Appendix — Stew Leonard's v. Veneman

oupreme Court, U.S.

FILED @

02 -483 wWwL- 22002

No.

OFFICE OF THE CLERK

In The

Supreme Court Of The United States

+

STEW LEONDARD’S,

Petitioner,

v.

ANN M. VENEMAN, UNITED STATES

SECRETARY OF AGRICULTURE,

Respondent.

+

ON PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

+

APPENDIX TO

PETITION FOR WRIT OF CERTIORARI

+

* JAMES A. WADE

JEFFREY M. THOMEN

ROBINSON & COLE LLP

280 Trumbull Street

Hartford, CT 06103

(860) 275-8289

* Counsel of Record

service by

BRESCIAS

PRINTING SERVICES INC

CALL 800.842.0008

APPENDIX TABLE OF CONTENTS

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UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

SUMMARY ORDER

THIS SUMMARY ORDER WILL NOT BE PUBLISHED

IN THE FEDERAL REPORTER AND MAY NOT BE

CITED AS PRECEDENTIAL AUTHORITY TO THIS OR

ANY OTHER COURT, BUT MAY BE CALLED TO THE

ATTENTION OF THIS OR ANY OTHER COURT IN A

SUBSEQUENT STAGE OF THIS CASE, IN A RELATED

CASE, OR IN ANY CASE FOR PURPOSES OF

COLLATERAL ESTOPPEL OR RES JUDICATA.

At a stated term of the United States Court of

Appeals for the Second Circuit, held at the United States

Courthouse, Foley Square, in the City of New York, on the

3rd day of April, Two Thousand and Two.

PRESENT: HONORABLE Joseph M. McLaughlin,

HONORABLE Fred I. Parker,

HONORABLE Rosemary S. Pooler,

Circuit Judges.

STEW LEONARD'S,

Petitioner-Appellant,

V. No. 01-6111

ANN M. VENEMAN, UNITED STATES SECRETARY OF

AGRICULTURE,

Respondent-Appellee.

APPEARING FOR APPELLANT: James A. Wade

(Jeffrey M. Thomen on

brief),

Robinson & Cole, LLP

Hartford, Connecticut

APPEARING FOR APPELLEE: Douglas Hallward-

Driemeier

Department of Justice,

Civil Division,

Appellate Staff

Washington, DC

Appeal from the United States District Court for the

District of Connecticut (Thomas P. Smith, Magistrate Judge).

UPON DUE CONSIDERATION, IT IS HEREBY

ORDERED, ADJUDGED AND DECREED that the decision

of said district court be and it hereby is AFFIRMED.

Petitioner-appellant Stew Leonard’s appeals from

the decision of the United States District Court for the

District of Connecticut (Thomas P. Smith, Magistrate Judge)

affirming the determination of the Secretary of Agriculture

that Stew Leonard’s, a Connecticut milk handler and

retailer, did not qualify as a “producer-handler” under the

provisions of 7 C.F.R. § 1001.10 (1999) despite its entrance

into a lease arrangement with a local milk producer.

After completing review pursuant to 7 U.S.C.

§ 608c(15)(A), the Secretary determined that Stew Leonard’s

was a “handler” as defined in 7 C.F. R. § 1001.9, not a

“producer-handler” as defined in 7 C.F.R. § 1001.10.

Specifically, the Secretary found Stew Leonard’s was not a

“dairy farmer” and did not provide “as [its] own enterprise

and at [its] own risk, the maintenance, care, and

management of the dairy herd or other resources and

facilities used to produce milk” as required by the language

of 7 C.F.R. § 1001.10.

The district court reviewed the Secretary's

determinations under the deferential standard outlined in

the Supreme Court’s Chevron USA , Inc. v. Natural

Resources Defense Council, Inc, 467 U.S. 837 (1984) decision,

finding the Secretary’s narrow interpretation of the

“producer-handler” definition consistent with both the

purposes of the regulations and past interpretations thereof,

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and her application of the regulation to Stew Leonard’s

supported by substantial evidence. See Stew Leonard’s v.

Glickman, 199 F.R.D. 48, 55-56, 57-58 (D. Conn. 2001). The

district court thus concluded that the Secretary's decision

was not arbitrary and capricious, but rather “in accordance

with the law,” within the meaning of the Administrative

Procedure Act, 5 U.S.C. § 706(2)(A) & (E) Id. at 60.

This Court notes that the evidence demonstrated no

change in the daily operation of Oakridge Farm after the

execution of the lease agreement and that Stew Leonard’s

admitted it did not know how to run a dairy farm. Id. at 57-

98. As noted by the district court, these facts provide

substantial evidentiary support for the Secretary’s

conclusion that Stew Leonard’s was not a “dairy farmer”

and did not “[p]rovide[] as [its] own enterprise and at [its] _

own risk the maintenance, care, and management of the

dairy herd and other resources and facilities that are used to

produce milk.” See 7 C.F.R. § 1001.10(a)(1999). Bound by

the constraints of deferential review, this Court affirms the

district court's decision on the grounds that the Secretary's

determination that Stew Leonard’s did not fit the narrow

definition of “producer-handler” was adequately supported.

This Court affirms the district court’s grant of

summary judgment on Stew Leonard’s due process and

equal protection claims for substantially the same reasons

stated by the district court. Stew Leonard’s, 199 F.R.D. at 60-

61.

For the reasons set forth above, the judgment of the

district court is AFFIRMED.

FOR THE COURT,

Roseann B. MacKechnie,

Clerk

By:

s/

Lucille Carr, Operations

Manager

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UNITED STATES DISTRICT COURT

DISTRICT OF CONNECTICUT

STEW LEONARD'S

v. : CASE NO. 3:00CV-627 (TPS)

DANIEL GLICKMAN,

UNITED STATES

SECRETARY OF

AGRICULTURE

JUDGMENT

This action having come on for consideration of the

parties’ cross motions for summary judgment before the

Honorable Thomas P. Smith, United States Magistrate Judge

and,

The Court having considered the motions and the

full record of the case including applicable principles of law,

and having filed its Ruling on Cross Motions for Summary

Judgment on March 21, 2001, denying the petitioner’s

motion and granting the respondent's motion, it is therefore,

ORDERED, ADJUDGED and DECREED | that

judgment be and is hereby entered in favor of the

respondent. ‘

Date at Hartford, Connecticut, this 21st day of March,

2001.

KEVIN F. ROWE, Clerk

S/

Carol Ihnatenko

Deputy Clerk

EOD:___ 3/22/01

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UNITED STATES DISTRICT COURT

DISTRICT OF CONNECTICUT

STEW LEONARD'S,

Petitioner,

v. NO. 3:00CV627 (TPS)

DANIEL GLICKMAN,

UNITES STATES

SECRETARY OF

AGRICULTURE,

Respondent.

RULING ON CROSS MOTIONS FOR SUMMARY

JUDGMENT

I. INTRODUCTION

Pending before the court! are the parties’ cross

motions for summary judgment (docs. 17 & 18). Petitioner,

Stew Leonard’s Dairy (“Stew Leonard’s”), brings this action

pursuant to the judicial review provision of the Agricultural

Marketing Agreement Act of 1937, 7 U.S.C. § 608c(15)(B),

against respondent, Dan Glickman, United States Secretary

of Agriculture, seeking reversal of the Secretary’s March 16,

2000 decision to deny Stew Leonard’s “producer-handler”

status under Federal Milk Order No. 1, 7 C.F.R. §§ 1001 et

seq. (1999). Petitioner claims that the Secretary’s decision is

“not in accordance with the law,” 7 U.S.C. § 608c(15)(B),

because the Secretary’s decision was arbitrary and

1 The parties consented to jurisdiction by a United States Magistrate

Judge, and this case was transferred to the undersigned pursuant to 28

U.S.C. § 636(c)(1) (docket no. 15).

capricious. For the reasons set forth below, the Secretary’s

decision is AFFIRMED, petitioner’s motion for summary

judgment is DENIED, and defendant's motion for summary

judgment is GRANTED.

II. DISCUSSION

A. FACTS AND PROCEDURAL BACKGROUND

The facts giving rise to this petition are not in

dispute, and are set forth in the administrative record filed

with the court in this matter.

In order to view the facts in the proper context, an

explanation of the underlying regulatory scheme is

essential. In the United States, the milk industry is

beleaguered by two unique characteristics. One

characteristic is the existence of “a basic two-price structure

that permits a higher return for the same _ product,

depending on its ultimate use.” Zuber v. Allen, 396 U.S.

168, 172 (1969). Milk, regardless of whether it is produced

for consumer drinking or product manufacture, is produced

in the same manner. The difference lies in the price the end

product can fetch in the consumer market; a handler? can

sell fluid milk at a higher price, thereby allowing the

producer to charge the handler a premium for milk destined

for drinking. This premium fosters intense competition

amongst the producers to sell their milk at the premium

price.

The other unique characteristic is “that production

yield varies seasonally, resulting in oversupply in the

summer months.” Minnesota Milk Producers Ass’n_v.

Glickman, 153 F.3d 632, 638 (8th Cir. 1998). Because the

consumer demand for milk remains relatively constant

2 Generally speaking, a “ producer” is a person or entity who collects the

milk directly from the animals, and a “handler” is a person or entity who

takes this milk and turns it into an end product, and then resells it to

either consumers or manufacturers.

throughout the year, and the animals’ production fluctuates

with the animals’ nutrition supply during the year,

producers must maintain a herd of animals that is able to

meet the peak demand in the lean months. The effect of

maintaining a herd that can meet the consumer demand in

the winter months leaves the producers with a surplus of

highly perishable milk in the summer, when the animals are

the most productive. Historically, this glut allowed

handlers to demand bargain prices because they could

obtain their milk from an increased variety of sources

because all the producers, both far and near, had a surplus

they were anxious to dispose of.

After the milk market, as well as the market for other

commodities, self-destructed under the strain of these two

forces during the Great Depression, Congress stepped in

and enacted the Agricultural Marketing Agreement Act of

1937 (“AMAA”) , codified at 7 U.S.C. § 601 et seg. The

purpose of the legislation was “to remove ruinous and self-

defeating competition among the producers and permit all

farmers to share the benefits of fluid milk profits according

to the value of goods produced and services rendered.”

Zuber, 396 U.S. at 180-81. In order to effectuate this

purpose, the legislation was intended to “raise producer

prices and to ensure that the benefits and burdens of the

milk market are fairly and proportionately shared by all

dairy farmers.” Minnesota Milk Producers Assn, 153 F.3d at

637.

Specifically, the AMAA gives the Secretary of

Agriculture the authority to issue orders governing the

handling of agricultural commodities, see 7 U.S.C. § 608¢c(1),

including milk, see 7 U.S.C. § 608c(5), through a system of

marketing orders applicable to a designated region. To

achieve equality among producers of milk, the marketing

orders create a market-wide pricing pool for handlers. The

marketing order sets minimum prices that the handlers may

pay for the basic classes of milk. Handlers who deal

primarily in high grade, or “fluid” milk, which is used to

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produce milk intended for drinking, pay into a pool that is

_ then drawn on by the handlers of the lower grade milk, or

“surplus.” Producers then receive a uniform, or “blend,”>

price from the handlers irrespective of the use to which their

r ilk is eventually put. See 7 U.S.C. § 608c(5); see generally

Lehigh Valley Cooperative Farmers, Inc. v. U.S., 370 US. 76,

79-80 (1962) (“[T]he statute authorizes the Secretary to

devise a method whereby uniform prices are paid by milk

handlers to producers for all milk received, regardless of the

form in which it leaves the plant and its ultimate use.

Adjustments are then made among the handlers so that each

eventually pays out-of-pocket an amount equal to the actual

utilization value of the milk he has bought.”).

The regulatory effect of this pool can be

demonstrated by a simple example. Suppose Handler A

purchases 100 units of Class I (fluid) milk from Producer A

at the minimum value of $3.00 per unit. Assume further

that Handler B purchases 100 units of Class II (soft milk

products) milk from Producer B at the minimum value of

$2.00 per unit, and that Handler C purchases 100 units of

Class III (hard milk products) milk from Producer C at $1.00

per unit. Assuming that this constitutes the entire milk

market for a regulatory district, during this period the total

price paid for milk is $600.00, making the average price per

unit of milk $2.00. Thus, under the regulatory scheme,

Producers A, B, and C all receive $200.00 for the milk they

supplied, irrespective of the use to which it was put.

However, Handler A must, in addition to the $200.00 that it

must tender to Producer A, pay $100.00 into the settlement

fund because the value of the milk it purchased exceeded

the regulatory average price. Along the same vein, Handler

C will receive $100.00 from the settlement fund because it

will pay Producer C more than the milk it received was

worth. The pool achieves equality among producers, and

uniformity in price paid by handlers.

3 The blend price is adjusted by a number of factors, none of which are

germane to this proceeding.

Although, generally speaking, the regulatory scheme

closely monitors the conduct of handlers, a certain category

of handlers is exempt from participation in the pricing pool.

The Secretary has chosen not require those entities that both

produce and handle their own milk to make payments into

the pool The regulations designate such entities as

“producer-handlers.” “Typically, a producer-handler

conducts a small family-type operation, processing, bottling

and distributing only his own farm production.” Decision

on Proposed Amendments to Tentative Marketing

Agreements and to Orders, 25 Fed. Reg. 7819, 7825 (Aug. 16,

1960). The rationale for this exemption is “that such

businesses are so small that they have little or no effect upon

the pool.” Id.

The effects of this exemption are twofold. First, if the

producer-handler uses all the milk it produces as Class I

milk, it avoids having to make payments into the producer

settlement fund; it merely sells the milk at the market price,

which is tempered only by the production costs. Assuming

all other conditions are equal, the exemption allows the

producer-handler to make a greater profit because it sells

Class I milk without having to pay the full Class I price into

the settlement fund.

The second effect of the exemption is upon the pool

as a whole. Because the total amount of Class I milk

purchased in a marketing area is a factor in calculating the

aggregate blend price for the marketing area, removing a

handler’s Class I purchases from the calculus brings the

aggregate price down. Exemption of a handler who

purchases a significant quantity of Class I milk from

4 The basis for enacting the AMAA is the Commerce Clause, and the

nexus to interstate commerce is the handlers and not the producers,

whose operations are generally local. See Dairylea Cooperative, Inc. v.

Butz, 504 F.2d 80, 83 (2d Cir. 1974) (Though the act affects producers, it

was designed to regulate handlers only.”). Although a producer-handler

is not subject to participation in the pool, it is an entity within the

purview of the AMAA. See id. at 83 n.6 (“When a producer acts as a

handler he is not so exempted.”).

A-9

producers in the pool depresses the blend price in the

region.

This exemption may also provide an additional

windfall to producer-handlers who “ride the pool.” This

term refers to a producer-handler who draws upon pool

resources to compensate for any deficiency in its own

supply during the lean production months, thereby

allowing the producer-handler to maintain a relatively

smaller supply of animals with a minimal surplus of milk in

periods of greater production. Producer-handlers could also

take advantage of the price regulation by “riding the pool”

if they do dispose of any surplus because the milk they

dispose of most likely is used as Class II or Class III milk,

but the producer-handler is still able to collect the relatively

higher blend price. Thus, in theory, producer-handlers who

“ride the pool” could reap the benefits of the regulatory

scheme without sharing the burdens.

The instant lawsuit concerns the scope of the

producer-handler exemption from the regulatory pool in

Connecticut. Petitioner, who operates a dairy retail store in

Norwalk, Connecticut, because of a lease with Oakridge

Farm executed on December 10, 1997, which was

superseded by a subsequent lease executed on June 16, 1998,

claims that it should be classified as a producer-handler.

The lease provided that:

1. Stew Leonard’s hereby leases from

Oakridge Farm its entire herd of milking

cows at the rate of $1.00 per cow per day.

Payment will be made on a monthly basis. In

determining whether a cow is deemed to be

part of Oakridge Farm’s herd of milking

cows, a cow shall be so counted from the date

it is first milked until it is culled or dies.

Inventory will be established on the last day

of each month and verified by the DHI (Dairy

Herd Management Services) records. Stew

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Leonard’ s agrees to replace culls and/or

attrition with newly bred heifers.

2. In addition to the foregoing lease rate,

Stew Leonard's hereby leases from Oakridge

Farm its barns, milking parlors, personal

property and all equipment necessary to

produce raw milk and its related products for

$12,000 a month. Stew Leonard's agrees that

it will transport the milk products from

Oakridge Farm to its facilities for processing,

packaging, sale and distribution at its own

expense.

a In addition to the foregoing lease rate,

Stew Leonard's agrees to pay for all ordinary

and necessary expenses related to the

production, processing, or packaging of milk.

Also, Stew Leonard’ s agrees to assume all

risk, responsibility, and maintenance of the

cows, equipment, buildings, and labor. The

aforesaid risks and responsibilities include,

but are not limited to, life and death of all

animals, damage and destruction resulting

from acts of God (including storms, fires,

pestilence, drought, etc.), damage and

destruction resulting from employee

negligence and/or malfeasance. Stew

Leonard’s agrees to buy corn silage from

Bahler Farms, Inc. when needed. Stew

Leonard’s also agrees to pay Bahler Farms,

Inc. a management fee of $2,000 per month.

4. The term of the agreement shall be for

a term of two years. Advance written notice

60 days prior to change in ownership, or key

management personnel by either Stew

Leonard’s or Oakridge Farm. If either Stew

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Leonard’s or Oakridge Farm fails to approve

of the aforementioned change, they will have

the option to terminate the lease on the last

day of the month of the change.

(Petition for Review of Agency Decision, Ex. G at 1-2).

Petitioner believed that the lease transaction had the effect

of creating one enterprise, which would then qualify

petitioner for producer-handler status under the order.

In December of 1997, petitioner initially requested

that the Market Administrator for the New England

Marketing Order,5 Erik Rassmussen, classify Stew Leonard's

as a producer-handler under the order. Under the

applicable provisions of this order, a producer-handler is

defined as:

any person who, during the month, is both a

dairy farmer and a handler and who meets

all of the following conditions:

(a) Provides as the person’s own

enterprise and at the person’s own risk the

maintenance, care, and management of the

dairy herd and other resources and facilities

that are used to produce milk, to process and

package such milk at the producer-handler’s

own plant, and to distribute it as route

disposition.

5 Since the initiation of the administrative proceedings, the Department

of Agriculture has amended the nation-wide system of marketing orders

by reducing the total number of marketing orders throughout the nation.

See Milk in the New England and Other Marketing Areas; order

Amending the orders, 64 Fed. Reg. 47898 (Sept. 1, 1999). Under this

reorganization, the former New England Marketing Order became part of

the Northeast Marketing Area. See 7 C.F.R. § 1001.2 (2000).

A-12

(b) The person’s own route disposition

constitutes the majority of the route

disposition from the plant.

(c) The quantity of route disposition in

the marketing area from the person’s plant is

greater than in any other Federal marketing

area.

(d) The producer-handler receives no

fluid milk products except from such

handler’s own production and from pool

handlers, either by transfer or diversion

pursuant to § 1001.15. If the producer-

handler’s receipts from own production and

the total route disposition from the producer-

handler’s plant each exceed 4,300 pounds per

day for the month, the producer-handler’s

receipts from pool plants are not in excess of

2 percent of receipts from own production.

For the purposes of this paragraph, the

producer-handler’s receipts of fluid milk

products shall include receipts from plants of

other persons at all retail and wholesale

outlets that are located in a _ Federal

marketing area and operated by the

producer-handler, an affiliate, or any person

who controls or is controlled by the

producer-handler.

7 C.F.R. § 1001.10 (1999) amended by Milk in the New

England and Other Marketing Areas; Order Amending the

orders, 64 Fed. Reg. 47898 (Sept. 1, 1999).¢

6 This definition has been changed since the initiation of the

administrative action in 1998. The new text reads as follows:

Producer-handler means a person who:

After a period of correspondence with the Market

Administrator, concerning various proposed changes to

drafts of the leases, the Market Administrator declined to re-

classify petitioner as a producer-handler in a letter dated

February 6, 1998:

The office has reviewed the various leases

you have proposed. The stated purpose of

the leases is to change the regulatory status of

Stew Leonard’s Dairy from a_ handler

operating a pool distributing plant that

purchases milk from producers to status as a

producer-handler.

There is precedent by this office to approve

farm leases for a producer-handler. These

approvals follow the needs of currently

(a) Operates a dairy farm and a distributing plant from

which there is monthly route disposition in the marketing area

during the month;

(b) Receives milk solely from own farm production or

receives milk that is fully subject to the pricing and pooling

provisions of this or any other Federal order;

(c) Receives at its plant or acquires for route disposition no

more than 150,000 pounds of fluid milk products from handlers

fully regulated under any Federal order. This limitation shall

not apply if the producer-handler’s own farm production is less

than 150,000 pounds during the month;

(d) Disposes of no other source milk as Class I milk except

by increasing the nonfat milk solids content of the fluid milk

products; and

(e) Provides proof satisfactory to the market administrator

that the care and management of the dairy animals and other

resources necessary to produce all Class I milk - handled

(excluding receipts from handlers fully regulated under any

Federal order) and the processing and packaging operations are

the producer-handler’s own enterprise and at its own risk.

7 C.F.R. § 1001.10 (2000). The parties have not suggested that this version

of the regulation applies. Therefore, the court will apply the prior version

of the regulation.

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operating producer-handlers to utilize

additional sites for expansion purposes.

The situation at Stew Leonard’s Dairy is

distinct from proposals received by some

producer-handlers. You propose to construct

a legal framework, with our assistance, that

would allow you to circumvent the

Agricultural Marketing Agreement Act, 7

U.S. C. 608 (c)(5) [sic]. The determination has

been made that the means you propose to

meet the producer-handler qualification

under Section 1001.10(a) violate the letter and

intent of the Act and this section.

Stew Leonard’s Dairy must continue to file

handler reports as a pool distributing plant.

If you wish to challenge this decision, refer to

7 U.S.C. (608(c)(15)(A) [sic].

(Administrative Record, Ex. 100, PX 14). On February 17,

1998, petitioner commenced the administrative action by

filing a petition for relief from the Market Administrator's

February 6, 1998 determination pursuant to 7 U.S.C.

9608c(15)(A).7

7 Such section provides:

Any handler subject to an order may file a written petition with

the Secretary of Agriculture, stating that any such order or any

provision of any such order or any obligation imposed in

connection therewith is not in accordance with the law and

praying for a modification thereof or to be exempted therefrom.

He shall thereupon be given an opportunity for a hearing upon

such petition, in accordance with the regulations made by the

Secretary of Agriculture, with the approval of the President.

After such hearing, the Secretary shall make a ruling upon the

prayer of such petition which shall be final, if in accordance with

the law.

7 U.S.C. § 608c(15)(A).

A-15

The Secretary affirmed the Market Administrator's

February 6, 1998 determination. On January 11 and 12,

1999, the parties presented evidence and testimony before

an Administrative Law Judge (“ALJ”), who dismissed the

petition and affirmed the decision of the Market

Administrator. Petitioner then appealed to the Secretary of

Agriculture, who, through a designated Judicial Officer,

after modifying the ALJ’s decision in some areas, also

affirmed the decision of the Market Administrator on March

16, 2000.8 Petitioner then commenced the instant action on

April 4, 2000 pursuant to 7 U.S.C. § 608c(15)(B).°

B. REVIEW OF THE SECRETARY’S DECISION

The question before the court is whether the Market

Administrator's classification of Stew Leonard’s as a

handler, and not a producer-handler, which was adopted by

the Secretary after completion of the administrative review

process, was “in accordance with the law” under 7 U.S.C. §

608c(15)(B). The Secretary held that

Es Petitioner is a “handler,” as defined in

section 1001.9 of the New England Marketing

Order (7 C.F.R. § 1001.9).

4. Petitioner is not a dairy farmer.

8 The administrative petition was amended to reflect the superseding

lease executed on June 16, 1998. This version was the subject of the

administrative review proceedings, and, consequently, is the subject of

this court's review as well.

9 This provision states, in pertinent part, that:

The District Courts of the United States .. . are vested with

jurisdiction in equity to review (the Secretary’s] ruling. . . . If the

court determines that such ruling is not in accordance with the

law, it shall remand such proceedings to the Secretary with

directions ....

7 U.S.C. § 608c(15)(B).

A-16

3. Petitioner does not provide, as

Petitioner’s own enterprise and at Petitioner's

own risk, the maintenance, care, and

management of the dairy herd or other

resources and facilities used to produce milk,

which Petitioner leases from Oakridge Farm.

4. Petitioner is not a “producer-

handler,” as defined in section 1001.10 of the

New England Marketing Order (7 C.F.R. §

1001.10).

5 The Market Administrator’s

determination that Petitioner is not a

“producer-handler,” as defined in section

1001.10 of the New England Marketing order

(7 C.F.R. § 1001.10), is in accordance with the

law.

(Administrative Record, Ex. 88 at 62-63). Petitioner

contends that the Secretary’s decision was not in accordance

with the law because it is arbitrary and capricious, in that

the Secretary’s ultimate decision is not supported by the

weight of the evidence, and flies in the face of its prior

action concerning classification of entities as producer-

handlers.

The scope of the court’s review is set forth in the

Administrative Procedure Act, which states that

[t]he reviewing court shall decide all relevant

questions of law, interpret constitutional or

Statutory provisions, and determine the

meaning or applicability of terms of an

agency action. The court shall- . . . hold

unlawful and set aside agency action,

findings, and conclusions found to be. . .

arbitrary, capricious, an abuse of discretion,

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or otherwise not in accordance with the law .

.. [or] unsupported by substantial evidence...

5 U.S.C. § 706(2)(A) & (E). Cognizant of this standard, the

court now turns to the precise issues in dispute.

1. SECRETARY'S INTERPRETATION OF 7

C.E.R. § 1001.10

A threshold issue is whether the law the Secretary

eventually applied to reach his decision is a valid exercise of

agency power. Petitioner states that

[t]he administrator admitted under oath that

the term “dairy farmer” is not defined

anywhere in the regulations. Tr. at 298. The

administrator has the sole power, without

regulatory guidance, to decide what is and is

not a dairy farmer. By failing to define a

critical term within the definition of

“producer-handler,” the regulations

themselves cede unlimited arbitrary

authority to the administrator.

(Petitioner’s Cross-Mot. for SJ. at 3 n3) In addition,

petitioner contends that respondent's interpretation of the

regulation is contrary to the purpose of the governing

statutory scheme. (See Petitioner’s Cross-Mot. for S.J. at 22-

23). Thus, petitioner argues that respondent’ s construction

of the regulation is legally deficient.’

10 The ALJ, despite affirming the Market Administrator’s decision,

alluded to the fact that the degree of discretion afforded the Market

Administrator in defining the precise contours of the producer-handler

exemption to the regulatory pricing pool may not be legally permissible.

(See Petition for Review of Agency Decision, Ex. I at 37 (“Lack of

specificity in the regulations allow unlimited authority to the Market

Administrator and provide fertile ground of uncertainty for those subject

to his regulation.”)).

When determining if an agency’s construction of a

regulation is legally permissible, the analysis is governed by

the Supreme Court's decision in Chevron, US.A., Inc. v.

Natural Resources Defense Council, Inc., 467 U.S. 837 (1984).

See New York Currency Research Corp. v. Commodity

Futures Trading Comm’‘n, 180 F.3d 83, 88 (2d Cir. 1999)

(“Although Chevron dealt only with an agency’s

interpretation of relevant federal statutes, similar principles

apply to judicial review of an agency’s interpretation of its

own regulations.”). Pursuant to this framework, the

reviewing court asks two questions. See id. at 842. First “is

the question whether Congress has directly spoken to the

precise question at issue. If the intent of Congress is clear,

that is the end of the matter; for the court, as well as the

agency, must give effect to the unambiguously expressed

intent of Congress.” Id. at 842-43. If this first question is

answered in the negative, then “the question for the court is

whether the agency’s answer is based on a permissible

construction of the statute.” Id. at 843. The agency’s

interpretation is “given controlling weight unless [it is]

arbitrary, capricious, or manifestly contrary to the statute.”

Id at 844.

Because the governing statute, 7 U.S.C. § 608c(5), is

silent on the determination of exemptions to the regulatory

pricing pool, it is the second inquiry set forth in Chevron

that applies here. In such a situation, the court must afford

‘substantial deference to the agency’s interpretation of its

own regulations,” and must give the interpretation

“controlling weight unless it is plainly erroneous or

inconsistent with the regulation.” Thomas _ Jefferson

University _v. Shalala, 512 US. 504, 512 (1994) (internal

quotation marks omitted). “In other words, [the court] must

defer to the Secretary’s interpretation unless an alternative

reading is compelled by the regulation’s plain language or

by other indications of the Secretary's intent at the time of

the regulation’s promulgation.” Id. (internal quotation

marks omitted). This deference to the agency is especially

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important when “the regulation concerns a complex and

highly technical regulatory program. .. .” Id. (internal

quotation marks omitted).

The Secretary has narrowly construed the definition

of producer-handler set forth in the regulations. The

pertinent part of the regulation reads as follows:

[p]roducer-handler means any person who,

during the month, is both a dairy farmer and

a handler and who meets all of the following

conditions:

(a) Provides as the person’s own

enterprise and at the person’s own risk the

maintenance, care, and management of the

dairy herd and other resources and facilities

that are used to produce milk, to process and

package such milk at the producer-handler’s

own plant, and to distribute it as route

disposition.

7 C.F.R. § 1001.10 (1999) amended by Milk in the New

England and Other Marketing Areas; order Amending the

Orders, 64 Fed. Reg. 47898 (Sept. 1, 1999). On its face, the

regulation requires that, in order to be considered a

producer-handler, an entity must be a dairy farmer, and

must produce milk through its own enterprise and at its

own risk.

When considering the criteria listed in the regulation

as applied to leases, the Secretary has declined to state that a

handler entering into a lease transaction with a producer

can never pass muster, but has consistently held that such

arrangements do not warrant re-classification of a handler

as a procucer-handler. The Secretary maintains that such

transactions: despite the fact that they often appear to meet

the criteria in “Se regulation, do not in fact meet the test

because they am often constructed for the purpose of

escaping regulation, and therefore it must interpret the

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regulation strictly, in order to avoid the circumvention of

the regulatory scheme. (See Petition for Review of Agency

Decision, Ex. J at 27-28, 36 (“[A] handler that tries to

circumvent the milk pricing regulations by claiming to lease

or purchase a farm, while in reality simply buying milk,

does not obtain producer-handler status.”)).

This interpretation of the regulation is consistent

with the plain language and also is faithful to the Secretary's

intent at the time of the regulation’s promulgation. In 1960,

when the producer-handler concept as it now stands was

promulgated, the Secretary offered the following

explanation:

Typically, a producer-handler conducts a

small family-type operation, processing,

bottling and distributing only his own farm

production. Full regulation of such

individuals provides considerable

administrative _ difficulties. Normally,

exemption from regulated status is made in a

Federal order for such individuals on the

grounds that such businesses are so small

that they have little or no effect on the pool.

x“*eee

In order to maintain producer-handler status,

it is provided that the maintenance, care and

management of the dairy animals and other

resources necessary to produce the milk, and

the processing, packaging and distribution of

the milk shall be the personal enterprise of

and the personal risk of the person involved.

These standards are intended to distinguish

the family-type operation normally involved,

and to bring under full regulation operations

which attempt to masquerade as those of

producer-handlers in their normal concept

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through leases, rental arrangements, and

other devices designed to circumvent

regulation by the order.

Decision on Proposed Amendments to Tentative Marketing

Agreements and to Orders, 25 Fed. Reg. 7819, 7825 (Aug. 16,

1960). This explanation provides conclusive support for the

Secretary's careful policing of its regulatory pricing scheme

by strictly construing the definition of producer-handler.

Petitioner maintains that the Secretary's

interpretation of the regulations is not consistent with the

purpose of the legislation because the Secretary’s strict

construction of the requirements hinders petitioner's stated

purpose for entering the lease transaction: to exercise

control over the production of the milk so that it may

implement a rigorous quality control program that far

exceeds ary mandatory regimen. Petitioner presented a

great deal of evidence to this effect at the administrative

hearing, and now argues that

[t]he market administrator effectively seeks

to penalize Stew Leonard’s by making it bear

the cost of a regulatory program even though

such regulation of Stew Leonard’s- a self-

contained enterprise that simply produces

milk and sells it at retail- would not serve the

purpose of the program. The administrator

seeks to bring Stew Leonard’s back into the

fold, such that Stew Leonard’s would

presumably resume purchasing lower quality

milk from the dairy cooperative that once

supplied its milk, and Oakridge Farm would

resume selling its high-quality milk to the

dairy cooperative to be blended with and

diluted by the lower-quality milk of other

farms.

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(Petitioner’s Cross-Mot. for S.J. at 24). As such, petitioner

claims that failing to interpret the definition of producer-

handler to include arrangements such as the one in the

instant case serves as a deterrent to handlers such as Stew

Leonard’s inventing creative solutions to produce a higher

quality product.

The fact that petitioner can meet its quality-control

objectives under its current classification, albeit at a higher

production cost, fatally undermines this argument. The

evidence in the record demonstrates that conferring

producer-handler status upon petitioner is not necessary to

achieve the high quality product desired by Stew Leonard’s;

indeed, the fact that the present arrangement results in the

production of a superior product was not disputed at any

time in the hearing, but the fact that petitioner has been able

to manufacture this superior product while _ still

participating in the pricing pool precludes any causal

connection between the status of producer-handler and the

statutory objective of producing wholesome milk. Reprieve

from the regulatory pool would lower the production costs

for Stew Leonard’s, but the purpose of the act is to promote

the production of wholesome milk, and not to promote the

production of wholesome milk at the lowest possible cost to

the handler.

The Secretary’s construction of the applicable

regulation is in accordance with the law. It follows the plain

language of the text, is consistent with the expressly stated

purpose for the exemption, and does not betray the purpose

of the AMAA.

r SECRETARY’S APPLICATION OF THE

REGULATIONS

Having decided that the construction of the law the

Secretary was charged with applying was in accordance

with the law, the court now turns to the question of whether

the Secretary properly applied the evidence to the law.

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The court reviews the agency’s on-the-record

findings in such cases under the “substantial evidence” test,

as set forth in 5 U.S.C. § 706(2)(E): “[t]he court shall-...

hold unlawful and set aside agency action, findings, and

conclusions found to be . . . unsupported by substantial

evidence. .. .”11 “[S]ubstantial evidence is more than a mere

scintilla,” and “must do more than create a suspicion of the

existence of the fact to be established.” Universal Camera

Corp. v. N.L.R.B., 340 U.S. 474, 477 (1951) (citations, internal

quotation marks omitted). The quantum of evidence,

viewing the record as a whole, must be such that “it would

have been possible for a reasonable jury to reach the

[Secretary’s] conclusion.” Allentown Mack Sales & Service,

Inc. v. N.L.R.B., 522 U.S. 359, 366-67 (1998). Thus, “[e]ven if

a court could draw different conclusions from those drawn

by the agency, that would not prevent the agency’s decision

from being supported by substantial evidence.” Kinney

Drugs, Inc, v. N.L.R.B., 74 F.3d 1419, 1427 (2d Cir. 1996)

(citations, internal quotation marks omitted); see also

Allentown Mack Sales & Service, Inc., 522 U.S. at 377 (noting

that the substantial evidence standard “requires not the

degree of evidence which satisfies the court that the

requisite fact exists, but merely the degree which could

satisfy a reasonable factfinder.”).

Petitioner contends that the Secretary’s decision

should be reversed for two reasons. First, it argues that the

Secretary's finding that petitioner did not meet the

1! The type of on-the-record adjudication present in this case, where the

court’s review is confined to the formidable administrative record

developed below, warrants application of the “substantial evidence”

standard of review, to the extent it differs in substance from the “arbitrary

and capricious” standard. See, e.g., In re Gartside, 203 F.3d 1305, 1314

(Fed. Cir. 2000) (applying the more specific “substantial evidence”

standard rather than the general “arbitrary and capricious” standard

because “our review of the Board’s decision is confined to the factual

record compiled by the Board in the underlying adjudicative

proceeding”); Ass’n of Data Processing v. Bd. Of Governors, 745 F.2d 677,

638-86 (D.C. Cir. 1984) (characterizing the difference between the two

standards as “largely semantic”).

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requirements of the definition of producer-handler is not

supported by the weight of the evidence in the record.

Second, petitioner maintains that the Secretary’s decision is

disingenuous because it flies in the face of prior

departmental precedent. ——

The gravamen of petitioner's first contention is that

the evidence shows that the lease in question gives it a great

degree of control over the farming operations, and shifts a

significant amount of risk from the Bahlers, the family who

owns Oakridge Farm, to Stew Leonard’s. Also, petitioner

points out that it operates in the intuitively precarious

position of paying rent for animals and equipment at a

monthly rate, in addition to the monthly expenses of

running the farm, and then has to conduct its accounting in

such a way that complies with the federal regulatory pricing

scheme. Petitioner maintains that, because of the logistics of

this arrangement, and the fact that it contractually assumes

much of the risks of conducting a farming operation, it

should be considered one enterprise under the marketing

order.

However, the Secretary’s decision is supported by

substantial evidence. The Secretary adequately considered

both the evidence that supported petitioner’s contention,

and the evidence that bolstered the Market Administrator's

decision. He examined the terms of the effective lease,

which provides that “Stew Leonard’s agrees to pay for all

ordinary and necessary expenses related to the production,

processing and packaging of milk,” and that “Stew

Leonard’s agrees to assume all risk, responsibility and

maintenance of the cows, equipment, buildings, and labor,”

(Petition for Review of Agency Decision, Ex. G, { 3). He

also noted the fact that Stew Leonard’s “has paid the cost of

fertilizing cows, hardware maintenance and repair,

equipment repair, feed, payroll, veterinary services, and

services to keep track of animals,” (Petition for Review of

Agency Decision, Ex. J, 9 23 at 19), and that Stew Leonard’s

maintains insurance on Oakridge Farm, (see id.). The

A-25

Secretary's findings to this effect were consistent with the

evidence produced at the hearing.!?

In spite of these findings, substantial evidence exists

to support the conclusion of the Secretary. Specifically, the

Secretary found that, despite the indicia of control discussed

above, petitioner was not a dairy farmer who operated his

own enterprise at his own risk. (See Petition for Review of

Agency Decision, Ex. J at 27 (“The evidence establishes that

Petitioner is not a dairy farmer . . . and that Petitioner does

not provide, at Petitioner’s own risk, the maintenance, care,

and management of the Oakridge Farm Dairy herd and

other resources and facilities used to produce milk. . . .”)).

The Secretary found that Stew Leonard's has no interest in

the land itself under the terms of the lease. (See id., J 30).

In addition, the Secretary found that Oakridge Farm, which

is the entity with which Stew Leonard’s entered into the

lease, retains a significant connection to Bahler Farms, Inc.

an adjacent farm operation, in that the principals of Bahler

Farms, Inc., are authorized to write checks for Stew

Leonard's (see id., § 25), records for Oakridge Farms are

maintained at Bahler Farms, Inc. (see id., {| 27), the two

operations purchase supplies jointly (see id., ] 26), and the

two entities share “equipment and a full-time calf raiser, a

mechanic, and full-time milkers,” (see id., J 24). Oakridge

and Bahler also pledged security for a loan together (see id.,

{ 28), and jointly insure against a loss resulting from the

joint operation (see id., J 29). Finally, the evidence shows

that Stew Leonard’s does not know how to operate a dairy

farm (see id., § 33), and that the day-to-day operation of

12 Petitioner argues that the Secretary erroneously refused to adopt the

ALJ's finding that “Stew Leonard’s has also assumed, pursuant to the

June 16, 1998, lease, all risks arising from the operation of Oakridge

Farm.” (Petition for Review of Agency Decision, Ex. I, J 25). The

Secretary was free to examine the evidence and decline to adopt this

finding, and properly did so. The court is obligated to consider this

disagreement when reviewing the evidence in the record, see Universal

Camera Corp. v. N.L.R.B., 340 U.S. 474, 496 (1951), yet finds that the

evidence supports the Secretary’s conclusion.

A-26

Oakridge Farm did not change at all after the execution of

the lease (see id., J 37).13

This evidence is sufficient for a reasonable jury to

conclude that Stew Leonard’s does not operate a dairy farm

as its own enterprise and at its own risk. Although, without

question, the lease places Stew Leonard’s in a position to

take a more active role in the production of the milk it sells,

the evidence supports the conclusion that the lease had very

little practical effect upon the symbiotic operation of

Oakridge Farm and Bahler Farms, Inc. In this respect, the

scenario closely resembles the ordinary purchase and sale of

milk. Given the evidence presented, a reasonable

conclusion to draw would be that, despite the fact that the

lease was not a sham, Stew Leonard’s is actually a handler

posing as a producer-handler.

Petitioner, in a vigorous cross-examination of Erik

Rassmussen, the Market Administrator of the New England

Marketing Order at the time of the hearing, explored, at

length, the limits and legal ramifications of the Market

Administrator's knowledge and views concerning how

much control and assumption of the risk of loss is necessary

to be classified as a _producer-handler. Although

informative, the testimony elicited during the hearing from

Mr. Rassmussen does not detract from his ultimate

conclusion. Counsel for the petitioner asked pointed

questions about complicated legal intricacies regarding the

forms of business organizations and the distinctions

between a lease and a transfer of property. Mr. Rassmussen

admitted that he was not a lawyer, and, indeed, familiarity

with these legal concepts is not qualification of his position;

his job is to look at the circumstances as a whole, under the

13 Petitioner argues that the evidence connecting Bahler Farms, Inc. to

Oakridge Farm should not be considered because the Market

Administrator was not aware of these facts and consequently could not

have based his initial determination upon this evidence. However, the

statute clearly states that the court is to review the Secretary's decision,

and not the Market Administrator's initial determination. Therefore, the

court will consider the disputed evidence.

A-27

guidance of the provisions and purpose of the regulatory

scheme, in order to make an_ informed practical

determination. He does not have to explore every legal

consequence of the transaction, or refute all indicia of

control, rather he must use his knowledge and experience to

determine if, practically speaking, the entity in question is a

dairy farmer who conducts his operation at his own risk, or

a handler who has donned a clever disguise-as a producer-

handler. See Elm Spring Farm, Inc. v. U.S. 127 F.2d 920, 926

(1st Cir. 1942) (“The regulatory scheme embodied in the

order is an intensely practical business, and the question

now before us is not to be determined by a purely abstract

inquiry as to who had ‘title’ to the cows which produced the

milk.”).

This emphasis on the practical effect is faithful to the

purpose of the producer-handler exemption. The Secretary

found that classifying Stew Leonard’s as a producer-handler

would have an impact upon the market as a whole.'4

Specifically, the Secretary found that Stew Leonard’s would

enjoy a competitive advantage over its rival milk handlers in

the area by avoiding the pool equalization payments. (See

Petition for Review of Agency Decision, Ex. J, { 34).

Furthermore, the Secretary found that this advantage would

effect the market as a whole, (see id., J 34), and that the size

of Stew Leonard's operation could not be considered small,

(see id. at 31). As previously noted, the purpose of the

exemption was to forgo the regulation of smaller family-

type operation because these operations do not have a

significant effect upon the pricing pool, and therefore the

burdens of regulating them outweigh the benefits to the

regulatory pool. When an entity does have an effect upon

the pricing pool, as a reasonable conclusion from the

14 This effect does not include “riding the pool” as discussed elsewhere in

this opinion. No evidence suggests that Stew Leonard’s would take

unfair advantage of being awarded producer-handler status by “riding

the pool.”

A-28

evidence suggests Stew Leonard’s does, the purpose of the

exemption would be defeated.

Petitioner’s second contention is that the Secretary's

application of the producer-handler definition contradicts

prior departmental decisions. In_ particular, petitioner

presented evidence that three entities currently classified as

producer-handlers lease a portion of their dairy herd, yet

assume significantly less risk than that assumed under the

terms of petitioner’s lease. Petitioner argues that, because

“[t]he Market Administrator concedes these leases do not

provide, as their own enterprise and at their own risk, the

maintenance, care, and management of the leased cows and

other resources and facilities used to produce the milk from

the leased cows,” (Petition for Review of Agency Decision,

Ex. J | 32), that respondent's finding that petitioner is not a

producer-handler is contradictory to prior departmental

actions.

The basis of petitioner’s argument is that because the

producer-handler lessees in the three other leases assume a

lesser degree of risk than petitioner, petitioner should be

granted producer-handler status. However, petitioner

dismisses one key fact: the three producer-handler lessees

were classified as producer-handlers prior to the execution

of the leases. (See id.). This is certainly a credible reason for

distinguishing between the other three leases and

petitioner's; the three producer-handler lessees could not be

accused of constructing a legal framework to avoid

‘payments into the pricing pool, because, as producers and

dairy farmers,'5 they were never subject to the pricing pool

in the first place. Allowing existing producer-handlers to

lease a portion of their dairy herd is entirely consistent with

the express purpose of the producer-handler exemption

because regulation of smaller dairy farms would have a

'° The Secretary found that “[e]very producer-handler in the New

England Milk Marketing Order is a dairy farmer who owns a dairy farm.”

(Petition for Review of Agency Decision, Ex. J, J 31).

A-29

nominal effect upon the pricing pool, even if they do

supplement their milk production to some degree.'®

Petitioner also cites a previous decision by the

Secretary that classified an entity as a producer-handler

despite the fact that its entire dairy herd was leased, and

claims that, under this precedent, the Secretary’s decision

not to classify Stew Leonard’s as a producer-handler would

be unreasonable. Petitioner contends that there is no

foundation for the Secretary’s conclusion that an existing

producer-handler can lease a herd, but a handler may not

become a producer-handler through a lease transaction.

Because there is a substantial basis for distinguishing the

case in question, petitioner’s argument fails.

In the case in question, In re Jerome Klocker, 26

Agric. Dec. 1050 (Oct. 30. 1967), the petitioner had “been the

sole owner of all land, buildings, machinery, equipment and

facilities of both the dairy farm and milk processing plant

located thereon,” id. at 1051, until he engaged in a sale and

leaseback arrangement with a herdmaster in which

petitioner sold his heifers to one Rausch, who then leased

the herd back to petitioner, see id. The Secretary found that

the transaction had no practical effect upon the operation of

the farm; the herd was never moved off petitioner’s

property, Rausch was essentially an employee of the

petitioner, and all the milk was produced from this herd in

petitioner’s facilities. See id. at 1051, 1055, 1057.

Upon consideration of these facts, the Secretary

reversed the decision of the market administrator and

6 Petitioner challenges the Market Administrator’s determination that a

producer-handler who lease more than twenty-five percent of his dairy

herd can no longer be considered a producer-handler, (see Petition for

Review of Agency Decision, Ex. J, § 32), and claims that this ad hoc

determination is exemplary of the alleged abuse of the Market

Administrator's power. This court is concerned with review of Stew

Leonard’s petition, which does not turn on the validity of the twenty-five

percent line. For the purposes of this review, the court finds a substantial

justification for drawing such a line in general, and does not pass on

precisely where it should be drawn.

retained petitioner's classification as a producer-handler. In

so finding, the Secretary noted that “[a]dmittedly, the use of

milk from a leased herd is not determinative of the question

of satisfaction of the requirements of the ‘producer-handler’

definition contained in the order,” and held that,

“[pletitioner exercised the powers of management,

supervision, direction and control of the dairy herd and

farm and such farm was his investment or risk,” and “the

production of the milk utilized at petitioner’ s_ plant

continued to be the enterprise and risk of petitioner

subsequent to the [leaseback]. . . .” Id. at 1057-58.

The factual differences between Klocker and this

case are manifest. In Klocker, the petitioner operated his

own dairy farm and processing plant, but had a peculiar

method of paying his herdmaster, a method that had no

practical effect upon the operation of the farm for the

purpose of the administration of the marketing order. In the

instant case, petitioner never owned a dairy farm, and then

leased the animals and fixtures, in addition to assuming

some risk associated with the farm’s operation, but the

practical effect upon the operation of the farm for the

purpose of the administration of the marketing order did

not change. A fair reading of the case suggests that the

Secretary should not elevate form over substance, and

should, instead, look to the practical effect upon the

regulatory scheme with which he is charged to implement.

Viewed in this light, the state of affairs prior to the lease

transaction, contrary to petitioner's assertions, is certainly a

critical issue, and a permissible basis for differentiating

between the cases. Such a reading supports the Secretary’s

decision in this case.

In sum, the Secretary’s application of the governing

regulation is supported by substantial evidence and

therefore is “in accordance with the law.” The Secretary has

a duty to enforce the provisions of the AMAA, in such a

way that adheres to the purpose of the act: to avoid ruinous

pricing practices in the several market areas. The

A-31

Secretary’s decision in this case was faithful to that purpose,

and also was consistent with prior departmental action. The

Secretary found that Stew Leonard’s, under the terms of the

operative lease, was not the type of entity deserving of

exemption from the regulatory pricing pool because it had a

cognizable impact upon the pricing pool, and the evidence

showed that it did not assume the degree of risk necessary

to be deemed a producer-handler.

As an aside, petitioner raises some concerns, echoed

somewhat by the ALJ, regarding the determination of

producer-handler status, in particular the gaps left in the

text of the regulations regarding the lack of a definition of

“dairy farmer” and the process for ascertaining where the

line should be drawn with respect to the permissible

percentage of outside milk handling by existing producer-

handler leases. However, petitioner’s concerns merely re-

state a familiar problem: because Congress, or even the

Secretary of Agriculture, cannot construct a legislative

solution to every conceivable issue, much of the

classification process is left to administrative discretion.

Although some may lament this reality, courts have

consistently held that it is lawful:

[a] statute may be ambiguous, for the

purposes of Chevron analysis, without being

inartful or deficient. The present case

exemplifies the familiar proposition that

Congress need not, and likely cannot,

anticipate all circumstances in which a

. general policy must be given specific effect.

U.S. v. Haggar Apparel Co., 526 U.S. 380, 392 (1999). A

reviewing court must confine its review to the legality, and

not the desirability, of the agency’s action.

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C. EQUAL PROTECTION

Petitioner claims that the Secretary’s decision to

deny Stew Leonard’s producer-handler status is

unconstitutional. It claims that the Secretary violated the

equal protection guarantees of the Fifth Amendment when

it granted producer-handler status to operations that lease a

portion of their dairy herd, without assuming a significant

portion of the risks involved, and refused to grant producer-

handler status to petitioner, who leased a herd that fulfills

all its processing demands, while assuming a significant

portion of the risks involved.

The Fourteenth Amendment of the United States

Constitution states that “[n]o State shall .. . deny to any

person within its jurisdiction the equal protection of the

laws.’”7_ U.S. Const. Amend. XIV, § 1. This constitutional

guarantee ensures that “all similarly situated persons are

treated similarly under the law,” such that “Tilf a

(regulation) classified people, the classification must be

based on criteria related to the [regulation’s] objective.”

Vermont Assembly of Home Health Agencies, Inc. v.

Shalala, 18 F. Supp. 2d 355, 363 (D. Vt. 1998).

In determining if this guarantee has been infringed, a

reviewing court must apply the appropriate standard. The

Supreme Court instructs reviewing courts as follows:

In areas of social and economic policy, a []

classification that neither proceeds along

suspect lines nor infringes fundamental

constitutional rights must be upheld against

an equal protection challenge if there is any

reasonably conceivable set of facts that could

provide a rational basis for the classification.

7 “We approach equal protection claims under the Fifth Amendment in

the same way as we would such claims under the Fourteenth

Amendment.” General Media Communications, Inc. v. Cohen, 131 F.3d

273, 285 (2d Cir. 1997), cert. denied, 118 S. Ct. 2367 (1998) (citing

Weinberger v. Wiesenfeld, 420 U.S. 636, 638 n. 2 (1975)).

A-33

F.C.C. v. Beach Communications, Inc., 508 U.S. 307, 313

(1993). Since the case before the court concerns areas of

social and economic policy, and does not involve suspect

classifications or fundamental constitutional rights, the

court will apply the minimum rationality standard. See id.

When applying the minimum rationality standard, a

regulatory classification “is accorded a strong presumption

of validity.” Heller v. Doe, 509 U.S. 312, 319 (1993). The

Secretary has no obligation to promulgate evidence in

support of its decision, and “[t]he burden is on the one

attacking the legislative arrangement to negative every

conceivable basis which might support it.” Id. at 320

(internal quotation marks omitted), see also Able v. U.S., 155

F.3d 628, 632 (2d Cir. 1998) (applying the same standard). In

sum, “[w]here there are plausible reasons for [the

Secretary's] action, our inquiry is at an end.” Beach

Communications, 508 U.S. at 314 (internal quotation marks

omitted).

The court finds a plausible and legitimate reason for

the difference in treatment. As discussed herein, the

Secretary's decision was based upon substantial evidence.

As such, petitioner cannot sustain its burden of disproving

any rational explanation for the difference in treatment.

IV. CONCLUSION

Petitioner has failed to demonstrate that the

defendant's decision to deny it producer-handle status

under the applicable regulations is not supported by

substantial evidence, and therefore “not in accordance with

the law,” 7 U.S.C. § 608c(15)(B). Likewise, petitioner has not

shown that defendant's application of the statutory scheme

lacks a rational basis. Therefore, the decision of the

Secretary of Agriculture is AFFIRMED, petitioner's motion

for summary judgment is DENIED, and respondent's

motion for summary judgment is GRANTED. The Clerk of

the Court shall enter judgment for the respondent on all

counts. ;

A-34

IT IS SO ORDERED.

Dated at Hartford, Connecticut this 21st_ of

March, 2001.

s/

Thomas P. Smith

United States Magistrate Judge

A-35

UNITED STATES DEPARTMENT OF AGRICULTURE

BEFORE THE SECRETARY OF AGRICULTURE

In re: 98 AMA Docket No. M 1-1

)

)

Stew Leonard’s, )

)

Petitioner ) Decision and Order

March 16, 2000

V. Introduction

Stew Leonard's [hereinafter Petitioner] instituted this

proceeding on February 17, 1998, under the Agricultural

Marketing Agreement Act of 1937, as amended [hereinafter

the AMAA]; the federal order regulating the handling of

milk in the New England Marketing Area (7 C.F.R. pt. 1001)

[hereinafter the New England Milk Marketing Order]; and

the Rules of Practice Governing Proceedings on Petitions To

Modify or To Be Exempted From Marketing Orders

(7 C.F.R. §§ 900.50-.71) [hereinafter the Rules of Practice] by

filing a Petition pursuant to section 8c(I5)(A) of the AMAA

(7 U.S.C. § 608c(15)(A)).

Petitioner sought relief from the February 6, 1998,

determination by Erik F. Rasmussen, Market Administrator

for the New England Milk Marketing Order [hereinafter the

Market Administrator], that a December 10, 1997, lease by

Petitioner of Oakridge Farm’s milking cows and milk

production facilities did not confer producer-handler status

on Petitioner. Petitioner alleged the Market Administrator's

determination that Petitioner is not a producer-handler

under the New England Milk Marketing Order has no

rational basis in the law, is arbitrary and capricious, is an

abuse of the Market Administrator's administrative

discretion, and deprives Petitioner of property without due

process of law in violation of the Fifth Amendment to the

United States Constitution (Pet. § 15(3)-(4)). Petitioner

requested that the Secretary of Agriculture designate

A-36

Petitioner as a producer-handler and declare that Petitioner

is not required to comply with “requirements of a handler

under federal statutes, regulations, and milk orders” (Pet.

At 5).

On April 24, 1998, the Administrator, Agricultural

Marketing Service, United States Department of Agriculture

[hereinafter Respondent], filed an Answer: (1) denying the

allegation that Petitioner is a producer-handler under the

New England Milk Marketing Order (Answer 4 3, 9); and

(2) stating that the Petition fails to state a claim upon which

relief can be granted (Answer at 3).

Thereafter, Petitioner submitted to the Market

Administrator a lease, dated June 16, 1998, executed by

Petitioner and Oakridge Farm on the basis of which

Petitioner again sought the Market Administrator's

determination that Petitioner meets the definition of

“producer-handler” under the New England Milk

Marketing Order. On July31, 1998, the Market

Administrator advised Petitioner that its June 16, 1998, lease

of Oakridge Farm’s milking cows and milk production

facilities did not qualify Petitioner as a producer-handler

under the New England Milk Marketing Order.

On August 12, 1998, Petitioner filed Motion to

Amend Petition Filed Pursuant to 7 U.S.C. § 608c(15)(A)

[hereinafter Motion to Amend Petition] and Amended

Petition Pursuant to 7 U.S.C. § 608c(15)(A) [hereinafter

Amended Petition]. The Amended Petition states that the

Market Administrator's “February 6, 1998 letter, and the

continuing refusal to confirm Stew Leonard’s status as a

producer-handler are not in accordance with law”

(Amended Pet. § 19) and requests that the Secretary of

Agriculture designate Petitioner as a producer-handler and

declare that Petitioner “is no longer required to file handler

reports and comply with all other requirements of a handler

under the federal statutes, regulations, and milk orders”

(Amended Pet. At 5-6). On August 21, 1998, Respondent

filed Respondent's Reply to Motion to Amend Petition and

Answer to Amended Petition [hereinafter Amended

Answer]. The Amended Answer: (1) states that

Respondent does not object to Petitioner’s Motion to Amend

Petition (Amended Answer at 1); (2) denies the allegation

that Petitioner is a producer-handler under the New

England Milk Marketing Order (Amended Answer {{ 3, 9);

and (3) states that the Amended Petition fails to state a claim

upon which relief can be granted (Amended Answer at 3).

On September10, 1998, Administrative Law Judge

Dorothea A. Baker [hereinafter the ALJ] granted Petitioner's

Motion to Amend Petition and accepted Petitioner's

Amended Petition (Ruling on Motion to Amend).

On January 11-12, 1999, the ALJ conducted a hearing

on the Amended Petition, in Hartford, Connecticut.

James A. Wade and Brian O’ Donnell, Robinson & Cole, LLP,

Hartford, Connecticut, represented Petitioner, Donald A.

Tracy, Office of the General Counsel, United States

Department of Agriculture, Washington, DC, represented

Respondent.

On Mach 30, 1999, Petitioner filed Petitioner's

Proposed Findings of Fact, Conclusions and Order and

Petitioner's Post-Hearing Brief; on May 17, 1999, Agri-Mark,

Inc., and National Milk Producers Federation [hereinafter

Intervenors]'8 filed Proposed Findings of Fact, Conclusions

and Order Submitted on Behalf of Agri-Mark, Inc. and

National Milk Producers Federation; on Junell, 1999,

Respondent filed Respondent's Proposed Findings of Fact,

Conclusions of Law, Order, and Brief [hereinafter

Respondent's Post-Hearing Brief]; and on July 15, 1999,

Petitioner filed Petitioner’s Reply Brief.

18 On June 8, 1998, Intervenors filed Motion of Agri-Mark, Inc., and

National Milk Producers Federation for Leave to Participate in the Above

Captioned Proceeding [hereinafter Motion to Intervene], in which

Intervenors requested an order granting them leave to participate in oral

argument and to file a brief in this proceeding, pursuant to section 900.57

of the Rules of Practice (7 C.F.R. § 900.57). On July 9, 1998, the ALJ

granted the Motion to Intervene “to the extend that [Intervenors] may file

briefs” (Ruling on Motion for Leave to Participate in Proceeding).

A-38

On September 10, 1999, the ALJ issued a Decision

and Order [hereinafter Initial Decision and Order] in which

the ALJ concluded that the Market Administrator's

determination that Petitioner is not a producer-handler is in

accordance with law and dismissed Petitioner's Petition

(Initial Decision and Order at 37-38).

On October 13, 1999, Petitioner filed Appeal and

Request for Argument: on December 13, 1999, Intervenors

filed Brief of Agri-Mark, Inc. and National Milk Producers

Federation in Support of Motion to Dismiss Appeal of

Petitioner; on December15, 1999, Respondent filed

Respondent's Reply to Appeal [hereinafter Respondent's

Cross-Appeal]; on February 28, 2000, Petitioner filed

Petitioner's Reply to Respondent’s Cross-Appeal; and on

March 3, 2000, the Hearing Clerk transmitted the record of

the proceeding to the Judicial Officer for decision and ruling

on Petitioner’s motion for oral argument before the Judicial

Officer.

Petitioner’s request for oral argument before the

Judicial Officer, which the Judicial Officer may grant, refuse,

or limit pursuant to section 900.65(b) of the Rules of Practice

(7 C.F.R. § 900.65(b)), is refused because the issues have

been fully briefed by Petitioner, Respondent, and

Intervenors; thus, oral argument would appear to serve no

useful purpose.

While I agree with the ALJ's conclusion, many of the

ALJ's findings of fact, and some of the ALJ’s discussion, I

have not adopted the AL)'’s Initial Decision and Order as the

final Decision and Order because I disagree with much of

the ALJ's discussion.19

'? [also agree with the ALJ’s Order dismissing Petitioner's Petition (Initial

Decision and Order at 38). Petitioner filed its Petition on February 17,

1998. On August 12, 1998, Petitioner filed its Motion to Amend Petition

and Amended Petition. On September 10, 1998, the ALJ granted

Petitioner's Motion to Amend Petition and accepted Petitioner's

Amended Petition (Ruling on Motion to Amend). | infer that Petitioner

withdrew its Petition and substituted in its stead Petitioner's Amended

VI. Applicable Statutory and Regulatory Provisions

7 USA

TITLE 7— AGRICULTURE

CHAPTER 26— AGRICULTURAL ADJUSTMENT

SUBCHAPTER III— COMMODITY BENEFITS

§ 608c. Orders regulating the handling of

commodity

(15) Petition by handler for modification of

order or exemption; court review of ruling of Secretary

(A) Any handler subject to an

order may file a written petition with the

Secretary of Agriculture, stating that any

such order or any provision of any such

order or any obligation imposed in

connection therewith is not in accordance

with law and paying for a modification

thereof or to be exempted therefrom. He

shall thereupon be given an opportunity for a

hearing upon such petition, in accordance

with regulations made by the Secretary of

Agriculture, with the approval of the

Petition. Therefore, I find that the ALJ’s dismissal of Petitioner’s Petition

is error. Instead, I dismiss Petitioner’s Amended Petition (Decision and

Order, infra).

President. After such hearing, the Secretary

shall make a ruling upon the prayer of such

petition which shall be final, if in accordance

with law.

7 U.S.C. § 608c(15)(A).

7 C.F, Re

TITLE 7— AGRICULTURE

SUBTITLE B—REGULATIONS OF THE DEPARTMENT

OF AGRICULTURE

CHAPTER X— AGRICULTURAL MARKETING SERVICE

(MARKETING AGREEMENTS AND ORDERS; MILK)

DEPARTMENT OF AGRICULTURE

PART 1001—MILK IN THE NEW ENGLAND

MARKETING AREA

Subpart — Order Regulating Handling

DEFINITIONS

§ 1001.10 Producer-handler.

A-41

Producer-handler means any person

who, during the month, is both a dairy

farmer and a handler who meets all of the

following conditions:

35. Provides as the person’s own

enterprise and at the person’s own

risk the maintenance, care, and

management of the dairy herd

and other resources and facilities

that are used to produce milk, to

process and package suck milk at

the producer-handler’s own plant,

and to distribute it as route

disposition.

7 C.F.R. § 1001. 10(a).

VII. Findings of Fact

1. Petitioner is a “handler,” as defined in

section 1001.9 of the New England Milk Marketing Order

(7C.F.R. § 1001.9), and at all times material to this

proceeding, Petitioner operated as a handler (Tr. 44-45, 51,

133, 142-44, 178-79, 260).

r Petitioner is a partnership which has

operated a grocery business since 1969. Petitioner is

engaged in the business of selling milk and other dairy and

food products to consumers at retail food stores in Norwalk

and Danbury, Connecticut, with a principal place of

business located at 100 Westport Avenue, Norwalk,

Connecticut. (Amended Pet. {J 1-2, 4.)

2 At its retail food store in Norwalk,

Connecticut, Petitioner distributes fluid milk products

processed at its fluid milk processing plant located on the

same premises. At a second retail food store in Danbury,

Connecticut, Petitioner distributes fluid milk products

processed at the Norwalk fluid milk processing plant

(Tr. 22-23.)

4. Petitioner's Norwalk, Connecticut, retail food

store and fluid milk processing plant is owned by a

partnership consisting of Marianne Leonard and_ the

Marianne Leonard 1993 Trust (PX 1; Tr. 21-22). Petitioner

has no ownership interest in the Danbury, Connecticut,

retail food store through which it distributes a portion of the

fluid milk products processed at its Norwalk fluid milk

processing plant. The Danbury, Connecticut, store is owned

by a limited liability corporation whose ownership is

divided among various members of the Leonard family

other than the partnership owners of Petitioner. (PX 1;

Tr. 22-25.)

5. Petitioner represents itself as operating the

world’s largest dairy store (Tr. 128). Petitioner receives and

processes about two-thirds of a tanker truck of milk each

day and sells approximately 1.2 million gallons of milk per

year (Tr. 119, 493-94).

6. Prior to January 1, 1998, Petitioner received

its entire raw milk supply from Agri-Mark, Inc., a

cooperative association, whose dairy farmer members

supply milk to handlers regulated by the New England Milk

Marketing Order (Tr. 215-16).

a Oakridge Farm is a dairy farm in Ellington,

Connecticut, which owns approximately 550 cows (Tr. 56-

97). Prior to January 1, 1998, Oakridge Farm was a member

of Agri-Mark, Inc. (Tr. 210).

8. Oakridge Farm is owned by Atlas Associates,

a partnership whose partners, according to public records in

Ellington, Connecticut, are Corbin Bahler, Kenneth Bahler,

and S. Owen Bahler. There is a second certificate which lists

Atlas Associates, d/b/a Oakridge Farm. (Tr. 267.)

9. Bahler Farms, Inc., is a corporation that

operates a dairy farm which is contiguous to Oakridge Farm

(Tr. 102, 267).

A-43

10. ‘Vern Bahler is the president and a director of

Bahler Farms, Inc.; David Bahler is the secretary and a

director of Bahler, Farms, Inc.; and Corbin Bahler is the

agent for Bahler Farms, Inc. (Tr. 267). Petitioner has no

interest in Bahler Farms, Inc. (Tr. 48).

11. | On December 10, 1997, Kenneth Bahler, as

“Partner” on behalf of Oakridge Farm and Stewart J.

Leonard, Jr., as “President” on behalf of Petitioner, executed

a document entitled “Lease Agreement.” Pursuant to the

Lease Agreement, Petitioner agreed to: (1) lease Oakridge

Farm’s entire herd of milking cows, barns, milking parlors,

personal property, and all equipment necessary to produce

raw milk and its related products; (2) transport the milk

products from Oakridge Farm to Petitioner’s facilities for

processing, packaging, sale, and distribution at its own

expense; (3) pay for all ordinary and necessary expenses

relating to production, processing, and packaging of milk

and its related products; (4) pay Bahler Farms, Inc., a

management fee; and (5) buy corn silage from Bahler Farms,

Inc. (PX 2.)

12. On December 18, 1997, Petitioner notified the

Market Administrator that Petitioner had entered into an

agreement to receive milk directly from Oakridge Farm with

the intention of becoming a producer-handler. On

December 30, 1997, the Market Administrator responded to

Petitioner's letter by quoting the requirements in 7 C.F.R.

§ 1001.10 for producer-handler status under the New

England Milk Marketing Order and by advising Petitioner

that the versions of the proposed lease agreement with

“Bahler Oak Ridge Farm” that had been provided to the

Market Administrator's office, failed to meet the

requirements of the producer-handler provisions of the New

England Milk Marketing Order, as follows:

A-44

Stewart J. Leonard

100 Westport Avenue

Norwalk, CT 06851-3999

Gentlemen:

We have received your letter dated

December 18, 1997 stating that you have

entered into an agreement to receive milk

directly from the Bahler Oak Ridge Farm and

that your intention is to become a producer-

handler.

Section 1001.10 of Federal Order No.1

requires in part that a producer-handler

“provides as the person’s own enterprise and at

the person’s own risk the maintenance, care, and

management of the dairy herd and other resources

and facilities that are used to produce milk, to

process and package such milk at the producer-

handler’s own plant, and to distribute it as route

disposition.”

We have discussed this matter on several

occasions during the past four months. To

date, the versions of the proposed lease

agreement between Stew Leonard’s Dairy

and the Bahler Oak Ridge Farm which you

have provided to this office have failed to

meet the order requirements.

The status of Stew Leonard’s Dairy will not

be changed to that of a producer-handler

until you submit for review and approval a

signed copy of the lease which fully meets

the requirements of section 1001.10.

A-45

Stew Leonard’s Dairy will continue to be a

pool handler and file monthly Form 1 reports

and make equalization payments into the

New England Market Order pool.

PX 10 (emphasis in original).

13. On January 5, 1998, Petitioner’s counsel sent a

copy of the executed December 10, 1997, Lease Agreement

to the Market Administrator with a letter requesting that the

Market Administrator identify the manner in which the

lease fails to meet the requirements of the producer-handler

provisions of the New England Milk Marketing Order, as

follows:

Mr. Erik F. Rasmussen

Market Administrator

U.S. Department of Agriculture

P.O. Box 1478

Boston, MA 02205-1478

Re: | Stew Leonard’s Dairy Store

Dear Mr. Rasmussen:

This office represents Stew Leonard's

Dairy of Norwalk, Connecticut. We are in

receipt of your letter dated December 30,

1997 addressed to StewartJ. Leonard in

which you state that the lease between Stew

Leonard’s Dairy Store and Bahler Oak Ridge

Farm fails to meet the requirement of

Section 1001.10 of Federal Order No. 1.

I am enclosing a copy of the signed

lease as requested. Would you please advise

in what respects the lease fails to meet the

requirements of the aforesaid Federal order.

A-46

We will consider your comments and take

such steps as we deem appropriate.

PX 12.

14. On January15, 1998, the Market

Administrator responded, advising Petitioner’s counsel that

the December 10, 1997, lease of Oakridge Farm's milking

cows and milk production facilities fails to cause Petitioner

to meet the requirements for producer-handler status under

the New England Milk Marketing Order, as follows:

Robinson & Cole LLP

One Commercial Plaza

280 Trumbull Street

Hartford, CT 06103-3597

Attention: Mr. James A. Wade

Gentlemen:

We have reviewed the copy of the signed

lease agreement between Stew Leonard’s

Dairy and Oakridge Farm of Ellington,

Connecticut.

As written, the proposed lease fails to meet

the Order requirement that the handler

“provides as the person’s own enterprise and risk

the maintenance, care, and management of the

dairy herd and other resources and facilities that

are used to produce milk, to process and package

such milk at the producer-handler’s own plant,

and to distribute it as route distribution.”

Specifically, Paragraph3 states that the

parties “agree to review and adjust the

payments called for herein on a quarterly

A-47

basis.” This provision, in effect, eliminates

any risk of loss to Stew Leonard's Dairy as a

result of “uncertainties that relate to the cost

of farming.” Such risk is inherent to a

producer-handler’s operation and must be

assumed by Stew Leonard’s Dairy before that

handler’s status is changed to that of a

producer-handler.

In addition, the fixed amount and the

frequency of the management fee to be paid

to Bahler Farms, Inc., by Stew Leonard (also

noted in Paragraph3) must be specified in

the lease.

PX 11 (emphasis in original).

15. On January 20, 1998, Petitioner’s counsel sent

a letter and a proposed new lease between Petitioner and

Oakridge Farm to the Market Administrator inquiring

whether Petitioner would meet the requirements for a

producer-handler if it re-executed the December 10, 1997,

lease with Oakridge Farm with modifications indicated on

the proposed lease, as follows:

Mr. Erik F. Rasmussen

Market Administrator

U.S. Department of Agriculture

P.O. Box 1478

Boston, MA 02205-1478

Re: Stew Leonard’s Dairy Store

Dear Mr. Rasmussen:

Enclosed please find a copy of the

lease between Stew Leonard’s and Oakridge

Farm which incorporates the changes thereto

A-48

suggested in your letter of January 15, 1998.

Assuming the parties re-execute the lease

with these modifications therein, will that

meet the requirements of the Federal Milk

Order? Please advise at once and I will take

the necessary steps to have the lease

re-executed and forward a signed copy to

you.

PX 13.

16. On February6, 1998, the Market

Administrator notified Petitioner by letter that he had

reviewed the various leases that Petitioner had proposed to

change its status from a handler under the New England

Milk Marketing Order to a producer-handler, exempt from

the regulatory provisions applicable to handlers. The letter

states that, in contrast to currently operating producer-

handlers who meet the regulatory requirements for

producer-handler status under the New England Milk

Marketing Order, Petitioner proposes a legal construct

merely to circumvent the AMAA, as follows:

Stew Leonard’s Dairy

100 Westport Avenue

Norwalk, CT 06851-3999

Dear Mr. Leonard:

This office has reviewed the various leases

you have proposed. The stated purpose of

the leases is to change the regulatory status of

Stew Leonard’s Dairy from a_ handler

operating a pool distributing plant that

purchases pool milk from producers to status

as a producer-handler.

A-49

There is precedent by this office to approve

farm leases for a producer-handler. These

approvals follow the needs of currently

operating producer-handlers to _ utilize

additional sites for expansion purposes.

The situation at Stew Leonard’s Dairy is

distinct from proposals received by some

producer-handlers. You propose to construct

a legal framework, with our assistance, that

would allow you to circumvent the

Agricultural Marketing Agreement Act,

7 U.S.C. 608(c)(5) [sic]. The determination

has been made that the means you propose to

meet the producer-handler qualification

under Section 1001.10(a) violate the letter and

intent of the Act and this section.

Stew Leonard’s Dairy must continue to file

handler reports as a pool distributing plant.

If you wish to challenge this decision, refer to

7 U.S.C. (608)(c)(15)(A) [sic].

PX 14.

17. On February 17, 1998, Petitioner filed its

Petition, seeking relief from the Market Administrator's

February 6, 1998, determination that Petitioner's

December 10, 1997, lease of Oakridge Farm’s milking cows

and milk production facilities did not confer producer-

handler status on Petitioner (Pet.).

18. In response to the Market Administrator's

comments in his January 15, 1998, letter (PX 11), Petitioner

executed a new Lease Agreement with Oakridge Farm on

June 16, 1998 (PX 3, PX 13, PX 15).

A-50

19.

1.

Vern Bahler, as “Partner” on behalf of

Oakridge Farm and Stew Leonard, Jr., as “President” on

behalf of Petitioner, executed the June 16, 1998, Lease

Agreement. The Lease Agreement contains the following

operative terms:

Stew Leonard’s hereby leases from

Oakridge Farm its entire herd of

milking cows at the rate of $1.00 per

cow per day. Payment will be made

on a monthly basis. In determining

whether a cow is deemed to be part of

Oakridge Farm’s herd of milking

cows, a cow shall be so counted from

the date it is first milked until it is

culled or dies. Inventory will be

established on the last day of each

month and verified by the DHI (Dairy

Herd Management Services) records.

Stew Leonard’s agrees to replace culls

and/or attrition with newly bred

heifers.

In addition to the foregoing lease rate,

Stew Leonard’s hereby leases from

Oakridge Farm its barns, milking

parlors, personal property and _ all

equipment necessary to produce raw

milk and its related products for

$12,000 a month. Stew Leonard’s

agrees that it will transport the milk

products from Oakridge Farm to its

facilities for processing, packaging,

sale and distribution at its own

expense.

In addition to the foregoing lease rate,

Stew Leonard’s agrees to pay for all

ordinary and necessary expenses

related to the production, processing

A-51

PX 3.

20.

follows:

and packaging of milk. Also, Stew

Leonard’s agrees to assume all risk,

responsibility, and maintenance of the

cows, equipment, buildings, and

labor. The aforesaid risks and

responsibilities include, but are not

limited to, life and death of all

animals, damage and _ destruction

resulting from acts of God (including

storms, fires, pestilence, drought, etc.),

damage and destruction resulting

from employee negligence and/or

malfeasance. Stew Leonard’s agrees

to buy corn silage from Bahler Farms,

Inc. when needed. Stew Leonard's

also agrees to pay Bahler Farms, Inc. a

management fee of $2,000 per month.

The term of the agreement shall be for

a term of two years. Advance written

notice, 60 days prior to change, is

required in the event of any change in

ownership, or key management

personnel by either Stew Leonard's or

Oakridge Farm. If either Stew

Leonard’s or Oakridge Farm fails to

approve of the aforementioned

change, they will have the option to

terminate the lease on the last day of

the month of the change.

On June 22, 1998, Petitioner’s counsel sent a

letter and a copy of the June16, 1998, lease between

Petitioner and Oakridge Farm to the Market Administrator,

requesting that the Market Administrator determine that

Petitioner is a producer-handler under the New England

Milk Marketing Order based on the June 16, 1998, lease, as

A-52

Mr. Erik F. Rasmussen

Market Administrator

U.S. Department of Agriculture

P.O. Box 1478

Boston, MA 02205-1478

Re: Stew Leonard’s Dairy

Dear Mr. Rasmussen:

As requested by Attorney Don Tracy

during a telephone conversation with Joan

Grear of my office, enclosed please find a

copy of the revised and executed lease

between Stew Leonard’s and. Oakridge Farm.

We understand from Mr.Tracy that the

enclosed lease together with the Grade A

Milk Production License issued by the State

of Connecticut, will provide you with

sufficient basis to confirm Stew Leonard’s

designation as a producer-handler.

Mr. Tracy also told Joan Grear that

upon your receipt of the enclosed lease, we

could expect to receive a letter from you

confirming the producer-handler

designation. We would appreciate it if you

would forward same at your earliest

convenience. We will withdraw our 15(A)

petition upon our receipt of documentation

confirming the producer-handler

designation.

PX 15.

21. On July 31, 1998, the Market Administrator

notified Petitioner's counsel that the June 16, 1998, lease

between Petitioner and Oakridge Farm did not alter the

A-53

Market Administrator’s determination that Petitioner is not

a producer-handler under the New England Milk Marketing

Order, as follows:

Mr. James A. Wade

Robinson & Cole LLP

One Commercial Plaza

280 Trumbull Street

Hartford, CT 06103-3597

Dear Mr. Wade:

I have received your letter dated

June 22, lease agreement, and Grade A Milk

Production License. A _ review of this

additional information has not altered the

determination of February6 that Stew

Leonard’s Dairy is not a producer-handler.

Please continue to have your client

file handler reports and producer payrolls as

they have in the past.

PX 16.

yr a On August12, 1998, Petitioner filed its

Amended Petition, seeking relief from the February 6, 1998,

notice, and continuing determination by the Market

Administrator that Petitioner is not a producer-handler

_ under the New England Milk Marketing Order (Amended

Pet.).

23. Since leasing Oakridge Farm’s milking cows

and milk production facilities. Petitioner has paid the cost

of fertilizing cows, hardware maintenance and repair,

equipment repair, feed, payroll, veterinary services, and

services to keep track of animals (Tr. 188-90). Petitioner has

purchased insurance to cover its obligations with respect to

Oakridge Farm, with a policy providing a benefit of

A-54

$1 million per occurrence, $2 million per year, and with an

umbrella benefit of $45 million per year (Tr. 498-99).

24. Oakridge Farm and Bahler Farms, Inc., are

operated jointly in that they “share equipment and a full-

time calf raiser, a mechanic and full-time milkers” (Tr. 102, ©

266-68).

25. Vern Bahler and Dave Bahler, who operate

Bahler Farms, Inc., have check-writing authority for

Oakridge Farm (Tr. 97-98).

26. The Bahlers purchase feed and_ other

materials jointly for Oakridge Farm and Bahler Farms, Inc.

(Tr. 98-99, 103-04).

47. Records for Oakridge Farm are kept at Bahler

Farms, Inc. (Tr. 268-69).

28. Oakridge Farm and Bahler Farms, Inc., share

the financial risk of a loan for which they jointly pledged

security to First Pioneer Farm Credit (Tr. 269).

29. Oakridge Farm and Bahler Farms, Inc., jointly

insure against any loss that may arise or result from their

joint operation (Tr. 270-71).

30. Petitioner has no leasehold or other interest

in the actual farmland of Oakridge Farm (PX 3).

31. Every producer-handler in the New England

Milk Marketing Order is a dairy farmer who owns a dairy

farm (Tr. 252).

32. Of the 20 producer-handlers in the New

England Milk Marketing Order, three have leased extra

cows and milk production facilities to increase their milk

production by no more than 25 per centum (Tr. 252-54). The

terms of these leases are reflected in PX 9, PX 17, and PX 18.

The Market Administrator permits these three enterprises,

which were producer-handlers at the time they entered into

their respective leases, to obtain up to 25 per centum of their

milk from leased cows without jeopardizing their status as

producer-handlers (Tr. 253). The Market Administrator

concedes these lessees do not provide, as their own

enterprise and at their own risk, the maintenance, care, and

A-55

management of the leased cows and other resources and

facilities used to produce the milk from the leased cows

(Tr. 317, 425, 441).

33. Petitioner does not own a dairy farm and

does not know how to operate a dairy farm (Tr. 145).

34. If Petitioner were to have been treated as a

producer-handler, it would have had a competitive

advantage vis-a-vis fully regulated handlers because it

would not have had to account to the pool for the use of

milk nor make otherwise required payments to the

Northeast Dairy Compact (Tr. 244-45, 250). Petitioner

would have avoided, if it had been a producer-handler,

payments as high as 37 cents per gallon (RX C; Tr. 247-52).

If Petitioner were a producer-handler, Petitioner would

have as much as a 25-cent per gallon advantage over its

competitor, Stop& Shop Supermarket Companies.

Differences of less than one cent per gallon can have a

competitive impact in the dairy industry. (Tr. 451-52, 482-

85.)

35. The competitive advantage to Petitioner,

described in Findings of Fact No. 34, would interfere with

the orderly operation of the New England Milk Marketing

Order and the orderly marketing of milk in the New

England marketing area” (Tr. 245).

36. The quality control that Petitioner seeks by

leasing Oakridge Farm’s milking cows and milk production

facilities are completely independent of Petitioner’s status.

As a handler, Petitioner has accomplished its desired quality

control goals while accounting to the pool for the use of its

milk. (Tr. 50-51, 54-55, 93-96, 171-72, 258-59.)

37. Petitioner’s lease of Oakridge Farm’s milking

cows and milk production facilities did not change the

details of the operation of Oakridge Farm. Before the lease,

the Bahlers operated Oakridge Farm, with connections to

Bahler Farms, Inc., and after the lease, the Bahlers operated

20 The term “New England marketing area” is defined in 7 C.F.R. § 1001.2.

A-56

Oakridge Farm, with the same connections to Bahler Farms,

Inc. (Tr. 93.)

38. The record establishes that the Market

Administrator’s determination was in accordance with law.

39. The record does not establish that Petitioner

is a dairy farmer.

40. The record does not establish that Petitioner

provides, as Petitioner’s own enterprise and at Petitioner's

own risk, the maintenance, care, and management of

Oakridge Farm’s dairy herd and Oakridge Farm’s resources

and facilities used to produce milk.

41. The record does not establish that Petitioner

is a “producer-handler,” as defined in section 1001.10 of the

New England Milk Marketing Order (7 C.F.R. § 1001.10).

VIII. Discussion

A. The Issue

The issue to be resolved in this proceeding is

Whether the Market Administrator’s determination that

Petitioner is not a “producer-handler,” as defined in

section 1001.10 of ‘the New England Milk Marketing Order

(7 C.F.R. § 1001.10), is in accordance with law. Petitioner

now obtains its entire milk supply by leasing milking cows

and milk production facilities and maintains that it is now

producing and processing milk as its own enterprise and at

its own risk, as required for producer-handler status.

Respondent denies that Petitioner operates a dairy farm as

its own enterprise and at its own risk.

B. The Burden of Proof

It is well settled that the burden of proof in a

proceeding instituted under section 8c(15)(A) of the AMAA

(7 U.S.C. § 608c(15)(A)) rests with the petitioner, and in

order to prevail in this proceeding, Petitioner has the burden

of proving that the Market Administrator's determination

A-57

that Petitioner is not a “producer-handler,” as defined in

section 1001.10 of the New England Milk Marketing Order

(7 C.F.R. § 1001.10), is not in accordance with law.2!_ I find

21 United States v. Rock Royal Co-op., Inc., 307 U.S. 533 (1939); Lewes Dairy,

Inc. v. Freeman, 401 F.2d 308, 316-17 (34 Cir. 1968), cert. denied, 394 U.S. 929

(1969); Boonville Farms Coop., Inc. v. Freeman, 358 F.2d 681, 682 (24 Cir.

1966); United States v. Mills, 315 F.2d 828, 836, 838 (4'» Cir.), cert. denied sub

nom. Willow Farms Dairy, Inc. v. Freeman, 374 U.S. 832 (1963), cert. denied,

375 U.S. 819 (1963); Sterling Davis Dairy v. Freeman, 253 F. Supp. 80, 83

(D.N.J. 1965); Windham Creamery, Inc. v. Freeman, 230 F.Supp. 632, 635-36

(D.N.J. 1964), aff'd, 350 F.2d 978 (34 Cir. 1965), cert. denied, 382 U.S. 979

(1966); Bailey Farm Dairy Co. v. Jones, 61 F. Supp. 209, 217 (E.D. Mo. 1945),

aff'd, 157 F.2d 87 (8 Cir.), cert. denied, 329 U.S. 788 (1946); Wawa Dairy

Farms, Inc. v. Wickard, 56 F. Supp. 67, 70 (E.D. Pa. 1944), aff'd, 149 F.2d 860

(34 Cir. 1945); In re Garelick Farms, Inc., 56 Agric. Dec. 37, 39 (1997); In re

Mil-Key Farm, Inc., 54 Agric. Dec. 26, 54 (1995); In re Hershey Chocolate

U.S.A., 53 Agric. Dec. 17, 32 (1994), aff'd, No. 1:CV-94-945 (M.D. Pa. Feb. 3,

1995); In re Jet Farms, Inc., 50 Agric. Dec. 13, 73, 1406 (1991); In re Andersen

Dairy, Inc., 49 Agric. Dec. 1, 11 (1990); In re Belridge Packing Corp., 48 Agric.

Dec. 16, 72-73 (1989), aff'd sub nom. Farmers Alliance for Improved

Regulations (FAIR) v. Madigan, No. 89-0959-RCL, 1991 WL 178117 (D.D.C.

Aug. 30, 1991); In re Borden, Inc., 46 Agric. Dec. 1315, 1374 (1987), aff'd,

No. H-88-1863 (S.D. Tex. Feb. 13, 1990), printed in 50 Agric. Dec. 1135

(1991); In re Echo Spring Dairy, Inc., 45 Agric. Dec. 41, 56 (1986); In re

County Line Cheese Co., 44 Agric. Dec. 63, 81 (1985), aff'd, No. 85-C-1811

(N.D. Ill. June 25, 1986), affd, 823 F.2d 1127 (7 Cir. 1987); In re John

Bertovich, 36 Agric. Dec. 13%, 140 (1977); In re Aldovin Dairy, Inc., 42 Agric.

Dec. 1791, 1797 (1983), aff'd, No. 84-0088 (M.D. Pa. Nov. 20, 1984); In re

Moser Farms, Dairy, Inc., 41 Agric. Dec. 7, 8-9 (1982); In re Fitchett Bros.,

Inc., 34 Agric. Dec. 1, 3 (1975); In re Michaels Dairies, Inc., 33 Agric.

Dec. 1663, 1701 (1974), affd, No. 22-75 (D.D.C. Aug. 21, 1975), printed in

34 Agric. Dec. 1319 (1975), aff'd mem., 546 F.2d 1043 (D.C. Cir. 1976); In re

Yasgur Farms, Inc., 33 Agric. Dec. 389, 401-02 (1974); In re Fitchett Brothers,

Inc., 31 Agric. Dec. 1552, 1571 (1972); In re Clyde Lisonbee, 31 Agric.

Dec. 952, 961 (1972); In re Sherman Fitzgerald, 31 Agric. Dec. 593, 605-06

(1972), affd, United States v. Fitzgerald, C 227-66 and C 137-72 (D. Utah

1973), printed in 32 Agric. Dec. 1100 (1973); In re Hawthorn-Mellody, Inc., 30

Agric. Dec. 1774, 1791-92 (1971); In re Walter Neugebauer, 27 Agric. Dec.

187, 191 (1968), aff'd, Neugebauer v. Secretary of Agriculture, (D.S.D. 1970),

printed in 29 Agric. Dec. 120 (1970); In re Dade County Daines, Inc.,

24 Agric. Dec. 1567, 1571 (1965); In re Adam L. Liptak, 24 Agric. Dec. 1176,

1181 (1965); In re Cecil Duncan, 19 Agric. Dec. 1110, 1115 (1960); In re

Newark Milk & Cream Co., 18 Agric. Dec. 211, 214 (1959), aff'd, Newark

Milk & Cream Co. v. Benson, Civil Action No. 242-59 (D.N.J. Dec. 30, 1959),

A-58

that Petitioner has not met its burden. Moreover, the-

evidence establishes that Petitioner is not a dairy farmer

(Findings of Fact Nos. 19, 25, 30, 33, 37, 39, 41) and that

Petitioner does not provide, as Petitioner's own enterprise

and at Petitioner's own risk, the maintenance, care, and

management of the Oakridge Farm dairy herd and other

resources and facilities used to produce milk (Findings of

Fact Nos. 24-30, 33, 37, 39-41). Thus, Petitioner is not a

“producer-handler,” as defined in section 1001.10 of the

New England Milk Marketing Order (7 C.F.R. § 1001.10).

S The Historical Necessity For Milk Market

Regulations Dictate That Producer-Handler

Status Is An Exception To Be Strictly

Construed

Milk market regulations are rooted in two

characteristics: (1) fluid milk commands a higher price than

milk put to other uses, even though the quality of the milk is

the same; and (2) milk production varies with the season, so

that a herd of cows large enough to meet consumer demand

in the winter will, in the more productive warmer months,

produce an oversupply of milk. Zuber v. Allen, 396 U.S. 168,

172-73 (1969). Prior to regulation, milk processors were able

to demand bargain prices during the summer. Milk

producers increased production to maintain their income

and a disequilibrium snowballed. In response, Congress

enacted a series of laws ending with the AMAA, which is

the statutory basis for the price regulation involved in this

proceeding. One goal of price regulation is to discourage

cutthroat competition among milk producers to sell their

milk for use as fluid milk. United States v. Rock Roval Co-op,

Inc., 307 U.S. 533 (1939). The AMAA and the New England

Milk Marketing Order are designed to achieve a fair

printed in 19 Agric. Dec. 54 (1960); In re Valley Creamery Co., Inc., 13 Agric.

Dec. 979, 981 (1954); In re M.H. Renken Dairy Co., 11 Agric Dec. 264, 272

(1952); In re St. Charles Dairy, 7 Agric. Dec. 943, 946 (1948).

A-59

division of the more profitable fluid milk market among all

milk producers, thus eliminating the disequilibrium which

had been a consequence of cutthroat competition among

milk producers striving for the fluid milk market. By use of

equalization payments, milk producers receive the same

price regardless of the ultimate use to which their milk is

put. The procedure for achieving equalization generally is

that the market administrator computes the value of milk

used by each handler by multiplying the quantity of milk

the handler uses in each class by the class price and adding

the results. The values for all handlers are then combined

into one total. The result is divided by the total quantity of

milk that is priced under the regulatory program. The

figure thus obtained is the basic or uniform price which

must be paid to milk producers for their milk. Each handler

whose own total use value of milk for a particular delivery

period, i.e., a calendar month, is greater than that handler’s

total payments at the uniform price is required to pay the

difference into an equalization or producer-settlement fund.

Each handler whose own total use value of milk is less than

that handler’s total payments to producers at the uniform

price is entitled to withdraw the amount of the difference

from the equalization or producer-settlement fund. Thus, a

composite or uniform price is effectuated by means of the

equalization or producer-settlement fund.

Most handlers are fully regulated by milk marketing

orders. However, some milk producers process the milk

which they produce. A milk producer which is also a

handler of the milk which it produces and which strictly

conforms to the definition of “producer-handler,” under the

milk marketing order that is applicable to that milk

producer, is exempt from a number of the milk marketing

order provisions applicable to fully regulated handlers.

Historically, producer-handlers were normally “family-

type” operations (25 Fed. Reg. 5494 (1960); 25 Fed. Reg. 7825

(1960)). Customarily, a producer-handler has a relatively

small operation, is operating in a self-sufficient manner, and

A-60

is not a major competitive factor in the market for regulated

handlers. The milk that is processed, packaged, and

distributed by a producer-handler is obtained from the

producer-handler’s own production. Any fluctuation in a

producer-handler’s milk needs is met through the producer-

handler’s own production, and the producer-handler

disposes of any excess milk supply at his or her own

expense.22

The Secretary of Agriculture could elect to fully

regulate producer-handlers under the AMAA. The

exemption allowed producer-handlers arises not from the

lack of authority under the AMAA to regulate producer-

handlers, but from the determination that full regulation of

a handler meeting the definition of a producer-handler is

not necessary to achieve the declared policy of the AMAA in

the marketing area Producer-handler status is an

exception to the general regulatory framework of the

AMAA, and therefore, it must be strictly construed.#4 In

22 In re Kreider Dairy Farms, Inc., 54 Agric. Dec. 805, 850 (1995), remanded,

No. 95-6648, 1996 WL 472414 (E.D. Pa. Aug. 15, 1996), order denying late

appeal on remand, 57 Agric. Dec. 397 (1998), affd, 190F.3d 113 (34 Cir.

1999); In re Mil-Key Farm, Inc., 54 Agric. Dec. 26, 63-64 (1995).

23 See Freeman v. Vance, 319 F.2d 841 (5 Cir. 1963) (per curiam), cert.

denied, 377 U.S. 930 (1964); Ideal Farms, Inc. v. Benson, 288 F.2d 608 (34 Cir.

1961) cert. denied, 372 U.S. 965 (1964); In re Echo Spring Dairy, Inc., 45 Agric.

Dec. 41, 56 (1986); In re John Bertovich, 36 Agric. Dec. 133, 141-42 (1977); In

re Associated Milk Producers, Inc., 33 Agric. Dec. 976, 992-93 (1974); In

re Clyde Lisonbee, 31 Agri.. Dec. 952, 963 (1972); In re Walter Neugebauer,

27 Agric. Dec. 187, 192 (1968), aff'd, Neugebauer v. Secretary of Agricultur,

(D.S.D. 1970), printed in 29 Agric. Dec. 120 (1970); In re Independent Milk

Producer-Distributors’ Ass'n, 18 Agric. Dec. 881, 882-83 (1959) (Denial of

Interim Relief); In re Benbush Dairy, 17 Agric. Dec. 1185, 1188 (1958); In re

Acme Breweries, Inc., 9 Agric. Dec. 1418, 1427-30 (1950), affd, Acme

Breweries v. Brannan, 109 F. Supp. 116 (N.D. Cal. 1952).

4 In re Kreider Dairy Farms, Inc., 54 Agric. Dec. 805, 826-27 (1995),

remanded, No. 95-6648, 1996 WL 472414 (E.D. Pa. Aug. 15, 1996), order

denying late appeal on remand, 57 Agric. Dec. 397 (1998), aff d, 190 F.3d 113

(3¢ Cir, 1999); In re Mil-Key Farm, Inc., 54 Agric. Dec. 26, 67 (1995): In

re Echo Spring Dairy, Inc., 45 Agric. Dec. 41, 56 (1986); In re John Bertovich,

36 Agric. Dec. 133, 138 (1977); In re Associated Milk Producers, Inc., 33

Agric. Dec. 976, 983 (1974); In re Yasgur Farms. Inc., 33 Agric. Dec. 389, 405

A-61

order to obtain producer-handler status, a petitioner must

strictly comply with the definition of “producer-handler” in

the milk marketing order that is applicable to that petitioner.

The evidence in this proceeding does not establish that

Petitioner is a “producer-handler,” as defined in

section 1001.10 of the New England Milk Marketing Order

(7 C.F.R. § 1001.10). The evidence establishes that Petitioner

is not a dairy farmer (Findings of Fact Nos. 19, 25, 30, 33, 37,

39, 41) and that Petitioner does not provide, as Petitioner's

own enterprise and at Petitioner's own risk, the

maintenance, care, and management of the Oakridge Farm

dairy herd and other resources and facilities used to

produce milk (Findings of Fact Nos. 24-30, 33, 37, 39-41).

D. The Market Administrator’s Determination

is Accorded Deference

An administrative agency’s interpretation of its own

regulations must be accorded deference in any

administrative or court proceeding, and an agency’s

construction of its own regulations becomes of controlling

weight unless it is plainly erroneous or inconsistent with the

regulations.®

The Market Administrator is the official responsible

for administering the New England Milk Marketing Order,

and the Market Administrator is specifically authorized to

make rules and regulations to effectuate the terms and

provisions of the New England Milk Marketing Order

(7 C.F.R. § 1000.3(b)(2); Tr. 234). The Market Administrator

has been working with milk marketing orders for 25 years

(1974); In re Andrew W. Leonberg, 32 Agric. Dec. 763, 800 (1973), appeal

dismissed, No. 73-535 (W.D. Pa. Oct. 3, 1973); In re Sherman Fitzgerald, 31

Agric. Dec. 593, 605-06 (1972), aff'd, United States v. Fitzgerald, C 227-66

and C 137-72 (D. Utah 1973), printed in 32 Agric. Dec. 1100 (1973).

2 Thomas Jefferson Univ. v. Shalala, 512 U.S. 504, 512 (1994); Stinson v.

United States, 508 U.S. 36, 45 (1993), INS v. Stanisic, 395 U.S. 62, 72 (1969);

Udall v. Tallman; 380 U.S.1, 16-17 (1965); Bowles v. Seminole Rock &% Sand

Co., 325 U.S. 410, 413-14 (1945).

A-62

and has. been the New England Milk Marketing Order

market administrator for 9 years (Tr. 231-34). The Market

Administrator makes monthly determinations regarding the

producer-handler status of enterprises regulated under the

New England Milk Marketing Order (Tr. 241-43).

It is well settled that an official who is responsible

for administering a regulatory program has authority to

interpret the provisions of the statute and regulations.

Moreover, the interpretation of that official is entitled to

great weight.

The doctrine of affording considerable weight to

interpretation by the administrator of a regulatory program

is particularly applicable in the field of milk. As stated by

the court in Queensboro Farms Products, Inc v. Wickard,

137 F.2d 969, 980 (24 Cir. 1943) (footnotes omitted):

The Supreme Court has admonished us that

interpretations of a statute by officers who,

under the statute, act in administering it as

specialists advised by experts must be

accorded considerable weight by the courts.

If ever there was a place for that doctrine, it

is, as to milk, in connection with the

administration of this Act because of its

background and legislative history. The

Supreme Court has, at least inferentially, so

recognized.

26 Lawson Milk Co. v. Freeman, 358 F.2d 647, 650 (6" Cir. 1966); In re Mil-Key

Farm. Inc., 54 Agric. Dec. 26, 76-77 (1995); In re Andersen Dairy, Inc., 49

Agric. Dec. 1, 19 (1990); In re Conesus Milk Producers, 48 Agric. Dec. 871,

876 (1989); In re Echo Spring Dairy, Inc., 45 Agric. Dec. 41, 58-60 (1986); In

re County Line Cheese Co., 44 Agric. Dec. 63, 87 (1985), affd, No. 85-C-1811

(N.D. Ill. June 25, 1986), affd, 823 F.2d 1127 (7 Cir. 1987); In re John

Bertovich, 36 Agric. Dec. 133, 137 (1977); In re Associated Milk

Producers, Inc., 33 Agric. Dec. 976, 982 (1974); In re Yasgur Farms, Inc., 33

Agric. Dec. 389, 417-18 (1974); In re Weissglass Gold Seal Dairy Corp., 32

Agric. Dec. 1004, 1055-56 (1973), aff'd, 369 F. Supp. 632 (S.D.N.Y. 1973).

A-63

Similarly, in Blair v. Freeman, 370 F.2d 229, 232 (D.C.

Cir. 1966), the court stated:

A court's deference to administrative

expertise rises to zenith in connection with

the intricate complex of regulation of milk

marketing. Any court is chary lest its

disarrangement of such a_ regulatory

equilibrium reflect lack of judicial

comprehension more than lack of executive

authority.

Therefore, I give considerable weight to the Market

Administrator's determination that Petitioner is not a

producer-handler under the New England Milk Marketing

Order.

E. The Market Administrator’s Determination

Is Consistent With Purpose of the

Regulation Defining “Producer-Handler”

The definition of the term “producer-handler,” in

what subsequently became the New England Milk

Marketing Order, was amended on August 31, 1960, by

adding the requirement that “the maintenance, care and

management of the dairy herd and other resources and

facilities necessary to produce the milk . . . [must be] the

personal enterprise and risk of such person” (25 Fed.

Reg. 8283, 8285 (1960)). This amendment was preceded by a

Notice of Recommended Decision and Opportunity to File

Written Exceptions to Proposed Amendments to Tentative

Marketing Agreements and to Orders issued by the Deputy

Administrator, Agricultural Marketing Service, United

States Department of Agriculture, and published on June 18,

1960 (25 Fed. Reg. 5488 (1960)), and by a Decision on

Proposed Amendments to Tentative Marketing Agreements

and to Orders issued by the Acting Secretary, United States

Department of Agriculture, and published on August 16,

A-64

1960 (25 Fed. Reg. 7819 (1960)). Both of these Federal Register

publications describe the purpose of the amendment, as

follows:

In order to maintain producer-

handler status, it is. provided that the

maintenance, care and management of the

airy animals and other resources necessary

to produce the milk, and the processing,

packaging and distribution of the milk shall

be the personal enterprise of and the personal

risk of the person involved. These standards

are intended to distinguish the family-type

Operation normally involved, and to bring

under full regulation operations which

attempt to masquerade as_ those of?

producer-handlers in their normal concept

through leases, rental arrangements, and

other devices designed to circumvent

regulation by the order.

25 Fed. Reg. At 5494; 25 Fed. Reg. At 7825.

Petitioner represents itself as operating the world’s

largest dairy store, Petitioner receives and processes about

two-thirds of a tanker truck of milk each day, and Petitioner

sells approximately 1.2 million gallons of milk per year (Tr.

119, 128, 493-94). Petitioner is not a small operation, but,

small operations are generally characteristic of producer-

handlers. Moreover, Petitioner is engaging in the very

*” The words “those of” appear in the Acting Secretary’s Decision on

Proposed Amendments to Tentative Marketing Agreements and to

Orders (25 Fed. Reg. 7819, 7825 (1960)), but do not appear in Notice of

Recommended Decision and Opportunity to File Written Exceptions to

Proposed Amendments to Tentative Marketing Agreements and _ to

Orders issued by the Deputy Administrator, Agricultural Marketing

Service, United States Department of Agriculture (25 Fed. Reg. 5488, 5494

(1960)).

A-65

activity which the “own enterprise” and “own risk”

amendment is designed to prevent; viz., Petitioner is posing

as a producer-handler through a lease to circumvent

regulation as a handler under the New England Milk

Marketing Order.

F. The Market Administrator’s Determination

Is Consistent With Prior Cases

This case is another in a long line of cases in which

handlers have sought to avoid full regulation under milk

marketing orders by leases and other devices employed to

claim producer-handler status. The Judicial Officer and the

courts have consistently upheld determinations by market

administrators that leases and similar devices do not create

producer-handler status. Although the cases do not

explicitly state that leases can never create producer-handler

status, the overall rationale of these cases is that leases and

similar devices do not create producer-handler status.

Petitioner relies on In re Jerome Klocker, 26 Agric. Dec.

1050 (1967), in support of its contention that its lease of

Oakridge Farm’s milking cows and milk production

facilities qualifies Petitioner as a producer-handler under

28 See United States v. Elm Spring Farm, Inc., 38 F. Supp. 508 (D. Mass.

1941), affd, 127 F.2d 920 (1st Cir. 1942); In re Echo Spring Dairy, Inc., 45

Agric. Dec. 41 (1986); In re Pleasant View Farms, Inc., 36 Agric. Dec. 1262

(1977); In re Andrew W. Leonberg, 32 Agric. Dec. 763 (1973), appeal dismissed,

No. 73-535 (W.D. Pa. Oct. 3, 1973); In re Clyde Lisonbee, 31 Agric. Dec. 952

(1972); In re Sherman Fitzgerald, 31 Agric. Dec. 593 (1972); In re Willow

Crossing Dairy Farm, Inc., 29 Agric. Dec. 1007 (1970); In re Fred A. Brown, 23

Agric. Dec. 18 (1964), affd, Brown v. United States, 367 F.2d 907 (10 Cir.

1966); In re Eugene M. Olson, 22 Agric. Dec. 877 (1963); In re John Velozo, 5

Agric. Dec. 739 (1946); In re Martin & Costa, 4 Agric. Dec. 636 (1945); In re

Antone Amaral, 3 Agric. Dec. 367 (1944); In re Henshaw, 1 Agric. Dec. 721

(1942); In re Martin S. Cosgrove & Sons, Inc., 1 Agric. Dec. 510 (1942), aff'd,

Cosgrove v. Wickard, 49 F. Supp. 232 (D. Mass. 1943); In re Martin S.

Cosgrove, 1 Agric. Dec. 503 (1942), aff'd, Cosgrove v. Wickard, 49 F. Supp.

232 (D. Mass. 1943).

A-66

the New England Milk Marketing Order (Petitioner's Post-

Hearing Brief at 12-17).

Petitioner’s reliance on Klocker is misplaced. The

facts in Klocker bear no resemblance to the facts presented in

this proceeding. In Klocker, the Judicial Officer held that the

petitioner, who was a producer-handler under a milk

marketing order, did not lose his producer-handler status by

reason of a contract in which the petitioner sold and leased

back his dairy herd and hired the lessor as his employee,

due to the unique facts presented and the setting in which

the contract was created. In arriving at such conclusion, the

Judicial Officer stated:

We do not have here any elements of a sham

transaction to effect a bogus producer-handler

status. Cf, e.g., Elm Spring Farm, Inc. v. United States,

supra. Admittedly, the use of milk from a\leased-

herd is not determinative of the question of

satisfaction of the requirements of the “producer-

handler” definition contained in the order. Section

1076.13 of the order in effect during part of the

period in controversy, that is, during the period

April 1, 1964 to May 1, 1965, defined a producer-

handler to mean, in part, “any person who operates —

a dairy farm and a distributing plant.” It is clear, it

seems to us, in the setting presented that petitioner

met those requirements. Petitioner exercised the

powers of management, supervision, direction and

control of the dairy herd and farm and such farm

was his investment or risk. Surely, the producer-

handler need not personally perform the physical

acts incident to the production of milk. This is not

required with respect to the Operation of the

processing plant, as pointed out by petitioner.

Further, petitioner has established herein, we

believe, that Rausch was in reality as well as in form

his employee.

A-67

In re Jerome Klocker, supra, 26 Agric. Dec. at 1057.

Unlike the petitioner in Klocker, Petitioner in this

proceeding never owned a dairy farm, does not know how

to operate a dairy farm (Tr. 145), was not a producer-

handler at the time Petitioner leased Oakridge Farm’s

milking cows and milk production facilities (Tr. 44-45, 51,

133, 142-44, 178-79, 260), and never managed or operated

Oakridge Farm (Tr. 93).

The case law also supports the proposition that a

handler does not achieve producer-handler status if the

handler merely engages in a sham transaction designed to

circumvent the milk pricing regulations or if the lessee fails

to assume the risks of milk production. See, e.g., In re

Sherman Fitzgerald, 31 Agric. Dec. 593, 604-05 (1972) (“In the

past, elaborate and ingenious schemes have been employed

to achieve apparent producer-handler status and thus to

circumvent regulation.”). For example:

° In Elm Spring Farm, Inc. v. United States, 127

F.2d 920 (1st Cir. 1942), a handler “purchased” cows from

various sellers, but paid for the cows with a combination of

promissory notes and stock, and the “sellers” were entitled

to “repurchase” the cows under liberal terms. 127 F.2d at

923. The “sellers” agreed under separate contracts to

maintain the cows and deliver milk to the handler and

further guaranteed that the cost of producing milk,

including the expense of cattle illness or death, would not

exceed the blend price plus a specified figure. Id. The court

called this scheme an “elaborate camouflage” in which the

handler “avoid[ed] the risks of production.” Id. At 927. See

also Cosgrove v. Wickard, 49 F. Supp. 232 (D. Mass. 1943)

(invalidating a similar scheme in which cows were

“purchased” with a small cash payment and substantial

note on which no payments were made and where the only

payments made on a purported lease were based on the

quantity and butterfat content of milk produced).

e In In re Echo Spring Dairy, Inc., 45 Agric. Dec.

41 (1986), the petitioner leased a farm, but had a joint

checking account with the lessor and various related

businesses, including two other dairy farms, which thereby

pooled their resources. Id. At 45. The lessor controlled the

bank account. Id. The ledger sheet of Echo Spring did not

reflect whether it had withdrawn more from the account

than it had deposited, or vice versa, and Echo Spring

frequently withdrew more than it deposited. Id. At 44, 46.

The lease payments by Echo Spring were made from the

same checking account, Id. At 47, meaning the related

businesses subsidized Echo Spring’s lease payments.

° In In re Clyde Lisonbee, 31 Agric. Dec. 952

(1972), the Judicial Officer denied a petition for producer-

handler status where the petitioner claimed to be

purchasing a herd at Bringhurst farm and claimed that the

operation of the milk production facilities was under the

petitioner’s control. Id. At 954. The evidence showed,

however, that the petitioner merely accepted milk from the

farm, never agreed to a purchase price, and never identified

the cows to be “purchased.” Id. At 954-55. Furthermore,

“Petitioner carried no insurance on the cows or on any of

the equipment on the Bringhurst farm [and] Petitioner gave

Bringhurst no instruction on feeding or caring for the cows.”

Id. At 955.

° In In re Willow Crossing Dairy Farm, 29 Agric.

Dec. 1007 (1970), the Judicial Officer found that the

petitioner was not a producer-handler where the petitioner

leased cows that were delivered to the petitioner’s property

during lactation and returned when they stopped lactating.

In that case, the petitioner was not responsible for loss of

cows and, when the cows were not on the petitioner's

property, the petitioner took no interest in their breeding,

care, sale, or health. Id at 1008-09.

[I]t is plain that the dairy farmers who own the cows

suffer the risks of the cows going dry and dying even

when the cows are under lease and on the

petitioner’s premises. Too, the petitioner has no

responsibilities for the care of the cows, the breeding

of the cows, the health of the cows or any other risk

involving the cows when they are not under lease

and being fed and milked at petitioner's dry lot.

Id. At 1010.

. In In re Fred A. Brown, 23 Agric. Dec. 18

(1964), the Judicial Officer denied a petition for producer-

handler status where the petitioner “purchased” an

undivided one-tenth interest in cows for $15 per cow, under

an arrangement that would return the $15 to the petitioner

upon the sale of each cow. Id at 22-23. The petitioner

obtained the absolute right to all milk produced by the

cows, which staved in the possession of the majority owner,

and the petitioner paid the majority owner a fee “for the

services required” that was the same as the price of milk.

The Judicial Officer noted that the petitioner assumed no

risk, since the $15 fee per cow would be returned. The

Judicial Officer stated:

The record as a whole and the contracts relied upon

by petitioners even if accepted at face value indicate

that petitioners do not operate a dairy farm and do

not bear any risk of producing the milk handled by

them and that the production facilities, as

distinguished from the milk processing facilities, are

not the personal enterprise of petitioners.

Id. At 27-28.

Elm Spring Farm, Inc. v. United States, supra; Cosgrove

v. Wickard, supra; In re Echo Spring Dairy, Inc., supra; In re

Clyde Lisonbee, supra; In re Willow Crossing Dairy Farm, supra;

and In re Fred A. Brown, supra, all support the proposition

that a handler that tries to circumvent the milk pricing

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regulations by claiming to lease or purchase a farm, while in

reality simply buying milk, does not obtain producer-

handler status.

The record establishes that Petitioner leased

Oakridge Farm’s milking cows and milk production

facilities for the purpose of changing its status from that of a

fully regulated handler to that of a producer-handler

exempt from the provisions of the New England Milk

Marketing Order applicable to fully regulated handlers.

Petitioner’s lease of Oakridge Farm’s milking cows and milk

production facilities did not change the details of the

operation of Oakridge Farm. Before the lease, the Bahlers

operated Oakridge Farm, with connections to Bahler Farms,

Inc., and after the lease, the Bahlers operated Oakridge

Farm, with the same connections to Bahler Farms, Inc. (Tr.

93.) Petitioner does not owr a dairy farm and does not

know how to operate a dairy farm (Tr. 145). Petitioner did

not become a dairy farmer by virtue of its lease of Oakridge

Farm's milking cows and milk production facilities, and I

conclude that Petitioner is a handler that is trying to

circumvent the provisions of the New England Milk

Marketing Order applicable to fully regulated handlers by

claiming to lease milking cows and milk production

facilities, while in reality simply buying milk from Oakridge

Farm. Under these circumstances, Petitioner is not a

producer-handler under the New England Milk Marketing

Order.

There are no cases precisely on point to support the

proposition that a handler, which leases a dairy farm,

dictates the essential elements of the dairy farm’s

management, and assumes substantially the entire risk of

dairy farming, is nevertheless still not a producer-handler.

Respondent maintains Petitioner was not operating “at its

own risk” because there were numerous risks not assumed

or borne by Petitioner in that Petitioner had no interest in

the land and anything that happened to the land (such as

toxic waste) was at the risk of the dairy farm owner.

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Moreover, Respondent argues that the capital risk inherent

in property ownership remains with the Bahlers.

(Respondent's Post-Hearing Brief at 10.)

In December of 1997, Petitioner entered into a lease

with Oakridge Farm, an approximately 550-cow dairy farm

in Ellington, Connecticut, operated by Vern Bahler and

members of his family (PX 2). The operative lease, which is

a modification of the December 1997 lease, was signed on

June 16, 1998. The lease was for the milking cows and milk

production facilities of Oakridge Farm. Specifically,

Petitioner leased the herd of milking cows, barns, milking

parlors, personal property, and “all equipment necessary to

produce raw milk and its related products” (PX 3 4§ 1-2).

Petitioner also agreed to pay all ordinary and necessary

expenses related to the production of milk and “to assume

all risk, responsibility, and maintenance of the cows,

equipment, buildings, and labor” (PX 3 { 3). The risk and

responsibility “include, but are not limited to, life and death

of all animals, damage and destruction resulting from acts

of God (including storms, fires, pestilence, drought, etc.),

damage and destruction resulting from employee

negligence and/or malfeasance” (PX 3 43). The lease has a

term of 2 years (PX 3 4).

Petitioner argues that the lease of Oakridge Farm’s

milking cows and milk production facilities imposes on

Petitioner every identifiable expense of dairy farming, from

labor costs to building maintenance and also every risk of

dairy farming, whether identified in the lease or not. Under

the lease, Petitioner dictates all crucial elements of the

operation of the enterprise. (Petitioner’s Post-Hearing Brief

at 9.)

Sample invoices demonstrate that Petitioner pays the

cost of fertilizing cows, hardware maintenance and repair,

equipment repair, feed, payroll, veterinarian services, and

services to keep track of animals (Tr. 188-89). Petitioner also

maintains liability insurance on Oakridge Farm, with a

benefit of $1 million per occurrence and $2 million per year,

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plus an umbrella policy with a benefit of $45 million (Tr.

498-99).

Respondent maintains that Petitioner’s relationship

with Oakridge Farm is effectively “no different than the

ordinary relationship between a handler buying milk from

producers” (Respondent's Post-Hearing Brief at 13). All of

the conditions of the purchase of milk are ones for which

any handler may contract with any milk producer. The

evidence was uncontroverted that the operation of Oakridge

Farm did not change after the lease. The Bahlers operated

Oakridge Farm before the execution of the lease and they

operated Oakridge Farm after the execution of the lease (Tr.

93). The record does not contain any evidence indicating

that Petitioner ever took over operation of the Oakridge

Farm milk production facilities. After the June 16, 1998,

lease, the Bahlers retained complete control over the

operation of Oakridge Farm milk production facilities,

including the maintenance, care, and management of the

Oakridge dairy herd and other Oakridge Farm resources

and facilities that are used to produce milk. Under these

circumstances, Petitioner’s June 16, 1998, lease of Oakridge

Farm's milking cows and milk production facilities is not

consistent with the “dairy farmer,” and “own enterprise”

requirements in the definition of “producer-handler” in the

New England Milk Marketing Order.

Respondent also maintains that the lease fails to

support Petitioner’s contention that it is a producer-handler

because the connections between Oakridge Farm and Bahler

Farms, Inc., invalidate any effort at producer-handler status,

independent of the principle that a handler cannot become a

producer-handler merely by leasing a herd of cows

(Respondent's Post-Hearing Brief at 10).

The Bahlers own and operate two contiguous farms,

Oakridge Farm and Bahler Farms, Inc. (Tr. 56, 102, 267).

Petitioner has no role in the operation of and no interest in

Bahler Farms, Inc. (Tr. 48). Therefore, to the extent that

Bahler Farms, Inc., and Oakridge Farm are operated jointly,

Petitioner does not provide, as Petitioner's own enterprise

and at Petitioner's own risk, the maintenance, care, and

management of the Oakridge Farm dairy herd and other

resources and facilities that are used to produce milk.

The record establishes that Oakridge Farm and

Bahler Farms, Inc., share equipment, a full-time calf raiser, a

mechanic, and full-time milkers (Tr. 102, 266-68); the Bahlers

purchase feed and other materials jointly for Oakridge Farm

and Bahler Farms, Inc. (Tr. 98-99, 103-04); the records for

Oakridge Farm are kept at Bahler Farms, Inc. (Tr. 268-69);

Oakridge Farm and Bahler Farms, Inc., jointly share the

financial risk of a loan for which they pledged security to

First Pioneer Farm Credit (Tr. 269); and Oakridge Farm and

Bahler Farms, Inc., jointly insure against any loss that may

arise or result from their joint operation (Tr. 270-71). Since

Oakridge Farm is operated, in part, by Bahler Farms, Inc., an

entity in which Petitioner has no interest, Petitioner does not

provide, as Petitioner's own enterprise and at Petitioner's

own risk, the maintenance, care, and management of the

Oakridge Farm dairy herd and other resources and facilities

that are used to produce milk. Thus, Petitioner is not a

“producer handler,” as defined in section 1001.10 of the

New England Milk Marketing Order (7 C.F.R. § 1001.10).

Petitioner maintains that the Market Administrator's

decision that Petitioner is not a producer-handler is

arbitrary, capricious, and an abuse of the Market

Administrator's administrative authority. Petitioner claims

that the Market Administrator’s determination denied

Petitioner equal protection of the laws and due process

because Petitioner contends it has demonstrated that it has

assumed the full risk of dairy farming and the Market

Administrator has granted producer-handler status to

others (already producer-handlers) who have leased farms

but plainly assumed less of the risk of dairy farming than

has Petitioner. (Petitioner’s Post-Hearing Brief at 18-28, 38-

41.)

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Additionally, Petitioner notes that the Market

Administrator admitted that the term “dairy farmer” is not

defined anywhere in the New England Milk Marketing

Order (Tr. 298); thus, making the Market Administrator the

sole power to decide what is and is not a dairy farmer

(Petitioner’s Post-Hearing Brief at 10 n.5).

The Market Administrator based his decision that

Petitioner was not a producer-handler on the definition of

“producer-handler” in section 1001.10 of the New England

Milk Marketing Order (7 C.F.R. § 1001.10), which requires

that, in order to be a producer-handler, a person must be

both a dairy farmer and a handler who provides, as the

person’s own enterprise and at the person’s own risk, the

maintenance, care, and management of a dairy herd and

other resources and facilities that are used to produce milk.

The Market Administrator has permitted three

enterprises to lease cows and milk production facilities and

retain their designations as producer-handlers, even though

these lessees do not provide, as their own enterprise and at

their own risk, the maintenance, care, and management of

the leased cows and other resources and facilities used to

produce the milk (Tr. 317, 425, 441).

In one instance, a dairy farmer and milk processor

retained its producer-handler status despite the existence of

three leases pursuant to which the dairy “will be leasing

[redacted] head of cattle ... and [redacted] cattle barn(s)”

and “will be responsible for all bills related to the feed,

health care and management of the said [redacted] cattle.”

(PX 9(a), 9(b), and 9(c)). Each lease is terminable by either

party on 30 days’ notice. Id. The leases do not contain any

provision relating to risks associated with the farms, such as

the risk that cows might perish, or that employees might

cause harm, or that acts of God might cause damage.

Rather, the lessee is responsible to pay only for feed, health

care, and management.

The Market Administrator testified that a milk

processor, such as the one involved in the leases in PX 9(a)-

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(c), could obtain up to 25 per centum of its milk by way of

such leases without jeopardizing its producer-handler status

(Tr. 253). The Market Administrator conceded that the

lessee had not assumed the full risks of the maintenance,

care, and management of facilities used to produce milk, but

nevertheless retained producer-handler status (Tr. 316-17).

Therefore, the milk processor would be escaping significant

risks relating to up to one-quarter of the farm operation that

supplies its milk.

Another lease which did not cause the Market

Administrator to remove the lessee’s producer-handler

status simply “assigned and transferred” milk produced on

a dairy farm to the producer-handler that was leasing the

cows (PX 17 Section II(c)). There is not even any pretense

that the lessee is providing, as the lessee’s own enterprise

and at the lessee’s own risk, the maintenance, care, and

management of the leased cows and other resources and

facilities used to produce the milk.

In the third lease, the lessee assumed the risk of loss

or damage to milk and also agreed to indemnify the lessor

against liability for injuries to workers, but did not

otherwise assume the risks of the maintenance, care, and

management of the leased cows and other resources and

facilities used to produce the milk (PX 18 at 1; Tr. 441).

The Market Administrator justified the distinction

between Petitioner and the three other lessees by stating that

the other lessees were producer-handlers prior to entering

into leases and that they are limited to acquiring 25 per

centum of their milk from leased cows (Tr. 252-55, 317, 427,

441). Unlike the three lessees, which have been allowed to

retain their producer-handler status, Petitioner was not a

producer-handler at the time it entered into the June 16,

1998, lease; Petitioner was not a dairy farmer at the time it

entered into the June 16, 1998, lease; and Petitioner acquired

100 per centum of its milk supply from the milking cows

and milk production facilities which Petitioner leased from

Oakridge Farm.

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While the three unidentified lessees arguably do not

strictly conform to the definition of “producer-handler” in

section 1001.10 of the New England Milk Marketing Order

(7 C.F.R. § 1001.10), correction of their status would not be

accomplished by designating Petitioner, who does not

conform to the definition of “producer-handler,” as a

producer-handler.

IX. Petitioner's Appeal

Petitioner raises five issues in Petitioner’s Appeal.

First, Petitioner contends that the Market Administrator's

determination that Petitioner is not a producer-handler

under the New England Milk Marketing Order is arbitrary

and capricious (Petitioner’s Appeal at 6-18).

I disagree with Petitioner's contention that the

Market Administrator’s determination, that Petitioner is not

a producer-handler under the New England Milk Marketing

Order, is arbitrary and capricious. As fully explicated in this

Decision and Order, supra, the Market Administrator's

determination carries out the purposes of the AMAA and

the New England Milk Marketing Order, is consistent with

other cases involving the lease of milk production facilities

by handlers, and is supported by the facts. I conclude that

the Market Administrator's determination is rational and

that Petitioner failed to prove that the Market

Administrator's determination that Petitioner is not a

“producer-handler,” as defined in section 1001.10 of the

New England Milk Marketing Order (7 C.F.R. § 1001.10), is

not in accordance with the law.

Second, Petitioner contends that the ALJ erroneously

found that if Petitioner was recognized as a producer-

handler under the New England Milk Marketing Order,

Petitioner would have a competitive advantage over

handlers of 25 to 37 cents per gallon of milk, which

advantage would interfere with the orderly operation of the

New England Milk Marketing Order. Petitioner points out

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that there is evidence which supports a finding that

Petitioner would, as a_ producer-handler, enjoy a

competitive advantage over handlers, but Petitioner states

the finding is based on such “thin evidence as to be

unsupported” and the estimates of price advantage “do not

account for the cost to Stew Leonard’s of operating

Oakridge Farm, and therefore have no relationship with the

amount of money Stew Leonard’s would save - if any - by

becoming a handler.” (Petitioner's Appeal at 11 n.4.)

The ALJ found, as follows:

33. If Petitioner were to have been treated

as a producer-handler, it would have had a

competitive advantage vis-a-vis fully regulated

handlers because it would not have had to account to

the pool for the use of milk nor make otherwise

required payments to the Northeast Dairy Compact

(Tr. 244-245, 250). The payment amount that

Petitioner would have avoided if it had been a

producer-handler was as high as thirty-seven cents

per gallon (RX-C; Tr. 247-252).

34. This advantage would interfere with

the orderly operation of the Order and of the

marketing of milk in Order No. 1. (Tr. 245).

35. If Petitioner were a producer-handler,

it would have as much as a twenty-five cent per

gallon advantage over his [sic] competitor, Stop &

Shop. This is an industry where differences of less

than one cent per gallon can have a competitive

impact in this industry. (Tr. 452, 482, 484).

Initial Decision and Order at 10-11.

The record supports the ALJ’s findings regarding

competitive advantages that Petitioner would obtain if

Petitioner were found to be a producer-handler and the

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effect of that competitive advantage on the operation of the

New England Milk Marketing Order (RX C; Tr. 244-52, 451-

92, 482-85). Moreover, the record does not support a finding

that Petitioner paid more for milk after it leased Oakridge

Farm's milking cows and milk production facilities than

Petitioner paid for milk before Petitioner executed the lease.

I do not find that the ALJ's findings regarding potential

competitive advantages to Petitioner were error, and I do

not find that the ALJ erred by failing to find that Petitioner

incurred costs in connection with Petitioner’s lease which

offset competitive advantages that Petitioner would have

obtained had the Market Administrator determined

Petitioner to be a producer-handler.

Third, Petitioner contends that -ase law supports

Petitioner's Petition (Petitioner’s Appeal at 18-24).

Petitioner cites only one case, In re Jerome Klocker, 26

Agric. Dec. 1050 (1967), in which the Judicial Officer

concluded that a person who leased cows was a producer-

handler. In all of the other cases cited by Petitioner, the

Judicial Officer or the courts upheld market administrators’

denials of producer-handler status.”

In Klocker, the Judicial Officer concluded that

Klocker, who had been a bona fide producer-handler for a -

number of years, did not lose that status by reason of an

April 1, 1964, lease of a dairy herd. Klocker had purchased

a farm in 1949, started a dairy farm operation on the

premises in 1955, and constructed a milk processing plant

on the premises in 1956. The Judicial Officer found that

Klocker had been the sole owner of all lands, buildings,

machinery, equipment, and facilities of both the dairy farm

and the milk processing plant since 1962. In addition, prior

to April 1, 1964, Klocker owned 200 dairy cows located on

29 Elm Spring Farm v. United States, 127 F.2d 920 (1st Cir. 1942); Cosgrove v.

Wickard, 49 F. Supp. 232 (D. Mass. 1943); In re Echo Spring Dairy, Inc., 45

Agric. Dec. 41 (1986); In re Clyde Lisonbee, 31 Agric. Dec. 952 (1972); In re

Sherman Fitzgerald, 31 Agric. Dec. 593 (1972); In re Willow Crossing Dairy

Farm, 29 Agric. Dec. 1007 (1970); In re Fred A. Brown, 23 Agric. Dec. 18

(1964).

A-79

the dairy farm. Then, on April 1, 1964, Klocker sold the

dairy cows to Darrel Rausch and on the same day leased

back the cows and employed Rausch as a farm employee.

The cows were never removed from Klocker’s premises and

Klocker retained ownership of the equipment, buildings,

and land devoted to the production of milk. Jd. At 1051,

1055.

The Judicial Officer found that, due to the unique

facts presented and the setting in which the lease of the

cows was created, Klocker’s status as a producer-handler

under Order No. 76 was not changed by virtue of the sale

and lease back of the dairy herd, as follows:

We do not have here any elements of a sham

transaction to effect a bogus producer-handler

status. Cf., e.g., Elm Spring Farm, Inc. v. United States,

supra. Admittedly, the use of milk from a leased

herd is not determinative of the question of

satisfaction of the requirements of the “producer-

handler” definition contained in the order. Section

1076.13 of the order in effect during part of the

period in controversy, that is, during the period

April 1, 1964 to May 1, 1965, defined a producer-

handler to mean, in part, “any person who operates

a dairy farm and a distributing plant.” It is clear, it

seems to us, in the setting presented that petitioner

met those requirements. Petitioner exercised the

powers of management, supervision, direction and

control of the dairy herd and farm and such farm

was his investment or risk. Surely, the producer-

handler need not personally perform the physical

acts incident to the production of milk. This is not

required with respect to the operation of the

processing plant, as pointed out by petitioner.

Further, petitioner has established herein, we

believe, that Rausch was in reality as well as in form

his employee.

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Effective May1, 1965, more _ specific

requirements for producer-handler status were

enacted. (See Finding of Fact 8.) Briefly, section

1076.9 requires, in pertinent part, that a “producer-

handler” be a dairy farmer and that the

“maintenance, care and management ef-the-dairy—

animals and other resources necessary to produce

the milk ... are the personal enterprise and risk of”

the producer-handler. It appears to us that the

production of the milk utilized at petitioner’s plant

continued to be the enterprise and risk of petitioner

subsequent to the agreement of April 1, 1964. That

agreement did not deprive petitioner of the

responsibility for the management, supervision and

control of the dairy herd and farm and the risks

incident to the production of milk or alter the fact

that the production of milk on petitioner’s farm was

the “personal enterprise” of petitioner.

“The regulatory scheme embodied in the

Order is an intensely practical business, and the

question now before us is not to be determined by a

purely abstract inquiry as to who had ‘title’ to the

cows which produced the milk.” Elm Spring Farm,

Inc. v. United States, supra, at p. 926. It is concluded,

on the basis of the peculiar or unique facts set forth

in the record and especially in view of the setting in

which the contract of April 1, 1964, was created, that

petitioner was a producer-handler as defined in the

order.... Accordingly, the pertinent contested

obligations imposed upon petitioner are not “in

accordance with law”.

In re Jerome Klocker, supra, 26 Agric. Dec. at 1057-58

(emphasis in original) (footnote omitted).

I disagree with Petitioner’s contention that the case

law supports Petitioner’s Petition. In fact, the cases cited by

Petitioner, except Klocker, uphold determinations by various

market administrators that leases and similar devices do not

create producer-handler status. Moreover, Klocker concerns

a petitioner who was a producer-handler prior to his sale

and lease back of the cows, was the owner of the farm on

which the cows were located, was responsible for the

management, supervision, and control of the dairy herd and

farm, and bore the risks incident to the production of milk.

Petitioner in this proceeding was not a producer-handler at

the time it executed the lease with Oakridge Farm, does not

own Oakridge Farm and has not leased Oakridge Farm, and

is not responsible for the management, supervision, or

control of Oakridge Farm or the dairy herd or milk™

production facilities located on Oakridge Farm. I find

Klocker inapposite.

Fourth, Petitioner contends that the Market

Administrator's determination that Petitioner is not a

producer-handler under the New England Milk Marketing

Order conflicts with the AMAA. Specifically, Petitioner

asserts that one of the goals of the AMAA is to ensure a

sufficient quantity of pure and wholesome milk to meet

current needs and that the Market Administrator's

determination that Petitioner is not a producer-handler

under the New England Milk Marketing Order undermines

that goal of the AMAA. (Petitioner’s Appeal at 24-25.)

I agree with Petitioner’s contention that one of the

goals of the AMAA is to ensure an adequate supply of pure

and wholesome milk. Section 8c(18) of the AMAA provides,

as follows:

§ 608c. Orders regulating handling of commodity

(18) Milk prices

... Whenever the Secretary finds, upon the

basis of the evidence adduced at the hearing

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required by section 608b of this title or this section,

as the case may be, that the parity prices of such

commodities are not reasonable in view of the price

of feeds, the available supplies of feeds, and other

economic conditions which affect market supply and

demand for milk and its products in the marketing

area to which the contemplated agreement, order, or

amendment relates, he shall fix such prices as he finds

will reflect such factors, insure a sufficient quantity of

pure and wholesome milk to meet current needs and

further to assure a level of farm income adequate to

maintain productive capacity sufficient to meet

anticipated future needs, and be in the public

interest. Thereafter, as the Secretary finds necessary

on account of changed circumstances, he shall, after

due notice and opportunity for hearing, make

adjustments in such prices.

7 U.S.C. § 608c(18) (emphasis added).

Moreover, the USDA publication which describes ~

the Dairy Division, Agricultural Marketing Service, makes

clear that one of the purposes of the Federal milk order

provisions is to ensure that consumers have an adequate

supply of pure and wholesome milk, as follows:

Objectives

The objective of the Order Formulation Branch is to

develop Federal milk order provisions that stabilize

market conditions. This is accomplished through

| assisting dairy farmers in developing steady,

dependable markets by providing prices for their

| milk that are reasonable in relation to economic

conditions. Consumers are then assured of an

adequate supply of pure and wholesome milk.

PX 8 at 1.

A-83

However, the Market Administrator’s determination

that 'Petitioner is not a producer-handler under the New

England Milk Marketing Order does not conflict with the

goal of an adequate supply of pure and wholesome milk, as

Petitioner contends. Producer-handler status is not a

prerequisite to having control over the quality of milk that a

person receives for processing. Each handler may contract

with milk producers for milk that meets that handler’s

quality standards. (Tr. 273.) The record establishes that

Petitioner, a handler under the New England Milk

Marketing Order, sought and obtained milk that met its-

quality standards. The Market Administrator's

determination that Petitioner was not a producer-handler

under the New England Milk Marketing Order had no effect

on the purity and wholesomeness of the milk obtained,

processed, packaged, and sold by Petitioner. Therefore, the

Market Administrator’s determination that Petitioner is not

a producer-handler under the New England Milk Marketing

Order does not conflict with the goal of ensuring an

adequate supply of pure and wholesome milk, as Petitioner

contends.

Fifth, Petitioner contends that the Market

Administrator's determination that Petitioner is not a

producer-handler under the New England Milk Marketing

Order violates Petitioner’s right to equal protection of the

laws (Petitioner’s Appeal at 25-28). Specifically, Petitioner

contends that the Market Administrator’s determination “ —

denying producer-handler status to Stew Leonard’s on the

basis of inadequate risk while granting such status to others

who bear demonstrably less risk — is most alarming

because it violates the constitutional guarantees of due

process and equal protection under the law” (Petitioner’s

Appeal at 25-26).

The equal protection clause in section 1 of the

Fourteenth Amendment to the Constitution of the United

States provides that no state shall “deny to any person

within its jurisdiction the equal protection of the laws.”

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Although the equal protection clause of the Fourteenth

Amendment is not applicable to the federal government, the

concepts of equal protection implicit in the due process

guarantees of the Fifth Amendment, which is binding on the

federal government, are applicable to the federal

government. Equal protection requires that persons

similarly situated be treated alike.21 However, Petitioner

30 See Adarand Constructors, Inc. v. Pena, 515 U.S. 200, 217 (1995) (holding

that the equal protection guarantee of the Fifth Amendment is

coextensive with that of the Fourteenth Amendment); San Francisco Arts &

Athletics, Inc. v. United States Olympic Comm., 483 U.S. 522. 542 n.21 (1987)

(stating that the Fourteenth Amendment applies to actions by a state; the

Fifth Amendment, however, does apply to the federal government and

contains an equal protection component); United States v. Paradise, 480

U.S. 149, 166 n.16 (1987) (stating that the reach of the equal protection

guarantee of the Fifth Amendment is coextensive with that of the

Fourteenth Amendment); Wayte v. United States, 470 U.S. 598, 608 n.9

(1985) (stating that although the Fifth Amendment, unlike the Fourteenth

Amendment, does not contain an equal protection clause, it does contain

an equal protection component, and the Court's approach to the Fifth

Amendment equal protection claims has been precisely the same as the

equal protection claims under the Fourteenth Amendment); Washington v.

Davis, 426 U.S. 229, 239 (1976) (holding that the due process clause of the

Fifth Amendment contains an equal protection component applicable to

the federal government); Buckley v. Valeo, 424 US. 1, 93 (1976) (holding

that equal protection analysis in the Fifth Amendment area is the same as

that under the Fourteenth Amendment); Weinberger v. Wiesenfeld, 420 U.S.

636, 638 n.2 (1975) (stating that while the Fifth Amendment contains no

equal protection clause, it does forbid discrimination that is so

unjustifiable as to be violative of due process; this Court’s approach to

Fifth Amendment equal protection claims has always been precisely the

same as to equal protection claims under the Fourteenth Amendment).

*! It should be noted that virtually all statutes and regulations classify

people, but equal protection does not prohibit legislative classifications.

See Romer v. Evans, 517 U.S. 620, 631 (1996) (stating that the Fourteenth

Amendment's promise that no person shall be denied the equal

protection of the laws must coexist with the practical necessity that most

legislation classifies for one purpose or another, with resulting

disadvantage to various groups or persons); Nordlinger v. Hahn, 505 U.S.

1, 10 (1992) (holding that the equal protection clause does not forbid

classifications; it simply keeps governmental decisionmakers from

treating differently. persons who are in all relevant respects alike); City of

Cleburne v. Cleburne Living Center, 473 U.S. 432, 439 (1985) (stating that the

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has failed to establish that the Market Administrator

granted producer-handler status to persons that are similar

to Petitioner. The Market Administrator has permitted three

producer-handlers to obtain additional milk supplies by

leasing cows and milk production facilities (PX 9, PX 17,

PX 18). These three producer-handlers owned and operated

a dairy farm as their own enterprise and at their own risk at

the time they leased additional cows and milk production

facilities. Moreover, these three producer-handlers may

only obtain up to 25 per centum of their milk from leased

equal protection clause is essentially a direction that all persons similarly

situated should be treated alike); Rinaldi v. Yeager, 384 U.S. 305, 308-09

(1966) (stating that the equal protection clause does not demand that a

statute necessarily apply equally to all persons, nor does it require things

which are different in fact to be treated in law as though they were the

same; hence, legislation may impose special burdens on defined classes in

order to achieve permissible ends); Norvell v. State of Illinois, 373 U.S. 420,

423 (1963) (holding that exact equality is no prerequisite of equal

protection of the laws within the meaning of the. Fourteenth

Amendment); Tigner v. State of Texas, 310 U.S. 141, 147 (1940) (holding that

the Constitution does not require things which are different in fact or

opinion to be treated in law as though they were the same); Stebbins v.

Riley, 268 U.S. 137, 142 (1925) (holding the guaranty of the Fourteenth

Amendment of equal protection of the laws is not a guaranty of equality

of operation or application of state legislation upon all citizens of a state);

F.S. Royster Guano Co. v. Virginia, 253 U.S. 412, 415 (1920) (stating that the

equal protection clause does not preclude states from resorting to

classification for purposes of legislation); Magoun v. Illinois Trust &

Savings, 170 U.S. 283, 294 (1898) (holding that a state may distinguish,

select, and classify objects of legislation without violating the equal

protection clause); Gulf, Colorado & Santa Fe Ry. v. Ellis, 165 U.S. 150, 155

(1897) (stating that it is not within the scope of the Fourteenth

Amendment to withhold from the states the power of classification; yet

classification cannot be made arbitrarily, it must always rest upon some

difference that bears a reasonable and just relation to the act in respect to

which the classification is proposed); Hayes v. Missouri, 120 U.S. 68, 71

(1887) (stating that the equal protection clause of the Fourteenth

Amendment does not prohibit legislation which is limited either in the

objects to which it is directed, or by the territory within which it is to

operate; it requires all persons subject to legislation to be treated alike

under like circumstances and conditions).

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cows without jeopardizing their status as producer-handlers

(Tr. 253).

Petitioner is not similarly situated to these three

producer-handlers. Petitioner did not own or operate a

dairy farm as its own enterprise and at its own risk at the

time Petitioner leased Oakridge Farm’s milking cows and

milk production facilities. Instead, at the time Petitioner

executed the lease, Petitioner was a handler under the New

England Milk Marketing Order and did not own or have

any interest in a dairy farm, milk production facilities, or

cows. Moreover, unlike the three producer-handlers who

maintain that status despite their lease of cows and milk

production facilities, Petitioner’s leased milking cows and

milk production facilities provide Petitioner with 100 per

centum of the milk which Petitioner processes.

Petitioner has not established that the Market

Administrator determined that persons similar to Petitioner

are producer-handlers. Therefore, I conclude that the

Market Administrator’s determination that Petitioner is not

a “producer-handler,” as defined in section 1001.10 of the

New England Milk Marketing Order (7 C.F.R. § 1001.10), is

not a violation of Petitioner’s right to equal protection of the

laws.

X. Respondent’s Cross-Appeal

Respondent raises six issues in Respondent's Cross-

Appeal. First, Respondent contends that, in Findings of Fact

No. 23, the ALJ misstates the Market Administrator's

January 15, 1998, letter to Robinson & Cole, LLP

(Respondent's Cross-Appeal at 2). Specifically, Respondent

states:

The ALJ says that the market administrator said that

Stew Leonard’s could not be a producer-handler

“until” certain changes were made, possibly

suggesting that Stew Leonard’s would be a

producer-handler if the changes were made. In fact,

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the market administrator, in that January 15, 1999

[sic], letter (PX 11), stated that the changes would

have to be made “before” Stew Leonard’s could be a

producer-handler. The market administrator is not

saying that the changes would create a producer-

handler, i.e. Stew Leonard’s would still have to meet

the “own enterprise and risk” standard of the order.

The market administrator is saying only that without

the noted changes, Stew Leonard’s could not begin

to meet the standards.

Respondent's Cross-Appeal at 2.

Petitioner contends that the ALJ’s reading of the

Market Administrator’s January 15, 1998, letter is correct

(Petitioner's Reply to Respondent's Cross-Appeal at 4).

I agree with Respondent's contention that the ALJ

misstates the Market Administrator’s January 15, 1998, letter

to Robinson & Cole, LLP (PX 11). The Market

Administrator’s letter does not contain the word “until,”

and I do not adopt the ALJ’s Findings of Fact No. 23.

Instead, I state, in Findings of Fact No. 14, supra, that the

Market Administrator’s January 15, 1998, letter (PX 11)

advises Petitioner’s counsel that the December 10, 1997,

lease of Oakridge Farm’s milking cows and milk production

facilities fails to cause Petitioner to meet the requirements

for producer-handler status under the New England Milk

Marketing Order, and I quote the January 15, 1998, letter

from the Market Administrator to Robinson & Cole, LLP.

Second, Respondent contends that, in Findings of

Fact No. 25, the ALJ incorrectly states that Petitioner had

assumed all risks arising from the operation of Oakridge

Farm (Respondent's Cross-Appeal at 2-3). Petitioner

contends that the ALJ’s Findings of Fact No. 25 is correct

and should remain undisturbed (Petitioner’s Reply to

Respondent's

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