1. The right to buy wheat with or without dockage, for shipment,
and to ship it in interstate commerce is a common right the
regulation of which is committed to Congress and denied to the
states by the Commerce Clause of the Constitution. P.
268 U. S.
198.
2. The North Dakota Grain Grading Act, N.Dak. Ls.1923, 549,
assuming control over wheat buying in the state, of which 90% is
for interstate shipment, provides,
inter alia: that grain
bought by grade (the established practice) must be graded by
licensed inspectors; that (contrary to the general practice) the
buyer must separate the dockage and return it to the producer
unless distinctly valued and paid for; that buyers having and
operating grain elevators must give bond to the state, if buying on
credit, must keep records of all wheat bought, showing grade given
and price paid at the elevator and grade fixed and price paid at
terminal market (outside the state), and must furnish such data to
a state supervisor when requested; that the supervisor shall in a
general way investigate and supervise the marketing of the grain
with a view to preventing various things deemed unjust or
fraudulent, including unreasonable margins of profit and
confiscation of dockage, and shall have authority to make and
enforce
Page 268 U. S. 190
such orders, rules, and regulations as may be necessary to carry
out all the provisions of the Act.
Held a direct
interference with and burden upon interstate commerce, and an
attempt by the state to prescribe rules under which an important
part of such commerce shall be conducted. P.
268 U. S.
199.
3. The act cannot be supported as an attempt, through inspection
regulations, to assist in carrying out the purposes of the United
States Grain Standards Act. P.
268 U. S.
202.
Affirmed.
Appeal from an interlocutory decree of the district court
enjoining officials of the North Dakota from enforcing provisions
of the State Grain Grading Act against the plaintiffs who were
numerous owners and operators of county elevators within the state,
including some farmers' cooperative companies, and engaged in the
business of buying grain from the farmers for shipment to markets
in other states.
Page 268 U. S. 191
MR. JUSTICE VAN DEVANTER delivered the opinion of the Court.
This is a suit to restrain the enforcement of the North Dakota
Grain Grading Act, an initiated measure approved at a state
election November 7, 1922. Laws N.D.1923, p. 549. The plaintiffs
own and operate country elevators within the state at which they
buy wheat from farmers for shipment to markets in other states, and
the defendants are officers of the state who are charged by the Act
with the duty of enforcing it. The plaintiffs challenge the
validity of the Act under the Constitution of the United States on
the grounds, first, that it interferes with and burdens interstate
commerce, and secondly that it conflicts with the United States
Grain Standards Act, c. 313, 39 Stat. 482. An injunction preventing
its enforcement pending the suit was granted by the district court,
three judges sitting, and that interlocutory decree is here for
review under ยง 266 of the Judicial Code, as amended by Act March 4,
1913, c. 160, 37 Stat. 1013.
A prior statute, concededly "having the same general purpose,"
was adopted by the state legislature in 1919 and held invalid by
this Court in
Lemke v. Farmers' Grain Co., 258 U. S.
50, as an interference with interstate commerce. There
are differences between that statute and the present one, of which
the parties take divergent views. It would serve no purpose to take
up
Page 268 U. S. 192
these differences in detail. We shall describe the situation to
which the present Act is intended to apply, state its material
provisions, and then come to its operation on interstate
commerce.
Wheat is the chief product of the farms of North Dakota, the
annual crop approximating 150,000,000 bushels. About 10 percent is
used and consumed locally, and about 90 percent is sold within the
state to buyers who purchase for shipment, and ship, to terminal
markets outside the state. Most of the sales are made at country
elevators to which the farmers haul the grain when harvested and
threshed. These elevators are maintained and operated by the buyers
as facilities for receiving the grain from the farmers' wagons and
loading it into railroad cars. The loading usually proceeds as
rapidly as grain of any grade is accumulated in carload lots and
cars can be obtained. When a car is loaded, it is sent promptly to
a terminal market, and the grain is there sold. This is the usual
and recognized course of buying and shipment. Occasionally a farmer
has his grain stored in the country elevator, or shipped to a
terminal elevator for storage, and awaits a possible increase in
price; but even in such instances, he usually sells to the buyer
operating the country elevator, and the latter then sends the grain
to the terminal market if it has not already gone there.
The price paid at the country elevators rises and falls with the
price at the terminal markets, but is sufficiently below the latter
to enable the country buyer to pay for the intermediate
transportation and have a margin of profit. All transactions at the
terminal markets, including the price, are based on the grade of
the wheat, and by reason of this all buying at the country
elevators is by grade.
The grading at the terminal markets is done by inspectors
licensed under the United States Grain Standards
Page 268 U. S. 193
Act, who are required to apply to all interstate shipments the
grading standards promulgated under that Act by the Secretary of
Agriculture. There are no inspectors licensed under that Act at the
country elevators, and so the grading is done there unofficially by
the buyers or their agents as an incident and part of the
buying.
Grading includes an ascertainment of the proportions of clean
wheat and of dockage in each lot of grain and an ascertainment of
the quality of the wheat. Dockage consists of separable foreign
material, such as dirt, pieces of straw, chaff, weed stems, weed
seeds and grain other than wheat. Its proportion varies in
different lots, but generally is less than five percent. When not
separated, it causes the grain to bring a lower price per bushel
than clean wheat would bring. When separated, it has a value for
poultry and stock feed which usually is in excess of the cost of
separation. Occasionally the farmer separates it at the farm and
sells only the clean wheat, and occasionally the buyer separates it
at the country elevator, charges the farmer for that service, and
buys and ships only the clean wheat; but generally the grain is
sold by the farmer and shipped by the country buyer with the
dockage included. The influence of dockage on the value of the
grain and the current modes of handling it are shown in
publications of the Agricultural Department of the United States,
pertinent excerpts from which are set out in the margin. [
Footnote 1]
Page 268 U. S. 194
As many as 2,200 country elevators are operated within the state
in the business here described -- generally two or more by
competing buyers at each station. Some of the buyers are
individuals, and others are corporations. A large number are
farmers' cooperative companies, which buy grain grown by their
stockholders and others in the vicinity of their elevators, ship
and sell the same, and distribute as patronage dividends the
surplus arising from such transactions, no profit being retained by
the companies. The plaintiffs comprise many buyers, individual and
corporate, including 11 farmers' cooperative companies. In the
aggregate, they own and operate several hundred country elevators,
widely distributed over the state, and buy and ship about
30,000,000 bushels of wheat a year. They carry on the business
severally, each buying and
Page 268 U. S. 195
shipping independently of the others. All buy with the purpose
of shipping to and selling in terminal markets outside the state,
and carry out this purpose in the manner already described.
The North Dakota Act in terms covers all farm products, but, as
it is chiefly aimed at dealings in wheat and the parties have
discussed it on that basis, our statement of its provisions will be
shortened by treating them as if relating only to wheat.
The title to the Act describes it as one whereby the state
undertakes (a) "to supervise and regulate the marketing" of wheat;
(b) to prevent "unjust discrimination, fraud, and extortion in the
marketing" of such grain, and (c) to establish "a system of
grading, weighing, and measuring" it. The first section declares
the purpose of the state to encourage, promote, and safeguard the
production
Page 268 U. S. 196
of wheat and commerce therein by establishing a uniform system
of grades, weights, and measures. The second and third sections
provide for a state supervisor of grades, weights, and measures,
and give him authority to make and enforce necessary orders, rules,
and regulations to carry out the provisions of the Act.
The fourth section provides that the supervisor shall establish
a system of grades, weights, and measures for wheat,
"and shall in a general way investigate and supervise the
marketing of same with a view of preventing unjust discrimination,
unreasonable margins of profit, confiscation of valuable dockage,
fraud and other unlawful practices;"
declares that whenever grades, weights, and measures for wheat
are established by the Secretary of Agriculture under the United
States Grain Standards Act, they shall become the grades, weights,
and measures of
Page 268 U. S. 197
the state, and concludes by saying:
"In establishing such grades, weights, and measures, the value
of dockage shall be considered, and the buyer shall not be
permitted to retain the same without just compensation. He shall
pay the fair market value for same or separate it and return it to
the producer."
The fifth section provides that no person shall buy any wheat
"by grade" -- excepting where one producer buys from another
producer -- unless it has been inspected and graded by a licensed
inspector under the provisions of the Act, or those of the United
States Grain Standards Act, and is bought by a grade fixed and
recognized thereunder.
The sixth section provides for the issue by the supervisor of
licenses to grade to persons engaged in buying, weighing, and
grading wheat -- including buyers and agents at country elevators
-- where they pass a satisfactory examination. Each license is to
be held on condition that the licensee shall honestly and correctly
determine the grades and dockage and shall likewise weigh the
grain. The seventh section authorizes the supervisor to suspend or
revoke any such license where, after investigation, he finds that
the licensee is incompetent, knowingly or carelessly has graded
grain improperly, has short-weighed it, has taken valuable dockage
without compensation, or has violated any provision of the Act or
of the United States Grain Standards Act.
The eighth section requires every buyer operating an elevator to
obtain from the supervisor a yearly license, the fee for which is
to be adjusted by the supervisor to the capacity of the elevator as
not exceeding $1 for each 1,000 bushels. The ninth section requires
every elevator operator or individual "buying or shipping for
profit," who does not pay cash in advance, to file with the
supervisor a sufficient bond, running to the state, to secure
payment for all wheat bought on credit. The tenth section requires
every buyer operating an elevator to
Page 268 U. S. 198
keep a record of the wheat bought at the elevator and to show
therein the price paid and grades given, and "the price received
and the grades received at the terminal markets," and further
requires him to furnish this information to the supervisor when
requested. The twelfth section makes it unlawful for any person to
grade wheat who does not have a license therefor under the Act or
under the United States Grain Standards Act. And other sections
make every violation of the Act a misdemeanor, and charge the
Attorney General of the state and its other law officers with the
duty of prosecuting such violations.
The Act dispenses with grading where the buying is by sample, by
type, or by certain designations, but this has no bearing here, for
the buying for interstate shipment is all by grade. The Act also
dispenses with grading by an inspector licensed thereunder, if the
grain be graded by an inspector licensed under the United States
Grain Standards Act, but this is an idle provision, for there are
in North Dakota no inspectors licensed under that Act. Such
inspectors are found only at terminal markets, and there is no
terminal market in North Dakota.
This statement of the provisions of the Act discloses its full
purpose and scope, but some of its features of special importance
here will be noticed again as we proceed.
Buying for shipment and shipping to markets in other states,
when conducted as before shown, constitute interstate commerce, the
buying being as much a part of it as the shipping. We so held in
Lemke v. Farmers' Grain Co., supra, following and applying
the principle of prior cases. Later cases have given effect to the
same principle.
Stafford v. Wallace, 258 U.
S. 495,
258 U. S. 516;
Binderup v. Pathe Exchange, 263 U.
S. 291,
263 U. S.
309.
Wheat -- both with and without dockage -- is a legitimate
article of commerce, and the subject of dealings that are
nationwide. The right to buy it for shipment and
Page 268 U. S. 199
to ship it in interstate commerce is not a privilege derived
from state laws and which they may fetter with conditions, but is a
common right the regulation of which is committed to Congress and
denied to the states by the commerce clause of the Constitution.
[
Footnote 2]
The decisions of this Court respecting the validity of state
laws challenged under the commerce clause have established many
rules covering various situations. Two of these rules are specially
invoked here -- one that a state statute enacted for admissible
state purposes and which affects interstate commerce only
incidentally and remotely is not a prohibited state regulation in
the sense of that clause, [
Footnote
3] and the other that a state statute which, by its necessary
operation, directly interferes with or burdens such commerce is a
prohibited regulation and invalid regardless of the purpose with
which it was enacted. [
Footnote
4] These rules, although readily understood and entirely
consistent, are occasionally difficult of application, as where a
state statute closely approaches the line which separates one rule
from the other. As might be expected, the decisions dealing with
such exceptional situations have not been in full accord.
Otherwise, the course of adjudication has been consistent and
uniform.
In our opinion, the North Dakota Act falls certainly within the
second of the two rules just stated. By it, that
Page 268 U. S. 200
state attempts to exercise a large measure of control over all
wheat buying within her limits. About 90 percent of the buying is
in interstate commerce. Through this buying and the shipping in
connection with which it is conducted, the wheat which North Dakota
produces in excess of local needs -- more than 125,000,000 bushels
a year -- finds a market and is made available for consumption in
other states where the local needs greatly exceed the production.
Obviously, therefore, the control of this buying is of concern to
the people of other states as well as to those of North Dakota.
Only by disregarding the nature of this business and neglecting
important features of the Act can it be said to affect interstate
commerce only incidentally and remotely. That it is designed to
reach and cover buying for interstate shipment is not only plain,
but conceded. To conform to recognized commercial practices, such
buying must be by grade, and it is so conducted. The Act prevents
buying by grade unless the buyer secures from the state a grading
license for himself or his agent. The general practice is to buy
and ship without separating the dockage from the wheat, the price
paid carrying a right to both. The Act requires the buyer to
separate the dockage and return it to the producer unless it be
distinctly valued and paid for. A failure to comply with this or
any other requirement of the Act is made cause for revoking the
grading license. It is practically essential that the buyers have
and operate elevators as facilities for handling and loading the
wheat. The Act requires every such buyer to give to the state, if
he buys on credit, a bond securing payment for all wheat so
purchased, to keep a record of all wheat bought, showing the grade
given and price paid at his elevator and the grade fixed and price
received at the terminal market, and to furnish such data to the
state supervisor when requested. The Act also intends and declares
that the state supervisor
Page 268 U. S. 201
"shall in a general way investigate and supervise the marketing"
of the grain with a view of "preventing" various things deemed
unjust or fraudulent, including "unreasonable margins of profit"
and "confiscation of valuable dockage," and, to the end that this
and other provisions may be made effective, the Act invests him
with authority to make and enforce such orders, rules, and
regulations as may be necessary to carry out all of its
provisions.
We think it plain that, in subjecting the buying for interstate
shipment to the conditions and measure of control just shown, the
Act directly interferes with and burdens interstate commerce, and
is an attempt by the state to prescribe rules under which an
important part of such commerce shall be conducted. This no state
can do consistently with the commerce clause.
The defendants cite several cases as making for a different
conclusion, but we do not so read them. In some, the commerce
clause was in no way involved, and those in which it was involved
give no support to what is attempted in the Act now before us. In
Munn v. Illinois, 94 U. S. 113,
94 U. S. 123,
94 U. S. 135,
the question was whether, as respects an elevator devoted to
storing grain for hire, the state could regulate the storage charge
where part of the grain reached the elevator, or was destined to
leave it through the channels of interstate commerce. The Court
held such a regulation admissible because of the public character
of the elevator and because interstate commerce was affected only
incidentally and remotely. No restriction on buying or shipping was
involved. In
Cargill Co. v. Minnesota, 180 U.
S. 452, the court had before it a state statute much of
which had been pronounced unconstitutional by the state court. In
sustaining a provision which remained, the Court said (p.
180 U. S.
470):
"The statute puts no obstacle in the way of the purchase by the
defendant company of grain in the state or the shipment
Page 268 U. S. 202
out of the state of such grain as it purchased."
Plainly the case is not in point here. In
Merchants'
Exchange v. Missouri, 248 U. S. 365, the
statute involved required that public weighers appointed for the
purpose should do the weighing and issue weight certificates at
elevators used for storing or transferring grain for hire, and
prohibited any other person from issuing weight certificates at an
elevator where a public weigher was stationed. Objection was made
to the prohibition on the ground that, as applied to grain received
from or shipped to points without the state, it burdened interstate
commerce. Of course, the objection was overruled, the statute being
an admissible regulation of the business of conducting an elevator
for hire, like the statute considered in
Munn v.
Illinois.
The defendants make the contention that we should assume the
existence of evils justifying the people of the state in adopting
the Act. The answer is that there can be no justification for the
exercise of a power that is not possessed. If the evils suggested
are real, the power of correction does not rest with North Dakota,
but with Congress, where the Constitution intends that it shall be
exercised with impartial regard for the interests of the people of
all the states that are affected.
The defendants further contend that the Act is simply an attempt
on the part of the state, through inspection regulations, to assist
in carrying out the purposes of the United States Grain Standards
Act. We think the Act discloses an attempt to do much more. To
require the dockage be separated by the buyer and be returned to
the producer unless it be distinctly valued and paid for is not
inspection. Nor does the federal Act contain or give support to
such a requirement. To exclude one from buying by grade unless he
secures a grading license for himself or his agent is apart from
what usually is comprehended in inspection. Nothing like this is
found in the federal Act.
Page 268 U. S. 203
On the contrary, it declares that persons licensed to grade
under it shall not be interested in any grain elevator or in buying
or selling grain, or be in the employ of any owner or operator of a
grain elevator. Equally unrelated to inspection are the provisions
exacting a bond to pay for all wheat bought on credit, requiring
that a record be kept of the price paid in buying at the local
elevator and the price received in selling at the terminal market,
and authorizing the state supervisor to investigate and supervise
the marketing with a view to preventing unreasonable margins of
profit. None of these finds any example in the federal Act, and
their presence in the state Act makes it a very different measure
from what it would be without them. Aside from the adoption of the
grades established and promulgated under the federal Act, we find
little in the state Act to support, and much to refute, the
assertion that it is merely an attempt to carry out the purposes of
the federal Act.
For the reasons here given, we hold that the Act is a direct
regulation of the buying of grain in interstate commerce, and
therefore invalid, and that the district court rightly granted the
injunction.
Decree affirmed.
MR. JUSTICE BRANDEIS dissents.
[
Footnote 1]
Extracts from Farmers' Bulletin No. 1118, United States
Department of Agriculture, pp. 5, 21:
"The foreign material in wheat may seriously affect its value in
that it often increases the cost of milling, and causes injury to
the baking qualities of flour. Therefore that factor is considered
in the inspecting and grading of wheat. The amount of dockage
present has a bearing upon the commercial value of a lot of wheat.
Especially when present in large amounts, it is a factor of
considerable importance to the parties interested in the marketing
or storage of grain."
"All of the following methods of handling dockage are employed
in normal times, and all are generally found to be
satisfactory:"
"1. The wheat is cleaned on the farm, and only the clean wheat
is hauled to market."
"2. The wheat delivered by the farmer is run over the proper
cleaning machinery at the country elevator or mill, and the dockage
is separated and returned to the farmer."
"3. The wheat is screened by the local buyer, payment is made to
the seller on the basis of the grade of the clean wheat only, and
the dockage is retained by the elevator or mill as compensation for
services in removing it."
"4. The wheat is screened by the local buyer, payment is made to
the seller on the basis of the grade of the clean wheat, and the
dockage is retained by the elevator or mill, and if the value of
the dockage separated exceeds the cost of separation, payment is
made for it."
"5. The wheat containing the dockage is consigned to the large
market by the country mill or elevator, where the dockage is
separated and its value is taken into consideration in connection
with the price paid for the entire carload of dockage-free wheat.
In some localities, it is the practice to make a small charge for
such services, while in other localities, the services are
performed without cost."
"6. The wheat containing the dockage is sold to a local buyer,
who, in turn consigns it to the terminal market with the
understanding that the price secured will be based upon the
commercial value of both the wheat and the dockage."
"The first two methods mentioned, in which only the screened
wheat is delivered to the local buyer, tend to minimize the
differences of opinion with regard to the grade of wheat delivered,
and therefore establish greater confidence in the grades given by
the local buyer. Furthermore, these methods enable the farmer to
utilize the foreign material for feed, or to sell it locally."
Extracts from Farmers' Bulletin No. 1287, United States
Department of Agriculture, pp. 5, 21:
"The benefits derived from clean wheat are shared by the farmer
and the country elevator. If the farmer cleans his wheat before
delivering it to the elevator, he saves the cost of hauling the
dockage to market, and he may be able to use it to advantage for
feed, and make a saving in his feed bill. In many cases, these
savings will repay the farmer for the time and trouble required to
clean his wheat. The contention as to the amount of dockage in the
wheat which frequently arises between the farmer and the elevator
operator will be avoided if clean wheat is delivered. The price
paid for clean wheat at the elevator is usually more per bushel
than the price paid for unclean wheat, because the elevator
operator must consider either the cost of removing the dockage or
the freight charges on it to the terminal market."
"The farm is the logical place to clean wheat, preferably as
part of the thrashing operation, because the necessary power is
available, and later handling is avoided. Since satisfactory
cleaning is not always possible under present conditions at
thrashing time, other means of cleaning must be used."
"The fanning mill is the most practical cleaning machine for
farm use, and, if properly adjusted and operated, will clean wheat
satisfactorily for commercial purposes with but little loss of
wheat in the screenings."
"The operators of country elevators are beginning to realize
more keenly each year that it pays to clean wheat before shipping
it to the terminal markets. Many of the country elevators not only
clean wheat for themselves, but for the farmers as well. The latter
is known as 'custom cleaning,' for which country elevators located
in the central Northwest ordinarily charge from 2 to 3 cents per
bushel, based on the gross weight of the grain before cleaning. A
higher charge is made for cleaning the grain for seed purposes. The
shrinkage in the weight of the grain is borne by the owner, but the
screenings may be returned to him. The returns from custom cleaning
add a considerable amount to the income of some country elevators
during the year."
[
Footnote 2]
Crutcher v. Kentucky, 141 U. S. 47,
141 U. S. 57;
Western Union Telegraph Co. v. Kansas, 216 U. S.
1,
216 U. S. 21;
Oklahoma v. Kansas Natural Gas Co., 221 U.
S. 229,
221 U. S. 260;
Buck Stove Co. v. Vickers, 226 U.
S. 205,
226 U. S. 215;
Adams Express Co. v. New York, 232 U. S.
14,
232 U. S. 31;
Dahnke-Walker Co. v. Bondurant, 257 U.
S. 282,
257 U. S.
291-292.
[
Footnote 3]
Sherlock v. Alling, 93 U. S. 99,
93 U. S.
102-104;
Kidd v. Pearson, 128 U. S.
1,
128 U. S. 22
et seq.; Geer v. Connecticut, 161 U.
S. 519,
161 U. S. 532;
Sligh v. Kirkwood, 237 U. S. 52,
237 U. S.
59-61.
[
Footnote 4]
Crutcher v. Kentucky, 141 U. S. 47,
141 U. S. 56,
141 U. S. 58;
Western Union Telegraph Co. v. Kansas, 216 U. S.
1,
216 U. S. 27;
International Paper Co. v. Massachusetts, 246 U.
S. 135,
246 U. S. 141;
Western Union Telegraph Co. v. Foster, 247 U.
S. 105,
247 U. S. 114;
Pennsylvania v. West Virginia, 262 U.
S. 553,
262 U. S. 596;
Air-Way Corp. v. Day, 266 U. S. 71,
266 U. S.
81.