Allenberg Cotton Company, Inc v. Pittman 8212 628

• Citation: 419 U.S. 20,42 L.Ed.2d 195,95 S.Ct. 260
• Decision Date: 19 November 1974
• Docket Number: No. 73,73
• Parties: ALLENBERG COTTON COMPANY, INC., Appellant, v. Ben E. PITTMAN. —628
• Court: United States Supreme Court

419 U.S. 20

95 S.Ct. 260

42 L.Ed.2d 195

ALLENBERG COTTON COMPANY, INC., Appellant,

v Ben E. PITTMAN.

No. 73—628.

Argued Oct. 17, 1974.

Decided Nov. 19, 1974.

Syllabus

Appellant, a cotton merchant with its principal office in Memphis, Tenn., in January 1971 negotiated a 'forward' contract with appellee, a Mississippi farmer, for appellee's forthcoming cotton crop. The agreement was made through a Mississippi broker who arranged contracts for appellant for cotton to be resold in interstate and foreign markets. Appellant had contracted with mills outside Mississippi for sale of most of the cotton to be purchased in Mississippi, including that to be grown by appellee under this contract. Alleging refusal by appellee farmer to deliver the cotton, appellant brought suit for injunctive relief and damages. The Supreme Court of Mississippi, reversing the court below, dismissed the complaint, holding that appellant's contracts were wholly intrastate, being completed upon delivery of cotton at the warehouse, and upholding appellee's contention that the Mississippi courts could not be used to enforce the contract as appellant was doing business in Mississippi without the requisite certificate. Appellee moved to dismiss in this Court on the ground that the State Supreme Court did not pass on the federal question. Held:

1. A certificate executed by the Chief Justice of the State Supreme Court makes it clear that a federal question was raised and decided by that court on the validity of a state statute as applied to the facts of this case under the Commerce Clause of the Federal Constitution, and this Court has jurisdiction over the appeal. Pp. 22—23.

2. The Mississippi Supreme Court's refusal to enforce the contract contravened the Commerce Clause, since the cotton in the instant transaction, though to be delivered to appellant at a local warehouse, was to be there only temporarily for sorting and classification for out-of-state shipment and was thus already in the stream of interstate commerce. Dahnke-Walker Milling Co. v. Bondurant, 257 U.S. 282, 42 S.Ct. 106, 66 L.Ed. 239, Pp. 25—34.

276 So.2d 678, reversed and remanded.

John McQuiston, II, Memphis, Tenn., for appellant.

George C. Cochran, University, Miss., for appellee.

Mr. Justice DOUGLAS delivered the opinion of the Court.

This is an appeal from a judgment of the Supreme Court of Mississippi, 276 So.2d 678 (1973), which held that under the applicable Mississippi statute¹ appellant might not recover damages for breach of a contract to deliver cotton because of its failure to qualify to do business in the State. Appellant claims that that Mississippi statute as applied to the facts of this case is repugnant to the Commerce Clause of the Constitution. A motion to dismiss was made on the ground that the Mississippi Supreme Court did not pass on that federal question and that such question was not in fact raised. We accordingly postponed the question of probable jurisdiction to a hearing on the merits, 415 U.S. 988, 94 S.Ct. 1585, 39 L.Ed.2d 885 (1974).

I

On application of appellant (appellee below), the Chief Justice of the Supreme Court of Mississippi executed a certificate dated August 17, 1973, stating in part:

'(T)his Court . . . hereby certifies . . . that in this appeal . . . and in the arguments both oral and by brief made in this Court on behalf of the appellee on the original appeal and the petition of appellee for rehearing and brief filed in support thereof, it was insisted by appellee that under the facts of this case, the contract sued upon by the appellee was made in 'interstate commerce' and that it was transacting business in interstate commerce, and thus entitled to protection as such under the applicable statutes of Mississippi and the Commerce Clause of the Federal Constitution; and that in its deliberation of this case, this Court both on the original appeal and the petition for rehearing considered these questions of interstate commerce; and it was the judgment of this Court that said contract was not made in interstate commerce, nor that the facts of the case showed appellee to be transacting business in interstate commerce within the meaning of the laws of Mississippi and that Mississippi Code 1942 Ann. Section 5309—239 (Supp.1972) as applied by this Court in this case to the Allenberg Cotton Company, Inc., a Tennessee corporation, to bar it from maintaining suit in the courts of this state was not repugnant to the Commerce Clause of the United States Constitution; and it was necessary to the Court's judgment in said case to determine said questions raised as to interstate commerce, and that such questions were determined adversely to the position of appellee.'

The Chief Justice, speaking for the court, makes its clear that a federal question was raised and decided and that that question was the validity of the state statute as applied to the facts of this case under the Commerce Clause of the Federal Constitution. That certificate is adequate under our decisions. ² So we proceed to the merits.

II

Appellant is a cotton merchant with its principal office in Memphis, Tenn. It had arranged with one Covington, a local cotton buyer in Marks, Miss. to contract cotton' to be produced the following season by farmers in Quitman County, Miss. The farmer, Pittman, in the present case, made the initial approach to Covington, seeking a contract for his cotton; in other instances Covington might contact the local farmers.³ In either event, Covington would obtain all the information necessary for a purchase contract and telephone the information to appellant in Memphis, where a contract would be prepared, signed by an officer of appellant, and forwarded to Covington. The latter would then have the farmer sign the contract. For these services Covington received a commission on each bale of cotton delivered to appellant's account at the local warehouse.⁴ When the farmers delivered the cotton, Covington would draw on appellant and pay them the agreed price.

The Supreme Court of Mississippi held that appellant's transactions with Mississippi farmers were wholly intrastate in nature, being completed upon delivery of the cotton at the warehouse, and that the fact that appellant might subsequently sell the cotton in interstate commerce was irrelevant to the federal question 'as the Mississippi transaction had been completed and the cotton then belonged exclusively to Allenberg, to be disposed of as it saw fit, at its sole election and discretion,' 276 So.2d, at 681. Under the contract which Covington negotiated with appellee, Pittman, the latter was to plant, cultivate, and harvest a crop of cotton on his land, deliver it to a named company in Marks, Miss., for ginning, and then turn over the ginned cotton to appellant at a local warehouse. The suit brought by appellant alleged a refusal of Pittman to deliver the cotton and asked for injunctive relief and damages. One defense tendered by Pittman was that appellant could not use the courts of Mississippi to enforce its contracts, as it was doing business in the State without the requisite certificate. The Supreme Court of Mississippi sustained that plea, reversing a judgment in favor of appellant, and dismissed the complaint.

Appellant's arrangements with Pittman and the broker, Covington, are representative of a course of dealing with many farmers whose cotton, once sold to appellant, enters a long interstate pipeline. That pipeline ultimately terminates at mills across the country or indeed around the world, after a complex sorting and matching process designed to provide each mill with the particular grade of cotton which the mill is equipped to process.

Due to differences in soil, time of planting, harvesting, weather, and the like, each bale of cotton, even though produced on the same farm, may have a different quality.⁵ Traders or merchants like appellant, with the assistance of the Department of Agriculture, must sample each bale and classify it according to grade, staple length, and color.⁶ Similar bales, whether from different farms or even from different collection points, are then grouped in multiples of 100 into 'even-running lots' which are uniform as to all measurable characteristics. This grouping process typically takes place in card files in the merchant's office; when enough bales have been pooled to make an even-running lot, the entire lot can be targeted for a mill equipped to handle cotton of that particular quality, and the individual bales in the lot will then be shipped to the mill from their respective collection points.⁷ It is true that title often formally passes to the merchant upon delivery of the cotton at the warehouse, and that the cotton may rest at the warehouse pending completion of the classification and grouping processes; but, as the description above indicates, these fleeting events are an integral first step in a vast system of distribution of cotton in interstate commerce.

The contract entered into between appellant and Pittman was a standard 'forward' contract, executed in January 1971 and covering the crop to be grown that year. Such contracts have become common in the American cotton-marketing system; they provide a ready way for the cotton farmer to protect himself against a price decline by ensuring that he will be able to sell his crop at a sufficient price to cover his expenses.⁸ The merchant who has contracted to but the cotton from the farmer must in turn protect himself against market fluctuations. In this case, appellant had entered into contracts for sale of cotton to customers outside Mississippi,⁹ in quantities approximating the expected yield of the Pittman contract and appellant's other Mississippi contracts. A resale contract of this sort ensures that the merchant will be able to cover his own expenses and recoup a small profit; alternatively, the merchant may protect himself by 'hedging,' i.e., offsetting his purchases with a sale of...