Hettinga v. United States

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued November 7, 2008 Decided April 3, 2009

No. 07-5403

HEIN HETTINGA, ET AL.,
APPELLANTS

v.

UNITED STATES OF AMERICA,
APPELLEE

Appeal from the United States District Court
for the District of Columbia
(No. 06cv01637)

Alfred W. Ricciardi argued the cause for appellants. With
him on the briefs was John F. Cooney.

Nicholas Bagley, Attorney, U.S. Department of Justice,
argued the cause for appellee. With him on the brief were
Gregory G. Katsas, Acting Assistant Attorney General, Jeffrey
A. Taylor, U.S. Attorney, and Michael S. Raab, Attorney. R.
Craig Lawrence, Assistant U.S. Attorney, entered an
appearance.

Charles M. English Jr. was on the brief for amici curiae
Dairy Institute of California, et al. in support of appellee.
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Before: ROGERS, TATEL, and KAVANAUGH, Circuit Judges.

Opinion for the Court by Circuit Judge ROGERS.

ROGERS, Circuit Judge: Hein and Ellen Hettinga, owners of
Sarah Farms, and co-owners with their son Gerben of GH Dairy,
appeal the dismissal of their complaint challenging the
constitutionality of two amendments to the Agricultural
Marketing Agreement Act (“AMAA”). The Hettingas alleged
that the amendments, which subjected certain large producer-
handlers of milk to contribution requirements applicable to milk
handlers, were invalid as a bill of attainder and a violation of
equal protection and due process. The question on appeal is
whether the Hettingas were required to exhaust administrative
remedies before filing suit against the United States. We hold
that exhaustion was neither jurisdictionally nor prudentially
required. The plain text of the exhaustion requirement in the
AMAA does not apply to constitutional challenges to the
AMAA itself, as distinct from challenges to regulatory orders
and attendant obligations. Because the Hettingas’ objections do
not involve an alleged defect in a marketing order and the
Secretary lacks the power to provide a remedy, requiring
exhaustion as a prudential matter would not protect
administrative agency authority or advance judicial efficiency.
Accordingly, we reverse.

I.

The milk business is highly regulated by the Secretary of
Agriculture pursuant to the AMAA, 7 U.S.C. §§ 601-674. See
Edaleen Dairy, LLC v. Johanns, 467 F.3d 778, 779 (D.C. Cir.
2006). The Secretary issues milk marketing orders that regulate
payments made from milk handlers (processors and distributors)
to milk producers (farmers). Id. In order to protect producers
from variations in prices, handlers are required to pay into a pool
 3

for milk bought from producers; the funds in the pool are
distributed on a pro rata basis to the producers. Id.; Block v.
Cmty. Nutrition Inst., 467 U.S. 340, 341-43 (1984).

Until 2005, the Secretary had exempted “producer-
handlers” — i.e., dairy farms that produce, process, and
distribute milk within a single vertically-integrated operation —
from the pooling requirements and pricing restrictions of milk
marketing orders. See Edaleen Dairy, 467 F.3d at 780. This
gave market power to the producer-handlers who could afford
to undercut the prices charged by participants in the pooling
system, but most producer-handlers were small family
operations that had little effect on the market. Id. Some
producer-handlers grew quite large, however, and the Secretary
initiated a formal rulemaking to determine whether to change
the status of producer-handlers in two regions, including the
Arizona-Las Vegas marketing area in which Sarah Farms is
located. Id. As a result, in 2006 the Secretary promulgated a
rule requiring producer-handlers that produced 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.; Milk in the
Pacific Northwest and Arizona-Las Vegas Marketing Areas:
Order Amending the Orders, 71 Fed. Reg. 9430 (Feb. 24, 2006)
(codified at 7 C.F.R. §§ 1124.10, 1124.71, 1131.10, 1131.71).

Sarah Farms is a producer-handler. Its owners, the
Hettingas, are also partners with their son, Gerben, in GH Dairy,
a handler dairy in Arizona that sells milk exclusively in
California. On March 15, 2006, the Hettingas sought an
injunction from the district court in the Northern District of
Texas against enforcement of the new rule, alleging that it was
arbitrary and capricious and that the Secretary lacked authority
over producer-handlers that sell only milk produced from their
own cows. Another large producer-handler sought an injunction
 4

from the district court of the District of Columbia, alleging the
Secretary lacked authority to promulgate the rule, and on appeal
this court held the producer-handler must first exhaust
administrative remedies. Edaleen Dairy, 467 F.3d at 783.
Before the Texas district court heard arguments in the Hettingas’
case, Congress amended the AMAA.

The Milk Regulatory Equity Act of 2005, Pub. L. No. 109-
215, 120 Stat. 328 (2006) (codified at 7 U.S.C. § 608c)
(“MREA”), 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 like GH Dairy that are located in the
marketing area and sell milk to areas that are unregulated by
marketing orders, such as California. 7 U.S.C. § 608c(5)(M),
(N), note (2006) (“the Amendments”).1 On September 22, 2006,

1
The MREA amended section 608c(5) of the AMAA to add,
as relevant here, subparagraphs M and N. Subparagraph M,
“Minimum Milk Prices for Handlers,” provides:

(i) Application of minimum price requirements. –
Notwithstanding any other provision of this section,
a milk handler described in clause (ii) shall be subject
to all of the minimum and uniform price requirements
of a Federal milk marketing order issued pursuant to
this section applicable to the county in which the
plant of the handler is located, at Federal order class
prices, if the handler has packaged fluid milk product
route dispositions, or sales of packaged fluid milk
products to other plants, in a marketing area located
in a State that requires handlers to pay minimum
prices for raw milk purchases.

Exempted from Clause (i): is
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the Hettingas filed a complaint in the district court here alleging
that the Amendments are unconstitutional as a bill of attainder
and a denial of due process and equal protection because only
the Hettingas are subject to them. The district court dismissed
the complaint for lack of subject matter jurisdiction upon ruling
that “any challenge to the validity of the [Amendments] is
essentially a challenge to [an] order by the Secretary,” and the
Hettingas were therefore required to exhaust administrative
remedies. Hettinga v. United States, 518 F. Supp. 2d. 58, 61
(D.D.C. 2007). The Hettingas appeal, and our review is de
novo. Munsell v. Dep’t of Agric., 509 F.3d 572, 578 (D. C. Cir.
2007).

II.

Parties have long been required to exhaust administrative
remedies before seeking relief from federal courts, McCarthy v.

(II) a producer-handler . . . for any month during
which the producer-handler has route dispositions,
and sales to other plants, of packaged fluid milk
products equally less than 3,000,000
pounds of milk . . . .

Subparagraph (N) provides:

Notwithstanding any other provision of this section,
no handler with distribution of Class I milk products
in the marketing area described in Order No. 131
shall be exempt during any month from any
minimum price requirement established by the
Secretary under this subsection if the total
distribution of Class I products during the preceding
month of any such handler’s own farm production
exceeds 3,000,000 pounds.
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Madigan, 503 U.S. 140, 144-45 (1992), either as a matter of
congressional command or to protect the authority of the agency
and to promote judicial efficiency, id. at 145. “Where Congress
specifically mandates, exhaustion is required. But where
Congress has not clearly required exhaustion, sound judicial
discretion governs.” McCarthy, 503 U.S. at 144 (1992)
(citations omitted). “Whether a statute is intended to preclude
initial judicial review is determined from the statute’s language,
structure, and purpose, its legislative history, and whether the
claims can be afforded meaningful review.” Thunder Basin
Coal Co. v. Reich, 510 U.S. 200, 207 (1994) (citation omitted).

Where exhaustion is required, there still is a separate
question whether the requirement is jurisdictional, and thus non-
waivable, or non-jurisdictional. In Avocados Plus Inc. v.
Veneman, 370 F.3d 1243 (D.C. Cir. 2004), this court, in
observing that the distinction between jurisdictional and non-
jurisdictional exhaustion “is purely a question of statutory
interpretation,” id. at 1247, set a high bar for determining that a
statute requiring exhaustion is jurisdictional: “In order to
mandate exhaustion, a statute must contain ‘“[s]weeping and
direct” statutory language indicating that there is no federal
jurisdiction prior to exhaustion, or the exhaustion requirement
is treated as an element of the underlying claim.’” Id. at 1248
(quoting Weinberger v. Salfi, 422 U.S. 749, 757 (1975)). This
court will “presume exhaustion is non-jurisdictional unless
Congress states in clear, unequivocal terms that the judiciary is
barred from hearing an action until the administrative agency
has come to a decision.’” Id. (quoting I.A.M. Nat’l Pension
Fund Benefit Plan C v. Stockton Tri Indus., 727 F.2d 1204, 1208
(D.C. Cir. 1984)).

Prudential exhaustion, in turn, “serves the twin purposes of
protecting administrative agency authority and promoting
judicial efficiency.” McCarthy, 503 U.S. at 145. Prudential
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exhaustion is not required where: (1) it would occasion undue
prejudice to subsequent assertion of a court action, for example
through excessive delay; (2) an agency may not be empowered
to grant relief, for example “because it lacks institutional
competence to resolve the particular type of issue presented,
such as the constitutionality of a statute” or because “an agency
may be competent to adjudicate the issue presented, but still lack
authority to grant the type of relief requested”; or (3) the agency
is biased. Id. at 146-49.

A.
2
Section 608c(15)(A) of the AMAA imposes a mandatory
administrative exhaustion requirement on milk handlers
“seeking to challenge the provisions of a milk marketing order.”
Edaleen Dairy, 467 F.3d at 782; see Block, 467 U.S. at 343;
United States v. Ruzicka, 329 U.S. 287 (1946). There is no
similar requirement for producers because the AMAA affords
them no administrative remedy. See Stark v. Wickard, 321 U.S.
288, 309 (1944); see also Ruzicka, 329 U.S. at 295. Where a
producer-handler sues in its capacity as a handler, as it does in
challenging the Secretary’s order subjecting it to price-pooling
obligations, it must exhaust. Edaleen Dairy, 467 F.3d at 783.
Thus, were the Hettingas challenging the Secretary’s milk
marketing order for the Arizona-Las Vegas area, they would be

2
The AMAA provides in relevant part:

(A) Any handler subject to a[] [milk marketing] 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 praying for a modification thereof or to
be exempted therefrom.

7 U.S.C. § 608c(15)(A).
 8

required to exhaust administrative remedies before filing a
lawsuit challenging those orders. Block, 467 U.S. at 346;
Ruzicka, 329 U.S. at 290; Edaleen Dairy, 467 F.3d at 782. The
Hettingas’ complaint, however, is directed at the Amendments
to the AMAA, not a milk marketing order. The complaint
alleges that “[t]he MREA, as adopted, contained provisions that
singled out and punished the Hettingas,” citing subparagraphs M
and N. Compl. ¶ 27.

The government advances two arguments that the Hettingas
are nonetheless challenging a milk marketing order rather than
the MREA, but neither is persuasive. First, the government
maintains that only such orders, and not the MREA, impose
affirmative obligations to pay fees. The MREA, in fact,
provides that large producer-handlers located in states regulated
by milk marketing orders that sell milk in unregulated states
“shall be subject” to the price and pooling obligations of the
marketing orders. 7 U.S.C. § 608c(5)(M). It further provides
that “no” large producer-handler in Arizona “shall be exempt”
from the relevant milk marketing order. Id. § 608(5)(N). The
price and pooling obligations for large handlers in the Arizona-
Las Vegas milk marketing area preexisted enactment of the
MREA, and the MREA imposed those obligations on large
producer-handlers. To suggest, as the government offers, that
the MREA does not subject formerly exempt producer-handlers
to such obligations ignores the inexorable consequences of the
Amendments. The district court suggested that those
consequences are not inexorable because the Secretary could
relieve such obligations for the entire milk marketing area by
terminating the relevant order. Putting aside the unrealistic
nature of the premise, the Secretary could only repeal the
marketing order upon determining it no longer tends to
effectuate the policy of the AMAA. See 7 U.S.C. § 608c(4).
There is nothing to indicate that the Secretary considers the
marketing order to have outlived its purpose. Instead the
 9

Secretary’s promulgation of a rule abolishing prior exemptions
is consistent with imposing the marketing order obligations on
more producers, not fewer. In any event, the Hettingas are not
asserting that the marketing order is not effective in most
instances, only that they should be exempted from it. Under the
MREA, the Secretary no longer has authority to provide such an
exemption. It follows that the Hettingas are challenging
provisions of the MREA amending the AMAA and not the
underlying marketing order.

Second, the government maintains the MREA requires
implementation by the Secretary in order to become effective,
and therefore the Hettingas are challenging the Secretary’s
administrative action in effecting this implementation, rather
than provisions of the MREA. Section 2(d) of the MREA
provides:

EFFECTIVE DATE AND IMPLEMENTATION. —
The amendments made by this section take effect on
the first day of the first month beginning more than 15
days after the date of the enactment of this Act. To
accomplish the expedited implementation of these
amendments, effective on the date of the enactment of
this Act, the Secretary of Agriculture shall include in
the pool distributing plant provisions of each Federal
milk marketing order . . . a provision that a handler
described in subparagraph (M) of such section . . . will
be fully regulated by the order in which the handler's
distributing plant is located.

7 U.S.C. § 608c note. As an initial matter, the MREA only
requires addition of “a provision” in marketing orders with
regard to subparagraph (M), not subparagraph (N), which the
Hettingas also challenge. More importantly, section 2(d) does
not demonstrate that to become effective the MREA requires the
 10

Secretary first to issue an order. Instead, its text provides that
the MREA took effect on a precise date shortly after its
enactment. Id. Congress included the requirement that the
Secretary add “a provision” to marketing orders making clear
that large producer-handlers are subject to the orders in order to
“accomplish the expedited implementation of the[]
amendments,” and not to make those amendments take effect.
Id. Hence, the statutory text does not suggest the MREA has no
force and effect on its own. Rather, section 2(d) reflects that
large producer-handlers were automatically subject to the
marketing order on a date certain, and that the Secretary was to
ensure the rapid and smooth implementation of the MREA by
making clear to affected parties the obligations created by
operation of law upon enactment of the MREA.

Although the AMAA exhaustion requirement is mandatory,
see Block, 467 U.S. at 344; Ruzicka, 329 U.S. at 290, and the
court has refused to excuse it, see Edaleen Dairy, 467 F.3d at
782, the court has never decided whether exhaustion is a
jurisdictional requirement inexcusable under any circumstances
or merely a mandatory requirement inexcusable under most. See
generally Munsell, 509 F.3d at 579. The court’s opinion in
Avocados Plus, 370 F.3d at 1248-50, holding that similar text in
a different statute failed to create a jurisdictional requirement,
perhaps suggests that AMAA exhaustion is best described only
as mandatory and not as something more. We need not reach
that question, however, because it is clear that the AMAA does
not create a jurisdictional exhaustion requirement for challenges
to the AMAA itself.

The AMAA’s exhaustion requirement, supra n.2, plainly
is aimed only at marketing orders and attendant obligations, not
at challenges to the statute. The government’s suggestion that
the MREA is an “obligation imposed in connection” with an
order is resourceful but unpersuasive. The context of the
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reference to “any obligation imposed in connection” with
marketing orders indicates Congress was referring to obligations
imposed by the Secretary in the marketing orders, not a more
general statutory obligation to be subject to such administrative
orders. In Ruzicka, 329 U.S. at 289, for example, a handler
challenged the amount set by an order of the Secretary directing
payment into the producer settlement fund, according to terms
in a marketing order, as distinct from a challenge to the
marketing order itself. That is the situation captured by the
phrase “obligation imposed in connection” with a milk
marketing order. By contrast, the Hettingas challenge 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.
Because the AMAA’s exhaustion requirement does not apply to
such statutory challenges “in clear, unequivocal terms,”
Avocado Plus, 370 F.3d at 1248, the Hettingas’ constitutional
challenges to the Amendments were not subject to exhaustion as
a jurisdictional matter.

B.
Whether exhaustion should be required as a prudential
matter depends on “the structure of the statutory scheme, its
objectives, its legislative history, and the nature of the
administrative action involved.” Block, 467 U.S. at 345.
Moreover, “[n]otwithstanding [the institutional interests in
exhaustion], federal courts are vested with a ‘virtually
unflagging obligation’ to exercise the jurisdiction given them.”
McCarthy, 503 U.S. at 146 (quoting Colorado River Water
Conservation Dist. v. United States, 424 U.S. 800, 817-818
(1976)).

Requiring exhaustion of the Hettingas’ statutory challenges
would neither “protect[] administrative agency authority” nor
“promot[e] judicial efficiency.” Id. at 145. As the Supreme
 12

Court has observed, 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. at 147-48.
Both conditions apply here. The Secretary lacks the power
either to declare provisions of the MREA unconstitutional, or to
exempt the Hettingas from the requirements of the milk
marketing order as imposed by the MREA. A constitutional
challenge to a statute “has generally been thought beyond the
jurisdiction of administrative agencies,” even if courts have
sometimes made exceptions to that rule. Thunder Basin, 510
U.S. at 215. Although the government suggests administrative
proceedings would provide the court with the benefit of the
Secretary’s expertise in the technical arena of milk pricing and
develop an appropriate administrative record, it is unclear what
benefit the Secretary could provide. The Hettingas’ complaint
relies on the structure of the MREA and its legislative history.
The discrete factual question of whether other parties are subject
to the Arizona-Las Vegas marketing order could as easily be
addressed in the district court. And whatever insight the
Secretary could provide regarding how the MREA furthers the
AMAA’s purposes does not directly address Congress’s goals
in enacting the MREA.

A remand for the district court to conduct the “intensely
practical” balancing inquiry outlined in McCarthy is
unnecessary, for unlike in Avocados Plus and the cases it cited,
370 F.3d at 1251 (citing Montgomery v. Rumsfeld, 572 F.2d 250,
254 (9th Cir 1978); Ogden v. Zuckert, 298 F.2d 312, 317 (D.C.
Cir. 1961)), the issue of exhaustion has been briefed by the
parties and the suggestions favoring exhaustion are
unpersuasive. Accordingly, we reverse and remand the case to
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the district court for further proceedings on the Hettingas’
complaint.