RIPPLE, Circuit Judge.
Lamers Dairy ("Lamers") sought an exemption from Milk Marketing Order No. 30, promulgated under the Agricultural Marketing Agreement Act of 1937, 7 U.S.C. § 601 et seq. After the Secretary of the United States Department of Agriculture ("the USDA") denied the petition in a final administrative order, Lamers sought review in the district court. The USDA counterclaimed for enforcement of the Secretary's decision and for a judgment against Lamers in an amount equal to the unpaid monetary assessments due under the terms of the marketing order. The district court granted summary judgment
Lamers Dairy, a Wisconsin family-operated dairy, has as its principal business the handling and packaging of fluid milk. In this appeal, Lamers challenges aspects of the federal milk-marketing regulatory scheme. To understand the nature of Lamers' challenges, we must discuss briefly the dairy industry and the regulatory and market forces governing it.
1. The Dairy Industry
In the dairy industry, dairy farmers, also referred to as "producers," produce and sell raw milk to "handlers." Handlers, in turn, prepare the milk product for resale to consumers or serve as intermediaries to those who do. Consumer dairy products, such as fluid milk beverages, ice cream and cheese, can all be produced from "Grade A" or "fluid grade" raw milk.
2. The Regulatory Scheme
In the wake of the Great Depression, in an attempt to address these unique industry characteristics, Congress enacted various provisions governing the dairy industry as part of the Agricultural Marketing Agreement Act of 1937 ("the AMAA"). A driving purpose of the AMAA 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 v. Allen, 396 U.S. 168, 180-81, 90 S.Ct. 314, 24 L.Ed.2d 345 (1969). The AMAA, as amended, thus ensures that producers receive a uniform minimum price for their product, regardless of the end use to which it is put.
To accomplish this objective, the statute contains several mechanisms. First, it authorizes the Secretary to classify milk according to its end use and to establish minimum prices for each end-use classification. See 7 U.S.C. § 608c(5)(A). Second, it authorizes the Secretary to establish a uniform minimum price, termed the "blend price," based on a weighted average of all units of production of classes of milk sold to handlers associated with a marketing area. See id. Third, it requires handlers to pay producers the blend price, regardless of the end use to which the milk will be put. See id. § 608c(5)(B). Fourth, it authorizes a method for adjustments in payments among handlers so that the final amount paid by each handler equals the value of the milk that handler has purchased, according to the minimum prices established. See id. § 608c(5)(C). Overall, the provisions attempt to promote orderly milk-marketing by maintaining minimum prices for producers and limiting the competitive effects of excess supply of Grade A milk.
Although it protects producers, the AMAA regulates handlers only. Pursuant to the AMAA directives, the Secretary has classified milk into the following classes of utilization: Class I milk includes fluid milk processed and bottled as a beverage; Class II milk includes soft milk products such as cottage cheese, sour cream, yogurt and ice cream; Class III includes hard cheese and cream cheese; and Class IV includes raw milk used for butter and dry milk powder. As directed by the AMAA, the Secretary has established a uniform pricing scheme for each of these classes of milk, as well as the average blend price.
This uniform minimum pricing is intended to reduce the incentive producers would have to divert all fluid milk to Class I handlers and, literally, to flood that market. As the system operates, dairy producers within a marketing area receive the guaranteed uniform blend price for their milk, regardless of the end use to which it is put. Because the uniform price is a weighted average, some handlers pay producers less for their milk than its market worth while other handlers pay more. Handlers who pay less to producers must make compensating payments into the producer settlement fund while handlers who pay more to producers may withdraw compensating payments from the fund.
Stew Leonard's v. Glickman, 199 F.R.D. 48, 50 (D.Conn.2001). The system of compensating payments into and out of the settlement fund thereby fulfills the AMAA requirement that "the total sums paid by each handler shall equal the value of the milk purchased by him at the prices fixed." 7 U.S.C. § 608c(5)(C).
The country is divided into regional milk-marketing areas, which are governed by different marketing orders. Milk Marketing Order No. 30 governs the Upper Midwest marketing area, including portions of Illinois, Iowa, Michigan, Minnesota, North Dakota, South Dakota and Wisconsin.
3. Price Inversions
As discussed, Class I prices are generally higher than Class III prices. Thus, the blend price usually falls above the Class III price, and Class III handlers typically are entitled to withdraw compensating payments from the settlement fund after paying producers the blend price. However, occasionally, periods of "price inversion" occur,
Milk in the New England and Other Marketing Areas, Dep't of Agric., 64 Fed.Reg. 16,026, 16,102 (Apr. 2, 1999). Thus, price inversions occur during times of increased demand for manufactured products, primarily cheese.
Under Order No. 30, Class III handlers are not required to participate in the regulatory pooling. They may either join the pool or remain outside the minimum price structure. (This is true to some extent under other milk-marketing orders as well.) When Class III handlers withdraw from the pool, or "de-pool," they are not obligated to make compensating payments to the settlement fund. During times of price inversion, then, Class III handlers have an incentive to withdraw from the pool. The USDA has explained the effect of price inversions on the dairy industry:
Id. When producers prefer to sell outside the pool due to higher manufacturing returns, Class I handlers may have to pay out-of-pocket premiums to attract their supply.
Thus, during times of price inversion, Class III handlers who de-pool may pay less than the Class III price. At the same time, Class I handlers inside the pool may be forced practically to pay more than the Class I price because of extra-regulatory premiums. In sum, the ability of Class III handlers to de-pool under Order No. 30 has negative economic consequences on Class I handlers who must remain within the pool.
B. Administrative and District Court Proceedings
In September 1999, Lamers stopped making required compensating payments into the settlement fund. Instead, Lamers filed an administrative petition with the USDA for exemption and/or modification of the provisions of Order No. 30. Lamers' petition alleged that Order No. 30 violated equal protection and contravened the AMAA by permitting "unfair trade practices." Lamers sought relief in the form of an order exempting it from pooling and from the obligation to make payments into the producer settlement fund. After an evidentiary hearing, an administrative law judge ("ALJ") sustained Order No. 30 and dismissed Lamers' petition. Lamers appealed to a USDA judicial officer. The judicial officer affirmed the ALJ. Lamers then brought an action in the district court, and the USDA counterclaimed for enforcement of the Secretary's decision.
The district court affirmed the Secretary. It determined that, as to Lamers'"unfair trade practices" claim, Lamers was attempting to sue under a non-existent right. As to Lamers' equal protection claim, the district court noted that the economic regulation was subject to rational basis scrutiny and concluded that the provisions of the regulatory scheme survived challenge under that standard. The district court subsequently ordered Lamers to pay $850,931.26 to the settlement fund. Lamers timely appeals.
A. Standard of Review
We review de novo the district court's grant of summary judgment. See Indiana Family & Soc. Servs. Admin. v. Thompson, 286 F.3d 476, 479 (7th Cir.2002). All facts are drawn and all inferences viewed in the light most favorable to the nonmoving party. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Summary judgment is appropriate when there is no genuine issue of material fact, and the moving party is entitled to judgment as a matter of law. See Fed.R.Civ.P. 56(c).
B. Equal Protection Claims
Lamers contends that the ability of Class III handlers to "de-pool," and its inability to do so, violates its right to equal protection of the law. When considering an equal protection claim, we first must ask whether the governmental action involves fundamental rights or targets a suspect class. See, e.g., Eby-Brown Co., LLC v. Wisconsin Dep't of Agric., 295 F.3d 749, 754 (7th Cir.2002). The distinction drawn by the Secretary between Class I and Class III handlers is based upon the end use to which these handlers put producer
We therefore review the Secretary's difference in treatment to determine whether there is a conceivably rational relationship to a legitimate interest. See FCC v. Beach Communications, Inc., 508 U.S. 307, 313, 113 S.Ct. 2096, 124 L.Ed.2d 211 (1993); United States R.R. Ret. Bd. v. Fritz, 449 U.S. 166, 174-79, 101 S.Ct. 453, 66 L.Ed.2d 368 (1980). Practically, our review must be highly deferential:
Beach Communications, 508 U.S. at 313, 113 S.Ct. 2096. Governmental action only fails rational basis scrutiny if no sound reason for the action can be hypothesized. See Northside Sanitary Landfill, Inc. v. City of Indianapolis, 902 F.2d 521, 522 (7th Cir.1990). Furthermore, a circumspect approach is especially appropriate in reviewing a challenge to the federal milk-marketing regime. See Blair v. Freeman, 370 F.2d 229, 232 (D.C.Cir.1966) ("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."); see also Zuber v. Allen, 396 U.S. 168, 172, 90 S.Ct. 314, 24 L.Ed.2d 345 (1969) (describing federal milk-marketing regime as a "labyrinth").
The USDA submits that the different treatment of Class I and Class III handlers is rationally based because of the purposes of regulation and the differing marketing conditions faced by fluid milk and cheese producers. We agree. The AMAA charges the Secretary of Agriculture with establishing and maintaining orderly marketing conditions so as to establish parity prices to farmers. See 7 U.S.C. § 602(1). The Secretary also is charged with establishing and maintaining orderly marketing conditions so as to ensure an orderly flow of supply and thereby prevent unreasonably fluctuating prices. See id. In order to achieve these legitimate marketing objectives, it is conceivably rational for the Secretary to treat Class I and Class III handlers differently with respect to pooling requirements.
In assessing the rationality of the Secretary's action, we must recall the relevant supply and demand characteristics of the market. As we have noted previously, the milk production industry is highly subject to seasonal fluctuations and characterized by excess supply. That excess cannot be stored by producers; it must be marketed. Fluid milk products less easily are stored and transported than milk in other forms. They are more perishable and thus more subject to the fluctuations in daily demand. They are generally more highly valued. These circumstances affect the market for producer milk in critical ways and thus
Next, we must keep in mind that "pooling" essentially requires handlers to pay out a uniform minimum price for their supply and is required, in part, to maintain prices for producers. See Alto Dairy v. Veneman, 336 F.3d 560, 563 (7th Cir.2003) (describing milk-pricing system as means of "redistribut [ing] wealth from consumers to producers of milk"). Class I handlers' end use typically represents the "cream of the crop," or the highest end use of Grade A producer milk, and so Class I purchases in the pool generally raise the blend price. Class III handlers, however, can use lower-standard Grade B milk in their products, and their purchases in the pool of higher-standard Grade A milk generally lower the blend price. It is relatively unsurprising, then, that the Secretary deems pooling by Class I handlers vital to the regulatory scheme but deems pooling by Class III handlers less essential, even though price inversions sometimes occur that disrupt normal marketing conditions.
Finally, we note that the history of the milk-marketing regime evidences primary concern with producer competition to make sales to the fluid milk market, not the manufacturing market. See Zuber, 396 U.S. at 180-81, 90 S.Ct. 314 (discussing AMAA purpose "to remove ruinous and self-defeating competition" among producers for sales in the fluid milk market); see also Block v. Cmty. Nutrition Inst., 467 U.S. 340, 343, 104 S.Ct. 2450, 81 L.Ed.2d 270 (1984) (discussing pooling requirements as means "[t]o discourage destabilizing competition among producers for the more desirable fluid milk sales"); United States v. Rock Royal Co-Op., Inc., 307 U.S. 533, 572, 59 S.Ct. 993, 83 L.Ed. 1446 (1939) (characterizing system of compensating payments under the settlement fund as "reasonably adapted" device "designed ... to foster, protect and encourage interstate commerce by smoothing out the difficulties of the surplus and cut-throat competition which burdened" the fluid milk market).
Lamers' challenge to the exemption of Class III handlers from pooling requirements is essentially one to the breadth of
Similarly, equal protection does not require a governmental entity to "choose between attacking every aspect of a problem or not attacking the problem at all." Dandridge v. Williams, 397 U.S. 471, 487, 90 S.Ct. 1153, 25 L.Ed.2d 491 (1970). Indeed, "[m]ere underinclusiveness is not fatal to the validity of a law under the Fifth Amendment's guarantee of equal protection." SeaRiver Mar. Fin. Holdings, Inc. v. Mineta, 309 F.3d 662, 679 (9th Cir.2002) (internal quotation and citation omitted); see also Minnesota ex rel. Pearson v. Probate Court of Ramsey County, 309 U.S. 270, 275, 60 S.Ct. 523, 84 L.Ed. 744 (1940) ("If the law presumably hits the evil where it is most felt, it is not to be overthrown because there are other instances to which it might have been applied." (internal quotation and citation omitted)). Furthermore, "broad legislative classification must be judged by reference to characteristics typical of the affected classes." Califano v. Jobst, 434 U.S. 47, 55, 98 S.Ct. 95, 54 L.Ed.2d 228 (1977).
In light of these governing principles, it is clear that Congress and the Secretary can regulate based upon typical milk-marketing conditions without thereby violating equal protection. Here, Congress and the Secretary have chosen to address the perceived problem of excess milk supply in the dairy industry by requiring Class I handlers to pool all their supply while exempting other handlers from that same requirement, based on an assumption that Class I milk carries the highest market value. They have chosen, in effect, to address the usual situation while not addressing the abnormal, aberrant situation in which Class I milk does not carry the highest market price. Such incremental regulation does not violate equal protection.
We recognize that the Secretary's exemption of Class III handlers from pooling requirements effectively gives them a competitive advantage. They may participate in pooling when it is beneficial and withdraw when it is not. See Milk in the New England and Other Marketing Areas, Dep't of Agric., 64 Fed.Reg. at 16,102. Thus, the Class III pooling exemption is economically harmful to Lamers and other Class I handlers (as well as to producers committed to dealing with them) who must suffer the effects of Class III de-pooling.
In cases involving economic and social regulation, so long as distinctions are conceivably rational, the recourse of a disadvantaged entity lies in the democratic process.
We briefly address one additional issue under the rubric of equal protection analysis. Lamers submits that the failure of the regulations to account for certain out-of-pocket premiums it must pay to attract its supply violates its right to equal protection. Lamers' equal protection claim based on these premiums is fundamentally flawed because Lamers presents no distinction for this court to review. Specifically, Lamers has demonstrated no difference between it and any other handler as to the Secretary's treatment of these out-of-pocket premiums; the regulations simply do not take them into account.
C. "Unfair Trade Practices" Claim
Lamers argues that four aspects of Order No. 30 constitute "unfair trade practices" prohibited by 7 U.S.C. § 608c(7)(A): (1) the ability of Class III handlers to de-pool; (2) the requirement that Class I handlers pay into the settlement fund when competing handlers dealing in both the fluid milk and the manufacturing markets may draw upon those funds; (3) the allowance of some manufacturing costs in the calculation of Class III and IV utilization prices; and (4) the ability of some processing plants to receive "kickbacks" for qualifying milk under the order.
Lamers' claim of "unfair trade practices" warrants only brief discussion, however, because, as the district court concluded, Lamers attempts to proceed under a non-existent statutory right. Under 7 U.S.C. § 608c(7)(A), the prohibition of "unfair methods of competition and unfair trade practices in the handling of" agricultural commodities is one of several "terms and conditions" that the Secretary may incorporate in orders issued under the AMAA.
Were it possible to construe Lamers' claim as an argument that the Secretary has advanced an unreasonable interpretation of the AMAA by enacting regulations that permit these allegedly "unfair trade practices," we first would be required to determine the appropriate level of deference that must be accorded the Secretary's interpretation of the AMAA, assuming that interpretation did not contravene statutory directives, and next would be required to
Lamers has not established an equal protection violation and cannot bring an "unfair trade practices" claim. For the foregoing reasons, the judgment of the district court is affirmed.
Alto Dairy, 336 F.3d at 562. This change in the competitive environment provided an impetus for regulation. See id. at 562-63.
Milk in the New England and Other Marketing Areas, Dep't of Agric., 64 Fed.Reg. at 16,103.