In re Wisconsin Co-operative Milk Pool, 21329.

• Decision Date: 27 November 1940
• Docket Number: No. 21329.,21329.
• Parties: In re WISCONSIN CO-OPERATIVE MILK POOL.
• Court: U.S. District Court — Eastern District of Wisconsin

35 F. Supp. 787

In re WISCONSIN CO-OPERATIVE MILK POOL.

No. 21329.

District Court, E. D. Wisconsin.

November 27, 1940.

Vernon Swanson, Bert Vandervelde, and Miller, Mack and Fairchild, all of Milwaukee, Wis., for creditors.

William H. Riley, of Madison, Wis. (Kenneth M. Orchard, of Madison, Wis., of counsel), for bankrupt.

DUFFY, District Judge.

Creditors of the Wisconsin Co-operative Milk Pool have filed a petition in this court asking that the Milk Pool be adjudicated an involuntary bankrupt. This co-operative association (hereinafter for convenience referred to as the "Milk Pool" or "Pool") was organized under Chapter 185 of the Wisconsin Statutes, to operate on a nonstock, nonprofit basis.

The question raised by the answer of the alleged bankrupt and now here for decision is whether under the Bankruptcy Act this nonprofit co-operative association is amenable to adjudication as an involuntary bankrupt.

Section 4 of the Bankruptcy Act, 11 U.S.C.A. § 22, provides: "Who may become bankrupts. * * * b. Any natural person, except a wage earner or farmer, and any moneyed, business, or commercial corporation, except a building and loan association, a municipal, railroad, insurance, or banking corporation, owing debts to the amount of $1,000 or over, may be adjudged an involuntary bankrupt * * *."

Whether such a co-operative association as here involved may be adjudicated bankrupt upon petition of its creditors has been before the courts for decision several times, and there is a sharp conflict in the conclusions which have been reached.¹ In view of this conflict of authority, a close examination and analysis should be made to determine the intention of Congress and this in turn involves an analysis of the type of association here involved.

Membership in the Milk Pool is acquired by a dairy farmer executing a membership contract which in effect designates the Pool as the exclusive marketing agent of the member. The Pool also markets the products of patrons who are not members of the Pool. However, 65% of the patrons of the Milk Pool are active members thereof.

The formation and development of co-operatives for the marketing of agricultural commodities has been encouraged both by state and federal laws. It was generally recognized that the marketing of agricultural products was one of the most difficult problems with which farmers of this country had to contend. The spread in price between what the farmer received for his products and the amount that the consumer paid was so large that both state legislatures and Congress have given consideration to the problem of simplifying the marketing of agricultural products. Wisconsin was one of the leading states to pass laws to authorize and encourage co-operatives, and it may be said that co-operative associations for the marketing of agricultural products have a favored status under both the federal laws and the laws of Wisconsin. As an illustration, the federal income tax law exempts them.² The Supreme Court of the United States has stated³: "The opinion generally accepted — and upon reasonable grounds, we think — is that the co-operative marketing statutes promote the common interest. * * * This Court has recognized as permissible some discrimination intended to encourage agriculture."

The Supreme Court of Wisconsin has said⁴: "* * * this court has definitely held that agriculture cooperatives are favored in the law * * *."

The Wisconsin Statutes likewise show that special considerations have been extended to agricultural co-operatives. A special liquidation proceeding has been provided in the state courts.⁵ If any corporation discriminates against a co-operative, its charter may be annulled if it is a domestic corporation or its license revoked if it be a foreign corporation.⁶ In order to hold the association together, membership contracts are enforceable against the member by restraining order and injunction.⁷ To insure control by patron members, each member has but one vote.⁸ Likewise the vote of a stockholder may be forfeited by loss of membership.⁹ The legislative policy of the state is expressly set forth in the statutes¹⁰: "The history of the farm marketing problem in the state and nation, as well as throughout the world, points to a solution chiefly through co-operative marketing efforts of producers. It is, hence, declared to be the policy of this state, in advancing the general good and public welfare, to assist in the organization and development of cooperative associations for production and marketing purposes along lines of dairy and other farm products."

The Wisconsin Supreme Court recognized the soundness of this policy when it stated¹¹: "It was for the purpose of encouraging efforts to bring about more direct marketing methods, thus benefiting both producer and consumer, and thereby promoting the general interest and the public welfare, that the legislation was enacted."

In Section 4, sub. b, Congress declared that certain kinds of moneyed, business, or commercial corporations are not subject to involuntary bankruptcy. It did not enumerate the types of nonprofit organizations which would be exempt because it was undoubtedly the intention to permit the states to define what such a nonprofit organization might be. The Circuit Court of Appeals of the 2nd Circuit in a case concerned with the definition of an insurance company under Section 4, sub. b, said¹²: "The purpose of Congress in the amendment of 1910 to section 4, 11 U.S.C.A. § 22, was to make a comprehensive definition with certain exceptions, rather than to enumerate the kinds of companies which were subject to bankruptcy. The purpose of the exception is not self-evident; we must infer it as best we can from such similarity as exists between the excepted groups. * * * The most natural inference is that Congress meant to leave to local winding up statutes the liquidation of such companies; that, since the states commonly kept supervision over them during their lives, it was reasonable that they should take charge on their demise."

And further in the opinion, the court said (75 F.2d at page 985): "It is true that this makes the meaning of section 4 depend upon local laws and subjects that meaning to change as those laws change; pro tanto, Congress has delegated its power. But this is not the only instance in the Bankruptcy Act; thus exemptions are dependent upon local law, section 6, 11 U.S.C.A. § 24, and so are the priorities among claims, section 64b 11 U.S.C.A. § 104 * * *."

The Milk Pool was engaged in business pursuits, but that does not necessarily prove that the Pool was a business or commercial corporation. A hospital charges for the services which it renders, but it may remain a nonprofit institution. An eleemosynary institution may carry on many business activities incidental to its main purpose, and no one would contend that it thereby became a business, moneyed, or commercial corporation. The Pool did receive an income from various sources, but such income was not necessarily a "profit" in the ordinary sense of the word. The Milk Pool did not purchase the products of its members or patrons; it acted as their marketing agent. It was the...