Compassion Over Killing v. U.S. Food & Drug Administration

                 FOR PUBLICATION

 UNITED STATES COURT OF APPEALS
      FOR THE NINTH CIRCUIT

COMPASSION OVER KILLING, a non-           No. 15-15107
profit organization; ANIMAL LEGAL
DEFENSE FUND, a non-profit                   D.C. No.
organization; ELIZABETH BARRETT;          3:13-cv-01385-
ANDREA BOCK; LINDA CALBREATH;                   VC
JASON CANADA; JERI OPALK;
HUMBERTO RETANA,
                 Plaintiffs-Appellants,     OPINION

                  v.

U.S. FOOD & DRUG
ADMINISTRATION; MARGARET
HAMBURG, M.D., Commissioner;
AGRICULTURE MARKETING SERVICE;
DAVID R. SHIPMAN, Administrator;
FOOD SAFETY AND INSPECTION
SERVICE; ALFRED V. ALMANZA,
Administrator; FEDERAL TRADE
COMMISSION; EDITH RAMIREZ,
Chairwoman,
               Defendants-Appellees.



      Appeal from the United States District Court
         for the Northern District of California
      Vince G. Chhabria, District Judge, Presiding
2            COMPASSION OVER KILLING V. FDA

         Argued and Submitted December 14, 2016
                 San Francisco, California

                    Filed February 27, 2017

    Before: Michael Daly Hawkins, Marsha S. Berzon,
          and Mary H. Murguia, Circuit Judges.

                   Opinion by Judge Murguia


                          SUMMARY *


                           Rulemaking

    The panel affirmed the district court’s summary
judgment in favor of federal agencies in a lawsuit alleging
that the agencies acted arbitrarily and capriciously in
dismissing plaintiffs’ rulemaking petitions, which requested
that each agency promulgate regulations that would require
all egg cartons to identify the conditions in which the egg-
laying hens were kept during production.

    The panel held that the Food Safety and Inspection
Service did not act arbitrarily or capriciously in denying
plaintiffs’ rulemaking petition because the agency correctly
concluded that it lacked authority to promulgate plaintiffs’
proposed labeling regulations for shell eggs. The panel also
held that the Agricultural Marketing Service did not act
arbitrarily or capriciously in denying plaintiffs’ rulemaking

    *
      This summary constitutes no part of the opinion of the court. It
has been prepared by court staff for the convenience of the reader.
            COMPASSION OVER KILLING V. FDA                  3

petition because the agency correctly concluded that it
lacked the authority to promulgate mandatory labeling
requirements for shell eggs.

    The panel held that the Federal Trade Commission did
not act arbitrarily or capriciously in denying plaintiffs’
rulemaking petition. Specifically, the panel held that the
FTC reasonably denied plaintiffs’ petition in light of the
limited evidence before the FTC showing any “prevalent”
unfair or deceptive practices. The panel further held that the
FTC reasonably denied plaintiffs’ rulemaking petition based
on its discretion to combat any potentially misleading egg
labeling through ad hoc enforcement proceedings.

     The panel held that the Food and Drug Administration
barely met its low burden to clearly indicate that it
considered the potential problem identified in plaintiffs’
petition, and provide a reasonable explanation for not
initiating rulemaking.


                        COUNSEL

Monte M.F. Cooper (argued), Orrick Herrington & Sutcliffe
LLP, Menlo Park, California; Karen G. Johnson-McKewan,
Orrick Herrington & Sutcliffe LLP, San Francisco,
California; for Plaintiffs-Appellants.

Jeffrey E. Sandberg (argued) and Mark B. Stern, Attorneys,
Appellate Staff; Brian Stretch, Acting United States
Attorney; Benjamin C. Mizer, Principal Deputy Assistant
Attorney General; Civil Division, United States Department
of Justice, Washington, D.C.; for Defendants-Appellees.
4             COMPASSION OVER KILLING V. FDA

                              OPINION

MURGUIA, Circuit Judge:

    Plaintiffs Compassion Over Killing, the Animal Legal
Defense Fund, and six individual egg consumers submitted
rulemaking petitions to Defendants U.S. Food and Drug
Administration (“FDA”), Federal Trade Commission
(“FTC”), Agricultural Marketing Service (“AMS”), and
Food Safety and Inspection Service (“FSIS”), requesting
that each agency promulgate regulations that would require
all egg cartons to identify the conditions in which the egg-
laying hens were kept during production. Each agency
denied Plaintiffs’ rulemaking petition. Plaintiffs initiated the
underlying lawsuit claiming that each agency had acted
arbitrarily and capriciously in dismissing their rulemaking
petitions. The district court concluded that Defendants had
each acted reasonably in denying Plaintiffs’ petitions and
granted summary judgment in favor of Defendants. We have
jurisdiction pursuant to 28 U.S.C. § 1291, and we affirm. 1

                                    I.

  Plaintiffs submitted similar rulemaking petitions to the
FDA, FTC, AMS, and FSIS requesting that each agency

    1
      We grant Plaintiffs’ request for judicial notice of documents that
were omitted from the administrative record (Doc. No. 50). See Fed. R.
App. P. 10(e)(2)(C).

     We deny Plaintiffs’ request for judicial notice of two recent
newspaper articles (Doc. No. 67). These articles were not part of the
administrative record on which the agencies based their decisions to
deny Plaintiffs’ rulemaking petitions, and Plaintiffs have not “met [their]
heavy burden to show that the additional materials . . . are necessary to
adequately review” the agencies’ decisions. See Fence Creek Cattle Co.
v. U.S. Forest Serv., 602 F.3d 1125, 1131 (9th Cir. 2010).
            COMPASSION OVER KILLING V. FDA                  5

“take regulatory action to revise the current labeling
requirements for eggs at [21 C.F.R. §§ 101, 115, 160], and/or
to promulgate new regulations” that would require all egg
cartons to identify the conditions in which the egg-laying
hens were kept during production. The petitions specifically
proposed that each agency develop regulations that would
require all egg cartons to bear the labels “Free-Range Eggs,”
“Cage-Free Eggs,” or “Eggs from Caged Hens,” consistent
with the living conditions of the hens. In support of the
proposed regulations, Plaintiffs argued that there is a strong
consumer interest in buying eggs that are produced in cage-
free environments. Plaintiffs also argued that, without the
proposed regulations, consumers are being misled by certain
statements and images on egg cartons that imply that the
hens are being raised in cage-free environments. Plaintiffs
provided several examples of various egg labels that present
images of uncaged hens and contain phrases such as “all
natural” or “animal friendly,” arguing that these images and
phrases likely mislead a consumer to believe that the hens
are not being raised in cages. Plaintiffs also maintained that
their proposed regulations are necessary because eggs from
caged hens are nutritionally inferior to and carry a greater
risk of Salmonella contamination than eggs from free-range
hens.

    Each agency denied Plaintiffs’ petition for rulemaking.
The FSIS and AMS explained that they could not
promulgate the proposed regulations because they lacked the
authority to take the requested action. The FTC explained
that, based on the information Plaintiffs provided in the
petition, it could not conclude that current egg-labeling
practices were either “unfair or deceptive.” The FTC also
concluded that the petition had not sufficiently demonstrated
that any misleading practice was “prevalent,” as statutorily
required for rulemaking. Lastly, the FTC explained that the
6           COMPASSION OVER KILLING V. FDA

agency’s resources would be better used by combating any
potentially deceptive practices through individual
enforcement actions, rather than by promulgating new
regulations.

    The FDA denied Plaintiffs’ request for rulemaking
because it determined that Plaintiffs had failed to show that
current egg labels omitted a “material” fact by not indicating
the living conditions of the egg-laying hens. The FDA
specifically explained that it could not determine that this
information was material because Plaintiffs had not provided
persuasive evidence that eggs from caged hens are either less
nutritious or more likely to be contaminated with Salmonella
than eggs from uncaged hens. The FDA also explained that
consumer interest in the hens’ living conditions, alone, is
insufficient to establish that egg-production methods are a
material fact that would permit the FDA to issue the
requested regulations. Lastly, the FDA stated that it declined
to promulgate the proposed labeling regulations because it
could bring individual enforcement actions against any
misbranded eggs, and “it would choose to use its limited
resources on rulemakings of higher priority, such as those
that are of greatest public health significance or are
statutorily-mandated.”

    Plaintiffs filed this lawsuit, alleging that the FSIS, AMS,
FTC, and FDA had each acted arbitrarily and capriciously in
dismissing their rulemaking petitions. Plaintiffs moved for
summary judgment, and Defendants filed a cross-motion for
summary judgment, arguing that each agency had acted
reasonably in denying Plaintiffs’ rulemaking requests. The
district court granted summary judgment for Defendants.
Plaintiffs timely appealed.
            COMPASSION OVER KILLING V. FDA                  7

                             II.

    This Court reviews challenges to final agency action
decided on summary judgment de novo and pursuant to
Section 706 of the Administrative Procedure Act (“APA”).
Turtle Island Restoration Network v. Nat’l Marine Fisheries
Serv., 340 F.3d 969, 973 (9th Cir. 2003). The APA requires
the Court to “hold unlawful and set aside agency action,
findings, and conclusions found to be . . . arbitrary,
capricious, an abuse of discretion, or otherwise not in
accordance with law.” 5 U.S.C. § 706(2). When an agency
refuses to exercise its discretion to promulgate proposed
regulations, the Court’s review “is ‘extremely limited’ and
‘highly deferential.’” Massachusetts v. EPA, 549 U.S. 497,
527–28 (2007) (quoting Nat’l Customs Brokers &
Forwarders Ass’n of Am., Inc. v. United States, 883 F.2d 93,
96 (D.C. Cir. 1989)); see also Nat’l Mining Ass’n v. Mine
Safety & Health Admin., 599 F.3d 662, 667 (D.C. Cir. 2010)
(stating that an “‘agency’s refusal to institute rulemaking
proceedings is at the high end of the range’ of levels of
deference we give to agency action under our ‘arbitrary and
capricious’ review” (quoting Defenders of Wildlife v.
Gutierrez, 532 F.3d 913, 919 (D.C. Cir. 2008))).

                             A.

   Plaintiffs argue that the FSIS acted arbitrarily and
capriciously by denying their rulemaking petition based on
the agency’s conclusion that it lacks the authority to
promulgate the proposed regulations. Plaintiffs specifically
argue that the FSIS has the authority to regulate the labeling
of shell eggs under the Egg Products Inspection Act
(“EPIA”), 21 U.S.C. §§ 1031–56.

    The FSIS correctly concluded that it lacks the authority
to promulgate Plaintiffs’ proposed labeling regulations for
8           COMPASSION OVER KILLING V. FDA

shell eggs. The EPIA expressly distinguishes between the
terms “egg products” and “eggs,” and grants broad authority
to the FSIS to regulate the labeling only of “egg products.”
See 21 U.S.C. § 1036(a) (stating that the FSIS may
promulgate regulations mandating the disclosure of
information “to assure that [egg products] will not have false
or misleading labeling”); see also id. § 1033(f) (defining
“egg product” as “any dried, frozen, or liquid eggs, with or
without added ingredients, excepting products which contain
eggs only in a relatively small proportion”); id. § 1033(g)
(defining “egg” as “the shell egg of the domesticated
chicken, turkey, duck, goose, or guinea”). Because
Plaintiffs’ proposed labeling regulations concern only shell
eggs, they fall outside of the FSIS’s labeling jurisdiction
under the EPIA. Accordingly, we conclude that the FSIS did
not act arbitrarily or capriciously in denying Plaintiffs’
rulemaking petition.

                             B.

    Plaintiffs also argue that the AMS acted arbitrarily and
capriciously in denying their rulemaking petition based on
the agency’s conclusion that it lacks the authority to
promulgate mandatory labeling regulations. Plaintiffs
maintain that the AMS has the authority to issue their
proposed regulations under the Agricultural Marketing Act
of 1946 (“AMA”), 7 U.S.C. §§ 1621–39j.

    The AMS correctly concluded that it lacks the authority
to promulgate mandatory labeling requirements for shell
eggs. The relevant grant of authority in the AMA only
authorizes the AMS “[t]o develop and improve standards of
quality, condition, quantity, grade, and packaging, and
recommend and demonstrate such standards in order to
encourage uniformity and consistency in commercial
practices.” 7 U.S.C. § 1622(c) (emphasis added). There is no
            COMPASSION OVER KILLING V. FDA                 9

indication from this statutory language that Congress
intended to authorize the AMS to promulgate mandatory
labeling requirements for all shell eggs. Further, although
Plaintiffs correctly note that the AMS has previously
developed voluntary programs related to food labels, these
programs do not demonstrate that the AMS has the authority
to promulgate the mandatory regulations Plaintiffs sought.
See, e.g., Regulations Governing the Voluntary Grading of
Shell Eggs, 7 C.F.R. pt. 56. We therefore conclude that the
AMS also did not act arbitrarily or capriciously in denying
Plaintiffs’ rulemaking petition because the agency correctly
concluded that it lacks the authority to promulgate
mandatory labeling requirements for shell eggs.

                             C.

    Plaintiffs argue that the FTC acted arbitrarily and
capriciously by denying their rulemaking petition without
completing an appropriately substantive analysis of the
petition. Plaintiffs also argue that, because the FTC did not
appropriately review the rulemaking petition, the agency
should not be permitted to exercise its discretion to address
any misleading egg labeling through ad hoc enforcement
actions.

    The Federal Trade Commission Act (“FTCA”),
15 U.S.C. §§ 41–58, authorizes the FTC to prescribe “rules
which define with specificity acts or practices which are
unfair or deceptive” and “requirements . . . for the purpose
of preventing such acts or practices.” 15 U.S.C.
§ 57a(a)(1)(B). The FTC may initiate such rulemaking
proceedings, however, “only where it has reason to believe
that the unfair or deceptive acts or practices . . . are
prevalent.” Id. § 57a(b)(3). The FTCA states that an act or
practice is “prevalent” if the FTC has previously issued
cease-and-desist orders regarding the act or practice, or if
10          COMPASSION OVER KILLING V. FDA

“any other information available to the [FTC] indicates a
widespread pattern of unfair or deceptive acts or practices.”
Id. § 57a(b)(3)(A)–(B).

    In its letter denying Plaintiffs’ petition, the FTC
explained that it could not conclude that the potentially
unfair or deceptive labeling practices Plaintiffs challenge are
“prevalent” as that term is used in the FTCA. The FTC
specifically concluded, and Plaintiffs do not dispute, that the
agency has not issued any cease-and-desist orders
concerning the egg-labeling practices identified in their
petition. The FTC also reasonably concluded that Plaintiffs
had submitted insufficient evidence to establish that any
potentially unfair or deceptive egg-labeling practices were
“widespread.” While Plaintiffs submitted isolated examples
of potentially misleading egg labels and survey evidence
concerning consumer confusion over the word “natural,”
Plaintiffs have not identified any evidence submitted to the
FTC tending to indicate that such practices were sufficiently
widespread to justify promulgating their proposed
regulations. In light of the limited evidence before the FTC
showing any “prevalent” unfair or deceptive practices, the
FTC’s decision to deny Plaintiffs’ petition on this basis was
reasonable. See Massachusetts, 549 U.S. at 533 (requiring a
“reasonable explanation as to why [an agency] cannot or will
not exercise its discretion” to decline rulemaking).

    The FTC also reasonably denied Plaintiffs’ rulemaking
petition based on its discretion to combat any potentially
misleading egg labeling through ad hoc enforcement
proceedings. See SEC v. Chenery Corp., 332 U.S. 194, 203
(1947) (“[T]he choice made between proceeding by general
rule or by individual, ad hoc litigation is one that lies
primarily in the informed discretion of the administrative
agency.”). Here, the FTC explained that it has been
            COMPASSION OVER KILLING V. FDA                  11

successful in pursuing individual enforcement efforts
concerning misleading shell egg labeling in the past. Further,
the FTC considered its “limited . . . resources” and explained
that, in light of the numerous statutory requirements for
rulemaking under the FTCA, the “resource commitment
necessary to adopt a rule” similar to what Plaintiffs
requested “would be considerable.” These considerations
provide a separate, reasonable basis for denying Plaintiffs’
rulemaking request that is also sufficient to withstand
judicial review. See Massachusetts, 549 U.S. at 527 (“[A]n
agency has broad discretion to choose how best to marshal
its limited resources and personnel to carry out its delegated
responsibilities.”). We therefore conclude that the FTC did
not act arbitrarily or capriciously in denying Plaintiffs’
rulemaking petition.

                              D.

    Plaintiffs argue that the FDA acted arbitrarily and
capriciously in denying their rulemaking petition because
the agency failed to consider their claims that egg cartons are
widely misbranded not only because their labels omit
material information, but also because current labeling
practices affirmatively misrepresent the nature of the hens’
living conditions. Plaintiffs also argue that the FDA
improperly rejected their scientific evidence that the egg-
laying hens’ living conditions increase the risk of
Salmonella-contamination and negatively affect the
nutritional value of the eggs. Lastly, Plaintiffs contend that
because the FDA failed to appropriately review their
petition, the agency should not be permitted to summarily
exercise its discretion to prioritize other agency goals in
order to avoid addressing Plaintiffs’ request for rulemaking.

   The Federal Food, Drug, and Cosmetic Act (“FDCA”),
21 U.S.C. §§ 301–399f, prohibits the sale of misbranded
12          COMPASSION OVER KILLING V. FDA

food items. See 21 U.S.C. §§ 331(a). The FDA possesses
discretionary authority to “promulgate regulations for the
efficient enforcement of [the FDCA].” Id. § 371(a). Under
the FDCA a food item is “misbranded” if its label “is false
or misleading in any particular.” Id. § 343(a)(1). Food
labeling may be misleading through affirmative
representations or through an omission of a material fact. See
id. § 321(n).

    To the extent Plaintiffs’ petition argued that egg
production methods were an omitted material fact that
required disclosure because the hens’ living conditions
affect the likelihood of Salmonella-contamination or the
nutritional value of the eggs, the FDA explained that
Plaintiffs had provided insufficient reliable scientific
evidence to support these claims. While Plaintiffs dispute the
FDA’s decision to reject their scientific evidence, the Court
will not second guess the FDA’s conclusion that these
studies were insufficiently reliable, largely because they
failed to control for relevant variables. See N. Plains Res.
Council, Inc. v. Surface Transp. Bd., 668 F.3d 1067, 1075
(9th Cir. 2011) (“A court generally must be ‘at its most
deferential’ when reviewing scientific judgments and
technical analyses within the agency’s expertise.” (quoting
Balt. Gas & Elec. Co. v. Nat. Res. Def. Council, Inc.,
462 U.S. 87, 103 (1983))).

    To the extent Plaintiffs’ petition argued that egg-
production methods were an omitted material fact that
required disclosure in light of misleading affirmative
representations that appear on egg cartons, the FDA
explained that it could bring individual enforcement actions
against any such misbranded food, as it has done in the past.
The FDA also detailed its competing priorities given its
limited resources and explained it had determined that, even
            COMPASSION OVER KILLING V. FDA                 13

if certain egg-labeling practices are misleading, proposed
rulemaking was not the best use of its limited resources.

    The decision to take enforcement action against
misbranded eggs on a case-by-case basis, as opposed to
promulgating regulations that would apply to all egg
producers, is left to the broad discretion of the FDA. See
Chenery Corp., 332 U.S. at 203. Similarly, the agency’s
decision to prioritize other projects is entitled to great
deference by a reviewing court. See Massachusetts, 549 U.S.
at 527; see also In re Barr Labs., Inc., 930 F.2d 72, 76 (D.C.
Cir. 1991) (“[W]e have no basis for reordering [the FDA’s]
priorities. The agency is in a unique—and authoritative—
position to view its projects as a whole, estimate the
prospects for each, and allocate its resources in the optimal
way.”).

    We note, however, that such broad discretion should not
be construed as providing a blanket exception to APA
review in any matter involving the allocation of agency
resources. See WWHT, Inc. v. F.C.C., 656 F.2d 807, 814
(D.C. Cir. 1981) (“[W]e reject the suggestion that agency
denials of requests for rulemaking are exempt from judicial
review.”). In denying a petition for rulemaking, an agency
must, at a minimum, clearly indicate that it has considered
the potential problem identified in the petition and provide a
“reasonable explanation as to why it cannot or will not
exercise its discretion” to initiate rulemaking.
Massachusetts, 549 U.S. at 533; Ctr. for Biological Diversity
v. U.S. Fish & Wildlife Serv., 807 F.3d 1031, 1042–43 (9th
Cir. 2015) (stating that an agency action is considered
“arbitrary and capricious” if the agency has “entirely failed
to consider an important aspect of the problem” (quoting
Pac. Coast Fed’n of Fisherman’s Ass’ns v. Nat’l Marine
Fisheries Serv., 265 F.3d 1028, 1034 (9th Cir. 2001))).
14          COMPASSION OVER KILLING V. FDA

    Here, the FDA’s explanation for denying Plaintiffs’
rulemaking petition barely meets this low burden. The FDA
could have better addressed Plaintiffs’ evidence of
misleading representations that appear on egg cartons to
demonstrate that the agency fully appreciated one of the
primary bases for Plaintiffs’ rulemaking petition—that
information concerning egg-laying hens’ living conditions is
necessary in order to correct the affirmative representations
that frequently appear on egg labels and convey misleading
information. The FDA’s denial letter, however, reflects that
the agency did consider Plaintiffs’ evidence of affirmative
misrepresentations that appear on egg labels but ultimately
decided that individual enforcement actions would be
preferable to promulgating the proposed regulations.
Because the FDA is generally free to choose its procedural
mode of administration and prioritize agency goals, we see
no reason to remand the matter to the FDA to reconsider
Plaintiffs’ petition in this case.

                            III.

    For the reasons stated above, the FSIS, AMS, FTC, and
FDA each acted reasonably in denying Plaintiffs’
rulemaking petitions. Accordingly, we affirm the district
court’s grant of summary judgment to Defendants.

     AFFIRMED.