Summary of a Recent
Judicial Development in
Commodity Programs

Dairy Ineligible for Milk Support Payments

Amy Miller
National AgLaw Center Graduate Assistant

In N. Plains Dairy, Ltd. Liab. P'ship. v. USDA, 2005 U.S. Dist. LEXIS 25567 (D. Minn. 2005), the Minnesota district court upheld a USDA's National Appeals Division's ("NAD") decision concluding that a dairy improperly received milk support payments under the Milk Income Loss Contract ("MILC") Program, 7 U.S.C. § 7982(b).

Under the MILC program, each "separate and distinct" dairy operation that entered into a contract with the USDA was eligible to receive subsidy payments for up to 2.4 million pounds of milk each fiscal year. N. Plains Dairy, 2005 U.S. Dist. Lexis 2556, at *2. Although a dairy operation could reorganize or restructure, the operation could not reorganize solely for the purpose of receiving multiple payments. Id. at *3. A dairy operation was ineligible for MILC payments if an owner was affiliated with any dairy operation with an approved MILC. See id. at *5.

After the county Farm Service Agency ("FSA") issued a MILC payment to Northern Plains Dairy, LLP ("NPD") for the 2003 fiscal year, the agency became aware that two of the owners of NPD also owned three other dairy operations that had previously received MILC payments for 2003. Id. at *3-*4. The three dairies were no longer in operation and upon termination had sold all of their milking cows to NPD. Id. at *4. Furthermore, two of the dairies had reached the MILC payment cap for 2003. Id. Consequently, NAD concluded that NPD was ineligible for 2003 MILC payments because of common ownership with the other dairy operations that had already exhausted the payment limitations for 2003. Id. at *9.

The court concluded that "NAD's determination that the common ownership among the dairies constituted an affiliation was a permissible construction, especially considering the fact that the three predecessor dairies had ceased operation and sold their dairy cattle to NPD." Id. at *10. The court held that because the NAD's decision was reasonable it was entitled to deference. Id.

The county FSA office demanded repayment of the improperly received MILC payments outside of the ninety-day "finality rule" deadline, 7 C.F.R. § 718.306(a). Yethe finality rule deadline did not apply because NPD had reason to know that the MILC payment was erroneous. Id. at * 6. NPD failed to inform the FSA it had common ownership and affiliation with other dairies in its 2003 MILC application. Id. at *12. Because the MILC contracts require producers to notify the FSA of any changes that would potentially affect duties under the contract, FSA did not have a duty to investigate the common ownership of the dairies. Id. at *11-12.

The case was decided on October 25, 2005; this summary was posted Feb. 21, 2006.