Lawson Milk Co. v. Benson (187 F. Supp. 66, 1960)

McNAMEE, Chief Judge.

The plaintiff, the Lawson Milk Company, is a corporation with its principal place of business in Cuyahoga Falls, Summit County, Ohio, within this district. Plaintiff brings this action pursuant to Section 8c (15) (B) of the Agricultural Marketing Agreement Act of 1937, 7 U.S.C.A. § 608c(15) (A), and Amendments, (hereinafter the Act), to review a ruling of the Judicial Officer of the United States Department of Agriculture dismissing on the merits a petition filed by plaintiff under Section 8c(15) (A) of the Act. In the proceeding before the Judicial Officer plaintiff sought a refund of $92,405.62, representing payments made by it, allegedly under protest, to the Producers Settlement Fund, covering the period of December 1, 1947 through May 1952. These payments were exacted under Section 975.-72A of Order No. 75, which regulates the handling of milk in Cleveland, Cuyahoga County, Ohio and adjacent communities. Both parties have filed motions for summary judgment.

The jurisdiction of this Court is limited to a determination whether the decision of the Judicial Officer, adopted by the Secretary, is in accordance with law. Thus, only questions of law are presented in this review.

Plaintiff’s plant in Cuyahoga Falls, Ohio is located about 31 miles from the center of Cleveland, Ohio. Prior to December 1, 1947 all of plaintiff’s milk was distributed outside the Cleveland Marketing Area, most of it being distributed in Summit County, Ohio. In December 1947 plaintiff established a retail outlet in Bedford, Ohio, which is within the Cleveland market. During the period in question, plaintiff’s sales of milk in the Cleveland market represented less than 10% of its total sales. After May 1952 plaintiff’s sales in the Cleveland market exceeded 10% of its total sales and, pursuant to the terms of Order No. 75, plaintiff became a fully regulated handler. The primary object of Order 75, like that of similar orders in effect throughout various sections of the country, is to provide a stable market for milk and to secure to the producers, i. e. — dairy farmers, an adequate price for their milk. The farmers do not sell milk direct to the consumers but deliver it to various bottling plants known as handlers. The economic value of milk is determined by its use. A handler usually receives raw milk from a number of producers. He may sell it either as fluid milk, as cream, or as milk products such as butter and cheese. A handler realizes his greatest profit on the sale of fluid milk, a lesser profit on the sale of cream and a still lesser profit on the sale of milk products. Producers therefore expect a higher price from handlers for raw milk sold by the latter as fluid milk and correspondingly lower prices for milk utilized in the production and sale of cream or milk products. The pricing of milk strictly in accordance with its utilization presents many difficulties and is conducive to an unstable market. To avoid these undesirable consequences the Government has adopted a scheme of regulation under which each producer is paid a uniform minimum price for all raw milk delivered to a handler irrespective of the use to which it is put. The plan thus devised operates fairly to place the greater burden of the uniform blend price upon those handlers who sell the greater part of their milk as fluid milk. This is accomplished in the following manner: the Market Administrator determines a class price which pool handlers must pay for Class I milk used as fluid milk, a class price for Class II milk sold as cream and a class price for Class III milk sold as milk products. He ascertains the market-wide use for each class, multiplies the results by the class prices and then divides the resultant sum of all class prices by the volume of milk used in the whole market. By this method a uniform or blend price for all raw milk is determined. A similar formula is applied to determine the use value of milk sold by individual handlers. Where the greater part of a handler’s sales for a specified period is fluid milk, his total use value will be greater than the uniform price paid to his producers. Such a handler must pay the difference into the Producers Settlement Fund. A handler who sells the greater part of his milk as milk products will have a use value less than the uniform blend price and is entitled to withdraw the difference from the Producers Settlement Fund. By this method producers receive a uniform price commensurate with the weighted average use value of milk sold in the regulated market, and through the operation of the Producers Settlement Fund in the manner above described the cost of milk to handlers is equalized. The plan also provides for payments by handlers of administrative assessments.

The foregoing is an altogether inadequate outline of the complicated scheme of regulation but will serve to indicate the essential elements of the plan. For a more comprehensive and detailed description of similar plans see: United States v. Rock Royal Co-operative Inc. et al., 307 U.S. 533, 59 S.Ct. 993, 83 L.Ed. 1446; Grant v. Benson, 97 U.S.App.D.C. 191, 229 F.2d 765, 767, certiorari denied 350 U.S. 1015, 76 S.Ct. 658, 100 L.Ed. 875; United States v. Lehigh Valley Cooperative Farmers, D.C., 183 F.Supp. 80.

The handlers above referred to are pool handlers who regularly distribute more than 10% of - their milk supply to consumers in the Cleveland marketing area. Producers are dairy farmers whose milk is delivered directly from their farms to pool handlers. Pool handlers and producers are subject to full regulation under the terms of Order No. 75. During the period of December 1947 through May 1952 plaintiff, as a non-pool handler, distributed less than 10% of its fluid milk supply in the Cleveland marketing area and purchased its milk from farmers who were not producers, as that term is defined in Order No. 75. Section 975.-72(a) of Order No. 75 provided that non-pool handlers distributing less than 10% of their fluid milk supply in the Cleveland marketing area were required to pay to the Producers Settlement Fund an amount equal to the difference between the Class I price (fluid milk) and the Class III price (manufacturing) on all milk sold as fluid milk in such area. At the outset plaintiff refused to make the specified payments and the Secretary instituted an action in this Court to enforce the terms of Section 975.72(a). Early in 1949 plaintiff agreed to make all accumulated and future payments, and the action was dismissed. Thereafter, in June 1952 plaintiff became a fully regulated handler. A year later, in June 1953, plaintiff filed its petition under 608c(15) (A) of the Act to recover the payments made by it during the period of December 1947 through May 1952. In April 1958 the Judicial Officer of the Department of Agriculture dismissed the petition on the merits. In July of 1958 the Judicial Officer denied plaintiff’s motion for re-consideration.

In the hearing before the Judicial Officer there was evidence tending to show that during the period in question the average price paid by plaintiff to its farmers for milk was in excess of the uniform minimum blend price and the uniform Class I price paid to producers under the Cleveland Order. Plaintiff submitted proposed findings of fact to the Judicial Officer which incorporated the. foregoing in detail. In addition plaintiff submitted, inter alia, a further proposed finding showing the average amount per hundred weight of milk paid by plaintiff as compensatory payments under Section 975.72(a). The Judicial Officer refused to make such findings presumably because in his opinion they were immaterial. Additional facts essential to an understanding of the decision reached herein will be stated in the discussion of the issues.

Plaintiff attacks the validity of Section 975.72(a) primarily on the ground that it is contrary to the law as announced in Kass v. Brannan, 2 Cir., 196 F.2d 791, 796. Plaintiff also relies upon Lehigh Valley Co-operative Farmers, Inc. et al. v. Benson, D.C., 183 F.Supp. 80, 89, which was decided on the authority of Kass. Plaintiff contends further that there is no substantial evidence in the record supporting the rate of payments exacted under Section 975.72(a) of the Order. The Secretary asserts that the ruling and Order of the Judicial Officer upholding the validity of Section 975.72 (a) are in accordance with law and advances many other grounds in support of his decision including the contentions that — Kass v. Brannan is not controlling; the evidence in the promulgation hearing record amply supports Section 975.72(a); plaintiff is estopped to claim the refund it seeks; and that Order No. 75 provides a cut-off date as to refund payments. By far, the most important issue is whether Kass v. Brannan is controlling here. Kass was a handler as defined by the New York Marketing Order No. 27. He purchased cream and condensed milk from a handler in Orville, Ohio. Pursuant to Section 927.9(h) of Order 27 the Market Administrator exacted payments from Kass in the case of cream in an amount representing the difference between Class II-A (New York cream) price and Class IV-A (New York butter) price; in the case of condensed milk, the exacted payments represented the difference between Class IIB (New York condensed milk) price and Class IV-A. No consideration was given to the price Kass paid to the Ohio non-pool plant. Kass sought administrative relief by way of a refund of the payments. He was denied relief by the Judicial Officer of the Department of Agriculture whose decision was affirmed on review by the District Court. The Second Circuit Court of Appeals, however, with Judge Learned Hand dissenting, reversed. The Appellate Court held that the exacted payments were part of the minimum price as that term is used in Section 8c(5) (A) of the Act; that the price of non-pool cream or condensed milk to a New York handler was (1) the amount paid to the seller; (2) the “amount of the penalty required to be paid under the Order.” The Court then added:

“Section 927.9(h) (2) (ii) assumes that the initial cost of the non-pool cream and condensed milk will be the Class IV-A (butter) price under the New York order. If this assumption were true, the minimum prices of pool and non-pool cream and condensed milk would be the same and would satisfy the requirement imposed by section 8c(5) (a) that ‘Such prices shall be uniform as to all handlers * * *.’ ”

The Court found that the initial cost of the milk products was more than the New York Class IV-A price and that the exaction of an additional payment computed on the Class IV price rather than on the actual cost to the handler was—

“ * * * a price discrimination between a handler who purchases non-pool milk products and one who purchases pool milk products, although each makes the same use of such products in the New York marketing area. This in our opinion is contrary to the requirement laid down in section 8c(5) (A) that the minimum prices for each use classification shall be uniform as to all handlers.”

It is in no spirit of disrespect to the Second Circuit Court of Appeals that I profess my inability to accept the conclusion of that Court that the contested provisions of Order No. 27 are inconsistent with Section 608c(5) (A) of the Act. That section of the Act is quoted in full in the margin, and in pertinent part reads:

“(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, * * # >>

Section 8c(5) (A) makes no reference to the fixing of minimum prices which handlers shall pay to handlers. In clear and unambiguous language the uniformity of minimum class prices required by Section 8c(5) (A) applies to the prices all handlers are required to pay for milk purchased from producers. The payments exacted from Kass were authorized by Section 927.9(h) of Order No. 27, which is entitled “Payments for Milk or Milk Products Other Than Producers’ Sources.” The pertinent provisions of section 8c(5) (A) of the Act authorize minimum class prices for milk received from producers. The contested provisions of the Order deal with the different subject matter of payments for milk and milk products received from others than producers. Moreover, Section 927.9(h) of Order No. 27 fixes no minimum prices. As Judge Learned Hand said in his dissent:

“Section 8c(5) (A) authorizes the insertion in an order of ‘terms and conditions’ fixing ‘minimum prices’ that all handlers shall pay ‘for milk purchased from producers.’ The provisions in suit do not do that; they fix no prices ‘for milk purchased from producers’ at all, if by ‘price’ is meant the money that eventually goes to producers in payment for their milk. The differential exacted from a ‘non-pool’ handler is not the ‘price’ of anything; moreover — for whatever that may be worth — it is collected ‘to accomplish the purposes’ of assuring ‘minimum prices’ for milk delivered by producers, § 8e(5) (C).” 196 F.2d'at page 799.

It seems apparent, therefore, that Section 927.9(h) of the New York Order is not inconsistent with section 8c (5)