Introduction The Agricultural Marketing Agreement Act of 1937 (7 U.S.C. 601 et seq.

.) (AMAA) was enacted to establish and maintain orderly marketing conditions and fair prices for agricultural commodities. One of those commodities is milk. The milk market is characterized by seasonal overproduction. Before the AMAA was enacted, milk distributors, or handlers, tended to take advantage of milk producers during the surplus of the summer months to obtain bargains on milk prices. Under the AMAA, the Secretary of the USDA may regulate the prices paid by handlers to dairy farmers by issuing Federal Milk Marketing Orders (FMMOs). Pursuant to the Dairy Market Enhancement Act of 2000 (DMEA), milk handlers are required to submit weekly surveys that report the wholesale prices paid for milk products. Rates for final milk products are then determined by applying these wholesale prices to an FMMO formula. Carlin v. Dairy America, Inc., addresses whether state law claims for damages based on the rate charged for milk products are preempted by the AMAA regulatory scheme. The Ninth Circuit held that the filed rate doctrine did not bar the plaintiffs claims. Background The plaintiffs were dairy farmers located in states other than California who sold raw milk that was priced according to FMMOs during the period of January 1, 2002 and April 30, 2007. The defendants were (1) Dairy America, Inc. (Dairy America), a non-profit entity established by a group of nine dairy cooperatives for the purpose of marketing dairy products manufactured by the cooperatives; and (2) California Dairies, Inc., one of the nine cooperatives. The parties agreed that during the relevant period, Dairy America violated the DMEA by including prices from forward contracts in its pricing reports.1 The plaintiffs contended that the defendants improper reporting caused the FMMO formula to produce lower prices than would have been the case had the defendants properly reported the higher spot prices. The plaintiffs alleged that they were harmed and that the defendants obtained significant financial benefits by paying lower prices to milk producers. The plaintiffs asserted claims under state law sounding in negligent misrepresentation, negligent interference with prospective economic advantage, violations of the California Unfair Business Practices Law, and unjust enrichment. The district court dismissed the claims as barred by the filed rate doctrine. Discussion The filed rate doctrine is based on principles of federal preemption. The doctrine provides that to the extent Congress has given a federal agency authority to set rates under a federal statute and the agency has exercised that authority, such rates are just and reasonable as a matter of law and cannot be collaterally challenged under federal antitrust or state law. In Carlin v. Dairy America Inc., the Ninth Circuit considered whether the district court erred in holding that the plaintiffs claims were barred by the filed rate doctrine. First the court considered whether the rates set by the USDA were subject to the filed rate doctrine at all. The court found that although the scheme created by the AMAA does not follow the typical filed rate scenario, in which parties submit prices to the agency and the agency then
1

In forward sales contracts the selling price is set more than 30 days before the transaction is completed. These contracts reflect lower prices than contracts competed at or near the time of the transaction.

sets an absolute price, the AMAA rates were nonetheless subject to the filed rate doctrine. The test employed by the court was whether an agency had used its congressionally granted authority to issue regulations that set rates for an industry. Even though the FMMO formula set a minimum price from which parties may negotiate upwards, the filed rate doctrine was applicable because the rates were authorized by an agency with a statutory mandate. Next the court considered whether the filed rate doctrine should bar suit in this case. The court observed that even when a plaintiff is not directly challenging a filed rate, the doctrine is intended to prevent courts from establishing damage amounts by calculating what rate would have been set but for a defendants misconduct. However, as the Supreme Court noted in Keogh v. Chi. & Nw. Ry. Co., 260 U.S. 156 (1922), when a rate has been suspended or set aside by the relevant agency, the filed rate doctrine does not bar a private litigants claims. Therefore, the court evaluated the USDAs response to the defendants conduct to determine whether the rates were adequately rejected. The court found that the USDA adequately expressed disapproval when it recognized that the rates were incorrect, attempted to recalculate rates for the period, and took action to revise regulations to prevent misreporting from reoccurring. Additionally, the court evaluated the policy considerations behind the DMEA and the AMAA to determine whether these goals would be advanced by giving the filed rate doctrine preemptive effect. The DMEA mandates that the USDA establish a reporting program that provides accurate and reliable market information. The court reasoned that retroactive adjustments of FMMO rates would provide an incentive for reporting firms to follow proper reporting procedures, thereby increasing the accuracy and reliability of the market information. Furthermore, the AMAA was created to end destabilizing competition among dairy farmers and to raise prices paid to milk producers. The court observed that it would be contrary to those statutory purposes to allow a handler to avoid liability for the misreporting of required data that drives down dairy prices even after the agency has found misconduct by that party. The court also evaluated whether the purposes of the filed rate doctrine supported the application of the doctrine as a bar to the plaintiffs claims. The court held that the damage calculation for the plaintiffs claims would not involve the hypothetical speculation about agency decisions that Keogh forbids. Given the USDAs rejection of the rates, the court ruled that had Dairy America reported accurate rates, the agency would have set higher milk prices. The court held that the only uncertainty in damage calculation was with respect to the specific prices, not the intent of the agency. Next, the court considered whether the plaintiffs claims presented a significant risk of price discrimination or destabilization. The court observed that the AMAA is concerned with discrimination suffered by dairy producers, not handlers. Nevertheless, the defendants were not facing higher or non-uniform prices as a result of the plaintiffs claims. Rather the court found that the defendants would continue to pay the same prices as the rest of the industry but in addition be subject to a damage award for their misconduct. Lastly, the court analyzed whether allowing the plaintiffs claims to go forward would disrupt the congressional pricing scheme embodied by the AMAA. The court held that the plaintiffs lawsuit did not challenge the authority of the USDA to set minimum milk prices and that misreported rates are not agency-approved rates. Therefore, the court reversed and remanded the dismissal of the plaintiffs claims. The court observed that to hold otherwise would be an exercise of mechanical formalism in contravention of both the AMMA/DMEA and the filed rate doctrine.