Fitchett Bros., Inc. v. Freeman

• Decision Date: 03 May 1965
• Parties: FITCHETT BROS., INC., Plaintiff, v. Orville FREEMAN, Secretary of Agriculture of the United States, Defendant.
• Court: U.S. District Court — Southern District of New York

241 F. Supp. 181

FITCHETT BROS., INC., Plaintiff, v. Orville FREEMAN, Secretary of Agriculture of the United States, Defendant.

United States District Court S. D. New York.

May 3, 1965.

Harry Polikoff, New York City, for plaintiff.

Robert M. Morgenthau, U. S. Atty. for Southern Dist. of New York, for the United States.

Patricia A. Garfinkel, Asst. U. S. Atty., Harland F. Leathers, Irwin Goldbloom, Attys., U. S. Dept. of Justice, Joseph A. Walsh, Atty. U. S. Dept. of Agriculture, of counsel.

FREDERICK van PELT BRYAN, District Judge.

This is a statutory action pursuant to Sec. 8c(15) (B) of the Agricultural Marketing Agreement Act of 1937 as amended (the Act), 7 U.S.C. § 608c(15) (B), to review a decision and order of the judicial officer of the Department of Agriculture acting for the Secretary of Agriculture. The decision and order under review involve the interpretation and application of a compensatory payment provision, ¶ (b) (1) of § 927.83 of Milk Market Order No. 27,¹ promulgated by the Secretary under the Act (7 U.S.C. § 601 et seq.), which regulates the handling of milk in the New York-New Jersey marketing area.

In Crowley's Milk Co. v. Brannan, 198 F.2d 861, 862 (2 Cir. 1952), Judge Clark said "It is now no secret that governmental regulation of the distribution of milk is complex and mystifying." The subject has not grown any less so since that time.

The general scheme of federal milk regulation, compensatory payment provisions thereunder and their purpose and effect, is described in detail in Lehigh Valley Co-op Farmers, Inc. v. United States, 370 U.S. 76, 78-91, 82 S.Ct. 1168, 8 L.Ed.2d 345 (1962). See generally United States v. Rock Royal Co-op, Inc., 307 U.S. 533, 59 S.Ct. 993, 83 L.Ed. 1446 (1939); Kass v. Brannan, 196 F.2d 791 (2 Cir.), cert. den. 344 U S. 891, 73 S.Ct. 210, 97 L.Ed. 689 (1952). The specific problem in the case at bar will be discussed against that background.

The Lehigh case held that paragraphs (b) (2), (b) (3) and (b) (4) of § 927.83 of Marketing Order No. 27, the order involved here, were invalid as inconsistent with the policy expressed by Congress in § 8c(5) (G) of the Act under which Order 27 was issued by the Secretary. The case at bar involves paragraph (b) (1) of § 927.83 of the Order which was not passed upon in the Lehigh case. The issue here is different from that in Lehigh and involves the application rather than the validity of paragraph (b) (1).

Plaintiff Fitchett is a milk distributor with a processing plant at Poughkeepsie, New York, in the New York-New Jersey marketing area covered by Marketing Order No. 27. Fitchett purchased quantities of milk from suppliers in the Connecticut milk marketing area who were not covered by Order No. 27 but by the Connecticut Marketing Order No. 119.²

The present controversy concerns the amount which the market administrator determined was owing by Fitchett to the so-called Producer Settlement Fund because of these purchases from Connecticut sources. The Producer Settlement Fund is one of the mechanisms by which the price of milk in the New York-New Jersey marketing area is regulated.

Specifically, Fitchett's complaint is that a "direct delivery differential" of $.10 per cwt. was included by the administrator in calculating the value of the Connecticut milk purchased, which calculation in turn was used in arriving at the amount owing by Fitchett to the Producer Settlement Fund. The inclusion of the $.10 per cwt. differential increased the amount owing by Fitchett to the Settlement Fund to that extent. The administrator proceeded on the theory that the inclusion of the direct delivery differential was authorized by paragraph (b) (1) of § 927.83 of Order 27. Fitchett contends that such inclusion was not so authorized and was improper.

Fitchett filed a petition with the Secretary challenging this action of the administrator. Hearings on the petition were held before a hearing examiner who made findings and conclusions and recommended dismissal of the petition. Exceptions to the hearing examiner's report were filed with the judicial officer of the Department who denied the relief requested and dismissed the petition. This action for review followed.

Both parties have moved for judgment under Rule 12(c), F.R.Civ.P., on the pleadings and on the certified record. There are no issues of fact and the case can be decided on the pleadings and the record of the proceedings under review.

The mechanisms of price regulation under Marketing Order 27.

Before proceeding to a discussion of the specific problem presented a brief description of the price regulatory scheme provided in Order 27 is necessary.

Speaking in broad terms, the primary purpose of the scheme of regulation in Order 27 is to enable dairy farmers to receive a minimal price for their milk. To accomplish this the order employs two different categories of price calculation. One is a "class price" based on the value of the milk to the wholesaler or processor in terms of the end use to which it is put. The other is a "uniform price" to be paid directly to most dairy farmers for milk delivered to processors or wholesalers.

Under § 927.7 of the Order Fitchett is a milk processor who is denominated as a "handler". Fitchett's plant is classified as a "pool plant" under § 927.9. Fitchett, as a handler operating a pool plant is subject to the regulatory provisions of Order 27.

Handlers purchase milk either from "producers", as defined in Order No. 27, or from other suppliers who are not so defined. Under § 927.6 producers include dairy farmers within the New York marketing area whose milk is delivered direct from farm to a handler's pool plant. In general all milk delivered by producers to a pool plant is considered as "pool milk," —that is to say, part of the pool of milk regulated by Order 27.

1. Class or minimum price: Under §§ 927.30 through 927.37 of Order No. 27 milk acquired by a handler from a producer is classified according to its ultimate use. There are three general classes of utilization. For example, milk of specified butterfat content used for fluid consumption is in Class I while milk used for various manufactured food products is in Class III. Each classification of milk is assigned monthly a "minimum" or "class" price computed according to complex formulae set out in § 927.40. Among other things, the formulae reflect a variety of economic factors and take into account the volume of milk received from producers which falls into the various use classifications. Also included in the calculations are so-called butterfat differentials, transportation differentials reflecting hauling costs of milk to centers of consumption, and other specified differentials.

The class prices so arrived at are used (a) in calculating the uniform price to be paid by handlers to producers, and (b) to determine the obligations of handlers to a so-called Producers Settlement Fund designed to offset differences between the value to handlers of milk in terms of its ultimate use and the uniform price at which it must be purchased.

2. "Uniform price": The uniform price required to be paid by a handler to a producer for milk received at the handler's plant, regardless of classification, is determined under another complex formula set forth in § 927.66. The uniform price is different from the "class" price under § 927.40.

The uniform price formula takes into account, among other things, the class price and the volume of milk in each classification received by pool plants in the marketing area during the appropriate monthly periods.

In essence, the value of all milk received by pool plants from producers is computed by multiplying the total quantity of milk in each classification by its class price. To this total is added the total of compensatory payments required to be made by handlers for milk purchased from suppliers not denominated as producers under the order which is considered to be outside the pool. Such suppliers include dairy farmers not within the New York-New Jersey marketing area, such as the Connecticut dairy farmers from whom Fitchett purchased the milk involved here. The total of these two figures is then divided by the total quantity of milk received by pool plants from producers during the period involved. In this manner the "uniform price" per cwt. for the period is arrived at.

There are adjustments in the "uniform price" to be paid to various producers arising mainly from so-called "location differentials" (§ 927.71) having to do with the distance between the producer's farm and the relevant consumer market. Thus, the minimum amount which a handler is required to pay to a particular producer for his milk is the "uniform price" plus adjustments for differentials.

3. Producer Settlement Fund: Sections 927.75 to 927.84 of Order 27 establish a "Producer Settlement Fund" and provide for its operation. Through this fund adjustments are made as between handlers to compensate for differences between the utilization value of milk which a handler acquires from a producer and the uniform price which the handler is required to pay the producer.

Some handlers use the milk which they acquire largely for Class I utilization purposes, e. g., for fluid consumption, while others use a larger proportion of their milk receipts in lower utilization categories, e. g., for manufactured milk products. This results in a plus or minus variance between the utilization value to the handler of milk which he has purchased and the uniform price paid to the producer. Thus, for handlers who dispose of milk mainly for lower use classifications the uniform price paid to producers is higher than the value to them of the milk which they dispose of. On the other hand, for handlers who dispose of milk for highest use classification, i. e., fluid consumption, the uniform price paid therefor is lower than the value to them of the milk disposed of.

The primary purpose of the Producer...