Opinion
8:03CV174
March 18, 2004
MEMORANDUM AND ORDER
Introduction
This matter is before the court on defendant's motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(1) and (6). Filing No. 9. Plaintiff brings this action alleging that defendant's personnel have engaged in unfair, arbitrary, and capricious conduct against it. Plaintiff alleges that defendant breached a settlement agreement entered into on January 27, 2003; violated plaintiff's due process rights; and acted in contravention of its statutory authority. Defendant contends that this court is without jurisdiction to decide these claims. I have carefully reviewed the record, indices of evidence, briefs in support and in opposition, and the relevant case and administrative law, and I conclude the motion to dismiss should be denied at this time. I have entered an order concurrently with this Order in the related case of United States v. USDA, No. 03CV175 (D. Neb. March 18, 2004) (Memorandum and Order on Motion to Dismiss).
FactslProcedural History
On January 14, 2003, plaintiff filed a complaint in this court asking for a temporary restraining order against the United States Department of Agriculture (USDA), as USDA was considering suspending its inspection services at plaintiff's beef processing plant. Nebraska Beef v. USDA, No. 03CV16 (D. Neb. 2003). A temporary restraining order was granted. Id., Filing No. 2. Prior to the hearing on the preliminary injunction, the Food Safety Inspection Service (FSIS) filed an administrative complaint against the plaintiff with an administrative law judge (ALJ) with the USDA. The parties thereafter mutually agreed to enter into a Consent Decision and Order and to dismiss the case with prejudice and for termination of the TRO. Id., Filing No. 10. The Consent Decision and Order required plaintiff to comply with statutory law and federal regulations and required withdrawal of the inspectors to be held in abeyance.
Subsequent to the Consent Decision, plaintiff has filed two lawsuits in this court. The one before me in this lawsuit is against the USDA; the second lawsuit has been filed against various officials who work for the USDA. Nebraska Beef v. Greening, No. 03CV 175. Plaintiff alleges that since the Consent Decision, in a matter of a few months, inspection personnel issued fifty-eight noncompliance reports (NRs). Plaintiff contends that these NRs were improperly issued, unfair and biased, and in violation of the law as well as the Consent Decision. Plaintiff cites numerous instances where it believes the USDA officials improperly issued these NRs. The USDA alleges sovereign immunity; lack of jurisdiction over the contract action; lack of exhaustion; lack of ripeness; lack of standing; and lack of a due process violation. In the related case, Nebraska Beef v. Greening, No. 03CV 175, the same standing, ripeness and exhaustion claims are raised, and plaintiff also alleges due process and equal protection claims under Bivens, as well as a conspiracy claim. To the extent that claims overlap, my findings will be applicable to both cases.
Standard of Review 12(b)(1)
Because jurisdiction is a threshold issue for the court, the district court has broader power to decide its own right to hear the case than it has when the merits of the case are reached. Bellecourt v. United States, 994 F.2d 427, 430 (8th Cir. 1993). For the court to dismiss for lack of subject matter jurisdiction under Federal Rule of Civil Procedure 12(b)(1), the complaint must be successfully challenged either on its face or on the factual truthfulness of its averments. Titus v. Sullivan, 4 F.3d 590, 593 (8th Cir. 1993). In a facial challenge to jurisdiction, all of the factual allegations regarding jurisdiction would be presumed true and the motion could succeed only if the plaintiff had failed to allege an element necessary for subject matter jurisdiction. Id. In a factual attack on the jurisdictional allegations of the complaint, however, the court can consider competent evidence such as affidavits, deposition testimony, and the like in order to determine the factual dispute. Id. Because the parties have submitted some evidence in support of their respective positions, this case presents a factual jurisdictional challenge. In such a challenge, this court is "free to weigh the evidence and satisfy itself as to the existence of its power to hear the case." Osborn v. United States, 918 F.2d 724, 729 (8th Cir. 1990). No presumptive truthfulness attaches to the plaintiff's allegations, and the existence of disputed material facts will not preclude the court from evaluating for itself the merits of jurisdictional claims. Id. The plaintiff has the burden of proving that jurisdiction does in fact exist. Id. at 730.
12(b)(6)
In considering a motion to dismiss a complaint under Rule 12(b)(6), the court must assume all the facts alleged in the complaint are true, and must liberally construe the complaint in the light most favorable to the plaintiff. Schmedding v. Tnemec Co., 187 F.3d 862, 864 (8th Cir. 1999). A Rule 12(b)(6) motion to dismiss a complaint should not be granted unless it appears beyond a doubt that the plaintiff can prove no set of facts which would entitle him to relief. Id. Thus, as a practical matter, a dismissal under Rule 12(b)(6) should be granted only in the unusual case in which a plaintiff includes allegations that show on the face of the complaint that there is some insuperable bar to relief. Id. Discussion A. Exhaustion
A plaintiff must exhaust administrative remedies in order for a court to have subject matter jurisdiction. United States v. Dico, Inc., 136 F.3d 572, 575 (8th Cir. 1998). Generally, failure to exhaust administrative remedies will preclude one from seeking relief in federal court. See Weinberger v. Salfi, 422 U.S. 749, 764 (1975). Exhaustion is required in order to prevent premature interference with agency processes, to permit the agency to function efficiently and so that it may have an opportunity to correct its own errors, to afford the parties and the courts the benefit of its experience and expertise, and to compile a record which is adequate for judicial review. In Home Health, Inc. v. Shalala, 272 F.3d 554, 559-60 (8th Cir. 2001); United States v. Dico, Inc., 136 F.3d at 576. The relevant statute in this case requires exhaustion of all administrative appeal procedures before one can sue the Secretary of Agriculture or officers or employees. 7 U.S.C. § 6912(e). Defendant contends that fifty-three of the fifty-eight NRs are being administratively appealed, and at least one has been found to be in the plaintiff's favor. The USDA argues that such failure to exhaust all claims requires dismissal of the lawsuit at this time.
Plaintiff argues that there are three exceptions to a statutory exhaustion requirement. Calhoun v. USDA, 920 F. Supp. 696, 700 (N.D. Miss. 1996). These exceptions include: (1) raising a constitutional challenge collateral to the substantive claim, see Bowen v. City of New York, 476 U.S. 467, 483 (1986); (2) alleging that the administrative system itself is unlawful; and (3) inadequacy of the administrative remedies, see DCP Farms v. Yeutter, 957 F.2d 1183 (5th Cir. 1992) (discussion of exceptions two and three). With regard to the first exception, plaintiff asserts that exhaustion is not required where a party poses a constitutional challenge to the administrative procedure. Bowen, 476 U.S. at 483; In Home Health, 272 F.3d at 559-60. In the case before me, plaintiff argues that defendant has violated its due process rights. With regard to the second exception, plaintiff argues that the USDA is acting outside the power it has received by Congress by the Federal Meat Inspection Act (FMIA). Plaintiff contends that the Hazardous Analysis and Critical Control Point (HACCP) and the Sanitation Standard Operating Procedures (SSOP) are in violation of the statutory authority granted to the USDA by Congress. Plaintiff challenges the administrative process as unconstitutional.
It is true that plaintiff has commenced, but has not completed, administrative appeals in this case. If plaintiff were merely complaining about whether these violations should have been written, I would agree with defendant that the exhaustion doctrine applies. The scheme set forth by Congress clearly requires exhaustion of such disagreements. However, the plaintiff's amended complaint unequivocally alleges constitutional claims of due process violations as well as claims that the USDA has acted outside its statutory authority. These claims do not need to be exhausted and are subject to court intervention. Consequently, I conclude that while plaintiff should continue to exhaust its administrative remedies on the merits of the administrative claims, such claims that involve the constitution and statutory authority do not require exhaustion. B. Standing
To establish standing, plaintiff has the burden of showing that it has sustained or will sustain immediate damage or injury. City of Los Angeles v. Lyons, 461 U.S. 95, 101-02 (1983). Damage to reputation can be sufficient to confer standing on a party. Southern Mutual Help Ass'n, Inc. v. Califano, 574 F.2d 518, 524 (D.C. Cir. 1977). Defendant argues that plaintiff has no standing to bring this action. Defendant argues that there is no injury in fact, because the appeal process has not yet been completed. Plaintiff argues that it has standing because the defendant has violated its due process rights, has exceeded statutory authority by creating the requirement that plaintiff maintain HACCP and SSOP plans, and has breached the consent decision. Plaintiff further argues that when the NRs become public records, it hurts plaintiff's reputation and business. Plaintiff offers the affidavit of Michael A. Thatcher in support of its argument that the publicity has hurt its reputation and has caused strained customer and employee relations. (Affid. of Michael A. Thatcher, ¶¶ 5-7). I agree. I have already determined that plaintiff can bring the causes of action concerning the statutory and constitutional claims. Plaintiff has alleged sufficient injury to have standing in this case.
C. Ripeness
Defendant argues that this case is not ripe for decision because the plaintiff cannot rest on a possible future event, in this case removal of the federal inspectors. See Texas v. United States, 523 U.S. 296, 300 (1998). The NRs, argue the defendant, are appealable through a number of avenues. Defendant contends that some or all of the challenges might be resolved through these appeal processes. For example, notes defendant, plaintiff has already successfully challenged the retention of the 375 beef carcasses. Plaintiff argues that these claims are ripe for adjudication and are not contingent upon future events. The events being questioned by the plaintiff include the past arbitrary and capricious enforcement by the defendant and the past enforcement of the HACCP and SSOP which plaintiff argues is ultra vires. I agree with the plaintiff that the allegations as pled state a real and substantial controversy that can be adjudicated by this court. See Aetna Life Ins. Co. v. Hayworth, 300 U.S. 227, 241 (1937). Plaintiff has alleged ample due process and statutory authority issues, which have allegedly resulted in economic damages to the plaintiff sufficient to establish ripeness for purposes of this motion.
D. Sovereign Immunity — Breach of Contract Claim
Plaintiff alleges in its first cause of action that the Consent Decision entered on January 27, 2003, is a contract between the parties that has been breached by the USDA and that plaintiff has suffered damages as a result of the breach. Defendant contends that the plaintiff's cannot sue under the consent decision which is part of the settlement agreement, as sovereign immunity bars this action. Defendant argues that sovereign immunity bars plaintiff's claim for equitable relief. Plaintiff argues that this is not really a contract action, but rather the rights are derived from the FIMA and the due process claims in this lawsuit. See Megapulse, Inc. v. Lewis, 672 F.2d 959, 968-71 (D.C. Cir. 1982) (cannot maintain a contract action against United States; must determine whether the case is really one of contract by looking at the source of the rights and at the relief requested). Plaintiff argues that the rights that have been violated do not evolve from the contract but instead originate from the unconstitutional acts of the defendant. Further, argues the plaintiff, the dismissal of its first lawsuit in this case allowed pursuit of plaintiff's civil rights and remedies at a future date. See Consent Decision at ¶ 5.
The United States must expressly consent to be sued. United States v. Mitchell, 463 U.S. 206, 212-216 (1983); Manypenny v. United States, 948 F.2d 1057, 1063 (8th Cir. 1991). Defendants contend that the plaintiff must file suit for damages against the United States in the Court of Claims if the amount is over $10,000 and in district court if the amount is less than $10,000. Coggeshall Develop. Corp. v. Diamond, 884 F.2d 1, 3 (1st Cir. 1989). Further, the court cannot order specific performance of the contract against the United States. Id. It should be noted, however, that plaintiff's amended complaint no longer contains a request for damages in its request for relief.
At this point in the lawsuit and upon review of the record, it appears that plaintiff is actually suing the USDA on the basis of its alleged illegal conduct. While this alleged behavior is connected with the settlement agreement, it is more importantly, separate and distinct from the settlement agreement. See VS Ltd. v. Dept. of Housing and Urban Dev., 235 F.3d 1109, 1112 n. 2 (8th Cir. 2000). The due process and ultra vires arguments are not dependent upon the settlement agreement or enforcement of the same. Consequently, I conclude that I have jurisdiction in this case and that sovereign immunity does not prohibit my hearing the constitutional and statutory claims.
E. Due Process
Defendant contends that plaintiff's due process argument must fail as a matter of law because defendant has not taken any property from plaintiff. Defendant further argues that even if there is a property deprivation, there exists an adequate remedy at law, so no due process violation can occur. Hudson v. Palmer, 468 U.S. 517, 533 (1984); Zephyr Aviation L.L.C. v. Dailey, 247 F.3d 565, 574 (5th Cir. 2001). Plaintiff had appeal rights in this case, and the property that was tagged by the defendant, the 375 beef carcasses, was ultimately released back to plaintiff, argues defendant.
Plaintiff contends that it has a valid due process claim for the property claim, as it has lost production time, causing millions of dollars in lost product, loss of reputation, and strained customer relations, and loss of thousands of dollars to justify its processes, which already complied with the federal regulations. There is no post-deprivation remedy for these losses, argues plaintiff. I agree and, for the reasons previously stated herein, conclude that plaintiff has alleged sufficient due process damages at this juncture in the lawsuit.
F. Ultra Vires
Defendant argues that the FMIA requires the Secretary to establish sanitation rules, to withhold inspection where there is the possibility of contamination and that nothing in the FMIA unambiguously forbids the Secretary from enforcing these standards by use of the HACCP and SSOP programs. Plaintiff contends that defendant has acted outside the scope of the authority granted to it by Congress, arguing that the USDA's HACCP and SSOP programs are ultra vires. Plaintiff argues that these programs are in excess of the authority granted to it by FMIA, and evidence needs to be further developed in this regard, so that the court will have evidence before it as to how the programs are applied by the USDA. This regulatory scheme, argues plaintiff, exceeds the intent of Congress. Plaintiff contends that the FMIA requires inspection of slaughtering houses to determine sanitary conditions. Further, argues plaintiff, the FMIA allows for only four circumstances under which the USDA may suspend inspection services. Plaintiff argues that as a matter of law these are the only four times inspection services can be suspended. However, urges plaintiff, the USDA has gone beyond this authority by requiring written HACCP and SSOP plans and providing that failure to establish such plans could render the food products as adulterated which then allows suspension of inspections.
Whether these regulations exceed statutory authority is in fact a legal question. However, I am going to grant plaintiff the time it requested to develop a sufficient factual record prior to addressing these legal arguments. For purposes of this motion to dismiss, I find that plaintiff has adequately pled its claim thatthe HAACP and SSOP programs exceed the statutory authority granted by Congress.
I urge the parties to continue to pursue the administrative processes available to them in this case with the hope that settlement will occur. The USDA must act in good faith and deal fairly with the plaintiff, and yet the plaintiff must comply with the legal requirements applicable to it.
THEREFORE, IT IS ORDERED that the defendant's motion to dismiss, Filing No. 9, is hereby denied.