1. By the statutes of Oklahoma, cotton gins operated for the
ginning of seed cotton for the public for profit are declared to be
public utilities in a public business, and no one may engage in the
business without first securing a permit from a public commission,
which is empowered to regulate the business and its rates and
charges, as in the case of transportation and transmission
companies.
Held: that the right of one who has complied
with the statutes and secured his permit is not a mere license, but
a franchise granted by the state in consideration of the
performance of a public service, and, as such it constitutes a
property right within the protection of the Fourteenth Amendment.
P.
278 U. S.
519.
Page 278 U. S. 516
2. While the franchise thus acquired does not preclude the state
from making similar valid grants to others, it is exclusive against
attempts to operate a competing gin without a permit or under a
void permit, in either of which events the owner may resort to a
court of equity to restrain the illegal operation as an invasion of
his property rights if it threaten an impairment of his business.
P.
278 U. S.
521.
3. An individual who obtained his permit to operate a cotton gin
upon showing a public necessity therefor, as required by the
statute,
held entitled to an injunction restraining the
state commission from granting a permit to a corporation without
such a showing under a separable provision of the statute violating
the equal protection clause of the Fourteenth Amendment.
Id.
. 4. A state statute regulating the business of ginning cotton
for the general public for profit which permits an individual to
engage in such business only upon his first showing a public
necessity therefor, but allows a corporation to engage in the same
business, in the same locality, without such showing, discriminates
against the individual in violation of the equal protection clause.
The classification attempted is essentially arbitrary because based
upon no real or substantial differences reasonably related to the
subject of the legislation. P.
278 U. S.
521.
5. A cooperative ginning corporation formed under Oklahoma
Comp.Stats.1921, § 5637,
et seq., having a capital stock
which, up to a certain amount, may be subscribed for by anyone;
which is allowed to do business for others than its members, and to
make profits and declare dividends not exceeding 8% per annum, and
to apportion the remainder of its earnings among its members
ratably upon the amount of products sold by them to the corporation
is not a mutual association. P.
278 U. S.
523.
6. A proviso added to an existing statutory provision by a
subsequent legislature, and the effect of which if it were part of
the original enactment would be to render the whole
unconstitutional, may be treated as a separate nullity, allowing
the original to stand. P.
278 U. S.
525.
7. In such case, one who sought and obtained property rights
under the original and valid part of the statute is not estopped
from attacking the proviso. P.
278 U. S.
527.
26 F.2d 508 reversed.
Appeal from a final decree of the district court, of three
judges, dismissing a bill to enjoin the Corporation
Page 278 U. S. 517
Commission of Oklahoma from issuing to a corporation a license
to operate a cotton gin, and to enjoin the corporation from
establishing and operating one. At an earlier stage, there was an
order denying a preliminary injunction, which was affirmed by this
Court, 274 U.S. 719.
MR. JUSTICE SUTHERLAND delivered the opinion of the Court.
Appellant owns a cotton ginning business in the City of Durant,
Oklahoma, which he operates under a permit from the State
Corporation Commission. By a statute of Oklahoma, originally passed
in 1915 and amended from time to time thereafter, cotton gins are
declared to be public utilities, and their operation for the
purpose of ginning seed cotton to be a public business.
Comp.Stats.1921, § 3712. The commission is empowered to fix their
charges and to regulate and control them in other respects. Section
3715. No gin can be operated without a license from the commission,
and in order to secure such license, there must be a satisfactory
showing of public necessity. Section 3714, as amended by c. 109,
Session Laws 1925. The only substantial amendment to this section
made by the act of 1925 is to add the proviso:
"Provided, that, on the presentation of a petition for the
establishment of a gin to be run cooperatively, signed by one
hundred (100) citizens and taxpayers of the community where the gin
is to be located, the Corporation Commission shall issue a license
for said gin."
By an act of the state legislature passed in 1917
(Comp.Stats.1921, § 5599), cooperative agricultural or
Page 278 U. S. 518
horticultural associations not having capital stock or being
conducted for profit may be formed for the purpose of mutual help
by persons engaged in agriculture or horticulture. Under a statute
passed in 1919 (Comp.Stats.1921, § 5637
et seq.), 10 or
more persons may form a corporation for the purpose of conducting,
among others, an agricultural or horticultural business upon a
cooperative plan. A corporation thus formed is authorized to issue
capital stock to be sold at not less than its par value. The number
of shares which may be held by one person, firm, or corporation is
limited. Dividends may be declared by the directors at a rate not
to exceed 8 percent per annum. Provision is made for setting aside
a surplus or reserve fund, and 5 percent may be set aside for
educational purposes. The remainder of the profits of the
corporation must be apportioned and paid to its members ratably
upon the amounts of the products sold to the corporation by its
members and the amounts of the purchases of members from the
corporation, but the corporation may adopt bylaws providing for the
apportionment of such profits in part to nonmembers upon the
amounts of their purchases and sales from or to the
corporation.
The Durant Cooperative Gin Company, one of the appellees, was
organized in 1926 under the act of 1919. After its incorporation,
the company made an application to the commission for a permit to
establish a cotton gin at Durant, accompanying its application with
a petition signed by 100 citizens and taxpayers, as required by the
statutory proviso above quoted. Appellant protested in writing
against the granting of such permit, and there was a hearing. The
commission, at the hearing, rejected an offer to show that there
was no public necessity for the establishment of an additional gin
at Durant, and held that the proviso made it mandatory to grant the
permit applied for without regard to necessity. Thereupon,
Page 278 U. S. 519
appellant brought this suit to enjoin the commission from
issuing the permit prayed for and to enjoin the Durant company from
the establishment of a cotton gin at Durant, upon the ground that
the proviso, as construed and applied by the commission (
see
Mont. Bank v. Yellowstone County, 276 U.
S. 499,
276 U. S.
504), was invalid as contravening the due process and
equal protection of the law clauses of the Fourteenth Amendment.
The court below, consisting of three judges under § 266, Judicial
Code, denied the prayer for an injunction and entered a final
decree dismissing the bill. 26 F.2d 508.
1. We first consider the preliminary contention made on behalf
of appellees that appellant has no property right to be affected by
operations of the Durant company, and therefore no standing to
invoke the provisions of the Fourteenth Amendment or to appeal to a
court of equity.
It already appears that cotton gins are declared by the Oklahoma
statute to be public utilities, and their operation for the purpose
of ginning seed cotton to be public business. No one can operate a
cotton gin for such purpose without securing a permit from the
commission. In their regulation and control, the commission is
given the same authority which it has in respect of transportation
and transmission companies, and the same power to fix rates,
charges, and regulations. Comp.Stats.1921, §§ 3712, 3713, 3715.
Under § 3714 as amended,
supra (laying the proviso out of
consideration for the moment), the commission may deny a permit for
the operation of a gin where there is no public necessity for it,
and may authorize a new ginning plant only after a showing is made
that such plant is a needed utility. Both parties definitely
concede the validity of these provisions, and, for present purposes
at least, we accept that view.
It follows that the right to operate a gin and to collect tolls
therefor, as provided by the Oklahoma statute, is not
Page 278 U. S. 520
a mere license, but a franchise, granted by the state in
consideration of the performance of a public service, and as such
it constitutes a property right within the protection of the
Fourteenth Amendment.
See Walla Walla v. Walla Walla Water
Co., 172 U. S. 1,
172 U. S. 9;
California v. Pacific Railroad Co., 127 U. S.
1,
127 U. S. 40-41;
Monongahela Navigation Co. v. United States, 148 U.
S. 312,
148 U. S.
328-329;
Owensboro v. Cumberland Telephone Co.,
230 U. S. 58,
230 U. S. 64-66;
Boise Water Co. v. Boise City, 230 U. S.
84,
230 U. S. 90-91;
McPhee & McGinnity Co. v. Union Pac. R. Co., 158 F. 5,
10-11.
In
California v. Pacific Railroad Co., supra, pp.
127 U. S. 40-41,
a franchise is defined as
"a right, privilege, or power of public concern, which ought not
to be exercised by private individuals at their mere will and
pleasure, but should be reserved for public control and
administration, either by the government directly or by public
agents, acting under such conditions and regulations as the
government may impose in the public interest, and for the public
security. . . . No private person can establish a public highway,
or a public ferry, or railroad, or charge tolls for the use of the
same, without authority from the legislature, direct or derived.
These are franchises. . . . The list might be continued
indefinitely."
Specifically, the foregoing authorities establish that the right
to supply gas or water to a municipality and its inhabitants, the
right to carry on the business of a telephone system, to operate a
railroad, a street railway, city waterworks or gasworks, to build a
bridge, operate a ferry, and to collect tolls therefor, are
franchises. And these are but illustrations of a more comprehensive
list, from which it is difficult, upon any conceivable ground, to
exclude a cotton gin, declared by statute to be a public utility
engaged in a public business, the operation of which is precluded
without a permit from a state governmental agency, and which is
subject to the same authority as that exercised over transportation
and transmission companies in respect
Page 278 U. S. 521
of rates, charges, and regulations. Under these conditions, to
engage in the business is not a matter of common right, but a
privilege, the exercise of which, except in virtue of a public
grant, would be in derogation of the state's power. Such a
privilege, by every legitimate test, is a franchise.
Appellant, having complied with all the provisions of the
statute, acquired a right to operate a gin in the City of Durant by
valid grant from the state, acting through the corporation
commission. While the right thus acquired does not preclude the
state from making similar valid grants to others, it is,
nevertheless, exclusive against any person attempting to operate a
gin without obtaining a permit, or, what amounts to the same thing,
against one who attempts to do so under a void permit, in either of
which events the owner may resort to a court of equity to restrain
the illegal operation upon the ground that such operation is an
injurious invasion of his property rights. 6 Pomeroy's Equity
Jurisprudence, 3d ed. (2 Equitable Remedies) §§ 583, 584;
People's Transit Co. v. Henshaw, 20 F.2d 87, 90;
Bartlesville El. L. & P. Co. v. Bartlesville I. R.
Co., 26 Okl. 453;
Patterson v. Wollmann, 5 N.D. 608,
611;
Millville Gas L. Co. v. Vineland L. & P. Co., 72
N.J.Eq. 305, 307. The injury threatened by such an invasion is the
impairment of the owner's business, for which there is no adequate
remedy at law.
If the proviso dispensing with a showing of public necessity on
the part of the Durant and similar companies is invalid as claimed,
the foregoing principles afford a sufficient basis for the
maintenance of the present suit, against not only the Durant
company, but the members of the commission who threaten to issue a
permit for the establishment of a new gin by that company without a
showing of public necessity.
2. Is, then, the effect of the proviso to deny appellant the
equal protection of the laws within the meaning of the Fourteenth
Amendment? As the proviso was construed
Page 278 U. S. 522
and applied by the commission and by the court below, its effect
is to relieve all corporations organized under the act of 1919 from
an onerous restriction upon the right to engage in a public
business which is imposed by the statute upon appellant and other
individuals, as well as corporations organized under general law,
engaging in such business. That a greater burden thereby is laid
upon the latter than upon the former is clear. Immunity to one from
a burden imposed upon another is a form of classification, and
necessarily results in inequality, but not necessarily that
inequality forbidden by the Constitution. The inequality thus
prohibited is only such as is actually and palpably unreasonable
and arbitrary.
Arkansas Gas Co. v. Railroad Comm'n,
261 U. S. 379,
261 U. S. 384,
and cases cited.
The purpose of the clause in respect of equal protection of the
laws is to rest the rights of all persons upon the same rule under
similar circumstances.
Louisville Gas Co. v. Coleman,
277 U. S. 32,
277 U. S. 37.
This Court has several times decided that a corporation is as much
entitled to the equal protection of the laws as an individual.
Quaker City Cab Co. v. Pennsylvania, 277 U.
S. 389,
277 U. S. 400;
Kentucky Finance Corp. v. Paramount Exch., 262 U.
S. 544,
262 U. S. 550;
Gulf, Colorado & Santa Fe Ry. v. Ellis, 165 U.
S. 150,
165 U. S. 154.
The converse, of course, is equally true. A classification which is
bad because it arbitrarily favors the individual as against the
corporation certainly cannot be good when it favors the corporation
as against the individual. In either case, the classification, in
order to be valid,
"must rest upon some ground of difference having a fair and
substantial relation to the object of the legislation, so that all
persons similarly circumstanced shall be treated alike."
"
Royster Guano Co. v. Virginia, 253 U. S.
412,
253 U. S. 415;
Air-way
Corp. v. Day, 266 U. S. 71,
266 U. S.
85;
Schlesinger v. Wisconsin, 270 U. S.
230,
270 U. S. 240. That is to
say, mere difference is not enough; the attempted
classification"
"must always rest upon some difference which bears a
reasonable
Page 278 U. S. 523
and just relation to the act in respect to which the
classification is proposed and can never be made arbitrarily and
without any such basis."
"
Gulf, Colorado & Santa Fe Ry. v. Ellis,
165 U. S.
150,
165 U. S. 155."
Louisville Gas Co. v. Coleman, supra, p.
277 U. S.
37.
By the terms of the statute here under consideration, appellant,
an individual, is forbidden to engage in business unless he can
first show a public necessity in the locality for it; while
corporations organized under the act of 1919, however numerous, may
engage in the same business in the same locality no matter how
extensively the public necessity may be exceeded. That the immunity
thus granted to the corporation is one which bears injuriously
against the individual does not admit of doubt, since, by
multiplying plants without regard to necessity, the effect well may
be to deprive him of business which he would otherwise obtain if
the substantive provision of the statute were enforced.
It is important to bear in mind that the Durant company was not
organized under the act of 1917, but under that of 1919. The former
authorizes the formation of an association for mutual help, without
capital stock, not conducted for profit, and restricted to the
business of its own members, except that it may act as agent to
sell farm products and buy farm supplies for a nonmember, but as a
condition may impose upon him a liability, not exceeding that of a
member, for the contracts, debts and engagements of the
association, such services to be performed at the actual cost
thereof including a
pro rata part of the overhead
expenses. Comp.Stats.1921, § 5608. Under this exception, the
difference between a nonmember and a member is not of such
significance or the authority conferred of such scope as to have
any material effect upon the general purposes or character of the
corporation as a mutual association. As applied to corporations
organized under the 1917 act, we have no reason to doubt that
the
Page 278 U. S. 524
classification created by the proviso might properly be upheld.
American Sugar Refining Co. v. Louisiana, 179 U. S.
89;
Warehouse Co. v. Tobacco Growers,
276 U. S. 71. A
corporation organized under the act of 1919, however, has capital
stock, which, up to a certain amount, may be subscribed for by any
person, firm or corporation; is allowed to do business for others;
to make profits and declare dividends, not exceeding eight percent
per annum, and to apportion the remainder of its earnings among it
members ratably upon the amount of products sold by them to the
corporation. Such a corporation is in no sense a mutual
association. Like its individual competitor, it does business with
the general public for the sole purpose of making money. Its
members need not even be cotton growers. They may be -- all or any
of them -- bankers or merchants or capitalists having no interest
in the business differing in any respect from that of the members
of an ordinary corporation. The differences relied upon to justify
the classification are, for that purpose, without substance. The
provision for paying a portion of the profits to members, or, if so
determined, to nonmembers, based upon the amounts of their sales to
or purchases from the corporation, is a device which, without
special statutory authority, may be and often is resorted to by
ordinary corporations for the purpose of securing business. As a
basis for the classification attempted, it lacks both relevancy and
substance. Stripped of immaterial distinctions and reduced to its
ultimate effect, the proviso, as here construed and applied, baldly
creates one rule for a natural person and a different and contrary
rule for an artificial person, notwithstanding the fact that both
are doing the same business with the general public and to the same
end -- namely, that of reaping profits. That is to say, it produces
a classification which subjects one to the burden of showing a
public necessity for his business, from which it relieves the
other, and is essentially arbitrary
Page 278 U. S. 525
because based upon no real or substantial differences having
reasonable relation to the subject dealt with by the legislation.
Power Co. v. Saunders, 274 U. S. 490,
274 U. S. 493;
Louisville Gas Co. v. Coleman, supra, p.
277 U. S. 39;
Quaker City Cab. Co. v. Pennsylvania, supra, p.
277 U. S.
402.
3. The further question must be answered: are the proviso and
the substantive provisions which it qualifies separable, so that
the latter may stand although the former has fallen? If the answer
be in the negative -- that is to say, if the parts of the statute
be held to be inseparable -- the decree below should be affirmed,
since, in that event, although the proviso be bad, the inequality
created by it would disappear with the fall of the entire statute,
and no basis for equitable relief would remain. But, for reasons
now to be stated, we are of opinion that the substantive provisions
of the statute are severable, and may stand independently of the
proviso.
If § 3714
as originally passed had contained the
proviso, the effect would be to render the entire section invalid,
because then the result of upholding the substantive part of the
section notwithstanding the invalidity of the proviso would have
been to make applicable to the Durant company and others similarly
organized, the requirement in respect of a showing of public
necessity, although the legislative will contemporaneously
expressed as part of the same act was to the contrary. In this
state of the matter, to hold otherwise would be to extend the scope
of the law in that regard so as to embrace corporations which the
legislature passing the statute had, by its very terms, expressly
excluded, and thus to go in the face of the rule that, where the
excepting proviso is found unconstitutional, the substantive
provisions which it qualifies cannot stand.
Davis v.
Wallace, 257 U. S. 478,
257 U. S.
484.
"For all the purposes of construction, [the proviso] is to be
regarded as part of the act. The
meaning of the
legislature must be gathered from all they have said, as well from
that which
Page 278 U. S. 526
is ineffective for want of power as from that which is
authorized by law."
State ex rel. McNeal v. Dombaugh, 20 Ohio St. 167,
174-175.
But the proviso here in question was not in the original
section. It was added by way of amendment many years after the
original section was enacted. If valid, its practical effect would
be to repeal by implication the requirement of the existing statute
in respect of public necessity insofar as the Durant and similar
corporations are concerned. But since the amendment is void for
unconstitutionality, it cannot be given that effect, "because an
existing statute cannot be recalled or restricted by anything short
of a constitutional enactment."
Davis v. Wallace, supra,
p.
257 U. S. 485.
To this effect also is
Truax v. Corrigan, 257 U.
S. 312,
257 U. S.
341-342. In that case, there had been in force in
Arizona, both as a state and a territory, for many years a general
statute granting authority to judges of the courts of first
instance to issue writs of injunction. The statute was amended so
as to except from its operation certain cases between employers and
employees. The amendment was declared invalid as denying the equal
protection of the laws, but the general provision of the statute as
it originally stood was upheld upon the ground that it had been in
force for many years, and that an exception in the form of an
unconstitutional amendment could not be given the effect of
repealing it.
And see Waters-Pierce Oil Co. v. Texas,
177 U. S. 28,
177 U. S.
47.
Here, it is conceded that the statute, before the amendment, was
entirely valid. When passed, it expressed the will of the
legislature which enacted it. Without an express repeal, a
different legislature undertook to create an exception, but, since
that body sought to express its will by an amendment which, being
unconstitutional, is a nullity, and therefore powerless to work any
change in
Page 278 U. S. 527
the existing statute, that statute must stand as the only valid
expression of the legislative intent.
In passing upon a similar situation, the Supreme Court of
Michigan, speaking through Judge Cooley, in
Campau v.
Detroit, 14 Mich. 276, 286, said:
"But nothing can come in conflict with a nullity, and nothing is
therefore repealed by this act on the ground solely of its being
inconsistent with a section of this law which is entirely
unconstitutional and void."
In
Carr, Auditor v. State ex rel. Coetlosquet, 127 Ind.
204, 215, the state supreme court disposed of the same point in
these words:
"We suppose it clear that no law can be changed or repealed by a
subsequent act which is void because unconstitutional. . . . An act
which violates the Constitution has no power, and can, of course,
neither build up nor tear down. It can neither create new rights
nor destroy existing ones. It is an empty legislative declaration
without force or vitality."
See also People v. Butler Street Foundry, 201 Ill. 236,
257-259;
People v. Fox, 294 Ill. 263, 269;
McAllister
v. Hamlin, 83 Cal. 361, 365;
State ex rel. v. Mills,
231 Mo. 493, 498-499;
Ex parte Davis, 21 F. 396, 397. The
question is not affected by the fact that the amendment was
accomplished by inserting the proviso in the body of the original
section and reenacting the whole at length.
Truax v. Corrigan,
supra; People v. Butler Street Foundry, supra, pp. 258-259;
State ex rel. v. Mills, supra, p. 499.
4. It is true that appellant applied for and obtained a permit
to do business under the statute to which it was sought to attach
the proviso in question. Is he thereby precluded from assailing the
proviso upon the ground that one who claims the benefit of a
statute may not assert its invalidity? It is not open to question
that one who has acquired rights of property necessarily based upon
a statute may not attack that statute as unconstitutional, for he
cannot both assail it and rely upon it in the same proceeding.
Hurley
Page 278 U. S. 528
v. Commission of Fisheries, 257 U.
S. 223,
257 U. S. 225.
But here, the proviso under attack, having been adopted by a
subsequent act and being invalid, had no effect, as we have already
said, upon the provisions of the statute. As applied to this case,
it began and ended as a futile attempt by the legislature to bring
about a change in the law which a previous legislature had enacted.
For this purpose, and as construed and applied below, it was a
nullity, wholly "without force or vitality," leaving the provisions
of the existing statute unchanged. It necessarily results that
appellant's rights came into being and owed their continued
existence wholly to that statute, disconnected from the ineffective
proviso, and it is that statute, so disconnected, which measures
the extent to which he may enjoy and defend such rights. In seeking
and obtaining the benefits of the statute, appellant proceeded
without regard to the proviso, neither affirming nor denying nor in
contemplation of law acquiescing in its validity, and his action
cannot be made a basis upon which to rest a successful claim of an
estoppel
in pais or of a waiver of the right to maintain
the constitutional challenge here made.
We conclude that the proviso is unconstitutional as contravening
the equal protection clause of the Fourteenth Amendment; that the
remainder of the statute is separable, and affords the sole rule in
respect of the questions here to be determined; that the
Corporation Commission is without power to issue permits to
corporations organized under the act of 1919 without a showing of
public necessity; that the Durant company is without authority to
do business in the absence of a permit thus issued, and that
appellant is entitled to the relief for which he prays.
Decree reversed.
MR. JUSTICE BRANDEIS, dissenting.
Under § 3714 of Oklahoma Compiled Statutes 1921, as amended by
c. 109 of the Laws of 1925, Frost secured
Page 278 U. S. 529
from the Corporation Commission a license to operate a cotton
gin in the City of Durant. [
Footnote 1] Later, the Durant Cooperative Gin Company
applied to the Commission under that statute for a license to
operate a gin in the same city. In support of its application, it
presented a certificate of organization under Chapter 147 of the
Laws of 1919, entitled "An act providing for the organization and
regulation of cooperative corporations" (Oklahoma Compiled Statutes
1921, §§ 5637-5652), and a petition signed by one hundred citizens
and taxpayers of that community requesting that the license be
issued. Frost objected to the granting of a license on the ground
that there was no necessity for an additional gin in that city. The
Commission ruled that, upon the showing made, it was obliged by §
3714, as so amended, to issue a license without hearing evidence as
to necessity, and indicated its purpose to issue the license.
Thereupon, Frost brought this suit under § 266 of the Judicial Code
against the Commission, the Attorney General, and the Durant
Company to enjoin granting the license. A restraining order issued
upon the filing of the bill.
The case was first heard by three judges upon application for an
interlocutory injunction and upon defendants' motion to dismiss.
Frost contended that his license had conferred a franchise; that
from it there arose in him the property right to be protected
against further local competition, unless existing ginning
facilities were inadequate; that, in the absence of a showing of
necessity, competition
Page 278 U. S. 530
by the Durant Company would be illegal, and that to issue a
license which authorized such competition would take Frost's
property without due process of law and deny to him the equal
protection of the law. The district court denied both the
injunction and the motion to dismiss, and it dissolved the
restraining order. Upon direct appeal by Frost, this Court affirmed
the interlocutory decree per curiam in
Frost v. Corporation
Commission, 274 U.S. 719, on the authority of
Chicago
Great Western Ry. Co. v. Kendall, 266 U. S.
94,
266 U. S. 100.
Thereupon, the facts being stipulated, the case was submitted in
the district court on final hearing to the same judges, and a
decree was entered dismissing the bill. 26 F.2d 508. This appeal
presents the same questions which were argued on the appeal from
the interlocutory decree.
Under the Oklahoma Act of 1907, cotton gins were held subject to
regulation by the Corporation Commission. [
Footnote 2] In 1915, the legislature declared them
public utilities, and restriction of competition was introduced by
prohibiting operation of a gin without a license from the
Commission. That statute required that a license issue for proper
gins already established, but directed that none should issue for a
new gin in any community already adequately supplied, except upon
"the presentation of a petition signed by not less than fifty
farmer petitioners of the immediate vicinity." Session Laws 1915,
c. 176 (Oklahoma Compiled Statutes 1921, §§ 3712-3718). Chapter 191
of the Session Laws of 1923 struck out of § 3714 the provision
referring to farmers. But in 1925 there was inserted in lieu
thereof the proviso,
"that, on the presentation of a petition for the establishment
of a gin to be run cooperatively, signed by one hundred (100)
Page 278 U. S. 531
citizens and taxpayers of the community where the gin is to be
located, the Corporation Commission shall issue a license for said
gin."
Session Laws 1925, c. 109. In 1926, the Supreme Court of
Oklahoma held in
Choctaw Cotton Oil Co. v. Corporation
Commission, 121 Okl. 51, 52, that a corporation organized
under Chapter 147 of the Laws of 1919 was run cooperatively within
the meaning of § 3714 as so amended.
The attack upon the statute is rested mainly upon the contention
that, by requiring issuance of a license to so-called cooperative
corporations organized under the law of 1919, the statute as
amended in 1925 creates an arbitrary classification. The
classification is said to be arbitrary because the differences
between such concerns and commercial corporations or individuals
engaged in the same business are in this connection not material.
The contention rests, I think, upon misapprehensions of fact. The
differences are vital, and the classification is a reasonable one.
Before stating why I think so, other grounds for affirming the
judgment should be mentioned.
First. The bill alleges, and the parties have
stipulated, that Frost was licensed under § 3714 of the Compiled
Statutes as amended by the Act of 1925. The stipulation does not
show that, prior to the amendment he held any license. His alleged
property right to conditional immunity from competition rests
wholly on the statute now challenged. It is settled that one cannot
in the same proceeding both rely upon a statute and assail it.
Hurley v. Commission of Fisheries, 257 U.
S. 223,
257 U. S. 225.
Compare Great Falls Mfg. Co. v. Atty. General,
124 U. S. 581,
124 U. S.
598-599;
Wall v. Parrot Silver & Copper
Co., 244 U. S. 407,
244 U. S.
411-412;
St. Louis Malleable Casting Co. v.
Prendergast Co., 260 U. S. 469,
260 U. S.
472-473;
Buck v. Kuykendall, 267 U.
S. 307,
267 U. S. 316;
Booth Fisheries Co. v. Industrial Commission, 271 U.
S. 208,
271 U. S. 211;
United Fuel Gas Co. v. Railroad Commission, ante, p.
278 U. S. 300.
This established rule requires affirmance of the judgment
below.
Page 278 U. S. 532
Second. Frost claims that to grant a license to the
Durant Company without a showing of public necessity would involve
taking his property without due process. The only property which he
asserts would be so taken is the alleged right to be immune from
the competition of persons operating without a valid license. But
for the statute, he would obviously be subject to competition from
anyone. Whether the license issued to him under § 3714 conferred
upon him the property right claimed is a question of statutory
construction, and thus, ordinarily, a question of state law.
"Whether state statutes shall be construed one way or another is a
state question, the final decision of which rests with the courts
of the state."
Hebert v. Louisiana, 272 U.
S. 312,
272 U. S. 316.
In the absence of a decision of the question by the highest court
of the state, this Court would be obliged to construe the statute,
and in doing so it might be aided by consideration of the decisions
of courts of other states dealing with like statutes. But the
Supreme Court of Oklahoma has decided the precise question in
Choctaw Cotton Oil Co. v. Corporation Commission, 121 Okl.
51, 52. It held that a license under § 3714 does not confer the
property right claimed, saying:
"What property rights are taken from petitioners by licensing
another gin, under the foregoing proviso? What rights of any kind
could the licensing of another gin affect? It does not disturb the
property of petitioners, nor prevent the free operation of their
gins. The only right which could be affected by such license is the
right of petitioners to operate their gin without competition, a
right which is not secured to them either by the state or federal
Constitution, hence the contention as to taking their property
without due process of law cannot be sustained."
As no property right of Frost is invaded -- his suit must fail
however objectionable the statute may be.
Third. Frost claims that to issue a license to the
Durant Company without a showing of necessity would
Page 278 U. S. 533
violate the quality clause. Whether the license was issued to
Frost upon a showing of necessity does not appear. The mere
granting of a license to the Durant Company later on different, and
perhaps easier, terms would not violate Frost's constitutional
right to equality, since he has already secured his license under
the statute as written. The fact that someone else similarly
situated may hereafter be refused a license, and would be thereby
discriminated against, is obviously not of legal significance here.
Southern Railway Co. v. King, 217 U.
S. 524;
Standard Stock Food Co. v. Wright,
225 U. S. 540;
Jeffrey Mfg. Co. v. Blagg, 235 U.
S. 571;
Arkadelphia Co. v. St. Louis S.W. Ry.
Co., 249 U. S. 134,
249 U. S. 149;
Liberty Warehouse Co. v. Tobacco Growers, 276 U. S.
71.
Fourth. Frost claims on another ground that his
constitutional rights have been violated. He says that what the
statute and the Supreme Court of Oklahoma call a license is in law
a franchise; that a franchise is a contract; that, where a
constitutional question is raised, this Court must determine for
itself what the terms of a contract are, and that this franchise
should be construed as conferring the right to the conditional
immunity from competition which he claims. None of the cases cited
lend support to the contention that the license here issued is a
franchise. [
Footnote 3] They
hold merely that subordinate political
Page 278 U. S. 534
bodies, as well as a legislature, may grant franchises, and that
violations of franchise rights are remediable, whoever the
transgressor. Moreover, the limited immunity from competition
claimed as an incident of the license was obviously terminable at
any moment.
Compare Louisville Bridge Co. v. United
States, 242 U. S. 409. It
was within the power of the legislature at any time after the
granting of Frost's license to abrogate the requirement of a
certificate of necessity, thus opening the business to the
competition of all comers. It is difficult to see how the lesser
enlargement of the possibilities of competition by a license
granted under the 1925 proviso could operate as a denial of
constitutional rights.
It must also be borne in mind that a franchise to operate a
public utility is not like the general right to engage in a lawful
business, part of the liberty of the citizen; that it is a special
privilege which does not belong to citizens generally; that the
state may, in the exercise of its police power, make that a
franchise or special privilege which at common law was a business
open to all; [
Footnote 4] that
a special privilege is conferred by the state upon selected
persons; that it is of the essence of a special privilege that the
franchise may be granted or withheld at the pleasure of the state;
that it may be granted to corporations only, thus excluding all
individuals, [
Footnote 5] and
that the Federal Constitution imposes no limits upon the state's
discretion in this respect. [
Footnote 6] In
New Orleans Gas Co. v. Louisiana Light
Co., 115 U. S. 650, the
plaintiff,
Page 278 U. S. 535
claiming an exclusive franchise, sought to enjoin the
competition of the defendant. The Court said (p.
115 U. S.
659):
"The right to operate gas works and to illuminate a city is not
an ancient or usual occupation of citizens generally. No one has
the right to . . . carry on the business of lighting the streets .
. . without special authority from the sovereign. It is a franchise
belonging to the state, and, in the exercise of the police power,
the state could carry on the business itself or select one or
several agents to do so."
The demurrer to the bill was dismissed. In
New Orleans
Waterworks Co. v. Rivers, 115 U. S. 674, on
similar facts, in deciding for the plaintiff, the Court said (p.
115 U. S.
682),
"The restriction imposed by the contract upon the use by others
than plaintiff of the public streets and ways for such purposes is
not one of which the appellee can complain. He was not thereby
restrained of any freedom or liberty he had before. . . ."
One who would strike down a statute must show not only that he
is affected by it, but that, as applied to him, the statute exceeds
the power of the state. This rule, acted upon as early as
Austin v. The
Aldermen, 7 Wall. 694, and definitely stated in
Supervisors v. Stanley, 105 U. S. 305,
105 U. S. 314,
has been consistently followed since that time.
Fifth. Frost's claim that the Act of 1925 discriminates
unjustifiably is not sound. The claim rests wholly on the fact that
individuals and ordinary corporations must show inadequacy of
existing facilities, while cooperatives organized under the Act of
1919 may secure a license without making such a showing if the
application is supported by a petition of one hundred persons who
are citizens and taxpayers in the community. It is settled that to
provide specifically for peculiar needs of farmers or producers is
a reasonable basis of classification.
American Sugar Refining
Co. v. Louisiana, 179 U. S. 89;
Liberty Warehouse Co. v. Tobacco Growers, 276 U. S.
71. And it is conceded that the classification made by
the Act of
Page 278 U. S. 536
1925 would be reasonable if it had been limited to cooperatives
organized under Chapter 22 of the Laws of 1917. Thus, the
contention that the classification is arbitrary is directed only to
cooperatives organized under the law of 1919. It rests upon two
erroneous assumptions: (1) that cooperatives organized under the
law of 1919 are substantially unlike those organized under Chapter
22 of the Laws of 1917, and (2) that there are between cooperative
corporations under the law of 1919 and commercial corporations no
substantial differences having reasonable relation to the subject
dealt with by the gin legislation.
The assertion is that cooperatives organized under the law of
1919, being stock companies, do business with the general public
for the sole purpose of making money, as do individual or other
corporate competitors, whereas cooperatives organized under the law
of 1917 are "for mutual help, without capital stock, not conducted
for profit, and restricted to the business of their own members."
The fact is that these two types of cooperative corporations -- the
stock and the nonstock -- differ from one another only in a few
details which are without significance in this connection, that
both are instrumentalities commonly employed to promote and effect
cooperation among farmers, that the two serve the same purpose, and
that both differ vitally from commercial corporations. The farmers
seek through both to secure a more efficient system of production
and distribution and a more equitable allocation of benefits. But
this is not their only purpose. Besides promoting the financial
advantage of the participating farmers, they seek, through
cooperation, to socialize their interests -- to require an
equitable assumption of responsibilities while assuring an
equitable distribution of benefits. Their aim is economic democracy
on lines of liberty, equality and fraternity. To accomplish these
objectives, both types of cooperative corporations provide for
excluding capitalist control. As means to this
Page 278 U. S. 537
end, both provide for restriction of voting privileges, for
curtailment of return on capital, and for distribution of gains or
savings through patronage dividends or equivalent devices.
In order to insure economic democracy, the Oklahoma Act of 1919
prevents any person from becoming a shareholder without the consent
of the board of directors. It limits the amount of stock which one
person may hold to $500. And it limits the voting power of a
shareholder to one vote. Thus, in the Durant Company, the holder of
a single share of the par value of $10 has as much voting power as
the holder of 50 shares. The Act further discourages entrance of
mere capitalists into the cooperative by provisions which permit
five percent of the profits to be set aside for educational
purposes; which require ten percent of the profits to be set aside
as a reserve fund, until such fund shall equal at least fifty
percent of the capital stock; which limit the annual dividends on
stock to eight percent, and which require that the rest of the
year's profits be distributed as patronage dividends to members
except so far as the directors may apportion them to
nonmembers.
The provisions for the exclusion of capitalist control of the
nonstock type of cooperative organized under the Oklahoma Act of
1917 do not differ materially in character from those in the 1919
Act. The nonstock cooperative also may reject applicants for
membership, and no member may have more than one vote. This type of
cooperative is called a nonprofit organization, but the term is
merely one of art, indicating the manner in which the financial
advantage is distributed. This type also is organized and conducted
for the financial benefit of its members, and requires capital with
which to conduct its business. In the stock type the capital is
obtained by the issue of capital stock, and members are not
subjected to personal liability for the corporation's business
obligations.
Page 278 U. S. 538
In the nonstock type, the capital is obtained partly from
membership fees, partly through dues or assessments, and partly
through loans from members or others. And for fixed capital, it
substitutes in part personal liability of members for the
corporation's obligations. [
Footnote 7] In the stock type, there are
eo
nomine dividends on capital and patronage dividends. In the
nonstock type, the financial benefit is distributed by way of
interest on loans and refunds of fees, dues, and assessments. And
all funds acquired through the cooperative's operations which are
in excess of the amount desirable for a "working fund" are to be
distributed as refunds of fees, dues, and assessments. Both acts
allow business to be done for nonmembers, and though the nonstock
association may, it is not required, to impose obligations on the
nonmember for the liability of the association. Thus, for the
purposes here relevant, there is no essential difference between
the two types of cooperatives.
The Oklahoma law of 1919 follows closely in its provisions the
legislation enacted earlier in other states with a view to
furthering farmers' cooperation. The first emergence of any settled
policy as to the means to be employed for effecting cooperation
among farmers in the United States came in 1875, when at the annual
convention of the National Grange of the Patrons of Husbandry,
recommendations were formally adopted indorsing "Rochdale
principles," and a form of rules for the guidance of prospective
organizers was promulgated. These provided for stock companies with
shares of $5 each; that no member be allowed to hold more than 100
shares; that ownership
Page 278 U. S. 539
of a single share shall constitute the holder a member of the
association; that only 8 percent "interest" shall be paid on the
capital; that the balance of the profits shall go "either to
increase the capital or business of the association or for any
educational or provident purposes authorized by the association,"
or be distributed as patronage dividends, and that the patronage
dividends be distributed among customers, except that nonmembers
should receive only one-half the proportion of members. [
Footnote 8]
The need of laws framed specifically for incorporating farmers'
cooperatives being recognized, Massachusetts enacted in 1866 the
necessary legislation by a general law which differed materially
from that under which commercial organizations were formed. The
statute provided for cooperatives having capital stock. [
Footnote 9] Before 1900, ten other
states had enacted laws of like character. [
Footnote 10] After
Page 278 U. S. 540
1900, many such statutes were passed. Now, only two states lack
laws making specific provision for the incorporation of farmers'
cooperatives. [
Footnote 11]
Thirty-three states, at least, have enacted laws providing for the
formation of cooperative associations of the stock type. All of
them permit a fixed dividend on capital stock, the doing of
business for nonmembers, and the distribution of patronage
dividends. [
Footnote 12]
Some of them, recognizing the need for elasticity, impose the
single requirement that earnings be apportioned in part on a
patronage basis, and leave all other provisions for organization
and distribution of profits to the bylaws. [
Footnote 13]
Farmers' cooperative incorporation laws of the nonstock type are
of much more recent origin, and are fewer
Page 278 U. S. 541
in number. [
Footnote 14]
The earliest law of this character was the crude measure enacted in
California in 1895. [
Footnote
15] Statutes of that type have been passed in about sixteen
states, [
Footnote 16] but
ten of these have also laws of the stock type. [
Footnote 17] The enactment of state laws
for the incorporation of nonstock cooperatives, and their extensive
use in the cooperative marketing of commodities, are due largely to
the fact that, prior to 1922, the Clayton Act, October 15, 1914, c.
232, § 6 (38 Stat. 731), limited to nonstock cooperatives the right
to make a class of agreements with members which prior thereto
would have been void as in restraint of
Page 278 U. S. 542
trade. [
Footnote 18]
See Liberty Warehouse Co. v. Tobacco Growers, 276 U. S.
71. Nearly one-half of the existing laws of the nonstock
type were enacted between 1914 and 1922. [
Footnote 19] This limitation in the Clayton Act proved
to be unwise. By the Capper-Volstead Act of February 18, 1922, c.
57, § 1 (42 Stat. 388), Congress recognizing the substantial
identity of the two classes of cooperatives, extended the same
right to stock cooperatives. The terms of this legislation are
significant:
"That persons engaged in the production of agricultural products
as farmers, planters, ranchmen, dairymen, nut or fruit growers may
act together in associations, corporate or otherwise, with or
without capital stock in collectively processing, preparing for
market, handling, and marketing in interstate and foreign commerce,
such products of persons so engaged. Such associations may have
marketing agencies in common, and such associations and their
members may make the necessary contracts and agreements to effect
such purposes:
Provided, however, that such associations
are operated for the mutual benefit of the members thereof, as such
producers, and conform to one or both of the following
requirements:"
"First. That no member of the association is allowed more than
one vote because of the amount of stock or membership capital he
may own therein, or,"
"Second. That the association does not pay dividends on stock or
membership capital in excess of 8 percentum per annum. "
Page 278 U. S. 543
"And in any case to the following:"
"Third. That the association shall not deal in the products of
nonmembers to an amount greater in value than such as are handled
by it for members."
Congress recognized the identity of the two classes of
cooperatives and the distinction between agricultural stock
cooperative corporations and ordinary business corporations also by
providing in the Revenue Act of 1926, c. 27, Part III, § 231 (44
Stat. 9), that exemption from the income tax was not to be
denied
"any such cooperative association because it has capital stock
if the dividend rate of such stock is fixed at not to exceed the
legal rate of interest in the state of incorporation or 8 percentum
per annum, whichever is greater, . . . and if substantially all
such stock . . . is owned by producers; . . . nor shall exemption
be denied any such association because there is accumulated and
maintained by it a reserve. . . . Such an association may market
the products of nonmembers in an amount the value of which does not
exceed the value of the products marketed for members."
This exemption was continued in the Revenue Act of 1928, c. 852,
§ 103 (45 Stat. 812).
More than two-thirds of all farmers' cooperatives in the United
States are organized under the stock-type laws. In 1925, there were
10,147 reporting organizations. Of these, 68.7 percent were stock
associations. In leading states the percentage was larger. In
Wisconsin, the percentage was 80; in North Dakota, 87; in Nebraska,
91.3, and in Kansas, 92. Of the farmers' cooperatives existing in
Oklahoma in 1925, 87.6 percent were stock associations. [
Footnote 20] The great cooperative
systems of England,
Page 278 U. S. 544
Scotland, and Canada were developed and are now operated by
organizations of the stock type. [
Footnote 21] The nonstock type of cooperative is not
adapted to enterprises, which, like gins, require large investment
in plant, and hence considerable fixed capital. [
Footnote 22] For this reason, it was a
common practice for marketing cooperatives, which had been
organized as nonstock cooperatives in order to comply with the
requirements of the Clayton Act above described, to form a
subsidiary cooperative corporation with capital stock to carry on
the incidental business of warehousing or processing which requires
a large investment in plant. [
Footnote 23] And the fact that even the marketing of some
products may be better served by the stock type of cooperative
organizations is so widely recognized that most of the marketing
acts provide that associations formed thereunder may organize
either with or without capital stock. [
Footnote 24]
Page 278 U. S. 545
Experience has demonstrated also that doing business for
nonmembers is usually deemed essential to the success of a
cooperative. [
Footnote 25]
More than five-sixths of all the farmers' cooperative associations
in the United States do business for nonmembers. In 1925, 86.3
percent of the reporting organizations did so. In leading states,
the percentage was even larger. In Wisconsin, the percentage was
89; in Missouri, 93.2; in Minnesota, 94.1; in Nebraska, 95.8; in
Kansas, 96.5; in North Dakota, 97. In Oklahoma, 92 percent of all
cooperatives did business for nonmembers. [
Footnote 26] Of the cotton cooperatives in the
United States, 93.9 percent did business for nonmembers. In Texas,
where cooperative ginning has received successful trial, [
Footnote 27] all the cotton
cooperatives perform service for nonmembers.
Page 278 U. S. 546
In Oklahoma also, all of the cotton cooperatives reporting do
business for nonmembers. [
Footnote 28]
That no one plan of organization is to be labeled as truly
cooperative to the exclusion of others was recognized by Congress
in connection with cooperative banks and building and loan
associations.
See United States v. Cambridge Loan &
Building Company, 278 U. S. 55. With
the expansion of agricultural cooperation, it has been recognized
repeatedly. Congress gave its sanction to the stock type of
cooperative by the Capper-Volstead Act, and also by specifically
exempting stock as well as nonstock cooperatives from income taxes.
State legislatures recognized the fundamental similarity of the two
types of cooperation by unifying their laws so as to have a single
statute under which either type of cooperative might organize.
[
Footnote 29] And experts in
the Department of Agriculture charged with disseminating
information to farmers and legislatures have warned against any
crystallization of the cooperative plan, so as to exclude any type
of cooperation. [
Footnote
30]
Page 278 U. S. 547
That in Oklahoma a law authorizing incorporation on the stock
plan was essential to the development of cooperation among farmers
has been demonstrated by the history of the movement in that state.
Prior to 1917, there was no statute which specifically authorized
the incorporation of cooperatives. In that year, the nonstock law
above referred to was enacted. [
Footnote 31] Two years passed, and only three
cooperatives availed themselves of the provisions of that Act. Then
persons familiar with the farmers' problems in Oklahoma secured the
passage of the law of 1919, providing for the incorporation of
cooperatives with capital stock. [
Footnote 32] Within the next five years,
Page 278 U. S. 548
202 cooperatives were formed under it, and, since then, 139
more. In the 12 years since 1917, only 60 nonstock cooperatives
have been organized, most of them since 1923, when, through an
amendatory statute, this type was made to offer special advantages
for cooperative marketing. [
Footnote 33] Thus, over 82 percent of all cooperatives in
Oklahoma are organized under the 1919 stock act. One hundred and
one Oklahoma cooperative cotton gins have been organized under the
1919 stock law; not a single one under the 1917 nonstock law.
[
Footnote 34] To deny the
cooperative character of the 1919 Act is to deny the cooperative
character not only of the gins in Oklahoma, which farmers have
organized and operated for their mutual benefit, but also that of
most other cooperatives within the state, which have been organized
under its statutes in harmony with legislation of Congress and
pursuant to instructions from the United States Department of
Agriculture. A denial of cooperative character to the stock
cooperatives is inconsistent also with the history of the movement
in other states and countries. For the stock type of cooperative is
not only the older form, but is the type more widely used among
English-speaking peoples.
There remain to be considered other circumstances leading to the
passage of the statute here challenged. As was said in
Lindsley
v. Natural Carbonic Gas Co., 220 U. S. 61,
220 U. S.
78:
"When the classification in such a law is called in question, if
any state of facts reasonably can be conceived that would sustain
it, the existence of that state of facts at the time law was
enacted must be assumed."
Here, that presumption is reinforced by facts which have been
called to our attention. That evils exist in cotton ginning which
are subject to drastic legislative regulation
Page 278 U. S. 549
has recently been recognized by this Court.
Crescent Oil Co.
v. Mississippi, 257 U. S. 129. The
specific evils existing in Oklahoma which the statute here assailed
was enacted to correct was the charging of extortionate prices to
the farmer for inferior ginning service and the control secured of
the cotton seed. [
Footnote
35] These conditions are partly attributable to the fact that a
large percentage of the ordinary commercial gins in Oklahoma are
controlled by cotton seed oil mills, which make their service as
ginners incidental to that as crushers of seed, and are thereby
enabled to secure the seed at less than its value. [
Footnote 36] That
Page 278 U. S. 550
such control of gins may lead to excessive prices for the
ginning service was recognized in the
Crescent Oil case.
The fact that, despite the regulatory provisions of the Public
Service Law, a public utility is permitted to earn huge profits
indicates that something more than rate regulation may be needed
for the protection of farmers. Certainly, it cannot be said that
the legislature could not reasonably believe that cooperative
ginning might afford a corrective for rates believed to be
extortionate.
MR. JUSTICE HOLMES and MR. JUSTICE STONE join in this
opinion.
[
Footnote 1]
The stipulation of facts states:
"That W. A. Frost is engaged in the cotton ginning business
under the name of Mitchell Gin Company and owns and operates a
cotton gin in the City of Durant, Oklahoma; that said gin is
operated under and by virtue of license duly issued by the
Corporation Commission of the State of Oklahoma under and by virtue
of Article 40, chapter 7, Compiled Oklahoma Statutes, 1921, as
amended by Chapter 191, Session Laws of Oklahoma of 1923 and by
chapter 109 of the Session Laws of Oklahoma of 1925."
[
Footnote 2]
Session Laws 1907-08, p. 756 (Comp.Stat. 1921, § 11032).
See
Oklahoma Gin Co. v. State, 63 Okl. 10;
Mascho v. Chandler
Cotton Oil Co., 7 Annual Corp. Comm'n Report 370.
Compare
Harriss-Irby Cotton Co. v. State, 31 Okl. 603.
[
Footnote 3]
Walla Walla v. Walla Walla Water Co., 172 U. S.
1,
172 U. S. 9;
California v. Pacific Railroad Co., 127 U. S.
1,
127 U. S. 40-41;
Monogahela Navigation Co. v. United States, 148 U.
S. 312,
148 U. S.
328-329;
Owensboro v. Cumberland Telephone Co.,
230 U. S. 58,
230 U. S. 64-66;
Boise Water Co. v. Boise City, 230 U. S.
84,
230 U. S. 90-91;
McPhee & McGinnity Co. v. Union P. R. Co., 158 F. 5,
10-11.
California v. Pacific Railroad Co., 127 U. S.
1,
127 U. S. 40-41,
merely describes the types of enterprises which may be made the
subject of a franchise. The enterprises mentioned are all of the
type which require the use of public property, so that the
permission of the state is required to condone what would otherwise
be a trespass. Further, it is not maintained that the state is
restricted to the issuance of franchises for the carrying on of
such callings.
[
Footnote 4]
Noble state Bank v. Haskell, 219 U.
S. 104,
219 U. S.
112-113.
[
Footnote 5]
Shallenberger v. First state Bank, 219 U.
S. 114;
Dillingham v. McLaughlin, 264 U.
S. 370.
Compare Assaria State Bank v. Dolley,
219 U. S. 121;
German Alliance Ins. Co. v. Kansas, 233 U.
S. 389,
233 U. S.
416.
[
Footnote 6]
Bank of August v.
Earle, 13 Pet. 519,
38 U. S. 595;
People's Railroad v. Memphis
Railroad, 10 Wall. 38,
77 U. S. 51;
California v. Pacific Railroad Co., 127 U. S.
1,
127 U. S. 40-41;
Denver v. New York Trust Co., 229 U.
S. 123,
229 U. S.
141-142.
[
Footnote 7]
Section 10 makes each member assume
"original liability for his per capita share of all contracts,
debts, and engagements of the association existing at the time he
becomes a member and created during his membership,"
and "additional liability" for his
pro rata share of
the liability of any other member whose liability may become
uncollectible.
[
Footnote 8]
Nourse, The Legal Status of Agricultural Cooperation (1927),
passim, particularly pages 11, 21, 35, 36.
[
Footnote 9]
Mass.St. 1866, c. 290. The type was called Rochdale because it
was this type of organization which the pioneers of the present
cooperation among English speaking peoples used there. This law,
which served as a pattern for most of the cooperative incorporation
laws passed by other states prior to 1900, contained fewer of the
safeguards to assure preservation of cooperative principles than
does the Oklahoma Act of 1919. No limitation was placed on the
quantum of stock per member or on the voting privileges, and no
restriction was placed on the amount of dividends to be paid on
stock, the distribution of profits being left entirely to the
bylaws and to the directors, save for the requirement that a
portion of the earnings go into a reserve fund.
[
Footnote 10]
Pennsylvania, Public Laws 1868, Act 62; Minnesota, Laws 1870, c.
29; Michigan, Acts 1875, No. 75, amending Act 288 of 1865 so as to
include agricultural cooperatives; Connecticut, Laws 1875, c. 62;
California, Laws 1878, p. 883; New Jersey, Laws 1884, p. 63; Ohio,
Laws 1884, p. 54; Kansas, Laws 1887, c. 116; Wisconsin, Laws 1887,
c. 126; Montana, 1895, Code (1921), §§ 6375-6385. Tennessee, Laws
1882, c. 8, fails to specify whether the cooperatives to be
incorporated thereunder shall be organized with or without capital
stock.
[
Footnote 11]
Delaware and Vermont. Vermont, however, has a section in her
general corporation law which makes provision for cooperative
associations.
[
Footnote 12]
Arkansas, Acts 1921, p. 702; California, Laws 1878, p. 883;
Colorado, Laws 1913, p. 220; Connecticut, Laws 1875, c. 62;
Florida, Acts 1917, c. 7384; Georgia, Acts 1920, p. 125; Illinois,
Laws 1915, p. 325; Indiana, Laws 1913, c. 164; Iowa, Code (1924) c.
389, §§ 8459-8485; Kansas, Laws 1913, c. 137; Kentucky, Laws 1918,
c. 159; Maryland, Laws 1922, c.197; Massachusetts, Laws 1920, c.
349; Michigan, Acts 1921, No. 84, c. 4; Minnesota, Mason's Stats.
(1927) §§ 7822-7847; Missouri, Laws, 1919, p. 116; Montana, Code
(1921), §§ 6375-6396; Nebraska, Comp.Stats. (1922) §§ 642-648; New
Jersey, Laws 1884, p. 63; New York, Laws 1913, c. 454; North
Carolina, Laws 1915, c. 144; North Dakota, Laws 1921, c. 43;
Oklahoma, Laws 1919, c. 147; Ohio, Laws 1884, p. 54; Oregon, Oregon
Laws Supp. (1927), §§ 6954-6976; Pennsylvania, Public Laws, 1887,
p. 365; Rhode Island, Laws 1916, c. 1400; South Carolina Acts,
1915, No. 152; South Dakota, Laws 1913, c. 145; Tennessee, Laws
1917, c. 142; Virginia, Laws 1914, c. 329; Washington, Laws 1913,
p. 50; Wisconsin, Laws 1911, c. 368.
[
Footnote 13]
See, for example, Nebraska, Laws 1911, c. 32; Indiana,
Laws 1913, c. 164; Colorado, Laws 1913, p. 220; North Dakota, Laws
1915, c. 92; Florida, Acts 1917, c. 7384.
[
Footnote 14]
Nourse, The Legal Status of Agricultural Cooperation (1927), pp.
51-72.
[
Footnote 15]
Laws 1895, c. 183. That this Act did not provide satisfactorily
for all types of cooperative endeavor is evidenced by the fact
that, prior to the passage of the Clayton Act (which offered
substantial advantages to nonstock corporations), several of
California's largest cooperatives did not incorporate under this or
the similar act of 1909 (chap. 26), but were organized on a capital
stock basis --
e.g., California Fruit Growers' Exchange,
California raisin growers.
See Nourse, The Legal Status of
Agricultural Cooperation, p. 64, note.
[
Footnote 16]
Nevada, Stat. 1901, c. 60; Michigan, Public Acts 1903, No. 171;
Washington, Laws 1907, p. 255; Alabama, Acts 1909, No. 145, p. 168;
California, Laws 1909, c. 26; Florida, Laws 1909, c. 5958; Oregon,
Laws 1909, c.190; Idaho, Laws 1913, c. 54; Colorado, Laws 1915, c.
57; New Mexico, Laws 1915, c. 64; Oklahoma, Laws 1917, c. 22;
Texas, Laws 1917, c.193; Louisiana, Acts 1918, No. 98; New York,
Laws 1918, c. 655; Pennsylvania, Laws 1919, Act 238; Iowa, Laws
1921, c. 122. In only two of the states is the doing of business
for nonmembers expressly prohibited. Iowa, Laws 1921, c. 122;
Texas, Laws 1917, c.193. The rest of the statutes, though some are
perhaps ambiguous in their terminology, apparently do not impose
any restraint in this regard.
See Nourse, The Legal Status
of Agricultural Cooperation, p. 62.
[
Footnote 17]
Michigan; Washington; California; Florida; Oregon; Colorado;
Oklahoma; Pennsylvania; Iowa; New York. For the citations of these
stock type laws,
see note 10
[
Footnote 18]
Nourse, the Legal Status of Agricultural Cooperation (1927) pp.
73-92.
[
Footnote 19]
Colorado, Laws 1915, c. 57; New Mexico, Laws 1915, c. 64;
Oklahoma, Laws 1917, c. 22; Texas, Laws 1917, c.193; Louisiana,
Acts 1918, No. 98; New York, Laws 1918, c. 655; Pennsylvania, Laws
1919, Act 238; Iowa, Laws 1921, c. 122.
[
Footnote 20]
U.S. Dept. of Agriculture, Technical Bulletin No. 40 (1928),
Agricultural, Cooperative Associations, p. 88. The figures for
Oklahoma are obtained from the worksheets from which the table on
page 88 was compiled.
[
Footnote 21]
See Fay, Cooperation at Home and Abroad (3d ed.1925)
pp. 279-284, 356, 362-363; Year-Book of Agricultural Cooperation in
the British Empire (1927) pp. 131-204; First Annual Report on
Cooperative Associations in Canada (1928) pp. 65-78.
[
Footnote 22]
The average investment of a plant in Texas is about $40,000.
Hathcock, Possible Services of Cooperative Cotton Gins (1928) p.
5.
[
Footnote 23]
Nourse, The Legal Status of Agricultural Cooperation, p. 54,
note 3.
[
Footnote 24]
Alabama, Laws 1921, No. 31, § 2; Arizona, Laws 1921, c. 156, §
2; Arkansas, Acts 1921, No. 116, § 3; California, Laws 1923, c.
103, § 653cc; Colorado, Laws 1923, c. 142, § 3; Florida, Acts 1923,
c. 9300, § 3; Georgia, Acts 1921, No. 279, § 2; Idaho, Laws 1921,
c. 124, § 3; Illinois, Laws 1923, p. 286, § 3; Indiana, Laws 1925,
c. 20, § 3; Kansas, Laws 1921, c. 148, § 3; Louisiana, Acts 1922,
No. 57, § 3; Maine, Laws 1923, c. 88, § 3; Minnesota, Laws 1923, c.
264, § 3; Mississippi, Laws 1922, c. 179, § 3; Montana, Laws 1921,
c. 233, § 3; New Hampshire, Laws 1925, c. 33, § 2; New Jersey, Laws
1924, c. 12, § 2; New Mexico, Laws 1925, c. 99, § 3; New York, Laws
1924, c. 616, § 3; North Carolina, Laws 1921, c. 87. § 3; North
Dakota, Laws 1921, c. 44, § 3; Ohio, Laws 1923, p. 91, § 2; South
Carolina, Acts 1921, No. 203, § 3; South Dakota, Laws 1923, c. 15,
§ 2; Tennessee, Laws 1923, c. 100, § 3; Texas, Laws 1921, c. 22, §
3; Utah, Laws 1923, c. 6, § 3; Virginia, Laws 1922, c. 48, § 3;
Washington, Laws 1921, c. 115, § 2; West Virginia, Acts 1923, c.
53, § 3; Wyoming, Laws 1923, c. 83, § 3.
[
Footnote 25]
It is to be noted that statutes like the Bingham Cooperative
Marketing Act (Acts Ky.1922, c. 1), which provide solely for the
formation of marketing associations, restrict the service of the
association (with the exception of storage) to the products of
members. But such statutes do not purport to repeal earlier laws
authorizing agricultural cooperation for other purposes which allow
business for nonmembers. That the legislatures recognize that the
problems of cooperative marketing and of other types of
agricultural cooperation require different treatment is
demonstrated by the retention of general laws providing for
agricultural cooperation after passage of the standard marketing
act. In Oklahoma, for example, in the same year that the Act of
1917 was amended so as to embody some of the features of the
Bingham Act, the 1919 Act was amended in unimportant particulars,
thus receiving express legislative recognition of its continued
usefulness. Laws Okl.1923, cc. 167, 181.
[
Footnote 26]
U.S. Dept. of Agriculture, Technical Bulletin No. 40 (1928)
Agricultural Cooperative Associations, p. 88. The figures for
Oklahoma are obtained from the worksheets from which the table on
page 88 was compiled.
[
Footnote 27]
Hathcock, Development of Cooperative Gins in Northwest Texas, p.
4.
[
Footnote 28]
U.S. Dept. of Agriculture, Technical Bulletin No. 40 (1928)
Agricultural Cooperative Associations, p. 89. The figures for
Oklahoma are obtained from the worksheets from which the table on
page 89 was compiled.
[
Footnote 29]
See, e.g., Maryland, Laws 1922, c.197; New York, Laws
1926, c. 231; Oregon, Supp. 1927, §§ 6954-6976. The New York Law is
known as the Cooperatives Corporations Law, and consolidates all
prior acts for the formation of cooperative associations. Thus,
marketing cooperatives, with or without capital stock, and other
agricultural cooperatives, with or without capital stock and with
or without restrictions as to business for nonmembers, are all
organized under the same act.
[
Footnote 30]
Chris L. Christensen, Chief of the Department of Agriculture's
Division of Cooperative Marketing, in Department Circular No. 403
(1926), says (p. 2):
". . . The various forms which cooperative organizations have
taken demonstrate the adaptability and extensive usefulness of this
form of business organization."
And at page 3:
"A discussion of organization types is of value only when the
conditions that make certain types necessary or valuable are taken
into consideration. Attempts to build cooperative associations
according to any special plan have met with failure in the past,
and it is possible that, in the future, we shall see more, rather
than fewer, types of cooperative organizations."
[
Footnote 31]
That the draftsmen of this law were influenced by the
restrictions of the Clayton Act is evidenced by the fact that some
of the language of § 2 of the 1917 Act is taken verbatim from § 6
of the Clayton Act.
[
Footnote 32]
The Oklahoma State Market Commission, Carl Williams, editor of
the Oklahoma Farmer-Stockman, and various farm organizations lent
their assistance to the legislature in drafting this law.
See Second Biennial Report of Oklahoma State Market
Commission (1919-1920) p. 5; Carl Williams, Letter to Division of
Cooperative Marketing, Department of Agriculture, dated January 21,
1929. The Oklahoma State Market Commission says of the 1919 Act
(Marketing Bulletin, April 20, 1920, p. 5):
"In organizing these new corporations, the farmers had a real
basis on which to organize. . . . The law was written by men who
understood the farmer's condition and had some practical knowledge
of real cooperative marketing on a business basis. The laws of
Minnesota, Nebraska, and other states were studied. Conditions
under which cooperative associations had failed in the Northern
states and those which had succeeded were taken into careful
consideration. The best points from the laws of the several states,
which would be suitable for Oklahoma conditions, were incorporated,
and the features of these laws which were not suitable were
eliminated."
[
Footnote 33]
Laws 1923, c. 181.
[
Footnote 34]
All figures here given are obtained from the files of the
Department of Agriculture, Division of Cooperative Marketing.
[
Footnote 35]
Two of the leading farm newspapers in Oklahoma are the Oklahoma
Cotton Grower and the Oklahoma Farmer-Stockman, the latter edited
by Carl Williams. In an editorial on February 10, 1926, the Cotton
Grower urges farmers to form cooperative gins as the only way to
obtain economy in ginning service. On March 1, 1927, the
Farmer-Stockman contains an editorial urging, as a partial solution
of the ginning problem, the placing of members on the Corporation
Commission who are interested in the farmer as well as in the
commercial gin. On May 15, 1927, the same paper notes the great
increase in cooperative ginning in the state, and says that it is
due to the extortionate prices charged by private ginners. On
August 15, 1927, the Farmer-Stockman speaks of the meeting of the
Corporation Commission to fix rates for ginning as the "annual
farce." It is stated that the meeting is called a farce because the
rate is always set high enough so as to allow grossly excessive
returns to the ginners at the expense of the farmers. The editor
states that the only solution for the farmer is cooperation in
ginning. On September 15, 1927, the same paper states that some
privately owned gins have averaged a profit of over 100 percent on
invested capital over a period of three years. On October 15, 1927,
the Farmer-Stockman notes that poor ginning can cost the farmer at
least 4 cents on each pound of cotton.
[
Footnote 36]
The district court said (26 F.2d 508, 519-520):
"The ordinary commercial ginner within the State of Oklahoma may
gin either as an individual, a co-partnership, or a corporation; no
statute, rule, or provision of law restricts him in any wise in the
enjoyment of the full proceeds of the earnings under the rate
fixed. He usually is engaged not only in ginning cotton, but also
in the purchase of seed cotton, cotton seed after he has ginned the
cotton, and frequently in the purchase of cotton after it is ginned
for profit. A ginner has a greater facility to purchase the seed
than anyone else. As he gins the cotton, he catches the seed as
they fall from the stand, and has the immediate means for storage
and housing same. The patron, if he does not elect to sell to the
ginner, must receive them and haul them away when, as a rule he has
no place for storage for accumulating as much as a carload, so as
to sell them to advantage. A great percent of the gins so operated
are owned and controlled by cotton seed crushers, operating cotton
seed oil mills within the State of Oklahoma; such operation of gins
not being entirely for the purpose of rendering a public service,
but also for collecting cotton seed at a central point. Their gin
business as ginners is incidental to that as crushers of seed, to
the end that they may be enabled to purchase the seed under
favorable conditions.
See Choctaw Cotton Oil Co. v. Corporation
Commission, 121 Okl. 51, 247 P. 390;
Planters' Cotton
& Glanning Co. v. West, 82 Okl. 145, 198 P. 855."
Dissenting opinion of MR. JUSTICE STONE.
I agree with what MR. JUSTICE BRANDEIS has said. But there is
one aspect of the decision now rendered to which I would especially
direct attention. To me, it would seem that there are such
differences in organization, management, financial structure, and
practical operation between the business conducted by appellant, a
single individual, and that conducted by a corporation
organized
Page 278 U. S. 551
as is appellee as to justify the classification and
discrimination made by the statute. But, assuming there were no
such differences, I fail to perceive any constitutional ground on
which appellant can complain of a discrimination from which he has
not suffered. His real and only complaint is not that he has been
discriminated against either in the grant or enjoyment of his
license, but that, in the exercise of his nonexclusive privilege of
carrying on the cotton ginning business, he will suffer from
competition by the corporate appellee which, under local law, may
secure a like privilege with possibly less difficulty than did
appellant.
The proviso of the 1925 Act is held unconstitutional solely on
the ground that "an onerous restriction upon the right to engage in
a public business" was "imposed by the statute upon appellant" and
others similarly situated which was not imposed on appellee.
Appellant, if he had been denied a license or if his exercise of
the privilege, when granted, were more limited by the statute than
that of appellee, might invoke the equal protection clause. But he
now requires no such protection, for he has received his license,
and is in full and unrestricted enjoyment of the same privilege as
that which the appellee seeks. This is not less the case even if
the statute be assumed to have made it more difficult for him than
for appellee to secure a license.
Whether the grant appellant has received be called a franchise
or a license would seem to be unimportant, for in any case it is
not an exclusive privilege. Under the constitution and laws of
Oklahoma, the legislature has power to amend or repeal the
franchise, Constitution of Oklahoma, Art. IX, § 47;
Choctaw
Cotton Oil Co. v. Corporation Comm'n, 121 Okl. 51, and injury
suffered through an indefinite increase in the number of
appellant's competitors by nondiscriminatory legislation would
clearly be
damnum absque injuria. A similar increase
Page 278 U. S. 552
under the present alleged discriminatory statute would seem
likewise to afford appellant no legal cause for complaint, for, a
license not having been withheld from him, his position is
precisely the same as though the statute authorized the grant of a
license to him and to appellee on equal terms. He is suffering not
from any application of the discriminatory feature of the statute,
with which alone the Constitution is concerned,
see Jeffrey
Mfg. Co. v. Blagg, 235 U. S. 571,
235 U. S. 576;
Arkadelphia Co. v. St. Louis Southwestern Ry. Co.,
249 U. S. 134,
249 U. S. 149,
but merely from the increase in the number of his competitors -- an
injury which would similarly have resulted from a nondiscriminatory
statute granting the privilege to all on terms more lenient than
those formerly accorded appellant. Of such a statute, appellant
could not complain, and I can find no more basis for saying that
constitutional rights are impaired where the discrimination which
the statute authorizes has no effect than where the statute itself
does not discriminate.
Nor would appellant seem to be placed in any better position to
challenge the constitutionality of the statute by recourse to the
rule that the possessor of a nonexclusive franchise may enjoin
competition unauthorized by the state. Appellee's business is not
unauthorized. It is carried on under the sanction of a statute to
which appellant himself can offer no constitutional objection, for
even unconstitutional statutes may not be treated as though they
had never been written. They are not void for all purposes and as
to all persons.
See Hatch v. Reardon, 204 U.
S. 152,
204 U. S. 160.
For appellant to say that appellee's permit is void, and that its
business may be enjoined, because conceivably someone else may
challenge the constitutionality of the Act would seem to be a
departure from the salutary rule consistently applied that only
those who suffer from the unconstitutional application of a statute
may challenge its validity.
See Roberts & Schaefer Co. v.
Emmerson, 271 U. S. 50,
271 U. S.
55;
Page 278 U. S. 553
Plymouth Coal Co. v. Pennsylvania, 232 U.
S. 531,
232 U. S. 544;
Tyler v. Judges of Court of Registration, 179 U.
S. 405,
179 U. S. 410;
Cusack Co. v. Chicago, 242 U. S. 526,
242 U. S. 530;
Standard Stock Food Co. v. Wright, 225 U.
S. 540,
225 U. S. 550;
Mallinckrodt Chemical Works v. Missouri, 238 U. S.
41,
238 U. S. 54;
Darnell v. Indiana, 226 U. S. 390,
226 U. S.
398.
It seems to me that a fallacy, productive of unfortunate
consequences, lurks in the suggestion that one may maintain a suit
to enjoin competition of a business solely because, hereafter,
someone else might suffer from an unconstitutional discrimination
and enjoin it. But more than that, even if the license had been
withheld from appellant because he could not support the burden
placed upon him by the statute, I should have thought it doubtful
whether he would have been entitled to have had appellee's permit
cancelled -- the relief now granted. He certainly could not have
asked more than the very privilege which he now enjoys.
MR. JUSTICE HOLMES and MR. JUSTICE BRANDEIS concur in this
opinion.