Earl C. Gibbs, Inc. v. Defense Supplies Corporation, 226.

Decision Date08 May 1946
Docket NumberNo. 226.,226.
Citation155 F.2d 525
PartiesEARL C. GIBBS, Inc., v. DEFENSE SUPPLIES CORPORATION et al.
CourtU.S. Temporary Emergency Court of Appeals Court of Appeals

Arthur L. Winn, Jr., of Washington, D. C. (Wilbur La Roe, Jr., and Frederick E. Brown, both of Washington, D. C., on the brief), for complainant.

John C. Erickson, of Washington, D. C. (John D. Goodloe and James L. Dougherty, both of Washington, D. C., on the brief), for respondents.

Before MARIS, Chief Judge, and MAGRUDER and McALLISTER, Judges.

Heard at Washington, December 6, 1945.

MAGRUDER, Judge.

This complaint presents a challenge to a provision of Amendment No. 2 (9 F.R. 1820) to Regulation No. 3 (8 F.R. 10826) issued by the Defense Supplies Corporation, a wholly owned subsidiary of the Reconstruction Finance Corporation (6 F.R. 2972).

Amendment No. 2 established a special subsidy of 80 cents per cwt. to non-processing slaughterers of cattle and attached certain conditions to the payment of such subsidy. To be eligible for the special subsidy, a non-processing slaughterer, as defined, must be an "unaffiliated slaughterer", that is, it must not "own or control", or be "owned or controlled by", a "processor or purveyor of meat." The phrase "own or control" is defined as meaning "to own or control directly or indirectly a partnership equity or in excess of ten percent of any class of outstanding stock or to have made loans or advances in excess of five percent of the other person's monthly sales." Defense Supplies Corporation ruled that complainant, which in other respects qualified for the special subsidy to non-processing slaughterers, was not eligible to receive such subsidy from November 1, 1943, to November 30, 1944, because during that period it was indebted to Hughes Provision Company in an amount in excess of five per cent of its monthly sales. Hughes Provision Company is both a processor and purveyor of meat; it is engaged in the slaughter of meat animals, the processing of meat products, and the sale thereof both at wholesale and retail.

Complainant maintains that Amendment No. 2 is arbitrary and capricious and not in accordance with law in so far as it sets up what is in effect an irrebuttable presumption of control predicated upon the existence of a loan in the amount prescribed, and thus renders ineligible for the special subsidy a non-processing slaughterer who is prepared to prove to the hilt that it is in fact a wholly independent business entity, that its business is in no way affiliated with or integrated with the business of a processor or purveyor of meat, and that it derives no profit or other financial benefit, either direct or indirect, from the processing of the raw by-products of cattle slaughter.

A motion by respondents to dismiss the complaint for lack of jurisdiction was denied by us on the authority of Illinois Packing Co. v. Snyder, Em.App. 1945, 151 F.2d 337.

From the outset, the OPA and other governmental agencies concerned have been beset with difficulties in the formulation and administration of a program of price control for the meat industry. The details are set forth in our opinion in Armour & Co. v. Bowles, Em.App.1945, 148 F.2d 529, certiorari denied, 1945, 325 U.S. 871, 65 S.Ct. 1411, 89 L.Ed. 1989.

In June, 1943, as part of the President's hold-the-line policy (Exec. Order 9328, 50 U.S.C.A.Appendix § 901 note, 8 F.R. 4681), the maximum prices of carcass beef and wholesale cuts, by order of the Economic Stabilization Director, were reduced approximately 10 per cent (Amendment No. 15 to RMPR 169, 8 F.R. 7675). By Regulation No. 3 (8 F.R. 10826) issued by Defense Supplies Corporation, this reduction was compensated for by the payment of corresponding subsidies to slaughterers so that they, in turn, could continue to pay the same prices as before for live cattle. At this time no attempt was made to impose controls on the movement of live cattle prices. Subsequently, pursuant to a Directive of the Economic Stabilization Director issued October 25, 1943 (8 F.R. 14641), the payment of this general subsidy to all cattle slaughterers was tied in with an elaborate cattle stabilization plan designed to operate as an indirect control of cattle prices so as to give needed relief to the meat industry.

It was recognized that the non-processing slaughterers, who produced about 15 per cent of the national yield of carcass beef, were in a less favorable position than the integrated packers who derived important profits through the utilization of by-products of cattle slaughter in further processing operations. The Price Administrator deemed it inadvisable, however, to establish higher ceiling prices for the non-processing slaughterers, as he might have done pursuant to his authority in § 2(c) of the Act, 50 U.S.C.A.Appendix § 902(c), to establish in price regulations such classifications, differentiations, and reasonable exceptions as in his judgment are necessary and proper in order to effectuate the purposes of the Act. He did not do this, because higher wholesale ceiling prices for non-processing slaughterers alone would have destroyed the foundation upon which were based the uniform dollars-and-cents retail prices regarded by him as essential to effective control of meat prices. Instead, an alternative program for the relief of non-processing slaughterers was worked out by the government agencies concerned. The Office of Economic Stabilization, in the aforesaid Directive of October 25, 1943, directed Defense Supplies Corporation to amend its Regulation No. 3 so as to provide for the payment to non-processing slaughterers of a special additional subsidy affording them a benefit equivalent to what they would have obtained by higher ceiling price differentials in their favor.

Authority for the payment of subsidies as a part of the program of price control was found in § 2(e) of the Emergency Price Control Act, 56 Stat. 26. See Illinois Packing Co. v. Bowles, Em.App.1945, 147 F.2d 554. Section 2(e) reads in part as follows: "Whenever the Administrator determines that the maximum necessary production of any commodity is not being obtained or may not be obtained during the ensuing year, he may, on behalf of the United States, without regard to the provisions of law requiring competitive bidding, buy or sell at public or private sale, or store or use, such commodity in such quantities and in such manner and upon such terms and conditions as he determines to be necessary to obtain the maximum necessary production thereof or otherwise to supply the demand therefor, or make subsidy payments to domestic producers of such commodity in such amounts and in such manner and upon such terms and conditions as he determines to be necessary to obtain the maximum necessary production thereof: Provided, That in the case of any commodity which has heretofore or may hereafter be defined as a strategic or critical material by the President pursuant to section 5d of the Reconstruction Finance Corporation Act, as amended, such determinations shall be made by the Federal Loan Administrator, with the approval of the President, and, notwithstanding any other provision of this Act or of any existing law, such commodity may be bought or sold, or stored or used, and such subsidy payments to domestic producers thereof may be paid, only by corporations created or organized pursuant to such section 5d; * * *."

Meat having been defined by the President to be a "strategic or critical material", the effect of the proviso in § 2(e) above quoted was to lodge in the Federal Loan Administrator, with the approval of the President, authority to make the determination of the need for making subsidy payments to the producers of this commodity. Defense Supplies Corporation, a corporation created pursuant to § 5d of the Reconstruction Finance Corporation Act, as amended, 15 U.S.C.A. § 606b (6 F.R. 2972), was empowered to act as paying or disbursing agent in respect of such subsidies.

Sections 1 and 2 of the Act of October 2, 1942, now cited as the Stabilization Act of 1942, 56 Stat. 765, 50 U.S.C.A.Appendix §§ 961, 962, authorized the President to issue general orders stabilizing prices, wages, and salaries affecting the cost of living, such stabilizations, so far as practicable, to be on the basis of the levels which existed on September 15, 1942; and gave him broad power to delegate his authority under the Act to such department, agency or officer as he might direct. By Executive Order 9250 issued October 3, 1942, 50 U.S.C.A.Appendix § 901 note (7 F.R. 7871), the President delegated such authority to the Office of Economic Stabilization. In Title I of this Executive Order, the Director of the Office of Economic Stabilization was directed to formulate and develop a comprehensive national economic policy with respect to prices, rents, wages, salaries, profits, rationing, subsidies, and all related matters, with a view to stabilizing the cost of living in accordance with the Act of October 2, 1942. To give effect to this comprehensive national economic policy, it was provided that "the Director shall have power to issue directives on policy to the Federal departments and agencies concerned"; that the administration of activities related to the national economic policy "shall remain with the departments and agencies now responsible for such activities, but such administration shall conform to the directives on policy issued by the Director." In Title V of Executive Order 9250, the Economic Stabilization Director was specifically authorized to direct "the Reconstruction Finance Corporation, and other corporations organized pursuant to Section 5d of the Reconstruction Finance Corporation Act, as amended, to use their authority to subsidize and to purchase for resale, if such measures are necessary to insure the maximum necessary production and distribution of any commodity, or to maintain ceiling prices, or to prevent a price rise...

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    • 22 Abril 1966
    ...the diversion of public funds from the accomplishment of the object for which they were intended. See Earl C. Gibbs, Inc. v. Defense Supplies Corporation, Em.App.1945, 155 F.2d 525; Armour & Co. v. Reconstruction Finance Corporation, Em.App.1947, 162 F.2d 918, 922. By 1961 the Board had bee......
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