all available California almonds were

salable, almond prices, in a market which already

has record supplies on hand, would be expected to

drop in both domestic and foreign markets. Thus,

“4 The cases cited by appellants address the adequacy of

agency explanations of the contents of their rules, not the

delays in promulgating them. See, ¢e.g., North Germany Area

Council v. Federal Labor Relations Auth., 805 F.2d 1044

(D.C.Cir.1986); Celcom Communications Corp. v. F.C.C., 7

F.2d 67 (D.C.Cir.1986).

84a

the Board’s recommendation for a 25 percent

reserve is designed to effectuate the purposes of

the Act by avoiding unreasonable fluctuations in

supplies and prices.

54 Fed.Reg. 3584 (1989). A similar statement was

included for the 1990-91 reserve obligation rules. See

55 Fed.Reg. 38,798, 38,794 (1990). Both statements

explain the rules’ basis (almond supply and demand

estimates) and purpose (avoiding unreasonable

fluctuations in supplies and prices).

Furthermore, USDA addressed the primary com-

ments on the proposed reserve obligations that were

made during the 15-day notice and comment period,

such as objections to the crop size estimates, demand

estimates, and reserve obligation size. See 54

Fed.Reg. 3584, 3585-87 (1989); 55 Fed.Reg. 38,793,

38,794-97 (1990). The rules thus satisfied the re-

The following example is illustrative:

Many commenters who opposed the 35 percent reserve

indicated that there is an over production of California

almonds and that holding almonds in reserve this year will

add to the surplus in following years. Over the past

decade, however, annual marketable production has failed

to meet trade demand needs for the 1983-84, 1985-86,

1986-87, and 1989-90 crop years. Given the wide swings in

production from year to year which characterize the

almond industry, it is possible that the 1991 crop could fall

short of 1991-92 trade demand needs. If early projections of

the 1991 crop indicate that this would likely be the case, an

appropriate quantity of 1990-91 crop year reserve almonds

would be released to the salable category to aug-ment

1991-92 crop year supplies.

55 Fed.Reg. 38,793, 38,794 (1990).

wy ual ill dali)

85a

quirement that they “indicate the major issues of

policy that were raised in the proceedings and explain

why the agency decided to respond to these issues as

it did.” Independent United States Tanker Owners

Comm. v. Dole, 809 F.2d 847, 852 (D.C.Cir.), cert.

denied, 484 U.S. 819, 108 S.Ct. 76, 98 L.Ed.2d 39

(1987).

Finally, appellants claim that the reserve obliga-

tion rules were arbitrary and capricious because

USDA «id not follow the dictates of Departmental

Regulation (DR) 1512-1 in promulgating them. We

have no authority to review appellants’ challenge,

because section 1 of DR 1512-1 states that “[t)his

directive ...is not intended to create any right or

benefit, substantive or procedural, enforceable at law

by a party against the Department, its agencies, its

officers or employees or any other person.” See

Michigan v. Thomas, 805 F.2d 176, 187 (6th Cir.1986)

(this language evinces “clear and unequivocal intent

that agency compliance with Executive Order 12,291

not be subject to judicial review”).

2. 1990-91 agency agreements for reserve almond

disposition.

A handler has two alternatives for disposing of

reserve almonds. First, the handler may turn them

over to the Board, which has the “power and authority

to sell or dispose of any and all reserve almonds

withheld upon the best terms and at the highest

return obtainable.” 7 C.F.R. § 981.66(a) (1993). The

Board then distributes the proceeds from such

disposition to the handlers on a pro rata basis. 7

C.F.R. § 981.66(g) (1993). Alternatively, the handler

may obtain authorization from the Board to act as the

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Board’s agent in disposing of the reserve; all agents

so authorized must sign agency agreements with the

Board which contain “such reasonable terms and

conditions, including inspection and certification

requirements, as the Board may specify”. 7 C.F.R.

§ 981.67 (1993).

The agency agreements for the crop year 1990-91

contained a provision stating: “If established by the

Secretary, minimum prices will apply to reserve

almonds diverted to eligible outlets .. . Agents will be

notified of any such minimum price _ schedule

established.” Appellants contend that because the

agency agreements include this provision, they

violate both the Act and the APA.

(a) Agency agreements and the Act.

Appellants claim that the minimum price provision

violates the Act because the Act forbids the fixing of

prices with respect to almonds. This is incorrect; the

Act is silent regarding whether agricultural market-

ing orders may set the prices that handlers receive

from their customers.” The Act does state that

almond marketing orders may provide for the esta-

blishment of reserve pools of almonds and provide “for

the equitable distribution of the net return derived

from the sale thereof among the persons beneficially

6 Appellants quote our observation in Pescosolido v. Block,

765 F.2d 827 (9th Cir.1985), that “the Secretary is not em-

powered to fix prices for any [commodities other than milk]

covered by the Act.” Jd. at 830. Pescosolido is inapplicable to

the present case because it dealt with the prices that handlers

pay to producers, not the prices that handlers receive from

their customers.

87a

interested therein.” 7 U.S.C. § 608c(6)(E) (1988). The

Almond Marketing Order further provides that “(t]he

Board shall have power and authority to sell or

dispose of any and all reserve almonds withheld upon

the best terms and at the highest return obtainable.”

7 C.F.R. 981.66(a) (1993) (emphasis added). Because

including minimum price provisions in agency agree-

ments is consistent with this mandate, we hold that

the agreements do not violate the Act.

(b) Agency agreements and the APA.

Appellants contend that the minimum price

provision was an “additional regulation” requiring

the Secretary to follow the APA’s notice-and-

comment procedure before adopting the agency

agreements.” Appellants cite American Hosp. Ass’n

v. Bowen, 834 F.2d 1037 (D.C.Cir.1987), in support of

their argument. In American Hosp. Ass’n, the D.C.

Circuit addressed the issue of whether the Depart-

ment of Health and Human Services (HHS) had to

subject certain of its contracts to APA notice and

comment. As part of the Medicare program, HHS was

required to contract with “peer review organiza-

tions” (PROs), private organizations of doctors that

would monitor the professional activities of Medicare

service providers in their areas. /d. at 1041. Con-

7 Agency agreements are contracts, and the APA does not

apply to matters “relating to agency management or personnel

or to public property, loans, grants, benefit, or contracts.” 5

U.S.C. § 553(a)(2) (1988) (emphasis added). In 1971, however,

USDA promulgated a regulation making the APA’s procedural

requirements applicable to all of its rule making relating to

contracts. 36 Fed.Reg. 13,804 (1971).

88a

gress granted HHS great discretion to contract with

each PRO as it saw fit, in order to tailor the service

review process to local needs. Jd. at 1053. The

statute provided specifically that

Contracting authority of the Secretary under this

section may be carried out without regard to any

provision of law relating to the making, perform-

ance, amendment or modification of contracts of

the United States as the Secretary may determine

to be inconsistent with the purposes of this part.

Id. (quoting 42 U.S.C. § 1320c-2(e)). The D.C. Circuit

held that this statutory language exempted HHS only

from “the vast corpus of laws establishing rules

regarding the procurement of contracts from the

government,” and did not exempt HHS from the

“general restraints” of the APA. Jd. at 1054. More

specifically, the language did not “restor[e] a broad

exemption from all APA requirements that would

allow HHS on its own to modify vitally important

provisions of peer review.” Jd. The court found that

since Congress had granted HHS very broad dis-

cretion to implement the peer review program

through individualized contracts with PROs, the

danger of HHS’ “legislating” the program through

contractual terms was too high unless those terms

were subject to APA notice and comment. Jd. The

court concluded that “any contract provisions that

are legislative are subject to § 553’s notice and com-

ment requirements.” /d. (emphasis added).

We find the agency agreements to be distinguish-

able from the PRO agreements at issue in American

Hosp. Ass’n. There, the central mechanism for imple-

menting the entire peer review program was the PRO

contracts, because Congress had mandated that HHS

89a

enter into such a contract with a PRO in each area.

Thus, there was a real danger that HHS would

assume the role of unelected legislative body and

promulgate statutory law under the guise of PRO

contract terms. Here, by contrast, the agency

agreements are incidental to the administration of

the Order; they simply give handlers another, perhaps

preferable, option for disposing of their reserve

almonds. Unlike the program at issue in American

Hosp. Ass’n, USDA is not required to enter into

agreements with handlers, nor is any individual

handler required to enter into an agreement with

USDA. Because the agreements are incidental to the

entire program, and because handlers have another

option, there is little danger that USDA will legislate

through agency agreements.

Furthermore, even if the agency agreements did

raise the dangers identified in American Hosp. Ass’n,

the only provision that appellants specifically object

to—the minimum price provision—is not “legislative”

and thus would not be subject to APA procedures.

The Act grants the Secretary the power to “provid[e]

for the equitable distribution of the net return

derived from the sale [of the reserve pool] among the

persons beneficially interested therein.” 7 U.S.C.

§ 608c(6)(E) (1988). We held above that a minimum

price provision is a legitimate means of enforcing this

requirement; the provision is thus a “procedural”

rule exempt from the APA’s requirements. See

American Hosp. Ass’n, 834 F.2d at 1055 (“procedural”

rules, those that are “legitimate means of structur-

ing [the agency’s] enforcement authority,” are

exempt from the APA notice and comment require-

ment).

90a

3. Restrictions on handlers’ disposition of reserve

almonds.

(a) Reserve almond storage requirements.

During the 1988-89 crop year, the Board informed

handlers that their reserve almonds had to be stored

in California. The Board instituted this requirement

without following the procedural rule making

requirements of the APA. Appellants argue that the

California storage rule is a substantive rule that

could have been promulgated only through compliance

with the APA.

The Order grants the Board the power to “receive,

investigate and report to the Secretary complaints of

violations of [the Order].” 7 C.F.R. § 981.38 (1993). To

aid the Board in exercising this power, the Order also

provides that “[eJach handler’s premises shall be

accessible to authorized representatives of the Board

and the Secretary for examination and audit of

[certain] records and for inspection and observation of

almonds.” 7 C.F.R. § 981.70 (1993). The California

storage rule helped ensure such accessibility and was

thus a “legitimate means of structuring [the

agency’s] enforcement authority.” American Hosp.

Ass’n, 834 F.2d at 1055. We hold that the California

storage requirement, like the minimum price pro-

vision, was a “procedural” rule exempt from the APA

notice-and-comment requirement.”

8 While storing almonds in California may have inconven-

ienced appellants, the mere fact that a rule may have a

substantial impact “does not automatically transform it into a

legislative rule.” State ex rel. State Water Resources Control

Bd. v. Federal Energy Regulatory Comm’n, 966 F.2d 1541, 1554

(9th Cir.1992) (quotation omitted).

9la

(b) Future sales contracts for reserve almonds.

The Order prohibits the “handling” of reserve

almonds. 7 C.F.R. § 981.50 (1993). The Order defines

“to handle” as “to sell” or “to put into channels of

trade.” 7 C.F.R. § 981.16 (1993). In December 1988

USDA sent out a letter stating that it considered a

contract for the disposition of reserve almonds

entered into before the release of the reserve to be a

“sale” and thus a prohibited act of “handling.”

Effectively, then, USDA prohibited handlers from

entering into contracts to sell reserve almonds.

Appellants contend that this letter was a rule that

should have been promulgated pursuant to the notice

and comment requirements of the APA. However,

“interpretive” rules—”those which merely clarify or

explain existing law or regulations’—are exempt

from these requirements. Linoz v. Heckler, 800 F.2d

871, 877 (9th Cir.1986) (quotation omitted); 5 U.S.C.

§ 553(b)(A) (1988). USDA’s prohibition on the pre-

release sale of reserve almonds is just such a rule,

because it interprets the Order’s prohibition on the

handling of reserve almonds. The rule is therefore

exempt from APA notice and comment.

4. Assessments on reserve almonds.

USDA currently imposes assessments on the total

quantity of almonds received by handlers, including

those in the reserve. Appellants contend that both the

Act and the Order prohibit USDA from doing so.

92a

We disagree. The Act states that each handler

shall be assessed pro rata for reasonable Board

expenses

other than expenses incurred in_ receiving,

handling, holding, or disposing of any quantity of a

commodity received, handled, held, or disposed of

by such authority or agency for the benefit or

account of persons other than handlers subject to

such order.

7 U.S.C. § 610(b)(2)(ii) (1988) (emphasis added). Appel-

lants argue that the Board does not dispose of the

reserve almonds “for the benefit of” the handlers and

that therefore the Board cannot impose assess-ments

on those almonds to cover the expenses of doing so.

However, the proceeds from the Board’s disposition of

a handler’s almonds are turned over to the handler. 7

U.S.C. § 608¢(6)(E) (1988); 7 C.F.R: § 981.66(g) (1993).-

impose assessments on them.

We also reject appellants’ contention that the Order

prohibits the imposition of assessments on reserve

almonds. The Order states that a handler shall only

be assessed on almonds “received by him for his own

account.” 7 C.F.R. § 981.81(a) (1993). All reserve

almonds are originally “received” by handlers for

their own account, and thus subject to assessment.

Only after being received by handlers are a certain

percentage of almonds then “held” for the account of

the Board. Even then, they are not really held for the

account of the Board in the sense of the Board’s

receiving the proceeds from the disposition thereof,

because the handlers get those proceeds. This

terminology and regulatory structure is admittedly

somewhat ambiguous, but “where Congressional

intent is ambiguous, courts should defer to a reason-

93a

able agency interpretation of a statutory scheme the

agency is entrusted to administer.” Railway Labor

Executives’ Ass'n v. I.C.C., 958 F.2d 252, 256 (9th

Cir.1991). We defer to USDA’s reasonable interpreta-

tion of the Order.

IV. THE ADMINISTRATIVE REMEDY

PROCEDURE

Appellants finally contend that the long and

tortuous path they have had to follow to exhaust their

claims violates their right to due process. While we

understand appellants’ frustration with the admini-

strative remedy procedure, we must also reject their

argument. Appellants claim that the procedure does

not provide petitioners with a “clear and certain

remedy;” however, we have already held that a

sufficient remedy for handlers who prevail in their

administrative petitions is a refund of any assess-

ments found not to have been due. Saulsbury

Orchards, 917 F.2d at 1195 (quoting Navel Orange

Admin. Comm. v. Exeter Orange Co., 722 F.2d 449,

452 (9th Cir.1983))." As for the amount of time

Contrary to appellants’ contention, the Supreme Court’s

holding in McKesson Corp. v. Division of Alcoholic Beverages &

Tobacco, 496 U.S. 18, 110 S.Ct. 2238, 110 L.Ed.2d 17 (1990),

does not require the remedy to consist of compensatory

damages. The Court held only that an appropriate remedy for

taxes unlawfully collected from plaintiff could either be a

refund of taxes unlawfully collected or an assessment and

collection of back taxes from the plaintiff's competitors. Jd. at

40, 110 S.Ct. at 2252. McKesson never held that compensatory

damages were required; it held only that a refund of unlawful

taxes was one possible way for the State to satisfy the require-

ments of the Due Process Clause.

94a

appellants have spent pressing their claims, we agree

with the district court’s reasoning that

[wlhile there is no question that completion of the

administrative process in connection with this

Section 15(A) petition was very lengthy, it is also

apparent that some of the delay resulted from the

sheer number and magnitude of the issues raised

in the petition as well as from the litigation

tactics adopted by plaintiffs . ..(TJhe court thinks

it unrealistic of plaintiffs to expect prompt

resolution of the quality and quantity of issues

raised herein.

The length of the proceedings, although certainly

regrettable, was not a denial of due process.

V. CONCLUSION

We affirm the judgments for USDA on all issues

except the almond marketing program, which we find

to violate the First Amendment. We are now faced

with the question of what remedy to grant to

appellants. Appellants request a full refund of the

assessments imposed upon them from 1980 to the

present, as well as attorneys’ fees and costs pursuant

to the Equal Access to Justice Act (“EAJA”), 28

U.S.C. § 2412. Because of the fact-intensive nature of

the inquiry, we find that “(t]he determination of the

appropriate remedy in this case is a matter that

should be addressed in the first instance by the

District Court.” Chicago Teachers Union v. Hud-

son, 475 U.S. 292, 310, 106 S.Ct. 1066, 1078, 89 L.Ed.2d

232 (1986). See also Ellis v. Brotherhood of Ry.

Clerks, 466 U.S. 435, 104 S.Ct. 1883, 80 L.Ed.2d 428

95a

(1984). The case is remanded for further proceedings

consistent with this opinion.

AFFIRMED in part, REVERSED in part, and

REMANDED.

96a

APPENDIX E

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF CALIFORNIA

No. CV-F-91-064 REC

CAL-ALMOND, INC., SAULSBURY

ORCHARDS AND ALMOND PROCESSING, INC., AND

CARLSON FARMS, PLAINTIFF

v.

UNITED STATES DEPARTMENT

OF AGRICULTURE, DEFENDANT

[Filed: June 3, 1992]

ORDER AFFIRING THE DECISION OF THE

SECRETARY OF AGRICULTURE

On November 12, 1991 the court heard the cross-

motions for summary judgment filed by the parties

herein. More accurately, these motions constitute a

review of an administrative decision.

Upon due consideration of the written and oral

arguments of the parties and the record herein, the

court issues its rulings for the reasons set forth

herein.

Plaintiffs Cal-Almond, Inc., Saulsbury Orchards

and Almond Processing, Inc., and Carlson Farms have

filed a first Amended Complaint for Review of Agency

97a

Action under 7 U.S.C. § 608c(15)(B), Mandamus,

Declaratory Relief and Reimbursement of Assess-

ments. By this First Amended Complaint, plaintiffs

seek review by this court of the final administrative

action of the Secretary of Agriculture pursuant to

the Agricultural Marketing Agreement Act of 1937

(hereinafter referred to as the AMAA), 7 U.S.C. §§

601_et. seq.’

A. Standard of Review.

7 U.S.C. § 608¢(15) involves petitions by handlers

for modification of a marketing order or an exemption

therefrom. Section 608c(15)(A) provides that the

handler must first petition the Secretary of Agri-

culture and be given an opportunity for a hearing.

“After such hearing, the Secretary shall make a

ruling upon the prayer of the petition which shall be

final, if in accordance with law.” Section 608¢(15)(B)

provides for review by the appropriate district court

of the Secretary’s ruling. “If the court determines

that such ruling is not in accordance with law, it shall

remand such proceedings to the Secretary with

directions either (1) to make such ruling as the court

shall determine to be in accordance with law, or (2) to

take such further proceedings as, in its opinion, the

law requires.”

' On May 15, 1992, the parties stipulated to the dismissal of

[sic] specified allegations in the First Amended Complaint per-

taining to the takings claim. In addition, the parties stipulated

that all allegations in the First Amended Complaint relating to

the legitimacy of the reserves imposed for the crop years 1982

through 1985-1986 specified in the stipulation are dismissed

with respect to Saulsbury Orchards and Almond Processing,

Inc.

98a

As explained in Lewes Dairy, Inc. v. Freeman, 401

F.2d 308, 315-316 (8d Cir. 1968), cert. denied, 394 U.S.

929 (1969):

The power of the District Court in reviewing the

decision of the Secretary, following his adjudi-

catory hearing, is not a de novo fact finding

process. It is limited to a determination of

whether the rulings of the Secretary are in

accordance with law and his findings are supported

by substantial evidence. If they are, they may not

be disturbed. Because there attaches to the

determination of an administrative agency a pre-

sumption of the existence of facts justifying the

determination, the burden of proof falls on the

party challenging the validity of the agency’s

ruling.

Substantial evidence is “such relevant evidence as a

reasonable mind might accept as adequate to support

a conclusion.” Richardson v. Perales, 402 U.S. 389,

401 (1971), quoting Consolidated Edison Co. v.

NLRB, 305 U.S. 197, 229 (1938). Where an admini-

strative agency disagrees with the conclusions of its

ALJ, the standard does not change. The ALJ’s

findings are simply part of the record to be weighed

against other evidence supporting the agency.

Saavedra vy. Donovan, 700 F.2d 496, 498 (9th Cir.

1983). The weight accorded the ALJ’s findings is

greatest where credibility based on witness demeanor

is at issue. However, with respect to derivative

inferences, the reviewing court’s deference is to the

agency and not to the ALJ. Stamper v. Secretary of

Agriculture, 722 F.2d 1483, 1486 (9th Cir. 1984);

NLRB v. Brooks Camera, Inc., 691 F.2d 912, 915 (9th

Cir. 1982). However, “[wJhere ... the agency deter-

99a

minations turn on purely legal questions concerning

the requirements of the applicable statutes, ‘[tlhe

questions ... are questions of law, which we review

de novo.’ .... Desir v. Ilchert, 840 F.2d 723, 726 (9th

Cir. 1988), quoting Lazo-Malano v. INS, 813 F.2d

1432, 1434 (9th Cir. 1987).

To the extent that plaintiffs challenge the Secre-

tary’s actions under the Administrative Procedure

Act, the reviewing court can set aside such agency

actions, findings, and conclusions as are found to be

“arbitrary, capricious, an abuse of discretion, or

otherwise not in accordance with law....” 5 U.S.C.

§ 706(2)(A). “To make this finding, the court must

consider whether the decision was based on a

consideration of the relevant factors and whether

there has been a clear error of judgment .. .

Although this inquiry into the facts is to be search-

ing and careful, the ultimate standard is a narrow one.

The court is not empowered to substitute its judg-

ment for that of the agency.” Citizens to Protect

Overton Park, Inc. v. Volpe, 401 U.S. 402, 416 (1971).

Plaintiffs assert that almond assessments imposed

uponthem from 1980 through 1990 were imposed in

violation of the Administrative Procedure Act.

1. Notice and Comment Requirements.

From 1980 to 1986, the United States Department

of Agriculture (hereinafter referred to as the

Department) published the final rule containing both

the Secretary’s approval of the Almond Board’s pro-

posed budget and the annual assessment rate without

100a

first publishing a proposed rule and inviting notice

and comment within the meaning and scope of the

APA,’

2 The rule making required by the APA is set forth in 5

U.S.C, § 553:

(a) This section applies, according to the provisions thereof,

except to the extent that there is involved -

(2) a matter relating to agency management or

personnel or to public property, loans, grants, benefits, or

contracts.

(b) General notice of proposed rule making shall be

published in the Federal Register, unless persons subject

thereto are named and either personally served or

otherwise have actual notice thereof in accordance with

law....

Except when notice or hearing is required by statute, this

subsection does not apply -

(B) when the agency for good cause finds (and

incorporates the finding and a brief statement of reasons

therefor in the rules issued) that notice and _ public

procedure thereon are impracticable, unnecessary, or

contrary to the public interest.

A “rule” for purposes of the APA is defined in Section 551(4)

as follows:

[Tjhe whole or a part of an agency statement of general

or particular applicability and future effect designed to

implement, interpret, or prescribe the law or policy or

describing the organization, procedure, or practice

requirements of an agency and inclydes the approval or

prescription for the future of rates, wages, corporate or

financial structures or reorganization thereof, prices,

facilities, appliances, services or allowances therefor or of

101la

a.

The Department contends that the rule-making

provisions of the APA do not apply at all because the

Secretary’s decision whether to approve the annual

budget proposed by the Almond Board is entirely

discretionary.

The court, however, concludes that the appropriate

analysis is, as was utilized during the administrative

proceeding, whether the budget approval process is

exempted from the rulemaking requirement as rules

of “agency organization, procedure or practice, within

the meaning of 7 U.S.C. § 553(a)(2).’ The ALJ”, citing

Batterton v. Marshall, supra, 648 F.2d at 707-708,

held that the exception for “agency organization,

procedure or practice” cannot apply where the agency

action affects substantial private rights and in-

terests:

The budget process required by the Order is not

analogous to the Department’s internal budget

process. Significantly, the internal budgets of the

Department do not involve assessments. The

assessments required to be paid by handlers [have]

a substantial impact upon their private rights and

interests and, therefore, the handlers should have

been afforded an opportunity to participate in the

rulemaking process by notice and comment.

However, in reversing the ALJ on this issue, the

Judicial Officer quoted extensively from his decision

in In re Wileman Bros. & Elliott, Inc. (Wileman ITD

valuations, costs, or accounting, or practices bearing on

any of the foregoing ....

% The ALJ’s Initial Decision actually makes reference to 7

U.S.C. § 553(b)(B), but this clearly is a typographical error.

102a

and relied upon it in ruling that the Secretary is not

required to promulgate the assessments by notice-

and-comment rulemaking, a reliance the court finds

to be well-taken. In Wileman /, in the course of

affirming that ALJ’s decision that notice-and-

comment rulemaking is not required for the Secre-

tary’s approval of any of the Nectarine and Plum

Committees’ expenses, the Judicial Officer ruled in

pertinent part:

I have not been convinced that budget approval by

the Secretary is something that is required to be

accomplished through rule making under the

[AMAA]. There is no requirement in that statute

that the Secretary employ notice and comment for

Committees’ budgets” and any such requirement

'* The Secretary’s right to approve the budgets of the

Committees without notice and comment rulemaking is

the same as his right to approve, without notice and

comment rulemaking, the budgets of his other agencies,

such as the Office of Administrative Law Judges, the

Office of the General Counsel, the Agricultural Marketing

Service, its Fruit and Vegetable Division, or its Marketing

Order Administration Branch.

would have to be forthcoming from the provisions

of the [APA], or, partake of a ‘taxing’ function,

which would be beyond the scope of the Secre-

tary’s powers. It is true that the budgets of these

Committees’ (and other USDA agencies whose

budgets are approved by the Secretary without

notice and comment rulemaking] affect payments

from others, whether they be general taxpayers,

fruit handlers, or recipients of some other fee-

based Government service. But in all cases this

103a

ultimately is a case of Secretarial discretion in

approving the expenses of the Committees which

in themselves impose no direct financial require-

ments on others. The Secretary is not forbidden

from seeking further public input through a

Federal Register publication regarding the budget

of the Committees (or any of the Secretary’s

agencies] and ... has done so on some isolated

occasions. Much more typically, however, he has

merely announced that the budget and certain

expenditures of the Committees [or other agen-

cies] have been approved and authorized. The key

legal point, however, is that there is not require-

ment in law that the Secretary seek notice and

comment regarding such budget authorization.

b. Good Cause.

The Secretary further argues that there was good

cause within the meaning of 5 U.S.C. § 553(b)(B) to

dispense with notice-and-comment rulemaking with

respect to the annual assessment rates. The ALJ at

pp. 72-74 did not agree. However, the Judicial Officer

reversed the ALJ at pp. 132-152.

The Almond Board is required to submit a budget of

its anticipated expenses for the crop year beginning

July 1 to the Secretary for approval on or before

August 1. 7 C.F.R. § 981.80. The final rule published

in the Federal Register for the crop year 1980-1981

stated that notice-and-comment rulemaking was not

necessary:*

‘ A similar statement was published with the final rules for

1981-1986. For the 1987 crop year and thereafter, the

Secretary has issued proposed and final rules concerning

104a

It is further found that it is impracticable and

contrary to the public interest to give preliminary

notice, engage in public rulemaking and postpone

the effective time until 30 days after publication in

the Federal Register (5 U.S.C. 553), as the order

requires that the rate of assessment for a parti-

cular crop year shall apply to all assessable

almonds handled from the beginning of such year

which began July 1, 1980. To enable the Board to

meet crop year obligations, approval of the ex-

penses and assessment rate is necessary without

delay. Handlers and other interested persons

were given an opportunity to submit information

and views on the expenses and assessment rate at

an open meeting of the Board. To effectuate the

declared purposes of the act it is necessary to

make these provisions as specified.

The Secretary bears the burden of demonstrating

good cause under Section 553(b)(B). Northern Arapa-

hoe Tribe v. Hodel, 808 F.2d 741, 751 (10th Cir. 1987).

“The notice and comment procedures in Section 553

should be waived only when delay would do real harm.’

.... The good cause exception is essentially an emer-

gency procedure.” Buschmann v. Schweiker, 676

F.2d 352, 357 (9th Cir. 1982). As further explained in

Northern Arapahoe Tribe, id.:

The legislative history further defines the

grounds for an agency to find good cause:

“*Impracticable” means a situation in which

the due and required execution of the agency

functions would be unavoidably prevented by

assessments pursuant to the notice-and-comment provisions of

the APA.

105a

its undertaking public rule-making pro-

ceedings. “Unnecessary” means unneces-

sary so far as the public is concerned, as

would be the case if a minor or merely

technical amendment in which the public is

not particularly interested were involved.

“Public interest” supplements the terms “im-

practicable” or “unnecessary;” it requires

that public rule-making procedures shall not

prevent an agency from operating, and that,

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