financial interest in the fund or its use, there was no forum in which the Secretary's actions regarding administration of the fund could be challenged. Therefore, judicial review of the producers' complaint was necessary to "ensure achievement of the Act's most fundamental objectives--to wit, the protection of the producers of milk and milk products." Block v. Community Nutrition Inst., 467 U.S. 340, 352, 104 S.Ct. 2450, 81 L.Ed.2d 270 (1984).

In Community Nutrition, the Court further addressed the issue of standing. The case presented the question of whether consumers of dairy products may obtain judicial review of milk market orders. The Court held that consumers may not obtain judicial review because the AMAA did not intend to cover consumer participation. "The Act contemplates a cooperative venture [only] among the Secretary, handlers, and producers." Id. at 346, 104 S.Ct. 2450. Allowing consumer participation would only disrupt the administrative scheme. Id. at 347-48, 104 S.Ct. 2450. The Court noted that unlike in Stark the "preclusion of consumers will not threaten realization of the fundamental objectives of the statute," i.e., the protection of the producers of milk and milk products. Id. at 352, 104 S.Ct. 2450.

D. Pescosolido v. Block

Our circuit has read Stark and Community Nutrition to provide a narrow exception for producers seeking judicial review. In Pescosolido v. Block, 765 F.2d 827 (9th Cir.1985), we held that Stark "is limited to situations in which producers claim that some 'definite personal right' granted by the statute is being infringed by the Secretary acting outside the scope of his delegated authority, with no handler having standing to protest." Id. at 832. In discussing the last phrase involving the standing of handlers, this court reasoned that Stark allowed producers to sue only where their interests were not represented by those of handlers, i.e. where handlers would have no interest and would, therefore, not challenge the Secretary's actions. Id. This reading is consistent with the Supreme Court's holding in Community Nutrition, where the Court considered the interests of the parties involved and found that consumers' interests are similar to those of handlers and that, therefore, actions affecting consumers would also affect handlers who would take steps to challenge those decisions.

We find that the record here supports the district court's holding that the producers are precluded from seeking judicial review because their interests are adequately represented by the handlers. As the district court noted, the exemption injures producers by reducing the blend price and it injures handlers by providing a competitive advantage to producer-handlers. A letter addressed to the Dairy Division Director, Richard McKee, by the law firm representing

61 Agric. Dec. 1

UDA, Shamrock Farms, Shamrock Foods, and Agri-Mark, Inc., supports this conclusion. The pertinent part of the letter states:

With the expansion of producer-handler distribution into channels of commerce in direct competition with fully regulated handlers, it is apparent that handlers adversely affected by significant producer-handler competition are no longer willing to accept minimum pricing regulation under a system from which one or more of their major competitors are exempt. Producers who are the intended beneficiaries of the regulatory system are also affected by the exemption. Expansion of the producer-handler share of the market's Class I sales not only reduces producer returns; it poses the long-term threat of a breakdown of the regulatory system.

While legislative history may support exemption from pricing and pooling of producer-handlers who qualify as "small businesses” with a de minimus effect on the market, legislative history cannot be invoked to overcome the command of § 8c(5)(C) of the AMAA which requires that the minimum pricing and pooling provisions of the orders be applied to all “handlers (including producers who are also handlers)." We have previously brought to the attention of the Dairy Division judicial decisions which confirm the authority of the Secretary to fully regulate handlers with respect to the marketing of milk of their own production. We believe that those decisions, coupled with equal protection principles of the Constitution, compel the Secretary to extend to producer-handlers the same regulatory obligations as are imposed on other handlers with whom they compete.

It is evident that the distributor (or handler) element of the dairy businesses in this case has a significant interest in pursuing Sara Farms and their exempt status. Unlike in United States v. Rock Royal Co-op., Inc., 307 U.S. 533, 560-61, 59 S.Ct. 993, 83 L.Ed. 1446 (1939), and Stark, the non-exempt handlers here have standing because of their expressed financial interest that is being affected by the dairy division's application of the producer-handler exemption. See Stark, 321 U.S. at 308, 64 S.Ct. 559.

Allowing the plaintiffs in this case to seek judicial review when they are also handlers (such as UDA) or are associated with handlers (such as Shamrock Foods) who have an interest in ensuring that the producer-handler exemption is valid and not unjustly enforced, allows handlers to evade the statutory requirement that they first exhaust their administrative remedies. Such a result would undermine "Congress' intent to establish an equitable and expeditious procedure for testing the validity of orders." Community Nutrition, 467 U.S. at 348, 104 S.Ct. 2450 (internal quotation marks omitted). Even though the Second Circuit in Dairylea reluctantly concluded that Dairylea was a producer that was

not required to exhaust any administrative remedies, it further observed that "[c]onsidering the complicated nature of the provisions of the Act and the labyrinthian regulations issued thereunder, it would be most appropriate for Dairylea's complaint to be considered first by the Secretary, who possesses the facilities and the expertise to review and interpret the Act and regulations herein involved." 504 F.2d at 82. We agree with that assessment of the Act. This case is the perfect example of when a party should first exhaust administrative remedies before judicial review.

Appellants note that other circuits have allowed producers to seek judicial review. See Minnesota Milk Producers Ass'n v. Madigan, 956 F.2d 816 (8th Cir.1992); Farmers Union Milk Mktg. Coop. v. Yeutter, 930 F.2d 466 (6th Cir.1991) (involving a location adjustment amendment to a milk marketing order that created a fight between two different groups of dairy farmers). These courts have held that an examination of the overall structure of the Act is necessary to determine if judicial review is necessary. See, e.g., Minnesota Milk Producers, 956 F.2d at 818. In Minnesota Milk Producers, the court held that the producers had standing to seek judicial review because the handlers did not have a reason to challenge the Secretary's orders, the producers were asserting a definite, personal right, and the producers did not have authority under the Act to vote for repeal of the orders they were challenging because the orders covered production areas in which they were not producers. Id.

We do not find these circuit cases persuasive based on the facts of our case. Unlike in Minnesota Milk Producers, the non exempt handlers governed by Order 131 have explicitly stated in the letter sent by their counsel to the dairy division that they are affected by the producer-handler exemption and are seeking to challenge the Secretary's application of the exemption. In addition, the producers had the authority to vote for repeal of the order they are challenging. Before any market order may become effective, it must be approved by at least two-thirds of the affected dairy producers. 7 U.S.C. § 608c(8), 608c(5)(B)(i). The Secretary may impose the order without receiving approval of the handlers of at least 50% of the volume of milk covered by the order, but the Secretary cannot proceed with the producers' consent. 7 U.S.C. § 608c(9)(B).

The Supreme Court in Stark allowed the producers to seek judicial review because if it did not there would be no forum--either administrative or judicial--in which the Secretary's actions could have been challenged. 321 U.S. at 309, 64 S.Ct. 559. In this case, unlike in Stark, the Secretary's actions can be challenged in the administrative forum by the handlers who have a financial interest in the manner in which the producer-handler exemption is being applied. The record before us supports this conclusion.

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CONCLUSION

For the reasons stated above, we find that the AMAA precludes Appellants from seeking judicial review of the producer-handler exemption.

STEW LEONARD'S v. USDA.

Docket No. 01-6111.

April 3, 2002.

(Cite as: 32 Fed. Appx. 606).

AMAA-"Producer-Handler."

AFFIRMED.

The U.S. Court of Appeals affirmed the lower court's determination upholding that the Secretary's decision was not arbitrary and capricious in determining that Stew Leonard's did not qualify as a "Producer-Handler" under the Milk Marketing Order. It specifically held that [Stew Leonard's] was not a "dairy farmer" and did not provide "as its own enterprise and its own risk [the means to produce milk.]"

UNITED STATES COURT OF APPEALS,
SECOND CIRCUIT.

Present MCLAUGHLIN, PARKER, and POOLER, Circuit Judges.

SUMMARY ORDER

UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED AND DECREED that the decision of said district court be and it hereby is AFFIRMED.

Petitioner-appellant Stew Leonard's appeals from the decision of the United States District Court for the District of Connecticut (Thomas P. Smith, Magistrate Judge) affirming the determination of the Secretary of Agriculture that Stew Leonard's, a Connecticut milk handler and retailer, did not qualify as a "producer-handler" under the provisions of 7 C.F.R. § 1001.10 (1999) despite its entrance into a lease arrangement with a local milk producer.

After completing review pursuant to 7 U.S.C. § 608c(15)(A), the Secretary determine that Stew Leonard's was a "handler" as defined in 7 C.F. R. § 1001.9, not a "producer-handler" as defined in 7 C.F.R. § 1001.10. Specifically, the Secretary found Stew Leonard's was not a "dairy farmer" and did not provide “as [its] own enterprise and at [its] own risk, the maintenance, care, and management of the dairy herd or other resources and facilities used to produce milk" as required by the language of 7 C.F.R. § 1001.10.

The district court reviewed the Secretary's determinations under the deferential standard outlined in the Supreme Court's Chevron USA, Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984) decision, finding the Secretary's narrow interpretation of the "producer-handler" definition consistent with both the purposes of the regulations and past interpretations thereof, and her application of the regulation to Stew Leonard's supported by substantial evidence. See Stew Leonard's v. Glickman, 199 F.R.D. 48, 55-56, 57-58 (D.Conn.2001). The district court thus concluded that the Secretary's decision was not arbitrary and capricious, but rather "in accordance with the law," within the meaning of the Administrative Procedure Act, 5 U.S.C. § 706(2)(A) & (E). Id. at 60.

This Court notes that the evidence demonstrated no change in the daily operation of Oakridge Farm after the execution of the lease agreement and that Stew Leonard's admitted it did not know how to run a dairy farm. Id. at 57- 58. As noted by the district court, these facts provide substantial evidentiary support for the Secretary's conclusion that Stew Leonard's was not a "dairy farmer" and did not "[p]rovide[] as [its] own enterprise and at [its] own risk the maintenance, care, and management of the dairy herd and other resources and facilities that are used to produce milk." See 7 C.F.R. § 1001.10(a)(1999). Bound by the constraints of deferential review, this Court affirms the district court's decision on the grounds that the Secretary's determination that Stew Leonard's did not fit the narrow definition of "producer-handler" was adequately supported.

This Court affirms the district court's grant of summary judgment on Stew Leonard's due process and equal protection claims for substantially the same reasons stated by the district court. Stew Leonard's, 199 F.R.D. at 60-61.

For the reasons set forth above, the judgment of the district court is AFFIRMED.

HERSHEY FOODS CORPORATION v. USDA
No. 01-5169.

Decided June 18, 2002.

(Cite as: 293 F.3d 520).