NORTHEAST DAIRY COMPACT COMMISSION

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In re Petition of Turner’s Dairy, Inc. ) Docket Number HEP-98-010

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1. Findings of Fact:

The Northeast Dairy Compact Commission, having received and considered the Original Proposed Findings of Fact, Conclusions of Law, and Decision of the Hearing Panel, the Petitioner’s Response dated November 16, 1998, and the Final Proposed Findings of Fact, Conclusions of Law and Decision of the Hearing Panel, and the record developed in the proceedings, finds and, pursuant to 7 C.F.R. § 1381.4(d), takes official notice of the following facts:

II. Conclusions of Law:

Petitioner submitted a complete petition for exemption from the Compact Over-order Price Regulation on August 11, 1998. (footnote 6) Petitioner seeks an exemption from the Compact Over-order Price Regulation for the milk it sold to schools during the 1997-1998 school year pursuant to competitive bids it submitted in May 1997 and also for the milk it sold to the Rockingham County Nursing Home between July 1997 and May 1998. (footnote 7)

Under the Handler Exemption Procedures, 7 C.F.R. Part 1381, Petitioner has the burdens of production and persuasion (footnote 8) to prove that "any order, Compact over-order price or administrative assessment, or any provision of such order or assessment, or any obligation imposed in connection therewith is not in accordance with law." 7 C.F.R. § 1381.2. Petitioner states in his petition that the Over-order Price Regulation is not in accordance with law because the Compact, Senate Joint Resolution 28, "was designed to establish an over-order price to be paid to the farmers" and that "[i]n doing so it has cost Turner’s Dairy, Inc. $23,534.56 ..." (footnote 9) The Commission must analyze the evidence in the record in light of Petitioner’s argument to assess whether the Petitioner has met its burden.

Petitioner makes no reference to a specific provision of the Compact in support of its argument. Petitioner presented no evidence in support of its argument that the operation of the Compact Over-order Price Regulation is not in accordance with the Compact. Therefore, the Commission concludes that Petitioner has met neither the burden of production, nor the burden of persuasion, and further concludes that there is no provision in the Compact, Senate Joint Resolution 28, that prohibits the application of the Over-order Price Regulation to Turner’s Dairy, Inc. which is a pool plant and a handler of fluid milk products.

Petitioner did submit evidence of bids and awards of school milk contracts for the 1997-98 school year, as well as the Rockingham County Nursing Home, to arrive at the sum it asserts the Over-order Price Regulation has cost Turner’s Dairy, Inc. At the hearing on September 2, 1998, Petitioner argued that it was not notified of the Compact Over-order Price Regulation until after it had submitted the bids to the schools and the nursing home. Petitioner asserts that it should therefore be exempted from the price regulation for all milk sold to the nursing home and during the school year pursuant to the contracts awarded based on those bids.

Petitioner further argues that application of the Compact Over-order Price Regulation to existing contracts constitutes an impermissible retroactive regulation, because it did not have actual notice of the final rule until June 1997. Petitioner also argues that previous over-order pricing regulations, implemented by agencies other than the Northeast Dairy Compact Commission, allowed a processor not to pay on any contracts made prior to the effective date of the pricing regulation. Petitioner asserts that it therefore assumed that the Compact Over-order Price Regulation would have a similar provision and that it relied on that assumption in setting its bid prices in May 1997.

The Commission first addresses the rulemaking and notice issues raised by Petitioner. The Compact Over-order Price Regulation was promulgated pursuant to the informal rulemaking procedures of the federal Administrative Procedure Act, 5 U.S.C. § 553. Public notice of the rulemaking proceedings, public hearings and comment periods and the proposed and final rules were all duly published in the Federal Register. (footnote 10) Publication in the Federal Register "is sufficient to give notice of the contents of the document to a person subject to or affected by it" and creates a rebuttable presumption that the document was properly promulgated. 44 U.S.C. §1507.

The Commission notes that Donald H. Turner, President, Turner’s Dairy, Inc. appeared and testified at the rulemaking public hearing on December 19, 1996 and thus, concludes that Petitioner had actual notice of the pending rulemaking proceedings. The Commission also takes official notice of the publication on April 28, 1997, in the Federal Register, of the proposed Compact Over-order Price Regulation in the amount of $16.94 per hundredweight. 62 Fed. Reg. 23032 (April 28, 1997).

Petitioner argued that it did not include the Compact Over-order Price Regulation in the bid prices it submitted in the month of May 1997, because the rule was not yet final. It further argued that many of the schools, and the nursing home, refused to pay this sum and therefore, the Compact Commission should exempt it from the price regulation. Petitioner did submit documentation of the bids and the refusal of the schools, and the nursing home, to pay the additional sum when billed by Petitioner in May 1998.

The Commission does not find this argument to be persuasive. Petitioner testified that it had attempted to include the potential Compact Over-order Price Regulation in a bid for the 1996-97 school year, and that bid was not accepted. Petitioner therefore concluded that to do so in the future could mean that its bid would also not be accepted and testified that this was a consideration in setting the bid prices in May 1997.

Petitioner submitted evidence that, in a May 30, 1997 bid, it did include the statement that the bid would be subject to any Over-order premium. This document demonstrates that Petitioner could, and would, protect itself in the event an Over-order premium was established, when it determined that was in its interest in the competitive bid process. However, Petitioner also testified that even though this provision was included in the bid, that it did not collect the Over-order premium from that school. The only attempt to collect the premium was a letter dated May 28, 1998. Petitioner also testified that there were public relations considerations involved and they chose not to take any further action to enforce that aspect of the contract.

Petitioner also had the opportunity to adjust a bid price in July 1997, after the Compact Over-order Price Regulation became effective, and chose not to do so in order to secure the school contract. Petitioner testified that they needed the business and that they were concerned the school would go back out to bid if it altered its bid price, even though it was fully aware of the Compact Over-order obligation at that time.

The Commission emphasizes that the Compact Over-order Price Regulation was duly promulgated pursuant to an informal and public rulemaking process. All milk vendors, who participated in the school milk competitive bid process in which Petitioner submitted its bids, had access to the same information regarding the price regulation.

The Commission concludes that Petitioner was duly notified of the Compact Over-order Price Regulation and that any decisions Petitioner made regarding the bid prices submitted in May 1997 were made for competitive, business purposes.

Petitioner also argued at the September 2, 1998 hearing that other over-order price regulations, with which it was familiar, had provisions that exempted existing contracts. Petitioner therefore assumed that the Compact Over-order Price Regulation would contain a similar provision. Petitioner asserts that since the regulation did not make such a provision, the Commission should reimburse it for costs incurred as a result of its reliance on that assumption.

The Commission does not find this argument to be persuasive. The Compact Commission published on April 28, 1997 notice of the proposed Over-order Price Regulation. 62 Fed. Reg. 23032-23063 (April 28, 1997). In those thirty-one pages of discussion, analysis, findings and proposed regulatory language, there is no mention of a proposed provision to exempt existing contracts from the price regulation. The public notice and comment proceedings are provided for the express purpose of obtaining public participation in the development of regulations. It is the duty of those interested to participate in the rulemaking proceedings and make their concerns known to the administrative agency. A person who has notice of a rulemaking proceeding, an interest in the outcome and the ability to participate in that proceeding must participate to preserve the right to raise the concerns in a subsequent adjudicative challenge to the rule. (footnote 11)

The Commission concludes that Petitioner demonstrated his ability to participate in the rulemaking through his appearance at the December 19, 1996 public hearing and that it had sufficient notice that the Price Regulation would not contain an exemption for existing contracts, as no such provision was published in the April 28, 1997 proposed rule. Therefore, the Commission concludes that there is no basis on which to grant Petitioner’s request for an exemption based on its argument that it acted according to its own assumption and on information not presented to the Commission in the then pending rulemaking proceeding.

Finally, Petitioner argued at the September 2, 1998 hearing that the Compact Over-order Price Regulation constitutes a retroactive rule (footnote 12) as applied to the contracts awarded to it pursuant to competitive bids submitted in May 1997. Petitioner argues that, even though the Commission had published a proposed Over-order Price Regulation in the amount of $16.94 on April 28, 1997, that it was justified in setting its bid prices for the 1997-98 school year based on its anticipated milk costs, not including a Compact premium. The test of retroactivity includes the "familiar considerations of fair notice, reasonable reliance, and settled expectations." (footnote 13) The Commission concludes that Petitioner received fair notice of the Over-order Price Regulation and that Petitioner’s decision to ignore the pending rulemaking proceeding and announced proposed price of $16.94 in setting its bid prices in May 1997, and choosing not to make a provision in the bids for a price adjustment if the Compact Price Regulation became effective during the next school year, does not constitute "reasonable reliance." Further, Petitioner could have no reasonable settled expectations that the Compact Commission would not promulgate an Over-order Price Regulation during the 1997-98 school year. As discussed above, the Commission concludes that Petitioner made business decisions in order to secure the school milk contracts and that the promulgation of the Compact Over-order Price Regulation provided Petitioner with proper notice and opportunity to participate, as required by law.

III. Decision:

Based on the above findings of fact and conclusions of law, the Commission orders that Petitioner’s request for an exemption from the regulation for milk sold to schools in the 1997-98 school year and the Rockingham County Nursing Home is denied.

Entered this 20^th day of November, 1998.

IT IS SO ORDERED

For the Commission

Michael A. Wiers, Chair

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Footnotes:

1. In its response to the Proposed Findings of Fact, Conclusions of Law and Decision of the Hearing Panel ("petitioner's response"), petitioner agrees that he appeared at the Commission's rulemaking hearing on December 19, 1996. Petitioner also alleges that a particular dollar amount was discussed. The Hearing Panel finds that petitioner's response is consistent with the proposed findings of fact in that it is undisputed that petitioner was aware of and actively participated in the Commission's rulemaking proceedings in December 1996 that resulted in the promulgation of the Over-order price regulation, 7 C.F.R. Chapter 1300.

2. It is assumed that petitioner's response to paragraph 7 is meant to respond to paragraph 8. In its response, petitioner notes that the Market Administrator's notice of June 5, 1997 announces a total Over-order obligation of $3.055 for July 1997. A copy of the Market Administrator's price announcement on June 5, 1997 is a part of the record at exhibit I-B and indicates a total Over-order obligation of $3.045 for July 1997. With this technical correction, the Hearing Panel finds that petitioner's response is consistent with the proposed findings of fact regarding petitioner's receipt, on June 5, 1997, of the Market Administrator's price announcement of the Compact Over-order obligation amount in july 1997.

3. In its response, petitioner raises the same points raised at the hearing regarding the proposed findings in paragraphs 9, 10, 11, 12 and 13. The Hearing Panel finds that these points are not inconsistent with the proposed findings of fact.

4. Includes Beverly, Danvers, Essex, Hamilton/Wenham, Manchester-by-the-Sea, Middleton, Rockport, St. Mary, Topsfield/Boxford.

5. In its response, petitioner alleges that the Rocking ham County Nursing Home milk contract was awarded in April 1997. Petitioner did submit some documents relative to this bid, at exhibit I-C. With the exception of these documents, the petition and all of the arguments and exhibits submitted by petitioner focus on the school milk contracts. It is unclear from the documents submitted when the bids were due or the date the contract was awarded. Several May 1997 dates appear on the documents.

6. Petitioner submitted an initial request for relief from the Over-order Price Regulation on May 8, 1998, which was subsequently supplemented with additional submissions on july 22, 1998, July 29, 1998 and August 11, 1998. These submissions, taken together, complete the petition requirements of 7 C.F.R. § 1381.3.

7. See, Transcript ("Tr.") at 17 and petitioner's response to the Hearing Panel's Proposed Findings of Fact, Conclusions of Law and Decision.

8. See, Environmental Defense Fund v. EPA, 548 F.2d 998 (D.C.Cir.1976), cert. denied, 409 U.S. 1027 (1978); McCormick on Evidence (2^nd edition), p.785.

9. Petitioner reiterates this argument in its November 16, 1998 response.

10. The publication citations are included in Finding of Fact 5.

11. Natural Resources Defense Council v. Thomas, 805 F.2d 410 (D.C. Cir. 1986); Vermont Yankee Nuclear Power Corporation v. Natural Resources Defense Council, 435 U.S. 519, 98 S.Ct. 1197, 55 L.Ed. 2d 460 (1978).

12. Petitioner submitted a legal dictionary definition of the phrase ex post facto, which the Hearing Panel notes prohibits retroactive application of penal legislation. Landgraf v. USI Film Products, 511 U.S. 244, 114 S.Ct. 1483, 128 L.Ed.2d 229 (1994).

13. Landgraf v. USI Film Products, 511 U.S. 244, 114 Ct. 1483, 128 L.Ed. 2d 229 (1994).