Earl Warren: -- Lehigh Valley Cooperative Farmers, Incorporated, Petitioners, versus United States. Mr. Daniels, you may continue your argument.
Willis F. Daniels: Mr. Chief Justice, Justices --
Potter Stewart: Mr. Daniels, before you start in, I -- I noticed in reading all the papers that in the response to the petition for certiorari, it was pointed out that there was a case pending on the Sec -- Second Circuit, involving this basic issue and I wondered if you could tell us what's become on that case. I suppose I'm guessing that the --
Willis F. Daniels: That case is pending.
Potter Stewart: Pending case, though.
Willis F. Daniels: Right now.
Potter Stewart: It's been argued, hasn't it?
Willis F. Daniels: I argued that case as amicus. I was not the principal but it is still pending.
William J. Brennan, Jr.: So we were waiting for them, and now they are waiting for us?
Willis F. Daniels: I presume -- I presume that's -- I do not know. However, the Second Circuit has passed on this question (Voice Overlap)
Potter Stewart: I understand that.
Willis F. Daniels: At the outset of my argument this morning, I should like not that be misunderstood in the statement that I made yesterday. I made a statement yesterday that no one has relied upon 5 (a) as justification for this compensatory payment provision. And when I made that statement, I was referring to the five adjudications that have been handled out upon this matter starting first with the promulgation of the order by the Secretary of Agriculture. The Secretary Agriculture, which appears in page 700 (a) of this record, said this. “That in the Allentown Eastern area, the milk users pay more, slightly more that than the blend price.” Now the blend price is higher than the Class III price, the Class III price is the lowest price fixed, and the purpose of this case is what we called the manufacture price. Now, Class I-A is the highest and the compensatory payment provision is the difference between the Class III price and the Class I-A price regardless of what the particular handler might have paid. So that when the Secretary, in the promulgation of the hearing, thought that we pay more, we paid the blend price which is substantially higher than Class III and then add to that, the compensatory payment, he is not relying on uniformity as it is established in 5 (a). Now, the independent tribunal, the hearing examiner Mr. Bay, found the same thing. Mr. Plagune an employee of the Department of Agriculture designated as Judicial Officer ignored that proposition entirely and reversed the hearing examiner who held in our favor, on an entirely different matter. The District Court below, at pages 223, 224, 225 of the record, held and found as a fact that we pay more than the blend price for the milk that we purchased in the Allentown Eastern area. The lower circuit or the lower court, the Third Circuit, Court of Appeals, ignored 5 (a) entirely and said you are not a handler within the meaning of Section 5 (a), but the word handler in 5 (a) means pool handler, but does not mean a non-pool handler. We disagree with that. It might be surprising that we do not agree with it. If we agreed with it, of course there'd be no authority in the statute, in any section to regulate non-pool handlers because handlers and the word handler appears only, not non-pool. The circuit court held that non-pool handler and pool handler were synonymous. That just can't be. If it is then we are not subject, pardon me, to any regulations whatsoever. We contend that Section 5 (a) which is the only pricing section so far as milk is concerned in the entire statute. 5 (a) is the only pricing section, and Section 5 (a) which is page 2 of our brief, in case of milk and its products orders issued pursuant to this section shall contain one or more the following terms and conditions and in parenthesis (except as provided in Subsection 7 of this Section no others) no others. Now, the Court must recall that this Act was passed after the Schechter case. It was thoroughly debated and it was thoroughly considered and as Mr. Justice Clark has said and it was also said in the Rock Royal case, the authority granted to Secretary is minutely set up, minutely set up, and set up particular argument. So that we look through all the Section 5 and there is no provision authorizing the Secretary to fix prices, except Section 5. That is the only Section that authorizes price fixed, but it circumscribes the authority of the Secretary because it says, “Such prices shall be uniform as to all handlers.” Not uniform only as to pool handler, uniform as to all handlers. Now I shall like dwell just a moment on this proposition. Some courts previously have confused in my opinion, equal costs with equal prices. Now, we are not contending that when the price -- when our costs of the milk are all totaled up that that should be equal. We are saying that what we paid the producers directly or through anybody must be equal so far as minimum prices are concerned. We're not interested in premiums that are paid. We are interested in what the law says, the minimum prices and such price shall be uniform. Now, if it costs us more after we had paid for the raw product then it costs another dealer, we're not contending that the cost should be equal. Now, in the Kass case, the Second Circuit went further than we're asking this Court to go. There, the Court held that the cost must be uniform, the cost paid the producer and when one handler bought it from another, the cost include a profit to that first handler. Justice Learned Hand dissented in that case, because he said equal costs are not guaranteed but he did not say equal prices. As a matter of fact, he said one method of equalizing the prices to producers is through to the compensatory payment method, but that compensatory payment method must bring about uniformity and that he feels that it could be defended only on that graph. His position does not differ from what we're asking for. The Third Circuit said if uniformity applies, it applies with more parts to the Lehigh Valley and Suncrest than it applied in the Kass case. We are only asking one thing that the price established for us to pay for the raw product, be equal to any other handler, pool or non-pool. Now, we're not saying and we're not here trying to frustrate this regulation or the statute, I said yesterday, we only want the Secretary to comply with the statute. And under the cloak of complexities, the administrative agency goes a great ways, but we contend that the complexities and complication arises when you leave the basic standards established by a statute. The Secretary here fixed two prices -- fixed prices, for two types of handlers under his definition of handler under the order wherein as a handler, we filed reports as a handler. He knows the amount of milk we get and he knows that disposition of our milk. He audits our books and he can determine what we pay. Oh I met --
John M. Harlan II: (Inaudible) this is all purchased by (Inaudible)
Willis F. Daniels: Oh yes sir, oh yes sir, all of the milk that we purchase, and we purchase it all, Mr. Justice Harlan, from producers and we file those reports every month. He knows to the pound the milk we purchase and he knows to the ppound how we disposed of that milk and he audits our records that he can find what we pay. (Inaudible) I'd like to say right here then all of these tribunals, the Secretary of Agriculture, the hearing examiner, the lower court, the District Court, they all ignored the fact that the Pennsylvania Milk Control Commission fixes the prices that we pay for milk, bottled in Pennsylvania and sold in New Jersey and that is higher than in the Class I price fixed by Order 27. Now the Class I is the fluid milk what we commonly know of as the milk in bottle. Now, I have shown it I believe that the Secretary did not establish a uniform price for the raw product. It is argued by the Government, he didn't fix the price method. He did fix the price. He fixes the price for the pool handlers by a formula, not a firm price, it's a formula and that formula is made up of 10 factors, wholesale prices the relationship between Class I milk and Class II, retail sales and a number factors, that fixes the price for the pool handler. Now, how is a non-pool handler's price paid? It's fixed by determining what we pay and from those reports and from our books that they audit, they can determine that and then he adds to that this enormous sum as the difference between the Class III and then Class I price and that takes us when they audit the uniform price that he has fixed for pool handlers.
Potter Stewart: Don't you get credit for that charge under rule 61 in your area, in a rule 61 area?
Willis F. Daniels: Suncrest does not. They are not under 61.
Potter Stewart: No, the Le - Lehigh.
Willis F. Daniels: Lehigh, there is a -- there is a credit provision, but the District Court handled that situation this way that the credit provision is a (Inaudible) so to speak, I'm paraphrasing because you can't buy the milk for the Class III price. If we take any credit, it means that we have to pay our producers the Class III price and we can't buy the milk for Class III, and the Secretary found we couldn't, and the examiner found, we couldn't and the District Court found, we couldn't, therefore, he says if amounts to nothing. It is simply a (Inaudible) and that is true. We cannot buy it for the Class III price. Now --
Speaker: You buy something higher than blend price.
Willis F. Daniels: We buy something higher than -- we buy it something higher than the blend price? Actually, if the Federal Government would have recognized this, I think this Court holds, they should recognize the Pennsylvania Milk Control Commission orders that Pennsylvania Milk Control Commission orders fixed the Class I price higher than the Class I price under Article 27, at higher than the blend and higher than the blend and the Pennsylvania Milk Control Commission does not recognize the credit. It doesn't recognize that credit for the provision, that it's just in 61 and there's grave doubt as to the constitutionality of that but not being producers if we can't raise that particular question. Now, then there is another provision I must speak on, and that is g, 5 (g). 5 (g) states that the Secretary may not promulgate an order or promulgate any provision in an order, and 5 (g) will be found in our brief at page 26 and 27, “may not promulgate any order that will -- that will prohibit the movement of milk into any marketing area from any production area in the United States.” That amendment was added after much debate, a lot of debate, and Chairman -- Mr. Jones, Congressman Jones who was the manager of a bill stated that the act as it is now drawn, prohibits or does not permit the Secretary to write a provision that would prohibit the flow them out. Now, I am staying out of the milk products but time is limited and I have to stick just to my subject. After some considerable -- after some considerable debate, Congressman (Inaudible) Grison introduced an amendment and he said, “I am introducing this amendment for this reason. One of the things we have to contend with is the fact that every state during this depression period has been setting up barriers in spite of the Constitution of the United States to prohibit the introduction in another state of products that it raises in its own state. It is high time we set our foot down on that. This is the one place where we can very well afford to put an end to it.” Now, (Inaudible) and the Chairman said it is much as that's what the bill has done already -- Sir?
John M. Harlan II: Where is that?
Willis F. Daniels: Page 26 and 27. Starting on page 26 and 27 is the statement of -- and the -- on page 4 is (g). Chairman Jones said well I think the bill already does that, but for clarity, I have no objection from the amendment being adopted. Now that brings me to what. It brings me to this position that the Secretary cannot as a matter of law find that this compensatory payment provision is consistent with or it's a general to other sections of the statute, why? It's inconsistent and cannot be found to be consistent with (a), 5 (a) because it does not bring about uniformity. It destroys uniformity. It cannot be found to be consistent with (g), because it prohibits the movement of milk from this production area of Allentown in the Phillipsburg which is less than 25 miles away, even though milk comes in the New York from 400 miles, but they didn't use the word prohibit, but the fixed sets a differential that we must pay. This amounts to a prohibition and this Court passed on that in the Bowman versus (Inaudible) case and quoted with approval in the Dumont case. And the court said this and this quote is not in my brief. Such a power, that is the power extrude milk by a reason of high differentials or the high price, if exerted, will set a barriers to traffic between one state and another as a facto -- as it custom duties equal to the price differential has been laid upon the things transported and that's exactly what happens here. Now, I just want to say one word in further answer to Mr. Justice Whittaker's question yesterday, our way here attacking the authority and the justification for the expansion of the territory and I urged that we were not. That is not to say, if the Court please, that we believe that the extension of this territory is proper, but it is not raised in this case because we are not pool plant. Being a non-pool plant, we would have been met with the fact that you do not have to be a pool plant if you don't want to and therefore electing to be non-pool plant, the territorial question is not important. There's great doubt that the threes eastern counties -- or New -- western counties New Jersey which belong to the Metropolitan District of Eastern Bethlehem and Allentown or they belong to the Metropolitan District of Phillipsburg whichever way, whether from Pennsylvania or New Jersey, is -- is a common commercial area and the line should have been drawn actually, somewhat west, somewhat east of those three counties because they have no commercial characteristics common to New York, and Jersey City. I like to impress upon the Court that here are two petitioners in this market moreover -- whatever century one of them, the other for 12 years and never has been elect and never in the record that can be found that we brought cheap milk into the territory. We sell milk at the minimum prices fixed by OMI, which is a milk agency in the state in New Jersey as does other happen. We always have and now in violation of a principal announced by this Court, speaking through Mr. Justice Douglas in Denver Stock Yard case a domain has been established by this Board of co-ops that are in here and (Inaudible). They named a lot of other co-ops but they are co-ops that go to make up the big ones. They say you will leave this market or you will pay us the difference between the Class I and the Class III price so that we may distribute it among the producers, shipping to pool plants as though they sold the milk. That is a monopoly. I assert for this Court of all respect to the administrative agencies that unless they follow the standard established and unless the courts check them here and -- every now and then unless they're checked. It's only human nature that they'll go further and further and further. Again, we're faced with this charge, leave the market or chaos as that we had the market and I contend that that's been condemned that the majority opinion in the Denver Stock Yard case and the minority opinions in the Denver Stock Yard case didn't disagree with the principal, a majority opinion written by -- the long opinion written by Mr. Justice Whittaker and joined him by Mr. Justice Harlan and Mr. Justice Frankfurter who also wrote a shorter opinion dissenting opinion, all the dissenting opinion said was, facts should be established. The Secretary should established facts. In this case, the facts are established. We took the witness stand we testified, the testimony that I -- the facts that I quoted yesterday are all in the record. I quoted no fact that has not been found in the record some place in a 102-day hearing and found as a fact by those who have adjudicated this matter. And we're not asking -- we're not asking for any unfair advantage. We're not asking for a special price. We're not asking to come in there and sell our milk at a lower price that is purchasing at lower price than our competitor. We are asking to be permit the standard market that we've been in and willing to have impressed upon us, the same rules and regulations namely uniformity that is impressed upon the pool handler.
Potter Stewart: Would your problem be met Mr. Daniels of the milk that your people sold in the Rule 27 area were simply treated as pool milk?
Willis F. Daniels: Our problem would not be met because we sell such a large percentage of our milk in the State of Pennsylvania and therefore, our utilization, Class I utilization is higher than the Class I utilization of the market. That is something is only 27 argument. Therefore, we even have to contribute the difference between what our blend was, the individual blend, and was the market wide blend is. You understand that the settlement pool is this, settlement upon the statute, all the milk brought in to the market area is multiplied to the various class prices, that is total up and that is divided by the total amount of milk shipped to handlers and then that's a blend price, it's paid all producers. If my individual price utilization comes higher I pay in, if it comes lower I pay up and they have gotten such an abundance of milk. Things cooperatively, this large cooperative, bring it in from 300 and 400 mils that utilization in Class I is 50 -- 50% on that slope. Now, we --
Potter Stewart: 50% in the order of 27 area?
Willis F. Daniels: Yes sir.
Potter Stewart: Was it in the order 26 area -- 61 area?
Willis F. Daniels: It would be about 75% to 80%. In our particular area -- may I continue Your Honors?
Earl Warren: Yes of course, you have -- you haven't finished your time.
Willis F. Daniels: I got a red light and I --
Earl Warren: No, no evidently you told them to notify or something --
Willis F. Daniels: Alright.
Earl Warren: You have considerable time.
Willis F. Daniels: Alright. In our particular area, our utilization more run as high as 80%. It has been found, that's not because we fill milk on the marketing in Order 27. That is dumped milk, triplets. That's not why. We had years an intelligent broker to balance our supply with our demand and when this statute was passed, it was just -- it -- the project threatened, but then in adequate supply of (Inaudible) milk. Today, the problem is different and not buying that educational program, they are -- they have taken on so much milk that now they have to look to other areas in order to attempt to build the utilization and they have to build the monopoly. I don't accuse Secretary of Agriculture of wrongdoing. I accused him, however, of unwillingly playing in to the hands of a situation which does create a monopoly and that has been condemned. I'm sorry Your Honors (Inaudible).
Earl Warren: Mr. Rosenthal.
Alan S. Rosenthal: Mr. Chief Justice, may it please the Court. The basic question which is before the Court in this case is whether the compensatory payment provisions of Order 27 are authorized by Section 8c (7) (d) of the Agricultural Marketing Agreement Act of 1937, as first, incidental to and not inconsistent with the other terms of the Act and second, necessary to effectuate the other provisions of the order. Now, I would wish to stress at the very outset, that every administrative and judicial tribunal which has come in to contact with this case has had no difficulty in arriving at the conclusion that these provisions are absolutely essential to the affective operation of the regulatory scheme in -- the Order 27 marketing area. Now, the Secretary of Agriculture himself has made detailed findings as to the necessity. None of these findings have been challenged in this Court by the petitioners as like in support in the evidence. The hearing examiner, while following the Kass case on the question as to whether there was an inconsistency with the statute agreed that these were desirable and even necessary. The judicial officer, the District Court, the Court of Appeals, all have come to the same conclusion that these provisions are absolutely essential in the affective operation of the regulatory scheme in the Order 27 area. Now, where the difference of opinion has been, and it's been a difference largely which stems from the Kass case, has been over whether these provisions are consistent with the terms of the other terms of the statute. In the Kass case, the majority of the Second Circuit held they were not. Learned Hand in his dissent thought that they were. The District Judge in this case held obliged to follow the Kass decision although he indicated clearly that if the question had come to him de novo, he might well have reached the different conclusion, and the Court of Appeals of course did reach a different conclusion. Now, we think, if the Court pleases, that the compensatory payment provisions necessarily must be considered in the context of the particular circumstances of the milk industry which is a case in federal regulation and the manner in which the concededly valid provisions of Order 27 operate to meet the troublesome problems with which this industry is faced. For as we shall see the requirement of compensatory payments is rooted in many of the same factors peculiar to the marketing of milk which underlie the basic regulatory scheme.
Hugo L. Black: I wonder if that's just your view, but it's impossible to pass that you stated in a summary about a minute or two, why this is essential in the -- in the background and context about which you're speaking.
Alan S. Rosenthal: Well, if Your Honor please, I can state a summary would I -- would appreciate this if the Court would indulge me then in a --
Hugo L. Black: (Voice Overlap) frankly, I have not been quite able to understand some of the arguments, those that have not yet been done.
Alan S. Rosenthal: I think if Your Honor please that I say that the compensatory payment provisions really cannot be understood unless the entire background is -- is understood. Now, the problem if I may start and proceed, I think I can -- can demonstrate quite quickly the -- fairly quickly the essential nature here. The problem with which the milk industry is faced, of course is the problem of surplus. And the problem of surplus stems from the fact that cows unfortunately produce substantially greater quantities of milk in the summer time than they do in the winter. This means, since milk is a highly perishable commodity, that in order to ensure a sufficient supply of fluid milk during the winter months, when production per cow is low, it is necessary to maintain herds which will produce considerable surplus in the summer months particularly in June which is the most flush month, when production is high. Now, this surplus which necessarily is there, if you are going to ensure that there is enough milk to meet fluid demands in the winter time can be disposed of only in manufacturing uses such as butter, cream, cheese, ice cream. When it's used for those purposes, it has a very much lower value. Now, in the days of the unregulated markets, the producers competed eagerly for the more profitable sales in the fluid milk market. And the resulting cutthroat competition seriously engendered through the very poor business practices which resulted, seriously endangered the public interest in wholesome, adequate supply milk or an adequate wholesome -- the supply of wholesome milk in the marketing area. Now, the problem there, and the problem today is to find some way of equitably distributing the burden of this surplus, that necessarily results from ensuring sufficient supplies of fluid milk in the winter time, equitably distributing the burden of the surplus among all of the producers. Now, as the Court knows, state regulation and the voluntary endeavors of cooperatives proved unsuccessful and Congress then entered the field first in 1935 and then through the Agricultural Marketing Agreement Act of 1937. Now, insofar as this Act relates to milk, it authorizes regional marketing orders, each order to be especially adapted to the conditions of the area in which it is to be effective. Now, the basic function of these orders, and this is the function of Order 27, is to establish minimum use prices for milk and to assure the payment of uniform minimum prices to the farmers by those who were engaged in the handling of milk. Now to this end, Section 8c (5) provides for the milk order shall contain one or more of these certain terms and conditions. The first is the classification of milk in accordance with its utilization such as fluid milk, as butter, as cheese, as ice cream. The second, the fixing or the providing of a method for the fixing of uniform minimum prices for each of these used classifications which each handler shall pay as a uniform minimum prices, the third, the payment of uniform prices to the producers irrespective of the ultimate use which maybe made of that particular milk and fourth, the adjustment of the payments by the handlers so that the total sum paid by each handler for the milk which he purchases will not be less than the value of that milk at the used classification prices, which are established by the marketing administrator under the Order. Now the Section goes on to state, “An order shall contain no terms and conditions other than those described bearing except as provided in subsection 7” and as I indicated at the outsets, subsection 7 authorizes the inclusion of auxiliary provisions which are incidental to the terms and conditions set fort in Section 8c (5) that was inconsistent. Now, Order 27 in its initial form, as the Court may recall, covered New York City and these three suburban counties, Westchester, Nassau and Suffolk. In 1957, it was extended to North New Jersey. Now, at the outset, the order provided for the classification pooling and pricing of the milk of all handlers who had the authority -- who have the approval of the local health authorities in the marketing area to sell milk in fluid form in the area. Now, between 1938 and 1941, this was the period of the Rock Royal case, it was only the milk of those handlers which was actually sold in the marketing area or which passed through a plant in the marketing area, you see which was regulated. All kinds of problems arose, this Court referred to some of them in the Rock Royal case, tis problem of pool price milk as against unpriced milk. In 1941, the order was amended to require the pooling and pricing of all milk disposed off by handlers who possess health authority approval, sell milk in New York City or these three suburban counties, irrespective of whether the -- they actually were selling milk in the area or not. They had a pool and price all of their milk, sold inside of the area or sold outside of the area. This regulatory scheme was approved by the Third Circuit in the Titusville case but proved to have a substantial disadvantage and the disadvantage basically was this, under these orders of course the -- this Order, the milk is classified of course in Class I, Class II and the Class III, that's the present form of Order 27. The handler accounts under the Order as the statute contemplates for his uses in each class. The milk marketing administrator then multiplies the amount of milk which the handlers accounted for in each class by the price which has been established for that class and he gets a total use value for the milk of this handler by adding then the amount of milk of each of the three classes times the class price. Then he does the same thing for every other handler and he obtains then an overall total, you see, used value on the milk of those handlers whose milk is being priced and he divides that by the total amount of milk that is being priced and then he gets around the figure which is the blend price. Now of course in the process, there are certain additions and subtractions which are made but none of those are relevant here. Now, the problem was this, under the old -- under the regulatory scheme as it existed between 1941 and 1945. You might have a plant or to say, we take a hypothetical plant in Massena, New York and this plant is disposing of virtually all of its milk in ice cream form which is a low value use. Now, if that plant -- you see we're outside of the pool, it would have very grave difficulties in getting milk supplies because it would be competing for milk supplies with the producer -- with the handlers, you see, who were in the pool and who were paying the blend price which of course is higher since it's based on a market wide utilization than the low Class III price. What he could do however at that time was this, he comes down to New York City and he gets the authority of the -- he gets the approval of the health authorities to dispose of -- to sell milk in the New York marketing area. Does he sell milk in a marketing area? Oh no. He goes on his business the same way as he was before, making ice cream, not contributing anything to the fluid milk needs of the area, but all of his milk is pooled and priced because he had the health authority approval. Now, then what he could do, you see, is he pays his producers the blend price as he's required to. He accounts to the producer settlement fund on the low Class III utilization which he actually made of the milk. Then he can draw out of the producer settlement fund, you see, the difference between the blend price and the low Class III price because all that he's accountable for is the Class III price. So the result was, that the producers in the area who actually meeting the fluid milk needs of the area were subsidized. You see this producer -- this handler who was not meeting the needs of the area at all and this was --
Potter Stewart: You used the word producer, do you mean dairy farmer or do you mean handler?
Alan S. Rosenthal: I meant to -- I meant to say the handlers were subsidizing this handler -- well in the sense it would be subsidizing the farmer too but he'd really be subsidizing the handler because the handler probably could have gotten milk you see at the low Class III price since he would have been competing in the area with these other producers who -- and competing with these other handlers who were --
Potter Stewart: I just want to be not on -- that I follow not only this argument but your whole argument because there are some in the briefs and so far, in the oral arguments. There's been some confusion for me at least as to pool producer as I thought that a producer and a dairy farmer is the same man.
Alan S. Rosenthal: No. Well, for the purposes of milk regulation and we will see a -- a producer under the present form of the order is a dairy farmer who delivers his milk directly from the farm to a pool plant. So under the order as -- as it presently constitute -- is constituted, it is those supplier -- it's the supplier of the pool handler.
Potter Stewart: Now in the statute, how are the words used?
Alan S. Rosenthal: The statute, if the Court pleases, does not define the terms producer or handler. The Secretary has defined -- does not define -- Secretary has defined the term producer and we think as we'll show correctly so, we think that the Secretary's definition is not only permitted by the statute, but indeed it is required by the provisions of the statute relating to regional marketer.
Potter Stewart: Well, under that definition of producer is certain kind of dairy farmer.
Alan S. Rosenthal: That's correct.
Potter Stewart: A kind who sells to a pool handler?
Alan S. Rosenthal: That's correct.
Potter Stewart: And a dairy farmer who sells to a handler who's not a pool handler, he's not a producer, he's just a dairy farmer.
Alan S. Rosenthal: Correct, that's right Your Honor.
Potter Stewart: The statute contains no --
Alan S. Rosenthal: Statute contains no definition, whatsoever.
Potter Stewart: But any of that, handlers not a producers, is he?
Alan S. Rosenthal: No that's right.
Potter Stewart: Or anybody of them?
Alan S. Rosenthal: No, that -- that is right. I may have inadvertently used the term when I meant handler but --
William J. Brennan, Jr.: Well may I just ask one (Inaudible)
Alan S. Rosenthal: Certainly.
William J. Brennan, Jr.: Does this Massena fellow of yours now become a pool handler by reason of the qualification (Voice Overlap)?
Alan S. Rosenthal: He becomes under the present Order. He would -- if he is not -- if he is doing what he was doing in my hypothetical, no he would not be a pool handler.
William J. Brennan, Jr.: But where he gets his milk? I thought you -- as I understand what you've been telling me, by this device, he has -- he's able to get milk that otherwise he's not be able to get because he would pay under the Class III price.
Alan S. Rosenthal: That's right.
William J. Brennan, Jr.: And now he is able to get it, from whom does he get it?
Alan S. Rosenthal: Well, he may or may not that he would -- I would suspect in depending upon the area in which he's operating that today, if he were, again, distributing nothing but -- if he was using his milk nothing but ice cream.
William J. Brennan, Jr.: Well, that's your hypothetic?
Alan S. Rosenthal: That's right. He would find considerable difficulty in getting milk.
Earl Warren: Because he couldn't afford to pay the price that was make him profit in the ice cream business, is that the reason?
Alan S. Rosenthal: Well, because the -- on the price which he could get for ice cream you see, he wouldn't have enough money available to pay his farmers you see, anything around the blend price which would be the price to -- that the producers participating in the pool.
William J. Brennan, Jr.: I am afraid you've lost me for a minute, maybe for good, but what I don't quite understand is, you said in this way, he pays the blend price and then actually, he gets back the difference between what he's paid and the Class III price, and you characterize that as subsequent event --
Alan S. Rosenthal: Well, and this was this -- yes, because he you see didn't stand ready to -- at any point, he was not participating in the fulfillment of the fluid-milk needs of the area. Now, the whole purpose of the regulatory scheme is to ensure that at all times there will be an adequate supply of wholesome milk in the marketing area. Now, this man wasn't contributing to this hypothetical plant, wasn't contributing at all to the supply of milk. Now, what this plant would have to do today --
William J. Brennan, Jr.: Under the --
Alan S. Rosenthal: -- under this -- he would -- he would as a matter of economics, I'm perfectly certain you see, during a -- the periods of relatively short supply of milk or fluid-milk, he would supply his milk to the marketing area you see, and where he was in time of milk abundance, he might use substantial portions of it for surplus uses. He'd have to do this in order to compete with the other handlers in seeking milk. Now, because of the in -- because of this problem, the regulatory scheme was changed in 1945 to its present basic scheme and that is that a market wide pool was established to which occasioned the regulation of a class of handlers which have been defined in the order as pool handlers. Now, these pool handlers are basically the handlers who are largely associated with the marketing area and with the fulfillment of the needs of the marketing area for fluid-milk. In most months of the year, any handler who is supplying 25% of milk in fluid form -- this milk in fluid form to the marketing area is required to be a pool handler.
William J. Brennan, Jr.: Well, your Massena man couldn't qualify.
Alan S. Rosenthal: Not -- not under the hypothetical that I establish. I would suppose again that my Massena man would change his methods of operation, presumably too qualifies. Now, the order then to find its producers in turn as those dairy farmers whose milk is delivered directly from the farm to the pool plant. Now -- well, this meant that no longer could a handler who did, little if any, business in the marketing area, take advantage of the pool structure. A new problem was presented, and that is the problem of the handler in the position that the petitioners have occupied since the marketing area was expanded to include New Jersey in 1957. This is the handler who does his principal business outside of the marketing area, and therefore is not required to become pool handler and to price and pool all of his milk. At the same time, as the petitioners here, he is selling some fluid-milk in the marketing area in competition with the milk of the pool handler.
Potter Stewart: Now, these petitioners sell only fluid-milk in the Order 27 area or do they sell all three (Voice Overlap)?
Alan S. Rosenthal: Well, I Your Honor -- all that I think that they sell fluid – they sell fluid-milk only and in any of event of course, they would be regulated on the fluid -- they wouldn't be regulated on their sales of dairy products you see in the marketing area.
Potter Stewart: Or how about in Class II.
Alan S. Rosenthal: Class II, they would have to -- they would be partially regulated, yes.
Potter Stewart: But as a matter of fact, do they sell --
Alan S. Rosenthal: The fluid milk.
Potter Stewart: -- all three classes or --
Alan S. Rosenthal: No, just fluid-milk.
Potter Stewart: -- the Order 27.
Alan S. Rosenthal: That's right.
Felix Frankfurter: It's not exclusively in the Order 27.
Alan S. Rosenthal: No.
Felix Frankfurter: Did I understand Mr. Daniels to say that, the larger proportion of their sales are in the non 27 (Voice Overlap).
Alan S. Rosenthal: Oh yes Your Honor, indeed if their sales were -- in most months were 25% in the marketing area, they would be automatically pool handlers and they would have --
Felix Frankfurter: There's no problem.
Alan S. Rosenthal: There would be no problem now. In their case, they can, even though they only sell 4% to 5% of their milk in the marketing area, if they want to, they can become fully regulated pool handlers on the same status as all of the other pool handlers.
Felix Frankfurter: They don't have to.
Alan S. Rosenthal: They don't -- no, they -- they don't have to, they can elect not to. They are automatically pool handlers unless they make the election not to be pool handlers.
Potter Stewart: But one of them for doing a period over here could not become a pool handler.
Alan S. Rosenthal: That's right. But since 1958, they -- both Lehigh until 1958 could not be a pool handler because it was selling more milk in the Order 61 area than it was in the Order 27 area and under the then provisions of the order, it did not qualify but that restriction was removed in 1958.
Felix Frankfurter: Just take me up Mr. Rosenthal, they don't have to become pool handlers but the effect of this -- the provision under contest is to make them that.
Alan S. Rosenthal: No Your Honor, it is not. The effect of this provision is not to make them that. As a matter of fact, the Secretary --
Felix Frankfurter: I know it doesn't formally to make them that but the consequences are that --
Alan S. Rosenthal: No.
Felix Frankfurter: -- the consequences of the same.
Alan S. Rosenthal: No -- no, they're not Your Honor.
Felix Frankfurter: Would you please clear up my ignorance (Voice Overlap)?
Alan S. Rosenthal: I would be very glad to Your Honor. The pool handlers, let us take -- I think I'd like to --
Felix Frankfurter: Nothing that that's the label you put on this --
Alan S. Rosenthal: No, it's not the effect.
Felix Frankfurter: And that's the consequence (Voice Overlap)
Alan S. Rosenthal: The reason it is the consequence of this Your Honor. Let us take the pool handler who -- in New Jersey who's been regulated since 1957. He is selling 25% of his milk, we'll say in the marketing area, 75% outside and we'll say he has got an entire fluid-milk disposition. Now, on every single drop of his milk, 25% in the area or 75% out of the area alike, because of his status as a fully regulated pool handler, he must pay not only the blend price to his farmers, but he must make a payment to the Producer Settlement Fund for the difference between the blend price and the Class I price, every drop of milk. Now, this is why Lehigh Valley finds -- would find fully regulated pool status much worse from an economic standpoint than the compensatory payment provisions which are provided for a non-pool handler in these circumstances.
Felix Frankfurter: That puts us in sense.
Alan S. Rosenthal: Alright, yeah.
Felix Frankfurter: The actual difference in sense between what you exacting and what they would be subjected to if they were pool handlers.
Alan S. Rosenthal: Alright I would -- well, of course it will depend upon -- let us -- let us say that this, that if they are a -- back in 1957, I wanted to just get the prices back at that time because I think that will provide the -- the best manner of comparison. Alright, in 19 -- well, in 1956, November 1956, the Class I price was $5.81. Now at that point, you see the Class II price was $3.90, the Class III price was $3.20.
Potter Stewart: Is that a hundredweight?
Alan S. Rosenthal: Hundredweight. Now, I don't know at that juncture, what the -- and this is the only thing in the record -- what the blend price was. Now, the blend price will vary, as you understand, considerably from month-to-month in the summer time when there's much more surplus milk being accounted for, the blend price will be reduced. I could, if the Court would permit, use the figures that -- for the present time as well, but let us assume which is I think is the fair assumption that -- that you have a Class I price to $5.81 and will make it June perhaps, at the time with the great deal of surplus and you could readily have a -- have a uniform blend price which would be, say $3.81 or make it $4 roughly. So that would mean that on every -- for a $4 blend price would mean that on every hundredweight of milk that this pool handler in New Jersey sells inside or outside of the area --
William J. Brennan, Jr.: The fellow with 25% or 75%?
Alan S. Rosenthal: 75% and 25 % alike, he would have to pay a $1.81 into the Producer Settlement Fund. Now, let us take the non-pool handler now. He is selling as Lehigh Valley about 4.5% in the marketing area. It's only on that 4.5% of his milk that he is being regulated under Order 27. On that 4.5% of his milk, instead of the 100% of my pool handler, he will pay the difference between then Class I price which was $5.81 and the then Class III price which was $3.20. Now, I haven't worked it out in my head, I'm not very good actually at mathematics without a piece of paper, but I think it -- it becomes abundantly clear from that example that the -- it's to the advantage of some one in Lehigh's position and confronted with the choice between fully regulated pool status and compensatory payment.
William J. Brennan, Jr.: Well, I think I follow. My arithmetic is not very good either but that sounds to me like $2.61 difference on the 4.5%.
Alan S. Rosenthal: Percent, as opposed to, he's would pay --
William J. Brennan, Jr.: I suppose $1.81, is that what you're telling?
Alan S. Rosenthal: Yes.
Felix Frankfurter: I assumed the difference is not really the amount but also the total (Voice Overlap)
Alan S. Rosenthal: That's right. The differential is larger for the -- for the non-pool handler in the compensatory payment, but that's only applying to 4.5% of his milk and the pool handler it's applying to --
William J. Brennan, Jr.: Oh but does he pay -- he pays $2.81 for hundredweight on 4.5% on the deduction?
Alan S. Rosenthal: That's right, on any milk which he sells in fluid form in the marketing area.
William J. Brennan, Jr.: Well, I thought we were assuming this was all Class I fluid-milk.
Alan S. Rosenthal: That's well -- I think it's 4.5%, that's right, on his 4.5% in the marketing area.
William J. Brennan, Jr.: Whereas he'd joined the pool, you're telling us he'd actually be paying $1.81.
Alan S. Rosenthal: He would pay $1.81 but on the 100% of his --
Felix Frankfurter: On his total.
Alan S. Rosenthal: -- on his total milk.
William J. Brennan, Jr.: On his total.
Alan S. Rosenthal: That's right because the pool handler -- the pool handler is subject to the complete mechanism of the regulatory scheme.
William J. Brennan, Jr.: Wait, wait a minute. I thought you said Order 27 regulates among these to the 4.5% of the selling (Voice Overlap)
Alan S. Rosenthal: This is the non-pool handler -- the non-pool handler. This is the Lehigh Valley who sells 4.5% in the marketing area doesn't need to become a member of the pool if it doesn't want to, can if it doesn't one.
William J. Brennan, Jr.: What I'm trying to get is the difference between what happens when he doesn't want to, and what happens and when he does --
Alan S. Rosenthal: What happens to him is this, on the -- and he's got a total fluid-milk disposition on -- if he is a non-pool handler on the 4.5% of his milk which he sells in the marketing area and are nothing more, he pays the difference between Class III and Class I which at November of 1956 was about $2.60, $2.60 on 4% of his milk. If he is a pool handler fully regulated, he pays the difference each --
William J. Brennan, Jr.: Even though he's distributing on the 4.5% (Voice Overlap)
Alan S. Rosenthal: That's right. It doesn't make any difference if he's a pool handler on his -- total disposition of milk, he pays the difference between the blend price which in my hypothetical I think was about $4 and the Class I price which is $5.81 at this time on all of his milk. Now the -- actually there -- in this case, it's clear.
William J. Brennan, Jr.: He's not better off but I don't understand it.
Alan S. Rosenthal: He is a -- how -- excuse Your Honor.
William J. Brennan, Jr.: He's not better off but I don't --
Alan S. Rosenthal: He's not better off by becoming a fully regulated pool handler that's why Lehigh Valley elected not to become a fully regulated pool handler. Now, the sec --
Felix Frankfurter: May I ask you one more thing in connection to that. If he'd become -- if he chooses to become a pool handler on this non-required quantity, and also sell them -- 61 Order 61 areas, is he subjected in under the 61 area to putting into the compensatory payment?
Alan S. Rosenthal: No. There is no -- as a matter of fact, if he becomes a fully regulated pool handler under Order 27, he's not under Order 61 at all.
Felix Frankfurter: At all.
Alan S. Rosenthal: At all.
Felix Frankfurter: And, let me ask you one more question, does the Secretary of Agriculture powered to extend the geographic area within which a milk order is operated, in other words it can be extend the area of 27 so that it should cover Pennsylvania?
Alan S. Rosenthal: Yes, he could.
Felix Frankfurter: So he could accomplish the same result by extending the area.
Alan S. Rosenthal: He could make --
Felix Frankfurter: There may be other problems.
Alan S. Rosenthal: He could look -- yes indeed, and he could -- that's right, he could extend -- he could extend the area. It was determined at this time by the Secretary that the Order should be extended just to these 12 counties known in Jersey.
Felix Frankfurter: In other words, to be very specific, could by extending the area of Order 27, the same result be achieved that was sought to be achieved by -- by the provision in conduct?
Alan S. Rosenthal: Yes. Well, by extending -- there would be no necessity for compensatory payment provision as to these Pennsylvania handlers if the order was extended to the area of the order of the marketing -- the marketing are was extended so as to embrace their principal place of business within the area.
Felix Frankfurter: It may be subjected to the things they're now complaining of before extend it.
Alan S. Rosenthal: There wouldn't -- wouldn't be any necessity to subject them to compensatory payments. You see, compensatory payments are only for the non-pool handler, and their purpose -- their purpose is to do away with the competitive disadvantage that in the absence of compensatory payments, you see, the pool-handler which is the main stay of the area would be under.
Felix Frankfurter: What I want to know is, what difference in economics would it be if the order were extended to embrace Pennsylvania?
Alan S. Rosenthal: Again it would -- to these -- to these petitioners?
Felix Frankfurter: Yes.
Alan S. Rosenthal: Well, it -- in the case of Lehigh Valley, it would make this difference. Lehigh Valley is subject to Order 61 which has a -- instead of a market wide pool as does Order 27, has an individual handler pool. Now, the handler, unless it's a co-op and which is exempt from doing it but the co-ops would do it anyway, the handler does not require to pay a blend -- the handler is normally required to pay a blend price to his farmers, but the blend price in the case of individual handler pool is computed just on the basis of that handler's utilization. Now, Lehigh Valley under Order 61 you see, the way it now operates, it is required to account you see on the basis of Class I, Class II, Class III prices. It so happens that the Philadelphia Class I, Class II, Class III prices as the same as New York prices, but where it gets the advantage is, it doesn't have to take in any of the surplus of any other handler. It's returned to its producer. It's based solely upon its own utilization of milk.
Felix Frankfurter: Well that merely because the order was so shaped by that (Voice Overlap) not because the statute requires it.
Alan S. Rosenthal: That's right. Well as to the statute --
Felix Frankfurter: What I want to know is whether by exercising the part that you attribute to the Secretary, he could subject Lehigh to the same economic burden of which it is now complained by merely extending the area.
Alan S. Rosenthal: Well, it's burden it's -- no -- the economic consequences would be -- would be different. What it would be doing in that case would be assuming its share of the overall surplus you see, in the market area.
William J. Brennan, Jr.: Well it would then as I understand it would be -- if you did that would not Lehigh become automatically a pool handler.
Alan S. Rosenthal: That's right.
William J. Brennan, Jr.: But as a pool-handler, Lehigh has been in the position to follow the $1.81 difference (Voice Overlap) compensatory $2.60. (Voice Overlap)
Alan S. Rosenthal: That's right, if it were extended. Now, they gain (Inaudible) that they have that option now. They can become a fully regulated pool handler if they want to.
Hugo L. Black: May I (Inaudible) the philosophy behind this and somewhat to seem if that would reference to Lehigh workers who do not belong to the union, they do not belong to the union, they do not contribute to the dues, they claim to get the advantage of the advance prices that (Inaudible)
Alan S. Rosenthal: The philosophy Your Honor is -- is this I think. And that is that -- this is the philosophy underlying the compensatory payment. It is in a matter of a really of a club or association, relationship at all, what you're doing -- you're dealing here with a group of producers who stand ready willing and able to supply the fluid-milk needs of the area in the time of shortage.
Hugo L. Black: By that cooperation, they get in -- activities, they get an increased price of stability of pool?
Alan S. Rosenthal: Well, it's -- it's -- they get the advantages you see which stem of course from the equalization of the burden of the surplus --
Hugo L. Black: (Voice Overlap) the basis of it that they could get a stabilized price and an increased price of the reason of cooperation if all of them contribute to a common fund called the pool?
Alan S. Rosenthal: Well, he goes --
Hugo L. Black: Again, the man who does not belong to that pool, as you pictured it out, one who is not contributing to that but who will get advantage of it although he does not contribute to the lawsuit, is that your principle?
Alan S. Rosenthal: No, I don't think Your Honor that is the principle -- what the -- what the --
Hugo L. Black: Then I do not understand yet why they are hurt? As I gathered it in view it was because his occurrence, the other people contribute to and he doesn't. He gets the advantage of it as though he was a pool contributor when he's not. Is that what it is?
Alan S. Rosenthal: Well, the advantage in the -- the advantage to the non-pool handler in the present situation is this, the pool handler you see cannot -- on his milk sales, he has to account at these minimum prices. He then has to pay into the Producer Settlement Fund the difference between the blend price which she has paid out to his farmers and on his fluid milk sales, difference between the blend price and Class I price, alright.
Hugo L. Black: Into what?
Alan S. Rosenthal: Into the Producer Settlement Fund.
Hugo L. Black: And did it fund out of which you'll ultimately comes in favor to the compensation?
Alan S. Rosenthal: No. Out of that fund will come the moneys you see to pay the handler whose milk has gone for a manufacturing use you see, but who has paid his farmer or his producer rather, as he must, the uniform blend price. See the objective -- the objective of this regulatory scheme is that each handler should pay minimum prices based upon the use which he makes of the milk.
Hugo L. Black: The -- the -- the final objective of it is, as I understand you, the farmers get better prices, the most stable prices for the milk.
Alan S. Rosenthal: Precisely, that's right.
Hugo L. Black: And -- and here, you have a plan where about upon disputed but somewhat will do something which would be a loss but for the fact that they also recoup some other from a pool.
Alan S. Rosenthal: No, the -- the producer him -- the purpose of the Producer Settlement Fund Mr. Justice Black is to really equalize the accounts as between handlers.
Hugo L. Black: That's right.
Alan S. Rosenthal: That's right. Now the handler --
Hugo L. Black: Yeah, the handler who doesn't belong to that and therefore, he doesn't contribute to that fund.
Alan S. Rosenthal: That's right. But the -- the point is this, that the blend -- the blend price which is what the producer gets you see and which is determined on the basis of the used values of all of these handlers, that blend price reflects the utilization which is made of milk by all of the pool producer, by all of the pool handlers. Now, the problem is this. In the summertime --
Hugo L. Black: I understand that (Voice Overlap)
Alan S. Rosenthal: Well, but that not with the --
Hugo L. Black: Well, (Inaudible) why this man who is non-pool man wanted to be hurt, that's the question of several of us asked and maybe you've explained fully to theri satisfaction.
William J. Brennan, Jr.: No, that's mine.
Hugo L. Black: I -- I had and I did which is evidently wrong because you keep returning to the technical term, I had an idea that you have a fund here. It's the idea of a cooperative fund for the purpose of stabilizing prices. People pay into that, they're required to pay sometimes more for milk then -- then its worth. But they put it in there, they put all that fund in there, they're going to share them in the benefits of these cooperative funds and this non-pool handler claims he's entitled to do that even though he does not contribute to that -- make the same payments which you -- you said a while ago that he didn't make the same payment. I'm not talking about paying directly into the fund, but through this complicated machinery of blended and non-blended and I, II and III. It all turns out to be a pool.
John M. Harlan II: (Inaudible) particular handler. Paying blend price (Inaudible)
Alan S. Rosenthal: That's right.
John M. Harlan II: (Inaudible)
Alan S. Rosenthal: That's right.
John M. Harlan II: (Inaudible) even though the Secretary -- the Secretary of Agriculture couldn't (Inaudible)
Alan S. Rosenthal: That's right sir.
John M. Harlan II: (Inaudible) to achieve for that result by forcing the non-pool members into buying milk from outside the area and paying into the fund (Inaudible)
Alan S. Rosenthal: That's right.
John M. Harlan II: Is that right?
Alan S. Rosenthal: That's right.
John M. Harlan II: The question is whether that power (Inaudible) acts as you recognize prohibits from the record, prohibited inquiries (Inaudible) non-pool handler (Inaudible)
Alan S. Rosenthal: It doesn't -- well, it doesn't keep the non-pool member out Your Honor. The Secretary's rationale for the compensatory payment was this. He said that if the non-pool handler did not sell his milk in the marketing area in fluid form, his most circumstances he would be required to dispose of it outside of the marketing area in manufacturing use form. Now, he said by the same token, when the milk enters the area there's already enough fluid-milk you see, to meet the fluid-milk needs so that as it enters the area, this milk has and so far as the marketing area is concerned a surplus milk value. Now, this is so because since 1953, if there isn't enough fluid-milk in the marketing area you see from the pool-handlers to meet the fluid-milk needs of the area, no compensatory payments are due from the non-pool handler. So the Secretary said this. He said that it's perfectly fair to treat this milk coming into the marketing area as surplus milk because that's what it could have been disposed of outside of the marketing area, that's what its real value was in the marketing area. Now he said I don't, “I don't -- I don't want to and indeed I can't prohibit milk from entering the area, but I want to ensure that if the non-pool handler elects, you see, to sell the milk in the marketing area as fluid instead of its alternative of selling it outside of the marketing area as surplus that he is in advantage by that election at the expense of the pool handler. ”Now, it is at the expense of the pool handler, because the pool handler after all, he is the one who is bearing the surplus which is necessary -- necessarily goes along with the fluid-milk requirements of the area and the surplus is reflected in the blend price. When the non-pool handler comes into the marketing area and sells fluid milk, of necessity he displaces a fluid milk sale by a pool handler. And equal quantity of milk has to be diverted by a pool handler from a Class I use and a Class I accountability to a Class III use and a Class III accountability. This reduces the blend price, and the Secretary found and it is not challenged here that if this milk is permitted to come in without this compensatory payment, the blend price is going to be reduced and there is going to be a tendency on the part of a pool handler to breakaway from the pool operations.
John M. Harlan II: Non-pool handler as (Inaudible)
Alan S. Rosenthal: The non-pool handler, that's right -- the Secretary said that it is not unreasonable you see to give to the --
John M. Harlan II: The difference between (Inaudible)
Alan S. Rosenthal: That's right.
John M. Harlan II: (Inaudible) the blend price.
Alan S. Rosenthal: That's right.
John M. Harlan II: And the price of the actual (Inaudible).
Alan S. Rosenthal: That's right.
John M. Harlan II: So that's (Inaudible) the blend price by drawing on to the marketing efficiency service to bear upon the (Inaudible) and all of that (Inaudible) and there, I think (Inaudible) blend price.
Alan S. Rosenthal: That's right.
John M. Harlan II: And each (Inaudible) blend price against the (Inaudible)
Alan S. Rosenthal: That's right, that's right.
John M. Harlan II: (Inaudible)
Potter Stewart: Well, that's not the only question though, you're no the 5 (a) (Voice Overlap).
Alan S. Rosenthal: That's right, Your Honor pleases I'd like --
William J. Brennan, Jr.: Well, before you take that 5 (a) now, let me see I -- what my brother Harlan had said, finally light to him. Was this in effect that using the figures you used earlier, suppose a blend price in those 56 figures of $4 that without this 4.5% of milk coming in, it would be $4. With the 4.5% coming in, assume it goes down to 380, these compensatory payments bring the fund back up to the plan price just to $4.
Alan S. Rosenthal: That's correct.
William J. Brennan, Jr.: Is that it?
Alan S. Rosenthal: That's absolutely right sir.
William J. Brennan, Jr.: At last.
Earl Warren: Mr. Rosenthal, may I try to reduce it to terms that seem simple to me. Let me put up this way. The -- the fixing of the blend price is for the benefit of the farmer to see that his prices are -- are stabilized and that he gets a fair price. The establishment of the fund is for the benefit of the handlers regardless of -- in order to compensate for their different uses that they make of the milk and the compelling or contribution from an outsider who comes in to the district and who is not a pool handler is to compel him to pay into this fund so he will not have an unfair advantage over the pool handler.
Alan S. Rosenthal: That's right. That is correct so that the blend price is preserved Your Honors.
Earl Warren: Yes.
Alan S. Rosenthal: Now, if I may address myself over this--
Potter Stewart: Now , if this -- if this, if the milk coming to the Order 27 area, it would simply treated as pool milk as I suggested it in the question then the payment of the differential would be between Class I and the blend price, is that it, rather than between Class I and Class III?
Alan S. Rosenthal: That's right, but the Secretary that would -- the Secretary considered that alternative and rejected it on the ground but it wouldn't be fully compensatory to the pool handler. It wouldn't preserve the -- the blend price.
Potter Stewart: But it might -- but it might conform to the statute whereas (Voice Overlap), might not?
Alan S. Rosenthal: That's right. We -- we submit if the Court pleases that for some reasons, there's neither violation of 8c (5) (a)
Potter Stewart: Oh I understand.
Alan S. Rosenthal: -- or 8 (5) (g). Now, the -- with respect to (a), (a) says that the milk received from producers uniform minimum prices shall be paid by each handler. Now, under the Secretary's definition of producer you see, the petitioners in this case are not handlers receiving milk from producers. Now the petitioners say, “You cannot read.” The Secretary had no authority to define the term producer as meaning just those farmers who are supplying to pool plants. If however, we read the term producer to mean all dairy farmers throughout the United States, that means that every handler throughout the United States must pay uniform minimum prices, uniform minimum price to his farmers. In other words, you would have then of necessity a nationwide pool in which all of the farmers would be in the pool, all of the handlers would be in the pool. Every farmer throughout the United States would be getting this uniform minimum price. Now, this would run direct --
Potter Stewart: I just don't get that at all. (Inaudible) but I don't understand your argument at all. This statute empowers the Secretary of Agriculture to make orders for various regions, for various areas.
Alan S. Rosenthal: If Your Honor pleases, Section 5 (a) was first to the classification of milk and the providing of the method for the fixing of minimum prices for milk purchased from producers, such prices shall be uniformed as to all handlers. This means the prices of milk received from producers.
Potter Stewart: Subject to any order which he may like to promulgate?
Alan S. Rosenthal: Alright, now if it means --
Potter Stewart: And the whole theory that is that these orders be regional and nationwide.
Alan S. Rosenthal: If -- if you take the term producer, then to mean as anyone who is selling to a handler, who is selling in a marketing area to be sure Lehigh Valley and Suncrest are in those circumstances, a handler purchasing milk from a producer. But if there are handlers purchasing milk from a producer that means that they must pay uniform minimum prices and account to the Producer Settlement Fund on all their milk. In other words, they have to become fully regulated handlers. It is only by defining the term producer in terms of the farmer whose milk is delivered to the pool plant that there is any possibility in the view of the terms of the statute of permitting handlers such as the petitioners here who do their principal business outside the marketing area you see, from permitting them to remain free of the pool regulation otherwise follows. Because if -- again, if Lehigh Valley is a handler receiving milk from a producer, then it must under Order 21, pay a uniform price to all of its producers. You can't differentiate between the producers, you must pay it to all of them and must accounted the Producer Settlement Fund, must go through all of the other procedures required by the order.
John M. Harlan II: (Inaudible) all the handlers are (Inaudible)
Alan S. Rosenthal: Well, if Your Honor, if that is the -- if that is the case, if the Secretary could not differentiate between the pool handler and the non-pool handler, the result then is that (Inaudible) handlers purchasing from producers then he must be treated exactly like the 25% fluid-milk distributor in the marketing area and he must be fully regulated. The reason that the Secretary differentiated between the pool handler and the non-pool handler was not to impose some large extraordinary burden upon handlers in a petitioner's position. It was to allow them to stay out of because it was more desirable for them to stay out of the scope of pool regulation and to just -- now, the other aspect of course of Section 5 (a) is that it all that it requires is that the minimum prices shall be uniform as to all handlers. Now, as this Court itself has noted, noted in the Stark against Wickard, there is no proscription in the Act against the handler paying more than the minimum price and indeed, in many circumstances because of economic conditions in the industry, there will be a disparity between the price of the cost of milk between one and another pool handler. For example, the one pool handler will pays the uniform blend price as they used, required to do pay fine that he cannot get milk at the uniform blend price because of the particular circumstances which will pertain in his area. So, he pays a premium. There's no question at all then under this Order, this fully regulated pool handler must still account for the difference between the blend price and the Class I price even though the effect is that his total cost exceeds the uniform minimum price for Class I which the other handler, another handler because he isn't forced to pay premiums does not have to meet it. Now, there is not one single reference any where in Section 8c 5 (a) to costs or to the equalization of costs. All in it says is that uniform minimum prices shall be paid by each handler. Therefore, even if the petitioners here were handlers within the scope of 8c 5 (a), there is no violation of the -- of the statute. Now with respect to 8c 5 (g), the Section is very careful to distinguish between milk and milk products. With respect to milk, it only deals with -- it only proscribes the prohibition of the entry of milk into a marketing area from any production area. In the case of milk products, it proscribes a limitation upon any importation. Now, we submit that by no prices or can this Order be read as a prohibiting, the importation of milk from anywhere into the marketing area. As a matter of fact, under the terms of this Order, again the petitioners can become fully regulated pool handlers on an absolutely equal status with all of the other regulated pool handlers and bring their milk in. Even without becoming fully regulated pool handlers, they're perfectly free to bring their milk in and they have been bringing their milk in over the period of the last few years. What Lehigh does simply is on this milk, it accounts to its producers at the -- in figuring out the blend price to its producers, it accounts for the -- at the Class III price.
Potter Stewart: Mr. Rosenthal, as I understand it at least in many areas of the country, the Secretary in promulgating these various orders has not found it necessary to follow this device but rather has treated milk to the kind -- we're talking about here as simply as pool milk, isn't that true?
Alan S. Rosenthal: Your Honor, virtually all of the market wide pools, an Order setting up market wide pools--
Potter Stewart: Detroit -- Detroit and the Chicago area.
Alan S. Rosenthal: -- as compensatory payments of this type. Now, there are 33 marketing orders throughout the United States which have compensatory payment provisions which are identical to the provisions of this Order. There are 29 orders throughout the country which have compensatory payment provisions which are somewhat different. In other areas, the Secretary has formulated a different basis of regulation where the individual handler pool for example on existence such as in Philadelphia. It was found to be no necessity for. Each of these Orders is formulated after an extensive promulgation hearing at which is (Inaudible) the circumstances peculiar to the area involved. Now, all that I can say is that in -- the Order 27 area, the Secretary has found compensatory payment provisions of this type essential. The reasons for these are set out in detail in the Secretary's findings in 1953 which is set forth in 18, Federal Register 8444 at Sec and again in 1957 and appears there in the record, its pages 752 to 755. Now, the Secretary's findings with respect to what the situation is in this area and what is necessary to protect the integrity of the pool in this area are not challenged by the petitioners here. And again, as I indicated at the opening that everyone who has come in to contact with this issue, in this case, in this context has been in agreement -- agreement that these provisions are essential to the effectuation of this regulatory scheme. (Voice Overlap)
Potter Stewart: Well, as well they're not a violation of the statute.
Alan S. Rosenthal: That's right. And we -- that's correct and we say that -- that there's no violation of 8 5 (a) first because the Secretary's differentiation, in his definition which is the permissible one, second because 8c 5 (5) does not receive -- require uniformity of costs but merely the uniformity of minimum prices. And there's no question here that the minimum prices are uniform and finally that the 8c 5 (g) similarly is not violated because this order does not, by any stretch of imagination, prohibit the entry of milk into the marketing area.
Hugo L. Black: May I ask you on that 5 (g)? I want to ask you this before you sit down. I think I understand your position and that's (Inaudible). It says no marketing agreement or other order happens with the milk and its products, any marketing areas still prohibit or in any manner to limit in the case of the products of milk. Is it your position that that means that while the Secretary cannot prohibit, it can put up hurdle to the movement of milk in area to another?
Alan S. Rosenthal: That's right Your Honor. The legislative history clearly indicates that Congress intended to differentiate in this regard between milk and milk products. I would refer Your Honors to a colloquy from the legislative history which at page – it appease at page 64 of the amicus curia briefs submitted by the Dairymen League. It appears therein that this is one sentence that from -- this colloquy from Mr. Hope, Congressman Hope in response to a question is to whether he could prohibit products of milk being brought into an area. He said no but he can prescribe limitations on the importation of fluid-milk and just the way that the -- this Section is set up indicates -- with this differentiation indicates the Congress did not intend to proscribe the Secretary's -- prohibit the Secretary from imposing -- from promulgating orders which would have the possible effect of limiting the importation of milk products -- of milk as distinguished from milk products.
Hugo L. Black: Dairymen's League?
Alan S. Rosenthal: That's correct Your Honor. So, amicus curia brief, it's at page 64.
Earl Warren: Mr. Daniels.
Willis F. Daniels: May it please the Court. I will attempt to answer some questions that arose. In answer to Mr. Justice Stewart's question, it is perfectly true and we have not contended otherwise that the milk that is sold in the area, that we should pay the same price for it, at least the same price for it as handlers, pool handlers. Chicago has no compensatory payment provision. Anyone who sells milk in the Chicago marketing area is a pool plant and whether or not, in answer Mr. Justice Frankfurter, the Secretary could have extended this territory to take in part of Pennsylvania, would depend upon the facts developed at the time. He apparently, as the District Court said, did not find that he should take in this part of Pennsylvania.
Felix Frankfurter: If he did -- if he did -- would it be -- would it be -- suppose he found on his facts balancing all the consideration, would that be an order beyond his powers in your view?
Willis F. Daniels: Mr. Justice Frankfurter, if he -- based his opinion or based his decision on the facts.
Felix Frankfurter: On his judgment of what the fact signifies.
Willis F. Daniels: Alright.
Felix Frankfurter: Facts doesn't itself prove anything.
Willis F. Daniels: He has -- he has a statutory authority, but of course we must comply with the statute. Now then, the compensatory payment provision in the market wide pool of the Detroit area is this type of a compensatory payment and brings about uniformity. The difference between what the handler pays, the non-pool handler pays, actually pays and the price that he would be required to pay if the provisions of the Detroit order were impressed upon it, that brings about uniformity.
Potter Stewart: And that, you would concede --
Willis F. Daniels: We're not quarreling.
Potter Stewart: (Voice Overlap) within the statute.
Willis F. Daniels: We're -- we're not quarreling with that. We're not quarreling with that at all sir.
Potter Stewart: I mean that -- that seems to at least comply with your particular objections to this.
Willis F. Daniels: Yes sir, it does.
Potter Stewart: Alright.
Willis F. Daniels: Now, in Rock Royal case, this Court said, “It is erroneous to suppose that the buying of milk at less than the minimum, the actual price paid for the milk sold in the area is reduced.” In other words, they say, in the Rock Royal case, they said, “If you pay for the milk equal to the order price that you pay that you sell on the other marketing area rather but you have complied with uniformity.” Now, in answer to Mr. Justice Brennan and Mr. Justice Stewart, it's perfectly true as suggested to the Court that to strike this provision down does not make a do way of regional orders. We have regional orders in the State of Pennsylvania 13 up and Utah the price established for the milk according to the area in which you sell it and that is what is exactly meant in the federal order. He can in his regional orders but all milk that comes in must be treated as the same -- in the same manner. As to any authority to define farmers, dairy farmers and producers differently, this Court in the Royal Rock case and this Court in Vernon versus -- or Stewart -- or Wickard versus -- Stark versus Wickard and again, in Brandon versus Stark at page 40 of our brief deal with the word producer and milk farmer interchange it as does Section 1 and 2 of the Act. Now then, I'd like to address to try answer Mr. Justice Black's question how are we hurt. We are hurt because we have to take this money out of our treasury, making the milk that we sell in Phillipsburg, New Jersey and we've been there for 27 years, I keep repeating, $0.05 should port more than the pool handler and we give it to the Producer Settlement Fund to be distributed among other producers. There we're hurt. We asked and there seem to be some thought that we were asking for something out of the pool. We draw nothing out of the pool.
Felix Frankfurter: It isn't the question of drawing -- it isn't the question of drawing things out of the pool and suppose one agrees that you're hurt but the point you have to meet, that I take it is that if by being allowed to come in as the statute allows you to come in on your terms, you have a depressive effect upon the totality of the market in that, by nothing required to pay to this fund, you affect those who do have to pay in it and affect the market structure.
Willis F. Daniels: Mr. Just --
Felix Frankfurter: And that's the real problem of this case.
Willis F. Daniels: Mr. Justice --
Felix Frankfurter: (Voice Overlap) whether the Secretary has the right so define.
Willis F. Daniels: Mr. Justice Frankfurter, I think the Judge in the District Court answered that rather quickly. He said it isn't the question here of Lehigh Valley and Suncrest invading a marketing area. They've been there. They established the market.
Felix Frankfurter: Why is that an answer? Why is that an answer unless by the implications that by having been in the market to deprive the Congress of the -- suppose the Congress of the United States has such a specific statute, do you think you'd have a constitutional right to claim? You have been there. The answer is no and so the question here is whether the Congress has given this exacting power to the Secretary.
Willis F. Daniels: Mr. Justice Frankfurter, I answered this way by saying this that because we're there, we do not have special privileges. We have to subject ourselves to regulation but the regulation that we are willing, the regulation that we are subjected to and the only regulation we can be subjected to is valid regulation.
Felix Frankfurter: Now, let me (Voice Overlap)
Willis F. Daniels: And uniformity is what that is sir.
Felix Frankfurter: Would you care to express an opinion whether such a specific provision by the Congress of the Unites States would be unconstitutional?
Willis F. Daniels: I don't understand what such of a provision. What do you mean sir?
Felix Frankfurter: Means the precise provision which you are now attacking. Suppose Congress passed the statute, which said that anybody in your position would -- would be subjected to this contribution to the fund.
Willis F. Daniels: This compensatory payment provision?
Felix Frankfurter: (Voice Overlap) unconstitutional because you've been there?
Willis F. Daniels: I think that the statute would be unconstitutional because it would be interfering with interstate commerce and discriminating. I think it would be however, I'm not arguing that process. And I just want to close by saying, if Your Honors please that this argument made by government counsel that the surpluses drawn on the New York market in the flush period, since 1952, a Class I utilization and New York marketing area has been 70%, the lowest or the highest has been 70% or a little less and the testimony shows un-contradicted that we have (Inaudible) dropped of our surplus. And the blend prices Mr. Justice Brennan that were given by my friend would of course vary unrealistic and cannot be found any place or again, as an actual fact they are not the blend prices.