CONTENDER FARMS, L.L.P.; MIKE MCGARTLAND, Plaintiffs - Appellants
UNITED STATES DEPARTMENT OF AGRICULTURE, Defendant - Appellee
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Appeal from the United States District Court for the Northern District of Texas.
For CONTENDER FARMS, L.L.P., MIKE MCGARTLAND, Plaintiffs - Appellants: Karin Knowles Cagle, Kirkley & Berryman, L.L.P., Fort Worth, TX; Rowland David Broiles, Fort Worth, TX; Justin Roel Chapa, K & L Gates, L.L.P., Dallas, TX.
For UNITED STATES DEPARTMENT OF AGRICULTURE, Defendant - Appellee: Patrick George Nemeroff, Joseph Mead, Nathan Swinton, U.S. Department of Justice, Civil Division, Appellate Staff, Washington, DC.
For AMERICAN HORSE PROTECTION ASSOCIATION, INCORPORATED, FRIENDS OF SOUND HORSES, INCORPORATED, INTERNATIONAL WALKING HORSE ASSOCIATION, NATIONAL HORSE SHOW ASSOCIATION, Amici Curiae: Russell James Gaspar, Cohen Mohr, L.L.P., Washington, DC.
For HUMANE SOCIETY OF THE UNITED STATES, Amicus Curiae: Eric C. Greig, Latham & Watkins, L.L.P., Houston, TX.
Before JOLLY and JONES, Circuit Judges, and GODBEY[*], District Judge.
E. GRADY JOLLY, Circuit
Contender Farms, L.L.P. and Mike McGartland appeal the district court's order granting summary judgment in favor of the United States Department of Agriculture (" USDA" ). McGartland owns Contender Farms, and each actively participates in the Tennessee walking horse industry by buying, selling, and exhibiting horses. They challenge a USDA regulation (the " Regulation" ) promulgated under the Horse Protection Act (" HPA" ), 15 U.S.C. § § 1821-31, requiring that private entities, known as Horse Industry Organizations (" HIOs" ), impose mandatory suspensions on those participants found to engage in a practice known as " soring."  Soring is prohibited by the HPA, and the USDA, through various contractual arrangements, has long relied on HIOs to provide inspectors at Tennessee walking horse events.
According to Contender Farms and McGartland, this new Regulation exceeds the USDA's rulemaking authority under Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984), violates the Administrative Procedure Act, 5 U.S.C. § § 701-06, and fails to account for its impact on small businesses under the Regulatory Flexibility Act, 5 U.S.C. § § 601-12. They also argue that the Regulation deprives them of due process and violates the separation of powers. The USDA disputes each contention, and it further argues that Contender Farms and McGartland fail to present a justiciable controversy on grounds of standing and ripeness.
At summary judgment, the district court held that Contender Farms and McGartland presented a justiciable controversy, but it entered a final judgment in favor of the USDA on the merits of the challenge, concluding that the Regulation is valid. The parties renew these arguments on appeal. For the reasons that follow, we AFFIRM the district court's holding as to justiciability, REVERSE and VACATE its ruling on the merits, and REMAND the case for entry of judgment in favor of Contender Farms and McGartland.
To resolve this appeal, we must interpret both the HPA and the USDA regulations promulgated under the HPA. Ultimately, we must decide whether the Regulation falls within the scope of the USDA's authority under the HPA. We begin with a summary of the statutory and regulatory framework.
The HPA requires the USDA to " prescribe by regulation requirements for the appointment by the management of any horse show, horse exhibition, or horse sale or auction of persons qualified to detect and diagnose a horse which is sore or to otherwise inspect horses for the purposes of enforcing this chapter." 15 U.S.C. § 1823(c). Under the HPA, the management of each horse show serves as primary enforcer of the HPA. The HPA provides to the respective managements a choice: (1) decline to hire USDA-approved inspectors and accept liability for failing to disqualify a sored horse, irrespective of whether such
management knows that the horse is a sore; or (2) hire USDA-approved inspectors and face liability only if management allows the horse to compete after being told that it is a sore. Id. at § § 1824(3) & (5). Most of the major Tennessee walking horse events have chosen to avoid " strict liability" and followed the second option.
Pursuant to the provisions of § 1823(c), the USDA does not employ its own inspectors. Instead, the USDA created, by regulation, what the parties call the " DQP program." The USDA authorizes designated qualified persons (" DQPs" ), private individuals holding a valid DQP license, to inspect horses at events. 9 C.F.R. § 11.7(a). In turn, the USDA requires that " [l]icensing of DQP's will be accomplished only through DQP programs certified by the Department and initiated and maintained by horse industry organizations or associations [ i.e., HIOs]." Id. at § 11.7(b). The USDA established various requirements for HIO-administered training programs, including required hours of classroom instruction in particular topics, production of a sample examination, criteria for maintaining qualifications and performance abilities, methods for insuring uniform interpretation and enforcement of the HPA, and standards of conduct for inspectors. Id. HIOs must also submit their rulebooks to the USDA. Id. at § 11.41.
Under this program, an event's management that wishes to have DQPs perform inspections contracts with an HIO, which then provides the DQPs who perform the inspections. To participate in the event, a competitor must agree to be bound by that HIO's procedures. Traditionally, HIOs imposed penalties for soring violations and provided procedures for appealing those penalties. HIOs were free, however, to vary their penalties and appeals procedures, and competitors had a choice to select events, which could be based in part on a particular HIO's penalties and procedures. Both parties admit that HIO penalties varied, with some imposing mandatory suspensions for certain soring violations and others declining to impose the more stringent penalties.
For years the USDA has sought to reduce such disparities among HIOs. Initially, the USDA entered into voluntary " Operating Plans" with HIOs whereby cooperating HIOs agreed to impose certain penalties for particular violations and honor suspension lists from other HIOs. In 2010, the HIOs could not agree with the USDA on an operating plan. That same year the USDA Office of Inspector General released a report (the " OIG Report" ), which concluded that the private system of HPA enforcement through HIOs yielded inconsistent enforcement of the HPA and failed to address adequately the problem of soring.
As a result of the OIG Report, the USDA proposed the Regulation. It solicited public comments on the Regulation and adopted it as a Final Rule in June 2012. The Regulation requires that HIOs adopt mandatory minimum penalties for a number of soring violations as a condition of certification for participation in the DQP program. 9 C.F.R. § 11.25(c). Additionally, the Regulation requires HIOs to adopt an appeals process that " must be approved by the [USDA]," and " the appeal must be granted and the case heard and decided by the HIO or the violator must begin serving the penalty within 60 days of the date of the violation." Id. at § 11.25(e). The Regulation also reiterates that the USDA may institute its own enforcement proceedings pursuant to its authority under the HPA " with respect to any violation of the [HPA], including violations for which penalties are assessed in
accordance with this section." Id. at § 11.25(f).
We first consider whether Contender Farms and McGartland present a justiciable controversy. The USDA has raised an issue of standing and an issue of ripeness. We review both issues de novo, and we examine each in turn. Roark & Hardee LP v. City of Austin, 522 F.3d 533, 542 (5th Cir. 2008).
We begin with the basic proposition that the Constitution limits our jurisdiction to " Cases" and " Controversies." U.S. Const. Art. III, § 2. The doctrine of standing flows from this constitutional limitation and is an essential aspect of it. Lujan v. Defenders of Wildlife, 504 U.S. 555, 560, 112 S.Ct. 2130, 119 L.Ed.2d 351 (1992); Simon v. E. Ky. Welfare Rights Org., 426 U.S. 26, 37, 96 S.Ct. 1917, 48 L.Ed.2d 450 (1976). " At bottom, 'the gist of the question of standing' is whether [the parties invoking standing] have 'such a personal stake in the outcome of the controversy as to assure that concrete adverseness which sharpens the presentation of issues upon which the court so largely depends for illumination.'" Massachusetts v. Envtl. Prot. Agency, 549 U.S. 497, 517, 127 S.Ct. 1438, 167 L.Ed.2d 248 (2007) (quoting Baker v. Carr, 369 U.S. 186, 204, 82 S.Ct. 691, 7 L.Ed.2d 663 (1962)).
Contender Farms and McGartland can satisfy the constitutional elements of standing by " present[ing] (1) an actual or imminent injury that is concrete and particularized, (2) fairly traceable to the defendant's conduct, and (3) redressable by a judgment in [their] favor." Duarte ex rel. Duarte v. City of Lewisville, Tex., 759 F.3d 514, 517 (5th Cir. 2014). They must also support each standing element " in the same way as any other matter on which the plaintiff bears the burden of proof, i.e., with the manner and degree of evidence required at the successive stages of the litigation." Lujan, 504 U.S. at 561. We conclude that Contender Farms and McGartland satisfy each of the three elements.
We initiate our discussion by addressing a basic question that underlies all three elements of standing--" whether the plaintiff is himself an object" of the challenged regulation. Id. at 561. If a plaintiff is an object of a regulation " there is ordinarily little question that the action or inaction has caused him injury, and that a judgment preventing or requiring the action will redress it." Id. at 561-62. By contrast, " when the plaintiff is not himself the object of the government action or inaction he challenges, standing is not precluded, but it is ordinarily substantially more difficult to establish." Id. at 562 (internal quotation marks omitted). As this distinction ...