California Almond Program Litigation Returns to
Ninth Circuit Court of Appeals
by Wayne R. Watkinson
Peter F. Butcher
On May 11 the Ninth Circuit Court of Appeals heard arguments on behalf
of the USDA’s challenge to a judgment entered against it by the United
States District Court in Fresno, California, requiring the Department
to pay more than $2.5 million to California Almond handlers and to forego
collection of another $1.7 million in commodity promotion assessments
under the California Almond Marketing Order. The arguments represent the
second time that litigation involving challenges to the California Almond
Order has wound its way to the Court of Appeals since the plaintiff Cal-Almond
first filed its administrative challenge to the Order in 1987. See Cal-Almond,
Inc. v. U.S. Department of Agriculture, 14 F.3d 429 (9th Cir. 1993).
The Almond Marketing Order is one of thirteen commodity-specific federal
marketing orders issued by the Secretary of Agriculture under the authorization
of the Agricultural Marketing Agreement Act of 1937. The Act and the Order
provide that provisions of the Marketing Order be funded by assessments
of about two-an-a-half cents per each pound of almonds handled. The Act
and the Order further provide that handlers which already engage in certain
types of advertising of almonds may receive credit for a portion of their
assessments.
The plaintiffs in the Cal-Almond decision were not the first to challenge
an assessment funded commodity promotion program in federal court. In
1989, the Third Circuit Court of Appeals decided U.S. v. Frame, 885 F.2d
1119 (3rd Cir. 1989), and in a lengthy opinion found that the Beef Promotion
Act satisfied high-level constitutional review. Like the Almond Order
and other commodity promotion legislation, the Beef Act and Order provided
for the use of assessments to fund promotional programs; but unlike the
Almond Order, the Beef program contained no “credit back” provisions
refunding assessments for certain “creditable” advertising undertaken
by the individual. While the Third Circuit agreed that such assessments
for commodity promotion implicate First Amendment rights of free speech
and freedom of association, it rejected both of the first amendment challenges
raised against the Act and found both the purpose and the implementation
of the promotional program passed strict constitutional scrutiny.
The Ninth Circuit’s Cal-Almond decision, decided four years after
Frame, reaffirmed the Third Circuit’s conclusion that the purpose
underlying commodity promotion programs represents a substantial government
interest. However, the Ninth Circuit went on to find that with regard
to the almond industry, the USDA had failed to present evidence necessary
to justify the particular creditable advertising regulations challenged
by the almond handlers.
The Ninth Circuit’s analysis faulted the government for failing
to present evidence demonstrating that its promotional efforts are better
at increasing actual returns to the individual producer or handler than
the advertising efforts already engaged in by that producer or handler.
The Court also concluded that the evidence presented indicated that the
assessment provisions did not stimulate additional or more effective advertising
efforts by Almond handlers. The Court agreed with the challengers that
“each handler knows best how to sell his own almonds; we are unwilling
to presume, in the absence of hard evidence to the contrary, that a government
agency is better at marketing than an individual business person.”
(Cal Almond, 14 F.3d at 435.) The Court also found inadequate justification
for the USDA’s decision to deny credit to almond handlers for certain
advertising expenditures. The Court of Appeals therefore concluded that
the assessment provisions of the Almond Marketing Program violate the
First Amendment rights of almond handlers. The Court subsequently denied
the USDA’s motion for a rehearing.
The case was then remanded to the District Court for further proceedings
to determine appropriate financial remedy for the successful challengers.
In an Order issued September 6, 1994, the District Court granted the plaintiffs’
motions on remand which sought a refund of Almond Board assessments. In
a Final Order and Judgment issued September 19, 1994, the Court directed
the USDA to: 1. refund approximately $135,000 of creditable advertising
and related assessments that plaintiffs had paid to the Board; 2. release
claims of approximately $1.7 million of creditable advertising assessments
that had been placed in attorney-client accounts and/or bankruptcy trustee
accounts; and 3. pay plaintiffs approximately $2.5 million, representing
sums spent by plaintiffs on creditable advertising. In reaching this decision,
the Court rejected the government’s argument that the plaintiff’s
request for a refund of assessments constitutes a request for money damages
from the government which is barred by sovereign immunity.
The Court also rejected the government’s request that the matter
be remanded to the Department of Agriculture for an examination of equitable
considerations and development of a supplemental factual record.
The District Court’s Final Order and Judgment has been appealed
to the Ninth Circuit by the government and has granted the government’s
request for a stay of the judgment pending the resolution of issues raised
on appeal. In so doing, the court observed that “it found the issue
of sovereign immunity difficult to resolve” and found ultimate success
by the government likely, based on the merits of its arguments.
During the oral arguments on May 11, the government reasserted its position
that reimbursing the handlers for money spent on advertising constitutes
damages barred by sovereign immunity and any award of monetary relief
to the handlers should be offset by the benefits they received from the
advertising program. The government was supported by an amicus brief filed
on behalf of several almond handlers, who argued in part that the only
means available to the government to satisfy the judgment was through
application of assessments against the entire industry which the Ninth
Circuit had already found to be unconstitutional in its initial decision.
The Court of Appeals has yet to rule on the USDA’s challenge to
the District Court’s Final Order and Judgment.
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