# Petition for Writ of Certiorari — Rose Acre Farms, Inc. v. Madigan > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386011_0703%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition for Writ of Certiorari - **Published:** January 1, 1992 - **Citation:** 506 U.S. 820 ## Text Si ey es “FILED g AY 22 1992 | dimoee as —— ae ' wwe ~ pit CLERK = . fteewmert IN THE Supreme Court of the United § States OCTOBER TERM, 1991 ROSE ACRE FARMS, INC., Petitioner, V. EDWARD MADIGAN, SECRETARY OF AGRICULTURE OF THE UNITED STATES, et al., Respondents. Petition for a Writ of Certiorari to the United States Court of Appeals for the Seventh Circuit PETITION FOR A WRIT OF CERTIORARI BRIAN K. BURKE Counsel of Record JOHN R. SCHAIBLEY, III BRADLEY MERRILL THOMPSON Davin A. GIVEN BAKER & DANIELS 300 North Meridian Street Suite 2700 Indianapolis, Indiana 46204 (317) 287-0300 Counsel for Petitioner, Rose Acre Farms, Inc. WILSON - Epes PRINTING Co., INC. - 789-0096 - WASHINGTON, D.C. 20001 (1) (2) (3) QUESTIONS PRESENTED Whether a court, reviewing a challenge under the Administrative Procedure Act to the validity of reg- ulations that require the destruction of private prop- erty, should sustain the challenge when the adminis- trative agency promulgated the regulations based on the erroneous conclusion that neither the governing statute nor the Fifth Amendment require compensa- tion to property owners. Whether a court should remand regulations to the administrative agency that promulgated them when the regulations contain invalid provisions and the administrative record does not establish that the agency would have promulgated the other portions of the regulations without the invalid provisions. Whether a district court, instead of the United States Claims Court, has authority to declare contrary to law an administrative rule against paying statutorily- required compensation for property destroyed by an administrative program. (i) llama ii PARTIES BELOW The parties to the proceedings below were the peti- tioner, Rose Acre Farms, Inc. (“Rose Acre”), and the respondents, Edward Madigan, Secretary of Agriculture of the United States, Robert Melland, Administrator, Animal and Plant Health Inspection Service of the United States Department of Agriculture, and the United States Department of Agriculture (hereinafter collectively re- ferred to as the “Secretary’”). Rose Acre was the plaintiff-appellee below, and the Secretary was defendant- appellant. Rose Acre is an Indiana corporation engaged in the production of eggs. Rose Acre has no corporate parent and no subsidiaries that are not wholly-owned. ae TABLE OF CONTENTS Page QUESTIONS PRESENTED 20ooooo2ooooooooocccccccececececceeeees i ESET EE ee ii py Fs sos y ). y mn iii TABLE OF AUTHORITIES .200.0....0.....ceecccccccccccceeceeecee Vv Er a 1 ANTE GEER SE oc ne ee 2 CONSTITUTIONAL PROVISIONS, STATUTES, AND REGULATIONS INVOLVED ........0.. 2 STATEMENT OF THE CASE ou... .cecccccccceeeee 2 1. The Administrative Proceedings 2 2. The District Court Decision ..........0..0.000000........... 4 8. The Court of Appeals Decision 6 REASONS FOR GRANTING THE WRIT ............... 8 I. THE COURT OF APPEALS IMPROPERLY RESOLVED FUNDAMENTAL POLICY IS- 8 SOAS SEE ie sae eee 10 A. The Secretary’s Finding that No Emergency Exists Precludes the Secretary From Order- ing Destruction of Birds and Eggs ............. 11 1. Subsections 184a(a) and (b) Limit The Secretary’s Authority to Order Destruc- NBT ee GINA a A eo 11 2. The Secretary Concluded that SE Does Not Warrant Destruction Under Subsec- tions 184a(a) and (b) .......................... 12 B. The Secretary Based His Design of the SE Regulations on the Assumption that the Agency Would Not Have to Pay for Chickens and Eggs Destroyed Under the eee ara ac 12 eT iv TABLE OF CONTENTS—Continued Page C. The Court of Appeals Judgment is Contrary to the Principle Established by this Court that Agencies, and not Courts, Should Make Policy Decisions and Scientific Judgments... 14 II. THE PROPER REMEDY FOR THE SECRE- TARY’S UNLAWFUL RULE AGAINST PAY- ING COMPENSATION IS TO DECLARE THE SE REGULATIONS UNLAWFUL IN THEIR RIE Te acsticanicniineiilinnti udienarctaniianiainemannisiines 16 A. The Better Reasoned Cases Hold that the Administrative Record must Support Sever- ability Before a Court May Declare A Regu- latory Scheme Only Partially Unlawful ........ 17 B. Strong Policy Considerations Demand that a Court Show Restraint In Severing Por- SE EEN SITTER 19 III. THE COURT OF APPEALS’ HOLDING THAT A CHALLENGE TO THE SECRE- TARY’S RULE AGAINST COMPENSATION BELONGS IN THE CLAIMS COURT CON- FLICTS WITH BOWEN v. MASSACHU- SETTS AND WITH DECISIONS IN’ OTHER (bi. sg) BREE Ceo et et ag DR Te Cr Ei cet eed OR ee 20 A. The Court of Appeals Decision Is Inconsist- ent with Bowen and its Progeny .................... 21 1. Bowen v. Massachusetts _.........00000...0000..... 21 2. Decisions by the District of Columbia I ee I cd 23 B. Rose Acre’s Claim Presents Impertant Fed- GFA] PYOGOGUPAl TSRUGR ........0ccccccccccescceocecs------. 25 SPA AAT “hecsndivintascbikcimsiblsetinidetnivaiapenpicanahinbaesseniibiiawonss 27 Vv TABLE OF AUTHORITIES Cases: Page Addison v. Holly Hill Fruit Products, 322 U.S. 607 | Rae eT oR Sere TSO n Cy een, eee 18 Atchison T. & S.F. Ry. Co. v. Wichita Board of Trade, 412 U.S. 800 (1973) ........ Se ree 15 Beverly Hospital v. Bowen, 872 F.2d 483 (D.C. PRI ae ere enn Cece CLEA LEE BO ST 23 Bowen v. American Hospital Ass’n, 476 U.S. 610 CUNY sdschsstehcschusbcehesinintiiahisiciatedtiiaiamtanmanniana teeta lamest 14 Bowen v. Massachusetts, 487 U.S. 879 (1988) ....... passim Chevron USA v. Natural Resources Defense Coun- OUR, FORO; GET Tits GT CIE) nennncncseccatccssecvcncetereces 15 Community For Creative Non-Violence v. Turner, 898 F.2d 1887 (D.C. Cir. 1990) ............................ 19 Esch v. Lyng, 665 F. Supp. 6 (D.D.C. 1987) .......... 24 Esch v. Yuetter, 876 F.2d 976 (1989) .........0000.. 23, 24 Faucher v. Federal Election Commission, 928 F.2d 468 (ist Cir.), cert. denied, 112 S. Ct. 79 Sf ERCR A, SN Pen ee ae PRR NR SNE Es rire Ae 19 Florida Power and Light Co. v. Lorion, 470 U.S. Se MN aac a a 26 FMC v. Seatrain Lines, Inc., 411 U.S. ‘127 (1973) .. 16 F.P.C. v. Idaho Power Co., 344 U.S. 17 (1952) ...... 18 FTC v. Colgate Palmolive Co., 380 U.S. 374 BSR els rete POR nee Sst ees eon 16 Independent U.S. Tanker Owners Comm. v. Dole, 809 F.2d 847 (D.C. Cir.), cert. denied, 484 U.S. RU TEIN isductilauicsidetblacnainadaiaimasenthcuidguiecameeente tainee na 15 INS v. Chadha, 462 U.S. 919 (1983) 0000. 20 K-Mart Corp. v. Cartier, 486 U.S. 281 (1988) _...... 18 Loftin v. United States, 6 Cl. Ct. 596 (1984), aff’d, (i 2 Bit Oi, Sib Ae) eeceeeeen 12 Massachusetts v. HHS, 899 F.2d 53 (1st Cir. 1990), vacated, 111 S. Ct. 2252 (1991) ............ 19 McCullough Gas Processing Corp. v. Department of Energy, 650 F.2d 1216 (Tem. Em. Ct. App. IE cashsnp sh taicininictanlaietsell Lanes clasecn ss aut ies ae oe, 18 Monsanto v. Ruckelshaus, 467 U.S. 986 (1984) ....... 13 Motor Vehicle Manufacturers Ass’n v. State Farm Mutual Automobile Ins. Co., 463 U.S. 29 (| FERRO IE ee Riera PR MRIS Bae EE wna HER Tes eA FI 14 vi TABLE OF AUTHORITIES—Continued NLRB v. Brown, 380 U.S. 278 (1965) .................... 16 NLRB v. Enterprise Ass’n, 429 U.S. 507 (1977) ... 19 North Carolina v. F.E.R.C., 730 F.2d 790 (D.C. Fe BED “sis talsiss san ddeiracciiadenndnredncecncubicleentaianiambakaann 18 Peterson Farms I v. Madigan, 782 F. Supp. 1 ian - GRIT usc Castotnssdicdaaeunndeledeincaataiaiacenmmmnnetine. 24 Sarasota v. EPA, 799 F.2d 674 (11th Cir. 1986).... 23 SEC v. Democratic Senatorial Campaign Commit- Ss Se Oy SU I ar occe iashaceceenchacsneancnans 16 SEC v. Sloan, 486 U.S. 108 (1978) ........................... 16 Social Security Board v. Nierotko, 327 U.S. 358 {| _: RSNA aE ee Crt ar ste see Reon eRe ee LOA ae 16 Southwestern Electric Power Co. v. FERC, 810 ae ee Cas Sts TINE cebiceceetteerens 15 Vandervelde v. Yeutter, 774 F. Supp. 645 (D.D.C. |. RRR are tnea ane see Ny rosette n oe Po aN SANDEL Save oem EEN 24 Volkswagenwerk v. FMC, 390 U.S. 261 (1968) ..... 16 Zellous v. Broadhead Associates, 906 F.2d 94 (8rd RIG. PIII csiccestsicndcenstdiocamadseaumaitcnaaies bebieainamaninaiaate 24 Constitution: United States Constitution, Fifth Amendment ..2, 7, 12, 13 Statutes: he 8 a AO ea ene Bese Semen Pes 4 la 2 5A et I icici ccsnndchonnceetonaccshaecdannenalenedeaeneniescamianale 2 ee I en saranda NameOeaES 2, 26 SS 8 a ee en eee ee aes re = 3, 12 Se I 0. ssconiens cccsicdleeenaiaabeiisaamadaemesl passim Se Ce ED iio ancsscscinsnhcciahetetennicceaneinielenielpanaieioan 2 a oo oS cdaenneaaannianh 4 Be ee I xs: cssaiceicscnsbdanevsnclaeciinneeibanenieeiedanmpensadees 21 FE aS eRe mae ay EES ar = 2 Regulations: Br ree ee TEI ih iealtnditeniciascoeatstatieadacdcedaamaenimicomaiaedamae 2 OF Ga oii Me IE OD ssicdincicchs aden eieethanaieeiiei tReet 2 Exec. Order No. 12291, 46 Fed. Reg. 13193 (Feb. i MED cctceebcticecknnideckncauaaaaeeie A 13 vii TABLE OF AUTHORITIES—Continued Page Exec. Order No. 12630, 53 Fed. Reg. 8859 (Mar. BA, BUI) een nennissnsccicreseceiieneccnnssresveveconnsananssenmensnnncns 12 55 Fed. Reg. 5576 (Feb. 16, 1990) ...........------------------ 2,3 56 Fed. Reg. 3730 (Jan. 30, 1991) ................ 2, 3, 4, 7, 10, 12 Miscellaneous: Bowman, Bowen v. Massachusetts: The “Money Damages Exception” to the Administrative Pro- cedure Act and Grant-in-Aid Litigation, 21 Urb. Fo et —_ | ane en nee eres 22 Fallon, Claims Court at the Crossroads, 40 Cath. ime 5. | | Eero arene 22 Noone and Lester, Defining Tucker Act Jurisdic- tion After Bowen v. Massachusetts, 40 Cath. 3 __, , C nreOT 22 R. Posner, Economic Analysis of Law §3.5 GY iacckicccesitesictsescanaendticieontreisiiatnenintiicetcuieadinavannsuaiites 13 Sisk, Tucker Act Appeals to the Federal Circuit, 36 Fed. B. News & J. 41 (1989) ............ ee AO 22 Sisk, Two Proposals to Clarify the Tucker Act Jurisdiction of the Claims Court, 37 Fed. Bar Ree E.G CI accencctescenentiinticenisierncnnnnidawsinannes 22 Webster, Choice of Forum in Claims Litigation, 37 Fed. Bar News & J. 534 (1990) ...................... 22 IN THE Supreme Court of the United States OCTOBER TERM, 1991 No. ROSE ACRE FARMS, INC., Petitioner, v. EDWARD MADIGAN, SECRETARY OF AGRICULTURE OF THE UNITED STATES, et al., Respondents. Petition for a Writ of Certiorari to the United States Court of Appeals for the Seventh Circuit PETITION FOR A WRIT OF CERTIORARI Rose Acre respectfully prays that a writ of certiorari issue to review the judgment of the United States Court of Appeals for the Seventh Circuit entered on Febru- ary 10, 1992. OPINIONS BELOW The opinion of the United States Court of Appeals for the Seventh Circuit is reported at 956 F.2d 670. App. la-14a. The Court of Appeals’ order denying Rose Acre’s Petition for Rehearing is reproduced in the Appendix. App. 50a. The opinion of the United States District Court for the Southern District of Indiana issued on June 5, 1991, as amended, is not reported; it is repro- duced in the Appendix. App. 15a-46a. 2 JURISDICTION Rose Acre invokes jurisdiction to review the judgment below pursuant to 28 U.S.C. § 1254(1). The Court of Appeals entered the judgment reversing the judgment of the District Court on February 10, 1992. App. la. On February 26, 1992, the Court of Appeals denied Rose Acre’s timely Petition for Rehearing. App. 50a. This petition is timely, having been filed within 90 days of the date upon which the Court of Appeals denied a timely Petition for Rehearing. CONSTITUTIONAL PROVISIONS, STATUTES, AND REGULATIONS INVOLVED The pertinent Constitutional provisions (Constitution of the United States, Fifth Amendment), federal statutes (5 U.S.C. $$ 702, 704 and 706; 21 U.S.C. § 184a; and 28 U.S.C. § 1491) and regulations (9 C.F.R. §§ 71.3 and 82.30-82.38) are set forth in Appendix D. STATEMENT OF THE CASE 1. The Administrative Proceedings On February 16, 1990, the Secretary promulgated an interim rule restricting the interstate movement of eggs, chickens and other articles believed by the Secretary to contain a bacteria called salmonella enteritidis serotype enteritidis (or “SE”). 55 Fed. Reg. 5576 (codified at 9 C.F.R. §§ 71.3(c) (3) and 82.30-82.36). When ingested by humans, SE can cause flu-like symptoms, including diarrhea and vomiting.’ Under the interim regulations, ! The SE bacteria has been found in many different animal species for many years. 7th Cir. App. 71; 7th Cir. Supp. App. 49. Indeed, according to the Secretary, “SE is not highly host specific; it affects many species in addition to chickens. The Salmonella or- ganism is ubiquitous in the environment, and eradication of the bacterium is impossible.” 56 Fed. Reg. at 3731. In fact, the Secre- tary estimates that as many as 50% of broiler chickens are con- taminated with salmonella. 7th Cir. App. 111-12. But the risk of 3 restricted eggs could be moved interstate only for pasteuri- zation (a process that results in a heat-treated, liquid egg product). 55 Fed. Reg. at 5584. Several comments on the interim regulations asked the Secretary to authorize indemnity payments for restricted eggs because of the devastating economic impact of the restrictions imposed by the regulations. 56 Fed. Reg. at 8731. Other comments requested that the Secretary exer- cise his authority (a) under 21 U.S.C. § 114a to request that farmers voluntarily depopulate chickens carrying the SE bacteria or (b) under 21 U.S.C. § 134a to order farmers to depopulate such chickens. Id. Action under either statutory section would have required the Secretary to pay compensation for the destroyed articles. After considering the comments on the interim rule, the Secretary revised the regulations and made them final on January 30, 1991 (the “SE Regulations”). 56 Fed. Reg. 3730. The final SE Regulations allow egg producers to ship- restricted eggs for export, pasteurization and hardboiling. 56 Fed. Reg. at 3741. In response to comments, the Secretary issued as part of the statement of basis and purpose for the final SE Regulations his decision not to include an indemnity pro- vision in the regulations. The Secretary explained that, in his opinion, the regulations do not require depopula- tion (slaughter) of hens and therefore do not trigger the indemnity requirement in Section 134a. Id. In addition, the Secretary concluded that the emergency conditions that must exist before the Secretary may order destruc- tion under Section 134a simply do not exist with respect to SE. The Secretary, therefore, declined to order ex- plicitly the depopulation of the restricted chickens. /d. contracting SE from eggs appears to be very low. According to the Secretary’s expert at trial, there is only one reported outbreak of SE in humans for every two billion eggs consumed. 7th Cir. App. 98, 110. a 4 After an extensive discussion of his reasons for rejecting compensation, the Secretary declared: For the reasons stated above, APHIS does not in- tend to authorize payments of claims for chickens voluntarily destroyed, to order mandatory depopula- tion of infected chicken flocks and pay indemnities to the owners of destroyed chickens, or to make in- demnity payments for eggs sold for pasteurization. 56 Fed. Reg. at 3731-32. 2. The District Court Decision In the fall of 1990, the Secretary imposed restrictions under the SE Regulations on three farms owned by peti- tioner Rose Acre.? On December 28, 1990, Rose Acre filed an action in the United States District Court for the Southern District of Indiana, seeking a judicial declara- tion that the SE Regulations are invalid and an injunc- tion against enforcement of the SE Regulations.* Rose Acre brought the action for one reason: to pre- vent further irreparable harm to Rose Acre. Rose Acre argued that the regulations are invalid on several grounds, including lack of Due Process, violation of the require- ment of notice and comment rulemaking under the Ad- ministrative Procedure Act (APA) (5 U.S.C. § 553), and lack of statutory authority. Rose Acre also claimed, and the District Court held, that the Secretary effectively or- dered the destruction of chickens and eggs through the SE Regulations without declaring the statutorily required emergency. Rose Acre demonstrated that the restrictions 2 Rose Acre challenged the regulations because they were not rationally related to protecting human health. In fact, testimony from Rose Acre employees demonstrated that during the months between the time of the outbreaks allegedly linked to Rose Acre and the time that the Secretary imposed the restrictions, Rose Acre sold 218 million eggs from the implicated farms without further inci- dent. 7th Cir. Supp. 29-31. 3 The District Court had jurisdiction pursuant to 28 U.S.C. § 1331. 5 forced Rose Acre to sell its eggs at substantially below cost. The District Court concluded that the Secretary was attempting to circumvent 21 U.S.C. § 184a by im- posing restrictions that were tantamount to an order of destruction, even though the administrative record estab- lished that conditions did not warrant mandatory de- struction,® explaining: USDA is basically withholding a declaration of an emergency while imposing restrictions as if it had declared an emergency. By labelling certain houses “test” and “infected” [and imposing restrictions on the associated chickens and eggs], USDA effectively condemns the eggs produced in those houses to be sold at less than cost. Chickens are destroyed in the testing process, and are destroyed as to their eco- nomic value when they are part of a house labelled “infected.” As Rose Acre asserts, if USDA effec- tively orders the destruction of animals by eliminat- ing their economic value, it cannot avoid the obliga- tion to compensate owners by claiming that there is no “extraordinary emergency.” App. 45a. 4 The unrebutted evidence at trial demonstrated that, from Octo- ber 1, 1990, through March 31, 1991, the average market price for shell eggs was 68 cents per dozen, Rose Acre’s average production costs were 48 cents per dozen, and the average price Rose Acre re- ceived for its restricted eggs was 43 cents per dozen. 7th Cir. Supp. App. 32-34; 7th Cir. App. 50-51. The price is low because the pasteurization market is a salvage market for eggs that cannot be sold for human consumption as table eggs and because when pasteurization facilities know that a producer like Rose Acre must sell its eggs in the pasteurization market, the pasteurizers offer a price below the prevailing price for pasteurization eggs. 7th Cir. Supp. App. 86, 105. Moreover, many pasteurizers will not buy Rose Acre’s restricted eggs at all because many food retailers refuse to buy pasteurized eggs made from restricted eggs, even though the Secretary believes such eggs to be safe. 7th Cir. Supp. App. 24-25, 133-34. 5 The Secretary’s own expert testified at trial that the only way out of the restrictions imposed under the SE Regulations is to depopulate the flock. 7th Cir. App. 115; see also 7th Cir. Supp. App. 135. 6 The District Court held that the agency’s decision not to pay compensation under the SE Regulations is contrary to law. After a thorough analysis of the case law, the District Court found that the Secretary’s declara- tion that he would not amend the regulations to include a compensation provision constituted a rule for purposes of judicial review. The District Court alse found from its review of the administrative record that “|t]he record indicates that the agency may not have established such a scheme if it had also had to plan on indemnifying the flock owners.” App. 45a. The court concluded that the Secretary’s rule of no indemnification is bound up in- extricably with the other substantive provisions of the SE Regulations, On the basis of this analysis of severability, the District Court declared the SE Regulations invalid in their entirety and enjoined the Secretary from enforc- ing the regulations against Rose Acre. 3. The Court of Appeals’ Decision The Secretary appealed the District Court’s decision. On appeal, the Secretary did not challenge the District Court’s analysis or its conclusion that the Secretary’s declaration of no indemnification constituted a rule for purposes of judicial review. Nor did the Secretary dispute the District Court’s conclusion that the agency might not have established a regulatory scheme requiring the de- struction of birds and eggs if the Secretary had believed that the agency is required bv statute to provide com- pensation to affected flock owners. Rather,.the Secretary argued principally that the District Court lacked juris- diction to hear Rose Acre’s claim and that the SE Regula- tions are not tantamount to an order of destruction. The Court of Appeals reversed the District Court’s judgment. Although the Court of Appeals rejected the Secretary’s jurisdictional argument, the court declined to address the Secretary’s second argument because the court concluded that the District Court’s remedy was 7 improper.* The Court of Appeals acknowledged that be- fore issuing the regulations, “the Secretary concluded that neither the Constitution nor a statute requires compensa- tion.” App. 4a (citing 56 Fed. Reg. at 3731-32). But the Court of Appeals also opined that if, contrary to the Sec- retary’s conclusion in promulgating the regulation, either Section 134a or the Constitution in fact requires compen- sation, the “right way to proceed” is for a court to order payment, and not to enjoin the Secretary from enforcing the SE Regulations. Jd. at 5a. In the Court of Appeals’ view, if the Constitution or statute requires compensa- tion, “then setting aside the regulation is the wrong rem- edy. Compensation is the right one.” Jd. at 6a. The Court of Appeals dismissed as a “litigating posi- tion” the Secretary’s response to comments in which he announced his decision not to revise the SE Regulations to provide for compensation. Id. at 7a. The Court of Appeals reasoned that whether the Secretary is right or wrong with respect to his conclusion that neither the Fifth Amendment nor the statute requires compensation, “Telither way, it is inappropriate to halt the regulatory program.” Id. at 7a. The Court of Appeals concluded that even if the District Court were correct and the Sec- retary’s decision not to pay compensation is a rule with the force of law, “the appropriate remedy is to excise the offending text, and the appropriate surgeon is the claims court.” Id. at 7a. The Court of Appeals then stated, “It is to the claims court that Congress has entrusted the task of determining whether a statute or the Constitution requires compensation. It is to the claims court that Rose Acre must go.” Id. at 8a. . The Court of Appeals did not address the District Court’s analysis of severability or the District Court’s ¢ The Court of Appeals, nonetheless, suggested that the Secretary was wrong in limiting his interpretation of the word “destroyed” to the literal, physical annihilation of the eggs and chickens. See App. 4a. 8 finding that the Secretary might not have promulgated the challenged regulations if the Secretary had correctly understood that compensation is a statutorily required ele- ment of such a program. The Court of Appeals then re- jected Rose Acre’s other challenges to the regulations, in- cluding its claim that the regulations are not rationally related to disease control. In doing so, the Court of Ap- peals criticized the District Court for conducting any hearing at all, and repeatedly invoked the principle of def- erence to administrative agency determinations. F.g., Id. at 9a (“Congress called for the judgment of the Secre- tary, not the judgment of a court, on the appropriate re- sponse to diseases carried by animals.’’). REASONS FOR GRANTING THE WRIT This case presents an interesting vehicle for the Court to clarify the appropriate role of courts in reviewing ad- ministrative agency actions. Courts routinely struggle with determining urder what circumstances a regula- tion should be declared unlawful as not supported by the record. While the dogma is clear that policy decisions and scientific judgments are for regulators to formulate, this case illustrates how courts can make fundamental policy decisions under the guise of legal analysis, while at the same time paying lip service to deference to administra- tive decision-making. At the outset of the agency’s consideration of the regu- lations at issue, the Secretary conducted a cost/benefit analysis. Such analysis goes to the very heart of policy- making and the administrative function. After reviewing -policy options that included an expensive proposal from the United States Food and Drug Administration to test all egg-laying chicken flocks for SE, the Secretary de- signed a regulatory scheme that, in the opinion of the Secretary, would not require the expenditure of increas- ingly scarce public funds to indemnify owners whose flocks are restricted under the regulations. After holding that the Secretary’s conclusion that he did not have to 9 pay compensation as a part of the regulations was con- trary to law, the District Court reviewed the administra- tive record and concluded that the Secretary might not have implemented the regulatory scheme if he had known that compensation is required. As a result, the District Court invalidated the regulations, sending the matter back to the agency to decide whether to proceed with the regulatory scheme, even if the government has to pay for the chickens and eggs destroyed under its provisions. The Court of Appeals, on the other hand, emphatically believed that there was a “right” legal answer to this quintessential policy question. In the Court of Appeals’ opinion, it would be “inappropriate to halt the regulatory program” simply because public funds, rather than pri- vate funds, would have to be used to pay for the destruc- tion resulting from the program. But the Secretary never made the decision to go forward with the regulations on that basis. Sound principles of judicial review of admin- istrative decision-making require that judges not make such decisions. However, the Court of Appeals did just that, in so doing, misconceived the nature of its role in reviewing the regulations at issue. Reconciling the con- flicting policies involved and making the kinds of cost/ benefit analyses that a regulator must make in allocating scarce public resources are not judicial functions. This case also merits review to address the appropriate methodology a reviewing court should employ when con- fronted with a regulation containing an invalid provision. The Court of Appeals proceeded on the premise that if a portion of the regulations were invalid, the invalid provi- sion could simply be excised even though the administra- tive record indicated that the regulatory scheme was based on the invalid provision. That proposition is squarely at odds with the decisions of this Court and at least one other court of appeals. This Court should take the opportunity to clarify the rules with respect to judicial severance of a portion of a regulation when the issue was not explicitly addressed by the administrative agency. 4 ] 1 10 The decision below also presents the recurring issue of general importance of whether a district court has juris- diction to declare a rule against compensation unlawful. The Court of Appeals apparently concluded that, because declaring unlawful the Secretary’s rule against compen- sation might ultimately lead to the payment of money, the Claims Court should hear the challenge. That decision conflicts with this Court’s decision in Bowen v. Massa- chusetts, 487 U.S. 879 (1988), and the decisions of the Courts of Appeals for the District of Columbia and Third Circuits. I. THE COURT OF APPEALS IMPROPERLY RE- SOLVED FUNDAMENTAL POLICY ISSUES The District Court identified two independent deficien- cies in the administrative record for the SE Regulations. First, the SE Regulations are unlawful under 21 U.S.C. § 134a(a) and (b) because the regulations, in effect, order destruction of chickens and eggs even though the Secre- tary did not declare a state of emergency as required by Section 134a as a prerequisite to such an order of de- struction. Second, the District Court held that the SE Regulations are unlawful because the Secretary based the design of the regulations on the erroneous assumption that the agency would not have to pay compensation to the flock owners. The Court of Appeals’ opinion is predicated on an alarmist characterization of the risks of salmonella.’ App. la-2a. But the court’s rhetoric about a public health emergency is unsupported—the Secretary’s record ex- plicitly rejects that characterization. 56 Fed. Reg. at 3731. In reversing the District Court, the Court of Ap- peals usurped the Secretary’s administrative function (a) by disregarding the Secretary’s position expressed in the administrative record that conditions do not warrant destruction of birds and eggs and (b) by deciding that it would be “inappropriate to halt the regulatory pro- 7 But see notes 1 and 2 supra. 11 gram” if the agency must pay for the destruction result- ing from the program, without allowing the agency to decide whether to halt or modify the program. A. The Secretary’s Finding that No Emergency Exists Precludes the Secretary From Ordering Destruc- tion of Birds and Eggs As the evidence at trial conclusively demonstrated and as the District Court held, the SE Regulations effectively destroy the economic value of the restricted chickens and eggs. App. 44a-45a; Appellee’s Brief at 22-25. The Court of Appeals observed, without deciding the issue, that “laln ‘alternative’ that is less attractive financially than slaughter is the functional equivalent of a command to destroy the animals.” App. 4a. The destruction ordered by the Secretary under the SE Regulations brings the regulations within the scope of 21 U.S.C. § 134a, which authorizes the Secretary to order destruction of animals and animal products only if certain emergency conditions exist. The Secretary, however, took the arbitrary position that the SE Regulations are not tantamount to an order of destruction and declared that emergency conditions do not exist with respect to SE. 1. Subsections 134a(a) and (6b) Limit The Secre- tary’s Authority to Order Destruction Under subsections (a) and (b) of § 134a, the Secre- tary may order destruction of animals or animal prod- ucts only if certain conditions exist. Under subsection 134a(a), the Secretary must find that destruction is nec- essary to prevent the interstate spread of a communcable disease and that the animals meet one of three additional criteria. Under the first criterion, the Secretary must find, among other findings, that the animals were han- dled contrary to a statute or regulation. Under the sec- ond and third criteria, the Secretary must find, inter alia, that the animals to be destroyed are moving, or have moved, interstate and are affected with, or were exposed to, “any communicable disease dangerous to livestock or poultry.” Under subsection 134a(b), the Secretary must 12 find both the existence of an “extraordinary emergency” and that the states have responded inadequately to the emergency. These requirements of section 134a define the limited instances in which the Secretary may abandon the cooperative procedures of 21 U.S.C. § 114a to order destruction. Loftin v. United States, 6 Cl. Ct. 596 (1984), aff'd, 765 F.2d 1117 (Fed. Cir. 1985). 2. The Secretary Concluded that SE Does Not Warrant Destruction Under Subsections 134a(a) and (b) In no uncertain terms, the Secretary concluded that circumstances justifying mandatory destruction of chick- ens and eggs under 21 U.S.C. §1384a(a) and (b) are not present in the case of SE. 56 Fed. Reg. at 37381. Although, according to the Secretary, SE does not justify destruction of birds and eggs under the standards of subsections 184a(a) and (b), the Secretary nonetheless promulgated the SE Regulatons because he arbitrarily contended that the restrictions imposed by the SE Regu- lations are not tantamount to an order of destruction under Section 134a. The Secretary concluded that SE does not need to meet the requirements of subsections 134a(a) and (b) for him to impose the restrictions con- tained in the SE Regulations. As the District Court cor- rectly held, the Secretary’s actions were arbitrary and contrary to law. ne B. The Secretary Based His Design of the ‘SE Regula- tions on the Assumption that the Agency Would Not Have to Pay for Chickens and Eggs Destroyed Under the Regulation in designing the SE Regulations, the Secretary was required to and did analyze the cost of the proposed regulations.* The Secretary’s proper goal was to obtain 8 Administrative agencies are required by executive order to con- sider whether their regulatory initiatives will result in a Fifth Amendment taking, thereby requiring compensation. Executive Or- der No. 12630 (March 15, 1988), 53 Fed. Reg. 8859 (March 18, 1988). A second executive order requires that each agency analyze eal ) 13 maximum benefits from his available enforcement dollars. While the District Court deferred to the Secretary’s eval- uation of the benefits of the SE Regulations, the District Court held that (1) the Secretary erroneously concluded that compensation was not due® and (2) the Secretary’s error materially affected his design of the regulations. App. 45a. The District Court thus declared the regula- tions unlawful, forcing the Secretary to reconsider them in light of their true cost to the Treasury.’ Ignoring the administrative law issues, the Court of Appeals simply observed that the Fifth Amendment and 21 U.S.C. § 134a(d) do not require compensation as a prerequisite to a taking. That observation sidesteps the real issue and overlooks the operative subsections of the Statute (te., 21 U.S.C. §184a(a) and (b)). The Court of Appeals sustained the validity of the regulation despite the fact that the Secretary’s decision to impose the re- strictions was based on a material error of law.’ The the costs and benefits of its regulations. Executive Order No. 12291, Feb. 17, 1981, 46 Fed. Reg. 13193 (Feb. 19, 1981). ® The District Court held that the Secretary must pay compensa- tion under both 21 U.S.C. § 134a and the Fifth Amendment to the Constitution of the United States. 1° The Court of Appeals’ decision runs counter to one of the pur- poses of the Fifth Amendment and Section 134a. In addition to ensuring just compensation, the Fifth Amendment and Section 134a operate as moderating forces on government takings by internalizing the cost of such takings. See R. Posner, Economic Analysis of Law § 3.5 (1977). If an agency is allowed to effect takings on the mis- taken belief that compensation is not due, that function is lost. ! Relying on such cases as Monsanto v. Ruckelshaus, 467 U.S. 986 (1984), the Court of Appeals adopted the same approach as a court would use in determining whether a statutory taking contravenes the Fifth Amendment to the United States Constitution. But ad- ministrative agencies, unlike Congress, must provide an adequate statement of basis and purpose for their legislative enactments. A court must be able to review that statement of basis and purpose to make sure that the agency had a rational basis for its legislative rule. Because the Secretary did not believe that the restrictions 14 remedy for that deficiency is not compensation; the rem- edy to which Rose Acre is entitled under the APA is a declaration that the regulation is contrary to law and a remand to the Secretary to design a regulation that is consistent with the statute and the Constitution. Thus far, the Secretary’s key policy decision is that the various costs necessary to obtain the benefits of the regulations are justified 7f Rose Acre and the other egg . producers are the entities that must pay those costs. The Secretary has not decided that the same program would be adopted if, contrary to the regulations, the United States Treasury must pay the costs of his regulatory scheme. The Court of Appeals may not make (and should not have made) that policy decision for him. C. The Court of Appeals Judgment is Contrary to the Principle Established by this Court that Agencies, and not Courts, Should Make Policy Decisions and Scientific Judgments In reversing the District Court’s entry of a declaratory judgment, the Court of Appeals did not properly apply the principle that a regulation must be supported by the administrative record. Bowen v. American Hospital Ass’n, 476 U.S. 610, 626-27 (1986) ; Motor Vehicle Manu- facturers Ass’n v. State Farm Mutual Automobile Ins. Co., 463 U.S. 29, 43-50 (1983). As the District Court held, the SE Regulations are not supported by the record because, among other things, the Secretary explicitly found that the statutorily required emergency conditions do not exist. App. 44a-45a. Indeed, as a result of the Secretary’s mistaken interpretation of the scope of sec- tion 134a, the Secretary himself explicitly found that circumstances do not warrant mandatory destruction. would require him to pay compensation, the Secretary obviously did not explain why the SE program is worth the resources neces- sary to compensate flock owners, and in the absence of that reason- ing, the Court of Appeals may not make that policy decision for the Secretary. 15 The District Court also held that the regulations were based on the erroneous assumption that the agency would not have to pay compensation. If the Secretary wants to change his mind about the propriety of mandatory destruction in the case of SE (with the attendant obliga- tion to pay compensation), he must explain in a state- ment of basis and purpose how SE now meets the re- quirements of subsections 134a(a) and (b) and why the restrictions are worth the cost to the agency. Atchison T. & S.F. Ry. Co. v. Wichita Board of Trade, 412 U.S. 800, 807-808 (1973); Southwestern Electric Power Co. v. FERC, 810 F.2d 289, 290 (D.C. Cir. 1987) ; Independ- ent U.S. Tanker Owners Comm. v. Dole, 809 F.2d 847, 852 (D.C. Cir.), cert. denied, 484 U.S. 819 (1987). The Court of Appeals was not free to make those deter- minations; the Secretary must make them. Chevron USA v. Natural Resources Defense Council, Inc., 467 U.S. 837, 866 (1984) (‘“[F]Jederal judges—who have no constitu- ency—have a duty to respect legitimate policy choices made by those who do. The responsibilities for assessing the wisdom of such policy choices and resolving the strug- gle between competing views of the public interest are not judicial ones: ‘Our Constitution vests such responsibilities in the political branches,’” (citation omitted). In this - respect, the decision below does not represent merely an incorrect application of well-settled principles of law to the facts of a particular case. Rather, this case, properly analyzed, will demonstrate to the lower courts that Chevron is not a direction to rubber-stamp administra- tive determinations, but instead requires the art of judg- ing to differentiate the decisions properly reserved to judges from policy questions that should De resolved by administrators. The Court of Appeals took the position that the alleged inconsistency between the statutory mandate (which re- quires compensation) and the regulations purportedly promulgated to implement that statutory mandate (which do not provide compensation) does not present an obsta- 16 cle to implementation of the program. App. 6a-7a. This rather extraordinary position resulted from the Court of Appeals’ fundamental policy choice that the program should proceed even if the agency must bear the cost. Chevron, however, above all emphasizes that the role of the reviewing court is to ensure that regulations are consistent with a clearly expressed statutory mandate. When that mandate delegates decision-making authority, Chevron mandates deference to reasonable policy choices that fill gaps left by Congress; when the mandate requires that a program be designed to contain certain features (e.g., requiring compensation), it is the duty of the court to ensure that the administrator promulgates regulations that incorporate those features. The courts must police the boundaries between legiti- mate administrative policy-making and administrative expedience. When an agency deviates from the statutory language that provides direction to the administrator in promulgating regulations, the proper remedy is to invali- date the regulatory scheme.” II. THE PROPER REMEDY FOR THE SECRETARY’S UNLAWFUL RULE AGAINST PAYING COMPEN- SATION IS TO DECLARE THE SE REGULATIONS UNLAWFUL IN THEIR ENTIRETY This case also involves the recurring question of the appropriate judicial response when confronted with a regulatory scheme containing an invalid provision. The District Court correctly held that the rule against com- 12 The courts remain the final authorities on issues of statutory construction and hence should not rubber-stamp administrative con- structions and provisions that are inconsistent with the plain lan- guage of the statute or the statutory mandate or that defeat the obvious purpose that Congresss specifically sought to implement. SEC v. Democratic Senatorial Campaign Committee, 454 U.S. 27, 32 (1981); SEC v. Sloan, 436 U.S. 103, 117-18 (1978); FMC v. Seatrain Lines, Inc., 411 U.S. 726, 745-46 (1973); Volkswagenwer!: v. FMC, 390 U.S. 261, 272 (1968); NLRB v. Brown, 380 U.S. 278, 291 (1965) ; FTC v. Colgate Palmolive Co., 380 U.S. 374, 385 (1965) ; Social Security Board v. Nierotko, 327 U.S. 358, 369 (1946). 17 pensation is inextricably bound to the other substantive provisions of the SE Regulations. App. 45a. The Court of Appeals held that if the Secretary’s statement consti- tutes a rule,’ the Claims Court could declare that rule unlawful and excise it from the rest of the SE Regula- tions. App. 7a. That holding is inconsistent with prior decisions of this Court and creates a conflict among the circuits on this fundamental question of judicial review of administrative agency action. The issue merits further analysis by this Court to provide principles to guide the lower courts on this important issue. A. The Better Reasoned Cases Hold that the Admin- istrative Record Must Support Severability Before a Court May Declare A Regulatory Scheme Only Partially Unlawful In holding that the Claims Court could provide com- plete relief, the Court of Appeals failed to apply the proper test for deciding whether the Claims Court could sever the non-indemnification rule from the rest of the SE Regulations. The decision below asserts that the remedy for an invalid regulatory provision is simply to “excise” it, App. 7a, notwithstanding the uncontested District Court finding that the agency might not have adopted the regulations if the agency understood that public funds were required to compensate egg producers. The Court of Appeals apparently accepted the Secretary’s 13In Parts II and III of this Petition, petitioner assumes that the District Court correctly held that the Secretary’s statement that the agency will not pay compensation constitues a rule. Be- cause (1) the District Court went through exhaustive analysis in reaching its conclusion, (2) the Secretary did not challenge that conclusion on appeal and (3) the Court of Appeals merely rejected the District Court’s analysis and authority without any analysis or authority of its own (App. 7a), Rose Acre need not spend much time on that issue here. The Secretary’s statemeni that he would pay no indemnification came in the statement of basis for the SE Regulations, in response to several comments requesting that the Secretary revise the SE Regulations to include a compensation provision. Rose Acre is challenging the SE Regulations as a whole, including the lack of an indemnity provision in those regulations. 18 argument that, “the regulation . . . should be treated as severable unless: (1) there are affirmative indications of a contrary agency intent; or (2) severing the defective provision would impair the functioning of the underlying statute. K-Mart Corp. v. Cartier, 486 U.S. 281, 294 (1988).” Appellants’ Brief at 47. But that statement of the law is incorrect. Although the discussion of this point in K-Mart is subject to different interpretations," it should not be read to hold that there is a presumption that a court may sever a portion of a regulation unless the agency has expressed an “affirmative” indication that the agency intended the rules to be inseparable. Quite the contrary, this Court has held (when analyzing this issue in more depth than in K-Mart) that a court may not sever a portion of a regulation from the rest of a regulatory scheme unless the record establishes that the agency would have promulgated the lawful portions of the reglation even without the unlawful portions. F.P.C. v. Idaho Power Co., 344 U.S. 17, 20-21 (1952); Addison v. Holly Hiil Fruit Products, Inc., 322 U.S. 607, 618-19 (1944). The better reasoned decisions of courts of appeals are diametrically opposed to the decision of the Seventh Cir- cuit on this issue. In North Carolina v. F.E.R.C., 730 F.2d 790, 796 (D.C. Cir. 1984), Judge (now Justice) Sealia wrote: “Where there is substantial doubt that the agency would have adopted the same disposition regard- ing the unchallenged portion if the challenged portion were subtracted, partial affirmance is improper.” Indeed, for a court to sever a regulation under any other circum- stance would be to invade the policy-making province of the agency. McCullough Gas Processing Corp. v. Depart- ment of Energy, 650 F.2d 1216, 1229-30 (Tem. Em. Ct. App. 1981). As with any instance in which a court corrects 14 The Court in K-Mart severed a portion of a regulation after observing that “[t]he severance and invalidation of this subsection will not impair the function of the statute as a whole, and there is no indication that the regulation would not have been passed but for its inclusion.” 486 U.S. at 294. ‘ 19 an agency’s error of law, if there is any question as to whether the agency would have proceeded with the reg- ulation, the proper procedure is to remand the case to the agency. See NLRB v. Enterprise Ass’n, 429 U.S. 507, 522 n.9 (1977) (“When an administrative agency has made an error of law, the duty of the Court is to ‘correct the error of law committed by that body, and, after doing so, to remand the case to the [agency] so as to afford it the opportunity of examining the evidence and finding the facts as required by law.’”’) (citation omitted). That is critical here because it is clear that the Secretary based the design of the SE Regulations on the assumption that he would not have to pay compensation.” After reviewing the administrative record, the District Court correctly held that there is substantial doubt that the Secretary would have adopted the regulatory scheme had he known that the government would have to pay compensation.'® B. Strong Policy Considerations Demand that a Court Show Restraint In Severing Portions of a Regula- tion The test developed for determining the severability of statutory provisions is not the appropriate test for deter- mining the severability of regulatory provisions. Unfor- tunately, a number of decisions employ the wrong test. E..g., Faucher v. Federal Election Commission, 928 F.2d 468, 472 (1st Cir.), cert. denied, 112 S. Ct. 79 (1991); Massachusetts v. HHS, 899 F.2d 58, 76 (1st Cir. 1990), vacated on other grounds, 111 S. Ct. 2252 (1991) ; Com- munity For Creative Non-Violence v. Turner, 893 F.2d 1387, 13894 (D.C. Cir. 1990). The guiding principle in 15 See Part I, supra. 16 The ultimate question for this Court is the same whether or not the Secretary’s statement denying compensation in the preamble to the final SE Regulations constitutes a formal rule. In either case, the test is whether the record evidences the Secretary’s intent to proceed with the SE Regulations in their present form even if he has to pay for the birds and eggs destroyed under those regulations. As explained above, it does not. 20 both cases is the intent of the enacting body, but there is a significant difference in the appropriate analysis. The necessity of an administrative record, including an adequate statement of basis and purpose, and a district court’s power to remand a case to an agency for further proceedings, make a court’s role more limited in the case of a regulation." Congress has required that agencies provide an ade- quate statement of basis and purpose for regulations. Therefore, when a court holds only a portion of a regula- tion invalid, it should be clear from the administrative record that the agency would have promulgated the re- maining portions without the invalid portion. As with any regulation, the administrative record must support the remaining portions of the regulation. If there is am- biguity, the court should remand the case to the agency for further proceedings. The Court should take this oppor- tunity to clarify the proper role for a court when fashion- ing a remedy for a regulation containing an invalid provision. Ill. THE COURT OF APPEALS’ HOLDING THAT A CHALLENGE TO THE SECRETARY’S RULE AGAINST COMPENSATION BELONGS IN THE CLAIMS COURT CONFLICTS WITH BOWEN v. MASSACHUSETTS AND WITH DECISIONS IN OTHER CIRCUITS The final issue presents an opportunity for the Court to define further a district court’s jurisdiction to declare contrary to law an agency’s rule against payment of money. The Court of Appeals concluded that Rose Acre’s challenge to the SE Regulations was within the District 17 In contrast, a statutory provision is presumed severable if what remains after severance is fully operative as law. INS v. Chadha, 462 U.S. 919, 934 (1983). Because the Constitution obviously does not require that Congress develop anything like an administrative record for its statutes, when a court decides whether to sever a portion of a statute, the court is not confronted with the question whether a record adequately supports the remaining portion of the statute. Moreover, courts may not remand statutes to Congress for further development of a record. 21 Court’s jurisdiction. But after ruling that the Secretary’s denial of compensation did not justify invalidating the SE Regulations in their entirety, the Court of Appeals further held that the Claims Court, and not the District Court, should hear Rose Acre’s challenge to the Secretary’s rule denying compensation.’* The Court of Appeals’ refusal to affirm even the portion of the District Court’s judg- ment invalidating the Secretary’s non-indemnification rule is squarely at odds with this Court’s decision in Bowen. In this respect, it presents important recurring issues affecting a district court’s jurisdiction resolved incon- sistently by the courts of appeals.” A. The Court of Appeals’ Decision Is Inconsistent with Bowen and its Progeny 1. Bowen v. Massachusetts The Claims Court has jurisdiction under the Tucker Act (28 U.S.C. § 1346) to hear claims for money dam- ages over $10,000 against the United States and predi- -eated on a constitutional provision, statute or regulation, among other things. Bowen, 487 U.S. at 910 n.48. Ap- parently relying on the Tucker Act, the Court of Appeals concluded that a challenge to the Secretary’s rule against paying compensation belongs in the Claims Court. The reasoning of Bowen, however, explains why the District 18 Rose Acre filed a complaint in the United States Claims Court on May 5, 1992. That fact does not affect the merits of this peti- tion because a favorable decision in the Claims Court will not render this case moot. The Claims Court cannot invalidate the SE Regulations and protect Rose Acre from further irreparable injury. 19 This case presents important substantive issues as well. As the Secretary promulgates regulations in the future, he should have clear guidance regarding the circumstances under which he must compensate farmers for restrictions on movement and sales of animals and animal products. Restrictions such as those imposed under the SE Regulations can have a dramatic impact on farmers. For example, in the five months before trial, the Secretary required Rose Acre to divert 180 million eggs worth $10.2 million. 7th Cir. Supp. App. 32-33. 22 Court, not the Claims Court, had authority to declare the rule unlawful. In Bowen, this Court addressed the question whether the Commonwealth of Massachusetts could challenge in a district court the decision of the Secretary of Health and Human Services to deny reimbursement for a particular program under Medicaid. The Court held that because the Commonwealth sought relief prospective in its effect and because the Claims Court could not provide an adequate remedy, the district court could properly consider the Commonwea!lth’s claim.” Like the plaintiff in Bowen, Rose Acre, as a part of its challenge to the validity of the SE Regulations, chal- lenged the Secretary’s rule denying indemnity. Also like the plaintiff in Bowen, Rose Acre sought declaratory re- lief as to the prospective operation of a rule, not a deter- mination regarding any sum certain of money due Rose Acre for past injury. In this case, the District Court clearly had jurisdiction under Bowen to declare unlawful the rule against indemnification. And here, as in Bowen, “the doubtful and limited relief available in the Claims Court is not an adequate substitute for review in the Dis- trict Court.”” Bowen, 487 U.S. at 901. Indeed, the Court of Appeals’ decision relegates Rose Acre to a manifestly inappropriate forum that lacks the basic authority to adjudicate the prospective challenges 20 Although the Court of Appeals’ decision in this case is clearly inconsistent with this Court’s decision in Bowen, several commenta- tors have suggested that the jurisdiction of the Claims Court under Bowen is quite confusing. Fallon, Claims Court at the Crossroads, 40 Cath. U. L. Rev. 571 (1991); Noone and Lester, Defining Tucker Act Jurisdiction After Bowen v. Massachusetts, 40 Cath. U.L. Rev. 571 (1991); Sisk, Two Proposals to Clarify the Tucker Act Juris- diction of the Claims Court, 37 Fed. Bar News & J. 47 (1990); Webster, Choice of Forum in Claims Litigation, 37 Fed. Bar News & J. 534 (1990); Bowman, Bowen v. Massachusetts: The “Money Damages Exception” to the Administrative Procedure Act and Grant-in-Aid Litigation, 21 Urb. Law. 557 (1989); Sisk, Tucker Act Appeals to the Federal Circuit, 36 Fed. B. News & J. 41 (1989). 23 that Rose Acre has advanced and to fashion appropriate equitable relief. As this Court explained in Bowen: The Claims Court does not have the general equitable powers of a district court to grant prospective re- lief, Indeed, we have stated categorically that “the Court of Claims has no power to grant equitable relief.” Bowen, 487 U.S. at 905 (footnote and citation omitted). 2. Decisions by the District of Columbia and Third Circuits Because other circuit courts of appeals have followed Bowen, the Court of Appeals’ decision in this case creates a conflict among the circuits. The District of Columbia and the Third Circuits have confronted the question whether a district court has jurisdiction to hear a pro- spective challenge to an administrative determination that no compensation is due under a statute, and both cir- cuits have held that a district court is the proper forum.” In Esch v. Yuetter, 876 F.2d 976 (1989), the District of Columbia Circuit held that a district court could hear a challenge to the denial of benefits by the Secretary of ad Agriculture under two federal farm subsidy programs.” 21 Although it is a pre-Bowen case, the decision in Sarasota v. EPA, 799 F.2d 674 (11th Cir. 1986), follows the rationale of Bowen in holding that a challenge to the criteria for determining grant awards under the Federal Clean Water Act was properly considered by the district court, and not the Claims Court. 22 The District of Columbia Circuit considered another challenge to a regulation denying compensation in Beverly Hospital v. Bowen, 872 F.2d 483 (D.C. Cir. 1989). There, several hospitals brought an action challenging a regulation of the Secretary of Health and ‘duman Services (“HHS”) that deny compensation under Medicaid for copying costs related to patient records. The district court found the regulation unlawful under the Medicaid statute. The question presented in that case was not whether the court could hear the challenge, but whether the court should go one step further and order HHS to pay money for copying costs previously incurred by the hospitals. Interpreting this Court’s decision in Bowen, the court of appeals held that the district court should ensure that HHS paid compensation for copying costs previously incurred. 24 The plaintiffs in Esch contested the Secretary’s determi- nation that they qualified as only one- and two-person farms for certain price support and set-aside programs, respectively, rather than as a nine-person farm. Esch, 876 F.2d at 988; see also, Esch v. Lyng, 665 F. Supp. 6 (D.D.C. 1987). The Court of Appeals held that the dis- trict court had jurisdiction of the claim under Bowen. Esch, 876 F.2d at 985.*8 The Third Circuit likewise agrees that, under Bowen, a plaintiff may challenge a regulation that denies proper compensation. In Zellous v. Broadhead Associates, 906 F.2d 94 (8rd Cir. 1990), tenants brought an action against the United States Department of Housing and Urban Development (“HUD”) to challenge HUD’s deter- mination not to make timely adjustments in a utilities allowance. HUD’s decision not to adjust the allowance meant that the tenants had to pay higher rent than they were obligated to pay under the United States Housing Act of 1937. The tenants sought an injunction and declar- atory relief requiring the government to increase the amount of reimbursement paid to landlords and directing reimbursement of expenses that HUD should have paid. The court concluded that, under Bowen, the relief sought was not money damages and, therefore, that the district — court had jurisdiction. The Court of Appeals’ decision in this case is entirely inconsistent with Esch and Zellous. In the District of Columbia and Third Circuit cases, as in this case, the plaintiffs sought to correct a rule that denied them com- 23 District courts in the District of Columbia Circuit have fol- lowed the Esch decision, holding, for example, that a district court has jurisdiction to consider a prayer for a declaration of the piain- tiff’s entitlement to reimbursement of funds withheld under a farm subsidy program. Peterson Farms I v. Madigan, 782 F. Supp. 1 (D.D.C. 1991). The district court also has held that it has jurisdic- tion to hear the challenge by certain dairy farmers to the Secre- tary’s denial of compensation under the Dairy Termination Pro- gram. Vandervelde v. Yeutter, 774 F. Supp. 645 (D.D.C. 1991). sali iia ici | 25 pensation from a federal agency. Indeed, jurisdiction in this case is even clearer because a determination that the SE Regulations are tantamount to an order of de- struction under Section 134a was only a part of the relief requested. Rose Acre sought a declaration under the APA that the SE Regulations are unlawful in their entirety for several reasons, including that the regula- tions are not rationally related to disease control. Even if the Court of Appeals had been correct in refusing to declare the SE Regulations unlawful in their entirety (and it was not), the Court should have followed Bowen and its progeny and affirmed the District Court’s declara- tion that the non-indemnification rule is unlawful. B. Rose Acre’s Claim Presents Important Federal Pro- cedural Issues Confusion about which court has jurisdiction over a particular category of claims can waste judicial resources. As Justice Scalia observed in his dissent in Bowen, noth- ing is more wasteful than litigating about where to liti- gate. Bowen, 487 U.S. at 930 (Scalia, J., joined by Rehn- quist, C.J., and Kennedy, J., dissenting). This case is a good example. The Court of Appeals agreed that Rose Acre properly could bring its claim in District Court and ruled against Rose Acre on the merits of several argu- ments. However, the Court of Appeals refused to affirm even the portion of the District Court’s decision pertain- ing to the compensation rule and would have Rose Acre relitigate the issue in the Claims Court, resulting in in- efficient claim splitting. The Court of Appeals’ decision will cause confusion for parties seeking to challenge an agency’s rule against paying money, in part because the Court of Appeals did not clearly establish any principle with respect to when declaratory relief, rather than damages from the Claims Court, is appropriate. In holding that the District Court may not declare unlawful the rule against indemnification, the Court of Appeals seemed to base its decision on the 26 fact that such a holding might, in effect, ultimately lead to the payment of money. That approach is erroneous. There is no reason to believe that the Claims Court has any special expertise in deciding claims based on the Secretary’s complex agricultural subsidy and compensa- tion programs. Indeed, Bowen recognizes that district courts are better suited to resolve claims involving such complex and ongoing programs. Bowen, 487 U.S. at 907-08." Ultimately, the “question whether the District Court has the power to enter the order it did is governed by the plain language of 5 U.S.C. 706. It seems perfectly clear that, as ‘the reviewing court,’ the District Court had the authority to ‘hold unlawful and set aside agency action’ that it found to be ‘not in accordance with law.’ ” Bowen, 487 U.S. at 911. (footnote omitted). The Court of Appeals’ judgment to the contrary incorrectly decided a recurring question of general importance in a manner inconsistent with decisions in other circuits. 24 The District Court is also a more appropriate forum in which to hold a hearing on the issues presented by such challenges. The Court of Appeals’ criticism of the District Court in this case for holding a hearing, see App. 10a, is unfounded and based on an incorrect statement of the law. The District Court properly recog- nized that “ ‘the focal point for judicial review should be the ad- ministrative record already in existence, not some new record made initially in the reviewing court.’” App. 22a. (quoting Florida Power and Light Co. v. Lorion, 470 U.S. 729, 743 (1985)). The District Court canvassed the relevant case law, finding situations in which evidentiary hearings are appropriate, including, inter alia, when the reviewing court needs additional evidence to assist it in under- standing the technical issues presented by the administrative record. 27 CONCLUSION For the foregoing reasons, the Petition for a Writ of Certiorari should be granted. Respectfully submitted, BRIAN K. BURKE Counsel of Record JOHN R. SCHAIBLEY, III BRADLEY MERRILL THOMPSON DAVID A. GIVEN BAKER & DANIELS 800 North Meridian Street Suite 2700 Indianapolis, Indiana 46204 (317) 237-0300 Counsel for Petitioner, Rose Acre Farms, Inc. APPENDIX la APPENDIX A IN THE UNITED STATES COURT OF APPEALS FOR THE SEVENTH CIRCUIT Nos. 91-2358 and 91-2514 ROSE ACRE FARMS, INC., Plaintiff-A ppellee, Cross-A ppellant, V. EDWARD MADIGAN, Secretary of Agriculture, et ai., Defendants-A ppellants, Cross-A ppellees. Appeals from the United States District Court for the Southern District of Indiana, New Albany Division No. NA 90-175-C—S. Hugh Dillin, Judge ARGUED DECEMBER 6, 1991—DEcIDED FEBRUARY 10, 1992 Before BAUER, Chief Judge, and EASTERBROOK and KANNE, Circuit Judges. EASTERBROOK, Circuit Judge. The bacterium Salmo- nella- enteritidis serotype enteritidis produces a violent illness, accompanied by fever, diarrhea, and vomiting, often requiring hospitalization. In the young, the old, and those weak for other reasons, salmonella can be fatal. 2a (For convenience we call both the bacterium and the dis- ease “salmonella.”’) Milk and poultry products provide nutrients for the bacterium, and improperly handled food is its principal vector. An upsurge in reported instances of salmonella transmitted through food led federal officials to inquire why. One distressing possibility: a mutated form of the bacterium passes from chicken to egg before the shell forms, lying in wait to cause disease whenever the eggs are not cooked. As some persons use raw eggs to make hollandaise sauce and Caesar salads, and others do not store or cook eggs properly, the presence of bacteria poses a danger to public health. Hotels, nursing homes, and restaurants may use hundreds of eggs to produce batches of food. If even one egg contains salmonella, the batch will be contaminated; if the mixture sits at room temperature between steps in the preparation, the bac- teria multiply rapidly. The Department of Agriculture issued regulations that it believes will reduce the risk of salmonella transmitted in eggs. 56 Fed. Reg. 3730 (Jan. 30, 1991), to be codified at 9 C.F.R. §§ 82.30-82.38. (Amendments at 57 Fed. Reg. 776 (Jan. 9, 1992), do not affect our case.) After sal- monella strikes, federal officials try to find the source of the food that the victims ate. When eggs are involved, the Department tests both the chickens and their surround- ings for the bacterium. While the testing is underway— and afterward, if salmonella is found in either the birds or their environment—the producer may not sell eggs from that flock for consumption as table eggs. Until the flock has been certified salmonella-free, the owner may sell the birds for meat or may sell the eggs to “breakers” (firms that incorporate the eggs into other products, such as cake mixes, after pasteurization that eliminates all risk of salmonella), but may not sell whole eggs in cartons. Under this approach risk to consumers falls close to zero. The producer pays for the consumers’ gain. Whole table eggs fetch a higher price than eggs sold to breakers, 3a and layer hens are worth much more when producing eggs than when slaughtered. A ban on the sale of whole eggs can turn a profitable operation into a losing one—and the loss may be substantial when the producer is specialized to the production of table eggs, as Rose Acre Farms is. See A.A. Poultry Farms, Inc. v. Rose Acre Farms, Inc., 881 F.2d 1396, 1407-08 (7th Cir. 1989). Salmonella has been traced to three of Rose Acre’s flocks, and the firm filed this suit under the Administrative Procedure Act seeking an end to interference with its sale of whole eggs. Rose Acre advanced three principal challenges to the regulations: first that they are beyond the power of the Department of Agriculture because they protect consum- ers rather than animals; second that any belier that sal- monella in chickens poses a risk to consumers (or that these regulations would alleviate the problem) is arbi- trary; third that the Department’s unwillingness to offer compensation for the loss created by the ban invalidates the rules. The district court rejected the first two lines of argument but accepted the third. 1991 U.S. Dist. LEXIS 8691 (S.D. Ind.). The court went on to hold that the testing provisions in one rule are independently invalid. The Department of Agriculture has appealed. So has Rose Acre—a puzzling step, as it won in the district court. A prevailing party is entitled to advance in support of its judgment all arguments it presented to the district court. It need not and should not file a cross-appeal just because the district judge rejected one of its arguments on the way to deciding in its favor. Massachusetts Mutual Life Insurance Co. v. Ludwig, 426 U.S. 479 (1976) ; Jordan v. Duff and Phelps, Inc., 815 F.2d 429, 439 (7th Cir. 1987). I We start with the reason the district court gave for annulling the regulations—that Rose Acre is entitled to compensation. There are three potential sources of obliga- tion to compensate: the takings clause of the fifth amend- 4a ment and two statutes, 21 U.S.C. §§114a and 184a(d). The Secretary of Agriculture believes that none of these requires compensation, not only because he has not or- dered the destruction of any animal but also because the owners may make productive use of their birds by selling the eggs to breakers. To this Rose Acre replies that it is impossible to eliminate the bacterium from the environ- ment without “depopulating” the chicken coops (a eu- phenism for killing the hens). Allowing famers to sell the eggs or hens diminishes the loss but does not remove the directive from the category of takings. Although the Secretary draws a bright line between ordering the destruction of the birds and ordering their owners to take other actions that lead to loss, we suppose that even the Department of Agriculture would concede that giving the owner a choice between killing the birds and lofting them into orbit (in pressure suits, so they do not die) is the equivalent of an order to destroy the birds. An “alternative” that is less attractive financially than slaughter is the functional equivalent of a command to destroy the animals. And after United States v. Causby, 328 U.S. 256 (1946), it is hardly possible to say that only the transfer or physical destruction of property is a “‘tak- ing.” Airplanes flying low over a chicken farm caused some birds to die from fright; surviving birds laid fewer eggs. The diminution in the value of the farm was a “taking,” the Court held. Perhaps an order justified by the need to prevent the spread of disease does not call for compensation under the Constitution, see Miller v. Schoene, 276 U.S. 272 (1928), but Rose Acre observes that § 1384a requires payment even when the destruction is justified by contagion. Before issuing the regulations, the Secretary concluded that neither the Constitution nor a statute requires com- pensation. The preamble to the regulations states that the Department “does not intend to authorize payments of claims for chickens voluntarily destroyed, to order man- seeeeneraaiceseaiaaa acta iiislaaiaiiaiaiiiiiiiieal 5a datory depopulation of infected chicken flocks and pay indemnities to the owners of destroyed chickens, or to make indemnity payments for eggs sold for pasteuriza- tion.” 56 Fed. Reg. at 8731-32. The district judge thought otherwise. Holding that compensation is due under § 134a if not directly under the fifth amendment, the district court set aside the regulations themselves. No compensation, no regulation. If either a statute or the Constitution requires compen- sation, one would suppose, the right way to proceed is to order payment, not to permit the sale of eggs that may kill people. What induced the district court to scratch out the regulations rather than to order payments is the Tucker Act’s allocation of jurisdiction between district courts and the claims court. Only the claims court may award more than $10,000 against the United States on account of claims under the Constitution or statutes such as §134a. Compare 28 U.S.C. § 1346(a) (2) with 28 U.S.C. §1491(a) (1). Because the district court could not give Rose Acre the money to which that court believed it entitled, the court instead ordered the Secretary to cease the acts that gave rise to the need for compensation. The Secretary contends that the district court lacks such power because the United States has not surrendered its immunity from suit, but this argument is unavailing. The APA allows judicial review of agency actions, and Congress has terminated sovereign immunity when the suit does not involve “money damages.” 5 U.S.C. § 702. Rose Acre did not obtain money damages, did not even obtain an order that will lead to damages. Instead the judge issued an order that eliminates the need for dam- ages. Such an order is within the court’s subject-matter jurisdiction. See Bowen v. Massachusetts, 487 U.S. 879 (1988). Jurisdiction to enjoin enforcement of the regulations is not the problem. Instead the difficulty lies in the 6a choice of remedy. If indeed the Constitution or a statute calls for compensation—a question on which we express no view—then setting aside the regulation is the wrong remedy. Compensation is the right one. The district court held the regulations invalid only because it could not award compensation. Yet Rose Acre’s decision to file this suit in a court that cannot award the proper remedy hardly entitles it to some substitute and inappro- priate remedy. Rose Acre asked the district court to forbid acts that it believes “take” its eggs, and the court obliged. But the takings clause does not forbid takings; it requires compensation for takings. It reads: “nor shall private property be taken for public use, without just compensa- tion.” No one doubts that if these regulations “take” Rose Acre’s property, the taking is for “public use”. Cf. Berman v. Parker, 348 U.S. 26 (1954). If compensa- tion is forthcoming, the Constitution allows the taking. The Tucker Act offers whatever compensation the Con- stitution requires. Rose Acre does not contend that the Tucker Act has been repealed by any of the agricultural statutes. Access to payment under the Tucker Act means that the taking may proceed. That a district court can- not order payment is irrelevant; the question is whether the United States will supply “just compensation.” Through the claims court it will (if any is due), so there is no justification for interference with the taking. Regional Rail Reorganization Act Cases, 419 U.S. 102, 124-25 (1974); Ruckelshaus v. Monsanto Co., 467 U.S. 986, 1016 (1984); Preseault v. ICC, 494 U.S. 1, 11-12 (1990). Congress could of course create an entitlement to be free of takings in lieu of the constitutional requirement of compensation for takings. Rose Acre does not con- tend that any statute does this. The only statutes perti- nent to the subject, 21 U.S.C. §§114a & 134a(d), are, like the fifth amendment itself, compensation rules rather Ta than obstacles to the taking. Section 134a(d) provides: “Except as provided in subsection (e) of this section, the Secretary shall compensate the owner of any ani- mal, carcass, products, or article destroyed pursuant to the provisions of this section.” Section 114a allows the Secretary to provide compensation in additional cireum- stances. Neither statute offers the slightest foundation for interdicting the order to destroy the animal or agri- cultural product. As the district judge saw things, the warning that the Secretary “does not intend to authorize payments” is equivalent to forbidding payments. We do not read the language so. The Department has announced a litigating position. It believes that neither the fifth amendment nor a statute requires compensation, so it does not plan to pay. Someone who disagrees may repair to the claims court. If, as the district court believed, the Secre- tary is wrong, then the claims court will award com- pensation. If, however, the Secretary is right, then no compensation is due. Either way, it is inappropriate to halt the regulatory program. A court may not insist that the Department trumpet the producers’ view of the law; capitulation is not a precondition to regulation. Even if this is wrong, and a preamble to a regulation has the force of law, the appropriate remedy is to excise the of- fending text, and the appropriate surgeon is the claims court. Rose Acre submits that the claims court lacks “juris- diction” to “invalidate” the “rule” barring compensation. True it is that the claims court lacks general equitable powers, Richardson v. Morris, 409 U.S. 464 (1973), al- though it may award some equitable relief ancillary to an award of money. 28 U.S.C. § 1491(a) (2), (3). See Bowen v. Massachusetts, 487 U.S. at 905-08. Yet whether the claims court can pluck the preamble from the page is no concern of Rose Acre’s. Notwithstanding anything in the Federal Register, the claims court will implement a | 8a the Constitution and federal statutes. If Rose Acre gets just compensation, it has no further interest in the con- tents of musty journals. Almost the entire business of the claims court is awarding money over the opposition of the executive branch; that the executive announces an intention to oppose a given demand is no reason to think the claims court an inadequate forum. Rose Acre must believe that the claims court will de- cide wrongly—that although compensation is due, the claims court and federal circuit will say that payment is unnecessary or will compute the compensation incor- rectly. It should go without saying that the possibility of error by the right forum is no reason for a different forum to award an inappropriate remedy. The chance that the claims court will deny compensation even though money is due is no greater (and may well be less) than the risk that the district court will think compensation due even though it is not. It is to the claims court that Congress has entrusted the task of determining whether a statute or the Constitution requires compensation. It is to the claims court that Rose Acre must go. II The Secretary of Agriculture must “prepare such rules and regulations as he may deem necessary for the speedy and effectual suppression and extirpation of pleuropneu- monia and other dangerous, contagious, infectious, and communicable diseases”. 21 U.S.C. § 114. Sections 111, 114a, and 120 confer similar powers. That salmonella is dangerous and infectious is common ground. Rose Acre observes that salmonella is not dangerous to the animals; it is contagious among animals but does not injure them. According to Rose Acre, only diseases dan- gerous to animals fall within the jurisdiction of the Sec- retary of Agriculture. When the disease is dangerous exclusively to humans, Rose Acre insists, the Food and Drug Administration is the appropriate regulator. The 9a Secretary of Agriculture has neither statutory mandate nor expertise in dealing with human diseases, it submits. (Rose Acre assured us at oral argument that if the FDA had adopted the identical rules, it would not have argued that only the Department of Agriculture has a statutory mandate and expertise in dealing with farm animals. We are not comforted, but our suspicions are neither here nor there.) The district judge rejected Rose Acre’s contention, and properly so. As counsel for the Secretary cracked at oral argument, Title 21 is not animal rights legisla- tion. (The principal means for dealing with diseases are quarantining or killing the animals, not comforting or curing them.) Control of illness among farm animals is for the welfare of humans: to protect our health from diseases animals carry, and to protect our wallets from the costs of sacrificing additional animals should the in- fection spread. Salmonella spreads from animals to peo- ple; it spreads among animals, potentially increasing the financial cost to farmers; and fear of salmonella de- presses the demand for dairy and poultry products, again injuring agriculture. Nothing in the text of §§ 111, 114, 114a, or 120 confines the Secretary to addressing diseases fatal to animals. Any ambiguity in these statutes is for the Secretary to resolve. Section 114 and similar provisions are ex- press delegations of power to make rules. Delegation includes the power to interpret. Contrast Pauley v. Beth- Energy Mines, Inc., 111 S. Ct. 2524, 2534 (1991), with Adams Fruit Co. v. Barrett, 494 U.S. 638, 649-50 (1990). Congress called for the judgment of the Secretary, not the judgment of a court, on the appropriate response to diseases carried by animals. Nothing in these statutes forbids a judgment that danger to humans justifies reg- ulation. Trichinosis may be harmless to pigs, but its sup- pression is within the Secretary’s purview. So too with salmonella. 10a Rose Acre protests that the regulatory scheme is silly. Properly cooked eggs are safe. Bacteria in the eggs therefore are harmless, and it is absurd to expend large sums keeping harmless substances out of eggs. To this the Secretary replies: eggs are not always stored and cooked properly. Kitchen workers may spread salmonella to hundreds of persons by oversight. These negligent workers cannot compensate the victims; even their em- ployers may lack sufficient assets. The costs of careless- ness in the preparation of food can be reduced by more care elsewhere in the food chain, with net savings—or so the Secretary is entitled to conclude. Evidence may be adduced on both sides, but the administrative record supports the Secretary’s conclusion that “scientific evi- dence suggests that SE [salmonella] is passed along to eggs before shell formation occurs if the hen is infected systemically with SE bacteria, and suggests vertical pas- sage of SE from hens to chicks.” 56 Fed. Reg. at 3730. The district court reached the same conclusion inde- pendently after receiving evidence, which is not an ap- propriate procedure. Courts review administrative de- cisions on administrative records; if the record or ex- planation is inadequate, the court should remand the proceedings rather than make its own decision. Cronin v. Department of Agriculture, 919 F.2d 439, 444 (7th Cir. 1990) (“only in an emergency should a reviewing court . . . conduct its own evidentiary hearing.”). In- formal rulemaking under the APA creates both a record and an explanation; the district court should have lim- ited its attention to these. It is the Secretary’s assess- ment of the data, not a judge’s, that the statute makes controlling. We accept the Secretary’s judgment on the Secretary’s record. Cf. FCC v. National Citizens Com- mittee for Broadcasting, 4386 U.S. 775, 796-97 (1978). Even if the Secretary is entitled to curtail the volume of salmonella in eggs, Rose Acre submits, he is not en- titled to do this in an irrational way. These regulations are irrational for two reasons, Rose Acre tells us: first, lla it would be cheaper to test the eggs for bacteria than to eliminate shipments from whole flocks; second, it is whimsical to limit testing and quarantine to flocks iden- tified by tracing back from outbreaks of salmonella. Neither of these possibilities need detain us. Testing for salmonella is expensive and difficult. See General Foods Corp. v. Valley Lea Dairies, Inc., 771 F.2d 1093 (7th Cir. 1985). Testing destroys the eggs; testing even a large sample of eggs from a given flock will not be sufficient if the objective is to assure a very low probability of salmonella in any shipment. The lower the acceptable rate of infection, the greater the proportion of eggs that must be tested. Rose Acre has not suggested a testing regimen that both achieves the Secretary’s ob- jective and costs less than the current regulations. As for tracing: the Secretary is entitled to conclude that working backwards from an outbreak identifies the flocks that pose the greatest risk to humans. Selectivity is the essence of judgment. If grandfather clauses are legitimate, see FCC v. NCCB, 436 U.S. at 802-09, trac- ing rules are not troubling. Of course the match is not perfect. Maybe 1% of all eggs are infected, and tracing catches only luckless suppliers whose eggs fell into the hands of careless food preparers. But if this is so, trac- ing is equivalent to random testing. Often the best way to enforce a rule is by spot checks—testing, say, one of every hundred flocks each year and acting sternly when the test reveals salmonella. A farmer selected randomly for testing could not protest that the Secretary should have tested 2% or 10% of all flocks rather than 1%. Cf. FTC v. Universal-Rundle Corp., 387 U.S. 244 (1967) ; Moog Industries, Inc. v. FTC, 355 U.S. 411 (1958). If the Secretary is right, tracing helps find and deal with the most dangerous sources of salmonella at the least cost; if Rose Acre is right, tracing is the equivalent of random checks; either way, tracing is a lawful strategy. 12a III Although the district court concluded that the rules as a whole are within the Secretary’s power (questions about compensation to one side), it held 9 C.F.R. § 82.38, 56 Fed. Reg. at 3742-43, invalid as arbitrary. Once an outbreak of salmonella has been traced to a source, the flock is tested and, if any test is positive, sales are restricted. If however the producer can show that it maintains “biosecurity” between poultry houses, only the birds in coops where salmonella has been found are deemed infected; the producer can freely sell the eggs from other layers. “Biosecurity means that flock manage- ment procedures are in place to ensure that there is no contact between poultry houses through exposure to chickens, feed, water, manure, equipment, or personnel from other poultry houses.” 9 C.F.R. § 82.30 (definition of “separate poultry house’), 56 Fed. Reg. at 3739. Section 82.38(b) then provides that if any poultry house on a farm is infected, “[a]ll other poultry houses .. . shall undergo monitoring tests . . . until 120 days after the date infected house status is removed from all poul- try houses on the premises.” Monitoring means that a federal or state employee “shall collect manure and egg transport machinery samples from each house .. . at intervals of not less than 45 days and not more than 60 days.” Any house from which a sample is positive for salmonella is designated a “test house,” with shipments restricted until further testing shows it free from sal- monella or the house has been “depopulated” and dis- infected. It is this repetitious testing on farms containing one or more infected poultry houses that the district court deemed arbitrary. Given “biosecurity,” the court thought, there is no reason to believe that a poultry house is at special risk just because some other house on the farm is infected, and therefore no reason for special testing. Grant the premise, and there is also no less reason to ss . 13a suppose that such a house is infected than is any ran- domly selected house at a randomly selected farm. Ran- dom testing is appropriate—indeed, Rose Acre wants the Secretary to do less tracing and more comprehensive or at least random testing—so testing of houses in this fashion also would be appropriate. What is more, the Secretary does not grant the prem- ise. “Biosecurity” under these regulations is not all-or- nothing. It is not as if a “separate poultry house” is in- side a pressurized bubble, with food, water, air, clothing and the farm workers contained therein sterilized as they enter. Not even biological laboratories achieve such isola- tion. It brings a bit of mirth to our grey profession to compare a poultry farm with a center for research into recombinant DNA or a plant where vaccine is manufac- tured—places where greater efforts in the direction of biosecurity cost hundreds of dollars per pound of product. Farms are biologically leaky. Salmonella from the in- fected house may spread to nearby houses despite the best efforts. Testing to find out whether this has happened is a precaution. It may be that the probability of spreading does not justify the costs, but such arguments are for the Secretary and not the court. We repeat, it is the Sec- retary’s view of the costs and benefits of regulation that Congress has made controlling. Many thoughtful persons believe that the Code of Fed- eral Regulations overflows with unjustified, even per- verse, rules; every thoughtful person believes that some of the rules are unjustified. Under the APA, the judicial task is limited to pruning the outliers. If the adminis- trative record does not reveal a compelling need to adopt these regulations in the form the Secretary chose, it as- suredly does not reveal that the regulations are muddle- headed meddlesomeness. How far, and how, to regulate poultry production to curb the risk of salmonella are l4a economic, social, and political rather than legal questions. How far compensation may be necessary is a legal ques- tion, but one for another court. REVERSED A true Copy: Teste: Clerk of the United States Court of Appeals for the Seventh Circuit 15a APPENDIX B UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF INDIANA NEW ALBANY DIVISION No. NA 90-175-C Rose ACRE FARMS, INC., ilies Plaintiff, EDWARD MADIGAN, Secretary of Agriculture of the United States, JAMES W. GLosseR, Administrator, Animal and Plant Health Inspection Service of the United States Department of Agriculture, and the UNITED STATES DEPARTMENT OF AGRICULTURE, Defendants. MEMORANDUM OF DECISION Plaintiff Rose Acre Farms (Rose Acre) seeks a declara- tory judgment that certain regulations promulgated by the United States Department of Agriculture are invalid. The defendant filed two motions to dismiss, which are hereby denied. A hearing was held on April 26, 1991 at which time the plaintiff and the defendants presented evidence. Pursuant to Rule 65(a) (2), F.R.Civ.P., and plaintiff’s motion to consolidate the trial on the merits with the hearing on the preliminary injunction, the Court finds that no further evidence is necessary to resolve the claims before it; there fore the trial of the action on the merits is considered to be advanced and consolidated with the hearing. The Court now makes the following findings of fact and conclusions of law in the form of this memorandum of decision. Rule 52(a), F.R.Civ.P. Background On February 16, 1990, defendants United States De- partment of Agriculture (USDA), the Secretary of Agri- 16a culture, and the Administrator of the Animal and Plant Health Inspection Service (APHIS) of USDA, promul- gated interim regulations purportedly to control the spread of salmonella enteritidis serotype enteritidis (SE). 55 Fed. Reg. 5576, 9 C.F.R. §§ 82.30-82.36 (1990) (In- terim SE Regulation). USDA made the Interim SE Regu- lation effective on February 16, 1990, the date on which it was first published in the Federal Register. The In- terim SE Regulation set up a procedure which, inter alia, restricted interstate movement of table eggs from certain designated poultry flocks. On January 30, 1991, USDA published a final SE regulation (Final SE Regulation), which purports to replace the Interim SE Regulation. 56 Fed. Reg. 3730, 9 C.F.R. §§ 82.30-82.38 (1991). (The Interim SE Regulation and the Final SE Regulation are referred to collectively as the SE Regulations). The Final SE Regulation makes certain modifications and additions to the Interim Regulation. Plaintiff Rose Acre Farms (Rose Acre) is in the busi- ness of producing poultry table eggs for sale, and owns and operates several egg-producing farms. It is, accord- ing to its complaint, the second largest egg producer in the United States. Three of its farms were tied to SE outbreaks in humans. After testing under the Interim SE Regulation, restrictions were imposed at two of its facilities. On December 28, 1990, Rose Acre filed its complaint in this action seeking a declaratory judgment that the In- terim Regulation was invalid in that it (1) deprived Rose Acre of due process, (2) was not promulgated in ac- cordance with the Administrative Procedure Act (APA), 5 U.S.C. § 5511 et seg., (3) exceeded USDA’s statutory authority, and (4) violated Rose Acre’s right to equal protection under the Fifth Amendment to the Constitution of the United States. On February 18, 1991, Rose Acre filed its First Amended Complaint seeking a declaratory judgment that the Interim or the Final Regulations are 17a invalid on the basis that (1) they deprive Rose Acre of due process, (2) the Interim Regulation was not promul- gated in accordance with the APA, (3) both regulations exceed USDA’s statutory authority, (4) the Final Regu- lation may not be applied retroactively, and (5) the regu- lations unlawfully delegate authority to state officials. Rose Acre has now amended its First Amended Complaint adding two new counts. In Count VII, plaintiff claims that application of certain monitoring provisions is in- valid, and in Count VIII, plaintiff claims that it is en- titled to compensation for eggs diverted to pasteurization facilities, hard boiling or export under the SE Regula- tions. Discussion SE Regulations The SE Regulations set out a system of testing and monitoring poultry chicken flocks for SE, and for restrict- ing eggs and other articles deemed infected or at high risk for infection. There are three levels of testing which may be applied to a poultry flock. First level An egg production flock is determined to be a “study flock” when it has been “implicated as the prob- able source of disease in an outbreak of disease in hu- mans or poultry caused by [SE],” or when the flock has received progeny from a breeding flock that has had SE recovered from the internal organs of one or more chick- ens through testing in accordance with other sections of the regulations. 56 Fed. Reg. 3740 (9 C.F.R. § 82.32 (a) ). No restrictions are placed on study flocks unless the per- son in control of the flock refuses to permit further test- ing, in which case the flock automatically becomes a “‘test flock.” 56 Fed. Reg. 3740 (9 C.F.R. § 82.32(b) (1)). Second level. After a flock has been classified a “study flock, tests are conducted upon samples from manure and upon egg transport machinery to determine the existence of SE in the “environment.” Jd. at 3740 (§ 82.32 (b) ). 18a if the flock does not contain separate houses as defined in § 82.30, then the entire flock is deemed a test flock. Sepa- rate houses are those deemed to have biosecurity to pre- vent the transmission of communicable disease to other poultry houses. (§ 82.30). Eggs from a test house or test flock may not be shipped in interstate commerce as table eggs, but may be shipped interstate to pasteurization facilities (also known as “breakers”), for hard boiling at an egg products plant, or for export ' from the United States. Jd. at 3741 (§ 82.33(a)). Third level. After classification as a test flock or house, blood and internal organ samples are collected and tested. Id. at 3740-41 (§ 82.82(c)). If the samples test positive for SE, the flock or house is deemed to be “infected.” Jd. If the samples test negative, then the house or flock is retested. Jd. If the test results are negative again, the flock is determined not to be a study, test or infected flock. Eggs from an infected house or flock are restricted in the Same manner as those from a test house or flock. Jd. at 3741 § 82.33(a)). An infected house is released from infected status when it is depopulated and cleaned to USDA satisfaction or when the house twice tests negative for blood and internal organ samples. (§ 82.32(e) ). In addition to the sampling and testing provision, the Final Regulation contains monitoring provisions which Rose Acre argues have been improperly retroactively ap- plied against it. Application to Rose Acre Rose Acre owns and operates three facilities at which the SE Regulations have been applied. 1 The Court finds it extremely disturbing that eggs which are deemed unfit for sale as table eggs in our domestic market are considered suitable for export to other countries. 19a Cort Acres After a wedding reception held in Kentucky on August 11, 1990, several of the guests reportedly became ill from SE. The Kentucky Department for Health Services (Ken- tucky Health Department) concluded that the sickness had probably been caused by eating hollandaise sauce contain- ing eggs, and that the eggs had come from the Cort Acres Farm, a Rose Acre facility located near Cortland, Indiana. Based, at least in part, on the Kentucky Health Depart- ment’s report, USDA designated the Cort Acres facility a “study flock” under the Interim SE Regulation on Sep- tember 13, 1990. USDA took environmental samples, and later, blood and tissue samples. Nine houses were even- tually designated infected. ' White County Farm A second SE outbreak occurred at the Hyatt Regency Hotel in Chicago on September 30, 1990. The Chicago Department of Health and the Illinois Department of Public Health (collectively, the Illinois Health Depart- ment) jointly investigated the Hyatt outbreak. The Illi- nois Health Department issued a report in which it con- cluded that eggs used in a bread pudding with vanilla sauce desserts were the probable source of the SE out- break, and that the eggs came from the flock at Rose Acre’s White County Farm, in White County, Indiana. Based, at least in part, on the Illinois Health Depart- ment’s report, USDA designated the White County farm a “study flock.” USDA conducted environmental tests on a group of houses known as the second quartile, and then on the first quartile. Based on these tests, USDA declared both quartiles “test flocks” under the SE Interim Regulations. On January 25, 1991, USDA commenced blood and tissue testing on both quartiles. On February 8, 1991, USDA designated the first and second quartiles at the White County farm an “infected flock.” Subsequently, USDA 20a determined that adequate biosecurity existed between the infected and non-infected houses at the White County farm and certain noninfected houses were released from “infected flock” status. Jen Acres On or about October 25, 1990, two families in Ten- nessee reportedly became ill after eating a banana pud- ding dessert. The Tennessee Health Authority issued a report in which it concluded that ®ggs containing SE were the likely cause of the illnesses and that the eggs came from the Jen Acres facility in Jennings County, Indiana. Based, at least in part, on Tennessee Health Authority’s report, USDA designated the Jen Acres facility a “study flock” under the Interim SE Regulation. USDA collected and tested environmental samples from Jen Acres. Based on the environmental test results, USDA desig- nated the Jen Acres flock a “test flock.” USDA then con- ducted blood and tissue tests and based on the test results designated the entire flock and [sic] “infected flock” on February 6, 1991. Restrictions were placed on the inter- state movement of all Jen Acres eggs. On February 7, 1991, USDA advised Rose Acre that it would release one house from infected flock status on the basis of negative environmental sampling and improved biosecurity. Rose Acre claims that it is harmed in many ways by the application of the SE Regulations. It asserts that classification of a flock as a study flock causes a loss of reputation and goodwill. Rose Acre further claims that the “test” and “infected” classifications causes harm in that Rose Acre is forced to sell eggs for pasteurization or hard boiling. The prices received for eggs sold into those markets are far below the prices that prevail for shell eggs. Rose Acre has already had to sell millions of eggs to pasteurizers (or “breakers”) at average prices that are below Rose Acre’s cost for the eggs. There is also appar- ently a tendency for many breakers not to buy restricted 21a eggs as certain food retailers will not accept the liquid eggs made from restricted eggs. Rose Acres claims losses of over $50,000 per day from the restrictions which have been imposed. Rose Acre also alleges harm in that it has spent sub- stantial sums to clean, disinfect, and establish adequate biosecurity among the houses. Scope of Review The scope of review of an agency’s informal rulemak- ing is set forth in 5 U.S.C. § 706, which provides in pertinent part: To the extent necessary to decision and when pre- sented, the reviewing court shall decide all relevant questions of law, interpret constitutional and statu- tory provisions, and determine the meaning or appli- cability of the terms of an agency action. The reviewing court shall— * * + (2) hold unlawful and set aside agency action, findings and conclusions found to be— (A) arbitrary, capricious, an abuse of discretion or otherwise not in accordance with law; (B) contrary to constitutional right, power, privi- lege or immunity; (C) in excess of statutory jurisdiction, authority or limitations, or short of statutory right; (D) without observance of procedure required by law; The scope of review of agency regulations under the arbitrary and capricious standard is narrow, and a court is not to substitute its own judgment for that of the agency. Motor Vehicle Manufacturers Ass’n of the United States, Inc. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 22a 29, 43, 103 S.Ct. 2856, 2866, 77 L.Ed.2d 448, 458 (1983). Even under this standard, the court is required to engage in a “thorough, probing, in-depth review.” Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 415, 91 S.Ct. 814, 823, 28 L.Ed.2d 136, 153 (1971). A preliminary concern in this case is what evidence the Court should consider in reviewing these Regulations. In a motion in limine defendants asked the Court not to con- sider evidence beyond the administrative record. The ad- ministrative record here is comprised of the Interim and Final Regulations, along with the agency explanation and comments thereto, and the letters submitted to the agency during the comment period after promulgation of the Interim Regulation. At the trial, Rose Acre offered extra-record evidence including deposition testimony of various USDA officials, and live testimony from Dr. Law- rence T. Glickman, Professor of Epidemiology and En- vironmental Medicine at Purdue University. The defend- ants introduced testimony from Dr. John Mason, Director of the Salmonella Task Force of APHIS. The United States Supreme Court has stated that gen- erally “the focal point for judicial review should be the administrative record already in existence, not some new record made initially in the reviewing court.” Florida Power & Light Co. v. Lorion, 470 U.S. 729, 7438, 105 S.Ct. 1598, 1607, 84 L.Ed.2d 648, 656 (1985). However, courts have carved out broad exceptions to this general principle that “are now so far reaching that they can be applied in almost any case.” Stark and Wald, Setting No Records: The Failed Attempt to Limit the Record on Review of a Judicial Administrative Action, 36 Admin. L. Rev. 333, 343 (1984). Such exceptions include: (1) when an agency action is not adequately explained in the record before the court, see Overton Park, 401 U.S. at 420, 91 S.Ct. at 825, 28 L.Ed.2d at 155; (2) when the agency ignored relevant factors it should have considered in making its decision, see Hiatt Grain & Feed, Inc. v. 23a Bergland, 446 F.Supp. 457, 467 (D.Kan. 1978), aff'd on other grounds, 602 F.2d 929 (10th Cir. 1979), cert. denied, 444 U.S. 1073, 100 S.Ct. 1019, 62 L.Ed.2d 755 (1980); Asarco, Inc. v. EPA, 616 F.2d 1153 (9th Cir. 1980) ; (3) when the agency considered factors that were left out of the formal record, see Environmental Defense Fund Inc. v. Blum, 458 F.Supp. 650, 661 (D.D.C. 1978) ; (4) when the case is so complex and the record so un- clear that the reviewing court needs more evidence to en- able it to understand the issues, see Bunker Hill Co. v. EPA, 572 F.2d 1286, 1292 (9th Cir. 1977); and (5) when evidence arising after the agency acted demon- strates that the actions were right or wrong, see American Petroleum Institute v. EPA, 540 F.2d 1023, 1034 (10th Cir. 1976), cert. denied, 430 U.S. 922, 97 S.Ct. 1840, 51 L.Ed.2d 601 (1977). The Court finds that the above exceptions apply to the instant case. The agency record contained over 300 pages of comments from poultry trade associations, flock own- ers, state animal and public health agencies, universities and others as well as the SE Regulations themselves and the agency’s own explanation and comments. However, none of this information sufficiently explains the scientific basis of the SE Regulations or the scientific and public and animal health consequences of promulgating and en- forcing the SE Regulations. The extra-record testimony submitted in this case helps to explain the basis, or lack thereof, and helps illuminate technical issues. For these reasons, the Court declined to exclude the evidence and declines not to omit it from its review of the agency action. 1. USDA Authority to promulgate the SE Regulations; Rational Basis of the Regulations Rose Acre argues that USDA did not have the authority to promulgate the SE Regulations, and that even if USDA had such authority, the Regulations are invalid because 24a they are arbitrary and capricious. The argument that USDA has authority over animal health matters and not human health matters, and that the Regulations are not rationally related to animal health, is common to both claims. USDA contends that its authority to promulgate the Regulations derives from Title 21 U.S.C. §111, which statute provides in relevant part: The Secretary of Agriculture shall have authority to make such regulations and take such measures as he may deem proper to prevent the introduction or dis- semination of the contagion of any contagious, infec- tious, or communicable disease of animals and/or live poultry from a foreign country into the United States or from one State or Territory of the United States or the District of Columbia to another .. . and to seize, quarantine, and dispose of any .. . animal products coming from one State or Territory or the District of Columbia in transit to another . . . when- ever in his judgment such action is advisable in order to guard against the introduction of such contagion. Rose Acre argues that the SE Regulations are not rationally related to the prevention of the spread of dis- ease among animals and therefore are in excess of USDA’s statutory mission, which is to prevent the spread of disease among animals. We agree with the defendants that, looking at the regulatory scheme as a whole, the regulations do bear a rational relationship to their pur- pose and do not exceed the scope of the agency’s authority. The main argument that emerges from Rose Acres sev- eral briefs treating this issue is that the SE Regulations are primarily devoted to controlling the spread of SE among humans, and that the proper agency to address control of diseases among humans in the Food and Drug Administration (FDA). Secondary to this contention is the claim that the SE Regulations will not promote either animal or human health. 25a At the trial Dr. John Mason, director of USDA’s Task Force on Salmonella, testified regarding the evolution of the regulations, and on why they were finally promul- gated by the FDA and USDA. It is apparent from his testimony that various political pressures were at work, and that both agencies were concerned with meeting quickly what was considered an urgent need. One reason why the USDA eventually got the project was that the USDA was in the business of dealing with the animal industry. As Dr. Mason said, USDA “had authority to work on farms with poultry and animals and had the experience.” It is no secret that underlying the USDA’s authority to control the spread of contagious disease among animals is a concern for human health. The fact that the regula- tions appear to be geared ultimately to human health, and to reducing the occurrence of SE among humans, does not of itself negate their stated goal of reducing the spread of SE among poultry. The Court concludes that due to the broad public health concerns contemplated by 21 U.S.C. §111, and due to USDA’s authority to work with farms, the defendants did not act in excess of their authority in promulgating the SE Regulations. Rose Acre contends that even if the defendants had authority to promulgate the SE Regulations, the regula- tions are invalid since they are arbitrary and capricious. Rose Acre argues that the SE Regulations are not rationally related to protecting either human or animal health in that they have no scientific basis. It argues that the regulations are flawed in that 1) USDA has no baseline data to show the prevalence of SE in egg-type chickens or in the eggs that they lay, and thus has no way to assess the success or failure of the restrictive meas- ures; and 2) that the SE Regulations focus on the egg producers rather than on the food handlers, and are therefore not scientifically directed to eliminate or reduce the risk of SE infection. 26a As for the second alleged flaw, there is no dispute among the parties or among the commenters (as the Final Regulation refers to those who submitted comments) to the SE Interim Regulation that an outbreak of SE may result from improper food handling. If eggs are not cooked for the sufficient amount of time at the proper temperature or if undercooked or raw eggs are part of a dish which is allowed to remain unrefrigerated for some time, salmonella organisms present in the eggs will multiply, increasing the risk of illness to humans. It is acknowledged even among supporters of the Interim Regulation that individual consumers as well as food handlers for restaurants, catering services, and similar operations should be better educated regarding the dan- gers of improperly handled eggs. However, this does not mean that additional measures, such as restrictions on eggs produced by flocks implicated in an outbreak, are not rationally related to reducing the spread of SE. The first alleged flaw presents the real difficulty in this case. Whether the Regulations lack scientific underpin- nings is not fully answered by the regulations, by the pre- amble to the regulations, or by the comments to the Interim SE Regulations, but was addressed at trial and in deposition testimony submitted as exhibits during the trial. Dr. Lawrence Glickman, an epidemiologist and a pro- fessor at Purdue University, stated his opinion that the Regulations lack scientific basis.* Specifically, he stated that at the time that the SE regulations were promul- gated, the USDA lacked information regarding the prev- alence of SE in layer flocks, and that the regulations were promulgated on the assumption that SE is an alarming 2 Dr. Glickman criticized many features of the regulations. We are most concerned here with those criticisms which could cast doubt on the rational relationship of the regulations to their goal of controlling the spread of SE, and therefore summarize only the most pertinent portions of his testimony. ; : 27a problem requiring immediate action. If one does not know the baseline prevalance in the flocks, he said, then the traceback information is impossible to interpret. He sug- gested that there is very little data to support the proposi- tion that SE among humans is a major public health concern. His opinion was that diversion of eggs away from the commercial table egg market would not have any impact on animal health, and that the tracebacks, the sero- logic testing, and the disinfection procedures outlined in the regulations are unproven methods of controlling SE. He also stated that SE is not a serious poultry problem. All of these concerns are relevant to the USDA’s deci- sion to promulgate regulations addressing SE; however, we do not think that Dr. Glickman’s testimony negates a rational basis for the regulations as promulgated. Unfortunately, the administrative record is less than helpful. The preamble to the Interim SE Regulations states that “SE is a serious poultry disease and public health concern that shows no sign of abatement, but instead appears to be increasing.” 55 Fed. Reg. 5576 (February 16, 1990). The section justifying “emergency action” in the Interim Regulations states that “SE is a present and expanding cause of economic concern for the United States egg-type chicken industry, and has also recently emerged as a serious public health concern. Immediate action is necessary to prevent harm to the egg-type chicken industry and the public.” Jd. at 5580.° The Final SE Regulation describes SE infection of egg 8 The plaintiff claims that promulgation of the SE Interim Regu- lations without allowing for a proper notice and comment period violated the APA, 5 U.S.C. § 553. Dr. John Mason’s testimony sup- ports the proposition that there was an agency determination, sup- ported by at least some evidence, of a situation of urgency calling for emergency agency action. For this reason, the Court declines to rule that the SE Interim Regulation was invalidly promulgated without the proper notice and comment procedures, but concludes that the agency had good cause to make the rules immediately effective under the Administrative Procedure Act § 553(b)(B). 28a production chickens as “a serious public health concern,” and observes that “SE has a severe impact on the egg production industry by reducing consumer demand and disrupting egg marketing channels.” In support of its motion to dismiss, the defendants re- lied on such statements to demonstrate that the regu- lations were rationally related to animal health, and were not arbitrary and capricious. We do not believe that lan- guage contained in the preambles to the SE Regulations in themselves constitute evidence that such a problem exists. Nor is the administrative record very helpful on this issue; many of the commenters endorsed the effort to control SE, but many of them also indicated that more studies need to be done. Certain of the commen- tators who do endorse USDA’s intention to control what is perceived as a growing problem merely object that the USDA’s efforts are not directed toward education, but only toward testing poultry and restricting the move- ment of certain articles in the interstate market. Dr. Mason testified as to USDA’s scientific bases for promulgating the Regulations. He testified that before the promulgation of the Interim SE Regulation, there had been a sharp outbreak of a type of SE known as phage type four in Europe, followed by an increase in SE phage type eight in the Northeastern United States. Accord- ing to Dr. Mason, after a report was issued by the Center For Disease control in Georgia, the poultry industry, the FDA, and the USDA were all concerned about the possi- bility that there was a rising incidence of outbreaks in this country, and that SE outbreaks implicating table eggs might be spreading in this country. The promulga- tion of the SE Regulations was an effort to reduce the risk of vertical and horizontal spread of SE among poultry. As for the lack of baseline information regarding the prevalence of SE in poultry flocks in the United States, Dr. Mason testified that the USDA did not have such information at the time of promulgating the rules, nor 29a did the agency have it at the time of the trial, although at the time of the trial, the USDA had begun two studies which would yield information on the prevalence of SE in poultry. Meanwhile, he stated, prevalence is inferred from data regarding outbreaks in humans, which data, according to Dr. Mason, is the most reliable information we have at present. Dr. Mason testified that the USDA now acknowledges _ that SE is “not a serious problem” for poultry, but takes the position that, as indicated in the Final SE Regulation, SE among poultry may lead to illness in humans. He also stated that pasteurization of eggs is likely to pro- duce only slight benefits for animal health: clearly, the main purpose of the pasteurization process is to prevent illness in humans. He also indicated, as do the Final Regulations, that the risk of poultry mortality due to SE among the flocks is low. The economic concern is that poultry producers will receive negative publicity if they are implicated in an SE outbreak among humans. The agency position is that reducing the risk of such outbreaks among humans will benefit the industry as a whole as it will reduce the chances for negative publicity. We do not believe that the regulations—either the Interim SE Regulations or the Final SE Regulations— should be invalidated as arbitrary and capricious merely because the benefit to animal health is “slight” while the real purpose of the rule is to benefit human health. Nor do we believe that scientific underpinning is entirely lacking for the SE Regulations, based on Dr. Mason’s testimony. While there is clearly a call for additional studies, the information available to the USDA when it promulgated the Regulations appeared to indicate that SE threatened to spread both vertically and horizontally, and that the risk of spread could be addressed by the procedures that the agency sought to impose. For this reason, the Court concludes that the SE Regulations are not arbitrary and capricious. 80a Due Process Rose Acre also argues that the SE Regulations violate the due process clause of the Fifth Amendment to the United States Constitution in that they fail “to afford a right to an administrative hearing or review.” The first question under due process analysis is whether the plaintiff has a liberty or property interest. Gaballah v. Johnson, 629 F.2d 1191, 1202 (7th Cir. 1980). We agree with the plaintiff that it has a property interest in its eggs and chickens, which interest is affected by the regulations. First, under the regulations, the eggs themselves may be restricted from interstate movement. Thus, the defendants’ argument that this does not amount to a deprivation of property must fail. It is true that the eggs themselves are not confiscated or destroyed when the restriction is imposed; however, diversion to the allowed markets results in a deprivation of property, since the producer is forced to sell the eggs at a price below cost. Moreover, Rose Acre has a property interest in its egg-producing hens. Rose Acre stands to lose some of them through the testing process, others through depopu- lation, and the value of others through the fact that the eggs they produce are restricted. As to the satisfaction of due process, the United States Supreme Court has identified three factors which courts should consider: (1) the private interest that will be affected by the official action; (2) the risk of erroneous deprivation of such inter- est through the procedures used, and the probable value, if any, of additional or substitute procedural safeguards; and finally, (3) the Government’s interest, including the func- tion involved and the fiscal and administrative bur- dens that the additional or substitute procedural re- quirements would entail. 8la See Mathews v. Eldridge, 424 U.S. 319, 335, 96 S.Ct. 893, 903, 47 L.Ed.2d 18, 33 (1976). The Court agrees with Rose Acre that its potential private interest is great; Rose Acre complains that it is losing over $50,000 per day. We also agree with the de- fendants that the USDA and APHIS in particular have a strong interest in reducing the risk of the spread and occurrence of SE. We believe, however, that based on the regulations themselves, the administrative record, and the testimony and exhibits submitted at trial, the plain- tiff has not demonstrated a significant risk of erroneous deprivation, or that there would be significant value in additional procedures, such as an administrative hearing proceeding the imposition of restrictions. First, the regulations themselves mandate testing and retesting to determine whether an egg production flock or house is infected with SE. The testing process itself provides a safeguard that restrictions will not apply to eggs produced by a poultry house which is not identified as a test or infected house. Second, as the defendants point out, “the opportunity for a hearing may be denied if inspection, examination or testing is a better way to find the facts.” 2 K. Davis, Administrative Law Treatise, § 12:12, at 455 (2d ed. 1979).‘ Here, epidemiologic in- vestigation by trained officials, followed by laboratory testing and resting, is apt to be more effective than hold- ing administrative hearings to determine the likely source of an outbreak of SE in huma [Text truncated at 120,000 characters. The full text is on the page linked above.] --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386011_0703%3A1. Public record. Not legal advice.