MARYLAND & VIRGINIA MILK PRO. ASS'N v. United States, 10662

• Decision Date: 08 November 1951
• Docket Number: 10665.,No. 10662,10662
• Citation: 193 F.2d 907
• Parties: MARYLAND & VIRGINIA MILK PRODUCERS ASS'N, Inc. v. UNITED STATES. DERRICK v. UNITED STATES.
• Court: U.S. Court of Appeals — District of Columbia Circuit

193 F.2d 907 (1951)

MARYLAND & VIRGINIA MILK PRODUCERS ASS'N, Inc. v. UNITED STATES.

DERRICK v. UNITED STATES.

Nos. 10662, 10665.

United States Court of Appeals District of Columbia Circuit.

Argued February 13, 1951.

Decided November 8, 1951.

William E. Leahy, Washington, D. C., with whom Elwood H. Seal and William J. Hughes, Jr., Washington, D. C., were on the brief, for appellants.

Mr. Robert H. Winn, Sp. Asst. to the Atty. Gen., with whom Joe F. Nowlin, Sp. Asst. to the Atty. Gen., was on the brief, for appellee. George Morris Fay, U. S. Atty. at the time of argument, and Charles H. Weston, Atty., Department of Justice, Washington, D. C., also entered appearances for appellee. Charles M. Irelan, Washington, D. C., appointed U. S. Atty. subsequent to the argument in this case, also entered an appearance for appellee.

Harry Scharnikow, Washington, D. C., and Marion R. Garstang, Washington, D. C., filed a brief amicus curiae on behalf of National Milk Producers Federation, urging reversal.

Before CLARK, WILBUR K. MILLER and FAHY, Circuit Judges.

WILBUR K. MILLER, Circuit Judge.

The Maryland and Virginia Milk Producers Association is a corporate co-operative whose 1,500 producer members furnished 80 per cent of the milk distributed to consumers in the Washington metropolitan district during the period pertinent here. Seven distributing corporations accounted for 85.4 per cent of the milk and cream sold at retail in the area.¹ In 1948 the Association, its secretary-treasurer, Bruce B. Derrick, and the seven distributors were indicted for conspiring to restrain trade in the District of Columbia in violation of § 3 of the Sherman Act, 26 Stat. 209, ch. 647, § 3, 15 U.S.C.A. § 3, which is in part as follows:

"Every contract, combination in form of trust or otherwise, or conspiracy, in restraint of trade or commerce in any Territory of the United States or of the District of Columbia, or in restraint of trade or commerce between any such Territory and another, or between any such Territory or Territories and any State or States or the District of Columbia, or with foreign nations, or between the District of Columbia and any State or States or foreign nations, is declared illegal."

The paragraphs of the lengthy indictment which describe the nature and effect of the alleged conspiracy are reproduced in the margin.²

It was charged that continuously from 1930 to March 8, 1948, the date of the indictment, the Association, Derrick, and the seven dairy defendants unlawfully conspired to and did fix the wholesale and retail prices of milk, cream and milk products in the District of Columbia. This was largely accomplished, the indictment said, through "full supply contracts" between the Association and the dairies which required the latter to buy their entire supply from the former and to pay therefor varying prices according to the way the milk was utilized by them. These contracts, the government said in summarizing the indictment, "created a rigid and artificial pricing structure in the sale of fluid milk without regard for the normal forces of competition."

The nine defendants were further accused of eliminating and suppressing competition, at both the wholesale and the retail level, by preventing the importation of milk from sources other than the Association's 1,500 members, and by other oppressive practices. They were also charged with unlawfully inducing and persuading governmental agencies, having to do with the regulation of the milk supply, to adopt regulations and policies which were not in the public interest, but in the interest of the conspirators.

Judge Richmond B. Keech, of the United States District Court for the District of Columbia, dismissed the indictment, holding that the facts stated did not constitute a violation of § 3 of the statute. On the government's appeal from the order of dismissal, this court reversed by a two to one vote. 85 U.S.App.D.C. 180, 179 F.2d 426. The nine defendants were then tried before District Judge Alexander Holtzoff without a jury. Derrick, Safeway, Richfield and the Association were found guilty; the others were acquitted. D.C., 90 F.Supp. 681. Derrick and the Association appeal.

The full supply contracts, each containing a utilization-classification pricing arrangement, between the Association and Safeway and between the Association and Richfield, were the bases of their convictions. The agreements required the Association to supply the two distributors' needs to the extent of its ability to do so; but if the Association were unable to fill their requirements, the distributors could go elsewhere. Thus the contracts were not exclusive to the extent of altogether prohibiting purchases from outside sources.

The contract between the Association and Safeway³ contained the following provision:

"(3) Distributors shall pay to the Association for all milk and/or cream sold and delivered to it by the Association the minimum prices, according to the use to which said milk and/or cream is put, in the manner and in the amount provided for in the Marketing Agreement and Order for the Washington Marketing Area, which agreement has been approved by the United States Secretary of Agriculture and became effective February 1, 1940. A copy of said Marketing Agreement and Order is attached hereto as Exhibit `A' and by reference made a part hereof."

A similar provision appears in the Richfield contract.

Under the classified use plan, milk which is utilized by the distributors for resale in fluid form is known as Class I and is paid for at the highest of three prices. Class II is milk used for cream and cottage cheese, and Class III is that which is converted into manufactured products. At the time of the trial the prices of Classes II and III were identical. This classified use system has been employed in the industry since 1916. It was one of the features of a formal marketing agreement executed in 1940 between the Association and the distributors under the Agricultural Marketing Act,^3a a contract to which the Secretary of Agriculture was a party.

The Association cancelled this agreement as of March 31, 1947, as it had a right to do under the Act itself. The reason for cancellation was that, over the Association's protest, the Secretary had made the price of milk in the District of Columbia area depend upon the price of butter in the speculative New York market. As Mr. Hooper, an officer of the Association, testified to this effect, Judge Holtzoff remarked: "I do not quite understand * * why the price of butter in the New York market should affect the price of milk in the Washington market," to which Mr. Hooper replied, "We couldn't understand the connection either, your Honor, and that is one of the reasons that order went out." In September, 1946, the Association requested the Secretary to suspend the formula because the use of it would increase the local price of milk and the Association thought economic conditions surrounding the production of milk in the District of Columbia area did not warrant a rise in the price. The Secretary refused to suspend the formula. The New York butter price increased in November, 1946, but the Association refused to accept the resulting increase in the milk prices.

The government proved that a full supply contract between the Association and Safeway, executed June 11, 1940, had been continuously effective since that date. A similar contract between the Association and Richfield was shown to have been effective since December 11, 1946. Full supply contracts with Chestnut Farms, Thompson's Dairy and Simpson Bros., Inc., formerly in effect, had been terminated September 30, 1938.

Witnesses for the government testified that the prices to be paid to the Association by Safeway and Richfield were not fixed by joint action of the four convicted defendants, but were decided upon by the Association and imposed upon the dairies. Thus the prosecution's own proof refuted the charge that the appellants and those two dairies conspired to and did fix wholesale prices. With commendable candor, the government concedes in its brief that the Association alone determined wholesale prices.⁴

Government witnesses also testified that the Association had nothing whatever to do with fixing retail prices. Those prices, the evidence showed, are not always uniform. In fact, we were told in argument that Safeway sells milk for two cents per quart less than Richfield charges. There was no proof of a conspiracy to fix prices, either wholesale or retail.

The government failed to prove that the defendants had conspired to suppress, or that any of them had suppressed, competition from independent sources of supply. It proved just the opposite by showing that in 1942, when the war caused a vast increase in the population of the Washington metropolitan area and a consequent increased demand for milk which all the producers in the area combined were unable to meet, the Association and the other defendants co-operated in bringing in from outside, and sometimes far removed, sources enough milk to supplement the local supply sufficiently to meet the public demand. Without charge, the Association worked to find the outside milk and obtained it for the distributors.⁵ On one day, during a critical emergency, the Association spent $1,000 in telephoning all over the nation in an effort to find available milk, and lent its credit to the distributors in their purchases from distant suppliers to whom the distributors were unknown.

The inadequacy of the entire local supply — both that of the Association's members and that of independent producers — and the importation of milk by the distributors, continued without cessation to the date of the indictment. None of the effects of the conspiracy alleged in paragraph 36 of the indictment was proved.

The government did prove that the Association had once had once had a full supply contract, containing a classified use pricing...