Inc. v. Freeman, 230 F. Supp. 632 (D.C.N.J.1964).
It is plaintiff's contention that certain actions by the Secretary and his agents - particularly the Market Administrator for the New York-New Jersey area - have not been in accordance with the law of the governing milk order.
More specifically, Sterling Davis Dairy alleges (1) that the Market Administrator erroneously determined plaintiff's milk operation to be one of "pool plant" status during the August 1957 through March 1958 period in issue; (2) that certain assessments representing skim milk differential payments imposed on plaintiff by the Market Administrator for the months including April 1958 through December 1960 are contrary to recent Supreme Court interpretation of the 1937 Act; and (3) that the same Supreme Court interpretation requires a rebate from the Producers Settlement Fund for certain now invalid compensatory payments made during June 1958.
Previous to this action, these several determinations were upheld by both the Hearing Examiner and the Judicial Officer in Department of Agriculture administrative appeals proceedings conducted pursuant to 7 U.S.C. § 608c(15)(A).
In defining the scope of judicial review, section 10(e) of the federal Administrative Procedure Act states that "the court shall review the whole record or such portions thereof as may be cited by any party."
The Supreme Court in Universal Camera Corp. v. National Labor Relations Bd., 340 U.S. 474, 71 S. Ct. 456, 95 L. Ed. 456 (1951), considered the above-cited section at great length. There, Justice Frankfurter affirmed the duty of the reviewing tribunal to take into account the entire administrative record, including that evidence which "fairly detracts from" or contradicts the agency decision. Id. at 488, 71 S. Ct. 456.
It is not the function of the court, however, to engage in a de novo fact-finding or trial process. Rather, such review is limited to ascertaining whether on the whole record the agency decision is established by substantial evidence, and is not contrary to law. Federal Security Adm'r v. Quaker Oats Co., 318 U.S. 218, 63 S. Ct. 589, 87 L. Ed. 724 (1943).
Substantial evidence has been defined as "such relevant evidence as a reasonable mind might accept as adequate to support a conclusion." Consolidated Edison Co. of New York v. National Labor Relations Bd., 305 U.S. 197, 229, 59 S. Ct. 206, 217, 83 L. Ed. 126 (1938). Once such a basis is found - again, in light of all of the record proofs - the court can not exercise an independent judgment so as to overrule or modify the decision of a Congressionally empowered administrator. Wawa Dairy Farms v. Wickard, supra; C. J. Wieland & Son Dairy Products Co. v. Wickard, 68 F. Supp. 93 (E.D.Wisc.1946); Windham Creamery, Inc. v. Freeman, supra.
Agency actions "contrary to law" typically involve fundamental issues of constitutional powers, statutory authority and interpretation, and specific constitutionality as regards various procedural aspects of due process. See Rochester Tel. Corp. v. United States, 307 U.S. 125, 139-140, 59 S. Ct. 754, 83 L. Ed. 1147 (1939). It is to be noted that the "substantial evidence" test itself is closely related to the due process concept. An administrative ruling not reasonably supported by the proofs is, hence, violative of due process because of its inherently arbitrary character. This relationship is of particular significance to the instant controversy, for here plaintiff's contention that its pool plant denomination is not "in accordance with law," rests on the alleged failure of the evidence to so sufficiently demonstrate.
The concept of "burden of proof" offers a final guideline in court review of administrative rulings. Regarding this, it is well established that the onus of showing arbitrary and capricious, or otherwise illegal agency activity, is borne by the challenging party. See Wawa Dairy Farms, Inc. v. Wickard, 56 F. Supp. 67, 70, supra; Windham Creamery, Inc. v. Freeman, supra.
Moreover, the burden of establishing the classification of milk handled is statutorily imposed upon plaintiff, as an acknowledged milk handler under the Act. Should any handler fail to demonstrate otherwise, all milk is classified as Class I-A, and all skim milk in Class II and Class III is subject to the fluid skim differential. 7 C.F.R. § 1002.31. For purposes of administering the Act, each handler is required to submit monthly reports to the Market Administrator revealing the amount, type, source, and disposition of milk received at his particular plants. 7 C.F.R. § 1002.50. To the end of verifying these reports, handlers must make available to the Market Administrator, during the usual hours of business, all relevant records and accounts. 7 C.F.R. § 1002.54.
We now turn to plaintiff's argument. Central to Sterling Davis's initial allegation is the proper effectuation of 7 C.F.R. § 1002.28(a) in light of the facts as revealed by the record. That section, formerly cited at 7 C.F.R. § 927.29(a), defines "temporary pool plants" within the New York-New Jersey milk marketing area. It pertinently reads as follows:
"For any of the months of January through March and July through December, any plant at which 25 per cent or more of the receipts of milk from dairy farmers and units is classified in Class I-A on some basis other than the failure to account for such milk shall automatically be designated a pool plant for such month. * * *"
In the judgment of the Market Administrator, such test was so met by plaintiff's operation for the months of August, 1957 through March 1958. As a result, the dairy became indebted to the Producer Settlement Fund in the amount of some $24,518.00, plus $602.04 to cover incidental assessment for administration.
Plaintiff attacks this determination on dual grounds: The first, dealing with the computation of milk receipts from dairy farmers during the contested period; and the second, regarding Class I-A sales of fluid milk in the New York-New Jersey marketing area. In its argument, plaintiff stresses not the unreasonableness of the Market Administrator's decision in the context of the information available during audit, but rather what it avers are the true facts based on new evidence adduced during the administrative hearing. Since the above-cited pool plant test relies solely on the initial factual determination, Sterling Davis reasons the pool plant finding to be "not in accordance with law" on the entire record.
Not so. The issue joined is one of fact; but it is an issue and a problem of plaintiff's own making. It was only upon court order in 1960 that Sterling Davis supplied the Market Administrator with the records upon which the latter made the now-contested pool plant determination.
Plaintiff's present attack consists in the main of clarifying admitted deficiencies, ambiguities and mistakes in those records. It furthermore relies heavily on oral explanation of generally inconclusive documentation. This state of affairs can only work to plaintiff's disadvantage.
To show greater receipts from dairy farmers, Sterling Davis explained that its reports in some instances failed to distinguish between milk from other plants and milk from dairy farmers. Purportedly due to a confusion with the required New Jersey Office of Milk Industry reports, plaintiff excluded certain surplus shipments received directly from farmers in certain shipments originally allocated to other area plants but subsequently diverted to Sterling Davis because of their surplus nature. To substantiate these greater receipts, plaintiff produced one of its officers and two of the owners of plants whose surpluses were allegedly transported directly from the farmers to Sterling Davis.
A similar lack of verifiable accounts characterizes plaintiff's argument that certain of its "R. Worrell Route" and "No. 14 Route" sales were outside the milk marketing area. Regarding the Worrell Route, the record indicates that during the 1960 audit neither Worrell nor Sterling Davis provided route books or related business documents which would enable accurate calculation of in-area and out-area sales for the months in question. Plaintiff's new and qualifying proofs during the hearing took the form of Worrell's testimony regarding the geographical dimensions of his route, and admission into evidence of sales estimates based upon his own books and records.
In the case of Route No. 14, plaintiff alleges that there was sufficient information in its daily sales records to which the Market Administrator had access for specific analysis of in-area and out-area sales. According to plaintiff, also, its vice president verbally apprised the Market Administrator's auditor of the meaning of these records. This contention is substantially challenged by the auditor in his statement before the Hearing Examiner. He testified that at no time were complete route books furnished, nor were other records provided adequate to show the ultimate disposition of milk to Route No. 14 customers.
Regarding plaintiff's hearing exhibits which deal with Route No. 14, these records neither locate nor identify the individual customers who were receiving the various milk products. Customer identification on the basis of price charged, although suggested by plaintiff, was deemed unreliable by the testifying government auditor in that similar prices could be assessed to unidentified buyers existing both within and without the market area.
Finally, concerning the Route No. 14 proofs, the record discloses testimony by the auditor that certain handwritten notations on plaintiff's above exhibits - in the form of total sales to specific customers - were not there at the time of audit.
As seen from the earlier-stated law, it is incumbent upon this court to consider all of these proofs. Plaintiff contends, however, that the Hearing Examiner and Judicial Officer erred in their complete rejection of the new evidence and arguments presented at the hearing. Indeed, it is clear from the administrative opinions that the deciding officials did interpret their review as more restricted than that of the court. Thus, quoting In re M. H. Renken Dairy Co., 11 A.D. 264, 272 (1952), the Judicial Officer observes:
"* * * [It] is apparent that the solution should be sought on the basis of the situation presented to the market administrator rather than on the basis of facts adduced for the first time in this proceeding."
The court does not now attempt to resolve the particular legal question of intra-agency review. Suffice it to say for the present that all evidence was both heard on the record and referred to by the Examiner and the Judicial Officer in their respective rulings. In each decision the lack of adequate documentation upon which the testimony could be verified was a subject of repeated emphasis. In the opinion of the Judicial Officer:
"* * * [Even] if we consider this a completely de novo proceeding, the new evidence submitted would not sustain the burden upon the petitioner in this proceeding. See, e.g., Bailey Farm Dairy Co. v. Jones, 61 F. Supp. 209 (E.D.Mo.1945), aff'd 157 F.2d 87 (8th Cir. 1946), cert. denied, 329 U.S. 788, 91 L. Ed. 675, 67 S. Ct. 355 (1946); Wawa Dairy Farms, Inc. v. Wickard, 56 F. Supp. 67 (E.D.Pa.1944), aff'd 149 F.2d 860 (3d Cir. 1945). No additional documentary evidence with respect to milk receipt and utilization, that is, additional to records submitted to the auditor, was submitted; and, in fact, it is clear from the testimony adduced at the hearing that petitioner did not maintain additional pertinent records. In addition, petition's reports, prepared by experienced milk accountants and signed by petitioner's vice-president and general manager, are so contradictory to petitioner's present position and the oral testimony of petitioner's vice-president and general manager that little credence can be now placed upon such testimony. Moreover, the auditor's testimony contradicts that of petitioner's vice-president with respect to the presence of a producer number in connection with handlers listed on petitioner's ledgers and the presence, at the time of the audit, of handwritten notations on the bottom of National Cash Register forms for the last day of each of the months involved. Further, the testimony of Worrell can be characterized at least in part as general, speculative and inexact in nature and not the "stuff upon which milk accounting is based." It must be remembered, too, that Worrell was not even listed on petitioner's reports as an outlet for petitioner's milk."