Court Opinion

ID: 9443075
Source: CourtListenerOpinion
Date Created: 2023-08-03 19:10:20.667429+00
Date Added: 2024-06-11T17:29:21.974538
License: Public Domain

FAHY, Circuit Judge
(dissenting).
The appeals for decision are now confined to those of the Association and its Secretary-Treasurer. Of the original defendants'three distributing companies were acquitted by the court at the completion of the Government’s case, two others after completion of the whole trial, and two were convicted along with the Association and its Secretary-Treasurer. The two convicted distributors after appealing paid their fines and dismissed their appeals.
The Association, a corporation composed of approximately fifteen hundred dairy farmers, referred to as producers, supplies approximately 80% of the milk sold in the Washington area. The combining of these producers with one another in an Association and the pooling of their milk for sale to distributors, with consequent stronger bargaining position and other advantages, is not questioned. Such agreements as are incident to this arrangement are protected from the anti-trust laws by Congressional enactment. 42 Stat. 388 (1922), 7 U.S.C.A. §§ 291, 292 (1946) (Capper-Volstead Act); 38 Stat. 731 (1914), 15 U.S.C.A. § 17 (1946) (Clayton Act). United States v. Borden Co., 1939, 308 U.S. 188, 60 S.Ct. 182, 84 L.Ed. 181.
The two distributors found guilty of violating Section 3 of the Sherman Act (26 Stat. 209 (1890), 15 U.S.C.A. § 3 (1946)) during a test period accounted for an aggregate of 13.8 per cent (one for 12.3 per cent and the other for 1.5 per cent) of Class I and Class II milk sold in the Washington area. By contract they obtained their full supply from the Association to the extent it could meet their requirements.
The case turns upon the 'arrangements between the Association and these distributors, and of the latter among themselves, consisting primarily of full supply contracts which embody a use classification plan.1 The District Court, Judge Holtzoff sitting, was of the opinion that these contracts constituted agreements for controlling and fixing prices of milk sold by the Association to the distributors, and, therefore, re*918strained, trade and commerce in violation of Section 3 of the Sherman Act.
This conclusion of the trial judge appears to me to be correct. As stated, the distributors are required to obtain their full supply from the Association to the extent it is able to meet their requirements. The Association carries out this obligation by assigning the milk supply of certain member producers to certain distributors. The latter sell the milk for uses which are divided for pricing purposes into three classes. The most important' of these classes consists of the use of milk for consumption in fluid form. This is Class I. Milk so used is ordinarily sold in bottles or cartons for direct consumption, though it may be sold in bulk. Milk used or sold by the distributor for conversion into cream or cottage cheese is in Class II, and that used or sold by the distributor for manufacturing products such as ice cream is in Class III. These classifications have nothing whatever to do with the quality of the milk. The . classifications are entirely upon the basis of use and are for pricing purposes. °For Class I milk the distributor pays the Association a higher price than is charged by the Association for Class II or Class III milk. The price charged for Class III is either less than that for Class II or is the same. Since the distributor does not know when he receives the milk from the Association how much of it he will sell or use in each class, .the amount he pays the Association is computed by an audit made after disposition or use.
There are other details of the arrangements which might aid in stabilizing the market, in keeping a steady supply to meet the essential needs of the consuming public, and at the same time in avoiding the economic distresses consequent upon a surplus. But the essential features of the arrangements are those above outlined.
Pricing according to use is the principal feature of the use classification plan. During the relevant period this plan was in effect between the Association and distributors and among the latter.2 *****8 The inevitable effect is to bring about and to maintain a price differential based on use. A higher price is paid by the distributor for milk used to fill the more vital need of the public for nutrition and health * purposes (Class I). In this manner the Association and distributors engage in price fixing, although the actual prices for the several classes are fixed by the Association alone. This court so held, as I read the opinion, in United States v. Maryland & Virginia Milk Producers Ass’n, 1949, 85 U.S.App.D.C. 180, 183, 179 F.2d 426, 429, certiorari denied, 1949, 338 U.S. 831, 70 S.Ct. 72, 94 L.Ed. 506, when the case was here on appeal from dismissal of the indictment. There is concert between the Association and distributors and among the latter as a result of which the price for Class I milk is higher than the price charged for like milk used for other purposes. As the District Court held, this in effect is price fixing, and, therefore, is a combination or conspiracy in restraint of trade in violation of Section 3 of the Sherman Act, United States v. Socony-Vacuum Oil Co., 1940, 310 U.S. 150, 60 S.Ct. 811, 84 L.Ed. 1129; United States v. Real Estate Boards, 1950, 339 U.S. 485, 489, 70 S.Ct. 711, 94 L.Ed. 1007, unless relieved of this consequence by approval of such arrangements under some valid law, such as the Agricultural Marketing Agreement Act of 1937 (48 Stat. 31 (1933), as amended, 50 Stat. 246 (1937), 7 U.S.C.A. § 601 (1946); 48 Stat. 34 (1933), as amended, 7 U.S.C.A. § 608b (1946)). See United States v. Borden Co., 1939, 308 U.S. 188, 60 S.Ct. 182, 84 L.Ed. 181, and United States v. Maryland & Virginia Milk Producers Ass’n, supra. The arrangements here involved were in fact at one time approved by the Secretary of Agriculture under the provisions of that Act. Congress recognized the need in the public interest of permitting the orderly marketing of milk through ar*919rangements or agreements or combinations which would run counter to the policy of the anti-trust laws, provided such arrangements were • subjected to public controls set forth in the statute. The Association and distributors in the Washington area brought themselves within this legislation by obtaining governmental approval of the use classification plan in 1940. In 1947, however, they voluntarily withdrew, as was their right, because of dissatisfaction with the controls, including those involving price. The conduct now in question then became subject to the standards of the Sherman Act. United States v. Borden Co., supra.3
In our recent decision in Pennsylvania Water & Power Company, et al. v. Federal Power Commission, 89 U.S.App.D.C. — , 193 F.2d 230, decided July 3, 1951, we dealt with the power of the Commission, acting within tlie policy and provisions of the Federal Power Act, 16 U.S.C.A. § 79la et seq., to require the continuance of arrangements which, without the sanction of valid public authority, would violate the anti-trust laws. So here, the conflicting public policies embodied in the Sherman Act, on the one hand, and, on the other, in the desire of Congress to aid in stabilizing the milk industry, are reconciled in the Agricultural Marketing Agreement Act; but when the Association and distributors chose to remain no longer subject to the controls therein specified, the arrangements which continued into the period covered by the indictment became exposed to the Sherman Act.
Price fixing is illegal per se because its necessary effect is to restrain trade or commerce by substituting agreement upon price for competition and economic factors such as supply and demand. In the case at bar it might well be that economic reasons would cause milk consumed in fluid form to bear a higher price than like milk used for other purposes; it is shorter-lived and there may be greater expense and risk in handling it for such consumption than for conversion into cheese, for example. Nevertheless, in the absence of approval under the 1937 Act, supra, agreement among competing distributors and between them and their supplier to a plan which maintains such higher price is invalid. Though the actual price and the exact amount of differential between classes at any particular time are not shown to have been set by agreement or in an unlawful manner, the existence of a differential based on use, with a higher price for Class I use, is the intended and necessary consequence of the plan. Furthermore, its necessary effect is to enlarge the area within which Qasses II and III may compete by lowering the cost to the distributor of this milk and shifting a larger share of the total cost to Class I. This also restricts the competitive potential of Class I, a result made more certain by the control the Association exerts over 80% of the supply in the Washington area. A higher price accordingly is attached to the milk required to meet the most important need of the public.
In view of the foregoing it is not deemed necessary to discuss the question whether the full supply contracts, apart from the use classification plan, violate the Sherman Act. International Salt Co. v. United States, 1947, 332 U.S. 392, 68 S.Ct. 12, 92 L.Ed. 20; Fashion Guild v. Trade Comm., 1941, 312 U.S. 457, 61 S.Ct. 703, 668, 85 L.Ed. 949; and Standard Oil Co. v. United States, 1949, 337 U.S. 293, 69 S.Ct. 1051, 93 L.Ed. 1371. See, also, United States v. Maryland & Virginia Milk Producers Ass’n, supra, 85 U.S.App.D.C. at page 182, 179 F.2d at page 428.
*920The individual appellant was an active officer of the Association during the period to which the trial court limited the scope of the indictment. In addition to such inferences as might properly be drawn from the duties of his position as Secretary-Treasurer, considered in connection with the operations of the use classification plan, it is clear that this plan continued into the relevant period under contracts which, prior thereto, he had executed as Secretary-Treasurer. His authorization of such' operations, therefore, did not cease with termination of the Marketing Agreement and Order in 1947. His conviction I think was accordingly justified in view of the statutory provisions that whenever a corporation shall violate any of the penal provisions of the anti-trust laws, such violation shall be deemed to be that also of the individual officers who shall have authorized or done any of the acts constituting in whole or in part such violation, which shall be deemed a misdemeanor. (38 Stat. 736 (1914), 15 U.S.C.A. § 24 (1946)). See United States v. Dotterweich, 1943, 320 U.S. 277, 64 S.Ct. 134, 88 L.Ed. 48.
I would affirm the judgments of the District Court.

. At the time of indictment such contracts were also in effect between the Association and distributors who, with the two convicted, accounted for about 22% of the milk and its products sold in the Washington area.

. Thus, the Richfield contract, used to illustrate, provided that in the event the Marketing Agreement and Order approved by the Secretary of Agriculture is terminated and not immediately replaced, a situation which actually arose, “the price to be paid and settlement arrangements for milk, cream, and/or other dairy products sold and delivered hereunder shall be that price charged and arrangements in effect with all full-supply distributors buying District of Columbia or Maryland-inspected milk.”

. There is another factor bearing directly upon price. Should a distributor dealing principally with the Association purchase milk from a producer not a member of the Association, as is sometimes done, this milk, however used by the distributor, and though of equal quality to that supplied by the Association, is classified by the Association in the audit as in the lowest use class, regardless of the price paid for it by the distributor, unless there is an insufiicient supply from the Association for Classes I and II. The Association is accordingly paid the higher use price (merely because some milk is obtained from a source other than the Association) though the milk supplied by the independent might have displaced Association milk for Class I use.