### No. 13186 IN

### THE SUPREME COURT OF THE STATE OF MONTANA 19 

### 76

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 theFirstJudicial 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 andPoston, Helena, Montana James T. Harrison, 

### Jr. argued, Helena, Montana

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### Submitted: June 

### 2, 1976 Decided: 

## Gf

## 6

## 1976 Filed: 

## &U i

## 6197pMr. 

### 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 districtcourt, 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 inthe districtcourt. They object tocertain 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 fluidmilk prior toan amendment to section 27-405, R.C.M. 

### 1947, effectiveApril 7, 

### 1975, and since the ruleswere adopted and promulgated prior tothat date, the entireadministrativeprocess must be redone. (2) 

### The Milk Control Board by regulating themanner of termination of a milk producer's contract destroyed themutuality of contractbetween processors and producers and thereby deprived them of their freedom of contract. Appellants alsoargue 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 topay for all 

### milk received from a producer amount toan extra formula milk price increase, were

### not promulgated with theproper administrativeprocedure. This appeal is 

### from an administrativedecision. A 

### court reviewing an administrative decisionmust consider three basic principles indetermining what the scope of thatreview should be: First, 

### The Court recognizes that limited judicial reviewstrengthens the administrative process. Limited review encourages the full and complete presentation of evidence tothe agency by the participants inthe administrativeprocess by penalizing those who attempt toadd new evidence or new lines of argument atthe judicial review level. A de novo review encourages the participants to save their evidence until 

### it really counts and present 

### it firsttothereviewing court rather than to the agency which has the knowledge and experience inthe field it regulates. The result 

### is that the agency which has the knowledge and experience in 

### its substantive field does not hear allthe evidence, making it difficult tomake a proper decision. It also results inthe decision being made by a reviewing court which does not have the specialized knowledge or experience inthe area. Appellants recognize this in their brief, when they point out: "Proceedings before the Board of Milk Control might, tothe casual observer, appear to start inthemiddle and produce only vague testimony. This results from the fact that themembers of the Board and nearly allpersons appearing before the Board arethoroughly knowledgeable concerning the operation of themilk 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 administrativeprogram only when the review involves undue substitution of judicial for administrativejudgment on problems within the agency's special competence." Second. Judicial economy requires that the various functions involved in the administrativeprocess must be divided

on the basis of comparative abilities and qualifications of each body. Courts are specialistsinconstitutional issues, 

### statutory interpretation, the requirements of a fairhearing, and the determination that a finding is supported by substantial evidence. The agency 

### is a specialist inthe substantive 

### matterthat the legislature delegated to it toregulate. 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 inwhich allparties have confidence,

a limited judicial inquiry to see (a) that a fairprocedure 

### 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 inpertinent part: "This section does not 

### limitutilizationof or the scope of judicial review availableunder othermeans of review, redress, relief, or trial de novo provided by statute." The comments to the 1961Uniform Law Commissioners' Revised Model StateAdministrative 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 arisesunder subsection 

### (a) is whether or not the review provisions should be made exclusive and allother review provisions on the statutebooks should be repealed. Each state

### willhave todeal with thismatter asthe local circumstances dictate. On the one hand, if there 

### is but one mode and scope of 

### review, the stateprocedural 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, atleast for themoment, of preexisting methods of judicial review." Atthe time of enactment the Montana legislature leftthe 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 tothis 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 districtcourt. By inference, the section allows the districtcourt a broader scope of review. The Montana Administrative Procedure Act 

### limitsreview to the record and allows additional evidence only where need is shown tothe court and then allows that evidence tobe taken only before the agency. The Milk Board review provisions of section 27-428, R.C.M. 1947, allow evidence tobe presented tothe 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 tothe record, no other evidence having been offered. Clearly, within the scope of judicial review is appellants' firstcontention that the Board had no power toregulate 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 inthe regulation of hauling rates. In the middle 1960's "some of the producers got the idea that possibly each 

### timethe Board granted the producers an increase, a corresponding raise inthe 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 effectwould be that the producer wouldget no increase and the Board would be powerless to set the price paid toproducers for their milk. The Board in 

### its next price order (#721, effectiveMay 

### 1, 1972) established thispresumption: "Any substantial or significant raising of the rates charged producers for hauling theirmilk from farm-to-plant after the effective dateof this official order and without good cause shown, 

### willbe presumed tobe a dilutionof theprice tobe 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 sectionof theMilk Control Actwhich enumerates the Board's general powers is section 27-405, R.C.M. 1947, which prior toamendment effectiveApril 7, 1975, provided: "The Board is hereby vested with the powers, and it shall be 

### its duty to supervise, regulate and control themilk industry of the stateof Montana, including the production, transportation, processing, storage, distribution and saleof milk inthe stateof 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 themilk industry of the state of Montana, including 

## * * * transportation

## * * *." The 1975 amendment makes express reference to the type of 

### rate regulation indispute here, toclarify that the Board had power over these rates. Appellants argue that a subsequent sectionof theMilk Control Act clouds the clear mandate of section 27-405, 

### R.C.M. 1947. First, since the statuteprior to 

### its 1971revision included hauling and handling as factors tobe 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 theboard, after notice and hearing in the manner hereinbefore specified, that such an additional freight allowance 

### isnecessary to permit the movement of milk inthe public interest." Appellants rely on the clause "other than freight for transportation of milk from farm toplant" arguing that this excepts farm-to-plant hauling rates from the Board's power toregulate. Dealing with appellants' second argument first, this Court has often said inconstruing legislative intent statutes must be read and considered intheir entirety and legislative intentmay not be gained from the wording of any particular section or sentence, but only from a consideration of thewhole. Home Bldg. & Loan v. Board of Equalization, 141Mont. 113, 375 P.2d 312; Teamsters v. Cascade Co. School DistrictNo. 1, 162 Mont. 277, 280, 511 P.2d 339. On the whole section 27-407 (11) 

## , R.C.M. 1947, speaks tothe procedure and requirements for allowing of interplant hauling charges. It requires that these charges be allowed only after a fullhearing and 

### a showing that the interplant movement 

### is in thepublic interest. The normalfarm-to-plant rates are excepted from the heavy burden of having tomake such a showing, but they arenot exempt from the power of the Board toregulate. 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 tobe considered in establishing the milk price formula is: "(h)The need, if any, for freight or transportation charges tobe 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 isproper. This section can inno way be construed toprohibit the Board from regulating the rates charged toproducers for hauling theirmilk. Upon careful examination, 

### we find nothing in the Milk Control Act which in any way 

### limitsthe power granted inclear and unequivocal 

### terms in section 27-405, 

### R.C.M. 1947, tothe Milk Control Board to "supervise, regulate and control themilk industry of this state, including

## * * 

## * transportation

## * 

## * *." The Board was within 

### itspower to establish rules, 

### as it did here, creating a statewide uniform method of setting hauling rates. Next, appellants object tothese 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. Inall cases the rejection of the milk must be supported by a statement tothe producer setting forth the reason(s) forwhich themilk was 

### rejected. A copy of said statement must be mailed to the Department. "(22)Except for persistent repetition of the cases set forth inparagraph (21) hereof, noproducer'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 inaccordance 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 atleast thirty (30) days' WRITTEN notice tothe distributor and tothe Department his intention toterminate; 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 infullby the 15thday of themonth following themonth of such termination. " Appellants object tothese 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 tobe constitutional inMilk Control Board v. Rehberg, 141Mont. 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 legislaturehas the power tocontrol the area, Rehberg indicates thatunder Montana law 

### it does, the classificationmade must not be arbitrary orunreasonable, theremust be distinctionswhich justify the differenceof treatment. This test 

### is equally applicablewhether the legislature or an agency created by the legislature makes the classification. There was testimony before the Board tothe effect "in the good old days a fellowwith 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 area number of problems thatthe producer faces inorder to stay inbusiness. Most producers depend on a singleprocessor who buys allof that producer's milk. If a producer 

### was terminated, the sole source of the revenue needed torecoup his large investment and to provide support for him and his family would be gone. The producers can go tothe Board toget protection against the economic catastrophewhich 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 inthe area. Itwould be 

### less difficult for 

### a processor tofind another producer than for a producer tofind another processor. These are the distinctions which justify the difference intreatment. The evidence before the Board shows thedifference intreatment 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, dealswith the freedom of contract argument, the Court pointed out: "Under our form of government theuse of property and themaking of contracts arenormally matters of private and not of public concern. The general rule 

### is thatboth shallbe freeof governmental interference. But neither property rights nor contract rights are absolute; for government cannot exist if the citizenmay 

### atwilluse hisproperty tothedetriment of his fellows, or exercise his freedom of contract towork them harm. Equally fundamental with theprivate right is that of the public toregulate 

### it inthe common interest.

"The FifthAmendment, inthe fieldof federal activity, and the Fourteenth, asrespects State action, do not prohibit governmental regulation for thepublic 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 oftenbeen held, demands only that the law shall not be unreasonable, arbitrary orcapricious, andthat the means selected shall have a real and substantial relation tothe object sought tobe attained.

"The Constitution does not guarantee the unrestricted privilege toengage in a business or toconduct it asone pleases. 

# * * *" The discussion above shows the rule 

### isreasonable and not arbitrary. The objective of the Board was tominimize the apprehension on the part of producers that they might be 

### terminated without cause and thus toencourage them toremain inthe milk production business. The goal of the Milk Board 

### is to maintain a healthy milk industry inMontana. The manner in which the Board seeks toachieve 

### its objective 

### isby providing for a hearing and allowing termination tobe for cause only is fair toboth parties. The hearing provides the parties a chance to airthe controversy and the Board is an impartial expert body, which 

### is ideal formaking a fair and knowledgeable decision. Appellants' last issue is tothat regulation which requires them topay for all fluid milk they receive from the producers. Before the 1971amendment section 27-403, 

### R.C.M. 1947, required that the processor pay the Class 111 price for all skim milk "used". The 1971amendment eliminated this language. The new rulesreflect the change. Appellants argue that since they must pay for allmilk received and areno longer allowed to deduct a fixed percentage for shrinkage, themilk producer 

### will receive a larger totalpayment forthemilk he supplies the processor. This, they contend, amounts toan extra formula milk price increase not inconformity with the proper administrative procedure, therefore the administrativeprocedure must be redone. First, there 

### was no extra formula milk price increase. ~tis conceded that the rule change here challenged has the same effect aswould a milk price increase whether extra formula ornot, it gives the producer more money for hismilk. This 

### was not the object of the rule, only an incidental result. The producers sought thisrule for two reasons, 1)they feltthat theirmilk 

### isan 

### itemof value, 2) they feltif processors had topay for allmilk they receive, they would be more efficient and careful with 

### it than if they did not have topay formilk they waste. The parties involved inthis appeal received the detailed notice which clearly stated the nature of the proposed rule changes. Counsel for appellants

### was present 

### atthe hearing and argued against the changes and following the hearing submitted

a brief tothe Milk Control Board opposing the changes. There



### was no defect inthe due process requirement of notice, no surprise,

nor any other procedural unfairness which would require that the administrativeprocess be repeated. Appellants knew of the rule changes and their effect and made their objections known tothe Board. Based on the evidence before it, the Board decided topromulgate the rules. There 

### is no constitutional infirmity and no 

### claimthat the agency exceeded 

### its statutory authority. This Court finds that a fair procedure 

### was used, and the decisionwas based on the evidence. The order of th rictcourt 

### is affirmed.

We concur: 

# /

Hon. Edward T. Dussault, District Judge, sitting inplace of Mr. Chief Justice

### James T. Harrison. 

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