Mandeville Island Farms v. American Crystal Sugar Co

Decision Date10 May 1948
Docket NumberNo. 75,75
CourtU.S. Supreme Court

[Syllabus from pages 219-221 intentionally omitted] Mr. Stanley M. Arndt, of Los Angeles, Cal., for petitioners.

Mr. Pierce Works, of Los Angeles, Cal., for respondent.

Mr. Justice RUTLEDGE delivered the opinion of the Court.

The action is for treble damages incurred by virtue of alleged violation of the Sherman Act, §§ 1 and 2. 26 Stat. 209, 38 Stat. 731, 15 U.S.C. §§ 1, 2, 7, 15, 15 U.S.C.A. §§ 1, 2, 7, 15. The case comes here on certiorari, 331 U.S. 800, 67 S.Ct. 1519, 91 L.Ed. 1824, from affirmance by the Circuit Court of Appeals, 9 Cir., 159 F.2d 71, of a judgment of the District Court, 64 F.Supp. 265. That judgment dismissed the amended complaint as insufficient to state a cause of action arising under the Act. In this posture of the case, the legal issues are to be determined upon the allegations of the amended complaint.1

The main question is whether, in the circumstances pleaded, California sugar refiners who sell sugar in interstate commerce may agree among themselves to pay a uniform price for sugar beets grown in California without incurring liability to the local beet growers under the Act. Narrowly the question is whether the refiners' agreement together with the allegations made concerning its effects shows a conspiracy to monopolize and to restrain interstate trade and commerce or one thus affecting only purely local trade and commerce.

The material facts pleaded, which stand admitted as if they had been proved for the purposes of this proceeding, may be summarized as follows: Pt itioners' farms are located in northern California, within the area lying north of the thirty-sixth parallel. The only practical market available to beet growers in that area was sale to one of three refiners.2 Respondent was one of these. Each season growers contract with one of the refiners to grow beets and to sell their entire crops to the refiner under standard form contracts drawn by it. Since prior to 1939 petitioners have thus contracted with respondent.

The refiners control the supply of sugar beet seed. Both by virtue of this fact and by the terms of the contracts, the farmers are required to buy seed from the refiner. The seed can be planted only on land specifically covered by the contract. Any excess must be returned to the refiner in good order at the end of the planting season.

The standard contract gives the refiner the right to supervise the planting, cultivation, irrigation and harvest- ing of the beets, including the right to ascertain quality during growing and harvesting seasons by sampling and polarizing. Before delivering beets to the company, the farmers must make preliminary preparations for processing them into raw sugar.3 The refiner has the option to reject beets if the contract conditions are not complied with and if the beets are not suitable in its judgment for the manufacture of sugar.

Prior to 1939 the contract fixed the grower's price by a formula combining two variables, a percentage of the refiner's net returns per hundred pounds from sales of sugar and the sugar content of the individual grower's beets determined according to the refiner's test.4

Sometime before the 1939 season the three refiners entered into an agreement to pay uniform prices for sugar beets. The mechanics of the price-fixing arrangement were simple. The refiners adopted identical form contracts and began to compute beet prices on the basis of the average net returns of all three rather than the separate returns of the purchasing refiner. Inevitably all would pay the same price for beets of the same quality.

Since the refiners controlled the seed supply and the only practical market for beets grown in northern California, when the new contracts were offered to the farmers, they had the choice of either signing or abandoning sugar beet farming. Petiioners accordingly contracted with respondent under this plan during the 1939, 1940 and 1941 seasons. The plan was discontinued after the 1941 season. Because beet prices were determined for the three seasons with reference to the combined returns of the three refiners, the prices received by petitioners for those seasons were lower than if respondent, the most efficient of the three, had based its price on its separate returns.

The foregoing allegations set forth the essential features of the contractual arrangements between the refiners and the growers and of the agreement among the refiners themselves. Other allegations were made to complete the showing of violation and injury. They relate specifically to the peculiarly integrated character of the industry, effects of the arrangements upon interstate commerce, and the relation between the violations charged and the injuries suffered by petitioners.

With reference to the industry in general, it was stated that sugar beets were grown during the seasons 1938 to 1942 on large acreages not only in northern California but also in Utah, Colorado, Michigan, Idaho, Illinois and other states. The crops so grown, when harvested, were not 'sold in central markets as were potatoes, onions, corn, grain, fruit and barries, but were produced by growers under contract with manufacturers or processors and immediately upon being harvested were delivered to these manufacturers and taken to their beet sugar refineries where the sugar beets were manufactured by an elaborate process into raw sugar by the said manufacturers, who thereafter sold the resulting sugar in interstate commerce.' Then follow the allegations summarized above in note 2 concerning the bulky and semiperishable nature of sugar beets, the impossibility of transporting them over long distances or of storing them cheaply or safely, their rapid deterioration when ripe, and the necessity for prompt harvesting and marketing. These allegations must be taken as intended and effective to put the agreements complained of in the general setting of the industry's unique structure and special mode of operation.

The specific allegation is added that the sugar manufactured by respondent and the other northern California refiners from beets grown in the region 'was, during all of said period (1938 to 1942), sold in interstate commerce throughout the United States.'

By way of legal as well as ultimate factual conclusions the amended complaint charged that respondent had unlawfully conspired with the other northern California refiners to 'monopolize and restrain trade and commerce5 among the several states and to unlawfully fix prices to be paid the growers * * * all in violation of the anti-trust laws * * *'; and that each refiner no longer competed against the others as to the price to be paid the growers, but paid the same price on the agreed uniform basis of average net returns.

There were further charges that prior to 1939 the northern California refiners had 'competed in interstate commerce with each other as to the performance, ability and efficiency of their manufacturing, sales and executive departments and each strove to increase sales return and decrease expenses,' with the result that for 1938 respondent secured substantially greater 'net gross receipts of sales of sugar' than the other refiners. These in turn were reflected in the payment of 29 1/2 to 52 1/2 cents per ton more to petitioners and other growers dealing with respondent than was paid by the other refiners to their growers.

However, for the seasons 1939, 1940 and 1941, under the new uniform contracts and prices, 'there was no longer any such competition * * *.' Instead it was alleged upon information and belief that, as a result of the alleged conspiracy, respondent did not conduct its interstate operations as carefully and efficiently as previously or 'as it would have had said conspiracy not existed.' In consequec e, respondent received less in sales returns for raw sugar and incurred greater expenses than if competition had been free, and petitioners 'did not receive the reasonable value of their sugar beets.'

Further charges were that as 'a direct, expected and planned result of said conspiracy, the free and natural flow of commerce in interstate trade was intentionally hindered and obstructed,' so that instead of the refiners 'producing and selling raw sugar in interstate commerce * * * in competition with each other * * * they became illegally associated in a common plan wherein they pooled their receipts and expenses and frustrated the free enterprise system * * *'; all incentive to efficiency, economy and individual enterprise disappeared; and the refiners operated, 'in so far as the growers were concerned,' as if they were one corporation owning and controlling all factories in the area, but with three conpletely separated overheads and with none of the efficiency that consolidation into one corporation might bring. 6

We are not concerned presently with the allegations relating to the injuries and amounts of damages inflicted upon petitioners,7 except to say that they are sufficient to present those questions for support by proof, if the allegations made to show a cause of action arising under the statute are sufficient for that purpose.

In our judgment the amended complaint states a cause of action arising under the Sherman Act, §§ 1 and 2, and the complaint was improperly dismissed.

Broadly petitioners regard the entire sequence of growing the beets, refining them into sugar and distributing it, under the arrangements set forth, as a chain of events so integrated and taking place in interstate commerce or in such close and intimate connection with it that, for purposes of applying the Sherman Act, the complete sequence is an entirety and no part of it can be segregated from the remainder so as to put it beyond the statute's grasp.

Respondent, on the contrary, broadly severs the phase or...

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