Shafer v. Farmers Grain Co of Embden

• Decision Date: 04 May 1925
• Docket Number: No. 34,34
• Parties: SHAFER, Atty. Gen. of North Dakota, et al. v. FARMERS' GRAIN CO. OF EMBDEN et al
• Court: U.S. Supreme Court

268 U.S. 189

45 S.Ct. 481

69 L.Ed. 909

SHAFER, Atty. Gen. of North Dakota, et al.

v FARMERS' GRAIN CO. OF EMBDEN et al.

No. 34.

Argued March 2, 3, 1925.

Decided May 4, 1925.

Mr. Seth W. Richardson, of Fargo, N. D., for appellants.

[Argument of Counsel from page 190 intentionally omitted] Mr. David F. Simpson, of Minneapolis, Minn., for appellees.

Mr. Justice VAN DEVANTER delivered the opinion of the Court.

This is a suit to restrain the enforcement of the North Dakota Grain Grading Act, an initiated measure approved at a state election November 7, 1922. Laws N. D. 1923, p. 549. The plaintiffs own and operate country elevators within the state, at which they buy wheat from farmers for shipment to markets in other states, and the defendants are officers of the state, who are charged by the act with the duty of enforcing it. The plaintiffs challenge the validity of the act under the Constitution of the United States (article 1, § 8, cl. 3) on the grounds, first, that it interferes with and burdens interstate commerce; and, secondly, that it conflicts with the United States Grain Standards Act, c. 313, 39 Stat. 482 (Comp. St. §§ 8747 1/2-8747 1/2 k). An injunction preventing its enforcement pending the suit was granted by the District Court, three judges sitting, and that interlocutory decree is here for review under section 266 of the Judicial Code, as amended by Act March 4, 1913, c. 160, 37 Stat. 1013 (Comp. St. § 1243).

A prior statute, concededly 'having the same general purpose,' was adopted by the state Legislature in 1919 (Laws 1919, c. 138) and held invalid by this court in Lemke v. Farmers' Grain Co., 258 U. S. 50, 42 S. Ct. 244, 66 L. Ed. 458, as an interference with interstate commerce. There are differences between that statute and the present one, of which the parties take divergent views. It would serve no purpose to take up these differences in detail. We shall describe the situation to which the present act is intended to apply, state its material provisions, and then come to its operation on interstate commerce.

Wheat is the chief product of the farms of North Dakota, the annual crop approximating 150,000,000 bushels. About 10 per cent. is used and consumed locally, and about 90 per cent. is sold within the state to buyers who purchase for shipment, and ship, to terminal markets outside the state. Most of the sales are made at country elevators to which the farmers haul the grain when harvested and threshed. These elevators are maintained and operated by the buyers as facilities for receiving the grain from the farmers' wagons and loading it into railroad cars. The loading usually proceeds as rapidly as grain of any grade is accumulated in carload lots and cars can be obtained. When a car is loaded it is sent promptly to a terminal market and the grain is there sold. This is the usual and recognized course of buying and shipment. Occasionally a farmer has his grain stored in the country elevator, or shipped to a terminal elevator for storage, and awaits a possible increase in price; but even in such instances he usually sells to the buyer operating the country elevator, and the latter then sends the grain to the terminal market, if it has not already gone there.

The price paid at the country elevators rises and falls with the price at the terminal markets, but is sufficiently below the latter to enable the country buyer to pay for the intermediate transportation and have a margin of profit. All transactions at the terminal markets, including the price, are based on the grade of the wheat, and by reason of this all buying at the country elevators is by grade.

The grading at the terminal markets is done by inspectors licensed under the United States Grain Stand ards Act, who are required to apply to all interstate shipments the grading standards promulgated under that act by the Secretary of Agriculture. There are no inspectors licensed under that act at the country elevators, and so the grading is done there unofficially by the buyers or their agents as an incident and part of the buying.

Grading includes an ascertainment of the proportions of clean wheat and of dockage in each lot of grain and an ascertainment of the quality of the wheat. Dockage consists of separable foreign material, such as dirt, pieces of straw, chaff, weed stems, weed seeds and grain other than wheat. Its proportion varies in different lots, but generally is less than five per cent. When not separated it causes the grain to bring a lower price per bushel than clean wheat would bring. When separated it has a value for poultry and stock feed which usually is in excess of the cost of separation. Occasionally the farmer separates it at the farm and sells only the clean wheat, and occasionally the buyer separates it at the country elevator, charges the farmer for that service, and buys and ships only the clean wheat; but generally the grain is sold by the farmer and shipped by the country buyer with the dockage included. The influence of dockage on the value of the grain and the current modes of handling it are shown in publications of the Agricultural Department of the United States, pertinent excerpts from which are set out in the margin.¹

As many as 2,200 country elevators are operated within the state in the business here described—generally two or more by competing buyers at each station. Some of the buyers are individuals and others are corporations. A large number are farmers' cooperative companies, which buy grain grown by their stockholders and others in the vicinity of their elevators, ship and sell the same, and distribute as patronage dividends the surplus arising from such transactions—no profit being retained by the companies. $The plaintiffs comprise many buyers, individual and corporate, including 11 farmers' cooperative companies. In the aggregate they own and operate several hundred country elevators, widely distributed over the state, and buy and ship about 30,000,000 bushels of wheat a year. They carry on the business severally, each buying and shipping independently of the others. All buy with the purpose of shipping to and selling in terminal markets outside the state and carry out this purpose in the manner already described.

The North Dakota act in terms covers all farm products, but as it is chiefly aimed at dealings in wheat, and the parties have discussed it on that basis, our statement of its provisions will be shortened by treating them as if relating only to wheat.

The title to the act describes it as one whereby the state undertakes (a) 'to supervise and regulate the marketing' of wheat; (b) to prevent 'unjust discrimination, fraud and extortion in the marketing' of such grain; and (c) to establish 'a system of grading, weighing, and measuring' it. The first section declares the purpose of the state to encourage, promote, and safeguard the production of wheat and commerce therein by establishing a uniform system of grades, weights, and measures. The second and third sections provide for a state supervisor of grades, weights, and measures, and give him authority to make and enforce necessary orders, rules, and regulations to carry out the provisions of the act.

The fourth section provides that the supervisor shall establish a system of grades, weights, and measures for wheat 'and shall in a general way investigate and supervise the marketing of same with a view of preventing unjust discrimination, unreasonable margins of profit, confiscation of valuable dockage, fraud and other unlawful practices'; declares that, whenever grades, weights, and measures for wheat are established by the Secretary of Agriculture under the United States Grain Standards Act, they shall become the grades, weights, and measures of the state; and concludes by saying:

'In establishing such grades, weights and measures, the value of dockage shall be considered, and the buyer shall not be permitted to retain the same without just compensation. He shall pay the fair market value for same or separate it and return it to the producer.'

The fifth section provides that no person shall buy any wheat 'by grade'—excepting where one producer buys from another producer unless it has been inspected and graded by a licensed inspector under the provisions of the act, or those of the United States Grain Standards Act, and is bought by a grade fixed and recognized thereunder.

The sixth section provides for the issue, by the supervisor, of licenses to grade to persons engaged in buying, weighing, and grading wheat—including buyers and agents at country elevators where they pass a satisfactory examination. Each license is to be held on condition that the licensee shall honestly and correctly determine the grades and dockage and shall likewise weigh the grain. The seventh section authorizes the supervisor to suspend or revoke any such license where, after investigation, he finds that the licensee is incompetent, knowingly or carelessly has graded grain improperly, has short-weighed it, has taken valuable dockage without compensation, or has violated any provision of the act or of the United States Grain Standards Act.

The eighth section requires every buyer operating an elevator to obtain from the supervisor a yearly license, the fee for which is to be adjusted by the supervisor to the capacity of the elevator as not exceeding $1 for each 1,000 bushels. The ninth section requires every elevator operator or individual 'buying or shipping for profit,' who does not pay cash in advance, to file with the supervisor a sufficient bond, running to the state, to secure payment for all wheat bought on credit. The tenth section requires every buyer operating an elevator to keep a record of the wheat bought at the elevator and to show therein the price paid and grades given, and 'the price received and the grades received at the terminal markets,' and further requires him to furnish this information to the supervisor when requested....