Source: https://supreme.justia.com/cases/federal/us/370/76/
Timestamp: 2019-04-21 04:34:41+00:00

Document:
Under § 8c of the Agricultural Adjustment Act, as amended and reenacted by the Agricultural Marketing Agreement Act of 1937, the Secretary of Agriculture issued orders regulating the marketing of milk in the New York-New Jersey region. To protect the prices received by milk producers in that region, he included in the orders a provision in effect requiring those who buy milk elsewhere and bring it into the region for sale as fluid milk to pay to the producers who regularly supply the region a "compensatory payment" equal to the difference between the minimum price set by the Market Administrator for fluid milk and the minimum price for surplus milk in the region.
Held: this requirement is invalid because it conflicts with § 8c(5)(G) of the Act, which, as shown by its legislative history, was intended by Congress to prevent the Secretary from setting up trade barriers to the importation of milk from other production areas in the United States. Pp. 370 U. S. 77-100.
decision rendered by the Court of Appeals for the Second Circuit, Kass v. Brannan, 196 F.2d 791. To resolve this conflict, we granted certiorari. 366 U.S. 957.
the New York-New Jersey marketing area "in accordance with the form in which or the purpose for which it is used." Milk that contains 3% to 5% butterfat-the usual proportion in ordinary liquid milk -- and is sold for fluid consumption is assigned to Class I. Milk that is used for cream (sweet and sour), half and half, or milk drinks containing less than 3% or more than 5% butterfat is classified in Class II. The remainder -- milk that is to be stored for a substantial period and used for dairy products such as butter and cheese -- is grouped in Class III. 7 CFR § 1002.37.
it leaves the plant and its ultimate use. Adjustments are then made among the handlers so that each eventually pays out-of-pocket an amount equal to the actual utilization value of the milk he has bought.
Under the Marketing Order here in question, it is primarily the handlers whose plants are located within the marketing area and who regularly supply that area with fluid milk who are regulated. All handlers who receive or distribute milk within the area are required to submit monthly reports to the Market Administrator, listing the quantity of milk they have handled and the use for which it was sold. But only the handlers operating "pool plants" -- i.e., plants which meet certain standards set out in 7 CFR §§ 1002.25-1002.29 [Footnote 4] -- must pay the producers from whom they buy the uniform price set by the Administrator. This price is calculated each month on the basis of the reports that are submitted. After determining the minimum prices for each use classification pursuant to formulas set out in 7 CFR § 1002.40, the Administrator computes an average price for the "pool" milk handled during that month. This figure is reached by first multiplying the "pool" milk disposed of in each class by the established minimum price for that class, and then adding the products to the "compensatory payments" made for nonpool milk. After certain minor adjustments are made, this sum is divided by the total quantity of "pool" milk sold in the market during the month. The quotient is a "blend price." With some adjustments to reflect transportation expenses, this uniform price must be paid to producers by all handlers maintaining "pool" plants. 7 CFR § 1002.66.
Adjustments among handlers are made by way of a "Producer Settlement Fund," into which each handler contributes the excess of his "use value" [Footnote 5] over the uniform price paid by him to his producer. Handlers whose "use value" of the milk they purchase is less than the "blend price" they are required to pay may withdraw the difference from the fund. The net effect is that each handler pays for his milk at the price he would have paid had it been earmarked at the outset for the use to which it was ultimately put. But the farmer who produces the milk is protected from the effects of competition for premium outlets since he is automatically allotted a proportional share of each of the different "use" markets.
§ 8c(7)(D) of the Act, 7 U.S.C. § 608c(7)(D), authorizes the Secretary to include in his regulating orders conditions that are incidental to terms expressly authorized by the statute, and that are "necessary to effectuate the other provisions of such order."
"(1) Pool handlers in the marketing area who are required to pay the minimum class prices for their milk may find their selling prices undercut by those of nonpool handlers dealing in outside milk purchased at an unregulated price."
"(2) Producers in the marketing area, whose 'blend price' depends on how much of the relatively constant fluid-milk demand they supply in a given month, may find the outside milk occupying a portion of the premium market, thus displacing the 'pool' milk and forcing it into the less rewarding surplus uses, with the ultimate effect of diminishing the 'blend price' payable to producers."
of one kind or another. The Order now before us is typical of 23 of these orders. [Footnote 9] The Order provides that a handler who brings "outside" milk into the New York-New Jersey area and sells it for fluid use must pay to the pool's producers, through the Producer Settlement Fund, an amount equal to the difference between the minimum prices for the highest and for the lowest use classifications prevailing in that area. In other words, for each hundredweight of non-pool milk sold for Class I use in the New York-New Jersey area, a payment equal to the difference between Class I and Class III prices must be made by the seller to the Producer Settlement Fund.
"a suitable charge on such unpriced milk in an amount sufficient to neutralize, compensate for and eliminate the artificial economic advantage for non-pool milk which necessarily is created by the classified pricing and pooling of pool milk under the order."
Id. at 8448. There seems little doubt that an assessment equal to the Class I-Class III differential would, in all but rare instances, nullify any competitive advantage that nonpool milk could have: only if the sum of the purchase price of the outside milk and the cost of its transportation to market were less than the Class III price would a handler find it profitable to bring such milk into the marketing area. But it must be obvious that this payment is wholly or partially "compensatory" -- i.e., puts pool and nonpool milk "on substantially similar competitive positions at source" (ibid.) -- only if the milk has been purchased at not more than the Class III price. If the purchase price of the nonpool milk exceeds the Class III price within the area, the effect of the fixed compensatory payment is to make it economically unfeasible for a handler to bring such milk into the marketing area.
be apparent that it is only if the milk is denied access to other marketing areas or if a prohibitive payment is assessed on its use elsewhere that it will depreciate in value to Class III levels. For if the milk can be freely shipped elsewhere for fluid use or if it is purchased in an area where prices paid to producers are regulated, it will command a higher price.
was "designed to compensate the pool for the loss of the Class I fluid milk utilization and . . . protect the uniform blend price in the marketing area." 287 F.2d at 730. It is only if the Secretary has been authorized by the statute to impose such economic trade barriers on the entry of milk into an area so as to protect the prices received by the pool producers that the present compensatory payment plan can be sustained as "necessary to effectuate" the expressly authorized provisions of this Order.
"No marketing agreement or order applicable to milk and its products in any marketing area shall prohibit or in any manner limit, in the case of the products of milk, the marketing in that area of any milk or product thereof produced in any production area in the United States."
This provision was first enacted into law as part of the Agricultural Adjustment Act of 1935, 49 Stat. 750, amending the Agricultural Adjustment Act of 1933, 48 Stat. 31. It was reenacted as part of the Agricultural Marketing Agreement Act of 1937, 50 Stat. 246, which reaffirmed the marketing order provisions of the 1935 Act after the processing tax had been struck down as unconstitutional in United States v. Butler, 297 U. S. 1.
Sauthoff of Wisconsin, 79 Cong.Rec. 9493, [Footnote 16] but no action was taken on that proposal.
"(g) No marketing agreement or order applicable to milk and its products in any marketing area shall prohibit the marketing in that area of any milk or product thereof produced in any production area in the United States."
There was no objection to the addition of this language, Representative Jones remarking that "[i]t is simply clarifying." Ibid. But when Representative Sauthoff sought to change the amendment by substituting the words "limit or tend to limit" for "prohibit," Representative Jones objected on the ground that necessary milk classification and minimum pricing for the protection of outside milk producers regularly supplying their own marketing area would "tend to limit" the introduction of their milk into other areas. [Footnote 17] Ibid.
of regular delivery, payments shall be made to producers not theretofore selling milk in the area covered by the order at the price fixed for the lowest use classification. This is the only limitation upon the entry of new producers -- wherever located -- into a market, and it can remain effective only for the specified 3-month period."
"(G) No marketing agreement or order applicable to milk and its products in any marketing area shall prohibit or in any manner limit, except as provided for milk only in subsection (d), the marketing in that area of any milk or product thereof produced in any production area in the United States. [Footnote 19]"
of the bill relating to milk, such as the provisions on price-fixing, price adjustment, payments for milk, etc."
"Mr. SNELL. . . . I do not understand exactly what this means, 'No marketing agreement or order applicable to milk and its products,' and so forth."
"Mr. JONES. That simply applies to fluid milk. You cannot make any limitation at all on the amount of butter or cheese or milk products that are shipped from any one area to another, and the limitation that may be applied on milk is only such limitation as puts each area on an equality with the other areas after a certain period of about 2 1/2 months."
"Mr. SNELL. How does that change the situation from the present law?"
all regulations and requirements of that area. For the first 2 months he would be required to take the manufacturer's price."
This history discloses that, rather than being confined, as Judge Learned Hand suggested in Kass v. Brannan, 196 F.2d at 800, to practices aimed at the exclusion of cheese and other milk products from eastern markets, § 8c(5)(G) was compendiously intended to prevent the Secretary from setting up, under the guise of price-fixing regulation, any kind of economic trade barriers, whether relating to milk or its products. Whenever there was an attempt to broaden the language of subsection (G) to encompass "limitations," as well as "prohibitions," those opposing it pointed only to the fact that "limit" might be read as including the type of price-fixing covered by subsection (D) -- i.e., allowing new pool producers only manufacturing use prices for a limited period -- or other attempts to put outside milk on an equal footing with pool milk. Although the words of § 8c(5)(G), "in any manner limit," must be taken, in the context of their legislative history, as referring only to milk products, that history likewise makes it clear that as regards milk the word "prohibit" refers not merely to absolute or quota physical restrictions, but also encompasses economic trade barriers of the kind effected by the subsidies called for by this "compensatory payment" provision.
The Invalidity of the Present Compensatory Payment Provision.
that section. [Footnote 20] Because it conflicts with § 8c(5)(G), the payment provision cannot be justified under the general terms of § 8c(7)(D), which prevents the inclusion of conditions that are inconsistent with express statutory provisions. Nor is the compensatory payment clause saved by the circumstance that, in some instances, it may also fortuitously operate to put the handlers of pool and nonpool milk on a competitive par. As has been pointed out ( note 13 supra), there are other means available to the Secretary for achieving this result, while affording protection to pool producers, without imposing almost insuperable trade restrictions on the entry of nonpool milk into a marketing area.
The Government contends that the effect of § 8c(5)(G) may not be considered by this Court, since that provision was not cited by the petitioners in the administrative proceeding in the Department of Agriculture. But even on the Government's premise that an unauthorized regulation should be upheld by this Court merely because the provision prohibiting it was not cited in the administrative proceeding in which it was attacked, this case presents no such instance. The administrative petition filed with the Department of Agriculture alleged that the effect of the compensatory payment clause amounted "to establishing tariffs or barriers interfering with the free flow of milk across state lines," an obvious reference to the prohibition of § 8c(5)(G).
out of the pool, it is argued, bars any attack on the consequences of their choice. However, such an "election" is surely illusory. The consequences of joining the pool would have been that petitioners would have been forced to pay the "blend price" to all their producers wherever located and account to the Producer Settlement Fund for all milk wherever sold. In these circumstances, the election was not voluntary, as in Booth Fisheries Co. v. Industrial Comm'n, 271 U. S. 208, 271 U. S. 211. It was coercive and, indeed, no election at all.
Whether full regulation of the petitioners would be permissible under the Act is a question which we need not reach in this case. If the Secretary chooses to impose such regulation as a consequence of a handler's introducing any milk into a marketing area, the validity of such a provision would involve considerations different from those now before us. With respect to these petitioners, however, and with regard to the regulation here in issue, we conclude that the action of the Secretary of Agriculture exceeded the powers entrusted to him by Congress.
The Secretary of course remains free to protect, in any manner consistent with the provisions of the statute, the "blend price" in this or any other marketing area against economic consequences resulting from the introduction of outside milk. We do not now decide whether or not any new regulation directed to that end could be made to apply retrospectively, or whether, if it could be validly so applied, the presently impounded funds could be resorted to pro tanto in its effectuation. Cf. United States v. Morgan, 307 U. S. 183.
"What further proceedings the Secretary may see fit to take in the light of our decision, or what determinations may be made by the District Court in relation to any such proceedings, are not matters which we should attempt to forecast or hypothetically to decide."
Morgan v. United States, 304 U. S. 1, 304 U. S. 23, 304 U. S. 26.
The petitioners instituted this action challenging the validity of the compensatory payment provision by filing administrative petitions with the Secretary of Agriculture pursuant to § 8c(15)(A) of the Agricultural Marketing Agreement Act of 1937, 7 U.S.C. § 608c(15)(A). The Hearing Examiner sustained the petitioners' contentions on the authority of Kass v. Brannan, 196 F.2d 791, but the Judicial Officer, acting on behalf of the Secretary of Agriculture, dismissed the petitions.
Petitioners then sought review of the Secretary's ruling in the District Court under § 8c(15)(B) of the Act. The review proceedings were consolidated with enforcement actions brought by the Government pursuant to § 8a(6) of the Act. The District Court, relying on Kass v. Brannan, supra, held that the payment provision was invalid. 183 F.Supp. 80. It was this decision that was reversed by the Court of Appeals. 287 F.2d 726.
A general reorganization of Chapter IX of Title 7 of the Code of Federal Regulations during the past year has resulted in redesignation of most of the milk marketing orders. The New York-New Jersey Order had previously been designated as Milk Marketing Order No. 27, and had been found at 7 CFR § 927. The section references and the contents of the regulations as quoted throughout this opinion are as they were in effect on January 1, 1962.
"In the case of milk and its products, orders issued pursuant to this section shall contain one or more of the following terms and conditions, and (except as provided in subsection (7) of this section) no others:"
"(A) Classifying milk in accordance with the form in which or the purpose for which it is used, and fixing, or providing a method for fixing, minimum prices for each such use classification which all handlers shall pay, and the time when payments shall be made for milk purchased from producers or associations of producers. Such prices shall be uniform as to all handlers, subject only to adjustments for (1) volume, market, and production differentials customarily applied by the handlers subject to such order, (2) the grade or quality of the milk purchased, and (3) the locations at which delivery of such milk, or any use classification thereof, is made to such handlers."
These provisions establish certain performance requirements aimed at insuring that the plant continues to provide fluid milk to the marketing area even in periods of short supply. Thus, it is primarily the handlers whose main concern is the marketing area who qualify for the "pool."
"Use value" is the price the handler would have had to pay at prevailing minimum rates had he purchased his milk at a price reflecting its ultimate disposition.
See 7 CFR §§ 1034 (Dayton-Springfield), 1037 (North Central Ohio), 1038 (Rockford-Freeport), 1074 (Southwest Kansas).
The payment provision of 7 CFR § 1002.83 applies only in those months when the volume of milk sold for Class III use exceeds 15% of the total pool milk reported in the marketing area.
The Act authorizes the establishment of either marketwide pools or individual handler pools. Since the latter require only that each handler pay uniform prices to all the producers from which he buys, but does not impose a uniformity requirement among the various handlers, there is no need for adjustments among handlers. Consequently, no compensatory payment provision is included in orders establishing individual handler pools. See 7 CFR §§ 1004 (Philadelphia), 1005 (Tri-State), 1010 (Wilmington), 1039 (Milwaukee), 1041 (Toledo), 1044 (Michigan Upper Peninsula), 1078 (North Central Iowa), 1096 (Northern Louisiana), 1097 (Memphis), 1102 (Fort Smith), 1129 (Austin-Waco), 1130 (Corpus Christi), 1134 (Western Colorado).
Compare 7 CFR §§ 1001.65 (Greater Boston), 1003.62 (Washington, D.C.), 1006.65 (Springfield, Mass.), 1007.65 (Worcester), 1008.54 (Wheeling), 1009.54 (Clarksburg, W. Va.), 1011.62 (Appalachian), 1014.46 (Southeastern New England), 1015.46 (Connecticut), 1016.62 (Upper Chesapeake Bay), 1030.61 (Chicago), 1031.70(b) (South Bend-LaPorte-Elkhart), 1036.84(b) (Northeastern Ohio), 1048.54 (Greater Youngstown-Warren), 1061.54 (St. Joseph), 1068.70(b) (Minneapolis-St. Paul), 1071.62(b) (Neosho Valley), 1072.55 (Sioux Falls-Mitchell), 1106.55 (Oklahoma), 1125.70 (Puget Sound), 1126.70(d) (North Texas), 1133.70(b) (Inland Empire).
"As stated earlier herein, all milk which is established to be primarily associated with the New York milk marketing area under the standards prescribed by the order is included in the New York pool. Conversely, the non-pool milk which enters the marketing area for fluid use originates from plans which are not sufficiently associated with the New York market to have their milk in the pool. Such plants have their primary interests in other fluid markets or specialized manufacturing uses, and frequently have more milk than is required for these primary purposes. It is this surplus milk at non-pool plants which can be 'dumped' into the New York market for fluid use, provided only that the plant and the milk [have] marketing area health approval. The operator of such a non-pool plant has a choice of using the excess milk for surplus uses (ordinarily in the manufacture of various milk products) or of sending it to the New York marketing area for fluid uses. In making this decision he will compare the respective net returns to him for this surplus milk and will naturally select the fluid alternative, for it will yield the greater return. In the absence of classified pricing, his cost at source for the excess milk remains exactly the same whether he uses it for surplus disposition or for fluid use. The pool plant operator, on the other hand, has no such advantage, for he pays a higher classified price at source if he sells the milk in the market area for fluid use (Class I-A or II) than if he disposes of it for surplus manufacturing uses (Class III)."
"If this artificial advantage in favor of surplus non-pool milk at the plant of origin is to be effectively removed, as it must be, the milk must be treated and evaluated for what it actually is, namely surplus milk in the milkshed. If New York marketing area disposition were not available for this surplus, the non-pool handler could derive from it only its surplus value. This surplus value is its true value or 'opportunity cost,' and such surplus value should be used as the subtrahend in the formula for compensation payments on non-pool milk from plants not subject to a Federal order."
"The Class III price under the New York order is the class price which is payable at source, for pool milk under the New York order when used for most surplus uses. It is expressly designed to fix a proper classified value at source, for surplus milk. The Class III price closely approximates the amount paid in the Northeast to farmers not under the New York order for so much of their milk as is used for general manufacture."
"It is therefore a dependable indicator of the value of surplus milk at source. If a non-pool handler, for his own reasons, choses to pay more than its true market value at source, for surplus milk which he sends to the New York area, the pool should not underwrite this unnecessary cost, particularly since the premium can be used to outbid pool handlers for milk, as previously shown."
The fact that petitioners were paying more for their milk than the Class I price in the New York-New Jersey Marketing Area leaves no room for any suggestion that they will be receiving a "windfall" if it is ultimately adjudged that they are entitled to have returned the full amount of their compensatory payments.
The total amount of the compensatory payments involved in this litigation, embracing a period of approximately four years, was some $617,000 as to Lehigh Valley and $108,000 as to Suncrest.
Several of the marketing orders make the compensatory payment equal the difference between the Class I price in the marketing area and the actual cost of the nonpool milk. See 7 CFR §§ 1042.60 (Muskegon), 1128.62(b) (Central West Texas). In some marketing areas, the handler who deals in nonpool milk is permitted to elect each month between paying the fluid milk-surplus use differential and paying the difference between his actual cost and the minimum regional price for Class I milk. See 7 CFR §§ 1013.62 (Southeastern Florida), 1033.61 (Greater Cincinnati), 1035.63 (Columbus, Ohio), 1040.66 (Southern Michigan), 1043.84 (Upstate Michigan), 1045.83 (Northeastern Wisconsin), 1047.62 (Fort Wayne), 1064.61 (Greater Kansas City), 1065.62 (Nebraska-Western Iowa), 1067.61 (Ozarks), 1069.62 (Duluth-Superior), 1073.62 (Wichita), 1094.62 (New Orleans), 1098.92 (Nashville), 1103.62 (Central Mississippi), 1105.62 (Mississippi Delta), 1107.61 (Mississippi Gulf Coast), 1131.62 (Central Arizona), 1135.62 (Colorado Springs-Pueblo), 1136.62 (Great Basin), 1137.62 (Eastern Colorado).
Other marketing orders, applicable in some areas, assess a compensatory payment equal to the difference between the "blend price" paid in the area for pool milk and the Class I price, thus treating the handler of nonpool milk as if he were a member of the pool with respect to such milk as he introduced into the marketing area.
Where this differential is accepted as the measure of the compensatory payment, it is done only in those months when the surplus is lowest. In the spring and summer months, the fluid milk surplus use differential is exacted. See 7 CFR §§ 1032.55(b) (Suburban St. Louis, August-February), 1046.55(b) (Ohio Valley, August-March), 1049.55(b) (Indianapolis, August-March), 1062.55(b) (St. Louis August-February), 1063.63(b) (Quad Cities-Dubuque, July-November), 1066.57(a) (Sioux City, August-February), 1070.63(b) (Cedar Rapids-Iowa City, July-November), 1075.63(b) (Black Hills, July-March), 1076.63(b) (Eastern South Dakota, July-February), 1079.63(b) (Des Moines, July-March), 1090.54(b) (Chattanooga, August-February), 1095.70(e)(2) (Louisville-Lexington, October-December), 1099.62(a) (Paducah, August-March), 1101.93(b) (Knoxville, August-February), 1104.53(b) (Red River Valley, August-January), 1108.54(b), (Central Arkansas, August-February), 1127.65(b) (San Antonio, January and August), 1132.63(b) (Texas Panhandle, July-February).
The latter method treats the handler of nonpool milk who buys at a price in excess of the blend price as if he were a member of the pool, since a handler in the pool may, if he chooses, pay his producer more than the "blend price" set by the Market Administrator, see Stark v. Wickard, 321 U. S. 288, 321 U. S. 291, but must still account to the Producer Settlement Fund as if he had paid only the "blend price." By treating nonpool milk in the same manner, the Secretary might be able to justify a compensatory payment equal to the difference between the nonpool milk's "use value" and the "blend price," though we do not decide the question. See generally Hutt, Restrictions on the Free Movement of Fluid Milk Under Federal Milk Marketing Orders, 37 U.Det.L.J. 525, 564-577 (1960).
The suggestion that a nonpool handler would be given a competitive advantage under either of these methods because, in the words of the Judicial Officer, he does not have "to equalize his utilization" as do pool handlers is demonstrably unsound. Insofar as the handlers' sale of milk is concerned, neither pool nor non-pool handlers are required to share or "equalize" their proceeds with others. To the extent that this contention relates to the handlers' purchase of milk and is meant to suggest that nonpool handlers will find it easier to buy milk because they will be able to pay higher prices to their producers, the exaction of a Class I blend price payment would effectively discourage purchases in excess of the blend price (which is what the pool's producers are paid). And the assertion that the pool "carries the surplus burden for outside handlers" is based on the same mistaken reasoning as underlies the Secretary's determination to retain the Class I-Class III payment after Kass v. Brannan, supra. See pp. 370 U. S. 84-86 supra.
1,500 divided by 4,000 cwt. equals .375 per cwt.
The Secretary's formula, therefore, precisely accomplishes the restoring to the pool's producers whatever they have lost by reason of the occupation of their Class I outlet by the nonpool milk.
The funds paid into the Producer Settlement Fund by the handlers dealing in nonpool milk are then available to the pool handlers, whose credits from the Fund will be larger to the extent that they have been forced to pay a higher blend price.
"Mr. ANDRESEN. Is there anything in the milk section of the bill which gives the Secretary authority to set up trade barriers and stop the free flow in commerce throughout the United States of dairy products?"
"Mr. JONES. No. There is nothing in the bill that would authorize that. The Secretary may require that, in crossing from one region to another, that they comply with the same conditions which the farmers and distributors comply with in that region."
"Mr. ANDRESEN. That is, sanitary regulations?"
"Mr. JONES. Sanitary and other uniform regulations; but he cannot set up any trade barriers which would keep them out."
"Mr. ANDRESEN. A great many Members have inquired about that feature, and I just wanted the gentleman to bring that out."
"Mr. JONES. The amendments require a uniform price and uniform set of conditions and fair distribution. In the first place, I do not believe we could give authority to set up these barriers. In the second place, the bill does not do that. It simply enables them to have a program in one of these regions, and in developing these orders which the Secretary issues, the word 'region' wherever possible. Those on the outside must come into that."
"Sec. ___ (b) No marketing agreement, order, or regulation shall contain any term or provision which will tend to result in preventing or hindering any agricultural commodity or product thereof produced in any region or area of the United States from being brought into or sold in any other such region or area, or shall have the effect of subsidizing the production or sale of any agricultural commodity or product thereof in any such region or area, in such a manner that such commodity or product thereof will tend to be sold in such other region or area at prices which will tend to depress prices therein of such commodity or product thereof."
"Mr. JONES. Mr. Chairman, the adoption of the amendment of the gentleman from Wisconsin would absolutely wreck the whole milk program. In order to get away from the terrific conditions that have prevailed in the milk industry, there is provided in the bill authority to fix a minimum price to producers. That. at least in a measure, would limit or tend to limit shipment, and yet the gentleman, I am sure, does not want to interfere with the price to producers. Then it is a universal custom in the marketing of milk to classify milk. This, in a way, is a limitation. . . ."
"Mr. BOILEAU. . . . Mr. Chairman, I should like to ask the distinguished chairman of the committee if in his opinion there is anything in this bill that gives to the Secretary of Agriculture or to anyone else any power to restrict the free flow of milk or any other commodity between the various States?"
"Mr. JONES. No; there is nothing in it that will do that. The only tendency is to make all sections comply with the same rules."
"Mr. HULL. . . . Mr. Chairman, if there is nothing in this bill which would authorize the Secretary of Agriculture or any subordinate so to limit transportation or shipment of dairy products from one State into another, then the amendment of the gentleman from Minnesota as amended by the amendment of the gentleman from Wisconsin (Mr. Sauthoff) can do no harm."
"The three States of Minnesota, Iowa, and Wisconsin produce about 45 percent of the butter made in this country, and we are interested in this matter of the shipment of dairy products to other States."
"Mr. JONES. Mr. Chairman, will the gentleman yield?"
"Mr. JONES. Would the gentleman object to the requirement that Chicago dealers pay the Wisconsin producer a minimum price?"
"Mr. HULL. Not at all."
"Mr. JONES. That certainly would tend to limit."
The "3-month period" provision here referred to is the present § 8c(5)(D), which authorizes the Secretary to set the surplus use price as the price to be paid to any new producer who enters the pool. In the final version of the Act, the introductory period was reduced to two months.
"Subsection (d)" is § 8c(5)(D). See note 18 supra.
While we need not reach the point, we would have difficulty in concluding, as did the Court of Appeals for the Second Circuit in Kass v. Brannan, supra, that the provisions of § 8c(5)(A) precluded, in themselves, the promulgation of the present compensatory payment provision.
again projects itself across the path of the national farm program by reading Congress' 1937 reenactment as designed to encourage competition, rather than to help farmers by governmental price-fixing, and, on this basis, strikes down a vital element of many of the milk marketing orders set up under the 1937 Act while raising clouds of confusion and uncertainty as to the validity of many others. Although the blow to the present farm program is not so devastating as the one inflicted on the original Act by the Butler decision, I think that in ultimate effect the harmful consequences of the two decisions will differ only in degree. It is my belief that the order of the Secretary which the Court strikes down was set up in faithful adherence to the Act's purpose to raise the prices that farmers receive for their products, and that the Court's action will tend to have precisely the opposite effect of depressing those prices. I have no doubt but that the Court's decision will enable some handlers to reap greater profits, but I regret to say that this is bound to be at the expense of the farmers themselves -- for whose benefit the national program was primarily passed. Certainly this is true of the more than $700,000 which the Court's decision today will allow the two handlers here to be paid, which, of necessity, must come out of the pockets of the dairy farmers where this milk was sold.
insure that dairy farmers in particular would receive a high enough price for their products. [Footnote 2/8] In order to make sure that the Secretary had enough power to raise prices above the competitive level, the Secretary was also authorized to issue orders "Incidental . . . and necessary to effectuate" the specific price-fixing and other powers given to him. [Footnote 2/9] Thus, it can be seen that the general scheme of the Act was to raise prices to farmers by governmental fixing of minimum prices for dairy products within specific regional areas, thereby abandoning to that extent the system of price-fixing by competition.
is that handlers from outside a pool can, if left unregulated, get the advantages of selling milk in that pool area without bearing any of the burdens that members of that pool have to bear. And, as shown by the record in this case, such sales can reduce the net price received by the farmers within the pool area. In an obvious effort to prevent any such harmful effects on the prices received by farmers in the New York-Northern New Jersey pool, the Secretary, properly, I think, acting under his authority to issue orders "Incidental . . . and necessary to effectuate" his specific price-fixing powers, provided that non-pool handlers who sold fluid milk in that pool area at times when there was surplus fluid milk in the pool should make a payment to compensate pool farmers for the displacement of fluid sales they otherwise would have made, compensate for the reduction of the regional pool fund which this would cause and to compensate for the consequent diminution of the blend price that would be paid to pool farmers. It is this key regulatory feature which the Court strikes down as a "trade barrier" prohibited by § 8c(5)(G) of the Act because it limits the ability of outside handlers to sell milk within the pool area at a profit.
"No marketing agreement or order applicable to milk and its products in any marketing area shall prohibit or in any manner limit, in the case of the products of milk, the marketing in that area of any milk or product thereof produced in any production area in the United States. [Footnote 2/11]"
"Mr. JONES. Mr. Chairman, the adoption of the amendment of the gentleman from Wisconsin would absolutely wreck the whole milk program. In order to get away from the terrific conditions that have prevailed in the milk industry, there is provided in the bill authority to fix a minimum price to producers. That, at least in a measure, would limit or tend to limit shipment, and yet the gentleman, I am sure, does not want to interfere with the price to producers. Then it is a universal custom in the marketing of milk to classify milk. This, in a way, is a limitation."
"I am perfectly willing to adopt the first amendment suggested [the present § 8c(5)(G)], because that simply treats all areas alike, for you could not prohibit someone from an outside area coming in so long as he complied with the conditions prescribed for that area; but if you said that no restrictions or limitations could be required, it would wreck the program, it would destroy every vestige of a program we have for milk. [Footnote 2/14]"
"Mr. JONES. But the original amendments did not permit any orders governing the price to the producers?"
"Mr. HOPE. No; but otherwise, the Secretary could make orders which would regulate the bringing in of milk from the outside into any particular milkshed, but under the amendments we are now considering, the Secretary's power is limited. He cannot prohibit milk from coming in?"
"Mr. JONES. That is correct."
"Mr. HOPE. But he can prescribe some limitations?"
"Mr. JONES. Yes; and he cannot prohibit the products of milk being brought into any area."
"Mr. HOPE. No; but he can prescribe limitations on the importation of fluid milk."
"Mr. SNELL. Then, as far as fluid milk is concerned, it is protected in certain markets, but, as far as the other products are concerned, they are not protected."
"Mr. JONES. That is correct. [Footnote 2/15]"
These were the last comments made on the floor of the House concerning milk before the Conference Report was finally adopted.
take away with one hand the high fixed price for milk which it gave with the other.
Secondly, even if such a formula were possible, I doubt that a single member of this Court has the technical knowledge about the complicated workings of the milk industry to formulate a sound substitute for the compensatory payment plan which the Court strikes down -- a regulatory plan which represents more than a quarter century of daily practical experience in administering the congressional farm plan. Thirdly, in any event, the Court's vague intimations that some compensatory payment plan might be valid are hardly sufficient to furnish the Secretary with any guidance at all as to what formula, if any, the Court would permit him to use to protect the farmers in this pool from the effects of being compelled to compete with outside "free riders."
until such time as the Secretary, proceeding with due expedition, shall have entered a final order in the proceedings pending before him. [Footnote 2/19]"
Following this decision, the Secretary held new hearings, made new findings, and entered a new order, according to which this Court in a later United States v. Morgan [Footnote 2/20] ordered the more than one-half million dollar fund distributed.
Despite the fact that the Court purports not to pass either on the validity of requiring all handlers to bear the full burdens of pool membership or upon the ability of the Secretary to apply against these handlers any future scheme of regulation which meets the Court's standards for the period here in question, [Footnote 2/21] it seems clear that, in failing to follow the Morgan procedure, the Court, in effect, rules against the Secretary on both these questions. This is because the Court's refusal to pass specifically on these questions leaves standing the District Court's holding that the Secretary cannot require these handlers to bear the full burdens of pool membership for the period during which the compensatory payments struck down here were made. The regulation under which the Secretary claims that these handlers are subject to the full burdens of pool membership is a part of the same section [Footnote 2/22] as the one under which the handlers made the compensatory payments of which they complain.
That section provides that all handlers like petitioners are pool handlers, and required to bear all the burdens of pool membership unless they elect to be nonpool handlers and make compensatory payments. The Secretary's contention is that, once the part of the regulation which provides for the compensatory payment is struck down, as the Court does here, the remainder of the regulation which requires all handlers to be pool handlers applies. By remanding this case to the District Court, which has already ruled adversely on this claim, the Court, without so much as saying a single word on this point, effectively prevents the Secretary from trying to protect pool farmers from free-riding outside milk by treating these handlers as pool members for the period here in dispute.
The full effect of the Court's failure to follow the Morgan procedure and decide whether the Secretary's provisions for full regulation of these handlers are valid, or just what the Secretary could do to protect the prices he has fixed, is, in my opinion, likely to be a wholly unjust and inequitable windfall of over $700,000 to the handlers, since it will ultimately have to come out of the pockets of the farmers, who bear the burdens of this pool. How many more such windfalls to other handlers involving how many countless thousands of dollars in this and the other 22 similarly situated pools the Court's action will bring one can only guess. [Footnote 2/23] One familiar with the Act and its history need not guess, however, about the fact that such a result would have been abhorrent to the Congress which passed this Act for the benefit of farmers. I would affirm the decision of the court below which upheld the Secretary.
297 U. S. 297 U.S. 1.
50 Stat. 246, 7 U.S.C. § 601 et seq.
See Nebbia v. New York, 291 U. S. 502, 291 U. S. 515-518, 291 U. S. 530; United States v. Rock Royal Co-operative, Inc., 307 U. S. 533, 307 U. S. 548-550.
50 Stat. 246, as amended, 7 U.S.C. § 608c.
50 Stat. 247, 7 U.S.C. § 608c(18).
49 Stat. 757, 7 U.S.C. § 608c(7)(D).
"All orders issued under this section which are applicable to the same commodity or product thereof shall, so far as practicable, prescribe such different terms, applicable to different production areas and marketing areas, as the Secretary finds necessary to give due recognition to the differences in production and marketing of such commodity or product in such areas."
49 Stat. 759, 7 U.S.C. § 608c(11)(C). See also § 8c(11)(A). 49 Stat. 759, 7 U.S.C. § 608c(11)(A).
See Bailey Farm Dairy Co. v. Anderson, 157 F.2d 87, 96; Kass v. Brannan, 196 F.2d 791, 800 (L. Hand, J., dissenting).
"No marketing agreement or order applicable to milk and its products in any marketing area shall prohibit or in any manner limit, except as provided for milk only in subsection (d), the marketing in that area of any milk or product thereof produced in any production area in the United States."
"The Senate amendment extended this provision (§ 8c(5)(G)) so that no marketing agreement or order so applicable could limit in any manner the marketing in the marketing area of milk or its products produced anywhere except that certain limitations on the marketing of milk were specifically permitted. . . . The conference agreement also denied the authority to limit in any manner the marketing in any area of milk product . . . [but] does not refer to milk, and so does not negative the applicability to milk, for use in fluid form or for manufacturing purposes, of the provisions of the bill relating to milk such as the provisions on price-fixing, price adjustment, payments for milk, etc."
"[T]he marketwide pool existing under Order No. 27, as amended, carries the longtime and seasonal reserves of milk for numerous secondary markets in Pennsylvania and the Northeastern States. The New York-New Jersey market carries the surplus burden for outside handlers who distribute some milk in the marketing area. These handlers usually have a relatively high percentage of their milk in fluid milk utilization, and this utilization is considerably higher than the average for the market regulated by Order No. 27. This higher utilization, of course, results in a competitive advantage in milk procurement to the outside handler as against the regulated handler, and outside and regulated handlers draw on the same production area for supplies. Furthermore, the regulated handler has to equalize his utilization with other handlers, and his producers are paid on the basis of a uniform price reflecting the utilization in the market as a whole, rather than his individual utilization."
Thus, a compensatory payment such as the Court suggests, based on the difference between the fluid price and the blend price, obviously would do nothing at all to wipe out the advantage that the outside handler has because of his higher fluid-surplus ratio, which is due, as shown above, to (1) the fact that the pool carries part of his area's surplus and (2) the fact that he does not have to equalize his own utilization as do pool handlers. Only a compensatory payment which gives the outside handler less for his surplus milk than the pool farmer gets will narrow the competitive advantage which outside milk has. A compensatory payment based on the difference between the fluid price and actual cost, the other alternative suggested by the Court, would obviously be even more subject to this same defect than the fluid-blend price compensatory payment. See also Hutt, Restrictions on the Free Movement of Fluid Milk Under Federal Milk Marketing Orders, 37 U.Det.L.J. 525, 573-576, particularly at note 220.
307 U. S. 307 U.S. 183. Cf. Inland Steel Co. v. United States, 306 U. S. 153.
307 U.S. at 307 U. S. 198.
313 U. S. 313 U.S. 409.
The Court's citation of Morgan v. United States, 304 U. S. 1, 304 U. S. 23, as purported justification for its avoidance of this issue, is particularly appropriate, and I fear prophetic. For, in large part due to this Court's avoidance of a similar issue in the Morgan case, that case wandered through the courts for almost eight years, including four trips to this Court.
A suit involving the provision of the Cleveland order similar to the one struck down here has already found its way into court. See Lawson Milk Co. v. Benson, 187 F.Supp. 66, appeal pending.
Lehigh Valley Cooperative Farmers, Inc., et al.

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