Court puts pork on a stick

On Friday, August 14, 2015, the U.S. Court of Appeals for the District of Columbia reversed a victory the National Pork Board had achieved at the District Court level.

The Humane Society of the United States (HSUS), an Iowa pork producer, Harvey Dillenburg, and the Iowa Citizens for Community Improvement (ICCI) were granted standing to sue the National Pork Board and the Secretary of Agriculture. The Court specifically granted Mr. Dillenburg standing to bring his action against the Secretary and refused to address the standing of HSUS and ICCI. The plaintiffs claim the National Pork Board “…has misappropriated millions of dollars from a checkoff fund for pork promotion into which producers are required to pay.”

Friday’s Court of Appeals decision means Mr. Dillenburg may proceed with his lawsuit, which will include discovery and even possibly a trial. Simply put, pork lost a big case. (It is odd neither the National Pork Board nor the NPPC were parties to this action directly impacting them.)

Readers of this blog know the National Pork Board is a quasi-governmental entity which administers the Pork Order under the Pork Act. The Pork Board is to conduct research and consumer campaigns which expand the market for pork products. Pork producers pay an assessment or checkoff fee on each hog they sell. We all remember the advertising campaign, Pork, the other white meat.

The case centers around a decision made by the Secretary of Agriculture in 2006 which approved a purchased from the NPPC by the Pork Board for $60 million of the Pork slogan. The deal allowed the Pork Board to pay from checkoff assessments to NPPC $3 million annually for 20 years. After 5 years of owning the slogan however, the Pork Board adopted a new motto and retired the other white meat advertising slogan.

Mr. Dillenburg claimed the Board paid an inflated amount for the slogan as a way of helping NPPC to do lobbying on policy issues. Checkoff boards such as Pork cannot lobby congress. Checkoffs may only engage in education and promotion of the commodity in question.

The District Court initially dismissed this case on a Motion to Dismiss and the Court of Appeals reversed declaring the District Court made a mistake. The opinion spends several pages discussing whether Mr. Dillenburg has standing or is harmed sufficiently to allow the suit to proceed. Dillenburg claimed the other white meat slogan was worth much less than its $60 million purchase price. The Court writes that “Between 2001 and 2004, the Board paid the Council one dollar per year to license the slogan. The opinion states, “In 2004, the Board negotiated a new 5-year license with the Council, providing that payments would increase from one dollar per year to $818,000 for three years before reverting back to one dollar per year for the final two years.”

The Court cites the Pork Board’s own economist, who “…recommended that the Board pay no more than $375,000 annually to license the mark.”

The Court of Appeals makes it clear it does not believe the Secretary of Agriculture and the Pork Board. The Court writes that plaintiffs’ complaint has alleged facts and that the Pork Board’s purchase of the other white meat slogan “…was not negotiated at arm’s length, which increased the plausibility of allegations that the [National Pork] Board paid too much.”

The Appeals Court then discusses how the Pork Board and NPPC have been intertwined “intimately.” The Court draws negative inferences from the fact that NPPC had lobbied for the Pork Act and the Pork Order. There is a suggestion the two entities are too intertwined, which taints the relationship.

It is clear the court does not understand how a policy group for a commodity always starts the campaign for a checkoff program and there is nothing sinister about this process, as implied by the Court.

The Court concludes the other white meat slogan “…is likely worth substantially less than the $3 million per year the Board pays for it.”

The Court believes the Pork Board has made “…allegedly unlawful overpayments for an advertising campaign it does not use [to] divert funds from other promotions.” As a result, the Court of Appeals concludes that such a misuse of checkoff assessment funds “cognizably harms” Mr. Dillenburg’s financial status.

In light of all of these facts, the Court says Mr. Dillenburg may proceed to discovery, motion practice or a trial in U.S. District Court. Pork has indeed been skewered.

Courtesy Gary Baise