United States of America, Plaintiff-appellant, v. Lamars Dairy, Inc., et al., Defendants-appellees, 500 F.2d 84 (7th Cir. 1974)

This appeal from the denial of plaintiff's motion for summary judgment is before the court as an appeal from an interlocutory order under 28 U.S.C. 1292(b).

Pursuant to the Agricultural Adjustment Act, 7 U.S.C. 601 et seq., the Secretary of Agriculture promulgated Federal Milk Order No. 30, 7 C.F.R. Part 1030. From the effective date of the order in 1968 until sometime in 1971, defendants made payments into the producer settlement fund. The federal milk market administrator thereafter determined that defendants were 'handlers'¹  and were in violation of the order by refusing to make payments into the fund.

On August 28, 1972, the United States brought suit to enforce the order under the authority of 7 U.S.C. 608a(6).²  Defendants answered the complaints with several affirmative defenses based on constitutional claims and an additional defense that the administrator had incorrectly determined them to be handlers. Plaintiff moved for summary judgment.

The district judge denied the motion because he believed there was a material issue of fact involving defendants' classification as handlers.

The definitive interpretation of the Agricultural Adjustment Act's enforcement scheme is the Supreme Court's opinion in United States v. Ruzicka, 329 U.S. 287, 67 S. Ct. 207, 91 L. Ed. 290 (1946). The Rezuckas defended against a 608a(6) suit on the ground that the administrator's inspection of their accounts and tests of their products had been faulty and improper. The Supreme Court held that a defendant could not resist a claim under 608a(6) without having pursued its administrative remedies and judicial review of the administrative decision under 608c(15).³ 

Lower courts almost without exception have followed Ruzicka by refusing to allow 608a(6) defendants to raise any issues-- even constitutional challenges-- that have not been tried in 608c(15) proceedings.⁴ 

Defendants attempt to distinguish their case from Ruzicka on the ground that the Ruzickas admitted they were handlers, while defendants do not. Other courts have rejected such a distinction. United States v. Country Lad Foods, Inc., 327 F. Supp. 395 (N.D. Ga. 1971); United States v. Sterling Davis Dairy, 18 A.D. 780 (D.N.J. 1959); United States v. Hinman Farms Products, Inc., 156 F. Supp. 607 (N.D.N.Y.1957). The many reasons listed in Ruzicka for the necessity of administrative exhaustion apply as strongly to a defense of incorrect classification as to a defense of improper inspection of accounts.

There are only two cases where a judge denied or postponed the granting of a 608a(6) injunction without exhaustion under 608c(15). One is United States v. Tapor-Ideal Dairy Co., 175 F. Supp. 678 (N.D. Ohio 1959). The defendant allegedly owed money not to a marketing pool but directly to a cooperative. Its defense was accord and satisfaction, since the cooperative had accepted a check tendered by defendant as payment in full. The judge said he could decide issues 'so long as they are strictly of a legal nature, require no special understanding of the milk industry, and the assumption of jurisdiction would not hinder or adversely affect the orderly administration of the program.' 175 F. Supp. at 682. None of the above characterizations is true of defendants' claim that they are not handlers.

The second case is actually a series of cases under the name United States v. Brown. The first opinion appears at 211 F. Supp. 953 (D. Colo. 1962). Defendants denied they were handlers because they 'owned' 10 percent of their producers' cows. The district court postponed ruling on the government's motion for summary judgment to allow defendants to begin proceedings under 608c(15). The court again postponed adjudication during pending administrative proceedings at 217 F. Supp. 285 (D. Colo. 1963), aff'd, 331 F.2d 362 (10th Cir. 1964). The judge expressed the opinion that the Secretary was not entitled to injunctive relief because defendants' status as handlers was a matter of considerable doubt. Finally the Secretary ruled that defendants were handlers. The district judge consolidated the 608c(15) (B) review with the 608a(6) suit and agreed with the Secretary that defendants were subject to the order. 23 A.D. 1323 (D. Colo. 1964), aff'd, 367 F.2d 907 (10th Cir. 1966), cert. denied, 387 U.S. 917, 87 S. Ct. 2028, 18 L. Ed. 2d 969 (1967).

The Brown cases illustrate the folly of deviating from the statutory enforcement scheme under the Agricultural Adjustment Act. The same district judge who had so many doubts as to the applicability of the Act to defendants became totally convinced defendants were handlers, once he had the benefit of the Secretary's opinion. Meanwhile, years passed without defendants' paying into the fund.

The only forum open to defendants for adjudication of their affirmative defenses is a hearing before the Secretary of Agriculture under 608c(15). The district judge erred in considering those defenses in the 608a(6) proceeding. Therefore the order of the district court is vacated and the case is remanded for further proceedings.

Vacated and remanded.