Ideal Farms, Inc. v. Benson

• Court: U.S. Court of Appeals — Third Circuit
• Writing for the Court: McLAUGHLIN, HASTIE and FORMAN, Circuit
• Citation: Ideal Farms, Inc. v. Benson, 288 F.2d 608 (3rd Cir. 1961)
• Decision Date: 27 February 1961
• Docket Number: No. 13263.,13263.
• Parties: IDEAL FARMS, INC. and Franklin Lakes Dairy Producers, Inc., Plaintiffs-Appellants, v. Ezra Taft BENSON, Secretary of Agriculture of the United States of America, Defendant-Appellee.

288 F.2d 608 (1961)

IDEAL FARMS, INC. and Franklin Lakes Dairy Producers, Inc., Plaintiffs-Appellants, v. Ezra Taft BENSON, Secretary of Agriculture of the United States of America, Defendant-Appellee.

No. 13263.

United States Court of Appeals Third Circuit.

Argued December 1, 1960.

Decided February 27, 1961.

Rehearing Denied March 23, 1961.

Willis F. Daniels, Harrisburg, Pa. (Daniels & Swope, Harrisburg, Pa., Edward G. Weiss, Paterson, N. J., on the brief), for appellants.

Charles H. Hoens, Jr., Asst. U. S. Atty., Newark, N. J. (Chester A. Weidenburner, U. S. Atty., Newark, N. J., Neil Brooks, Asst. Gen. Counsel, Dept. of Agriculture, Washington, D. C., on the brief), for defendant-appellee.

Before McLAUGHLIN, HASTIE and FORMAN, Circuit Judges.

FORMAN, Circuit Judge.

This appeal attacks the validity of § 927.65 of Federal Marketing Order No. 27 (Order 27),¹ issued by the Secretary of Agriculture pursuant to the Agricultural Marketing Agreement Act of 1937, as amended (Act), 7 U.S.C.A. § 601 et seq. Order 27 regulates the handling of milk in the New York-New Jersey metropolitan area.

During 1956 and 1957 hearings were held by the Department of Agriculture upon various proposals to amend Order 27. As a result of these hearings § 927.65 was promulgated to be effective August 1, 1957. At that time it provided in pertinent part:

"Sec. 927.65 Net pool obligation of handlers. The handler\'s net pool obligation shall be computed pursuant to paragraphs (a) through (g) of this section: Provided, That milk specified in paragraph (h) of this section shall be eliminated from this computation and such milk shall be deemed excluded by the phrase `milk received from producers\' as such phrase is used in this section * * *"

* * * * * *

"(h) Milk specified in subparagraphs (1) through (3) of this paragraph shall be excluded from the computation of the handler\'s net pool obligation pursuant to this section.

"(1) Milk received from farms in Nassau and Suffolk Counties in New York, which farms are not approved for sale of milk in New York City, and milk received from farms in New York City.

"(2) Milk received at a handler\'s plant not in excess of an average of 800 pounds per day from such handler\'s own farm in the event that no milk is received at such plant from other dairy farmers, but is received from other plants.

"(3) All milk received at a handler\'s plant from such handler\'s own farm in the event that no milk is received from any other source at such plant."

Appellant, Ideal Farms, Inc. (Ideal) leases and operates 19 farms in Northern New Jersey. All of the milk from these farms is collected and shipped to a plant operated by Ideal in North Haledon, New Jersey. Appellant, in addition, buys milk from other plants. At the North Haledon plant some of the milk is bottled and sold as such, either on routes owned by Ideal or on routes owned by independent retailers. The remainder of the milk is manufactured into various forms: cheese, butter, ice cream and flavored drinks.

Appellant, Franklin Lakes Dairy Producers, Inc. conducts an almost identical, though smaller, operation to that of Ideal except it supplements the milk it produces on its own farms with milk it buys from other dairy farmers.

Appellants contended that in purporting to regulate a handler's "own-produced" milk in § 927.65 of Order 27 the Secretary of Agriculture exceeded the authority conferred upon him by the Act. They filed their petition embodying this contention and others with the Secretary and a hearing was held before a Hearing Examiner. He issued a report containing proposed findings and conclusions recommending the dismissal of the petition. Exceptions were filed to the Examiner's report and subsequently a Judicial Officer of the Department of Agriculture acting for the Secretary pursuant to authority duly delegated to him heard arguments thereon and filed his opinion dismissing their petition. Jacob Tanis, 17 Agri.Dec. 1091 (1958).

The decision of the Judicial Officer constituted the final agency decision and the appellants then filed their complaint against the Secretary of Agriculture in the United States District Court for the District of New Jersey to review his action. See 7 U.S.C.A. § 608c(15) (B). The appellants and the Secretary filed respective motions for summary judgment, arguments upon which were heard by Judge Wortendyke, who filed an opinion in which he found in favor of the Secretary, 1960, 181 F.Supp. 62, and judgment was entered pursuant thereto.

It is from that judgment that this appeal is taken. Other issues were explored before the Agency and the District Court but only one question remains to be settled here, namely: Did the Secretary of Agriculture exceed the authority vested in him by the Act in promulgating § 927.65 of Order 27, which purports to make a handler accountable to the producer-settlement fund for milk which he produces on his own farms from his own herds?

In support of their contention appellants point to the word "purchased" as it appears in § 8c(5) (A) and (C) of the Act, 7 U.S.C.A. § 608c(5) (A) and (C).² They argue that only milk "purchased" is subject to regulation and that the word "purchased" cannot be construed to cover milk which they obtain from their own farms.

Before discussing the legal question presented by this appeal, a brief reference to the operation of Order 27 may be useful. Milk is classified "in accordance with the form in which or the purpose for which it is used." Minimum prices are set for each use classification. However, such minimum prices are not directly paid to the producers since they are paid a uniform price irrespective of the uses made of such milk by the individual handler to whom it is delivered. The seeming incongruity is resolved by the operation of the producer-settlement fund.

Each handler subject to the Order must report monthly to the Market Administrator as provided in § 927.50 of the Order. The report shows the total quantity of milk received by the handler from all producers, and the use to which the said milk was put by the handler. The handler then multiplies the amount of milk put to each class use by the class price and adds the resultant figures to arrive at a total figure, based upon amount and class price for each class, and known as the handler's net pool obligation. The handler does not owe this money to the producers from whom he received the milk, but rather owes it proportionately to all producers in the entire milk marketing area.

Upon receipt of all handlers' reports, the Market Administrator adds up the total weight of milk handled in the marketing area for the month in question. He then adds up the total use value of the milk as shown on each handler's report as the handler's net pool obligation. He then divides the weight of the milk into its total use value and arrives at a uniform price. See § 927.54 of the Order. The uniform price is commonly referred to as the "blend" price.

Under § 927.70 of Order 27 each handler must then pay his producers the uniform price as provided in the Act, 7 U.S.C.A. § 608c(5) (B) (ii).³ Thus it can be seen that the handler owes to all producers as a class, the use value to which he puts milk received from producers, whereas the producer receives a uniform price for his milk regardless of the use to which it is put. This is known as the "market wide pool" since the uniform price is based on the utilization of milk throughout the entire marketing area.

Provision is made for the producer-settlement fund in § 927.75 of Order 27 wherein it is prescribed that, after the Market Administrator has determined the uniform price to be paid to all producers, he should calculate the amount of money that each handler owes to producers by multiplying the uniform price by the weight of the milk each handler has received. The resultant figure is compared with the handler's net pool obligation, to determine whether the handler pays into the producer-settlement fund or receives money from the producer-settlement fund. A handler whose net pool obligation is higher than the resultant figure pays the difference into the producer-settlement fund, whereas a handler whose net pool obligation is lower than the resultant figure receives the difference from the producer-settlement fund. This exchange of money among the handlers is to enable each handler to pay the uniform price to producers by making the handlers who put the bulk of their milk to a high use pay to the handlers who put the bulk of their milk to a low use.

Thus the appellants in essence seek to be exempt from making any payments into the producer-settlement fund on their "own produced" milk should their utilization thereof otherwise require such.

We now return to the legal issue presented. In its opinion the district court cited three cases as the basis for its conclusion that the regulation of "own-produced" milk by a handler is authorized by the Act. They are United States v. Rock Royal Co-operative, 1939, 307 U.S. 533, 59 S.Ct. 933, 83 L.Ed. 1446;⁴ Elm Spring Farm v. United States, 1 Cir., 1942, 127 F.2d 920,⁵ and Shawangunk Cooperative Dairies v. Jones, 2 Cir., 1946, 153 F.2d 700.⁶ In each of these cases the word "purchased" was interpreted to mean "acquired for marketing".⁷ Appellants argue that in none of these cases were the principals producers in the sense that they operated their own dairy farms and that in each case they acquired or received the milk subjected to assessment from another entity. They insist that in interpreting the word "purchase" to mean "acquire" or "receive", title or possession must have passed from one to another and that "the very words indicate that at least two parties must be involved."

In effect appellants make the argument that although an agency cooperative was held to have "purchased" milk from its principals in Rock Royal and Elm Spring, two parties were involved whereas here there being only one party no "purchas...