Matter of Ideal Dairy Farms, Inc. v. Barber, 116 A.D.2d 67 (1986)

The Commissioner of Agriculture and Markets has discretion under Agriculture and Markets Law § 258-b(5)(b) to determine whether a hearing is necessary to evaluate the reasonableness of a milk producer’s extension of credit to a milk dealer before allowing claims against the Milk Producers Security Fund.

Summary

This case concerns a challenge to the Commissioner of Agriculture and Markets’ determination to allow payments from the Milk Producers Security Fund to dairy farmers whose checks from Glen & Mohawk Milk Association were dishonored. The petitioners, consisting of licensed milk dealers and dairy farmers who did not deal with Glen & Mohawk, argued that payments were prohibited because Glen & Mohawk’s license had expired and that the Commissioner should have held a hearing to determine whether the claimants’ extension of credit to Glen & Mohawk was reasonable. The court held that the Commissioner had the discretion to determine whether such a hearing was necessary and that the dealer’s license had not expired. Therefore, the court reinstated the Commissioner’s determination.

Facts

In July 1983, checks issued by Glen & Mohawk Milk Association to dairy farmers for May’s milk deliveries were dishonored due to insufficient funds. No checks were issued for June’s milk. Unpaid farmers filed claims against the Milk Producers Security Fund, as per Agriculture and Markets Law § 258-b. The Commissioner ordered immediate payment of half of each certified claim from the fund.

Procedural History

Ideal Dairy Farms and other petitioners initiated a CPLR article 78 proceeding seeking to annul the Commissioner’s determination. Special Term denied the petition. The Appellate Division reversed and remitted the matter. The Court of Appeals granted leave to appeal.

Issue(s)

1. Whether payments to claimants of Glen & Mohawk are prohibited by statute (Agriculture and Markets Law, § 258-b, subd 5, par [d]) because the dealer is not licensed?
2. Whether the Commissioner was precluded from allowing claims arising out of the extension of credit by the claimants until a hearing is held to determine whether such extensions of credit constituted a reasonable exercise of business judgment?

Holding

1. No, because Glen & Mohawk was properly licensed within the meaning of subdivision 2 of section 401 of the State Administrative Procedure Act. The application of section 401 and the determination that the dealer’s license had not expired were correct.
2. No, because the statute commits the decision whether to take issue with the reasonableness of claimants’ extension of credit solely to the discretion of the Commissioner.

Court’s Reasoning

The court found that Glen & Mohawk was properly licensed, resolving the first issue against the petitioners. On the second issue, the court examined Agriculture and Markets Law § 258-b(5)(b), which states: “No claims against the producers security fund shall be allowed for * * * sales of milk by a producer to a milk dealer subsequent to its failure to pay within the time periods prescribed * * * where the commissioner finds, after due notice and opportunity of hearing, that such extension of credit, whether direct or indirect, to such milk dealer by the producer did not constitute a reasonable exercise of business judgment”. The court interpreted this language to mean that the Commissioner has discretion to determine whether a hearing is necessary. The Court stated, “Plainly, the statute commits the decision whether to take issue with the reasonableness of claimants’ extension of credit solely to the discretion of the Commissioner. If he concludes that there is reason to believe that the milk dealer failed to exercise reasonable business judgment in extending credit a hearing should be ordered. Inasmuch as the Commissioner’s investigation did not lead him to question the claimants’ business judgment, he was not required by the statute to hold a hearing on the issue.” The absence of a requirement for a mandatory hearing when the Commissioner does not question the claimants’ business judgment was crucial to the holding.