Petition for Writ of Certiorari — Cal-Almond, Inc. v. United States, 117 S. Ct. 385 (1996) (No. 96-11)
Supreme Court brief1996
Ask Donna
What actually matters in this document.
Text
No. 96 -11 JUL1 19%
OFFICE OF THE CLERK
In The
Supreme Court of the United States
hen
October Term, 1995
CAL-ALMOND, INC., GOLD HILLS NUT COMPANY,
SAULSBURY ORCHARDS AND ALMOND
PROCESSING, INC., BROWNS LAKE RANCH, MAC
ENTERPRISES, INC., VAN KAY, INC., and DERK VAN
KONYNENBURG,
Petitioners,
VS.
THE UNITED STATES,
Respondent.
Petition for a Writ of Certiorari to the United States
Court of Appeals for the Federal Circuit
PETITION FOR A WRIT OF CERTIORARI
JAMES A. MOODY BRIAN C. LEIGHTON
Attorney at Law Counsel of Record
2300 “N” Street, N.W. 701 Pollasky Avenue
Suite 600 Clovis, California 93612
Washington, D.C. 20037 (209) 297-6190
(202) 663-9011
Attorneys for Petitioners
9047
LE Z ellate (800) 3 APPEAL * (800) 5 APPEAL « (800) BRIEF 21
/ VS emices, inc.
i
QUESTION PRESENTED
The Agricultural Marketing Agreement Act of 1937 (7
U.S.C. § 601 et seg.) authorized the Secretary of Agriculture to
regulate handlers tc benefit producers by raising prices to parity
and to avoid unreasonable fluctuations in supplies and prices. (7
U.S.C. §§ 602(2) and (4). The Secretary issued the Marketing
Order for almonds (7 C.F.R. § 981.1 ef seq.) in 1950 which
provided, inter alia, for the Secretary to have the authority to
order a percentage of the cropcalleda “reserve” to be kepi off the
market during large crop years and subsequently sold in
subsequent small crop years (as almonds were considered an
“alternate bearing” crop) or order the nutritious “reserve”
almonds disposed into “non-competitive” economically
worthless markets like cattle feed, almond oil or USDA’s school
lunch programs. The Secretary imposed reserves ranging from
2% to 10% from and including 1982 through 1985 and 1990
which almonds he ordered disposed of, costin g Petitioners over
four million dollars. With respect to these reserves, the Secretary
gave the Petitioner handlers the “choice” of either disposing of
the almonds in these economical] y worthless outlets acting as the
Secretary’s agent, or delivering physical possession of the
“reserve” almonds to the Secretary. In 1988 the Secretary
ordered a 25% reserve and ordered it held by, and at considerable
expense to, the handlers (for the account of the Secretary), and
later released it at the beginning of the next crop year. The
Secretary described the legal effect of these “reserve”
announcements as giving him “plenary control” and “complete
power” over the reserve almonds. The Secretary’s actions
present the following questions:
1. Whether the Secretary took Petitioners’ almonds
without payment of just compensation in violation of the
Fifth Amendment, to wit:
.
4
:
:
il
a. Whether the Secretary committed a per se
TAKING by giving Petitioners the illusory “choice”
between surrendering physical possession or
disposing of the “reserve” almonds as the
Secretary’s agent?
b. If not a per se TAKING, then whether the
Secretary committed aregulatory TAKING when he
destroyed all economic viability of the “reserve”
almonds without demonstrating that the destruction
of “reserve” almonds substantially advanced the
government’s asserted objectives of either raising
prices or avoiding unreasonable fluctuations in
supplies and prices?
c. Whether Congress and the Secretary can
defeata TAKING claim by the mere possibility that
annually the Secretary might determine that a
percentage of the crop will later be banned from the
market and destroyed after the crop has been
planted, grown, harvested and processed?
d. Whether Congress and the Secretary can
defeat a TAKING claim by contending that the
Petitioners entered into the almond industry
business after Congress decided that the Secretary
can, on an annual basis, decide whether to “regulate”
almond sales?
ili
PARTIES TO THE PROCEEDINGS
The Petitioners are Cal-Almond, Inc., Gold Hills Nut
Company, Saulsbury Orchards and Almond Processing (or Ellen
Briones, Chapter 7 Trustee in Bankruptcy for Saulsbury
Orchards and Almond Processing, Inc.), Browns Lake Ranch,
Mac Enterprises, Inc., Van Kay, Inc. and Derk Van Konynenburg.
None of the Petitioners have any parent companies nor any
subsidiaries nor do any of them issue shares of stock to the
public. (Rules of the Supreme Court, Rule 29(6)). The
Respondent is the United States of America.
ee ee ee ee
iv
TABLE OF CONTENTS
Page
rg oe rena er i
FS OU PIO 5.5.5 x kode echccdecwneess iii
po ee iv
See CE: as ocdceetesny eeeevas ees iv
8 BSC TOT Prey rr EE Perris l
en Pee 2
Constitutional, Statutory, and Regulatory Provisions
NE se bk s bicinnn cencnad ke dwins Va ee es 2
eee Soe ey ie 3
ic: FP. Seek So a i x ouneeechukiheeean 3
D FR Sid ae 8
Reasons for Granting the Writ ..................... 13
CAE isis wae de wcben se deaweabiee eres sees 25
TABLE OF CITATIONS
Cases Cited:
Andrus v. Allard, 444 U.S8.51(1979) ................ 20, 21
Vv
Conteats
Page
Bolger v. Youngs Drug Products, Corp., 463 U.S. 60
SOUS) bck bo weyn kas ¥c0 keene wes 14
California Housing Sec., Inc. v. United States, 959 F.2d
eR WMD. Ncscndadévecncdeeaesvunbucna 14
Chevron U.S.A., Inc. v. Natural Resources Defense
Council, Inc., 467 U.S. 837 (1984) ............... 16
Dolan v. City of Tigard, __U.S.__, 1148. Ct. 2309 (1994)
cuveh dd baW UAibay Cds Sue Rhee nas 13,14, 19, 23,24
FCC v. Florida Power Corp., 480 U.S.245 (1987) .... 22
Golden Pac. Banicorp v. United States, 15 F.3d 1066 (Fed.
CAPD bh ab bawes peuddbadies boy cae eutine seas 14
Kaiser Aetna v. United States, 444 U.S. 164(1979) .... 16,18
Loretto v. Teleprompter Manhattan CA TV Corp., 458 U.S.
ad oe | Ee ee Peer ie 12,15, 16, 18, 19,21, 22
Lucas v. South Carolina Coastal Council, _U.S.__,112
i Ok, SENDA) do cca ac ctacdeestouencieeneen 5,16
Nixon v. United States, 978 F.2d 1269 (D.C. Cir. 1992) . 20
Nollan v. California Coastal Commission, 483 U.S. 825
COMET AEE oh 5s oh ae ba Oe nies 23,24
Ruckelshaus v. Monsanto, 467 U.S.986(1984) ....... 20
vi
Contents
Page
Smiley v. -U.S.- Citibank (South Dakota), N.A., __U.S.__,
pee. SS-BGG GNC, FUNG 5, FPO hk ski cdc as dvoscesws 16
United States v. Causby, 328 U.S. 256 (1946) ......... 16
United States v. General Motors Corporation, 323 U.S.
PEE be eo eae eRe te os ta awe eae 21
United States v. Pe Wee Coal Co., Inc., 341 U.S. 114(1951)
SOV OCE Cou de oO Ke baad eee Pe Ee ae 19,22
United States v. Ruzika, 329 U.S. 287 (1946) ......... i)
UNR Industries v. United States, 962 F.2d 1013 (Fed. Cir.
SUONED 6 KER RG S oa wRKED OSA E Reha ees 10, 11
Webbs Fabulous Pharmacies, Inc. v. Beckwith, 449 U.S.
SPREE 6X 5.05 3k CANS Ca L oe ee Coen eae 13,20
Statutes Cited:
py St TT re te rie eet reer a i,2,3
Te OE a s.a ikke Sade sks ee Rook ee be ees 2
Deb eae NRE ka 6a Sake hie Rw oe ee a 7
cg eS aR Tn 5 RPO a Reet gan arene ey Bot eh Py
Ses EEE 8 ccs $4a RAR EA Daa eee he
FB PS 6.6 bv icc keene banhadaeerenvadaas 2,6
teats i aa aca
vil
Contents
Page
Spas ONO) a von rc cndacckdaenaeere eles 2
Fabia EOE OND) hat ncincuinccdcsabevnasecas 5
ee tS CC epee rie Pres ir 2
FI TE Fea vinsccvcunscnaccusaveniie 4
Een OPTED bck wien nha ead edeak echoes 5
F SEs BOLT OROED Cin adn Wcevncdssadeusebboeuun 3,6
Fes BLAMED is 6 0k no kA pew ee ee casdouwes 3
Fares ERMA vob id cicbniisidvadavacchu 1,3,8
Ta ROAD cS vibbestcksbagasusecsceces 1,3,10
Fes BAPE ve cance ekncs 6bbuseskeo cme ae 20
EDD Oat CREE 6k 26 6k Rhee Lande kee were 2
United States Constitution Cited:
ae Pe em ceae penton F Mey afta S* 14
PIE. 4s wes chicka naedcledenneetares 14
viii
Contents
Page
Other Authorities Cited:
Fe ee I Sree cedein eKkN eR Renee 20
pe AL RES” Rr EP per re eA a 20
pace REE Teepe ec perme er ne are bap hyn 20
Fa 8 8, isecs vavivedrcies Feineeans Lo
rive! Sh} BE ere em errr en | PT ke 4,6
TR DL 5K nb ashy ok VEub Chea bevan daedoodes 6
Wr Ran kv 6 444s coc bnweseelaane Wee eiece es 6
FR ae ORD divas ccc eekudes Sabdwee ews aee enn 6
pS PPP ere ere eT ere ees oe 6
ge Se. Se Peer Ce ety Sir re Ore 3
get! Se Pere Pee eee ericson, hae ree 3
pak SA : re ma ete R Bre art <
FMA SD PRI Neb b enh aken PAS RREV ENTER eR aa
pete eer eee Pee ee pny: 3,5
FUE PERE 50k 68k 04h a ee 3,5,6,9
ix
Contents
Page
FE PRRIPE. Cea ELEC Ka Net K Maas Lae eat Ba 3,5,17
PEE RE Gia iis he eekaen ie euk Aes nnker 3,4,5,6,17
PRE POI ia bid 6 Oa EURAT EN a eos Chea aed 3
TA ERE os GER Kaas MAK Geen 5rd ReeeE eR: 3
RE PRG be rb uck ee Weeki bards ahs keds 3
PS Le, SERIE A i hermes Bone 3
re RRS ren ee oan ae 3
TRE 8 Fae a 'ccues a's SE Reed E NO ua Cee eees 3
FG ETRE si eas kas een ceces eee hiees 3,5
ee OE eee ree eer rr rr iy er eee rr eet fee 20
TE PORE 6 kv i Seve ce Fava ns ese ce eR aa ones 6
PGs BP OUIEE b htce ance saa seh evaseheacier 3,5,6,17
Pe PRET nhc cwedsew sane dane seurebhnaeene 3,17
Fe EP RMOE Ca dae cd is ctv a rks Ved estbatanvansn 3,4,5
UME ROU WANS Sates ba ckabsebeckbessbacese 3
Esa EAT: SA ks TGR Ra KdSKE KARO RAD ERESON ES an 3
Sen ee ee
x
Contents
Page
FR EO TA ak Sova chee eee ewes 6
FP BOOTIE. have one dd cea ae enks Ase we eens 20
APPENDIX =:
Appendix A — Order Denying Petition for Rehearing
TOR ANA 6, SORE. sn ood pana onekabeneacies unease la
Appendix B — Notice of Entry of Judgment and Judgment
eer re 3a
Appendix C — Decision of the United States Court of
Appeals for the Federal Circuit Decided December 20,
SOE ode RoR Nad keRPR Ske SE SRREAR ELS CEEE AES 6a
Appendix D — Judgment of the United States Court of
Federal Claims Filed January 10,1994 ............ 12a
Appendix E— Opinion of the United States Claims Court
PEG SOME SB, BIOS 5k nccdansndccscamabaceiacs 13a
Appendix F — Opinion of the United States Court of
Appeals for the Ninth Circuit Decided December 22,
FUE be oecd kana 606000 5ds cine cous eeeenueaine 22a
Appendix G — Decision and Order of the United States
Department of Agriculture Dated December 11, 1991
xi
Contents
Appendix H — Excerpted Decision and Order of the
United States Department of Agriculture Dated March
SUE Fs COPS SAAEWE SORTASE ACRE a EER SC WEEE TSN
Appendix 1 — Excerpts of Decision and Order of the
United States Department of Agriculture Dated
SEY CUE Vuh ekcccuadewckd eoap ee ceah aes
Appendix J — First Amended Complaint Filed August 19,
hg Se Cae eee lr ipl re arena ee
DU lure ee ys gsi ga ee te a ee a
Appendix L — Letter Addressed to Frazier Nut Farms
RoE Bs BUD: civ hueassbusbscekevacus
Appendix M— Agency Agreement Dated June 15, 1991
eee nePewesenveeseeuesee eee eeaeesenaeseeoeaneseeea see oan neaenee
Page
79a
85a
llla
129a
148a
]
The Petitioners identified herein respectfully petition fora
writ of certiorari to review the judgment of the United States
Court of Appeals for the Federal Circuit.
OPINIONS BELOW
The opinion of the Court of Appeals for the Federal Circuit
(App. A)' is unpublished and was decided on December 20,
1995. Petitioners’ Petition For Rehearing And Suggestion For
Rehearing En Banc (App. B) before the Federal Circuit was
denied on April 1, 1996. The United States Court of Federal
Claims decision (App. C) was entered on J anuary 5,1994, andon
January 10, 1994(App.__ judgment wasentered by it dismissing
Petitioners’ complaint (App. _).
The decision of the Ninth Circuit Court of Appeals(App.__)
is reported at 14 F.3d 429 (9th Cir. 1993) which found that the
reserve requirements of the Almond Marketing Order for each
year at issue here were lawfully promulgated pursuant to the
Administrative Procedures Act (App. at Se eee F
The opinions of the Judicial Officer for the United States
Department of Agriculture (USDA)? upholding the reserve
requirement (App. __)’ is reported at 50 Agric. Dec. 23, and for
1. References to “App.” are to the appendix to the petition in this case.
2. The Judicial Officer's opinion is lengthy and encompasses many
issues not relevant here. Therefore, only the portion of the opinion addressing
the almond reserves are included in the appendix.
3. Pursuant to Title 7 U.S.C. § 608c(15)(A), Petitioners were required
to exhaust administrative remedies before USDA. Once Petitioners exhausted
administrative remedies, Title 7 U.S.C. § 608c(15)(B) required Petitioners to
seek review in the United States District Court. The District Court’s decision
regarding the legality of the imposition of the reserve parrots the Judicial
(Cont'd)
2
later crop years, the Judicial Officers opinions were issued on
March 8, 1991, (App. H) and December 11, 1991, respectively
(App. G). Petitioners herein seek review from the Federal
Circuit’s decision issued on December 20, 1995 (App. C)
following the Federal Circuit’s denial of Petitioner’s Petition
For Rehearing And Suggestion For Rehearing En Banc (App. A)
issued on April 1, 1996.
STATEMENT OF JURISDICTION
1. The judgment of the Federal Circuit Court of Appeals
was entered on December 20, 1995. Petitioners’ Petition For
Rehearing was denied on April 1, 1996. The jurisdiction of this
Court is invoked under 28 U.S.C. § 1254(1).
CONSTITUTIONAL, STATUTORY, AND
REGULATORY PROVISIONS INVOLVED
The Fifth Amendment of the United States Constitution
provides in relevant part:
... hor shall private property be taken for
public use, without just compensation.
The relevant provisions of the Agricultural Marketing
Agreement Act of 1937 (Act) are:
7 U.S.C. §§ 601, 602, 608a(5), 608c(6), (7),
(Cont'd)
Officer’s decision, which was then affirmed by the Ninth Circuit (App. F).
Therefore the District Court's rulings in this regard are not included in this
appendix, especially in light of the fact that Petitioners herein seek review of
the Federal Circuit's decision finding that there was no “TAKING” under the
Fifth Amendment of the United States Constitution. The issue of TAKINGS
was not an issue before the Ninth Circuit, nor could it have been because
“money damages” are not available in administrative exhaustion proceedings.
ee ee ee
3
(14)(A), (14)(B), (15)(A) and (15)(B).
They are reproduced at App. N.
The relevant regulations implementing the Act are
7C.F.R. §§ 981.45, .46, .47, .48, .49, .50, .51,
iby se, ae a 31, 39, 65, 86, ST, 70.
.81, .466, and .467.
They are reproduced at App. N.
STATEMENT OF THE CASE
A. Relevant Facts
1. This is a case of first impression under the Fifth
Amendment TAKINGS clause. It is a challenge to the almond
reserve provisions of the Marketing Order instituted (in 1950)
for California almonds (7 C.F.R. § 981.1 ef seq.) and issued by
the Secretary of Agriculture pursuant to the authority of the
Agricultural Marketing Agreement Act of 1937 (AMAAorAct),
7U.S.C. § 601 et seq. Itinvoives specific annual determinations
by the Secretary with respect to five crop years in the 1980’s and
1990 wherein he imposed a reserve.
The Secretary took Petitioners’ almonds for the alleged
“public use” of increasing and stabilizing prices and supplies.
The Secretary carried out this TAKING by imposing “reserves”
(a percentage of the crop delivered to the Petitioner handlers that
could not be sold).
The Secretary made Petitioners’ nutritious and
economically valuable almonds (worth in excess of four million
dollars) his own by regulation; i.e., he took them without
compensation as prohibited by the Fifth Amendment. The
4
reserve regulations were imposed after the almonds were grown,
harvested, delivered to handlers, processed, and inspected. The
TAKING was completed when the Secretary later ordered the
reserve disposed of into economically worthless outlets like
cattle feed. This “TAKING” was no different than — and as
complete as —if the Secretary had hauled them off in adumpster.
For example, 7 C.F.R. § 981.52 orders Petitioners to hold “for the
account of the Board” what had been Petitioners’ almonds
moments before. The Almond Board is the Secretary’s appointed
agency (7 C.F.R. § 981.30; 7 U.S.C. § 608c(7)(C)). The
Secretary’s Judicial Officer described the reserve as giving the
Almond Board and Secretary “plenary” authority, “complete”
power, and “full power and authority” over the reserve almonds
and their disposition, and that handlers have “no voice” in the
terms and conditions of the reserve (J.0. decision, App. at 102a-
106a).
The handler Petitioners were left with none of the strands in
their bundle of property rights, only the duty to care for the
Secretary’s almonds until disposal.
The Secretary also unconstitutionally took almonds
belonging to Petitioners who are the producers (Browns Lake
Ranch, Mac Enterprises, Van Kay, Inc. and Derk Van
Konynenburg) who are not paid for their almonds because the
Secretary imposed areserve on handlers to whom they delivered
their almonds. By the time the “reserve” was imposed in the crop
years in question (described below) the producers had already
sunk their cultural costs (in excess of $2,000 per acre per year)
and handlers had already sunk substantial costs in processing
said almonds. The Secretary also required the handlers to pay
assessments on “reserve” almonds (7 C.F.R. § 981.81) even
though the almonds were rendered valueless by the Secretary’s
action. The Secretary was not required to impose a reserve.
Petitioners had no way of knowing or even guessing in advance
of growing, harvesting and processing whether the Secretary
would impose a reserve, much less the amount of the reserve. The
5
Secretary was not free to impose a reserve of his choosing, but
only when, and tothe extent necessary that, it would increase the
producer prices and avoid unreasonable fluctuations in supplies
and prices (7 U.S.C. §§ 602(2) & (4); 7 C_ER. §§ 981.47 &
981.49). These are factual inquires which should have been
resolved by a jury rather than on the government’s motion to
dismiss for failure to state a claim. The TAKING here was a per
se TAKING as described in this Court’s controlling precedent.
The Secretary was authorized pursuant to 7 U.S.C.
§ 608(c)(6)(B) of the AMAA to limit the amount of an
agricultural product that could be sold and to provide for the
control and disposition of any surplus (7 U.S.C. § 608c(6)(D) of
said product, in order to avoid “unreasonable fluctuations in
supplies and prices (7 U.S.C § 602(4)). After the Almond
Marketing Order was issued, the Secretary, on an annual basis
(and based upon the recommendation of the Almond Board (7
C.F.R. § 981.49)), can, but is not required to, issue a “reserve”
which is an order that almond handlers must hold from sale a
certain percentage of their almonds (§§ 981.50-.52).4 Under the
Almond Marketing Order the Secretary has the authority to later
increase the saleable percentage of almonds for the crop year in
question (§ 981.48) or order the handler to dispose of said
almonds into non-competitive (and economically worthless)
outlets approved to by the Secretary (§§ 981.66 and 981.67) but
only if the handler agrees to act as an “agent” for the Almond
4. Itis important to note that each pound of almonds is a separate unit of
property. See Lucas v. South Carolina Coastal Council, __U.S.__, 1128. Ct.
2886, 2894, n.7 (1992). Handlers pay growers acertain amount of money per
pound; almonds are sold by handlers by the pound (or sometimes by the kilo);
and the Secretary assesses handlers by the pound (7 C.F.R. § 981.81) for the
Board's operations (including advertising and promotion, which has sparked
other requests for Supreme Court review; Solicitor’s Cert. Petition No. 95-
1879, Cal-Almond Cert Petition No. 95-1978).; and Solicitor’s Cert. Petition
granted, No. 95-1184 (treefruit advertising and promotion assessments.)
6
Board (§§ 981.52 and 981.67). If the handler does not “agree” to
become an agent of the Almond Board, the handler is required to
deliver physical custody of the reserve percentage to the Almond
Board which would then dispose of these almonds (§§ 981.52
and 981.67). The Secretary appointed the Almond Board, all of
whose numbers compete with Petitioners, as his agent to
administer the program (7 C.F.R. §§ 981.30-.34) The outlets
available for disposition of the reserve (7 C.F.R. § 981.66(c)) are
economically worthless outlets like almond oil, almond butter,
animal feed and charities (garnering $.03 to $.10 per pound
compared to competitive markets garnering $1.10 to $2.00 per
pound — depending upon the crop year in question.) In some
years USDA allowed a reserve outlet to »e USDA’s own school
lunch program (7 C.F.R. § 981.467(c)), where USDA purchased
them for less than half their value. The Secretary deprived
Petitioners of all economically valuable use of these almonds by
first banning their sale to normal competitive outlets and then
ordering their disposal in worthless outlets. The small amount of
money received from their “salvage” outlets does not even cover
the costs of processing, storing and fumigating the almonds.
Whether measured from the handler or grower level, the
Secretary’s action caused a net loss worse than the “ordinary”
TAKING.
The saleable almonds are each handlers’ quota fixed by the
Secretary within the meaning of 7 U.S.C. § 608a(5) (7 C.F.R.
§ 981.50) and substantial civil and criminal penalties can be
imposed on any handler who does not comply with the reserve/
quota program (7 U.S.C. § 608a(5); 7 U.S.C. § 608c(14)(A)).
Petitioners Cal-Almond, Inc., Gold Hills Nut Company and
Saulsbury Orchards and Almond Processing were almond
handlers during the relevant time in question herein. Petitioners
Browns Lake Ranch, Mac Enterprises, Inc., Van Kay, Inc. and
Derk Van Konynenburg were almond growers during this period
of time and marketed their product through Petitioner Cal-
Almond, Inc.
RS) Peet oe
|
7
The goal of the AMAA is to “establish and maintain .. .
orderly marketing conditions for agricultural commodities in
interstate commerce”, and to maintain or raise to parity prices to
producers of the agricultural product (7 U.S.C. §§ 602(1), (2) &
(4))
2. The Secretary imposed a 2% reserve on the 1982 crop
requiring all handlers to dispose of 2% of the almonds into these
non-competitive economically worthless outlets or give the
almonds to the Almond Board who would then dispose of them.
The 2% reserve in 1982 amounted to 67,099 pounds with respect
to Petitioner Cal-Almond, and 198,621 pounds with respect to
Saulsbury Orchards and Almond Processing (hereinafter
SOAP). For the 1983-1984 crop year the Secretary imposed a 3%
reserve which was 98,231 pounds to Cal-Almond, and 67,858
pounds to SOAP. For the 1984-1985 crop year the Secretary
imposed a 25% reserve, 20% was later released into fully
saleable channels, and therefore 5% of the total product was
ordered dumped into the economically worthless outlets. The
5% reserve imposed on SOAP was 857,404 pounds, and on Cal-
Almond it was 334,462 pounds. For the 1985-1986 crop year the
Secretary imposed a 20% reserve, later released half of it, and
ordered 10% of it dumped into the economically worthless
outlets. The 10% reserve amounted to 619,754 pounds to Cal-
Almond, Inc., and 905,354 pounds to SOAP (App. at pp.119a-
122a, 136a-139a).
For the 1988-1989 crop year the Secretary imposed a 25%
reserve, and ordered it held, at handler expense, pending his final
determination as to whether or not the reserve would be released
into fully saleable channels. On August 1, 1989 (a monthanda
half after the new crop year began) the Secretary ordered the
release of the entire reserve. That reserve amount was 402,408
pounds to SOAP, 317,410 pounds to Gold Hills and 2,667,128
pounds to Cal-Almond. It cost the handler Petitioners in excess
of $.17 per pound just for storing these almonds for the account
of the Secretary (App. at pp. 123a, 139a-140a).
8
For the 1990-1991 crop year the Secretary imposed a 35%
reserve, later released all of it but 7%, and ordered the 7%
dumped into the economically worthless outlets. That 7%
reserve was 38,000 pounds to SOAP, 210,000 pounds to Gold
Hills, and 1,626,151 pounds to Cal-Almond (App. at pp. 124a-
125a, 141a).
When the product must be dumped, the grower cannot
receive any payment for it because the price received by the
handler is far less than the handler’s processing and receiving
costs (App. at pp. 126a, 142a, 144a). The 7% reserve for the
1990-91 crop year attributable to Petitioner growers Browns
Lake Ranch was 34,169 pounds, 60,175 pounds to Mac
Enterprises, 6,097 pounds to Van Kay, Inc., and 23,705 pounds
to Derk Van Konynenburg (App. at pp. 125a-126a, 141a-142a).
The differences between the prices the Petitioner handlers
received for their reserve almonds dumped into outlets like cattle
feed was between $.03 and $.10 per pound (which did noteven
come close to recouping their costs), when the market price for
fully saleable almonds ranged any where from $ 1.10 per pound
to approximately $2.00 per pound, thus costing the Petitioners
(combined) well over four million dollars (App. at pp. 18a, 113a,
126a, 136a-143a).° The “reserve” did not advance “orderly
marketing” nor increase producer revenue. Indeed it
substantially decreased producer revenue (App. at pp. 122a,
136a-138a).
B. Proceedings Below
1. The present case arose from several administrative
petitions filed by the Petitioners in this case. Title 7 U.S.C.
§ 608c(15)(A) requires that handlers exhaust administrative
5. The four million dollar figure does not include the loss to Cal-Almond
for the 1988 and 1990 crop year; see footnote six and accompanying text. Cal-
Almond’s loss for 1988 and 1990 was approximately $2.5 million.
en! ta Add eT eet onal ath
)
1
9
remedies before proceeding to court. No pre-deprivation remedy
is available. United States v. Ruzika, 329 U.S. 287 (1946).
In 1987 Petitioners Cal-Almond and SOAP filed an
administrative petition challenging, among other things, the
reserve requirement for the 1982 through 1985 crop years
contending they were not lawfully promulgated and violated the
Administrative Procedures Act. On January 23, 1991 the Judicial
Officer issued a ruling and held that the reserve programs from
1982 through 1985 were not arbitrary and capricious, and did
comply with the APA (App. at pp. 85a-110a).
In the interim, Petitioners Cal-Almond, Saulsbury and Gold
Hills Nut Company filed another administrative petition
challenging the reserve requirements for the 1988-1989 crop
year (a 25% reserve which was later released) and yet another
one with respect to the 7% reserve ordered disposed of for the
1990-1991 crop year. On March 8, 1991 the Judicial Officer
issued aruling with respect to the 1988-1989 crop year finding
that the reserve was lawfully imposed (App. at pp. 79a-84a).
Finally, on December 11, 1991 the Judicial Officer issued his
decision (App. G) finding that the reserve requirements for
1990-1991 were lawful (App. at pp. 66a-78a).
In the administrative proceedings before the Secretary of
Agriculture challenging the reserve regulations, the Secretary,
through his Judicial Officer, who is the final decision maker for
USDA (7 C.F.R. §§ 900.50 et seq.), explained the Secretary’s
power over the reserve as follows: “Since the Order gives the
Board the full power and authority to sell or dispose of all reserve
almonds, subject only to the conditions of the order, and the
Secretary’s right to disapprove, it does not matter whether a
handler is economically compelled to enter into an Agency
agreement.” (App. at 106a). “Whether or not there is an Agency
agreement, the Board has complete power as to all reserve
10
almonds.” (App. at 106a). “But the Board does not have to seek
handler approval or concurrence with respect to anything
relating to the disposition of reserve almonds... .” (App. at
106a). “The Board’s plenary authority as to reserve almonds is
not challenged.” (App. at 106a). “Whether it was wise to give the
Board complete authority to dispose of the reserve almonds as it
sees fit, subject only to the conditions set forth in the order, and
the Secretary’s veto authority, is not open to question... .”
(App. at 106a). “Wisely, or unwisely, under the order, handlers
have no voice in deciding the terms and conditions applicable to
the disposition of reserve almonds and, therefore, it is enough
that the Secretary approve the minimum prices and assessments
determined by the Board for the program for almond butter and
school lunches, without seeking the advice and consent of
handlers, or promulgating the Board determination through APA
rulemaking.” (App. at 106a).
2. From each of the three Judicial Officer decisions
discussed above, the respective Petitioners filed a petition for
review in the District Court pursuant to 7 U.S.C. § 608c(15)(B).
The District Court agreed with the Judicial Officer that the
reserve obligations were properly promulgated, and, in cases
ordered consolidated by the Ninth Circuit, the Ninth Circuit
determined that the reserves were properly promulgated. The
Ninth Circuit decision was issued on December 22, 1993 (App.
at pp. 50a-64a).
However, since acompensation remedy fora TAKING was
not available through the administrative petition process,
Petitioners filed their original claim in the United States Court of
Federal Claims (hereinafter Claims Court) in April, 1991
alleging TAKINGS had occurred as a result of the almond
reserves. However, thereafter, the United States Court of
Appeals for the Federal Circuit handed down its en banc decision
in UNR Industries v. United States, 962 F.2d 1013 (Fed. Cir.
sue combine these Nl Uae att lad
11
1992) which held that regardless ofthe type of relief sought in
any other court, the Court of Claims has no jurisdiction if a case
is pending in any other court arising out of the same operative
facts. Because the handler Petitioners had filed for review in the
District Court from the Judicial Officer’s decisions, the Claims
Court complaint was dismissed without prejudice. The
Petitioners then withdrew their challenges in the District Court
with respect to the 1982 through 1985 crop year reserves, and all
the Petitioners except Cal-Almond withdiew their challenges to
the 1988-1989 and the 1990-1991 reserve so that they could
proceed in the Claims Court with respect to those crop years. Cal-
Almond alone pursued in the Ninth Circuit Court of Appeals the
legitimacy of the 1988-1989 reserve and the 1990 and 1991
reserve. Petitioners then filed a new complaint in the Claims |
Court, and then amended that complaint on August 19, 1992
(App. at 111a).°
The issue as to whether or not a TAKING had occurred was
tried by the Claims Court on cross-motions for summary
judgment and the government’s motion to dismiss for failure to
state a claim. Virtually all of the underlying facts were not
disputed. The government did not dispute Petitioners’ statement
of uncontroverted facts (App. at 130a-146a).
3. On January 5, 1994 the Honorable Judge Wivse of the
Claims Court held that the Secretary’s actions were » either a
TAKING per se of Petitioners’ almonds nor a regulatory
TAKING. The Claims Court ruled that since the almond industry
6. Because of the late date of the Ninth Circuit ruling (December of
1993) and because the matter was already then and there under submission in
the Claims Court, Cal-Almond did not amend the complaint to allege its own
TAKINGS challenges for the 1988-89 or 199091 crop years, but intends to do
SO, in order to preserve its challenges to the 1988-89 and 1990-91 crop years.
If the complaint was filed now it would result in the same decision rendered in
the instant case below.
12
had been regulated for over 40 years and because Petitioners had
entered into the business after the Marketing Order was already
in existence, the Petitioners “must be understood to have had
accepted, as a condition of their continuing presence in the
industry, the very mode of regulation about which they now
complain.” (App. at 19a). The Claims Court further stated that
since the government has “plenary authority over commerce”
and, because of the “pervasive presence of the federal
governmentin the regulation of American agriculture during the
past half-century, Plaintiffs cannot reasonably assert a property
interest in their almond crops free of government control.” (App.
at 19a-21a). The Claims Court also stated: “The government’s
power to regulate the flow of agricultural products affecting
interstate commerce is a pre-existing limitation on Plaintiffs’
property interest in their almonds. The legitimate exercise of that
power cannot give rise toa TAKING claim.” (App. at 20a-21a).
The court concluded that “Plaintiffs have failed to state aclaim
on which relief can be granted,” and directed the “entry of
judgment dismissing the complaint.” (App. at 21a).
4. Petitioners filed a timely appeal from the judgment
entered on January 10, 1994 and the Federal Circuit affirmed in
an unpublished opinion. The court, held that Petitioners’
“property rights and reasonable expectations were limited by the
regulatory scheme existing upon their entry into the almond
industry,” (App. at 9a), relying on its own savings and loan cases,
but no Supreme Court cases.
5. With respect to Petitioners’ per se TAKINGS claim
under the principles of Loretto v. Teleprompter Manhattan CA
TV Corp., 458 U.S. 419 (1982) the Court relegated that
“discussion” toa single footnote, merely stating “we discern no
factual or legal basis for Appellants arguments that the almond
reserve should be considered per se TAKINGS under the
principles of [Loretto].” (App. at 9a).
hapnhilagte tate Se pie Arce cane,
13
6. Neither the Claims Court nor the Federal Circuit
addressed whether the reserve regulations “substantially
advanced” the governmental interest as would be required to
defeat aregulatory TAKINGS claim.
7. Petitioners filed a Petition For Rehearing and a
Suggestion for Rehearing En Banc with the Federal Circuit,
which was denied on April 1, 1996 (App. at 1a), leading to this
Petition for Certiorari.
REASONS FOR GRANTING THE WRIT
The Federal Circuit has decided these important questions
in a manner that conflict with relevant decisions of this Court.
1. The Federal Circuit erred in holding that the protection
of Fifth Amendment just compensation clause is lost to those
who enter into an industry that Congress has theretofore
empowered the Secretary with the authority to decide, on an
annual basis, whether to regulate and the extent of said
regulation.
This Court has never held that the TAKINGS clause does not
apply to those who enter into a regulated industry. Indeed, this
Court has held that the government “by ipse dixit, may not
transform personal property into public property without
compensation. ... This is the very kind of thing that the
TAKINGS clause of the Fifth Amendment was meant to
prevent.” Webbs Fabulous Pharmacies, Inc. v. Beckwith, 449
U.S. 155, 164 (1980).
First, this Court has recently rejected the “business
regulation” defense in Dolan v. City of Tigard,__U.S.__,114S.
Ct. 2309, 2320 (1994). (“But simply denominating a
governmental measure as a ‘business regulation’ does not
14
immunize it from constitutional challenge on the grounds that it
violates a provision of the Bill of Rights [citations]” id at 2320).
After citing First and Fourth Amendment cases for the
proposition that these amendments fully applied as protections
to businesses this Court held: “We see no reason why the
TAKINGS clause of the Fifth Amendment, as mucha part of the
Bill of Rights as the First Amendment or the Fourth Amendment,
should be relegated to the status of a poor relation in these
comparable circumstances.” ’ (Dolan at 2320).
In Dolan, the city had its master land use plan in place for
years prior to Mrs. Dolan’s application for a building permit to
expand her hardware store. The reasoning of the Federal Circuit
decision in this case would have left Mrs. Dolan without a
remedy. This Court held the opposite.
Every case relied upon by the Federal Circuit (App. at 9a-
10a) concerned takeovers of financially troubled savings and
loans. California Housing Sec., Inc. v. United States, 959 F.2d
955,958 (9th Cir. 1992); Golden Pac. Banicorp v. United States,
15 F.3d 1066, 1073-74 (Fed. Cir. 1994). In those cases, the
federal government took over possession of those savings and
loans because the government determined that there had either
been a violation of the banking regulations or that the claimants
had committed unsafe or unsound practices that had dissipated
its assets or earnings and therefore threatened the depositors.
The Federal Circuit in those cases noted that the bank claimants
subjected themselves to the expansive statutory regulatory
7. In Bolgerv. Youngs Drug Products, Corp., 463U.S.60(1983),Youngs —
Drug Products successfully challenged, on First Amendment grounds, a one
hundred year old ban on mailing of unsolicited advertisements for
contraceptives. If “entering into a regulated field” deprives the business
person of constitutional protection then (as the Federal Circuit states) virtually
all “older” regulations would survive constitutional scrutiny. That is
obviously not the law.
15
ADLER ae a
system when they applied for and received federal deposit
insurance from, and executed contracts with, the federal
government. In the present case, Petitioners did not receive any
; government insurance or any government benefit whatsoever.
Moreover, the Petitioners in this case committed no violations of
the law.
This Court has never held that Congress’ decision to
empower an agency with the decision to regulate eviscerates
future Fifth Amendmentrights. The Federal Circuit's decision in
this case has decided an important federal question which should
be determined by this Court. If the Federal Circuit’s decision
were to stand, the government would be free to extinguish Fifth
Amendmentrights by simply deciding toregulate. Forexample,
Congress could pass a law that states that starting in 1998 an
agency “can” order the automobile manufacturing companies in
the United States to donate every tenth car to a government
approved charity, or give up physical custody of every tenth car
to the government. In 1998 when Ford, General Motors and
Chrysler are still in business, they could not be heard tocomplain
because they stayed in the business knowing that the regulation
could require the forfeiture of every tenth automobile. There is
no difference in that scenario than the current one.
Secondly, the Federal Circuit ignored the holding in Loretto
v. Teleprompter Manhattan CATV Corporation, supra, wherein
this Court held that a physical occupation or appropriation of
property isa TAKINGS per se. In Loretto, the petitioner became
a landlord of an apartment building that had for a number of years
been heavily regulated by the City of New York. The placement
of the cable box on her building could not be shown to diminish
the value of her building, but this Court had no trouble
whatsoever finding that a TAKING per se had occurred with
respect to an item the size of a bread box attached to her building.
The Federal Circuit here relegated the TAKINGS per se
2
|
16
“analysis” toaone line conclusory sentence stating that it did not
apply (App. at 9a).
2. The Federal Circuit ignored binding precedent of this
Court by not applying a per se TAKINGS analysis.
In Loretto, the Court held that there is a TAKING per se if
there has been a “physical occupation” or “appropriation” of the
property and that the government must pay just compensation,
regardless of whether the regulation has gone “too far” or
whether it achieves an important public benefit or only has
minimal economic impact on the owner. Loretio, 458 U.S. at 434.
This Court in Loretto stated that the “character of the
governmental action” not only is an important factor in resolving
whether the action works a TAKING, but is also
“determinative.” Loretto at 426 (1982). See also, Lucas v. South
Carolina Coastal Council, __ U.S. __, 112 S. Ct. 2886, 2893
(1992).®
In the present case, the Federal Circuit refused to even
address, let alone come to grips with, the nature of the
governmental action in this case. The nature of the governmental
action in this case is most succinctly set forth by the Secretary of
Agriculture’ who, with respect to the reserve, stated that: the
Almond Marketing Order “gives the Board the full power and
8. This Court has also found a TAKING per se when the government
physically “invades” airspace (United States v. Causby, 328 U.S. 256, 265 and
n. 10(1946) and when the government imposes a navigational servitude upon
a private marina (Kaiser Aetna v. United States, 444 U. S. 164 (1979). See
Loretto, at 433-434.
9. This Court gives great deference tothe Agency’s interpretation of the
statute. Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467
U.S. 837, 842-45 (1984); Smiley v. -U.S.- Citibank (South Dakota), N.A., __
U.S.__, No. 95-860 Dec. June 3, 1996.
dada dinbecawiense tse ee
a w Stel a ete Dk oD acding sn “hecalap,
17
authority to sell or dispose of allreserve almonds. . .” (App. at
106a); “the Board has complete power as to all reserve almonds”
(App. at 102a); “the Board does not have to seek handler
approval or concurrence with respect to anything relating to the
disposition of reserve almonds” (App. at 106a);“. . .the hearing
record supporting the Board ‘s plenary authority as to reserve
almonds is not challenged” (App. at 106a); “whether it was wise
to give the Board complete authority to dispose of the reserve
almonds as it sees fit . . . is not open to question. . .” (App. at
106a); and “wisely or unwisely, under the order, handlers have
no voice in deciding the terms and conditions applicable to the
disposition of reserve almonds. . . .” (App. at 106a) (Emphasis
added.)
The Marketing Order itself states that when a reserve is
imposed the handlers must hold the almonds “in proper storage
for the account of the Board”. (7 C.F.R. § 981.52). (Emphasis
added.) Furthermore, if the handler signs an Agency agreement
he is merely acting as an agent of the Board in the disposition of
the reserve almonds (7 C.F.R. § 981.67 and see Agency
Agreement, App. at 15a). Ifahandlerrefuses to be conscripted as
an agent of the Almond Board the handler is required to deliver
the physical custody of the reserve to the Almond Board which
then dumps it into non-competitive outlets (7 C.F.R. § 981.51).
If the handlers sign up as an agent of the Board, but does not
dispose of the reserve almonds by September | of the following
crop year, the handler must immediately deliver the almonds to
the Almond Board who then dumps them'® (7 C.F.R. § 981.67).
And while the handler holds those almonds “for the account of
the Board” he is required to make them accessible to the Board
and the Secretary (7 C.F.R. § 981.70). Thus, based upon the
10. See App. at pp. 148a; letter of February 2, 1993 from Almond Board
to a handler stating that the deadline to dispose of the reserve for 1990-9! crop
year was December 1, 1992, that he had not disposed of them, and that Board
was coming to pick them up if handler did not deliver them to the Board.
18
Almond Marketing Order and the Secretary’s determination as
to the power given to him and the Almond Board, there are no
strands left in Petitioners’ bundle of property rights when the
reserve is imposed. In short, if the handler does not agree to be
recruited into the Secretary’s army for purposes of disposition of
reserve the Almond Board (USDA’s appointed entity) will
physically occupy those almonds, appropriate them from the
handler, take physical possession of them, and dispose of them.
The Federal Circuit erred in determining that the Secretary’s
power to regulate can thus redefine property rights which
theretofore had existed for centuries before the Almond
Marketing Order had been enacted. (Almonds have been grown
in California for well over 100 years prior to the issuance of the
Almond Marketing Order). As this Court stated in Loretto:
“Moreover, the government does not have unlimited power to
redefine property rights. [citations]” Loretto at 439.
Thus, the Federal Circuit decision conflicts with relevant
decisions of this Court with respect to the per se TAKINGS
analysis in Loretto. The Federal Circuit’s decision in this case
conflicts with this Court’s decision in Kaiser Aetna v. United
States, 444 U.S. 164, 176(1979) which held that one of the “most
essential sticks in the bundle of rights that are commonly
characterized as property” is the ability toexclude others. In this
case, once the Secretary announces areserve, the Petitioners do
not have the ability to exclude the Secretary from taking their
almonds.
The regulation is not saved by the handlers’ ability to
become an “agent” of the Secretary to avoid the Secretary’s
physical appropriation of Petitioners’ almonds, because this
Court has held that the government may not require a person to
give up aconstitutional right (in this case the right to receive just
compensation when property is taken for a public use) in
19
exchange for a “discretionary benefit conferred by the
government” — in this case, the hallow “ability” to dump, ata
huge loss, Petitioners’ own almonds. Dolan v. City of Tigard,
supra, 1148S. Ct. at2316-17; Loretto at 439, n. 17.
The fact that the handler can “agree” to become the
Secretary’s agent, is, legally irrelevant to the issue presented. In
United States v. PeWee Coal Co., Inc., 341 U.S. 114 (1951) this
Court unanimously held that when the government (in order to
avert a nationwide strike of miners) issued an “order for taking
possession” of mines and requiring the mine officials to agree to
conduct operations as “agents for the government” if they
wanted to keep whatever profits were realized (otherwise a
government official would operate the mine) committed as much
a TAKING “as if the government held full title and ownership.”
341 U.S. at 116-117. This Court in Loretto, supra treated Pe Wee
Coalasaperse TAKING. Loretto at 431.
Almonds have been grown and marketed in California for
hundreds of years. The Almond Marketing Order was issued in
1950. All of the producers cultural costs (which are substantial)"
have been expended before the producer knows whether the
Secretary will issue areserve for that year since the reserve is not
issued until long after the harvest. The handler Petitioner must
receive that product, process it, clean it, fumigate it and expend
considerable amounts of money processing that product before
the Secretary announces the reserve and then makes it
retroactive to the beginning of the crop year. A reserve is not
imposed every year and there is no set formula in the AMAA or
regulations mandating any secretarial action. When the
Secretary announces the reserve, he tells the handlers to sell the
almonds to him for his school lunch programs (at an economic
11. The grower Petitioners in this case spent $2,145 per acre, per year in
cultural costs (App at 142a).
es
20
loss to the handler and the grower), or to dump them into cattle
feed or almond butter, an economically worthless venture.’ If
the handler does not do it the Secretary takes physical possession
of the property and disposes of it,'* even though almonds will
remain valuable and nutritious through lengthy periods of cold
storage and thus available for subsequent “short” crop years.
This Court’s TAKINGS cases are not limited to real
property. In Andrus v. Allard, 444 U.S.51 (1979) this Court held
that the prohibition of the sale of eagle feathers was not a
TAKING as applied to traders of bird artifacts. Importantly
though, this Court held that “the regulations challenged here do
not compel the surrender of the artifacts, and there is no physical
invasion orrestraintuponthem. . . . Inthis case, itis crucial that
Appellees retain the rights to possess and transport their
property, and to donate or devise the protected birds . . . Loss of
future profits — unaccompanied by any physical property
restriction — provides a slender reed upon which to rest a
TAKINGS claim.” Jd. at 65-66 (Emphasis added.) See also,
Webbs Fabulous Pharmacy, supra (money); Ruckelshaus v.
Monsanto, 467 U.S. 986 (1984) (data); Nixon v. United States,
978 F.2d 1269, 1276 (D.C. Cir. 1992) (TAKINGS per se re
12. While 7 C.F.R. § 981.66(b) would otherwise authorize exports of
almonds as a reserve outlet, for all of the reserve years at issue here the
Secretary never authorized exports as an available reserve outlet.
13. The Almond Marketing Order for almonds is unique in this regard,
i.e., the “give me your almonds or become my agent and agree to dump them”
requirement. Some prograr’s limit the amount that can be grown (i.e., peanuts,
7 U.S.C. § 1358-1), or the amount a handler can acquire from a grower (i.e.,
spearmint, 7 C.F.R. § 985.52), or limit the amount that can be sold each week
(i.e., navel oranges, Valencia oranges and lemons; 7 C.F.R. §§ 907.1 et seq.,
908.1 er seg. and 910.1 et seq., respectively. The Secretary terminated those
three orders on August 26, 1994). But none of the other marketing orders give
the Secretary the authority to take possession and control if the product.
PS Ns NES SET CLD Oi eg a cars, onde Pee
BOONE ES, SEAT BRIS a
mk es PRE Se
21
regulations applied to the government taking physical custody of
President Nixon’s presidential papers even though he continued
to have access to them and other rights with respect to them).
Unlike Andrus, supra, the criteria critically absent in
Andrus are present here: The surrender of Petitioners’ almonds
are compelled; there is a physical restraint upon them and they
are “held for the account of the Board”. Petitioners can “enjoy”
temporary physical custody only if they agree to be conscripted
as the Secretary’s agent and ordered to physically part with them.
In Andrus this Court stated: “At least where an owner possesses
a full ‘bundle’ of property rights, the destruction of one ‘strand’
of the bundle is not a TAKING, because the aggregate must be
viewed in its entirety.” Jd. at 65-66. In the present case all
“strands” have been taken. It cannot be disputed that before a
reserve is announced all of the almonds belonged to the growers
and handlers. After the reserve is announced a percentage of the
almonds belong to the Secretary.
As this Court held in Loretto: “ In short, when the ‘character
of the governmental action’ [citation omitted], is a permanent
physical occupation of property, our cases uniformly have found
a TAKING to the extent of the occupation, without regard to
whether the action achieves an important public benefit or has
only minimal economic impact on the owner.” (Loretto, 458 U.S.
at 434).
This Court held in United States v. General Motors
Corporation, 323 U.S. 373, 378 (1945) that:
The courts have held that the deprivation of
the former owner rather than the accretion of
aright or interest to the sovereign constitutes
the TAKING. Governmental action short of
acquisition of title or occupancy has been
SSS _.
22
held, if its effects are so complete as to
deprive the owner of allor most of his interest
in the subject matter, to amount toa TAKING.
(Emphasis added.)
In this case, once the reserve is announced there are no
“strands” left in the handlers or growers “bundle” of property
rights. As the Secretary held, once a reserve is announced, the
Almond Board has “plenary” and “complete” power over the
reserve, and that “the Board does not have to seek handler
approval or concurrence with respect to anything relating to the
disposition of the reserve almonds.” (App. at 106a). However,
the Federal Circuit here never once addressed the nature of the
governmental action in this case.
In examining the present case, the “nature of the
governmental action” with respect to almond reserve
requirements, it is obvious that the government is not just
operating a program which adjusts the benefits and burdens of
economic life for the “common good”, or merely reducing the
value of the product through their Commerce Clause powers. In
thiscase“. . .the TAKING was as clear as if the government held
full title and ownership.” United States v. PeWee Coal Company,
supra, 341 U.S. at 116-117 (and cited in Loretto, supra, 458 U.S.
at 431.Also, when areserve is announced the handler is required
to give acquiescence to the property to the Secretary unless he
Signs an Agency agreement. “This element of required
acquiescence is at the heart of the concept of occupation.” FCC
v. Florida Power Corp., 480 U.S. 245, 252 (1987). The Federal
Circuit just never addressed the “character” of the governmental
action.
Thus, the Federal Circuit’s decision clearly conflicts with
this Court’s per se TAKINGS cases, like Loretto, PeWee Coal,
Florida Power and General Motors.
DEA SES SAM
23
3. The Federal Circuit’s analysis in this case with respect to
a “regulatory TAKING” absolutely conflicts with this Court's
decision in Dolan v. City of Tigard, supra, which held that the
regulations must “substantially advance [a] legitimate state
interest”, i.e. its not enough that they might or could advance
such interest. /d. at 2316.
The reason for the reserve regulations in this case is
purportedly for “orderly marketing” and to raise parity prices for
farmers. The fact that the Secretary may have had arational basis
for believing when he set the reserve that it would have that affect
(and therefore be in compliance with the Administrative
Procedures Act), is not sufficient to withstand a “TAKINGS”
challenge. This Court in Dolan v. Tigard, held that it was not
enough for the government toclaim that it had areasonable basis
for believing that the regulation would advance its interest, but
the city was required to prove it. Jd. at2321-2322."
In the present case, the Federal Circuit never attempted to
apply the regulatory analysis initially enunciated in Nollan v.
California Coastal Commission, 483 U.S. 825 (1987), and
clarified in Dolan. The Federal Circuit merely stuck to its
shallow “reasoning” that since Petitioners entered into a
regulated industry they could not complain about how the
Secretary regulated it, regardless of the nature or harm of the
government action in this case. In short, there is no decision
14. Asthis Court stated in Dolan: “As Justice Peterson of the Supreme
Court of Oregon explained in his dissenting opinion, however, “the findings
of fact that the bicycle pathway system ‘could offset some of the traffic
demand’ is a far cry from a finding that the bicycle pathway system will, or is
likely to, offset some of the traffic demands.” [Citations omitted.] “No precise
mathematical calculation is required, but the City must make some effort to
quantify its findings in support of the dedication for the pedestrian/bicycle
pathway beyond the conclusory statement that it could offset some of the
traffic demand generated.” /d. at 2322.
Dll
24
whatsoever from this Court that supports that Federal Circuit’s
decision, and in fact there are the Dolan and Nollan cases from
this Court that would otherwise denounce it.
In the present case, the matter was decided on cross-motions
for summary judgment and on the government’s motion to
dismiss for failure to state a claim. The United States Court of
Federal Claims held, as a matter of law, that the government’s
motion to dismiss be granted. The first amended complaint at
issue here specifically alleged that the reserves ordered by the
Secretary did not increase grower prices, but instead drastically
reduced revenue (App. at 114a, 116a). Petitioners’
uncontroverted facts with respect to its motion for summary
judgment stated the same thing (App. at 145a). The government
proposed nothing to controvert Petitioners’ factual allegation
that the imposition of the reserve did not raise parity prices to the
growers and, indeed, lowered their revenue. The fact that the
Secretary, in promulgating each of the reserves in the years in
question might have believed that it would raise grower revenue
and create orderly marketing does not at all satisfy the test first
addressed by this Court in Nollan, and further explained in Dolan
that there is a regulatory TAKING when the regulations do not
“substantially advance [a] legitimate state interest.” Dolan,
supra at 2316. Thus, Petitioners are entitled to a trial on the
merits with respect to its regulatory TAKING claim that the
reserve regulations did not substantially advance a
governmental interest because they did not promote orderly
marketing nor increase grower revenue. Thus the Federal
Circuit’s decision clearly conflicts with this Court’s decisions in
Dolan and Nollan and guaranties to muddy the waters of future
TAKINGS decisions by that court. The Federal Circuit’s point of
departure that Petitioners entered into a theretofore regulated
industry and therefore have no property rights in the almonds
that they grow and sell is not supported by any decisions from
this Court, and are contrary to decisions of this Court.
25
CONCLUSION
The Petition for a Writ of Certiorari should be granted.
Respectfully submitted,
BRIAN C. LEIGHTON
Counsel of Record
701 Pollasky Avenue
Clovis,CA 93612
(209) 297-6190
JAMES A. MOODY
2300 “N” Street, N.W., Suite 600
Washington, D.C. 20037
(202) 663-9011
Attorneys for Petitioner
la
APPENDIX A — ORDER DENYING PETITION FOR
REHEARING FILED APRIL 1, 1996
UNITED STATES COURT OF APPEALS
FOR THE FEDERAL CIRCUIT
94-5084
CAL-ALMOND, INC., GOLD HILLS NUT COMPANY,
SAULSBURY ORCHARDS AND ALMOND PROCESSING,
INC., BROWNS LAKERANCH, MAC ENTERPRISES, INC.,
VAN KAY, INC., and DERK VAN KONYNENB URG,
Plaintiffs-Appellants,
v.
THE UNITED STATES,
Defendant-Appellee.
ORDER
A combined petition for rehearing and suggestion for
rehearing in banc having been filed by the APPELLANT, anda
response thereto having been invited by the court and filed by the
APPELLEE, and the petition for rehearin g having been referred
to the panel that heard the appeal, and thereafter the suggestion
for rehearing in banc and response having been referred to the
circuit judges who are in regular active service,
UPON CONSIDERATION THEREOF, it is
ORDERED that the petition for rehearing be, and the same
hereby is, DENIED and it is further
2a
Appendix A
ORDERED that the suggestion for rehearing in banc be, and
the same hereby is, DECLINED.
The mandate has already issued.
FOR THE COURT,
FRANCIS X. GINHART, CLERK
By s/ Brian P. LeDuc
Associate Chief Deputy
Dated: April 1, 1996
Clerk
cc: BRIAN CLAY LEIGHTON
ROBERT EDWARD KIRSCHMAN, JR.
CAL-ALMONDINC V US, 94-5084
(CFC —92-477C)
Note: Pursuant to Fed. Cir. R. 47.6, this order is not citable as
precedent. Itis a public record
3a
APPENDIX B — NOTICE OF ENTRY OF JUDGMENT
AND JUDGMENT DATED DECEMBER 20, 1995
UNITED STATES COURT OFAPPEALS
FOR THE FEDERAL CIRCUIT
NOTICE OF ENTRY OF
JUDGMENT ACCOMPANIED BY OPINION
OPINION FILEDAND JUDGMENT ENTERED: 12/20/95
The attached opinion announcing the judgment of the court
in your case was filed and judgment was entered on the date
indicated above. The mandate will be issued in due course.
Information is also provided about petitions for rehearing
and suggestions for rehearing in banc. The questions and
answers are those frequently asked and answered by the Clerk’s
Office.
Costs and taxed against the Appellant(s) in favor of the
Appellee(s) under Rule 39. The party entitled to costs is provided
a bill of costs form and an instruction sheet with this notice.
The parties are encouraged to stipulate to the costs. A bill of
costs will be presumed correct in the absence of a timely filed
objection.
Costs are payable to the party awarded costs. If costs are
awarded to the government, they should be paid to the Treasurer
of the United States. Where costs are awarded against the
government, payment should be made to the person(s)
designated under the governing statutes, the court’s orders, and
the parties’ written settlement agreements. In cases between
private parties, payment should be made to counsel for the party
4a
Appendix B
awarded costs or, if the party is not represented by counsel, to the
party pro se. Payment of costs should not be sent to the court.
Costs should be paid promptly.
If the court also imposed monetary sanctions, they are
payable to the opposing party unless the court’s opinion provides
otherwise. Sanctions should be paid in the same way as costs.
Exhibits and visual aids shall be promptly retrieved by the
party that lodged them with this court.
~ FRANCIS X. GINDHART
Clerk
cc: BRIAN CLAY LEIGHTON
ROBERT EDWARD KIRSCHMAN, JR.
CAL-ALMOND INC V US, 94-5084
CFC -92-477C
— eS CO
Sa
Appendix B
UNITED STATES COURT OF APPEALS
FOR THE FEDERAL CIRCUIT
94-5084
CAL-ALMOND, INC., GOLD HILLS NUT COMPANY,
SAULSBURY ORCHARDS AND ALMOND PROCESSING,
INC., BROWNS LAKE RANCH, MAC ENTERPRISES, INC.,
VAN KAY, INC., and DERK VAN KONYNENBURG,
Plaintiffs-Appellants,
v.
THE UNITED STATES,
Defendant-Appellee.
JUDGMENT
ON APPEAL from the UNITED STATES COURT OF
FEDERAL CLAIMS in CASE NO(S). 92-477C
This CAUSE having been heard and considered, it is
ORDERED andADJUDGED: AFFIRMED
ENTERED BY ORDER OF THE COURT
s/ Francis X. Gindhart
Francis X. Gindhart, Clerk
DATED DEC 20 1995 RECEIVED FEB 15/96 |
ISSUEDAS AMANDATE: February 12, 1996
4
6a
APPENDIX C — DECISION OF THE UNITED STATES
COURT OF APPEALS FOR THE FEDERAL CIRCUIT
DECIDED DECEMBER 20, 1995
NOTE: Pursuant to Fed. Cir. R. 47.6, this disposition is not
citable as precedent. It is a public record. The disposition will
appear in tables published periodically.
UNITED STATES COURT OF APPEALS
FOR THE FEDERAL CIRCUIT
94-5084
CAL-ALMOND, INC., GOLD HILLS NUT COMPANY,
SAULSBURY ORCHARDS AND ALMOND PROCESSING,
INC., BROWNS LAKE RANCH, MAC ENTERPRISES, INC.,
VAN KAY, INC. and DERK VAN KONYNENBURG,
Plaintiffs-Appellants,
v.
THE UNITED STATES,
Defendant-Appeliee.
DECIDED: December 20, 1995
Before ARCHER, Chief Judge, RICH, and CLEVENGER,
Circuit Judges.
ARCHER, Chief Judge.
7a
Appendix C
DECISION
Cal-Almond, Inc., et al. (Cal-Almond) appeal the judgment
of the United States Court of Federal Claims dismissing, for
failure to state aclaim upon which relief can be granted, their
action forcompensation for a taking under the Fifth Amendment.
30 Fed. Cl. 244 (1994). Cal-Almond are processors({“handlers”)
and growers of almonds who seek compensation for alleged
losses in the value of their crop due to the imposition of almond
marketing controls established under authority of the
Agricultural Marketing Agreement Act of 1937 (AMAA), as
amended. 7 U.S.C. §§ 601-74 (1988 & Supp. 1993). Finding that
Cal-Almond suffered no compensable intrusion upon their
property interests in their almond crop as a result of these
marketing controls, the Court of Federal Claims dismissed their
complaint. We affirm.
DISCUSSION
I.
Since 1950, almonds have been subject to marketing
controls under the AMAA. This case involves marketing orders
for the years 1982-85, 1988, and 1990, which required that a
percentage of the anticipated crop be held in reserve for sale to
non-competitive outlets. The reserve percentage imposed varied
from two percent to ten percent. Upon sale of reserve almonds to
the non-competitive outlets, the net proceeds were remitted to
the handlers.
Cal-Almond filed suit in the Court or Federal Claims
claiming that by requiring them to sell almonds in a lower priced
market their interests in the almonds were taken under the Fifth
8a
Appendix C
Amendment for which compensation was due. Cal-Almond
alleged that they received from the non-competitive outlets
approximately five percent of what they could have commanded
in the open market, resulting in a loss of several million dollars
in product sales. In addition, they requested compensation for
several thousand dollars of Almond Board' expenses which they
were required to absorb. Finally, they complained about the costs
associated with storing the almond reserves when some of the
reserves were eventually released for sale in competitive
markets.
The Court of Federal Claims rejected Cal-Almond’s claims
for compensation finding that they did not havea property right
to market their almonds free of regulation. 30 Fed. Cl. at247.The
court noted that Cal-Almond had entered the almond industry
knowing it had been highly regulated for many years, and thus
“must be understood to have accepted, as a condition of their
continuing presence in that industry, the very mode of regulation
about which they now complain.” /d.
II.
Whether the complaint was properly dismissed for failure to
state aclaim upon which relief can be granted is a question of law
which we review de novo. Gould, Inc. v. United States, 935 F.2d
1271, 1273 (Fed. Cir. 1991). In reviewing a dismissal for
failure to state a claim we assume all well-pled factual
allegations are true and make all reasonable inferences in favor
of the nonmovant. /d. at 1274.
1. The Almond Board is an industry group comprised of almond growers
and handlers created to make recommendations to the Secretary and assist in
carrying out the market controls.
9a
Appendix C
As with all takings jurisprudence, we start our analysis with
the Fifth Amendment which commands that “private property
[shall not] be taken for public use, without just compensation.”
To be a property interest within the meaning of the Fifth
Amendment, the interest at issue must be “sufficiently bound up
with the reasonable expectations of the claimant to constitute
‘property.’ ”. Penn Cent. Transp. Co. v. New York City, 438 U.S.
104, 124-25 (1978). Property rights stem from and are defined by
existing rules of law. Webb’s Fabulous Pharmacies, Inc. v.
Beckwith, 449 U.S. 155, 161 (1980) (property rights “are created
and their dimensions are defined by existing rules or
understandings that stem from an independent source such as
state law” (quoting Board of Regents v. Roth, 408 U.S. 564,577
(1972)).
In this case, appellants’ property rights and reasonable
expectations were limited by the regulatory scheme? existing
upon their entry into the almond industry. The agriculture
industry has long been pervasively regulated — the almond
industry itself has been subject to marketing controls for over
forty-five years. In highly regulated fields those whoenter do so
subject to the existing regulations and without an expectation to
be free of those regulations. California Housing Sec., Inc. v.
United States, 959 F.2d 955, 958 (Fed. Cir. 1992) (asavings and
loan institution that had “voluntarily subjected itself to an
expansive statutory regulatory sysiem” could not have
developed a “historically rooted expectation of compensation”
for action taken within that regulatory scheme); Golden Pac.
Bancorp v. United States, 15 F.3d 1066, 1073-74 (Fed. Cir. 1994)
(same). The possible restrictions and limitations on the
2. We discern no factual or legal basis for appellants’ arguments that the
almond reserves should be considered per se takings under the principles of
Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419 (1982).
10a
Appendix C
marketing of almonds that appellants object to were clearly laid
out in marketing orders before they entered the industry.
Appellants, when entering this regulated field, could have had no
reasonable expectation that the applicable regulatory scheme
would not be enforced. Golden Pacific, 15 F.3d at 1074.
This is not to say that in a highly regulated industry, the
government may regulate away all property interests. As with
any regulatory scheme, one which goes too far can effectuate a
taking. Pennsylvania Coa! Co. v. Mahon, 260 U.S. 393, 415
(1992). This is not the case here. Marketing orders similar to
those at issue here have existed for many years and they have
been tailored to benefit members of the almond industry as well
as consumers. Indeed, appellants have received benefits
therefrom. 30 Fed. Cl. at 247 n.4 (plaintiffs’ “businesses, as a
whole, have [not] beenrendered unprofitable by the Secretary’s
regulations”).
As we have recognized, this sharing of benefits and burdens
reduces the power of ataking claim. Florida Rock Indus., Inc. v.
United States, 18 F.3d 1560, 1570 (Fed. Cir. 1994) (“When there
is reciprocity of advantage ... then the claim that the
Government has taken private property has little force... .”
(citation omitted)); see also Penn Central, 438 U.S. at 134-35
(owner of landmark was both burdened and benefited by
landmark preservation law). Inaclosely analogous situation, our
predecessor court held that marketing controls survive a takings
challenge because they are merely one of the burdens that go
along with the benefits of the peanut industry price support
program. Carruth v. United States, 627 F.2d 1068, 1081 (Ct. Cl.
1980).
Appellants argue that a finding of no taking is tantamountto
lla
Appendix C
a finding that they have no property interest at all in the almonds
they grow or handle. The Court of Federal Claims did not find
that appellants had no property interest in their almonds. Rather,
the court found that appellants did not have a property interest to
be free of all regulation. Appellants plainly had no reasonable
expectation to be free from and receive compensation for the
complained of harm. See Loveladies Harbor, Inc. v. United
States, 28 F.3d 1171, 1177 (Fed. Cir. 1994) (takings recoveries
are limited “to owners who could demonstrate that they bought
their property in reliance ona state of affairs that did not include
the challenged regulatory regime”). Thus, looking at Cal-
Almond’s property, the right to be free of the challenged
regulatory scheme is not within Cal-Almond’s bundle of
property rights. California Housing, 959 F.2d at 958 (“As a
consequence of the regulated environment in which [appellant}
voluntarily operated, [appellant] held less than the full bundle of
property rights. .. .”). Appellants continue to enjoy the same
rights and privileges they have enjoyed since entering the
industry and remain able to put their almonds to essentially the
same use. Thus, the reserve requirements cannot be regarded as
interfering with appellants’ expectations. See Penn Central, 438
U.S. at 136.
es
a i a RAL 7k ws ON
Pe eT ne
a i a Ae
4
i
i
12a
APPENDIX D — JUDGMENT OF THE UNITED STATES
COURT OF FEDERAL CLAIMS FILED JANUARY 10, 1994
IN THE UNITED STATES COURT OF
FEDERAL CLAIMS
No. 92-477 C
CAL-ALMOND, INC.,A CALIFORNIA CORPORATION,
ETAL.,
Vv.
THE UNITED STATES
JUDGMENT
Pursuant to the court’s opinion of January 5, 1994, granting
defendant’s motion to dismiss, and directing entry of judgment
dismissing the complaint,
IT IS ORDERED AND ADJUDGED this date, pursuant to
Rule 58, that the complaint is dismissed.
David A. Lampen
Clerk of the Court
By:s/ illegible
Deputy Clerk
January 10, 1994
NOTE: As to appeal, 60 days from this date, see RCFC 72, re
number of copies and listing of all plaintiffs. Filing fee is
$105.00.
ECT NE Te om da shoe
I DRO Sa Ne ini SI HER BREAN AMER. RCI AN A ret Mica
(ota Aa onde ME Bin. BNE 0 ah
Oy Sea) ee eS
13a
APPENDIX E — OPINION OF THE UNITED STATES
CLAIMS COURT FILED JANUARY 5, 1994
IN THE UNITED STATES CLAIMS COURT
No. 92-477C
Filed: January 5, 1994
CAL-ALMOND, INC., a California corporation; GOLD HILLS
NUT COMPANY, a California corporation; SAULSBURY
ORCHARDS AND ALMOND PROCESSING, INC., a
California corporation; BROWNS LAKE RANCH, a
Partnership consisting of Paul McManis and William Reeves;
MAC ENTERPRISES, INC., a California corporation; VAN
KAY, INC., a California corporation; and DERK VAN
KONYNENBURG,
Plaintiffs,
v.
THE UNITED STATES,
Defendant.
Just Compensation Clause: Marketing controls, agricultural
commodities — Almond growers and handlers have no
compensable property interest in marketing almonds free of
regulatory controls.
Brian C. Leighton, Fresno, California, and James A. Moody,
Washington, D.C., for plaintiffs.
Robert E. Kirschman, Jr., with whom were Assistant
l4a
Appendix E
Attorney General Frank W. Hunger, Director David M. Cohen,
Assistant Director Jeanne E. Davidson, Department of Justice,
Washington, D.C. Frank Martin, Jr., Office of the General
Counsel, Department of Agriculture, Washington, D.C., for
defendant.
OPINION
WIESE, Judge.
Plaintiffs Cal-Almond, Inc., Gold Hills Nut Company, and
Saulsbury Orchards and Almond Processing, are processors or
“handlers” of almonds; the other plaintiffs — Browns Lake
Ranch, Mac Enterprises, Inc., Van Kay, Inc., and Derk Van
Konynenburg — are growers or producers of almonds. Both
groups come together in this suit to seek compensation under the
takings clause of the Fifth Amendment for what they allege are
losses in crop value imposed upon them through almond
marketing controls established by the Secretary of Agriculture
acting under the authority of the Agricultural Marketing
Agreement Act of 1937, as amended, 7 U.S.C. §§ 601-602, 608,
608a-c, 610, 612, 672-674 (1988 & Supp. IV 1992).
The case is presented for decision on the basis of plaintiffs’
motion for summary judgment on liability and defendant’s
cross-motion to dismiss for failure to state aclaim upon which
relief can be granted. Upon consideration of the parties’
positions, as presented to the court both through written briefs
and oral argument, it is concluded that defendant’s position is
correct. We explain below.
15a
Appendix E
FACTS
The Agricultural Marketing Agreement Act of 1937
(AMAA) is one of a number of statutes enacted during the
Depression years to assist in the rebuilding of the Nation’s
economy. The Act seeks to restore and preserve the purchasing
power of farmers through the reconstruction and maintenance of
orderly marketing conditions for agricultural commodities. 7
U.S.C. §§ 601, 602.
To facilitate this goal, the Act empowers the Secretary to
enter into agreements with producers that put into effect
marketing controls to govern the supply and distribution of
agricultural commodities. 7 U.S.C. § 608c. Such controls,
implemented through regulations known as “marketing orders,”
adopt a variety of mechanisms including restrictions on the
quantity and quality product brought to market; differentiations
in pricing between primary and secondary markets; and
limitations on production among growers. Additionally,
marketing orders may provide for producers and handlers to
share in the proceeds from the sale of commodity reserves and
surpluses and also for the self-funding of commodity research,
development, and advertising programs.
Pursuant to the authority set out at § 8c(7)(C) of the AMAA,
marketing orders involving fruits, vegetables and other
commodities (including dried fruits and nuts) are administered
by committees of industry representatives selected by the
Secretary from nominees chosen by the community of growers
and handlers. One of the tasks for which the industry committees
are responsible is submitting marketing recommendations to the
Secretary based upon assessments of anticipated crop yields and
prospective product demand. Following notice and comment
rule making, the Secretary may then adopt these
l6a
Appendix E
recommendations as final marketing orders for the crop year in
question.
The demand for compensation that we encounter in this case
grows out of the almond marketing orders that were issued by the
Secretary during the crop years 1982 through 1985 and also 1988
and 1990.' In each of these years the Secretary, acting on the basis
of recommendations provided by the Almond Board of
California — the industry group established by the Secretary’s
almond regulations, see 7 C.F.R. § 981.30 (1993)?— ordered that
a percentage of the anticipated crop be set aside, i.e., held in
reserve, for sale to non-competitive outlets such as school lunch
programs, charitable institutions, and producers of animal and
poultry feeds. The reserve percentage varied from year to year,
ranging from alow of two percent in 1982 toa high of thirty-five
percent in 1990. (The thirty-five percent figure was
subsequently modified, through incremental reductions
authorized over the course of the crop year, to a final figure of
seven percent).
Under the terms of the almond marketing order,
1. Almonds became subject to marketing controls in 1950 at the urging
of the California Almond Growers Exchange, a growers’ cooperative now
known as Blue Diamond.
2. The Almond Board of California is comprised of ten members: five
producers and five handlers. Representation on the Board is divided between
independent growers and handlers and cooperative growers and handlers on
the basis of crop tonnage, i.e., majority control is given over to that group
responsible for growing and handling more than fifty percent of the tonnage
delivered during the previous crop year. 7 C.F.R. §§ 981.30-981.32. In 39 of
the 43 years since the creation of the Almond Board, majority control has
resided with Blue Diamond
MRD aR alia ot Prete
IE ca nck tl
17a
Appendix E
implementation of the set-aside requirement is accomplished
through restrictions on distribution: each handler is required to
withhold from sale in the open market of a percentage of the
almonds under its control equal to the specified reserve
percentage. 7 C.F.R. § 981.50. To satisfy this obligation, a
handler may either (i) deliver the required percentage to the
Almond Board for sale into non-competitive channels, with the
net proceeds of the sale being remitted to the handler, 7 C.F.R.
§§ 981.51,981.66(a), (g), or (ii) retain the reserve almonds and,
at the same time, enter into an “agency agreement” with the
Almond Board agreeing to dispose of the almonds in non-
competitive outlets. 7 C.F.R. § 981.67.
In addition to making handlers the focal point of distribution
control, almond marketing orders also place upon handlers
responsibility for the administrative expenses of the Almond
Board. These expenses are addressed through Board-imposed
assessments levied on all almonds that a handler has received for
its own account. 7 C.F.R. § 981.81.
The two aspects of the almond marketing order just
described — the reserve mechanism and the handler’s liability
for the administrative expenses of the Almond Board — are the
matters that have prompted the suit. More specifically, during
the crop years in issue, the sale of almonds into the off-market
often returned less than ten cents per pound in contrast to an open
market price that ranged from $1.10 per pound to approximately
$2.00 per pound. On the basis of this difference in price,
plaintiffs maintain that the reserve system has forced upon them
losses of several million dollars in product sales. Additionally,
they say they have been required to absorb several thousand
dollars of administrative expenses related to the activities of the
Almond Board. In toto, the amount claimed approaches 5 million
18a
Appendix E
dollars.’ These facts, plaintiffs contend, establish a taking of
their property.
DISCUSSION
In considering plaintiffs’ claim, we start with what is notin
dispute. Plaintiffs concede that the Government has authority,
under the Commerce Clause, to regulate the sale and marketing
of almonds. They acknowledge also that the manner in which
that authority was exercised in this case is consistent with the
Secretary’s statutory mandate. Nevertheless, plaintiffs contend
that the scheme of regulation that we encounter here amounts to
a per se taking because it effects a displacement, in favor of the
Secretary, of virtually all of a handler’s property rights in the
almonds held in reserve; hence, aconfiscation.
To support this contention, plaintiffs point out that once a
reserve is announced, the Secretary’s regulations grant the
Almond Board plenary authority to (i) sell or dispose of the
almonds involved, (ii) permit a handler’s disposition of the
almonds only when acting in the capacity of an agent of the
Almond Board, and (iii) bar sale of the almonds in normal trade
channels. Furthermore, it is noted that while a handler retains a
3. On a cumulative basis, the almond reserve requirements imposed
during the years in issue involved in excess of 3 million pounds. Of this total
reserve amount, approximately 2.2 million pounds is attributable to
Saulsbury, roughly 1.1 million pounds is attributable to Cal-Almond and over
500,000 pounds is attributable to Gold Hills. In terms of dollars lost, Cal-
Almond and Saulsbury each assert economic injury of approximately $2
million while Gold Hills claims a direct adverse effect of almost $200,000.
Additionally, plaintiffs say the growers suffered unrecovered farming costs
approximating $200,000.
al aR tele aoe ek Mi
Serine Mae ad tt ea eerinr a's SEWER BED
Fe Pe eee
i
i
e
19a
Appendix E
right to the proceeds from these market-restricted sales, the
amounts recovered are seldom sufficient to meet the
commodity’s purchase and storage costs. On the basis of these
considerations, plaintiffs maintain that the Government has
relegated unto itself the most essential attribute of commodity
ownership — control over disposition — while leaving plaintiffs
in the position of having to accept whatever value such
disposition might yield, no matter how minimal. This
realignment of ownership rights plaintiffs call a per se taking.
The second argument plaintiffs present looks beyond the
mechanics of the reserve system and focuses instead on the
economic consequences of that system. Plaintiffs contend that
even if the court does not accept the claim of a per se taking,
nevertheless, the reserve system deprives a handler of
substantially all economic value in the almonds placed in reserve
and therefore amounts to a taking by regulation.
Defendant urges us to reject these arguments on the ground
that neither is analytically sound. Each of these arguments,
defendant contends, requires as its logical antecedent a property
right permitting plaintiffs to market their almonds free of
regulatory controls. Defendant argues that plaintiffs donot have
such a right and ‘hus have suffered no compensable intrusion
upon their interests in the almond crop. We agree with defendant.
Government regulation of the almond industry in the
manner herein described has been a fact of life for now well over
forty years. Thus, parties, like our plaintiffs, who have been
active participants in that industry throughout that time, must be
understood to have accepted, as a condition of their continuing
presence in that industry, the very mode of regulation about
which they now complain. One who “embarks in a business
20a
Appendix E
which public interest demands. . . be regulated. . . must know
regulation will ensue.” Nebbia v. New York, 291 U.S. 502, 534
(1934).
Plaintiffs do not escape the consequences of this result by
claiming, as they do, that the Secretary’s regulations go beyond
what reasonably could have been anticipated at the outset. On
more than one occasion, the Supreme Court has declared that
commercial dealings subject toregulatory control must contend
with the possibility that the “legislative scheme [may be]
buttressed by subsequent amendments to achieve the legislative
end.” Connolly v. Pension Benefit Guaranty Corp.,475U.S.211,
227 (1986) (quoting F-H.A. v. Darlington, Inc., 358 U.S. 84,91
(1958)). Indeed, only recently, in Lucas v. South Carolina
Coastal Council, 112 S. Ct. 2886, 2899 (1992), the Court
reiterated that “by reason of the State’s traditionally high degree
of control over commercial dealings, [an owner of personal
property] ought to be aware of the possibility that new regulation
might even render his property economically worthless (at least
if the property’s only economically productive use is sale or
manufacture for sale.”
What underlies this rule is the Government’s plenary
authority over commerce. That authority, where it exists, has
been described as “complete and perfect.” United States v. Rock
Royal Co-operative, Inc., 307 U.S. 533, 569 (1939). Given,
therefore, the pervasive presence of the Federal Government in
the regulation of American agriculture during the past half-
century, plaintiffs cannot reasonably assert a property interest in
their almond crops free of Government control. The
Government’s power to regulate the flow of agriculture products
affecting interstate commerce is a pre-existing limitation on
2la
Appendix E
plaintiffs’ property interest in their almonds. The legitimate
exercise of that power cannot give rise to a taking claim.‘
CONCLUSION
Property rights are created and defined “ ‘by existing rules
or understandings that stem from an independent source such as
state law.’ ”. Webb's Fabulous Pharmacies, Inc. v. Beckwith, 494
U.S. 155, 161 (1980) (quoting Board of Regents v. Roth, 408 U.S.
564, 577 (1972)). The plaintiffs in this suit can point to no
existing rules or understandings that would give substance to
their claim that, because of the marketing constraints imposed
upon them by the Government's exercise of its power over
interstate commerce, they are entitled to compensation.
Plaintiffs have failed to state aclaim on which relief can be
granted. Accordingly, we grant defendant’s motion to dismiss
and direct the entry of judgment dismissing the complaint.
4. Indeciding this case onthe single ground discussed in the opinion, we
do not mean to signify agreement with plaintiffs’ view that the almonds held
in reserve represent a separable component of property, distinct from the
remainder of the annual crop. To the contrary, for Fifth Amendment purposes,
“property” may not be defined more narrowly than the investment-backed
expectation supporting it. Keystone Bituminous Coal Ass'n v. DeBenedictis,
480 U.S. 470, 497-99 (1987). It is at least arguable, therefore, that correctly
defined, plaintiffs’ “property” consists of the entirety of their respective
annual crops. Pursuing this definition would, presumably, moot any claim to
compensation since plaintiffs do not contend that their businesses, as a whole,
have been rendered unprofitable by the Secretary's regulations. .
22a
APPENDIX F — OPINION OF THE UNITED STATES
COURT OF APPEALS FOR THE NINTH CIRCUIT
DECIDED DECEMBER 22, 1993
CAL-ALMOND, INC., a California corporation
Plaintiff-Appellant,
V.
UNITED STATES DEPARTMENT OF AGRICULTURE
Defendant-Appellee.
CAL-ALMOND, INC., a California corporation, Saulsbury
Orchard and Almond Processing, Inc., Carlson Farms, a sole
proprietorship
Plaintiffs-Appellants,
V.
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,
V.
UNITED STATES DEPARTMENT OF AGRICULTURE
Defendant-Appellee.
CAL-ALMOND, INC., a California corporation, Gold Hills Nut
Co., Inc., a California corporation
Plaintiffs-Appellants,
23a
Appendix F
v.
UNITED STATES of America
Defendant-Appellee.
Nos. 92-16033, 92-16034, 92-16031 and 92-16527.
United States Court of Appeals,
Ninth Circuit.
Argued and Submitted Jan. 12, 1993.
Decided Dec. 22, 1993.
* * »*
Brian C. Leighton, Clovis, CA, for plaintiffs-appellants.
Jeffrica Lee, U.S. Dept. of Justice, Washington, DC, for
defendant-appellee.
Appeal from the United States District Court for the Eastern
District of California.
Before. CHOY, SCHROEDER, and BRUNETTI, Circuit Judges.
BRUNETTI, Circuit Judge:
Two groups of almond handlers are challenging various
provisions of the California Almond Marketing 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 from 1980 to 1986.
24a
Appendix F
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 First Amendment
rights to freedom of expression and association.
I. THE ALMOND MARKETING PROGRAM
A. Facts and proceedings below.
Appellants Cal-Almond, Saulsbury Orchards, and Carlson
Farms are “handlers” f 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 Saulsbury also operate mail-order
businesses through which they sell whole almonds.
The California almond handling industry is regulated by the
Almond Marketing Order, 7 C.F.R. Sec. 981 (the “Order’”’). The
Order was established in 1950 by USDA pursuant to the
Agricultural Marketing Agreement Act of 1937, 7 U.S.C. Sec.
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. Secs. 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. Sec. 608c(4) (1988).
NI SAEs ALA ihen Petite O Pd, wit
25a
Appendix F
The Order is administered by the Board, which has the
power to “make rules and regulations to effectuate the terms and
provisions” of the Order. 7 C.F.R. Sec. 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, marketing,
quality control, and volume regulation. The Act specifically
provides that the Order may establish “marketing research and
development projects designed to assist, improve, or promote
the marketing” of almonds. 7 U.S.C. Sec. 608c(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
customers.
The money to pay for the Board’s activities, including 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 toa point,' by the amount that the
handler spends on authorized advertising.” Before a handler can
1. Ahandler may receive credit against his assessment in an mount not
to exceed “that portion of his assessment designated for marketing promotion
including paid advertising.” 7 C.F.R. Sec. 981.41(c) (1993). Forexample, for
the 1986-87 crop year, the overall assessment was 2.6cents per pound, and the
maximum credit was 2.5cents per pound.
2. The Act provides that handlers may receive credit “for such
marketing promotion including paid advertising as may be authorized by the
[O}rder.” 7 U.S.C. Sec. 608c(6)(1) (1988). The Order authorizes the Board,
(Cont'd)
26a
Appendix F
receive credit for his marketing promotion expenditures, the
Board must determine that such expenditures meet the
requirements of the “creditable advertising regulations” set
forth in 7 C.F.R. Sec. 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 injunction in federal district
court, pursuant to 7 U.S.C. Sec. 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 summary judgment in favor of the
government, and ordered Saulsbury to comply with the Order
and pay the assessments. Id. 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. Sec. 608c(15)(A).
In April 1987, Saulsbury, joined by appellants Cal-Almond
and Carlson Farms, filed an administrative petition, pursuant to
7 U.S.C. Sec. 608c(15)(A), challenging numerous parts of the
Order (including the almond marketing program) for the crop
(Cont'd)
with the approval of the Secretary, to provide “for crediting all or any portion
of a handier’s direct expenditures for marketing promotion including paid
advertising, that promotes the sale of almonds, almond products, or their
uses.” 7C.F.R. Sec. 981.41(c) (1993).
mn
27a
Appendix F
years 1980-87. Following a hearing in the summer of 1989, a
USDA administrative law judge (“ALJ”) issued a decision on
June 22, 1990 upholding some of appellants’ challenges but
rejecting others, including the challenge to the marketing
program. Both sides appealed 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. Sec. 608c(15)(A), challenging a specific
section of the creditable advertising regulations, 7 C.F.R. Sec.
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 consolidated for cross-motions for summary
judgmentto 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. T.W. Electrical Serv., Inc. v. P2cific Elec. Contractors
Ass’n, 809 F.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).
3. Saulsbury, believing that it would suffer irreparable injury if it were
forced to exhaust its administrative remedies, also filed acomplaint 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
its administrative remedies. Saulsbury, 917 F.2d at 1193. We affirmed the
dismissal in Saulsbury. Id. at 1197.
28a
Appendix F
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 plaintiffs 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 full 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 Amendmentright
to be free from compelled speech and association. 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. Secs. 1260.101-.217, promulgated
by USDA pursuant to the Beef Promotion and Research Act, 7
U.S.C. Secs. 2901-11. The Beef Promotion 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 federal government, asserted
that the Beef Promotion Act violated his First Amendment rights
of free association and free speech. Id. at 1129.
29a
Appendix F
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. Id. at
| 1131. However, the court also found that the promotional
expression sponsored by the Cattlemen’s Board could not
properly be characterized as “government speech”
Both the right to be free from compelled
expressive 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 government 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 between 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
Amendmentrights because it resembled other funding schemes
that the Supreme Court had held to implicate individuals’ First
Amendmentrights. Id. at 1132-33, citing Abood v. Detroit Bd.
of Educ., 431 U.S. 209, 97 S.Ct. 1782, 52 L.Ed.2d 261 (1977)
LI A
30a
Appendix F
(union-management agency shop 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 association
for expressive purposes) and Wooley v. Maynard, 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 dissemination of an
ideological message).
The Board’s almond promotion program closely 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.
Sec. 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.”).
Thus, both an assessment-only program and an advertising-
aaa i al nn ce acca
Se ee
3la
Appendix F
only program would implicate appellants’ First Amendment
rights. Because the Order is acombination of both, it implicates
those rights as well. USDA’s argument that the creditable
. advertising regulations do not implicate those rights because
; they donot “compel” appellants to advertise ignores the fact that
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.
; 2. Type of speech restricted.
Having determined that the almond marketing program
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 lawful and non-misleading
commercial speech*® are evaluated using the three-prong
4. Handlers may also earn credits by engaging in other promotional
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 assessment. In practice, the “vast
majority” of creditable advertising expenditures are spent on advertisements
and not on these alternatives.
5. “Commercial speech” is that which “propose[s] a commercial
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
(Cont'd)
I
a aa mma ama a
tha Bite Bee
32a
Appendix F
standard of Central Hudson Gas & Elec. Corp. v. Public Serv.
Comm’nofN.Y., 447 U.S. 557, 100 S.Ct. 2343, 65 L.Ed.2d 341
(1980). First, the asserted government interest behind the
restrictions must be “substantial.” Id. at566, 100 S.Ct. at 2351.
Second, the restrictions must “directly advance[ ] the
governmental interest asserted.” Id. Third, the restrictions must
be “not more extensive than is necessary to serve that interest.”
Id.
Government programs that compel association are
evaluated under a more stringent standard. The Supreme Court
has recognized that “[f]reedom 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 alsoIDK, 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
compelling state interests, unrelated to the suppression of ideas,
that cannot be achieved through means significantly less
restrictive of associational freedoms.” Roberts, 468 U.S. at 623,
104 S.Ct. at3252. The Frame majority applied this test to the
Beef Promotion Act. See Frame, 885 F.2d at 1134. However,
because we hold the almond marketing program
unconstitutional even under the less stringent Central Hudson
standard, we do not decide which of these two should apply. See
id. at 1146 (Sloviter, J., dissenting).
(Cont'd)
omitted). All of the promotional efforts undertaken by the Board, whether
directly (through its own activities) or indirectly (through the inducements of
the creditable advertising regulations), are aimed at increasing almond sales.
The program therefore deals with commercial speech.
ae na Sed te a a
33a
Appendix F
Appellants contend that their own almond advertising
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
fundraisers 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. Id. 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 protected
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 inextricably intertwined
with higher-value noncommercial speech. Appellants’ political
appeals are not essential components of their advertisements.
“[A]dvertising which links a product to a current public debate
is not thereby entitled to the constitutional protection afforded
noncommercial speech.” Zauderer v. Office of Disciplinary
Counsel, 471 U.S. 626, 637 n. 7, 105 §.Ct. 2265, 2274 n. 7, 85
L.Ed.2d 652 (quotation omitted).
Thus, the Riley rationale for applying strict scrutiny is not
present here.
34a
Appendix F
3. Application of the Central Hudson test.
Once again, for the almond marketing program to be
constitutional, (a) the asserted government interest 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,___ U.S. 113 S.Ct. 1792,
1800, 123 L.Ed.2d 543 (1993).
—_—-) 9
(a) Substantial government interest.
We “must identify with care the interests the State itself
asserts.” Edenfield, at__, 113 S.Ct. at 1798. USDAclaims 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 forthe Appellee at 32. The Act itself
states that the purpose of the creditable advertising program is to
“assist, improve, or promote the marketing, distribution, and
consumption of [almonds].” 7 U.S.C. Sec. 608c(6)(I) (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
aimonds”). 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 acompelling interest
in “maintaining and expanding beef markets” in order to
aise resin Se
35a
Appendix F
“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.” Id. 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, 104S.Ct. 2118, 2127 n. 22, 80 L.Ed.2d 772
(1984). We apply this test first to the creditable advertising
regulations specifically, and then to the overall almond
promotion program.
Because the Order forces each handler to fund Board
promotional efforts with every assessment dollar not spent on
creditable advertising, USDA 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:
36a
Appendix F
Q: [H]as 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?
A: We have not commissioned any study
forthat. [...]
Q: [ ...] Has the Almond Board, the
Public Relations 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?
weal * A. WEE See We
37a
Appendix F
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 USDAALJ Hunt at 158-
60.° Because USDA has presented little orno 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 Edenfield, _ wl
U.S. at__,__, 113 S.Ct. at 1800 (Florida Board of Accountancy
6. Roger Baccigaluppi, the president and chief executive officer of Blue
Diamond, testified that a professor at the University 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 “reasonably 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 records address only minor amendments to the
regulations made 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 portion 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).
38a
Appendix F
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 compromised
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. Forexample, most of appellant Saulsbury’s
sales were to cereal companies, but Saulsbury could not receive
credit for advertising the cereals containing its almonds because
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. Sec. 981.441(c)(3)(iv).
When achain 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 becausethe
regulations deny credit for advertisements directing consumers
to retail outlets not “operated” by a handler. See 7 C.F.R. Sec.
981.441(c)(5)(iii).
Because of these restrictions, Saulsbury estimated that
every dollar spent on creditable advertising returned less ihan
fifty cents in sales.
Cal-Almond’s experience with the regulations was
similarly disappointing. Cal-Almond exports approximately 90
percent of its almonds for use as ingredient items, and nearly all
of the almonds it sells domestically 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 mailorder business, which is nota
Ri me cei i 2 hs a 8 et A he sa
Te Tn
©.
Cats de lat,
Es wh Rein See es
te Rind i NP ig EE eR
39a
Appendix F
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
regulations did not exist. Walter Payne, Blue Diamond’s vice
president for sales, marketing and distribution, 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 regulations do not
“directly advance” the government’s asserted interest in
8. Forexample, in 1987 Cal-Almond spent nearly $300,000 advertising
the business but its gross mail order sales were less than $100,000.
9. AsofJuly 1987, Blue Diamond had a 92 percent share of almonds sold
in grocery stores.
40a
Appendix F
increased almond sales and are therefore an unconstitutional
restriction on appellants’ First Amendment rights.
Whether the entire assessment-funded almond promotion
program “directlyadvances” the governmental interests in
increased almond sales and returns to growers is amore 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 RicoAssoc. v. Tourism
Co. of Puerto Rico, 478 U.S. 328, 342, 106S.Ct. 2968, 2977, 92
L.Ed.2d 266 (1986) (“[wJe think [that] the legislature’s belief
[that advertising of casino gambling would serve to increase the
demand for the product advertised| is a reasonable one’’);
Central Hudson, 447 U.S. at 569, 100S.Ct. at 2353 (“[t]here is an
immediate connection between advertising and demand for
electricity.”). Therefore, we may reasonably assume that the
Board’s promotional efforts have some positive effect on
almond demand (although, as noted above, the Board does not
know how significant the effect is).
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 presented
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
10. Once again, appellants have presented evidence to the contrary.
CloydAngle, 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
generic Board promotion does not help him do this.
Barnett i Oa A he neal nC ananaReRe cana mamaenNtn nn er a nn armel
Te
4la
Appendix F
agree with appellants’ argument that each handler knows best
how to sell his own almonds; we are unwilling to presume, inthe
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. !!
(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 notas 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
necessarily 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.
11. The Frame majority held that mandatory assessments to the
Cattlemen's Board advanced the goals of the Beef Promotion Act because they
“prevent(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 aconclusion,
however, presumes that the promotion itself advances the goals of the Act, a
presumption that we have rejected.
i iaiiiailibaa aaa
42a
Appendix F
492 U.S. 469, 480, 109 S.Ct. 3028, 3035, 106 L.Ed.2d 388
(1989).
USDA asserts that “[a]lthough it is 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 reasonable to assume that the advertisements for
which credit is explicitly permitted—generic advertisements,
expenditures for advertisements announcing future promotion
activities, and in-store supermarket advertisements—will
increase almond sales. However, USDA offers no justifications
for the restrictions that deny credit for certain advertisements:
ads promoting more than two complementary branded products
(Sec. 981.441(c)(5)(i)), ads promoting a product that also has
“competing nuts” (Sec. 981.441(c)(5)(ii)), or ads promoting
retail stores not owned by handlers (Sec. 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 dominates 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,
43a
Appendix F
the Almond Marketing Program violates appellants First
Amendmentrights.
II. 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 provides 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
provide funds to meet the authorized [B]oard expenses and the
operating reserve requirements.” 7 C.F.R. Sec. 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
requirements of the Administrative Procedure Act (APA), which
requires “[g]eneral 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. Sec. 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 “{a]fter
consideration of the relevant matter presented. . . incorporate in
the rules adopted a concise general statement of their basis and
purpose.” 5 U.S.C. Sec. 553(c) (1988). In addition to the time
required 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. Sec. 553(d) (1988).
44a
Appendix F
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
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 determinations 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”
subject to the notice-and-comment requirement of the APA, the
Secretary’s failure to give notice and request comments was
harmless.
The APA defines a “rule” as
the whole ora part of an agency statement of
generai or particular applicability and future
effect designed to implement, interpret, or
prescribe law or policy or describing the
organization, procedure, or practice
requirements of an agency and includes the
12. Outlined in section I.A. above.
45a
Appendix F
approval or prescription for the future of
rates.
5 U.S.C. Sec. 551(4) (1988) (emphasis added). We agree with
appellants that establishing an assessmentisa “prescription for
the future of rates.” The Order itself defines the assessment as
a “rate per pound of almonds.” 7 C.F.R. Sec. 981.81(a) (1993).
USDA's argument 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, 648 F.2d 694 (D.C.Cir. 19890).
There, the court held that the exemption for budgetary approval
does not apply “where the agency action trenches on substantial
private rights and interests.” Id. 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
incorporates 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. Sec. 553(b)(B) (1988) (emphasis added). The
announcement accompanying the rules provided the following
justification for dispensing with the notice-and-comment
procedure:
46a
Appendix F
To enable the Board to meet crop year
obligations, approval of the expenses and
assessment rate is necessary without delay.
Handlers and other interested 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, the formulation of a
recommended budget and assessment rate cannot be
accomplished early enough to allow for both notice and
comment and the postponement 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 oranges challenged the procedure used by the
Secretary to set weekly volume restrictions on the marketing 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
13. 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.
47a
Appendix F
compliance would interfere with the
agency’s ability tocarry outits 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. Id. 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 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. Id. 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
48a
Appendix F
where the agency’s mistake ‘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. 1980, ,».
Our harmless error analysis “must therefore focus on the procesis
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 requirements im
promulgating the weekly navel orange volume restrictions was
harmless because the handlers knew that there would be
meetings every Tuesday, that proposed restrictions would be
contained 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. Id. 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 reievant 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 recommendations, 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
49a
Appendix F
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.
The Supreme Court has noted that administrative rules must
be statements that have legal consequences 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).
“Retroactive” rules—those that alter the past legal status of past
actions—are “not favored in the law.” Id. 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 expressly 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. Sec.
610(b)(2)(ii) (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
pje volume of ail of the commodity covered
by the marketing order. The focus of the
Statute 1s on the ‘expenses likely to be
50a
Appendix F
incurred. . . during any period specified by
[the Secretary].’ The period specified by the
Secretary is the crop year July | 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.
We hold that even if the assessment rules are “retroactive,” they
are permissible because they were authorized by Congress in the
Act.
3. Statement of basis and purpose.
Appellants contend that the final 1980-1986 assessment
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. Sec. 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 statement
was necessary to comply with the APA.
Ill. THE RESERVE REQUIREMENTS
A. Facts and proceedings below.
The reserve requirement is the mechznism the Board uses to
Sla
Appendix F
regulate the volume of almonds entering 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. Sec. 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. Sec. 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 percentage. 7 C.F.R.
Sec. 981.50 (1993). The Secretary designates the final
percentage based on the Board’s recommendation and “any other
available information.” 7 C.F.R. Sec. 981.47 (1993).
The almond crop year begins on July 1 and ends June 30. 7
C.F.R. Sec. 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. Forthe 1990-91 crop
year, the Board recommended a 35 percent reserve requirement;
the Secretary issued a propesed 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. Sec.
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 almonds. After consolidation, the ALJ
52a
Appendix F
rejected most of the challenges, but held that the 1988-89 reserve
and assessmentrules were invalidly retroactive. On appeal, the
JO upheld the Secretary’s actions in all respects and the district
courtdid 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, the parties stipulated that the district court should
grant summary judgment for USDA without prejudice 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 reserve
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. . . undera
uniform rule based upon the amounts which
each such handler has available for current
53a
Appendix F
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. Sec. 608c(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 30crop
year. The statute requires the total quantity of almonds salable
during this period to be allotted “equitably” among the handlers.
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,
54a
Appendix F
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 arule makes the
rule itself arbitrary or capricious. Therefore, although the delay
was 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 capricious because
they did not include a sufficient statement of basis and purpose
as required by 5 U.S.C. Sec. 553(c). We disagree. Inthe 1988-89
rule, USDA set out its calculations of supply and demand for
California 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
domestic 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
14. 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., 789 F.2d 67 (D.C.Cir. 1986).
55a
Appendix F
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, ina market which already has
record supplies on hand, would be expected
to drop in both domestic and foreign markets.
Thus, 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). Asimilar statement was included for
the 1990-91 reserve obligation rules. See 55 Fed.Reg. 38,793,
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 comments 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 requirement that
15. 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
(Cont'd)
a oe ars
56a
Appendix F
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 obligation rules
were arbitrary and capricious because USDA did not follow the
dictates of Departmental Regulation (DR) 1512-1 in
promulgating them. We have no authority to review appellants’
challenge, because section i 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”).
(Cont'd)
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
augment 1991-92 crop year supplies.
55 Fed.Reg. 38,793, 38,794 (1990).
57a
Appendix F
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. Sec. 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. Sec. 981.66(g) (1993).
Alternatively, the handler may obtain authorization from the
Board to act as the 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. Sec. 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
toalmonds. This is incorrect; the Act is silent regarding whether
agricultural marketing orders may set the prices that handlers
receive from their customers.'* The Act does state that almond
16. Appellants quote our observation in Pescosolido v. Block, 765 F.2d
827 (9th Cir. 1985), that “the Secretary is not empowered to fix prices for any
(Cont'd)
58a
Appendix F
marketing orders may provide for the establishment of reserve
pools of almonds and provide “for the equitable distribution of
the net return derived from the sale thereof among the persons
beneficially interested therein.” 7 U.S.C. Sac. 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 agreements 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’nv.
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 Department 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
(Cont'd)
[commodities other than milk] covered by the Act.” Id. 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.
17. 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, orcontracts.” 5 U.S.C. Sec. 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).
59a .
Appendix F
required to contract with “peer review organizations” (PROs),
private organizations of doctors that would monitor the
professional activities of Medicare service providers in their
areas. Id. at 1041. Congress granted HHS great discretion to
contract with each PRO as it saw fit, in order to tailor the service
review process to local needs. Id. 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, performance, 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. Sec. 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. Id. 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.” Id. The
court found that since Congress had granted HHS very broad
discretion 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. Id. The court concluded that “any contract provisions
that are legislative are subject to Sec. 553’s notice and comment
requirements.” Id. (emphasis added).
60a
Appendix F
We find the agency agreements to be distinguishable from
the PRO agreements at issue in American Hosp. Ass’n. There,
the central mechanism for implementing the entire peer review
program was the PRO contracts, because Congress had
mandated that HHS enter into such acontract with a PRO ineach
area. Thus, there was areal 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, USDAis 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. Sec. 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 structuring [the agency’s]
enforcement authority,” are exempt from the APA notice and
comment requirement).
6la
Appendix F
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 foilowing 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. Sec. 981.38 (1993). Toaid the Board in
exercising this power, the Order also provides that “[e]Jach
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 cbservation
of almonds.” 7 C.F.R. Sec. 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
provision, was a “procedural” rule exempt from the APA notice-
and-comment requirement. "*
18. While storing almonds in California may have inconvenienced
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).
62a
Appendix F
(b) Future sales contracts for reserve almonds.
The Order prohibits the “handling” of reserve almonds. 7
C.F.R. Sec. 981.50(1993). The Order defines “to handle” as “to
sell” or “to put into channels of trade.” 7 C.F.R. Sec. 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. Sec. 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.
We disagree. The Act states that each handler shall be
assessed pro rata for reasonable Board expenses
63a
Appendix F
other than expenses incurred in receiving,
handling, holding, or disposing of any
quantity of acommodity 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. Sec. 610(b)(2)(ii) (1988) (emphasis added). Appellants
argue that the Board does not dispose of the reserve almonds “for
the benefit of” the handlers and that therefore the Board cannot
impose assessments 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. Sec.
608c(6)(E) (1988); 7 C.F.R. Sec. 981.66(g) (1993). The reserve
almonds are therefore disposed of “for the benefit” of the
handlers, and the Board may consequently 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. Sec. 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 acertain 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 reasonable agency interpretation of a
statutory scheme the agency is entrusted to administer.” Railway
64a
Appendix F
Labor Executives’ Ass’n v. I.C.C., 958 F.2d 252, 256 (9th
Cir.1991). We defer to USDA’s reasonable interpretation of the
Order.
IV. THEADMINISTRATIVE 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 administrative 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 assessments
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 appellants have spent pressing their claims, we agree with
the district court’s reasoning that
[while there is no question that completion
of the administrative process in connection
with this Section 15(A) petition was very
19. Contrary to appellants’ contention, the Supreme Court’s holding in
McKesson Corp. v. Division of Alcoholic Beverages & Tobacco, 496 U.S. 18,
110S.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. }4. at 40, 110S.Ct. at2252. 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 requirements of the Due
Process Clause.
65a
Appendix F
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... [T]he 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 USDAon 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
This text is long and has been trimmed here. Open the source document for the complete record.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.