Mora v. Mejias, 4864.

• Decision Date: 09 June 1955
• Docket Number: No. 4864.,4864.
• Citation: 223 F.2d 814
• Parties: Enrique MORA and all other Rice Importers in Puerto Rico, Petitioners, Appellants, v. Felix MEJIAS, Economic Stabilization Administrator, et al., Appellees.
• Court: U.S. Court of Appeals — First Circuit

223 F.2d 814 (1955)

Enrique MORA and all other Rice Importers in Puerto Rico, Petitioners, Appellants, v. Felix MEJIAS, Economic Stabilization Administrator, et al., Appellees.

No. 4864.

United States Court of Appeals First Circuit.

June 9, 1955.

Francisco Castro Amy, San Juan, Puerto Rico, with whom James R. Beverley and R. Castro Fernandez, San Juan, Puerto Rico, were on brief, for appellants.

Edgar S. Belaval, Asst. Atty. Gen., with whom Jose Trias Monge, Atty. Gen., J. B. Fernandez Badillo, First Asst. Atty. Gen., and A. Torres Braschi, Asst. Atty. Gen., were on brief, for appellees.

Before MAGRUDER, Chief Judge, and MARIS and WOODBURY, Circuit Judges.

MARIS, Circuit Judge.

This is an appeal from an order of the Supreme Court of Puerto Rico upholding the validity of Administrative Order No. 228 of the Secretary of Agriculture and Commerce of Puerto Rico¹ issued March 12, 1953 under Act No. 228, Laws of Puerto Rico, 1942, as amended by Act No. 234, Laws of Puerto Rico, 1950, fixing the maximum wholesale prices for rice in stock or to be received in Puerto Rico, effective March 16, 1953. The appellants are Puerto Rican rice importers who have been criminally charged with violation of the order and who sought in the Superior Court and on appeal in the Supreme Court to have it revoked as invalid.

In Mora v. Mejias, 1 Cir., 1953, 206 F. 2d 377, this court had before it an appeal from a judgment of the United States District Court for the District of Puerto Rico denying these same appellants a temporary injunction against the enforcement of the order here in question. The district court was not there called upon for a judgment declaring the order to be invalid as applied to some past period. We affirmed the judgment upon the ground that the district judge had not been guilty of an abuse of discretion in denying a temporary injunction suspending the enforcement of the order regulating the price of rice, a commodity of vital importance in the economy of Puerto Rico. Our conclusion was based in part upon the fact that at the time of the hearing the price-fixing order appeared to be valid, if it was not so before, as a result of a decrease in the millers' prices for rice shipped from the continental United States to Puerto Rico. We accordingly did not reach the question as to the initial validity of the order which is now presented to us. We did have occasion, however, to state the background facts in some detail in our opinion in that case and a full recital of those facts need, therefore, not be repeated here.

The significant facts are that immediately prior to February 25, 1953 the millers' prices to Puerto Rican importers were held down by price regulations of the federal Office of Price Stabilization to $12.00 per 100 lbs., C.I.F. San Juan, for rice of superior quality and $11.60 per 100 lbs., C.I.F. San Juan, for rice of good quality; that federal price control of rice was entirely removed on February 25, 1953 whereupon the continental millers' prices for rice sold to Puerto Rican importers immediately rose to $13.25 and $12.45 per 100 lbs., respectively, and remained at that level until June or July, 1953; and that on March 12, 1953, effective March 16, 1953, Order No. 228 here under attack fixed the maximum wholesale prices to be charged for rice of superior and good quality by Puerto Rican importers at $12.90 and $12.25 per 100 lbs., respectively, those being the same maximum prices that had prevailed in Puerto Rico under federal price control prior to February 25, 1953.

It will thus be seen that under the price structure existing at the end of federal price control Puerto Rican importers were accorded a markup for expense and profit amounting to 90 cents per 100 lbs. on superior rice and 65 cents per 100 lbs. on rice of good quality. During the period between the termination of federal control on February 25th and the imposition of local control on March 16th the prices which Puerto Rican importers were required to pay the continental millers for their rice increased $1.25 and 85 cents per 100 lbs. for superior and good rice, respectively, and those increases remained in effect until some time in the following June or July when rice prices of some millers started to decline. The Puerto Rican rice importers had contracts, executed in 1952, with the continental rice mills calling for the payment of the market price at time of shipment for rice purchased. The effect of Order No. 228 accordingly was definitely to require all the rice importers of Puerto Rico to sell at less than cost all rice purchased by them between February 25th and the time in June or July when prices declined if they were to continue in business.

The appellants urge that to the extent that the order thus prevented them from continuing to carry on their rice importing business except at an out-of-pocket loss it was not "generally fair and equitable" as required by the Puerto Rican law under which it was issued and it deprived them of their liberty and property without due process of law in violation of the Fifth or Fourteenth Amendment² to the Constitution of the United States. The Supreme Court did not regard the order as invalid on either ground. We find it unnecessary to consider whether the decision of that court was inescapably wrong on the first ground since we have reached the conclusion that the order was in violation of the due process clause to the extent that it compelled the entire rice importing industry of Puerto Rico to sell its imported rice at a loss following its effective date. Our reasons for reaching this conclusion will be stated briefly.

It is now undeniable that a state in the exercise of its police power may regulate the prices to be charged by an industry if its legislature determines that the public interest requires such regulation.³ It is equally clear, however, that such regulation is limited by the due process clause. As Justice Roberts said in Nebbia v. People of State of New York, 1934, 291 U.S. 502, 537, 539, 54 S.Ct. 505, 516, 78 L.Ed. 940:

"* * * a state is free to adopt whatever economic policy may reasonably be deemed to promote public welfare, and to enforce that policy by legislation adapted to its purpose. The courts are without authority either to declare such policy, or, when it is declared by the legislature, to override it. If the laws passed are seen to have a reasonable relation to a proper legislative purpose, and are neither arbitrary nor discriminatory, the requirements of due process are satisfied, and judicial determination to that effect renders a court functus officio. * *

"* * * Price control, like any other form of regulation, is unconstitutional only if arbitrary, discriminatory, or demonstrably irrelevant to the policy the legislature is free to adopt, and hence an unnecessary and unwarranted interference with individual liberty."

The function of the court, therefore, is to determine in each case whether in the circumstances the order or regulation is such an unreasonable exercise of governmental authority⁴ or is so arbitrary or discriminatory as to come within the ban of the due process clause. If the order is within the scope of the police power the court is not concerned with hardships or difficulties which may attend its enforcement⁵ unless it "goes so far beyond the needs of the occasion as to be turned into an act of tyranny."⁶

The order here involved was issued at a time when for three weeks decontrolled prices of rice had sharply risen in the United States and rice had been purchased by the importers at the increased prices during this period and after the order became effective. Concededly, the effect sought by the Secretary was eventually to bring down the prices in the continental United States but, in his judgment, it had to be accomplished by imposing a loss upon the importers in the interim. It is ordinarily true that a member of an industry which is under price control can withdraw from the field and thus avoid control.⁷ But it is wholly unrealistic to apply this principle to the case before us. For the rice importers supply Puerto Rico with the most important staple in the diet of the people. Certainly it was not contemplated that the order would stop the importation of this necessity of the Puerto Rican people. Accordingly the application of the principle that the members of the industry could escape loss by withdrawing from the business of importing rice is not an honest answer to the question at issue. This is particularly so in view of an amendment made in 1946 to section 3(c) of Act No. 228. That subsection authorized the administrator to regulate or prohibit speculative or manipulative practices. As amended by Act No. 17, Laws of Puerto Rico, December 31, 1946, section 3(c) reads as follows:

"(c) Whenever in the judgment of the Administrator such action should be necessary and proper in order to effectuate the purposes of this Act, he may regulate by regulation or order, and he may prohibit, such speculative or manipulative practices, including practices relating to

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