Lehigh Valley Cooperative Farmers, Inc. v. United States/Dissent Black

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Dissenting Opinion

United States Supreme Court

370 U.S. 76

Lehigh Valley Cooperative Farmers, Inc.  v.  United States

 Argued: Jan. 17 and 18, 1962. --- Decided: June 4, 1962

Mr. Justice BLACK, dissenting.

I find it impossible to agree with the Court's holding or opinion. In 1936, in United States v. Butler, [1] this Court temporarily paralyzed the national farm recovery program by holding important parts of the Agricultural Adjustment Act of 1933 unconstitutional and by casting grave doubts upon the remainder of that Act which had been passed at the bottom of the Great Depression for the express purpose of alleviating the desperate economic plight of the American farmer. Following that decision Congress, in 1937, with unusual promptness adopted another national farm program reaffirming the broad and comprehensive powers it had previously given the Secretary of Agriculture to develop agricultural marketing plans for the purpose of raising the income of farmers. [2] The philosophy of this later Act was not competition as in the Sherman Act but governmental price fixing as in the original 1933 Agricultural Adjustment Act, the National Industrial Recovery Act, and a host of other contemporaneous Acts, all of which were designed to raise the income and purchasing power of workers and farmers. Today some 26 years after the Butler decision this Court again projects itself across the path of the national farm program by reading Congress' 1937 reenactment as designed to encourage competition rather than to help farmers by governmental price fixing, and on this basis strikes down a vital element of many of the milk marketing orders set up under the 1937 Act while raising clouds of confusion and uncertainty as to the validity of many others. Although the blow to the present farm program is not so devastating as the one inflicted on the original Act by the Butler decision, I think that in ultimate effect the harmful consequences of the two decisions will differ only in degree. It is my belief that the order of the Secretary which the Court strikes down was set up in faithful adherence to the Act's purpose to raise the prices that farmers receive for their products and that the Court's action will tend to have precisely the opposite effect of depressing those prices. I have no doubt but that the Court's decision will enable some handlers to reap greater profits but I regret to say that this is bound to be at the expense of the farmers themselves-for whose benefit the national program was primarily passed. Certainly this is true of the more than $700,000 which the Court's decision today will allow the two handlers here to be paid which of necessity must come out of the pockets of the dairy farmers where this milk was sold.

The basic features of the Act under which the Secretary promulgated the regulation which the Court today strikes down were first enacted in 1935 [3] when the dairy industry was near the bottom of its depression and dairy farmers in many parts of the country were not even receiving the actual cost of producing the milk they sold. These 1935 provisions were themselves amendments to the original 1933 Agricultural Adjustment Act, and were designed to spell out more clearly and to some extent add to the broad powers which the original 1933 Act had given the Secretary to correct the 'severe and increasing disparity between the prices of agricultural and other commodities' by raising 'the purchasing power of farmers' and stabilizing the value of the 'agricultural assets supporting the national credit structure.' [4]

The causes of the low prices to dairy farmers which led Congress to grant these broad powers were, like the details of the operation of the milk business itself, incredibly complex. In the main, however, these low prices were widely attributed to a vicious and destructive competition among dairy farmers for fluid milk sales which brought farmers higher prices than did sales as surplus milk for manufacturing butter, cheese and other milk products. [5] In order to bring an end to this competition which was pushing farmers to the wall, the 1935 Act gave the Secretary specific power to set up regional marketing areas within which he could, for the Government, fix minimum prices handlers would have to pay to farmers for the various uses of milk, require that those minimum prices be paid to a pool for the area and distribute the proceeds of the pool so that each farmer selling milk through the pool would ultimately be paid at the same uniform rate or 'blend price' regardless of the use to which his particular milk was put. [6] In the original 1935 Act the Secretary was directed to fix prices at 'parity'-a level designed by Congress to insure that farmers generally would receive a higher price for their products than they could get in an open, competitive market. [7] The 1937 reenactment went beyond even this, however, and gave the Secretary power to fix prices above this parity level in order to insure that dairy farmers in particular would receive a high enough price for their products. [8] In order to make sure that the Secretary had enough power to raise prices above the competitive level the Secretary was also authorized to issue orders 'Incidental * * * and necessary to effectuate' the specific price-fixing and other powers given to him. [9] Thus it can be seen that the general scheme of the Act was to raise prices to farmers by governmental fixing of minimum prices for dairy products within specific regional areas, thereby abandoning to that extent the system of price fixing by competition.

In accordance with this general plan and under the authority of the Act, the Secretary has proceeded after full hearings within the various regions to set up a number of regional milk marketing pools, one of which is the New York-Northern New Jersey pool whose operation is jeopardized by the Court's decision today. [10] The Secretary has also chosen to leave a number of areas unregulated. Obviously in a system including both large unregulated areas and regulated regional pools in which prices may be fixed at different levels, there will be significant and complicated problems involved in milk sales and purchases that do not take place wholly within a single pool. Among the most serious of these problems is that handlers from outside a pool can, if left unregulated, get the advantages of selling milk in that pool area without bearing any of the burdens that members of that pool have to bear. And as shown by the record in this case such sales can reduce the net price received by the farmers within the pool area. In an obvious effort to prevent any such harmful effects on the prices received by farmers in the New York-Northern New Jersey pool, the Secretary, properly I think, acting under his authority to issue orders 'Incidental * * * and necessary to effectuate' his specific price-fixing powers, provided that non-pool handlers who sold fluid milk in that pool area at times when there was surplus fluid milk in the pool should make a payment to compensate pool farmers for the displacement of fluid sales they otherwise would have made, compensate for the reduction of the regional pool fund which this would cause and to compensate for the consequent diminution of the blend price that would be paid to pool farmers. It is this key regulatory feature which the Court strikes down as a 'trade barrier' prohibited by § 8c(5)(G) of the Act because it limits the ability of outside handlers to sell milk within the pool area at a profit.

It is no doubt true that the Secretary's requirement that nonpool handlers make compensatory payments in order to sell fluid milk within the New York-Northern New Jersey pool area does limit to some extent the ability to handlers whose major business is outside the pool to dump their surplus milk into the pool at highly profitable fluid milk prices, and if this is a trade barrier the Secretary's regulation can properly be called a 'trade barrier.' But § 8c(5) (G) says nothing at all about prohibiting 'trade barriers' or guaranteeing high profits to handlers, and if it had it would have been at cross purposes with the basic aim of the Act to have government rather than competition fix the minimum prices that farmers in designated regional areas must be paid for their milk. It says only:

'No marketing agreement or order applicable to milk and its products in any marketing area shall prohibit or in any manner limit, in the case of the products of milk, the marketing in that area of any milk or product thereof produced in any production area in the United States.' [11]

This language contains no words or arrangement of words of any kind that would prohibit the Secretary from limiting the marketing of milk in any regional area where necessary to protect the prices fixed for that regional area. The Court, however, goes to great lengths to try to show on the basis of legislative history that Congress really meant the no-limitation clause to apply to milk as well as to milk products. In other words the Court wants to read the statute as if Congress had said 'No order shall prohibit or limit the marketing in that area of any milk or product thereof.' But Congress simply did not say that. And the whole legislative history persuades me that Congress knew exactly what it was saying and that, while it intended to forbid the Secretary from making blanket prohibitions against outside milk, it also meant to leave the Secretary free to establish whatever regulations were necessary to guarantee that farmers in a price-fixing region received the regional prices he was authorized to fix even though those regulations might limit sales by outside handlers by making them unprofitable. [12]

Outside the language of § 8c(5)(G) itself the clearest indication that this is the proper interpretation of the legislative history of the Act is that an amendment which would have made the no-limitation clause applicable to milk as well as milk products was defeated on the floor of the House and that an amendment to the same effect which passed the Senate was deleted in Conference. [13] The arguments of the Chairman of the House Committee on Agriculture, one of the principal architects of the program, against the amendment in the House show, almost conclusively, a general understanding that regional price fixing necessarily required sales from out of the region to be limited if the price fixing were to be successful:

'Mr. JONES. Mr. Chairman, the adoption of the amendment of the gentleman from Wisconsin would absolutely wreck the whole milk program. In order to get away from the terrific conditions that have prevailed in the milk industry there is provided in the bill authority to fix a minimum price to producers. That, at least in a measure, would limit or tend to limit shipment, and yet the gentleman, I am sure, does not want to interfere with the price to producers. Then it is a universal custom in the marketing of milk to classify milk. This, in a way, is a limitation.

'I am perfectly willing to adopt the first amendment suggested (the present § 8c(5)(G)), because that simply treats all areas alike, for you could not prohibit someone from an outside area coming in so long as he complied with the conditions prescribed for that area; but if you said that no restrictions or limitations could be required, it would wreck the program, it would destroy every vestige of a program we have for milk.' [14]

After the Senate amendment had been rejected by the Conference and while the Conference Report was being considered in the House of Representatives, a discussion took place on the floor between Representative Hope, a member of the House Committee on Agriculture and one of the conferees, and the Chairman of the Committee who was also a conferee. This discussion shows the same understanding that the Secretary was to be left free to impose whatever limitations were necessary to protect the regional prices he was authorized to fix:

'Mr. JONES. But the original amendments did not permit any orders governing the price to the producers?

'Mr. HOPE. No; but otherwise the Secretary could make orders which would regulate the bringing in of milk from the outside into any particular milk-shed, but under the amendments we are now considering the Secretary's power is limited. He cannot prohibit milk from coming in?

'Mr. JONES. That is correct.

'Mr. HOPE. But he can prescribe some limitations?

'Mr. JONES. Yes; and he cannot prohibit the products of milk being brought into any area.

'Mr. HOPE. No; but he can prescribe limitations on the importation of fluid milk.

'Mr. SNELL. Then, as far as fluid milk is concerned, it is protected in certain markets, but, as far as the other products are concerned, they are not protected.

'Mr. JONES. That is correct.' [15]

These were the last comments made on the floor of the House concerning milk before the Conference Report was finally adopted.

In the light of this legislative history and the Act's language itself, I cannot possibly read § 8c(5)(G) or any other part of the Act to insure profitable operations to outside handlers who desire to dump surplus milk into a regional price-fixing area or to say that the Secretary lacks the power to protect by appropriate regulations the integrity of the regional prices which Congress authorized him to fix. I simply cannot believe that Congress intended to take away with one hand the high fixed price for milk which it gave with the other.

The net result of the Court's action is to leave the farmers in the New York-Northern New Jersey pool, and those in 22 other pools containing the provisions which the Court strikes down today, [16] completely defenseless against an onslaught of outside milk that is highly discriminatory because the outside milk bears none of the burdens of pool milk. I say completely defenseless despite the fact that the Court intimates that the Secretary might possibly devise some alternative compensatory payment plan that would satisfy the exacting standards which it lays down today. My first reason for saying this is that I do not see how any formula that the Secretary could devise under the Court's expanded interpretation of the word 'prohibit' in § 8c(5)(G) would protect pool members from unfair competition by outside handlers who are by the Court's decision given the advantages but not required to bear the burdens of the pool. [17] Secondly, even if such a formula were possible I doubt that a single member of this Court has the technical knowledge about the complicated workings of the milk industry to formulate a sound substitute for the compensatory payment plan which the Court strikes down-a regulatory plan which represents more than a quarter century of daily practical experience in administering the congressional farm plan. Thirdly in any event the Court's vague intimations that some compensatory payment plan might be valid are hardly sufficient to furnish the Secretary with any guidance at all as to what formula if any the Court would permit him to use to protect the farmers in this pool from the effects of being compelled to compete with outside 'free riders.'

I think that if the Court really does believe that the Secretary has any power at all to prevent pool farmers from being subjected to discriminatory competition from outside 'free riders' it should state in clear and precise terms what those powers are and inform the Secretary how he can meet this Court's requirements. The Court should than remand this case to allow the Secretary to take the action which it will approve, permit him to determine the amount that he could properly under its standards have required these handlers to pay and direct that the District Court pay over that amount to the Secretary out of the funds now in its possession. This plan would at least offer the farmers in this pool some protection against having to pay out all of the more than $700,000 in compensatory payments which has already been collected from these handlers. Such a plan was followed in United States v. Morgan, [18] and there is every reason in equity and good conscience why it should be followed here. In that case the District Court enjoined an order of the Secretary but required the party challenging the order to pay into court sufficient funds to effect compliance with the order if it should ultimately be found valid. This Court found the order defective but nevertheless ordered the District Court not to return the fund, which then contained over a half million dollars. On the contrary, over strong dissents urging that the Secretary only had power to issue a new order for the future, this Court commanded that the fund be retained until the Secretary could make new findings and enter a new order so that the fund could be disposed of under a proper determination of the Secretary, stating that:

'Due regard for the discharge of the court's own responsibility to the litigants and to the public and the appropriate exercise of its discretion in such manner as to effectuate the policy of the Act and facilitate administration of the system which it has set up, require retention of the fund by the district court until such time as the Secretary, proceeding with due expedition, shall have entered a final order in the proceedings pending before him.' [19]

Following this decision the Secretary held new hearings, made new findings and entered a new order, according to which this Court in a later United States v. Morgan [20] ordered the more than one-half-million-dollar fund distributed.

Despite the fact that the Court purports not to pass either on the validity of requiring all handlers to bear the full burdens of pool membership or upon the ability of the Secretary to apply against these handlers any future scheme of regulation which meets the Court's standards for the period here in question, [21] it seems clear that in failing to follow the Morgan procedure the Court in effect rules against the Secretary on both these questions. This is because the Court's refusal to pass specifically on these questions leaves standing the District Court's holding that the Secretary cannot require these handlers to bear the full burdens of pool membership for the period during which the compensatory payments struck down here were made. The regulation under which the Secretary claims that these handlers are subject to the full burdens of pool membership is a part of the same section [22] as the one under which the handlers made the compensatory payments of which they complain. That section provides that all handlers like petitioners are pool handlers and required to bear all the burdens of pool membership unless they elect to be nonpool handlers and make compensatory payments. The Secretary's contention is that once the part of the regulation which provides for the compensatory payment is struck down, as the Court does here, the remainder of the regulation which requires all handlers to be pool handlers applies. By remanding this case to the District Court which has already ruled adversely on this claim the Court without so much as saying a single word on this point effectively prevents the Secretary from trying to protect pool farmers from free-riding outside milk by treating these handlers as pool members for the period here in dispute.

The full effect of the Court's failure to follow the Morgan procedure and decide whether the Secretary's provisions for full regulation of these handlers are valid, or just what the Secretary could do to protect the prices he has fixed, is in my opinion likely to be a wholly unjust and inequitable windfall of over $700,000 to the handlers, since it will ultimately have to come out of the pockets of the farmers who bear the burdens of this pool. How many more such windfalls to other handlers involving how many countless thousands of dollars in this and the other 22 similarly situated pools the Court's action will bring one can only guess. [23] One familiar with the Act and its history need not guess, however, about the fact that such a result would have been abhorrent to the Congress which passed this Act for the benefit of farmers. I would affirm the decision of the court below which upheld the Secretary.


^1  297 U.S. 1, 56 S.Ct. 312, 80 L.Ed. 477.

^2  50 Stat. 246, 7 U.S.C. § 601 et seq., 7 U.S.C.A. § 601 et seq.

^3  49 Stat. 750.

^4  48 Stat. 31.

^5  See Nebbia v. New York, 291 U.S. 502, 515-518, 530, 54 S.Ct. 505, 506-508, 513, 78 L.Ed. 940; United States v. Rock Royal Co-operative, Inc., 307 U.S. 533, 548-550, 59 S.Ct. 993, 1001 1002, 83 L.Ed. 1446.

^6  50 Stat. 246, as amended, 7 U.S.C. § 608c, 7 U.S.C.A. § 608c.

^7  49 Stat. 750.

^8  50 Stat. 247, 7 U.S.C. § 608c(18), 7 U.S.C.A. § 608c(18).

^9  49 Stat. 757, 7 U.S.C. § 608c(7)(D), 7 U.S.C.A. § 608c(7)(D).

^10  Congress specifically provided in § 8c(11)(C) of the Act that the Secretary's price-fixing powers were to be exercised on a regional basis rather than a national basis whenever practicable:

'All orders issued under this section which are applicable to the same commodity or product thereof shall, so far as practicable, prescribe such different terms, applicable to different production areas and marketing areas, as the Secretary finds necessary to give due recognition to the differences in production and marketing of such commodity or product in such areas.' 49 Stat. 759, 7 U.S.C. § 608c(11)(C), 7 U.S.C.A. § 608c(11)(C). See also § 8c(11)(A). 49 Stat. 759, 7 U.S.C. § 608c(11)(A), 7 U.S.C.A. § 608c(11)(A).

^11  49 Stat. 755, 7 U.S.C. § 608c(5)(G), 7 U.S.C.A. § 608c(5)(G). (Emphasis supplied.)

^12  See Bailey Farm Dairy Co. v. Anderson, 8 Cir., 157 F.2d 87, 96; Kass v. Brannan, 2 Cir., 196 F.2d 791, 800 (L. Hand, J., dissenting).

^13  The amendment adopted by the Senate but rejected by the Conference is indicated in italics: 'No marketing agreement or order applicable to milk and its products in any marketing area shall prohibit or in any manner limit, except as provided for milk only in subsection (d), the marketing in that area of any milk or product thereof produced in any production area in the United States.' 79 Cong.Rec. 11655. The wording of this amendment shows that the Court's attempted explanation of why 'in any manner limit' was omitted from the final language of § 8c(5)(G) does not bear analysis. The Court's explanation is that someone might construe 'limit' as prohibiting 'the type of price fixing (limitation) covered by subsection (D).' But it seems very clear that the wording of the Senate amendment was expressly designed to prevent such a construction while at the same time making 'in any manner limit' applicable to milk. Consequently it seems apparent that in rejecting the Senate amendment the Conference was not refusing to apply 'in any manner limit' to milk because to do so would interfere with the operation of subsection (D), but was in fact omitting that language because, to be effective, price fixing itself necessarily required limitations on the selling of outside milk within the area. This is clearly shown by the Conference Report, H.R.Rep. No. 1757, 74th Cong., 1st Sess. 21:

'The Senate amendment extended this provision (§ 8c(5)(G)) so that no marketing agreement or order so applicable could limit in any manner the marketing in the marketing area of milk or its products produced anywhere except that certain limitations on the marketing of milk were specifically permitted. * * * The conference agreement also denied the authority to limit in any manner the marketing in any area of milk product * * * (but) does not refer to milk, and so does not negative the applicability to milk, for use in fluid form or for manufacturing purposes, of the provisions of the bill relating to milk such as the provisions on price fixing, price adjustment, payments for milk, etc.' (Emphasis supplied.)

^14  79 Cong.Rec. 9572. (Emphasis supplied.)

^15  79 Cong.Rec. 13022. (Emphasis supplied.)

^16  See note 9 of the Court's opinion. At least 18 other pools apply a compensatory payment provision like the one in this case for at least part of the year. See note 13 of the Court's opinion.

^17  Certainly neither of the formulas which the Court in its note 13 intimates might be proper would protect the farmers in the pool, for neither of these formulas even goes so far as to wipe out the discriminatory advantage that unregulated outside milk has over pool milk. In sustaining the Secretary's regulation in this case the Judicial Officer relied in part on the following reasons:

'(T)he marketwide pool existing under Order No. 27, as amended, carries the longtime and seasonal reserves of milk for numerous secondary markets in Pennsylvania and the Northeastern States. The New York-New Jersey market carries the surplus burden for outside handlers who distribute some milk in the marketing area. These handlers usually have a relatively high percentage of their milk in fluid milk utilization and this utilization is considerably higher than the average for the market regulated by Order No. 27. This higher utilization, of course, results in a competitive advantage in milk procurement to the outside handler as against the regulated handler and outside and regulated handlers draw on the same production area for supplies. Furthermore, the regulated handler has to equalize his utilization with other handlers and his producers are paid on the basis of a uniform price reflecting the utilization in the market as a whole rather than his individual utilization.'

Thus, a compensatory payment, such as the Court suggests, based on the difference between the fluid price and the blend price obviously would do nothing at all to wipe out the advantage that the outside handler has because of his higher fluid-surplus ratio which is due, as shown above, to (1) the fact that the pool carries part of his area's surplus and (2) the fact that he does not have to equalize his own utilization as do pool handlers. Only a compensatory payment which gives the outside handler less for his surplus milk than the pool farmer gets will narrow the competitive advantage which outside milk has. A compensatory payment based on the difference between the fluid price and actual cost, the other alternative suggested by the Court, would obviously be even more subject to this same defect than the fluid-blend price compensatory payment. See also Hutt, Restrictions on the Free Movement of Fluid Milk Under Federal Milk Marketing Orders, 37 U.Det.L.J. 525, 573-576, particularly at note 220.

^18  307 U.S. 183, 59 S.Ct. 795, 83 L.Ed. 1211. Cf. Inland Steel Co. v. United States, 306 U.S. 153, 59 S.Ct. 415, 83 L.Ed. 557.

^19  307 U.S., at 198, 59 S.Ct., at 803.

^20  313 U.S. 409, 61 S.Ct. 999, 85 L.Ed. 1429.

^21  The Court's citation of Morgan v. United States, 304 U.S. 1, 23, 58 S.Ct. 773, 999, 82 L.Ed. 1129, as purported justification for its avoidance of this issue is particularly appropriate, and I fear prophetic. For in large part due to this Court's avoidance of a similar issue in the Morgan case, that case wandered through the courts for almost eight years, including four trips to this Court.

^22  7 CFR § 1002.29(d).

^23  A suit involving the provision of the Cleveland order similar to the one struck down here has already found its way into court. See Lawson Milk Co. v. Benson, D.C., 187 F.Supp. 66, appeal pending.

This work is in the public domain in the United States because it is a work of the United States federal government (see 17 U.S.C. 105).