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From Antitrust Law Daily, January 2, 2019

Agriculture sector advocacy group unable to challenge USDA rule withdrawal

By Jeffrey May, J.D.

The U.S. Court of Appeals in St. Louis denied a petition by Organization for Competitive Markets (OCM), an advocacy group representing its members in the food and agricultural sectors, for review of 2017 U.S. Department of Agriculture (USDA) orders withdrawing an interim final rule and two proposed regulations promulgated under the Packers and Stockyards Act (PSA). Two core PSA provisions make it unlawful for any packer, swine contractor, or live poultry dealer to "use any unfair, unjustly discriminatory, or deceptive practice" or "give any undue or unreasonable preference or advantage to any particular person or locality in any respect." In late December 2016, the USDA published an interim final rule—known as the Farmer Fair Practices Rules—declaring that a finding of adverse effect on competition was not necessary in all PSA cases. In response to the USDA’s decision in 2017 to withdraw the interim final rule and to take no further action on the regulations, OCM and three of its members sought review, arguing that the agency’s conduct was arbitrary and capricious and that the court had to compel agency action. The court concluded that, in withdrawing the interim final rule and taking no further action on the proposed regulations, the USDA offered legitimate regulatory and substantive concerns. It adequately explained the proposed regulatory change of course would generate protracted litigation, adopt vague and ambiguous terms, and might prevent innovation and foster vertical integration that would hinder new market entrants (Organization for Competitive Markets v. U.S. Department of Agriculture, December 21, 2018, Loken, J.).

The interim rule and proposed regulations were announced in December 2016, at the end of the Obama Administration. OCM took issue with the Trump Administration’s rollback of these proposals.

According to OCM's petition for review, in the interim final rule the USDA made clear that a farmer could establish that a packer or swine contractor had violated Section 202(a) or Section 202(b) of the PSA without proving that the packer’s or swine contractor’s actions caused, or would be likely to cause, competitive harm to the market, as opposed to individualized harm to the victim of the unfair practice. OCM also asserted that, in the proposed regulations, the USDA sought to (1) clarify certain types of conduct that the agency considered to be unfair, unjustly discriminatory, or deceptive, and thus a violation of Section 202(a) of the PSA; and (2) identify criteria that the USDA would consider in determining whether a packer or swine contractor had engaged in activity that constituted an undue or unreasonable preference or advantage in violation of Section 202(b) of the PSA.

The appellate court concluded that the USDA’s actions were valid agency actions, noting that "not surprisingly" the "USDA’s incoming Secretary, acting on a promise to reduce regulation, took action to postpone and then cancel these proposals." The USDA offered two main justifications for its decision to withdraw the interim final rule: (1) the interim final rule would conflict with decisions in at least four circuits, and that "a regulation conflicting with relevant Circuit precedent will inevitably lead to more litigation in the livestock and poultry industries [which] serves neither the interests of the livestock and poultry industries nor [USDA]"; and (2) there was no "good cause" that warranted issuing the interim final rule without additional notice and public comment, because of the six-year delay between the initial comment period and publication of an interim final rule that was not contained in the 2010 proposal; the substantial public interest in the proposal; and "no evidence that the public would suffer harm following the normal notice and comment procedure." As for the proposed regulations, the USDA decided to continue a case-by-case approach with respect to unfair and deceptive practices.

The decision to withdraw the interim final rule to avoid litigation was rational, according to the court. It was based on legitimate regulatory and substantive concerns. The court also explained that this was not a case where the USDA failed to take action in the face of multiple unambiguous commands from Congress.

The case is No. 17-3723.

Attorneys: Adam Grogg (Democracy Forward Foundation) for Organization for Competitive Markets. Ramona E. Romero, U.S. Department of Agriculture, for U.S. Department of Agriculture. Jefferson B. Sessions, III, U.S. Department of Justice, for the United States.

Companies: Organization for Competitive Markets

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