Zuber v. Allen
396 U.S. 168 (1969)

Annotate this Case

U.S. Supreme Court

Zuber v. Allen, 396 U.S. 168 (1969)

Zuber v. Allen

No. 25

Argued October 16, 1969

Decided December 9, 1969*

396 U.S. 168

CERTIORARI TO THE UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Syllabus

Respondent Vermont dairy farmers ("country" milk producers) brought this action to invalidate the so-called farm location differential provided for by order of the Secretary of Agriculture as contrary to the Agricultural Marketing Agreement Act of 1937. The effect of the order is to require milk distributors to pay milk producers situated close to milk marketing areas ("nearby" farmers) higher prices than are paid to producers located at greater distances from such areas. In the 1920's, prior to federal regulation, nearby farmers received higher prices for their milk in the Boston area than farmers at more distant points. The 1935 amendment to the Agricultural Adjustment Act, carried forward into § 8(c) of the Agricultural Marketing Agreement Act of 1937, provides, in part, for the payment to all producers

"delivering milk to all handlers of uniform prices for all milk . . . subject only to adjustments for (a) volume, market, and production differentials customarily applied by the handlers subject to such order, (b) the grade or quality of the milk delivered, (c) the locations at which delivery of such milk is made."

The Department of Agriculture regulations provide a price differential for "nearby" farmers, and a lesser differential for intermediate nearby zones. The District Court granted an injunction against further payments of the differentials, and the Court of Appeals affirmed.

Held:

1. The statutory scheme, which was to provide uniform prices to all producers in the marketing area, subject only to specifically enumerated adjustments, contemplated that "market differentials . . . customarily applied" would be based on cost adjustments. Pp. 396 U. S. 179-187.

Page 396 U. S. 169

(a) The particularity and specificity of the enumerated differentials negate the conclusion that Congress was thinking only in terms of historical considerations. P. 396 U. S. 183.

(b) The other statutory differentials, for "volume," "grade or quality," "location," and "production," all compensate the producer for providing an economic service benefiting the milk handler. Pp. 396 U. S. 183-184.

(c) In a statute whose purpose was to avoid the infirmity of the overbroad delegation of the Agricultural Adjustment Act, it would have been simple to include "nearby" payments in the list of enumerated differentials, or at least to allude to them in the draftsmen's report. P. 396 U. S. 185.

2. The "nearby" differentials do not fall into the category of the permissible adjustments, which are limited to compensation for rendering an economic service, and neither the Secretary of Agriculture nor the "nearby" farmer petitioners have advanced any economic justifications for them that have substantial record support. Pp. 396 U. S. 188-191.

3. This holding does not depart from the Court's precedents. United States v. Rock Royal Co-op.,307 U. S. 533, distinguished. To the extent that Green Valley Creamery v. United States, 108 F.2d 342, contravenes this holding, it is disapproved. Pp. 396 U. S. 191-192.

4. While according great weight to a department's contemporaneous construction of its own enabling legislation, the Court cannot abdicate its ultimate responsibility to construe the statutory language. Pp. 396 U. S. 192-194.

5. Although the Secretary's orders have been specifically approved by the farmers concerned in accordance with § 9(b)(i) of the Act, such approval does not legitimize the regulation, which is not authorized by statute. Pp. 396 U. S. 195-196.

6. A reversal for trial on the merits is not warranted, since the Department of Agriculture acted on a formal record, and a remand to the Secretary is inappropriate in the absence of a request by the Government, which has advanced no new theory for sustaining the regulation. Pp. 396 U. S. 196-197.

7. The Court of Appeals' award to "nearby" farmer petitioners of the escrowed differential payments collected before the District Court entered final judgment will not be disturbed. P. 396 U. S. 197.

131 U.S.App.D.C. 109, 402 F.2d 660, affirmed.

Page 396 U. S. 170

MR. JUSTICE HARLAN delivered the opinion of the Court.

This action was brought by respondent Vermont dairy farmers, "country" milk producers, seeking a judgment invalidating as contrary to the Agricultural Marketing Agreement Act of 1937, as amended, 50 Stat. 246, 7 U.S.C. § 601 et seq. (1964 ed. and Supp. IV), the so-called farm location differential provided for by order

Page 396 U. S. 171

of the Secretary of Agriculture. [Footnote 1] The effect of that order is to require milk distributors to pay to milk producers situated at certain distances from milk marketing areas, "nearby" farmers, higher prices than are paid to producers located at greater distances from such areas. The District Court issued a preliminary injunction on January 16, 1967, against further payments, and, on respondents' motion for summary judgment, transformed its decree into a permanent injunction on June 15, 1967. The Court of Appeals for the District of Columbia Circuit affirmed. 131 U.S.App.D.C. 109, 402 F.2d 660 (1968). We granted certiorari to resolve the important issue of statutory construction involved in this aspect of the administration of the federal milk regulation program. 394 U.S. 958 (1969).

Page 396 U. S. 172

I

BACKGROUND

Once again, this Court must traverse the labyrinth of the federal milk marketing regulation provisions. [Footnote 2] While previous decisions have outlined the operation of the statute and the pertinent regulations, a brief odyssey through the economic and regulatory background is essential perspective for focusing the issue now before the Court.

A. THE ECONOMICS OF THE MILE INDUSTRY

The two distinctive and essential phenomena of the milk industry are a basic two-price structure that permits a higher return for the same product, depending on its ultimate use, and the cyclical characteristic of production.

Milk has essentially two end uses: as a fluid staple of daily consumer diet, and as an ingredient in manufactured dairy products such as butter and cheese. Milk used in the consumer market has traditionally commanded a premium price, even though it is of no higher quality than milk used for manufacture. While cost differences account for part of the discrepancy in price, they do not explain the entire gap. At the same time, the milk industry is characterized by periods of seasonal overproduction. The winter months are low in yield and,

Page 396 U. S. 173

conversely, the summer months are fertile. In order to meet fluid demand which is relatively constant, sufficiently large herds must be maintained to supply winter needs. The result is oversupply in the more fruitful months. The historical tendency prior to regulation was for milk distributors, "handlers," to take advantage of this surplus to obtain bargains during glut periods. Milk can be obtained from distant sources and handlers can afford to absorb transportation costs and still pay more to outlying farmers whose traditional outlet is the manufacturing market. [Footnote 3] To maintain income, farmers increase production, and the disequilibrium snowballs.

To protect against market vicissitudes, farmers in the early 1920's formed cooperatives. These cooperatives were effective in eliminating the self-defeating overproduction by pooling the milk supply and refusing to deal with handlers except on a collective basis. [Footnote 4] During

Page 396 U. S. 174

the 1920's era of relative market stability, the nearby farmers enjoyed premium prices for their product. These favorable prices were apparently attributable to reduced transportation costs and also the nearby farmer's historic position as a fluid supplier. [Footnote 5]

B. THE FIRST FEDERAL PROGRAM

The drop in commodity prices during the depression years destroyed the equilibrium of the 1920's, and utter chaos ensued. Congress, in an effort to restore order to the market and boost the purchasing power of farmers, enacted the licensing provisions of the Agricultural Adjustment Act, 48 Stat. 31, 35. Under § 8(3), the Secretary of Agriculture was empowered

"[t]o issue licenses permitting processors, associations of producers, and others to engage in the handling, in the current of interstate or foreign commerce, of any agricultural commodity or product thereof, or any competing commodity or product thereof. Such licenses shall be subject to such terms and conditions, not in conflict with existing Acts of

Page 396 U. S. 175

Congress or regulations pursuant thereto, as may be necessary to eliminate unfair practices or charges that prevent or tend to prevent the effectuation of the declared policy and the restoration of normal economic conditions in the marketing of such commodities or products and the financing thereof. The Secretary of Agriculture may suspend or revoke any such license, after due notice and opportunity for hearing, for violations of the terms or conditions thereof. . . ."

Under the licensing system, base-rating plans not unlike the private arrangements that obtained in the 1920's were adopted. [Footnote 6] Producers were assigned bases which fixed the percent of their output that they would be permitted to sell at the Class I price that was paid for fluid milk. [Footnote 7] The viability of the licensing scheme was jeopardized, however, by judicial decisions disapproving a similarly broad delegation of power under the National Industrial Recovery Act provisions, 48 Stat. 195. Schechter Poultry Corp. v. United States,295 U. S. 495 (1935). With its agricultural marketing program resting on quicksand, Congress moved swiftly to eliminate the defect of overbroad delegation and to shore up the void in the agricultural marketing provisions. Section 8(3) of the 1933 Act was amended in 1935, and the pertinent language has been carried forward without significant

Page 396 U. S. 176

change into § 8c of the present Act. Agricultural Marketing Agreement Act of 1937, 50 Stat. 246, as amended, 7 U.S.C. § 608c (1964 ed. and Supp. IV). [Footnote 8]

Page 396 U. S. 177

C. THE PRESENT REGULATORY SCHEME

The present system, which differs little in substance from the scheme conceived in 1937 for regulating the Boston market, [Footnote 9] provides for a uniform market price payable to all producers by all handlers. [Footnote 10] Prices are established for Class I and Class II uses. The total volume of milk channeled into the market in each category is multiplied by the appropriate coefficient price, and the two results are totaled and then divided by the total number of pounds sold. The result represents the average value of milk sold in the marketing area and is the basic "uniform" price. Were all producers to receive this price they would share on an equal basis

Page 396 U. S. 178

the profits of Class I marketing and assume equally the costs of disposing of the economic surplus in the Class II market. The actual price to the producer is, however, the "blended" price, which is computed by adding and subtracting certain special differentials provided for by statute and order. See 7 CFR § 1001.64 (1969). The deduction for differential payments withheld for the benefit of nearby producers reduces the uniform "blended" price to those producers ineligible to collect this particular adjustment. [Footnote 11] The provision is contained in § 1001.72 of the order, and provides:

"In making the payments to producers . . . , each handler shall add any applicable farm location differential specified in this section."

"(a) With respect to milk received from a producer whose farm is located within any of the places specified in this paragraph, the differential shall be 46 cents per hundredweight, unless the addition of 46 cents gives a result greater than the Class I price determined under §§ 1001.60, 1001.62, and 1001.63 which is effective at the plant at which the milk is received. In that event, there shall be added a rate which will produce that price."

A differential of 23

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