Carnation Company v. Butz

• Decision Date: 21 March 1974
• Docket Number: Civ. A. No. 6-73.
• Citation: 372 F. Supp. 883
• Parties: CARNATION COMPANY et al., Plaintiffs, v. Earl L. BUTZ, Defendant.
• Court: U.S. District Court — District of Columbia

372 F. Supp. 883

CARNATION COMPANY et al., Plaintiffs, v. Earl L. BUTZ, Defendant.

Civ. A. No. 6-73.

United States District Court, District of Columbia.

March 21, 1974.

Robert N. Sayler, Washington, D. C., for plaintiffs.

Robert M. Werdig, Jr., Asst. U. S. Atty., Washington, D. C., for defendant.

MEMORANDUM OPINION AND ORDER

JOHN LEWIS SMITH, Jr., District Judge.

This action challenges the legality of the Secretary of Agriculture's suspension of scheduled declines in milk support prices without benefit of notice or hearing. The case is now before the Court on cross-motions for summary judgment.

The action arises under the Agricultural Marketing Agreement Act of 1937¹ and in particular, under § 8c(18) of the Act² which authorizes the Secretary of Agriculture to "fix minimum prices" to be paid by milk handlers (processors) to milk producers or associations of producers.

The record reflects that on March 1, 1966, scheduled reductions in Class I milk prices for eleven Federal Milk Marketing Orders took effect to reflect expected seasonal increases in milk supply. The Secretary of Agriculture also on that date issued a suspension notice effective March 2 which suspended these seasonal price adjustments.³ The suspension remained in effect through April 9, 1966. The effect of the Secretary's March 1 action was to return Class I prices in each order to the higher pre-March 1 levels thereby causing plaintiff milk processors to pay more for milk than they would have, had the price decline provisions been allowed to operate. Plaintiffs challenge this action on the ground it was made without benefit of notice or hearing as required by certain provisions of the Act.

In review proceedings below, the Chief Hearing Examiner for the Department of Agriculture ruled that § 8c(18) of the Act required the Secretary to afford plaintiffs notice and opportunity for hearing before suspending the seasonal price declines in the affected orders.⁴ This ruling was subsequently reversed by the Department's Judicial Officer who found the Secretary's action justified under § 8c(16) of the Act which authorizes the Secretary to suspend a pricing provision without notice and hearing whenever it tends to no longer effectuate the policy of the Act.⁵

The fact that notice and hearing did not precede the March 1 suspension action is not in dispute. The only issue for this Court's determination is whether the suspension action was legal under the powers granted the Secretary by § 8c(16). For reasons set forth below, the Court finds that the Secretary's March 1 action cancelling scheduled price declines was not authorized by the statutory grant of § 8c(16) but instead constituted an illegal amendment under § 8c(18).

The record indicates that the March 1 action did not actually withdraw from operation entire Class I orders but rather eliminated from them words and phrases which referred to scheduled price reductions.⁶

Plaintiffs have characterized this transformation as an amendment because it established new prices for future periods which differed from those set forth in existing milk orders. Defendant argues that instead of adjusting prices by way of amendment, his action was a suspension of a scheduled price adjustment and thus sanctioned under § 8c(16). In essence, defendant urges a differentiation between a suspension of a price "adjustment", controlled by § 8c(16), and an "adjustment" by way of an amendment, governed by § 8c(18).

I

The language of § 8c(18) requires the Secretary to give notice and opportunity for hearing prior to making amendments or adjustments to price orders.⁷ The word "amendment" has been variously defined as a modification, alteration or reformation⁸ while "adjustment" has been accorded the meaning of a correction or modification.⁹

It is clear from even the most cursory review of the Secretary's suspension action, that by purportedly suspending scheduled price reductions, he altered the basic content of each Class I order by substituting one future price for another. To call this act a suspension within the scope of § 8c(16) not only requires sacrificing substance to form but also necessitates ignoring the overall amendatory effect of the action.¹⁰

In a purely technical sense, it can be said that the words relating to spring price declines were indeed suspended. But the inquiry should not be whether a particular operative provision of an order has been temporarily removed but whether that removal has the effect of producing a new order materially different from the old. The consequences of applying the former test would severely undermine the procedural safeguards required for amendatory actions by § 8c(18) and in fact make their availability superfluous.

Had the Secretary suspended the Class I order entirely and let free market conditions dictate price, his action would have been sanctioned by § 8c(16). There is nothing in the Act nor its legislative history to indicate that termination or suspension of regulatory controls requires notice and hearing. Instead, defendant adjusted the Class I orders by replacing scheduled spring prices with higher winter ones. The clear effect of this action was to adjust the Class I orders without benefit of notice and hearing.

It is a cardinal principle of statutory construction that an interpretation of a statutory provision which tends to emasculate its purpose and effect is not favored. Meaning and significance should be given to all the provisions of a statute. United States v. Menasche, 348 U.S. 528, 538, 75 S.Ct. 513, 99 L.Ed. 615 (1954). Consequently, defendant's broad interpretation of § 8c(16) must fall in favor of preserving the statutory integrity of § 8c(18).

II

Review of the legislative history of the 1937 Act reveals a concern on the part of Congress to avoid the procedural failings met by the National Industrial Recovery Act provisions¹¹ in Schechter Poultry Corp. v. United States, 295 U.S. 495, 55 S.Ct. 837, 79 L.Ed. 1570 (1935). The 1937 Act was an outgrowth of the Agricultural Adjustment Act of 1933.¹² That Act contained only limited procedural protections and standards, and did not authorize the Secretary to fix the price for milk. Following the decisions in Schechter, and in Panama Refining Co. v. Ryan, 293 U.S. 388, 55 S.Ct. 241, 79 L.Ed. 446 (1935), Congress amended the Act in 1935¹³ to include an outline of the terms and conditions to be included in Federal Milk Marketing orders as well as notice and hearing requirements for adopting and amending an order.¹⁴ Also contained in the 1935 amendments was section 8c(16). The Act was again amended in 1937 at which time section 8c(18) was incorporated.

The legislative history of the Act sheds little light on the extent of the Secretary's authority under § 8c(16) and (18). No mention of § 8c(16) was made in the floor debates and the committee reports merely summarize the language of the sections.¹⁵ Case law pertaining to the 1937 Act has been equally devoid of analysis regarding the scope of the Secretary's power to suspend without notice and hearing. Nevertheless, cases interpreting other provisions of the 1937 Act are instructive in measuring the general degree of authority accorded the Secretary under the Act.

In upholding the pricing provisions of the 1937 Act in United States v. Rock Royal Co-operative, Inc., 307 U.S. 533, 59 S.Ct. 993, 83 L.Ed. 1446 (1939), the Supreme Court reviewed the procedural safeguards contained in the 1937 Act, including § 8c(18), and observed:

"Even though procedural safeguards cannot validate an unconstitutional delegation, they do furnish protection against an arbitrary use of properly delegated authority." Id. at 576, 59 S.Ct. at 1014.

More recently, the Supreme Court in passing on the validity of farm location differentials under the 1937 Act, had occasion to note in Zuber v. Allen, 396 U. S. 168, 90 S.Ct. 314, 24 L.Ed.2d 345 (1969), that:

"In an Act whose very purpose was to avoid the infirmity of overbroad delegation and to set forth with particularity the details for a comprehensive regulatory scheme, . . . . (i)t is clear that Congress was not conferring untrammeled discretion on the Secretary and authorizing him to proceed in a vacuum." Id. at 185, 90 S.Ct. at 324.

In this circuit, the United States Court of Appeals, in reviewing certain location differential provisions under the 1937 Act, stated in Fairmont Foods Co. v. Hardin, 143 U.S.App.D.C. 40, 442 F.2d 762 (1971):

". . . it is important to keep in mind the limited scope of authority that Congress delegated to the Secretary in the field of milk marketing regulations. This is not a case where the power of an agency or officer is bounded only by the broad Congressional mandate that it be exercised in the `public interest.' As emphasized by recent court decisions, the text and legislative history of this statute make it plain that the Secretary was required to operate within the narrow confines of powers expressly granted." (Footnotes omitted.) Id. at 766.

While none of these cases focuses upon the scope of the Secretary's authority under § 8c(16), each makes clear that the Secretary's general authority to set prices must be carefully circumscribed by the precise procedural requirements of the statute in order to maintain constitutional integrity. The de facto amendatory power read into § 8c(16) by defendant is clearly in contravention of this construction as well as being an erroneous interpretation of legislative motives behind the 1935 amendments.¹⁶

III

The Judicial Officer found in his Final Decision that the "present suspension of provisions affecting class prices was preceded by 257 similar suspension actions, the earliest occurring in 1942 (see 7 F.R. 9385 and 7 F.R. 10905)."¹⁷ On the basis of this finding and on the basis of Norwegian Nitrogen Co. v. United States, 288 U.S. 294, 315, 53 S.Ct. 350, 77 L.Ed. 796 (1933), the Judicial Officer concluded that the Secretary's suspension action was...