Flour Mills of America v. Reconstruction Fin. Corp., 512.

• Decision Date: 06 February 1950
• Docket Number: No. 512.,512.
• Citation: 179 F.2d 965
• Parties: FLOUR MILLS OF AMERICA, Inc. v. RECONSTRUCTION FINANCE CORPORATION et al.
• Court: U.S. Temporary Emergency Court of Appeals Court of Appeals

179 F.2d 965 (1950)

FLOUR MILLS OF AMERICA, Inc. v. RECONSTRUCTION FINANCE CORPORATION et al.

No. 512.

United States Emergency Court of Appeals.

Heard September 26, 1949.

Decided February 6, 1950.

Temple W. Seay, Washington, D. C., with whom Phil D. Morelock, Washington, D. C. and Joseph A. Hoskins, Kansas City, Mo., were on the brief, for complainant.

E. Leo Backus, Attorney, Department of Justice, Washington, D. C., with whom Joseph M. Friedman, Special Assistant to the Attorney General, was on the brief, for respondents.

Before MARIS, Chief Judge, and MAGRUDER and McALLISTER, Judges.

Heard at Washington September 26, 1949.

MAGRUDER, Judge.

This case has to do with a claim of Flour Mills of America, Inc., to certain additional subsidy payments under Regulation 4 — Flour Production Payments, issued by Defense Supplies Corporation November 29, 1943, effective the next day. (9 F. R. 1822) The subsidy regulation was issued under authority of § 2(e) of the Emergency Price Control Act of 1942, 56 Stat. 26, 50 U.S. C.A.Appendix, § 902(e), and the program was administered by DSC until July 1, 1945, when that corporation was dissolved and its functions and liabilities transferred to respondent Reconstruction Finance Corporation. 59 Stat. 310.

Under Regulation 4, the subsidy was payable to each miller monthly in respect of the flour ground by him in all of his mills during the month, an application for the subsidy being required to be filed during the next succeeding calendar month. (§§ 7004.2 and 7004.3) Section 7004.3(c) provided: "One and only one application can be filed on account of wheat ground during a month by an applicant in all of his mills." Section 7004.5 provided that there "shall be separate rates on hard wheat, on soft wheat and on durum wheat ground into flour by mills outside the Pacific Coast area." The section also provided that the rates of subsidy and the periods during which such rates would be effective would be determined and announced by the respondent from time to time, and that except as otherwise provided, "the rates of payment on account of wheat ground during a month shall be the rates in effect during the month in which the wheat was ground." This general formula was subject to a specific exception in the case of applicants for subsidies who had unfilled orders for flour on their books at the beginning of the month. As explained by respondent in its denial of the protest: "It was the basic principle of the flour subsidy that it should be paid on the grind only at rates in effect when the flour was sold. It was the general practice of the industry to buy wheat as a hedge when the flour was sold, and the subsidy was to cover the milling operations and not the speculative operations of millers. The forward sales practice of the industry necessitated the calculation of subsidy payments on flour ground at rates determined by the subsidies in effect at the time the forward sales were booked." Accordingly, paragraph (2) of subsection (c) of § 7004.5 read as follows: "(2) On wheat ground to produce flour previously sold. If the applicant has registered forward sales of flour in accordance with § 7004.7 of this regulation, and has forward sales of flour booked at the beginning of the month, the rate of payment on account of wheat ground during that month up to the amount of such forward sales of flour shall be the rate or rates in effect at the time the flour produced from such wheat was sold. In determining which sale of flour is applicable to wheat ground, Defense Supplies Corporation will apply the first-in-first-out principle and not follow individual transactions, either as to dates of delivery or types of wheat necessary to produce the flour."

In § 7004.6(d) it was provided: "No payment will be made on the wheat ground into flour on and after December 1, 1943, and prior to the date of termination of this regulation, to produce the amount of the net forward sales of flour, made by the applicant and unfilled at the close of business on November 30, 1943, and registered with Defense Supplies Corporation in accordance with § 7004.7 below."¹

Every applicant was required by § 7004.7 to register with DSC before filing his first application for payment, and further it was provided that registration "shall be by each applicant, not by each mill, and shall include a report of total net forward sales of flour unfilled at the close of business on November 30, 1943".

During the period in question, complainant was engaged in the flour milling business at Kansas City, Missouri, and as such was eligible for flour subsidy payments under the regulation. When the regulation was issued complainant, pursuant to § 7004.7, registered with DSC as an applicant for subsidies, and reported its net forward sales of flour unfilled at the close of business on November 30, 1943, in a total of 1,218,320 cwt. of flour, composed of 931,683 cwt. of hard wheat flour and 286,637 cwt. of soft wheat flour.

Applications were duly filed for subsidy payments for each monthly grind for the periods December, 1943, to December, 1944, inclusive; and in payment thereof complainant received from DSC the aggregate sum of $2,165,448.91. Applying §§ 7004.5 (c) (2) and 7004.6(d), DSC computed the amounts of subsidy payments due by eliminating from consideration for subsidy purposes, on a first-in-first-out basis, an amount of wheat ground by complainant after November 30, 1943, equivalent to its net forward sales of flour unfilled as of that date; that is, complainant's first grind of wheat after November 30, 1943, was applied to its net forward sales, and not considered for subsidy purposes. In this connection, no distinction was made between the types of wheat ground after November 30, 1943, but the aggregate of the grind after that date, whether of soft or hard wheat, was applied against the total of the unfilled net forward sales as of November 30, 1943, regardless of type. Similarly, in auditing complainant's claims for the succeeding months, DSC made no distinction between the types of wheat ground as applied, on a first-in-first-out basis, to the net forward sales on the books at the beginning of the accounting period. This was the procedure followed, although from the outset of the subsidy program up to October 10, 1944, the rates of subsidy for grinding hard wheat into flour, as announced from time to time, were higher than rates of subsidy for grinding soft wheat.

On March 8, 1945, complainant filed with DSC corrected amended claims for payment of an additional subsidy of $49,362.31 for the period December 1, 1943, to December 31, 1944, inclusive. Complainant's basic objection was that it had been required to file its subsidy claims as a multiple unit for all of its mills, lumping both hard and soft wheat together, instead of as separate units, including its hard wheat mills in one unit and its soft wheat mills in another; that if the latter procedure had been prescribed, the correct application of complainant's monthly grind to forward sales by types of wheat would have been possible, as in the case of millers grinding only one type of wheat, that is, either soft or hard. In its letter accompanying the amended claims complainant stated: "May we point out that had the types of flour sold, and the types of wheat ground out been reported separately and the subsidy so computed for claim purposes as they are reported in these amended claims, we would have been reimbursed for the full amount claimed herein. The soft wheat mill operates exclusively on soft wheat and likewise the hard wheat mill or mills operate exclusively on hard wheat."

Complainant's amended claim was rejected by respondent, and eventually, on April 1, 1949, complainant filed its formal protest against the regulation, and the order or determination of respondent thereunder denying complainant's amended claim for an additional subsidy of $49,362.31.

The protest asserted that the regulation, as applied by respondent, was "inequitable and discriminatory as between subsidy claimants who are exclusively millers of hard wheat and the company which operates several mills or units at which both hard and soft wheat are ground", and that this discrimination arose by reason of respondent's requirement that the claimant must file its subsidy claims as a multiple unit for all of its mills, incorporating both soft and hard wheat...