Company v. Sunkist Growers, Inc, CASE-SWAYNE

• Decision Date: 18 December 1967
• Docket Number: No. 66,CASE-SWAYNE,66
• Citation: 88 S.Ct. 528,389 U.S. 384,19 L.Ed.2d 621
• Parties: COMPANY, Inc., Petitioner, v. SUNKIST GROWERS, INC
• Court: U.S. Supreme Court

389 U.S. 384

88 S.Ct. 528

19 L.Ed.2d 621

CASE-SWAYNE COMPANY, Inc., Petitioner,

v SUNKIST GROWERS, INC.

No. 66.

Argued Oct. 18, 19, 1967.

Decided Dec. 18, 1967.

Rehearing Denied Jan. 29, 1968.

See 390 U.S. 930, 88 S.Ct. 846.

William H. Henderson, Washington, D.C., for petitioner.

Seth M. Hufstedler, Los Angeles, Cal., for respondent.

Mr. Justice MARSHALL delivered the opinion of the Court.

This is a treble-damage action under § 4 of the Clayton Act, 38 Stat. 731, 15 U.S.C. § 15, for alleged violations of both § 1 and § 2 of the Sherman Act, 26 Stat. 209, as amended, 15 U.S.C. §§ 1, 2. The District Court granted a directed verdict, at the close of plaintiff's case, for the defendant, Sunkist Growers, Inc. The Court of Appeals for the Ninth Circuit reversed as to that portion of the complaint predicated on § 2 of the Sherman Act, holding that sufficient evidence was presented that Sunkist monopolized or attempted to monopolize trade in the relevant market;¹ it affirmed as to the dismissal of the Sherman Act § 1 charge, holding that Sunkist qualified as a cooperative organization under the Capper-Volstead Act, 42 Stat. 388, 7 U.S.C. § 291,² and therefore could not be held for any intraorganizational conspiracy to restrain trade. In order to determine the scope of that exemption from the antitrust laws, we granted certiorari. 387 U.S. 903, 87 S.Ct. 1686, 18 L.Ed.2d 621 (1967).

The issue is whether Sunkist is an association of '(p)ersons engaged in the production of agricultural products as * * * fruit growers' within the meaning of the Capper-Volstead Act, notwithstanding that certain of its members are not actually growers. We hold that it is not.

I.

The organizational structure of the Sunkist system is as follows. At the base are some 12,000 growers of citrus fruit in Arizona and California. The growers are organized into 'local associations,' as they are designated in Sunkist's bylaws, numbering approximately 160, each of which operates a packing house for the preparation of the fruit for market. The vast majority of these local associations—about 80% by number and 82% by volume of fruit marketed in the Sunkist system—are, it is stipulated, cooperative associations in which all members are fruit growers.³ A few of the local associa- tions—no more than 5% by number and volume of fruit—are corporate growers whose total volume is sufficient to justify installation of their own packing house facilities.

The remainder of the local associations (also designated as 'agency association')—about 15% by number handling about 13% of the fruit in the Sunkist system—are private corporations and partnerships, owning and operating packing houses for profit. Their relationship to the growers whose fruit they handle is defined not by a cooperative agreement but by a marketing contract, i.e., these packing houses contract with each grower to handle his fruit for cost plus a fixed fee. It is the membership of these agency associations in the Sunkist system that gives rise to the issue presented here.

The local associations, including these private packing houses, are members of 'district exchanges,' non-profit membership corporations. The principal functions of the approximately threescore district exchanges are in the marketing of the fresh fruit of their member associations; they negotiate sales, arrange for shipment, and serve as conduits of communication between the local associations and Sunkist. Representatives of the district exchanges select the board of directors of Sunkist.

Sunkist itself, since 1958,⁴ has two classes of 'members': the district exchanges, whose principal member- ship function is to select the board of directors, and the local associations, which vote on all other matters and which have the proprietary ownership of Sunkist's assets. The corporate entity Sunkist Growers, Inc., owns the trade name 'Sunkist' under which the fruit of its members is marketed. It has an extensive sales organization; employs marketing and traffic specialists; and performs many other services for its members through, for example, its research facilities.

More particularly, Sunkist owns processing facilities for what is known as 'product' fruit, i.e., fruit that for various reasons it not sold in the fresh fruit market, but rather is used for processed fruit products such as canned or concentrated juices.

Sunkist controls approximately 70% of the oranges grown in California and Arizona, and approximately 67% of the product oranges. This control is manifested through various contractual agreements. For example, each grower in the cooperative local associations agrees that he will market all of his fruit through his association. Each grower who contracts with an agency association packing house appoints it as the marketing agent for all of his fruit. That agreement is generally for five shipping seasons, although it may be canceled by any time 'by mutual consent' or on written notice by the grower during August of any year in which it is in force. An escape clause permits the grower to sell such fruit as may be 'mutually agreed upon' between him and the packing house to others, if he can obtain a price higher, in the judgment of the packing house, than that which the grower would obtain through his agreement with it. Should the grower be so released from his agreement, he is to pay to the packing house $2.50 per ton of fruit released.

Each of the local associations, including the private packing house agency associations, contracts with its district exchange and with Sunkist Growers, Inc., to market all of its fruit—product and fresh—in the Sunkist system. Each association, under the Sunkist-District Exchange-Association Agreement, reserves the right to decide to what market it will ship and what price it is willing to receive for its fruit; however, Sunkist may decide to pool product fruit and fruit for export, in which event that fruit is handled solely in Sunkist's discretion. Sunkist also determines 'the maximum amount of fresh fruit to be marketed currently,' and allocates the 'opportunity to ship equitably among Local Associations.' Each local association agrees not to release any of its growers from the marketing contract without notifying its district exchange and Sunkist, and must obtain the approval of both if releases total more than 5% of the volume of the particular variety of fruit handled by the association. Further, each district exchange and local association agrees that '(a)ll prices, quotations and allowances shall be issued and distributed solely by Sunkist.'

Petitioner Case-Swayne manufacturers single-strength orange juice and other blended orange juices. In its complaint, insofar as relevant to the issues here, petitioner charged that the Sunkist system was a conspiracy in restraint of trade in violation of § 1 of the Sherman Act, the effect of which was to limit sharply the supply of product citrus fruit available to petitioner during the period covered by the complaint.

II.

Section 1 of the Capper-Volstead Act (see n. 2, supra) privileges collective activity in processing and marketing on the part of '(p)ersons engaged in the production of agricultural products as farmers, planters, ranchmen, dairymen, nut or fruit growers * * *.' 42 Stat. 388, 7 U.S.C. § 291. Despite that specific language, Sunkist argues that Congress, in enacting the measure, intended to give sanction to any organizational form by which the benefits of collective marketing inured to the grower; and that, because the agency packing houses, by charging cost plus a fixed fee⁵ for their services, do not participate directly in the gain or loss involved in the collective marketing of fruit through the Sunkist system, they are in the Sunkist system a privileged form of organization for the growers who contract with them.⁶ We think that argument misconceives the requirements of the Act and runs counter to the relevant legislative history.

Congress enacted § 6 of the Clayton Act in response to the urgings of those who felt the Sherman Act's prohibition against combinations in restraint of trade might be applied to imperil the development of cooperative en- deavors, principally unions.⁷ That section provided that the antitrust laws were not to be 'construed to forbid the existence and operation of labor, agricultural, or horticultural organizations, instituted for the purposes of mutual help, and not having capital stock or conduted for profit,' i.e., such organizations were not to be deemed 'illegal combinations or conspiracies in restraint of trade * * *.' 38 Stat. 731, 15 U.S.C. § 17. From the standpoint of agricultural cooperatives, the principal defect in that exemption was that it applied only to nonstock organizations. The Capper-Volstead Act was intended to clarify the exemption for agricultural organizations and to extend it to cooperatives having capital stock.⁸

The reports on both H.R. 13931, the predecessor bill that failed of passage, and H.R. 2373, which became the Capper-Volstead Act, state:

'Section 1 defines and limits the kind of associations to which the legislation applies. These limitations are aimed to exclude from the benefits of this legislation all but actual farmers and all associations not operated for the mutual help of their members as such producers.' (Emphasis added.) H.R.Rep. No. 24, 67th Cong., 1st Sess., 1 (1921); H.R.Rep. No. 939, 66th Cong., 2d Sess., 1 (1920).

That it was intended that only actual producers of agricultural products be covered by the legislation is demonstrated in the debates on the two bills, e.g., the following exchange involving Senator Kellogg, a principal sponsor of the measure:

'Mr. CUMMINS. * * * Are the words 'as farmers, planters, ranchmen, dairymen, nut or fruit growers' used to exclude all others who may be engaged in the production of agricultural products, or are those words merely descriptive of the general subject?

'Mr. KELLOGG. I think they are...