Corn Prod. Co. v. DEPARTMENT OF H., E. & W., FOOD & D. ADMIN.

• Decision Date: 14 May 1970
• Docket Number: 17689.,No. 17526,17526
• Citation: 427 F.2d 511
• Parties: CORN PRODUCTS COMPANY, Petitioner, v. DEPARTMENT OF HEALTH, EDUCATION AND WELFARE, FOOD AND DRUG ADMINISTRATION, Respondent. DERBY FOODS, INC., Petitioner, v. FOOD & DRUG ADMINISTRATION, U. S. Department of H.E.W., Respondent.
• Court: U.S. Court of Appeals — Third Circuit

427 F.2d 511 (1970)

CORN PRODUCTS COMPANY, Petitioner, v. DEPARTMENT OF HEALTH, EDUCATION AND WELFARE, FOOD AND DRUG ADMINISTRATION, Respondent.

DERBY FOODS, INC., Petitioner, v. FOOD & DRUG ADMINISTRATION, U. S. Department of H.E.W., Respondent.

Nos. 17526, 17689.

United States Court of Appeals, Third Circuit.

Argued September 29, 1969.

Decided May 14, 1970.

Rehearings Denied June 22, 1970.

William F. Cody, New York City (James M. Orman, Philadelphia, Pa., Vincent A. Kleinfeld, Stanley J. Krieger, Washington, D. C., Arthur C. O'Meara, Harvey L. Hensel, Chicago, Ill., Earl G. Spiker, Washington, D. C., on the brief), for Derby Foods, Inc.

Alan H. Kaplan, Kleinfeld & Kaplan, Washington, D. C. (Warren S. Adams, 2nd, New York City, Richard P. Brown, Jr., Morgan, Lewis & Bockius, Philadelphia, Pa., on the brief), for Corn Products Co.

William W. Goodrich, Asst. Gen. Counsel, Food, Drug & Environmental Health Division, Washington, D. C. (Will Wilson, Asst. Atty. Gen., Criminal Division, Harold P. Shapiro, Chief, Administrative Regulations Section, Dept. of Justice, Eugene M. Pfeifer, Atty., Department of Health, Education & Welfare, Washington, D. C., on the brief), for respondents.

Before STALEY, SEITZ and STAHL,^* Circuit Judges.

OPINION OF THE COURT

STALEY, Circuit Judge.

Corn Products Company and Derby Foods, Inc.,¹ petition for review of an order of the Food and Drug Administration, Department of Health, Education and Welfare, which establishes a definition and standard of identity for the food product known as peanut butter.² They seek this review because their products, as they were formulated at the time of the order, fail to conform to the standard.³

The order was promulgated under Section 401 of the Federal Food, Drug, and Cosmetic Act, 21 U.S.C. § 341.⁴ Basically, it limits the percentage by weight of optional ingredients which may be added to the peanut ingredient to a maximum of ten per cent. It allows for the addition or removal of peanut oil and limits the fat content to 55 per cent. The standard also identifies allowable additives and specifies certain labelling requirements.⁵

As originally constituted, peanut butter was composed of ground peanuts, salt, and sometimes sugar. However, this product had the disadvantages of oil separation, stickiness, short shelf-life, etc. These deficiencies have been diminished, if not eliminated, by the addition of stabilizing ingredients, hydrogenated vegetable oils. Today, peanut butter consists of the peanut ingredient, which has a solid component and an oil component, the stabilizer, and seasonings.

Petitioners are the major producers of peanut butter. Each has enjoyed a high degree of success. In 1965 Corn Products, the industry leader, claimed 22 per cent of the market for its brand, Skippy. Derby as the second leading producer had 14 per cent of the market from its product, Peter Pan.⁶ Their product formulations fail to qualify under the standard since each uses in excess of ten per cent of optional ingredients as these are defined by the standard, but each for a different reason.

Both petitioners were unsuccessful in urging the Food and Drug Administration to adopt a standard which would allow 13 per cent of optional ingredients, i. e., consist of 87 per cent peanuts. Corn Products urges here that the adoption of the 90 per cent standard was unreasonable and arbitrary and that the standard will not promote honesty and fair dealing in the interest of consumers. It also argues that the findings upon which the order is based are not supported by substantial evidence. Both petitioners contend that they were entitled to specific findings as to why their products were eliminated.⁷ Since this is an appeal from an order of an administrative agency, our first concern must be the extent of our authority to review the order.

The scope of review of the appellate court in considering such orders is defined by the Federal Food, Drug, and Cosmetic Act and the Administrative Procedure Act. Section 701(f) (3) of the Federal Food, Drug, and Cosmetic Act, 21 U.S.C. § 371(f) (3), provides:

"The findings of the Secretary as to facts, if supported by substantial evidence, shall be conclusive."

Section 10(e) of the Administrative Procedure Act, 5 U.S.C. § 706, provides:

"* * * The reviewing court shall * * * (2) hold unlawful and set aside agency action, findings, and conclusions found to be * * *

"(E) unsupported by substantial evidence * * *."

The Supreme Court has found the "substantial evidence" test to be the same under the Administrative Procedure Act as under the Taft Hartley Act. Universal Camera Corp. v. NLRB, 340 U.S. 474, 71 S.Ct. 456, 95 L.Ed. 456 (1951). This court has applied the teaching of Universal Camera to petitions for review of an order under the Federal Food, Drug, and Cosmetic Act, Cream Wipt Food Products Co. v. Federal Security Administrator, 187 F.2d 789 (C.A. 3, 1951); see also, Atlas Powder Co. v. Ewing, 201 F.2d 347 (C.A. 3, 1952), cert. denied, 345 U.S. 923, 73 S.Ct. 783, 97 L.Ed. 1355 (1953).

The Supreme Court has indicated that substantiality must be determined in the light of all that the record relevantly presents; that findings must be set aside when the record clearly precludes the agency's decision from being justified by a fair estimate of the worth of the testimony of witnesses or its informed judgment on matters within its special competence or both; and, that "reviewing courts must be influenced by a feeling that they are not to abdicate the conventional judicial function." Universal Camera Corp. v. NLRB, 340 U.S. at 490, 71 S.Ct. at 466.

The Commissioner has concluded that adoption of a standard will promote honesty and fair dealing in the interest of consumers. Support for this conclusion is found in the findings. There is a general lack of information among consumers about the actual composition of peanut butter. It was found that a trend toward a decrease in peanut content has not always been in the interest of consumers. Another finding demonstrates that other ingredients are cheaper and that in some cases the reduced peanut content has resulted from competitive pressure. It was further found that some consumers and state agencies recognize a need for regulation in this area. These findings are supported by sufficient rational probative evidence to afford a sound basis for the exercise of the Commissioner's judgment to promulgate a standard of identity. See Federal Security Administrator v. Quaker Oats Co., 318 U.S. 218, 63 S.Ct. 589, 87 L.Ed. 724 (1943).

In support of its argument that the adoption of the standard requiring 90 per cent peanuts is arbitrary and unreasonable, Corn Products cites its market success, market history, established trade practices, and urges that the purpose of the Act, to prevent confusion and deception among consumers, would be served by a standard which would allow its product to be sold as it is presently formulated. It is at once apparent that this argument is not aimed at debasing the findings and conclusions upon which the order is based, but is rather an argument in support of a standard which would not require Corn Products to change the composition of Skippy.

The court's function, however, is to review the findings to determine if there is substantial evidence to support them. Because the court must consider the evidence in keeping with the normal judicial function, Universal Camera Corp. v. NLRB, supra, the issue of reasonableness would not appear to be completely beyond judicial reach. However, due regard must be given to the integrity of the administrative function. Given a range of reasonable alternatives, the administrator is given the task of selecting the one which, in his judgment, is most appropriate. In such circumstances, the court must defer to his judgment. Federal Security Administrator v. Quaker Oats Co., supra.

Using an affirmative approach to the order under consideration, the issue becomes whether the findings upon which the 90 per cent standard is based are supported by substantial evidence. Corn Products' argument that the standard should have designated partially hydrogenated peanut oil as peanut ingredient must be directed at those findings which equate them.

Skippy fails to comply with the standard because it contains 8½ per cent of partially hydrogenated peanut oil and an amount of seasonings which together exceed the ten per cent limit on optional ingredients. No distinction is made in the standard between hyrogenated peanut oil and other hydrogenated vegetable oils.

Nine findings of fact deal directly with hydrogenated oils. These hydrogenated vegetable oils were found to resemble each other more than the oils from which they were derived, although many of the properties of the source oils are retained. Hydrogenation, a process by which unsaturated fats are changed to saturated fats through the addition of hydrogen, causes the physical properties, e. g., melting points, to differ from the source oils. The hydrogenated oils are said to be odorless. Four expert witnesses, all chemists, testified to the dissimilarity between vegetable oil and hydrogenated oil. There was testimony that there is no nutritional variation between these oils. The basic function of the hydrogenated oil, to prevent oil separation in the product, is said to be served regardless of the source oil. The use of hydrogenated peanut oil does not add flavor to the product. From the foregoing, it is quite clear that there is substantial evidence to support a conclusion which makes no distinction between hydrogenated vegetable oils. This conclusion rests upon expert testimony and it is well settled that such testimony is sufficient.⁸ Erickson v. Federal Trade Commission, 272 F.2d 318, 321 (C.A. 7, 1959), cert. denied, 362 U.S. 940, 80 S.Ct. 805, 4 L.Ed.2d 769 (1960). Also see Federal Security Administrator v. Quaker Oats Co., supra.

The Peter Pan formulation, by using 9.6 per cent...