Elm Spring Farm v. United States

• Decision Date: 08 May 1942
• Docket Number: No. 3726.,3726.
• Citation: 127 F.2d 920
• Parties: ELM SPRING FARM, Inc., et al. v. UNITED STATES.
• Court: U.S. Court of Appeals — First Circuit

127 F.2d 920 (1942)

ELM SPRING FARM, Inc., et al. v. UNITED STATES.

No. 3726.

Circuit Court of Appeals, First Circuit.

May 8, 1942.

Melville F. Weston, of Boston, Mass., for Elm Spring Farm Cooperative, appellant.

Warren Patten, of Boston, Mass. (Richardson, Wolcott, Patten & Bennett, of Boston, Mass., on the brief), for Elm Spring Farm, Inc., and Etta S. Giles, appellants.

Joseph P. Rooney, Asst. U. S. Atty., of Boston, Mass. (Edmund J. Brandon, U. S. Atty., of Boston, Mass., and John M. Durbin, Sr. Atty., Dept. of Agriculture, of Washington, D. C., on the brief), for appellee.

Before MAGRUDER, MAHONEY, and WOODBURY, Circuit Judges.

MAGRUDER, Circuit Judge.

The present case began as a civil complaint in the court below, filed by the United States, on request of the Secretary of Agriculture, under § 8a(6) of the Agricultural Adjustment Act, 48 Stat. 31, as amended by 48 Stat. 670, 675, and further amended by 49 Stat. 750, and as reenacted and amended by the Agricultural Marketing Agreement Act of 1937, 50 Stat. 246, 7 U.S.C.A. § 608a(6), hereinafter referred to as the Act. Named as defendants were Elm Spring Farm, Inc., Elm Spring Farm Cooperative, hereinafter referred to as the "Cooperative," Etta S. Giles, Howard L. Chisholm, Harry C. Fallis and Francis Cummings. The complaint sought to enforce compliance with Order No. 4, as amended, issued by the Secretary of Agriculture under authority of the Act.

Reference is made to our opinion in Green Valley Creamery, Inc. v. United States, 1 Cir., 1939, 108 F.2d 342, 344, 345, for quotation of pertinent portions of the Act. In that opinion (pages 343, 344 of 108 F.2d), and in H. P. Hood & Sons, Inc. v. United States, 1939, 307 U.S. 588, 59 S.Ct. 1019, 83 L.Ed. 1478, the terms of Order No. 4 as amended are summarized, and a description is given of the producer settlement account or equalization pool by means of which each producer of milk receives a so-called "blended price," computed by the market administrator as directed in the Order, regardless of the use to which the particular milk may have been devoted.

Separate motions to dismiss were made by each defendant, with the exception of the Cooperative. In an interlocutory order for preliminary injunction, dated April 1, 1941, the district court allowed the motions to dismiss filed by Chisholm, Fallis and Cummings. The motions to dismiss filed by Elm Spring Farm, Inc., and Giles were denied, the court in an accompanying memorandum stating that "The bill should be retained against these defendants in order to give full effect to the injunction which is to be issued." Answers were filed by the Cooperative, Elm Spring Farm, Inc., and Giles.

Upon application for a preliminary injunction the case was heard on the pleadings and affidavits, on a stipulation as to certain facts and on oral evidence offered by the plaintiff, together with exhibits submitted by the parties.

The district court made certain findings of fact and rulings of law, and on the basis thereof issued its preliminary injunction on April 1, 1941. Thereafter the parties agreed by stipulation to submit the case to the court for final determination upon the pleadings and upon the evidence theretofore taken and upon the motions to dismiss, without waiver of any of the rights hitherto saved by the respective parties. On May 19, 1941, the court entered its final decree in the plaintiff's favor and on June 12, 1941, entered its amended final decree. The defendants have taken an appeal from the foregoing final decree and amended final decree.

From the record, the following facts appear:

Prior to August 1, 1937, the defendant Etta S. Giles was the sole stockholder of Elm Spring Farm Company, a Massachusetts corporation, which was engaged in the business of receiving, buying, processing, selling and distributing milk in the Greater Boston Marketing Area. Giles was president and Chisholm acted as treasurer and manager. The directors were Giles, Chisholm and Julia M. Cummings, wife of the defendant Francis Cummings. The latter, though having no connection with the company, was consulted from time to time in an advisory capacity. On August 1, 1937, Order No. 4, as amended, became effective. Thereafter a complaint was filed in the court below by the United States seeking to compel the Elm Spring Farm Company to comply with the Order. A decree went against the Company in the district court. In lieu of an appeal a stipulation was filed in which it was agreed that the defendant would be bound by the determination of a similar case, United States v. Wm. T. Jones Co., then on appeal to this court. In the Jones case we affirmed a decree requiring the defendant to comply with Order No. 4, as amended. Green Valley Creamery v. United States, 1 Cir., 108 F.2d 342. On December 27, 1940 (the date on which the complaint in the case at bar was filed), a contempt petition was pending in the district court against Elm Spring Farm Company, Giles and Chisholm for alleged violations of the court's decree.

On March 16, 1940, Giles as president of Elm Spring Farm Company was authorized to execute and deliver an option to the defendant Cummings for the purchase by him of all the assets of the company at a price of $30,000. This option was never exercised.

On May 1, 1940, Elm Spring Farm, Inc., a Massachusetts corporation, was formed. Giles became its president, Chisholm its treasurer and manager, and the board of directors consisted of Giles, Chisholm and Cummings. Chisholm subscribed to 50 shares, or half the capital stock, of Elm Spring Farm, Inc., and in payment therefor gave to the latter corporation his note in the sum of $15,000, secured by a pledge of the said shares of stock. At the same time Elm Spring Farm, Inc., purchased all of the assets of Elm Spring Farm Company and paid therefor by issuance to the Company of the remaining 50 shares of its common stock and by assignment to the Company of Chisholm's note for $15,000 secured as aforesaid. Elm Spring Farm, Inc., also assumed all the liabilities of Elm Spring Farm Company. The stock and note so received by the company in payment for its assets were distributed to its sole stockholder, Giles. Giles thus became the owner of 50% of the stock in Elm Spring Farm, Inc. and held a lien on the other 50% to secure payment of Chisholm's note.

Elm Spring Farm, Inc., continued to operate the milk business as the successor to Elm Spring Farm Company until June 15, 1940. As the latter had done, Elm Spring Farm, Inc., purchased milk from certain producers in New Hampshire and from other handlers. It processed this milk at Lyme, New Hampshire, and at Waltham, Massachusetts, and disposed of it in the Greater Boston Marketing Area.

Meanwhile Cummings, Chisholm, Giles and David Greer, Esq. (counsel for Elm Spring Farm Company and Elm Spring Farm, Inc.) had been exploring the possibility of incorporating a cooperative to engage in the production and distribution of milk. Cummings visited the various dairymen in and around Lyme, New Hampshire, who had been selling their milk to the Company and to Elm Spring Farm, Inc., and found them receptive to the scheme. Accordingly, on May 31, 1940, the defendant Elm Spring Farm Cooperative was organized as a cooperative corporation under the provisions of Chapter 157, § 3, of the General Laws of Massachusetts (Ter.Ed.). Giles, Chisholm, Cummings, Fallis and Greer became the directors of the Cooperative. Fallis became the president, Giles comptroller, and Chisholm treasurer. The compensation of Giles and Chisholm as comptroller and treasurer, respectively, was to be fixed by Fallis in his capacity as president. Fallis was president of the Somerville Trust Company, at which bank Elm Spring Farm, Inc., deposited some of its funds. The salaries of Giles and Chisholm were fixed at $75 a week. Giles' services seem to have been more or less nominal and of an advisory character. Later, Richard K. Prescott, a farmer member of the Cooperative, became president.

The Cooperative set up in business on June 16, 1940, under a complicated network of contracts and agreements.

By an agreement between the Cooperative and Elm Spring Farm, Inc., the Cooperative became sublessee of the premises in Waltham theretofore occupied by Elm Spring Farm, Inc., agreeing to pay as rent an amount equal to the rental the latter was obligated to pay as lessee. By the same agreement Elm Spring Farm, Inc., leased to the Cooperative all its facilities for receiving, buying, processing, selling, and distributing milk, together with its route lists and trade information, for an annual rental which by subsequent amendment of the agreement was fixed at $7,800 per annum. Cooperative agreed to maintain the operating and delivery equipment in the same condition in which it was at the inception of the agreement and from time to time to replace any such equipment as might become worn out or obsolete. Upon termination of the agreement for whatever cause and at whatever time, the Cooperative was to return to the lessor the said operating and delivery equipment or in lieu thereof to replace it with equipment of the same character and value. For five years after the termination of the agreement the Cooperative covenanted not to solicit the business of any person who had theretofore been a customer of Elm Spring Farm, Inc., or who had, during the continuance of the agreement, become a customer of the Cooperative. Further, the Cooperative agreed for a period of five years after such termination not to engage in the milk business at any place within 25 miles of the Waltham premises or within 25 miles of the receiving station at Lyme, New Hampshire. The agreement was to run from year to year "provided, however, that either party hereto may by a calendar month notice, given on or before the first day of any calendar month to be effective on the last day of such calendar month, terminate this agreement."

Various agreements were made between...