US ex rel. Sequoia Orange Co. v. Sunland Packing House Company

912 F. Supp. 1325

UNITED STATES ex rel. SEQUOIA ORANGE COMPANY, Plaintiff, v. SUNLAND PACKING HOUSE COMPANY, Defendants.

UNITED STATES ex rel. SEQUOIA ORANGE COMPANY, Plaintiff, v. SAN JOAQUIN CITRUS, and Sunkist Growers, Inc., Defendants.

UNITED STATES ex rel. SEQUOIA ORANGE COMPANY, Plaintiff, v. BAIRD-NEECE PACKING CORP., and Sunkist Growers, Inc., Defendants.

UNITED STATES ex rel. SEQUOIA ORANGE COMPANY, Plaintiff, v. OXNARD LEMON COMPANY, et al., Defendants.

UNITED STATES ex rel. SEQUOIA ORANGE COMPANY, Plaintiff, v. MISSION CITRUS COMPANY, et al., Defendants.

UNITED STATES ex rel. SEQUOIA ORANGE COMPANY, Plaintiff, v. VENTURA PACIFIC COMPANY, et al., Defendants.

UNITED STATES ex rel. SEQUOIA ORANGE COMPANY, Plaintiff, v. SATICOY LEMON ASSOCIATION, et al., Defendants.

UNITED STATES ex rel. Lisle BABCOCK, Plaintiff, v. DOLE CITRUS, INC., Defendant.

Nos. CV-F-88-566-OWW, CV-F-89-002, CV-F-89-004, CV-F-89-006 to CV-F-89-008, CV-F-89-012 to CV-F-89-014, CV-F-89-050 to CV-F-89-062, CV-F-91-194-OWW, CV-F-91-195 to CV-F-91-197 and CV-F-93-5016-OWW.

United States District Court, E.D. California.

September 27, 1995.

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Daniel Bensing, Asst. U.S. Attorney, Fresno, CA.

James Moody, Washington, DC.

Brian Leighton, Clovis, CA.

Gerald Vinnard, Thomas, Snell, Jamison, Russell & Asperger, Fresno, CA.

Michael Bierman, Jeffrey Wexler, Tuttle and Taylor, Los Angeles, CA.

Robert L. Compton, Nordman, Cormany, Hair & Compton, Oxnard, CA.

Stephen Altman, Civil Division, Department of Justice, Washington, D.C.

Kendall Manock, Baker, Manock and Jensen, Fresno, CA.

Steven Williams, Williams, Jordan & Broderson, Visalia, CA.

MEMORANDUM OPINION & ORDER RE: UNITED STATES' MOTION TO DISMISS

WANGER, District Judge.

I. BACKGROUND

These 27 partially consolidated False Claims Act (FCA) cases are before the court on the United States's motion to dismiss under 31 U.S.C. § 3730(c)(2)(A).¹ The motion presents a question of first impression.

A. Statutory Background.

The claims arise from alleged violation of prorate restrictions and reporting requirements in navel and valencia orange marketing orders (7 C.F.R. §§ 907 and 908)² and the lemon marketing order (7 C.F.R. § 910). The relators, Sequoia Orange Company, a handler (processor) and, Lisle Babcock, a grower of oranges, are competitors of defendants. Defendants are Sunkist Growers, Inc., an agricultural cooperative corporation and packinghouses, most of whom are Sunkist affiliates. Relators contend that despite the defendants' support for marketing orders, defendants for some ten years have consistently violated prorate and other regulations of the orders by overshipping oranges and failing to accurately report, account, and pay assessments for those overshipments which give rise to the asserted false claims. A bitter ideologic dispute over citrus industry regulations between relators and defendants has continued for more than ten years.

For the purposes of the motion, the parties assume the merit of the FCA claims, subject to the United States' objection to subject matter jurisdiction that FCA claims based on alleged violations of the Agricultural Marketing Agreement Act (AMAA) implicate a regulatory fine that cannot support a claim as a matter of law.³ Relators have prosecuted these lawsuits and relentlessly waged a campaign of public criticism against Sunkist and its members' alleged economic domination of the industry, claimed to have been effectuated primarily through government regulation under the AMAA. To decide the dismissal motion, the long and complex history of disputes over Marketing Orders in the California-Arizona citrus industry must be analyzed.

The parties disagree on whether the applicable standard for decision is: (1) an unreviewable prosecutorial discretion standard; (2) a rational relation standard; or (3) a Federal Rule of Civil Procedure Rule 41(a) non-prejudice standard.

1. The Agricultural Marketing Agreement Act of 1937.

The underlying law requires us to "delve into one of the more byzantine, and all-encompassing, areas of federal administrative regulation—that governing fruits and vegetables." Wileman Bros. & Elliott, Inc. v. Espy, 58 F.3d 1367, 1372 (9th Cir.1995). The Agricultural Marketing Agreement Act of 1937 (AMAA) was enacted "to establish and maintain ... orderly marketing conditions for agricultural commodities in interstate commerce." 7 U.S.C. § 602(1). Congress believed that improved marketing conditions for agricultural products would benefit both producers and consumers by ensuring "an orderly flow of the supply of fruits and vegetables to market throughout their normal marketing season to avoid unreasonable fluctuations in supplies and prices." 7 U.S.C. § 602(4). "The Act contemplates a cooperative venture among the Secretary, handlers, and producers the principal purposes of which are to raise the price of agricultural products and to establish an orderly system for marketing them." Block v. Community Nutrition Inst., 467 U.S. 340, 346, 104 S.Ct. 2450, 2454, 81 L.Ed.2d 270 (1984).

To achieve these goals the AMAA provides the Secretary and the industry with a powerful tool, the marketing order. Through marketing orders the Secretary and the industry may regulate, inter alia, the quality, size, and quantity of a particular commodity shipped to market. Marketing orders are essentially self-help mechanisms to advance the economic interests of the industry. The Secretary is not required to promulgate marketing orders in each fruit or vegetable industry that is eligible under the AMAA. Clayton 107:7-10.⁴ The Secretary generally does not advocate marketing orders in unregulated industries unless industry participants request assistance in obtaining an order.⁵ Clayton, at 110.

Marketing orders become effective upon approval by the Secretary and the industry. When the Secretary believes a proposed order will tend to effectuate the declared policy of the AMAA, the industry must be provided notice and an opportunity for a hearing on the proposed order. 7 U.S.C. § 608c(3), (4). If after the hearing the Secretary issues an order finding that the proposed order will effectuate AMAA policies then an industry referendum is conducted. In the citrus industry marketing orders must be approved by (1) handlers marketing eighty percent of the volume of the commodity and (2) either three-quarters of the affected growers or by growers who market at least two-thirds of the volume of the particular commodity (navels, valencias, or lemons). 7 U.S.C. § 608c(8). The Secretary may waive the necessity for handler support by finding that handler refusal to sign the agreement tends to prevent the effectuation of the AMAA. 7 U.S.C. § 608c(9); see also United States v. Sunny Cove Citrus Ass'n, 854 F.Supp. 669, 676 (E.D.Cal.1994).

Once effective, marketing orders are implemented by committees composed of industry members. 7 U.S.C. §§ 608c(7)(C), 610. Committee members are nominated by industry groups, appointed by the Secretary, and supervised by the Agricultural Marketing Service (AMS), an agency within the United States Department of Agriculture (USDA). See, e.g., 7 C.F.R. §§ 907.22, 907.23. The committees recommend rules and regulations to effectuate the marketing orders, to govern matters such as fruit quality and flow to market restrictions, which the Secretary may adopt through informal rulemaking. 7 C.F.R. §§ 907.52, 907.64.

The expenses to administer the marketing orders are funded through assessments imposed upon fruit handlers based on the volume of fruit they ship. 7 U.S.C. § 610(b)(2)(ii). The committees annually submit budgets and a recommendation for the rate of assessment to the Secretary. 7 C.F.R. §§ 907.41. The Secretary approves the committees' budgets and the assessments to be imposed on handlers each year in the form of a regulation.

Marketing orders have regulated the California-Arizona orange industry since 1954. Cecelia Packing Corp. v. U.S. Dept. of Agriculture, 10 F.3d 616, 618 (9th Cir.1993). Each citrus order contained prorate provisions, which limited the weekly volume of fruit shipped to market. The efficacy of prorate has been bitterly disputed by industry members, particularly Sequoia.

Defendant Sunkist is an agricultural cooperative corporation, a protected form of entity under the AMAA. It has affiliated packinghouses and member growers. Through bloc-voting,⁶ Sunkist allegedly perpetuated prorate, while many independent growers and packinghouses, as well as some Sunkist members, opposed prorate and other forms of federal regulation of the industry. Relators have for over ten years claimed that defendants, particularly Sunkist, exercise enhanced access to and influence over the USDA and members of Congress, by virtue of defendants' political influence, lobbying efforts, and campaign contributions to elected officials. These efforts allegedly resulted in the adoption of marketing orders with prorate and appointment of defendants and their supporters to industry AMAA commodity (navel and valencia orange) committees (NOAC and VOAC).

Under prorate, the commodity committees meet each week during the harvest season to recommend a total quantity of oranges and lemons for shipment to market the following week. 7 C.F.R. §§ 907.51, 908.51, 910.51. Producers pay assessments to the committees based on the volume of fruit shipped to market. 7 C.F.R. §§ 907.41, 908.41, 910.41. Handlers who ship quantities of citrus in excess of their allocated prorate are subject to criminal fines of up to $5,000 per violation and civil penalties of $1,000 per violation. 7 U.S.C. § 608c(14). They are also subject to civil forfeitures for quantities of fruit shipped in excess of prorate. The amount of the forfeiture is "a sum equal to the value of such excess at the current market price for such commodity at the time of violation." 7 U.S.C. § 608a(5). The United States is authorized to initiate...