Summary of a Recent
Judicial Development in
Administrative Law

No Requirement to Exhaust Administrative Remedies If Agency Lacks
Institutional Competence or Authority to Grant Relief

Eric H. Foy
National AgLaw Center Research Associate

Summary of Decision

In Hettinga v. United States, 560 F.3d 498 (D.C. Cir. 2009), the United States Court of Appeals for the District of Columbia reversed the ruling of the district court, which had dismissed the dairy farmers' challenge to the Milk Regulatory Equity Act (MREA) for failing to exhaust administrative remedies. The farmers brought suit against the United States for contribution requirements, alleging that the requirements constituted an invalid bill of attainder and violated their equal protection and due process rights. In reversing, the instant court held that the farmers were not required to exhaust their administrative remedies on either prudential or constitutional grounds.

Background

Producing and selling milk in the domestic market is a highly regulated activity. See id. at 501. The regulation stems from the authority exercised by the Secretary of U.S. Department of Agriculture (USDA) pursuant to the Agricultural Marketing Agreement Act (AMAA), 7 U.S.C. §§ 601-674. See id. "The Secretary issues milk marketing orders that regulate payments made from milk handlers (processors and distributors) to milk producers (farmers). . . . [H]andlers are required to pay into a pool for milk bought from producers; the funds in the pool are distributed on a pro rata basis to the producers." Id. (internal citations omitted). Until 2005, producer-handlers that conducted their business operations in "a single vertically-integrated operation" were exempted from the contribution and pooling requirements. Id. The exemption was designed to aid only small dairy operations and was thought to have little to no effect on the dairy industry. See id. However, some producer-handlers grew large, causing the Secretary to rethink the vertical integration exemption. Id. In 2006, "the Secretary promulgated a rule requiring producer-handlers producing over 3 million pounds of fluid milk per month within a marketing area to pay into the producer settlement fund if they sold milk at a price higher than that paid by handlers to producers." Id.

The Hettingas owned a dairy farm in Arizona and sold their milk exclusively to the state of California. Id. at 502. Their dairy farm was one of the businesses affected by the new rule. Id. On March 15, 2006, the Hettingas filed suit against the United States seeking injunctive relief. Id. The Hettingas argued that the new rule was "arbitrary and capricious and that the Secretary lacked authority over producer-handlers that [sold] only milk produced from their own cows." Id. Before the court heard arguments, Congress amended the AMAA. Id. The amendment, the Milk Regulatory Equity Act of 2005,

codified the Secretary's revocation of the exemption for large producer-handlers in the Arizona-Las Vegas marketing area, but not the Pacific Northwest area, and also made subject to regulation producers . . . that are located in the marketing area and sell milk to areas that are unregulated by marketing orders, such as California.
Id. (citing Pub. L. No. 109-215, 120 Stat. 328 (2006) (codified at 7 U.S.C. § 608c)).

On September 22, 2006, the Hettingas filed suit, alleging that the amendment was an unconstitutional bill of attainder and denied them due process and equal protection. Id. The court dismissed their complaint because the Hettingas had failed to exhaust their administrative remedies. Id. The plaintiffs appealed. Id.

Arguments

The government argued that the Hettingas were challenging a milk marketing order rather than the amendment, and therefore they had to exhaust their administrative remedies before seeking judicial review. Id. at 504.

The Hettingas argued that they were challenging the amendment rather than any particular milk marketing order. Id.

Analysis and Holdings

After examining the AMAA itself, the court stated that the AMAA's exhaustion requirement "plainly is aimed only at marketing orders and attendant obligations, not at challenges to the statute." Id. at 505. Because the Hettingas "challenge[d] neither a marketing order nor an attendant obligation but rather Congress's determination of which entities shall be subject to the preexisting administratively determined obligations," the court held that "the AMAA's exhaustion requirement [did] not apply to such statutory challenges 'in clear, unequivocal terms.'" Id. Therefore, "the Hettingas' constitutional challenges to the Amendments were not subject to exhaustion as a jurisdictional matter." Id.

In additional to determining whether exhaustion was required as a jurisdictional matter, the court also had to determine whether exhaustion was required as a prudential matter. Id. at 505-06. Courts make the lattermost determination by looking at "'the structure of the statutory scheme, its objectives, its legislative history, and the nature of the administrative action involved.'" Id. at 506. Ultimately, the court held that "[r]equiring exhaustion of the Hettingas' statutory challenges would neither 'protect[ ] administrative agency authority' nor 'promot[e] judicial efficiency,'" because "it would make little sense to require exhaustion where an agency 'lacks institutional competence to resolve the particular type of issue presented, such as the constitutionality of a statute' or where 'an agency may be competent to adjudicate the issue presented, but still lack[s] authority to grant the type of relief requested.'" Id. (quoting McCarthy v. Madigan, 503 U.S. 140, 145 (1992)). For these reasons, the court reversed and remanded the case for further proceedings on the plaintiffs' complaint. Id.

The case was decided on April 3, 2009.