Summary of a Recent
Judicial
Development in
Farm Programs
Appeals Court Rules that USDA Violated 1985
Food Security Act and APA Procedures
in Implementation of Sugar Program
Harrison M. PittmanStaff Attorney
The United States Court of Appeals for the District of Columbia Circuit has ruled that the USDA Secretary violated the Administrative Procedures Act ("APA"), 5 U.S.C. Secs. 551-559, 701-706, when it announced by press release, without notice and comment, a new payment-in-kind ("PIK") program for the 2001 sugar crop. Sugar Cane Growers Co-op of Florida v. Veneman, 289 F.3d 89 (D.C. Cir. 2002). The D.C. Circuit also ruled that the USDA's failure to comply with the APA was not harmless error, and that the Secretary violated the Food Security Act of 1985 ("FSA"), 7 U.S.C. Sec. 1308a, in its implementation of the PIK program. Id. In addition, the D.C. Circuit reversed the district court's holding that the plaintiffs lacked standing to bring the action. Id. The D.C. Circuit did not vacate the Department's action, but rather remanded the matter to the USDA for further consideration. Id.
The Secretary has authority to implement a PIK program for sugar under the FSA of 1985. Id. at 91. The Secretary announced in an August 31, 2001, press release that it was implementing a PIK program for the 2001 sugar crop. Id. at 92. The press release indicated that the program was being implemented without notice and comment. Id. The Secretary also implemented a sugar program for the 2000 sugar crop without notice and comment. Id. Neither the 2000 sugar program, or the Secretary's decision to proceed without notice and comment, was challenged at the time it was implemented. Id. Prior to announcing the 2001 PIK program, the USDA met several times with interested persons to discuss the possibility of implementing the program. Id. These meetings were informal, and were not part of any formal rulemaking process. Id.
Sugar Cane Growers Cooperative of Florida, Florida Crystals Corporation, and Refined Sugars, Inc., brought an action against the Secretary, arguing that announcing the 2001 PIK program by press release, without notice and comment, violated APA requirements for notice and comment rulemaking procedures; violated the FSA of 1985 when the Secretary did not make findings required by the FSA of 1985; and violated the Regulatory Flexibility Act when it failed to consider the affect of the program on small businesses. Id. The plaintiffs also contended that the 2000 and 2001 sugar programs caused them two injuries because it gave PIK program participants a "competitive advantage [relative to non-program participants] by providing them with below-harvest-cost sugar," and because the program caused sugar prices to decrease. Id. The court did not discuss the claim brought under the Regulatory Flexibility Act because the appellants failed to raise the claim on appeal. See Id. at *8, n.3.
The district court ruled that the plaintiffs lacked standing because they had not shown an injury-in-fact, and because they failed to establish causation when "they had not demonstrated that the Department would have decided against implementing the program following notice and comment." Id. at 93. Although the case was dismissed for lack of standing, the district court also decided that "the 2001 PIK program was a rule subject to notice-and-comment procedures, but the Department's failure to comply with those procedures was harmless." Id.
The D.C. Circuit was not persuaded by the plaintiffs' argument that 2000 and 2001 PIK program participants enjoyed below-harvest-cost sugar, thereby allowing participants a competitive advantage. Id. at 93. However, the court was convinced that the plaintiffs made a prima facie showing that they had standing because the PIK program "had a depressive effect on sugar prices which would have clearly injured laintiffs]." Id. The plaintiffs presented two economic studies by independent industry analysts to help substantiate this injury claim. Id. For instance, one of the analysts concluded that the PIK program "resulted in 'a substantial amount of yield slippage' which meant more sugar on the market and thereby depressed [sugar] prices." Id.
The Secretary responded that the plaintiffs could not have suffered this injury because overall sugar prices actually increased, instead of decreased. Id. The circuit court disagreed, commenting that this contention was "a snare because the relevant question is not whether sugar prices actually went up or down but whether the PIK program had a depressive effect [on sugar prices]." Id. The court attributed the increase in sugar prices to external market factors that caused the sugar supply to decrease. Id. The D.C. Circuit added, "Since the appellants presented a prima facie claim of injury based on basic economic logic (as set forth in the contested affidavits and studies), it was the government's burden, if it wanted a trial on the question of sugar price movements, to seek a factual hearing. Because it did not, we think appellant's established injury." Id. at 94.
The D.C. Circuit dismissed the district court's alternative holding that the Secretary was excused from its failure to abide by notice-and-comment procedures. Id. The court remarked, "A plaintiff who alleges a deprivation of a procedural protection to which he is entitled never has to prove that if he had received the procedure the substantive result would have been altered. All that is necessary is to show that the procedural step was connected to the substantive result." Id. at 94-95. (citing Lujan v. Defenders of Wildlife, 504 U.S. 555, 573 (1992)(finding that an individual living next to a federally licensed dam 'has standing to challenge the licensing agency's failure to prepare an environmental impact statement, even though he cannot establish with any certainty that the statement will cause the license to be withheld or altered.'")). Finally, the court stated, "If a party claiming the deprivation of a right to notice-and-comment rulemaking under the APA had to show that its comment would have altered the agency's rule, [5 U.S.C.]Dec. 553 would be a dead letter." Id.
The Secretary argued on appeal that its failure to engage in notice-and-comment rulemaking was not necessary because the PIK program announcement "was really not a rule" requiring notice-and-comment under the APA. Id. at 96 (see 5 U.S.C. Sec. 551(4)). The Secretary argued that the PIK program announcement was not a rule because it was an "isolated agency act" not affecting later USDA acts and because it had "no future effect on any other party before the agency." Id. at 95-96 (quoting Daingerfield Island Protective Soc'y v. Babbitt, 823 F.Supp. 950, 957 (D.D.C. 1993), aff'd in relevant part, 15 F.3d 1159 (D.C. Cir. 1993)). The D.C. Circuit considered the initial press release announcing the program, the subsequent notice of the program's implementation appearing in the federal register, and the fact that the program included sanctions to be imposed on participants for certain violations, to support its conclusion that the agency's action was a clearly a rule which should have been subject to notice-and-comment rulemaking procedures. Id. at 96.
In addition to its earlier argument that its failure to provide notice-and-comment rulemaking was excused, the Secretary also argued that its failure to resort to notice-and-comment rulemaking was a harmless error. Id. The Secretary specifically argued that the Department's error was harmless because plaintiffs were unable to present arguments that they would have raised through formal notice-and-comment procedures which they did not raise in the informal meetings. Id.
The D.C. Circuit acknowledged that technical APA errors can sometimes be harmless. Id. (citing Sheppard v. Sullivan, 906 F.2d 756 (D.C. Cir. 1990)). However, "an utter failure to comply with notice and comment cannot be considered harmless if there is any uncertainty at all as to the effect of that failure." Id. (quoting McLouth Steel Prods. Corp. v. Thomas, 838 F.2d 1317, 1324 (D.C. Cir. 1988). The court stated that if the Secretary's argument were law, its effect would be to preclude judicial review of an agency decision any time there has been some form of informal consultation, and the plaintiffs were not able to raise any arguments in addition to those raised during an informal consultation. Id. The court added, "The government could avoid the necessity of publishing a notice of a proposed rule and perhaps, most important, would not be obliged to set forth a statement of the basis and purpose of the rule, which needs to take account of the major comments and often is a major focus of judicial review." Id.
The D.C. Circuit agreed with the plaintiffs' contention that the Secretary violated the FSA of 1985 when it failed to make four required findings before implementing the PIK program. Id. at 97. The USDA argued that it satisfied the FSA of 1985 requirements when it "expressly referred" to the required findings in the Federal Register Notice of Implementation. Id. The USDA also argued that the participation of the Deputy Under Secretary for Farm and Foreign Agricultural Services in making the PIK program decision satisfied the FSA requirements. Id.
The court described the former argument as "absurd," stating that "[r]eferencing a requirement is not the same as complying with that requirement." Id. The court dismissed the latter argument because the Under Secretary was not the final decisionmaker, and because there was "no evidence on either the administrative or summary judgment record that the Secretary delegated decisionmaking authority to [the Under Secretary]." Id. The court concluded that "[t]he record is devoid of any evidence that the Secretary, or a Department employee with final decisionmaking authority, ever complied with section 1308a." Id.
In the end, the D.C. Circuit reversed the district court's decision and remanded the matter to the USDA for the agency to determine if there were a "good cause for omitting notice and comment." Id. The court recognized that under the circumstances of this case the remedy would normally be to vacate the agency's action and "simply remand for the agency to start again." Id. In this case, events had unfolded to such an extent (i.e., crops already plowed under) that it would be "an invitation to chaos" to vacate the agency's action. Id. Further, the court noted that "[t]he decision to vacate depends on 'the seriousness of the order's deficiencies (and thus the extent of doubt whether the agency chose correctly) and the disruptive consequences of an interim change that may itself be changed.'" Id. (citing Allied Signal, Inc. v. United States Nuclear Regulatory Commission, 988 F.2d 146, 150-51 (D.C. Cir. 1993))(quoting International Union UMW v. FMSHA, 920 F.2d 960, 966-67 (D.C. Cir. 1990)).
This case summary was prepared June, 2002