Foremost-McKesson, Inc. v. Davis

• Decision Date: 21 December 1972
• Docket Number: FOREMOST-M,No. 57909,57909
• Citation: 488 S.W.2d 193
• Parties: cKESSON, INC., a corporation, et al., Appellants, v. Dexter D. DAVIS, Commissioner of Agriculture of Missouri, and John C. Danforth, Attorney General of Missouri, Respondents, and Bailey Farms, Inc., et al., Intervenors.
• Court: Missouri Supreme Court

Page 193

488 S.W.2d 193

FOREMOST-McKESSON, INC., a corporation, et al., Appellants, v. Dexter D. DAVIS, Commissioner of Agriculture of Missouri, and John C. Danforth, Attorney General of

Missouri, Respondents,

and

Bailey Farms, Inc., et al., Intervenors.

No. 57909.

Supreme Court of Missouri, En Banc.

Dec. 21, 1972.

Cullen Coil, Carson, Inglish, Monaco & Coil, Jefferson City, and Dick H. Woods, Lawrence M. Berkowitz, Stinson, Mag, Thomson, McEvers & Fizzell, Kansas City, for Foremost-McKesson, Inc. and Hawthorn-Mellody, Inc.

John J. Kitchin, Swanson, Midgley, Jones, Eager, Gangwere & Thurlo, Kansas City, for Fairmont Foods Co.

Martin J. Purcell, Morrison, Hecker, Cozad, Morrison & Curtis, Kansas City, for Kraftco Corp.

John C. Danforth, Atty. Gen., Richard L. Wieler, Asst. Atty. Gen., Jefferson City, for defendants-respondents.

Veryl L. Riddle, Thomas C. Walsh, St. Louis, for intervenors-respondents.

Bryan, Cave, McPheeters & McRoberts, St. Louis, of counsel, for respondents.

SEILER, Justice.

This is a declaratory judgment and injunctive relief action brought by four milk processors and distributors. The circuit court denied relief, and plaintiffs appeal, maintaining that certain of the rules and regulations promulgated by the commissioner of agriculture under the Unfair Milk Practices Act, Sec. 416.410--416.560, ¹ are unlawful and void and plaintiffs are entitled to a permanent injunction against their enforcement. Appellants further contend that the act and the rules and regulations are unconstitutional as special legislation contrary to Art. III, Sec. 40(30), Mo.Const.1945, V.A.M.S Appellants base jurisdiction on the constitutional construction portion of Art. V, Sec. 3, Mo.Const.1945. Respondents deny there are any substantial constitutional questions presented, but maintain we have jurisdiction under rule 83.06, V.A.M.R., because of the importance of the case and the desirability of a swift adjudication.

The trial court, after an evidentiary hearing, made extensive findings of fact and conclusions of law and found, contrary to appellants' theory, that the rules are a proper utilization of the authority granted the commissioner to implement the legislative purpose. We affirm.

The rules challenged in this suit were scheduled to go into effect June 22, 1970, but their enforcement has been delayed pending the outcome of the litigation. Originally it appeared the appeal would involve constitutional construction, but after study of the record and briefs, we conclude, as stated later herein, that the constitutional questions were settled by this court in an earlier case, yet we have determined, by reason of the general interest and importance of the other questions in the case and need for adjudication at this level, that we will retain and decide the case, rather than go through the time-consuming procedure of sending the case to the Court of Appeals and then transferring it back prior to opinion.

A summary of the challenged rules follows:

Rules 1.02, 1.08, and 1.09 are definitional rules, respectively, of 'distributor', 'discount', and 'dock cost for fluid milk'.

Rule 2.04 prohibits price differentials between private label and regular brand label milk of like grade and quality except when such differences are cost-justified.

Rule 2.05 prohibits all discounts except a 2% or less discount for payment on or before a certain date, which discount must be available to all customers under identical terms and conditions.

Rule 2.06 requires the filing by processors and distributors of their current prices and requires them to file any changes in these prices within 48 hours after they become effective. Sales below currently filed prices are permitted only to make a good faith effort to meet competition or where cost-justified by a cost savings under rule 2.07. A lower competitive price may be met on the spot, but the commissioner must be given notification of the competitor offering the lower price, the name and address of the person receiving it, the dates on which it is granted, and the amount of the lower price in order that the commissioner can determine good faith and whether the act was violated by the competitor.

Rule 2.07 authorizes cost-justified differentials and requires notification to the commissioner of the differentials and provides for a hearing if the commissioner determines that they are not in fact cost justified.

Rule 2.08 prohibits sales below 'dock cost' as defined in rule 1.09 and such sales are prima facie evidence of a violation of Sec 416.415.

Rule 2.10 prohibits loans to retailers and the renting or leasing of equipment at less than the supplier's cost. Loans to retailers are prima facie violations of Sec. 416.440.

Rule 2.11 requires the keeping of cost records which must be made available to the commissioner. Any accepted cost accounting method may be used to compute cost.

Rule 2.12 provides for unit price information to be given to purchasers either on the delivery tickets or by weekly summaries.

Rule 4.01 authorizes the commissioner to make such investigations as he deems necessary to enforce the act.

Appellants' evidence consisted of testimony by representatives of the four corporations, an expert in agricultural economics, the final report of the Joint Committee on Milk Producers and Distributors January 1959, to the 70th General Assembly, and certain exhibits such as price lists. The company representatives testified to company business practices and operations, any cost studies which have been done, the factors to be considered in finding cost and establishing volume pricing and central billing differentials, and the trend toward private labelling. The expert witness went into greater detail on an industry wide scale. Respondents' evidence consisted of testimony by a department of agriculture inspector regarding the problems encountered in enforcing the act and the need for the rules and regulations. A certified public accountant also testified regarding billing practices, cost studies, and central billing. Respondents also introduced evidence the public hearing held October 28, 1968 by the commissioner on the proposed rules, and certain interrogatories answered by appellants. Where a more detailed account of the evidence is necessary it is included in the text of the opinion.

Appellants attempted to show by their evidence that the rules and regulations did not reasonably relate to the act, would be an undue burden on them by requiring information which they did not maintain, and were unclear, ambiguous, and not comprehensible. Respondents' evidence and the evidence they elicited in cross-examination tended to show that appellants knew what the rules meant, and required, that they had much of the basic information needed to comply with the rules and the rest could be obtained from their present cost studies and accounting procedures without excessive added expense or inconvenience, and that the rules reasonably related to the purposes of the act.

Appellants assert some 18 points of error, which in hope of keeping this opinion within manageable lengths, we have consolidated into eight grounds of attack to be discussed below.

The purposes and objectives of the act were fully and adequately explained in Borden Company v. Thomason (Mo.Sup.banc), 353 S.W.2d 735 and it is not necessary to reiterate them here. The act is not self-enforcing and the commissioner of agriculture is authorized and directed to promulgate rules and regulations to carry out the purposes of the act, Sec. 416.460. In the last ten years, the number of milk processors has declined by at least 50%. Virtually every state has imposed some type of restrictions on the dairy industry to insure an adequate supply of milk for their citizens at a fair price determined by wholesome and fair competition. These facts combined with the purpose of the act demonstrate the need for close scrutiny and meaningful supervision of dairy practices.

Appellants in seeking to overturn administrative rules and regulations bear a heavy burden, as we said in King v. Priest (banc), 357 Mo. 68, 206 S.W.2d 547, 552: 'In view of the broad authority granted respondents by statute, supra, and the admitted adoption of the rule pursuant thereto, the rule must be regarded as prima facie reasonable . . . The burden rested upon appellants to plead facts to show the invalidity of the rule . . . Only in a clear case will the courts interfere on the ground of unreasonableness . . .'

Rules and regulations are to be sustained unless unreasonable and plainly inconsistent with the act, and they are not to be overruled except for weighty reasons. Commissioner of Internal Revenue v. South Texas Lumber Co., 333 U.S. 496, 501, 68 S.Ct. 695, 92 L.Ed. 831; King v. Priest, supra. The burden is upon those challenging the rules to show that they bear no reasonable relationship to the legislative objective. King v. Priest, supra; Ketring v. Sturges (Mo.Sup.), 372 S.W.2d 104. The interpretation and construction of a statute by an agency charged with its administration is entitled to great weight. Federal Trade Commission v. Mandel Brothers, Inc., 359 U.S. 385, 391, 79 S.Ct. 818, 3 L.Ed.2d 893; Ketring v. Sturges, supra; State ex rel. Curators v. Neill (Mo.Sup.), 397 S.W.2d 666, 670. Administrative rules should be reviewed in light of the evil they seek to cure and are not unreasonable merely because they are burdensome. Borden Company v. Thomason, supra.

Appellants first contend that rules 2.06, 2.07, 2.08, and 2.11 constitute 'remedies' not provided in the act, and are contrary to Sec. 416.480, which provides: 'The remedies provided for in sections 416.410 to 416.560 are exclusive and no criminal fines or penalties shall be imposed for violation of sections 416.410 to 416.560.' Appellants argue that the above rules have a common thread among them which misconceives the purpose of the act and renders the rules illegal and void.

Appella...