No. 13186 

IN THE SUPREME COURT OF THE STATE OF MONTANA 

19 7 6 

VITA-RICH DAIRY, INC., a corporation, 

and BEATRICE FOODS COMPANY, a corporation, 

Petitioners and Appellants, 

DEPARTMENT OF BUSINESS REGULATION OF THE 

STATE OF MONTANA, and BOARD OF MILK CONTROL 

OF THE STATE OF MONTANA, a division of the 

Department of Business Regulation, 

Respondents and Respondents. 

Appeal from: District Court of the First Judicial District, 

Honorable Peter G. Meloy, Judge presiding. 

Counsel of Record: 

For Appellants : 

Burton and Coder, Great Falls, Montana 

Howard C. Burton argued, Great Falls, Montana 

For Respondents: 

Harrison, Loendorf and Poston, Helena, Montana 

James T. Harrison, Jr. argued, Helena, Montana 

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Submitted: June 2, 1976 

Decided: G f 6 1976 

Filed : &U i 6 197p 
Mr. Justice John Conway Harrison delivered the Opinion of the 

Court. 

This is an appeal from the denial of a petition for 

injunctive relief, judicial review, and declaratory judgment 

by the district court, Lewis & Clark County. Appellants, 

Vita-Rich Dairy, Inc., Beatrice Foods Co., Clover Leaf Jersey 

Dairy, Inc., and James R. Hansen d/b/a Hansen's All Star Dairy, 

were petitioners in the district court. They object to certain 

paragraphs of rules adopted by the Board of Milk Control (Board), 

a division of the Department of Business Regulation of the State 

of Montana. Appellants make three specific objections: 

(1) They allege the Board did not have the power to 

regulate the transportation of fluid milk prior to an amendment 

to section 27-405, R.C.M. 1947, effective April 7, 1975, and 

since the rules were adopted and promulgated prior to that date, 

the entire administrative process must be redone. 

(2) The Milk Control Board by regulating the manner of 

termination of a milk producer's contract destroyed the mutuality 

of contract between processors and producers and thereby deprived 

them of their freedom of contract. Appellants also argue that 

the fact the procedure for a producer to terminate his contract 

with a processor is different from the procedure for a processor 

to terminate his contract with a producer constitutes a violation 

of the equal protection clause. 

(3) The rules which require a processor to pay for all 

milk received from a producer amount to an extra formula milk 

price increase, were not promulgated with the proper administrative procedure. 

This appeal is from an administrative decision. A court 

reviewing an administrative decision must consider three basic 

principles in determining what the scope of that review should 

be : 

First, The Court recognizes that limited judicial review 
strengthens the administrative process. Limited review encourages 

the full and complete presentation of evidence to the agency by 

the participants in the administrative process by penalizing 

those who attempt to add new evidence or new lines of argument 

at the judicial review level. A de novo review encourages the 

participants to save their evidence until it really counts and 

present it first to the reviewing court rather than to the 

agency which has the knowledge and experience in the field it 

regulates. The result is that the agency which has the knowledge 

and experience in its substantive field does not hear all the 

evidence, making it difficult to make a proper decision. It also 

results in the decision being made by a reviewing court which 

does not have the specialized knowledge or experience in the area. 

Appellants recognize this in their brief, when they point out: 

"Proceedings before the Board of Milk Control 

might, to the casual observer, appear to start 

in the middle and produce only vague testimony. 

This results from the fact that the members of 

the Board and nearly all persons appearing before the Board are thoroughly knowledgeable 

concerning the operation of the milk industry. - In consequence, the basics are skipped since 

it is assumed that everyone involved is aware 

of them. Some members of the Court may not be 

so knowledgeable concerning the operation of the 

milk industry." (Emphasis supplied.) 

4 Davis ~dministrative Law, § 28.21 points out: 

" * * * Experience has now proved that judicial 

review impairs an administrative program only 

when the review involves undue substitution of 

judicial for administrative judgment on problems within the agency's special competence." 

Second. Judicial economy requires that the various 

functions involved in the administrative process must be divided 

on the basis of comparative abilities and qualifications of each 

body. Courts are specialists in constitutional issues, statutory interpretation, the requirements of a fair hearing, and 

the determination that a finding is supported by substantial 

evidence. The agency is a specialist in the substantive matter 
that the legislature delegated to it to regulate. 

Third. The agency's actions need a balancing check. 

In the absence of a body within the agency which is separated 

from the actual decision and in which all parties have confidence, 

a limited judicial inquiry to see (a) that a fair procedure was 

used, (b) that questions of law were properly decided and, (c) 

that the decision is supported by substantial evidence, is necessary. 

It is these principles which underlie the Montana Administrative Procedure Act, section 82-4216, R.C.M. 1947, providing 

for judicial review of contested cases. However, this section 

did not narrow the scope of review if the original enacting statute which created the agency provided for broader review. 

Section 82-4216(1) provides in pertinent part: 

"This section does not limit utilization of or 

the scope of judicial review available under 

other means of review, redress, relief, or trial 

de novo provided by statute." 

The comments to the 1961 Uniform Law Commissioners' Revised Model 

State Administrative Procedure Act on Section 15(a) [Judicial 

Review of Contested Cases.] which is identical to section 82- 

4216 (1) , R.C.M. 1947, state: 

"An important question that arises under subsection (a) is whether or not the review provisions should be made exclusive and all other 

review provisions on the statute books should 

be repealed. Each state will have to deal 

with this matter as the local circumstances 

dictate. On the one hand, if there is but one 

mode and scope of review, the state procedural 

structure is greatly simplified. On the other 

hand, local considerations, including practical 

considerations connected with obtaining adoption 

of the Model Act, may indicate or even require 

the retention, at least for the moment, of preexisting methods of judicial review." 

At the time of enactment the Montana legislature left the preexisting judicial review statutes intact. However, the Milk 

Control Board's review provision, section 27-428, R.C.M. 1947, 
was repealed effective July 1, 1975. This appeal was taken 

prior to that time, therefore section 27-428 applies to this 

case, allowing for a broader scope of judicial review. The 

language of section 27-428, R.C.M. 1947, provides the procedure 

for an appeal to the district court. By inference, the section 

allows the district court a broader scope of review. The Montana Administrative Procedure Act limits review to the record 

and allows additional evidence only where need is shown to the 

court and then allows that evidence to be taken only before the 

agency. The Milk Board review provisions of section 27-428, 

R.C.M. 1947, allow evidence to be presented to the court. 

In this case, however, no additional evidence was taken before 

the court. The effect, for this case, is that the scope of 

review is limited to the record, no other evidence having been 

offered. 

Clearly, within the scope of judicial review is appellants' first contention that the Board had no power to regulate 

the hauling rates charged producers by the processors. This is 

a matter of statutory interpretation. 

The transcript of the hearing held September 10, 1974, 

before the Milk Control Board explains by testimony the reason 

the Board was involved in the regulation of hauling rates. 

In the middle 1960's "some of the producers got the idea 

that possibly each time the Board granted the producers an 

increase, a corresponding raise in the hauling rates ensued 

* * *." The processor charges the producer for hauling the 

producer's milk to the processor's plant; this charge is offset 

against the amount the processor pays the producer for his 

milk; and, if each price increase granted to the producer is 

matched by an increase in the amount offset by the processor 

for hauling, the net effect would be that the producer would 
get no increase and the Board would be powerless to set the 

price paid to producers for their milk. The Board in its 

next price order (#721, effective May 1, 1972) established 

this presumption: 

"Any substantial or significant raising of the 

rates charged producers for hauling their milk 

from farm-to-plant after the effective date of 

this official order and without good cause shown, 

will be presumed to be a dilution of the price 

to be paid said producers for their Class I 

milk, and a violation of this official order." 

Appellants argue this order and all subsequent orders, 

including the one before the Court which establishes a statewide 

uniform method for determining hauling rates, exceed the Board's 

power. 

The section of the Milk Control Act which enumerates 

the Board's general powers is section 27-405, R.C.M. 1947, which 

prior to amendment effective April 7, 1975, provided: 

"The Board is hereby vested with the powers, 

and it shall be its duty to supervise, regulate 

and control the milk industry of the state of 

Montana, including the production, transportation, processing, storage, distribution and 

sale of milk in the state of Montana for consumption within the state * * *." 

The amendment, Laws of 1975, Chap. 267, effective April 7, 

1975 is entitled: 

"AN ACT CLARIFYING THE AUTHORITY OF THE DEPARTMENT 

OF BUSINESS REGULATION OVER MILK TRANSPORTATION 

RATES; AMENDING SECTION 27-405, R.C.M. 1947; AND 

PROVIDING AN IMMEDIATE EFFECTIVE DATE." 

This amendment added this clause after the word "transportation": 

" * * * including transportation rates which 

distributors, contract haulers, and others 

charge producers * * *." 

Standing alone the statute, even in its pre-amendment form, is 

clear. The Board has the power to "supervise, regulate and 

control the milk industry of the state of Montana, including 

* * * transportation * * *." The 1975 amendment makes express 

reference to the type of rate regulation in dispute here, to 
clarify that the Board had power over these rates. 

Appellants argue that a subsequent section of the Milk 

Control Act clouds the clear mandate of section 27-405, R.C.M. 

1947. First, since the statute prior to its 1971 revision included hauling and handling as factors to be considered in setting 

the price of milk, that once the Board had compensated the producer for hauling costs, the Board was powerless to further regulate hauling rates. 

Second, they argue section 27-407 (11) , R.C.M. 1947, of 

the Milk Control Act has the effect of removing from the Board 

the power to regulate farm-to-plant hauling rates. That section 

provides : 

"No allowance for freight, other than freight 

for transportation of milk from the farm to 

plant, shall be charged to a producer by a distributor or dealer unless it is found and ordered 

by the board, after notice and hearing in the 

manner hereinbefore specified, that such an 

additional freight allowance is necessary to 

permit the movement of milk in the public interest." 

Appellants rely on the clause "other than freight for transportation of milk from farm to plant" arguing that this excepts 

farm-to-plant hauling rates from the Board's power to regulate. 

Dealing with appellants' second argument first, this 

Court has often said in construing legislative intent statutes 

must be read and considered in their entirety and legislative 

intent may not be gained from the wording of any particular 

section or sentence, but only from a consideration of the whole. 

Home Bldg. & Loan v. Board of Equalization, 141 Mont. 113, 375 

P.2d 312; Teamsters v. Cascade Co. School District No. 1, 162 

Mont. 277, 280, 511 P. 2d 339. On the whole section 27-407 (11) , 

R.C.M. 1947, speaks to the procedure and requirements for allowing of interplant hauling charges. It requires that these charges 

be allowed only after a full hearing and a showing that the 

interplant movement is in the public interest. The normal 
farm-to-plant rates are excepted from the heavy burden of having 

to make such a showing, but they are not exempt from the power 

of the Board to regulate. 

Before amendment in 1971, the requirement that "hauling, 

handling" charges be considered in setting the price of milk 

was replaced by section 27-407(5), R.C.M. 1947, which requires 

that among the factors to be considered in establishing the milk 

price formula is: 

"(h) The need, if any, for freight or transportation charges to be deducted by distributors 

from producer prices for bulk milk * * *." 

This section does not require that transportation rates be included in the price of milk, it only requires that the Board 

consider if a deduction is proper. This section can in no way 

be construed to prohibit the Board from regulating the rates 

charged to producers for hauling their milk. 

Upon careful examination, we find nothing in the Milk 

Control Act which in any way limits the power granted in clear 

and unequivocal terms in section 27-405, R.C.M. 1947, to the 

Milk Control Board to "supervise, regulate and control the milk 

industry of this state, including * * * transportation * * *." 

The Board was within its power to establish rules, as it did 

here, creating a statewide uniform method of setting hauling 

rates. 

Next, appellants object to these Regulations, Sections 

21, 22, 23, of MAC 8-2.12(1)-S1200: 

"(21) Inferior quality or non-compliance with 

the lawful Regulations of duly constituted 

health or sanitation agencies shall be reasons 

for the rejecting of producer milk. In all 

cases the rejection of the milk must be supported by a statement to the producer setting 

forth the reason(s) for which the milk was rejected. A copy of said statement must be mailed 

to the Department. 

"(22) Except for persistent repetition of the 

cases set forth in paragraph (21) hereof, no 
producer's contract or purchasing agreement, 

whether express or implied, may be terminated 

by a distributor except for cause after notice 

and hearing by the Department of Business 

Regulation in accordance with the rules and 

procedures prescribed by the Montana Administrative Procedure Act. 

"(23) No producer shall terminate his contract 

or selling agreement with any distributor except 

by giving at least thirty (30) days' WRITTEN 

notice to the distributor and to the Department 

his intention to terminate; PROVIDED, however, 

that nothing herein shall prevent a dealer and 

producer from providing by WRITTEN contract or 

agreement for a shorter or longer period of 

notice, PROVIDED, FURTHER, however, that the 

producer must be paid in full by the 15th day 

of the month following the month of such termination. " 

Appellants object to these regulations on two constitutional 

grounds. First, these regulations violate the parties "freedom 

of contract" and second, the different treatment of processors 

and producers violates the equal protection clause. 

This Court held the Milk Control Act to be constitutional 

in Milk Control Board v. Rehberg, 141 Mont. 149, 376 P.2d 508. 

There the Court discussed the leading United States Supreme Court 

milk regulation case, Nebbia v. New York, 291 U.S. 502, 54 S.Ct. 

505, 78 L.ed 940. In answering a similar equal protection attack Nebbia set forth the basic test. It requires that if the 

legislature has the power to control the area, Rehberg indicates 

that under Montana law it does, the classification made must not 

be arbitrary or unreasonable, there must be distinctions which 

justify the difference of treatment. This test is equally applicable whether the legislature or an agency created by the legislature makes the classification. 

There was testimony before the Board to the effect "in 

the good old days a fellow with a few cows and a shed barn could 

go into the production of milk". Today, however, entry into the 

dairy farming business requires a large investment. Considering the problem before us, there are a number of problems that 
the producer faces in order to stay in business. Most producers depend on a single processor who buys all of that producer's milk. If a producer was terminated, the sole source 

of the revenue needed to recoup his large investment and to 

provide support for him and his family would be gone. The 

producers can go to the Board to get protection against the 

economic catastrophe which would result from termination without cause. The processor who deals with several producers 

would suffer a good deal less harm when his contract with a 

producer was terminated than would a producer terminated by the 

only processor in the area. It would be less difficult for a 

processor to find another producer than for a producer to find 

another processor. These are the distinctions which justify 

the difference in treatment. The evidence before the Board 

shows the difference in treatment is not arbitrary and is a 

reasonable distinction. 

Nebbia v. New York, 291 U.S. 502, 54 S.Ct. 505,78 L.ed 

940, 948, 950, 951, deals with the freedom of contract argument, 

the Court pointed out: 

"Under our form of government the use of property 

and the making of contracts are normally matters 

of private and not of public concern. The general 

rule is that both shall be free of governmental 

interference. But neither property rights nor 

contract rights are absolute; for government cannot 

exist if the citizen may at will use his property 

to the detriment of his fellows, or exercise his 

freedom of contract to work them harm. Equally 

fundamental with the private right is that of the 

public to regulate it in the common interest. 

"The Fifth Amendment, in the field of federal 

activity, and the Fourteenth, as respects State 

action, do not prohibit governmental regulation 

for the public welfare. They merely condition the 

exertion of the admitted power, by securing that the 

end shall be accomplished by methods consistent with 

due process. And the guaranty of due process, as 

has often been held, demands only that the law shall 

not be unreasonable, arbitrary or capricious, and 
that the means selected shall have a real and 

substantial relation to the object sought to be 

attained. 

"The Constitution does not guarantee the unrestricted privilege to engage in a business or to conduct 

it as one pleases. * * *" 

The discussion above shows the rule is reasonable and 

not arbitrary. The objective of the Board was to minimize the 

apprehension on the part of producers that they might be terminated without cause and thus to encourage them to remain in the 

milk production business. The goal of the Milk Board is to 

maintain a healthy milk industry in Montana. The manner in 

which the Board seeks to achieve its objective is by providing 

for a hearing and allowing termination to be for cause only is 

fair to both parties. The hearing provides the parties a chance 

to air the controversy and the Board is an impartial expert body, 

which is ideal for making a fair and knowledgeable decision. 

Appellants' last issue is to that regulation which requires 

them to pay for all fluid milk they receive from the producers. 

Before the 1971 amendment section 27-403, R.C.M. 1947, required 

that the processor pay the Class 111 price for all skim milk 

"used". The 1971 amendment eliminated this language. The new 

rules reflect the change. Appellants argue that since they 

must pay for all milk received and are no longer allowed to 

deduct a fixed percentage for shrinkage, the milk producer will 

receive a larger total payment for the milk he supplies the 

processor. This, they contend, amounts to an extra formula milk 

price increase not in conformity with the proper administrative 

procedure, therefore the administrative procedure must be redone. 

First, there was no extra formula milk price increase. 

~t is conceded that the rule change here challenged has the same 

effect as would a milk price increase whether extra formula or 
not, it gives the producer more money for his milk. This was 

not the object of the rule, only an incidental result. The 

producers sought this rule for two reasons, 1) they felt that 

their milk is an item of value, 2) they felt if processors had 

to pay for all milk they receive, they would be more efficient 

and careful with it than if they did not have to pay for milk 

they waste. 

The parties involved in this appeal received the detailed 

notice which clearly stated the nature of the proposed rule 

changes. Counsel for appellants was present at the hearing and 

argued against the changes and following the hearing submitted 

a brief to the Milk Control Board opposing the changes. There 

was no defect in the due process requirement of notice, no surprise, 

nor any other procedural unfairness which would require that the 

administrative process be repeated. Appellants knew of the rule 

changes and their effect and made their objections known to the 

Board. Based on the evidence before it, the Board decided to promulgate the rules. 

There is no constitutional infirmity and no claim that 

the agency exceeded its statutory authority. This Court finds 

that a fair procedure was used, and the decision was based on 

the evidence. 

The order of th rict court is affirmed. 

We concur: / 

Hon. Edward T. Dussault, District 

Judge, sitting in place of Mr. Chief 

Justice James T. Harrison. 

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