Rasmussen v. American Dairy Association

• Decision Date: 30 January 1973
• Docket Number: No. 26302.,26302.
• Citation: 472 F.2d 517
• Parties: William J. RASMUSSEN, Plaintiff-Appellant, v. The AMERICAN DAIRY ASSOCIATION, a corporation, et al., Defendants-Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

472 F.2d 517 (1973)

William J. RASMUSSEN, Plaintiff-Appellant, v. The AMERICAN DAIRY ASSOCIATION, a corporation, et al., Defendants-Appellees.

No. 26302.

United States Court of Appeals, Ninth Circuit.

December 29, 1972.

Rehearings Denied January 30, 1973.

Henderson Stockton (argued), of Stockton & Hing, Hill & Savoy, Phoenix, Ariz., for plaintiff-appellant.

David William West (argued), Newman Porter, of Evans, Kitchel & Jenckes, Richard J. Burke, U. S. Atty., Gary K. Nelson, Atty. Gen., Phoenix, Ariz., Jones, Waldo, Holbrook & McDonough, Salt Lake City, Utah, Ryley, Carlock & Ralston, Phoenix, Ariz., G. Hal Taylor, Salt Lake City, Utah, H. M. Beggs, of Carson, Messinger, Elliott, Laughlin & Ragon, Phoenix, Ariz., John A. Haas, Mount Prospect, Ill., Keith G. Mumby, Grand Junction, Colo., Richard L. Schrepferman, of Holme, Roberts & Owen, Denver, Colo., for defendants-appellees.

Before MADDEN,^* Judge of the United States Court of Claims, and BROWNING and DUNIWAY, Circuit Judges.

BROWNING, Circuit Judge:

William Rasmussen, the processor and distributor of a "filled milk" product¹ called "Go," appeals from a summary judgment dismissing his Sherman Act suit, 15 U.S.C. §§ 1-7, against various dairy associations and dairy association officials. The district court found jurisdiction lacking under the Sherman Act.

I. The Facts

The relevant facts, drawn from the complaint and the parties' stipulation,² are as follows.

Plaintiff is a "producer-handler³ of fluid milk in the Phoenix, Arizona, marketing area. In March 1965 he introduced "Go" into that market. "Go" is made in Arizona by adding local water to other ingredients, including dried milk, brought in from other states. The product was well received. During 1968 sales totaled 863,377½ gallons, and profits $36,720.

In December 1966 defendants entered into a conspiracy to restrain trade and create a monopoly by driving plaintiff's "Go" and other filled milk beverages from the Arizona market. Defendants agreed to accomplish this purpose by (1) causing the Central Arizona Milk Marketing Order to be amended to reclassify "Go" and other filled milk products as "Class I" milk, knowing that the resulting increase in cost would prohibit sale of these products:⁴ (2) sponsoring legislation to eliminate filled milk products from Arizona markets and create a whole milk monopoly; (3) engaging in a widespread false advertising campaign, misrepresenting and disparaging "Go" and other similar filled milk products;⁵ and (4) causing defendant Ezra Odle, Dairy Commissioner of the State of Arizona and also a director of the United Dairymen of Arizona, to issue in his official capacity certain regulations restricting and conditioning the manufacture, labeling, display, and sale of "Go" and other filled milk products.

Two lines of commerce are involved. The first line of commerce "involved, burdened, and restrained and otherwise illegally controlled" by defendants is "that portion of the Interstate Commerce in which milk is produced in the State of Arizona and in other States and thereafter shipped to purchasers in the State of Arizona for the purpose of processing, pasteurizing, manufacturing and offering for sale to the consumers in the State of Arizona and elsewhere."⁶ The second line of commerce is that in which "Go"'s out-of-state ingredients flow into Arizona, are combined with local water, and are sold and distributed in the Arizona Marketing Area as "Go."⁷ "Every ingredient used in the manufacture of the product `Go,' other than Arizona water, is wholly produced, manufactured and moves in interstate commerce from States outside Arizona into Arizona . . . for delivery to plaintiff . . . in Phoenix, Arizona."

The Secretary of Agriculture has determined that the "stream of commerce" in milk constitutes interstate commerce, and that all activities "in the field of milk or activities related thereto" burden, obstruct, or interfere with this stream of interstate commerce in milk and therefore are subject to regulation by the Secretary under 7 U.S.C. § 608c. The Secretary has further determined that plaintiff's activities in processing and selling "Go" are either in this stream of interstate commerce or burden, obstruct, and interfere with it, and therefore are subject to regulation by the Secretary under the provisions of the statute. The acts of the defendants complained of were based upon, or were related to, the Central Arizona Milk Marketing Order, 7 C.F.R. § 1131, issued by the Secretary under the statute to regulate this stream of commerce.⁸

Finally, plaintiff alleges that defendants' wrongful acts were "in aid of and in pursuance of the design of monopolization, price enhancement, restifling and restriction of competition" in the described commerce, and "were for the purpose of injuring Plaintiffs' business and property and to restrain trade and to create a real milk monopoly."

II. The Ruling Below

Focusing on the second of the two lines of commerce allegedly restrained — commerce in "Go" and its ingredients — the district court held plaintiff's allegations insufficient as a matter of law to give the court subject-matter jurisdiction under the Sherman Act. According to the court, "plaintiff's business is of a local nature and interstate commerce is not substantially and adversely affected by an alleged restraint applied to that business simply because plaintiff uses ingredients in his product which are produced out of state."⁹

In the discussion that follows, the jurisdictional test to be applied under the Sherman Act is first defined. The test is then applied to the line of commerce with which the district court was primarily concerned — the one involving "Go" and its ingredients. Finally, the test is applied to the other allegedly affected line of commerce — the one in fluid milk.

III. The Test

"That Congress in passing the Sherman Act wanted to go to the utmost extent of its Constitutional power in restraining trust and monopoly agreements . . . admits of little, if any, doubt. The purpose was to use that power to make of ours, so far as Congress could under our dual system, a competitive business economy." United States v. South-Eastern Underwriters Ass'n, 322 U.S. 533, 558-559, 64 S.Ct. 1162, 1176, 88 L.Ed. 1440 (1944).¹⁰ The reach of the Sherman Act is "as inclusive as the constitutional limits of Congress' power to regulate commerce." Report of the Attorney General's National Committee to Study the Antitrust Laws 62 (1955). As judicial construction of the commerce clause has expanded over the years to reflect changing evaluations of the necessary scope of the federal commerce power, so too has the reach of the Sherman Act.¹¹

In short, the conduct of the defendants is within the jurisdictional reach of the Sherman Act if Congress can prohibit that conduct under the commerce clause.

Before this general test is particularized, an important distinction should be stressed — the distinction between the jurisdictional question, with which we are concerned, and the question of whether, in other respects, a substantive violation of the Sherman Act is alleged.

The two problems are frequently confused, and understandably so. See P. Areeda, Antitrust Analysis 59-60 (Little, Brown & Co. 1967). Section 1 of the Act prohibits contracts, combinations, and conspiracies "in restraint of trade or commerce among the several States." This single cryptic phrase defines both the conduct prohibited by the Act and the statute's jurisdictional reach. As the Court explained in Apex Hosiery Co. v. Leader, 310 U.S. 469, 494-495, 60 S.Ct. 982, 992, 84 L.Ed. 1311 (1940): "The phrase `restraint of trade' which . . . had a well-understood meaning at common law, was made the means of defining the activities prohibited. The addition of the words `or commerce among the several states' was not an additional kind of restraint to be prohibited by the Sherman Act but was the means used to relate the prohibited restraint of trade to interstate commerce for constitutional purposes. . . ." The same general distinction is drawn in Mandeville Island Farms, Inc. v. American Crystal Sugar Co., 334 U.S. 219, 235, 68 S.Ct. 996, 92 L.Ed. 1328 (1948), and United States v. Women's Sportswear Manufacturers' Ass'n, 336 U.S. 460, 461-462, 69 S.Ct. 714, 93 L.Ed. 805 (1949).

Whether a defendant's conduct constitutes a substantive Sherman Act violation is entirely a matter of congressional definition: Is the defendant's conduct the type of conduct Congress intended to prohibit? Is that conduct a "restraint of trade" within the meaning of section 1, or an "attempt" or "conspiracy" to "monopolize . . . trade" within the meaning of section 2? The jurisdictional question, on the other hand, concerns Congress' power to reach the defendant's conduct: "The restraint must `occur in or affect commerce between the states . . . for constitutional reasons.'" Klor's, Inc. v. Broadway-Hale Stores, 255 F.2d 214, 224 (9th Cir. 1958) (emphasis added), reversed on other grounds, 359 U.S. 207, 79 S.Ct. 705, 3 L.Ed.2d 741 (1959), quoting and discussing Apex Hosiery Co. v. Leader, supra.

We are concerned in this case only with the jurisdictional question. We assume, but expressly do not decide, that the conduct charged constituted a "restraint of trade," or an "attempt" or "conspiracy" to "monopolize . . . trade." Our sole inquiry is whether the prohibition of that conduct falls within "the utmost extent of Congress' . . . Constitutional power." United States v. South-Eastern Underwriters' Ass'n, supra.

On its face, this test is extremely broad. Congress' power over interstate commerce is plenary, encompassing not only the regulation of interstate commerce itself, but all measures "necessary and proper" to that end, including the regulation of commerce that is purely intrastate.¹²

The "necessary and proper" standard is met if the regulated conduct has a "substantial economic effect" upon interstate commerce. As the...