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United States v. Lehigh Valley Cooperative Farmers Inc.

February 20, 1961

UNITED STATES OF AMERICA, APPELLANT,
v.
LEHIGH VALLEY COOPERATIVE FARMERS, INC., AND SUNCREST FARMS, INC., APPELLEE. LEHIGH VALLEY COOPERATIVE FARMERS, INC., APPELLEE, V. EZRA TAFT BENSON, SECRETARY OF AGRICULTURE OF THE UNITED STATES OF AMERICA, APPELLANT. SUNCREST FARMS, INC., APPELLEE, V. EZRA TAFT BENSON, SECRETARY OF AGRICULTURE OF THE UNITED STATES OF AMERICA, APPELLANT.



Author: Mclaughlin

Before McLAUGHLIN, HASTIE and FORMAN, Circuit Judges.

McLAUGHLIN, Circuit Judge.

The prime issue presented by these appeals is whether certain provisions of New York-New Jersey Milk Marketing Order, 7 C.F.R. § 927.1 et seq., (hereinafter referred to as Order No. 27), requiring all non-pool handlers of milk, to make a "compensatory payment" to the Producers Settlement Fund for all non-pool fluid milk distributed by them in the marketing area, 7 C.F.R. §§ 927.83, 927.84, contravenes the Agricultural Adjustment Act of 1933, as amended by the Agricultural Marketing Agreement Act of 1937, 7 U.S.C.A. § 601 et seq.

Docket No. 13,289, is an enforcement action brought by the United States pursuant to § 8a(6) of the Act, 7 U.S.C.A. § 608a(6), to require Lehigh Valley Cooperative Farmers, Inc. and Suncrest Farms, Inc., to make the compensatory payments required by the order. Dockets Nos. 13,290 and 13,291, are actions by the Lehigh Valley Cooperative Farmers, Inc., and Suncrest Farms, Inc., respectively to obtain judicial review of decisions of the Judicial Officer in the United States Department of Agriculture pursuant to § 8c(15) of the Act, 7 U.S.C.A. § 608c(15) (B). The Judicial Officer held that the contested provisions for compensatory payment were valid.

In the district court, all three actions were consolidated for trial.*fn1 In its opinion reported in 183 F.Supp. 80, (1960), that court, although finding the provisions for compensatory payments supported by the record and "incidental to * * * and necessary to effectuate the other provisions of such order," invalidated them under the authority of the majority holding in Kass v. Brannan (Judge Learned Hand dissenting), 2 Cir., 1952, 196 F.2d 791.*fn2 The court noted however:

"Although we are not compelled to accept that Court's decision under the concept of stare decisis as it applies to Fedral Courts and although we might have reached a contrary result if initially called upon to interpret § 608c(5), we do not feel justified in now rejecting the interpretation there placed upon § 608c (5) (A) and upon the earlier version of Order No. 27. That Court's opinion is always entitled to great weight."

The primary policy of Congress in enacting the Federal Milk Control Program and particularly Order No. 27, applicable in the case at bar,*fn3 was "* * * to establish and maintain such orderly marketing conditions for agricultural commodities in interstate commerce as will establish, as the prices to farmers, parity prices * * *." 7 U.S.C.A. § 602(1) (1952). Regarding milk, the plight of the farmers (referred to as producers in the milk industry) was caused by the fierce competition to procure the most lucrative market for it. Since fluid milk brought the highest return to the producer and cream or milk product utilization was less rewarding, the rivalry was for that market. To alleviate the harsh effects of that struggle on producers, Congress enacted the governing law vesting the Secretary of Agriculture with broad regulatory powers. Pursuant to the statutory authorization, the Secretary of Agriculture has promulagted regional milk orders based on a system of milk pooling. Those orders, with their programs of classification and reporting are geared to provide the producer in the specified marketing area with a uniform price for all milk delivered by him for processing, irrespective of the particular use to which it is ultimately put.

This is accomplished by the following method. Under Order No. 27 milk utilization is classified into three fundamental groups: Class I (fluid milk); Class II (cream); Class III (milk products, butter, cheese, etc. * * *). The Market Administrator fixes a price for each class. He then determines from reports filed by the handlers the volume of milk used in each classification throughout the marketing area. From those figures, the Administrator computes the value of all milk used in the Marketing Area by multiplying the market volume figure in each class by the class price. After adding the totals and making certain additions and/or subtractions not relevant here, he divides that figure by the aggregate volume of milk of all classifications used in the Marketing Area, to determine the uniform blend price which is paid to all producers, regardless of the utilization of their milk. Since each handler's use of the milk received from producers would not average out to the uniform blend price, a Producers Settlement Fund was created. This fund is contributed to by those handlers whose total class utilization price of the milk exceeds the uniform blend price and is drawn upon by those handlers whose total class utilization price of the milk is less than the uniform blend price. Thus although the producer receives the uniform blend price regardless of the utilization of his milk, the handler must account to all other handlers through the Producers Settlement Fund for the price of his actual use of the milk purchased by him.

Lehigh and Suncrest are not fully regulated handlers, the largest part of their milk business being outside the marketing area. However, since a certain percentage of their outlets for milk (approximately 5%) are in the marketing area, they are subject to the compensatory payment provisions of Order No. 27, 7 C.F.R. §§ 927.83, 927.84, which provide that where a non-pool handler distributes milk for Class I utilization in the marketing area, he must pay into the Producers Settlement Fund a compensatory payment measured by the difference between the Class I and Class III price.

Lehigh and Suncrest attacked this provision and were sustained by the district court on the authority of Kass v. Brannan, supra. That case held that mandatory compensatory payments imposed upon non-pool handlers for fluid milk distributed in the marketing area were, "* * * inconsistent with the terms and conditions specified in section 8c(5) (A) * * *." That section reads as follows:

"Milk and its products; terms and conditions of orders.

"(5) In the case of milk and its products, orders issued pursuant to this section shall contain one or more of the following terms and conditions, and (except as provided in subsection (7) of this section) no others:

"(A) Classifying milk in accordance with the form in which or the purpose for which it is used, and fixing, or providing a method for fixing, minimum prices for each such use classification which all handlers shall pay, and the time when payments shall be made, for milk purchased from producers or associations of producers. Such prices shall be uniform as to all handlers, subject only to adjustments for (1) volume, market, and production differentials customarily applied by the handlers subject to such order, (2) the grade or quality of the milk purchased, and (3) the locations at which delivery of such milk, or any use classification thereof, is made to such handlers."

To reach its conclusion, the court in Kass compared the cost of the milk to pool handlers with that of non-pool handlers. It stated that although the cost to a pool handler is the class price, a non-pool handler's cost is composed of two items, the amount it pays the seller and the amount of the compensatory payment. The court decided that since the payment is based on the difference between two class prices without taking into account the initial cost to the handler, the result is a disparity between the non-pool handler's total cost and ...


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