California Molasses Co. v. California & Hawaiian Sugar Co.

• Citation: 551 F.2d 1230
• Decision Date: 16 March 1977
• Docket Number: No. 9-37.,9-37.
• Parties: CALIFORNIA MOLASSES COMPANY, Plaintiff-Appellant, v. CALIFORNIA AND HAWAIIAN SUGAR COMPANY, Defendant-Appellee.
• Court: U.S. Temporary Emergency Court of Appeals

551 F.2d 1230

CALIFORNIA MOLASSES COMPANY, Plaintiff-Appellant, v. CALIFORNIA AND HAWAIIAN SUGAR COMPANY, Defendant-Appellee.

No. 9-37.

Temporary Emergency Court of Appeals.

Argued February 16, 1977.

Decided March 16, 1977.

David M. Wilson and Alvin H. Pelavin, Dinkelspiel, Pelavin, Steefel & Levitt, San Francisco, Cal., for plaintiff-appellant.

Martin Anderson and Lynn H. Pasahow, McCutchen, Doyle, Brown, & Enersen, San Francisco, Cal., for defendant-appellee.

Before CHRISTENSEN, ESTES and JAMESON, Judges.

JAMESON, Judge:

This is a private enforcement action brought pursuant to § 210 of the Economic Stabilization Act of 1970, as amended,¹ by plaintiff-appellant, California Molasses Co., (CalMol), a wholesale purchaser of blackstrap molasses, against defendant-appellee, California and Hawaiian Sugar Company (C & H), an agricultural cooperative distributor. CalMol alleged that during the year 1973 C & H charged CalMol prices for molasses in excess of the price ceilings permitted by Phase III and Phase IV regulations of the Cost of Living Council (C.O.L.C.). CalMol sought recovery of the alleged overcharges, trebled in accordance with statute.²

Prior to trial the district court granted summary judgment in favor of C & H on the Phase III claims. Following trial on the alleged overcharges on the Phase IV claims, extending from October, 1973 through December, 1973, the court entered judgment for C & H, supported by detailed findings of fact and conclusions of law. In its findings, the court first fairly summarized the history of price controls under the Economic Stabilization Act of 1970 as follows:

In August, 1971, the President ordered a comprehensive `freeze' of all prices. Executive Order 11615, 36 Fed.Reg. 15727, August 15, 1971. This freeze lasted until November, 1971, and came to be known as Phase I. From November, 1971, to January, 1973, prices were controlled, but under a flexible system, which allowed price increases that could be justified by increased costs. This period of controls was known as Phase II. Executive Order 11627, 36 Fed.Reg. 20139, October 16, 1971; 6 C.F.R. § 300.1 et seq. (1973). Phase III was a period of primarily `voluntary' controls, lasting from January, 1973, until June, 1973. 6 C.F.R. § 130.1 et seq. (1974). This was followed by another brief freeze. In September, 1973, prices were again brought under flexible controls which allowed cost-justified increases. 6 C.F.R. 150.1, et seq. This was known as Phase IV.

See also Longview Refining Co. and Crystal Oil Co. v. W. R. (Bill) Shore, et al., 554 F.2d 1006 (Em.App.1977).

As the district court noted, it was undisputed that "C & H substantially increased its prices to CalMol during both Phases III and IV. During Phase II, C & H charged CalMol from $24.50 to $25.75 per short ton (85° Brix; Stockton). During Phase III, C & H charged CalMol from $44.00 to $55.50 per short ton (85° Brix; Stockton). During Phase IV, the price charged to CalMol by C & H ranged between $63.50 and $67.00 per short ton (85° Brix; Stockton)."

I. SCOPE OF REVIEW

Since both Phase III and Phase IV claims involve interpretations of applicable statutes and regulations by the Cost of Living Council and the Internal Revenue Service, the agency charged with the enforcement of the price regulations, we consider at the outset the weight to be given their rulings and decisions, as well as the findings of fact of the district court.

As the district court noted, this court recognized in University of Southern California v. Cost of Living Council, 472 F.2d 1065, 1068 (1972), cert. denied, 410 U.S. 928, 93 S.Ct. 1364, 35 L.Ed.2d 590 (1973), "It is a well settled principle that the courts place great weight on the interpretations given to statutes and regulations by those agencies charged with the responsibility of administering them".³ In that case the interpretation was contained in a telegram from the Regional Director of the Office of Emergency Preparedness, the agency at that time primarily responsible for enforcement of the Economic Stabilization Program.

In Fry v. United States, 421 U.S. 542, 546, n. 6, 95 S.Ct. 1792, 1795, 44 L.Ed.2d 363 (1975), the Court, in referring to interpretations of the Economic Stabilization Act by "various stabilization agencies", said, "We have long recognized that the interpretation of a statute by an implementing agency is entitled to great weight", citing Udall v. Tallman, supra.

With respect to findings of the district court, this court in Evans v. Suntreat Growers & Shippers Inc., Em.App., 531 F.2d 568, 571 (1976) quoted from Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 123, 89 S.Ct. 1562, 1576, 23 L.Ed.2d 129 (1969):

The question for the appellate court under Rule 52(a) is not whether it would have made the findings the trial court did, but whether `on the entire evidence it is left with the definite and firm conviction that a mistake has been committed.' Citing United States v. Gypsum Co., 333 U.S. 364, 395, 68 S.Ct. 525, 542, 92 L.Ed. 746 (1948) and other cases.

II. PHASE III CLAIMS

On October 31, 1972 during Phase II, C & H wrote the Price Commission requesting an exception to the "ceiling price for Hawaiian molasses".⁴ The letter stated that C & H was not asking for "an exemption from economic controls because we believe that such an exemption should be granted only on an industry wide application". On December 20, 1972, the Price Commission entered an order that the request of C & H "to raise the price of cane molasses in excess of justified allowable cost, pursuant to Price Commission Regulation 6 C.F.R. 300.12, in order to maintain its customary margin to the prevailing wholesale price, is denied". The Commission found, inter alia, that C & H had not "demonstrated that compliance with Price Commission Regulations results in serious hardship or gross inequity for the Company, or members of its agricultural marketing cooperative".

On January 11, 1973, Phase III was initiated by Executive Order 11695, 38 Fed.Reg. 1473, which provided in pertinent part:

Sec. 3. (a) All orders, regulations, circulars, rulings, notices or other directives issued and all other actions taken by any agency pursuant to Executive Order 11588, as amended, Executive Order 11615, as amended, Executive Order 11627, as amended, and Executive Order 11640, as amended, and in effect on the date of this order are hereby confirmed and ratified, and shall remain in full force and effect as if issued under this order, unless or until altered, amended, or revoked by the Chairman . . ..

* * * * * *

(d) Renegotiation provisions in price, rent, wage or salary contracts which are dependent for their operation on modification or termination of the Economic Stabilization Program are hereby declared inoperative as unreasonably inconsistent with the goals of the Economic Stabilization Program. Except to the extent permitted pursuant to the provisions of section 4(a), this order shall not operate to permit:

(i) A retroactive increase in prices, rents, wages or salaries for goods or services sold or leased or work performed while the prices, rents, wages or salaries were subject to the rules of the Price Commission or the Pay Board, or

(ii) A prospective increase in prices, rents, wages or salaries under the terms of a contract subject to a Price Commission or Pay Board decision and order, except to the extent consistent with such decision and order.

On January 17, 1973 C & H increased the price of molasses to CalMol. On January 24 the attorney for CalMol wrote the Cost of Living Council protesting the price increase and requesting "urgent determination" of the legality of the increase.⁵ On January 26, 1973 animal feeds (including blackstrap molasses, which is an animal feed rather than human food) were held to be exempt from mandatory controls during Phase III (CLC Release # 197, CCH Economic Controls § 871.10).

CalMol urged in the district court, as it does here, that the order of the Price Commission, entered during Phase II, was carried forward into Phase III by Executive Order 11695 and that C & H's price increase accordingly was illegal. Following a hearing the court granted C & H's motion for summary judgment, concluding that the order denying C & H's request for an exception was "not the kind of order . . . contemplated to be carried over into Phase III".⁶

The effect of Executive Order No. 11695 was considered by this court in United States v. California, 504 F.2d 750 (Em.App.1974), with respect to wage and salary increases disallowed by the Cost of Living Council. In dismissing the complaint the court held that California was acting under voluntary controls and had violated no agency regulation or order, the court stating that "the only way that the regulations could be violated was to pay an increase which had already been challenged and specifically disapproved by the agency". 504 F.2d at 757. With reference to Executive Order 11695 we said, "Because economic controls were thereby made voluntary and self-administering, it was no longer a violation of the Act to agree to pay or induce and require to be paid wages in excess of CLC guidelines". 504 F.2d at 757, n. 11.

The standards under Phase III here applicable are "standards for private behavior which are intended to be applied voluntarily". 6 C.F.R. § 130.11. Phase III regulations adopted by the Cost of Living Council superseded the provisions of Chapter III (Price Commission Regulations) except "with respect to the food industry, the health industry, and the construction industry". 6 C.F.R. § 130.1(a). In C.O.L.C. Release No. 197 issued January 26, 1973 it was expressly provided that "animal feeds are not subject to mandatory controls".

The policy of C.O.L.C. with respect to possible imposition of mandatory controls during Phase III was explained in its Release No. 217, dated February 28, 1973:

Q. What actions can the Cost of Living Council take during Phase III when it

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