should be rejected by this Court. We have read the Kass case carefully and are convinced that the government has failed to distinguish it in principle from the present case.
The facts and holding of that case are briefly as follows: The plaintiff was a handler who distributed nonpool milk in the New York area and thus was not fully regulated under Order No. 27. He was however subject to partial regulation since his plant was licensed by the New York health authorities. He purchased cream and condensed milk from an Ohio nonpool plant and sold it in New York. He was billed by the Market Administrator for a compensatory payment under the former § 927.83, the amount being computed by essentially the same method employed in our own case, (i.e., the difference between the Class IIA (New York cream) price and the Class IVA (New York butter price).) He objected to these payments and after failing in administrative review was unsuccessful in his review action in the District Court under 7 U.S.C.A. § 608c(15)(B). On appeal, the Second Circuit reversed the District Court which had dismissed his complaint, and held that the compensatory payment provisions were inconsistent with § 608c(5)(A) of the Agricultural Marketing Agreement Act. They viewed the payment made under the compensatory provisions of the Order as a part of the 'minimum price' as that term was used in § 608c(5)(A) and since this payment plus the actual cost to the plaintiff handler (i.e., the price which he paid to the Ohio concern) would result in a cost to him higher than the cost of like cream and condensed milk to pool-regulated handlers, they concluded that such a requirement established a minimum price which was not uniform for all handlers as required by § 608c(5)(A). Kass v. Brannan, supra, 196 F.2d at page 796.
If the Kass case is followed, we view it as inescapable that the compensatory payment provisions of amended Order No. 27 must be struck down as not in accordance with the Agricultural Marketing Agreement Act. We reach this conclusion after a close reading of the Kass opinion in conjunction with the facts of the case before us. The facts in these two cases are not identical and the government has carefully set out the several differences. Nevertheless we are convinced that these differences are not determinative. Although we might be tempted to grasp at them and perhaps even develop others in an effort to avoid the serious responsibility of striking down a Federal Regulation, any attempt to accept the Kass case as good law and at the same time sustain the compensatory payment provisions as they now appear in the present Order would, in our opinion, be illogical and inconsistent.
Moreover we feel bound by the holding of the Second Circuit in the Kass case. Although we are not compelled to accept that Court's decision under the concept of stare decisis as it applies to Federal Courts and although we might have reached a contrary result if initially called upon to interpret § 608c(5), we do not feel justified in now rejecting the interpretation there placed upon § 608c(5)(A) and upon the earlier version of Order No. 27. That Court's opinion is always entitled to great weight. The government was unsuccessful in its effort to have the Supreme Court review it. Instead it chose to delete that form of compensatory payment provision from the Order. With the mere passage of time and by reinstating 'compensatory payments' they now ask this Court to sustain it. When we further take into consideration the fact that the Second Circuit has had frequent occasion to deal with the Agricultural Marketing Agreement Act and with Order No. 27,
and the Circuit's jurisdictional boundaries encompass metropolitan New York (the area which Order No. 27 was originally designed to regulate), we do not feel justified in rejecting that opinion.
The government cannot argue (nor has it attempted to argue) that the total cost to the plaintiffs of the liquid milk which they sell in northern New Jersey is equal to the cost to its competitors. There is uncontroverted evidence to prove that the cost of raw milk to the plaintiffs is substantially higher than the Order No. 27 uniform Class III price classification, so that the total cost to the plaintiff handlers (when we include the compensatory payment based upon the difference between the uniform Class I and Class III price) will be in excess of the cost to fully regulated pool plant handlers. This is exactly what Judge Swan said § 608c(5)(A) of the Agricultural Marketing Agreement Act prohibited. Kass v. Brannan, supra.
Are the Compensatory Payment Provisions of Order No. 27 Supported by the Record?
The plaintiffs also argue that the compensatory payment provisions should be struck down for the further reason that they are unsupported by the evidence in the record. In the event that our ruling based upon the Kass case is reversed, and it is likely to be subjected to appellate review, this argument would return to us for decision -- with the facts exactly as they appear now. We therefore feel it proper at this time to pass upon this contention.
The allegation that an administrative order of the Secretary is not supported in the record of the hearings leading up to its enactment, would present a tremendous problem for the Court in this type case if we were required to read the whole record consisting of some 16,000 pages of testimony along with numerous complicated exhibits -- and then weigh the propriety of that order in the light of all of that evidence. Neither our time nor our talents in this very complicated area of Federal regulation would permit the accomplishment of such an undertaking. The Court views its task as a much narrower one. Upon review of this issue, all that the Court need find is sufficient evidence in the record to support the Secretary's order.
Once this is done, the Court need go no further.
From a reading of those portions of the administrative record which the government has annexed to its brief as supporting the amendment under attack, the Court is convinced that there is sufficient evidence to support a finding of need for some form of Federal regulation of the sale of milk and its products by nonregulated handlers in the Order No. 27 area.
The form of regulation chosen by the Secretary (i.e., so-called compensatory payments to the Producer Settlement Fund) was otherwise calculated to correct this problem and would likely produce the desired result if it did not run afoul of § 608c(5) (A) of the Agricultural Marketing Agreement Act. Therefore, were we to be found in error in our holding that the law as expressed in the Kass opinion requires us to strike down the present compensatory payment provisions of Order No. 27, we believe those provisions should otherwise stand as supported by the record.
Are the Compensatory Payment Provisions of Order No. 27 Authorized by the Agricultural Marketing Agreement Act?
Like the problem of whether there is support in the record for the adoption of the compensatory payment provisions of Order No. 27, we feel it proper to pass upon the question of whether the Act authorizes such provisions at this time, even though we might avoid doing so in light of our holding that those provisions are otherwise invalid.
If such compensatory payment provisions are authorized by the Act, we think their authorization must be found in § 608c(7)(D). That section authorizes the Secretary to include as terms in a milk order, those 'incidental to, and not inconsistent with, the terms and conditions specified in subsections (5)-(7) of this section and necessary to effectuate the other provisions of such order.' The plaintiffs, as already pointed out, take the position that since compensatory payments are in fact inconsistent with § 608c(5)(A) of the Act, they are not authorized by § 608c(7)(D). With this we agree. Kass v. Brannan, supra. However, should we be wrong in this conclusion, the question would remain (196 F.2d 795): Are such provisions 'incidental to * * * and necessary to effectuate the other provisions of such order'? We think they would be.
Whether provisions are 'incidental and necessary' to effectuate an order of the Secretary as those terms are used in 608c(7)(D) will depend upon the particular order in which they appear. From an examination of Order No. 27 without the compensatory payment provisions in dispute, and keeping in mind the milk supply problem of the area involved, we believe that the compensatory payment provisions are calculated to carry into effect the powers granted to the Secretary by the Act, as those powers are exercised in the remaining sections of Order No. 27. This is enough to bring them within the terms of § 608c(7)(D). Brannan v. Stark, 1952, 342 U.S. 451, 72 S. Ct. 433, 96 L. Ed. 497.
By a plan of full regulation of those who regularly supply the Order No. 27 area, based upon a marketwide pool, the Secretary has distributed the burden of surplus milk and its resulting decreased return in the form of milk products, upon all of the fully regulated handlers and their suppliers. So long as there is a reasonably high percentage of fluid milk sales and a corresponding reasonably low percentage of nonfluid sales (whatever those relative proportions might be for a healthy market) the return to the farmers will be adequate. Sales of fluid milk in the area by nonregulated handlers pose a fundamental threat to this adequate amount of return. If unchecked, they could seriously disrupt the whole regulatory plan. The compensatory payment provisions (which provisions appear in varying form in almost all of the government's milk regulating orders) are calculated to check or greatly minimize this threat. Thus they are calculated to carry into effect Order No. 27 and are authorized by the Act as 'incidental' and 'necessary' to carry out its terms, § 608c(7)(D).
Does the September 1, 1958 Amendment to Order No. 27 Require Modification of this Court's Injunction?
Subsequent to our injunctive order in the case of United States v. Lehigh Valley Cooperative Farmers, D.C.E.D.Pa.1957, 161 F.Supp. 885, the Secretary saw fit to further amend Order No. 27 so as to make handlers, such as plaintiffs, who sold milk in the Order No. 27 area fully regulated handlers unless they elected to be nonfully regulated handlers subject to the compensatory payment provisions of the Order (i.e., it forced the plaintiffs to 'elect' that status which they had theretofore held automatically). Since the economic burden of full regulation would be even greater than is incurred under the compensatory payment provisions of the Order, the plaintiffs have of course made this 'election'. The government now takes the position that by making this 'election', and failing to contest the legality of this amendment before the Secretary of Agriculture, the plaintiffs are precluded from raising any objection here to payments due after this 'election', (i.e., after September 1, 1958).
We must presume that this amendment to Order No. 27 was enacted by the Secretary to meet a real need in the milk industry and not to circumvent our injunction in the Lehigh Valley Cooperative Farmers case. To view it as otherwise would be to impute to an administrative department interference with the orderly administration of justice by action which would infringe upon the integrity of our judicial process. Nevertheless in view of our holding that the compensatory payment provisions are invalid, we do not feel that this amendment calls for modification of our original injunction. Thus, if the compensatory payment provisions are struck down, no money should be paid the Market Administrator under those provisions. This is true regardless of whether plaintiffs were nonpool plants by choice or by necessity, unless we were to hold that by striking down the compensatory payment provisions, the Court automatically forced the plaintiffs into a fully regulated status under the terms of the September 1, 1958 amendment to Order No. 27. We flatly reject this conclusion. It may be that the Secretary could enforce full regulation upon handlers such as the plaintiffs by an appropriate order. See Titusville Dairy Products Co. v. Brannan, 3 Cir., 1949, 176 F.2d 332, certiorari denied 338 U.S. 905, 70 S. Ct. 307, 94 L. Ed. 557. We do not feel that by promulgating the September 1, 1958 amendment granting handlers an 'election' between full and partial regulation, he intended to do so.
In short, if our present Order declaring the compensatory payment provisions of Order No. 27 unlawful is upheld, we think that by necessity the September 1, 1958 amendment must also fail. This conclusion does no violence to that line of cases which stand for the proposition that a district court can only review those matters which have first been presented to the Secretary of Agriculture, § 608c(15)(A), 7 U.S.C.A. Rather it is based upon the fundamental proposition that where one provision of an Act is critically dependent upon another provision of that same Act, and the latter provision is struck down, the former falls by necessity.
Conversely if the compensatory payment provisions of Order No. 27are, upon review, found to be in conformity with the Agricultural Marketing Agreement Act and therefore lawful, the plaintiffs will owe the Market Administrator for the whole period from the time that Order No. 27 was amended to include northern New Jersey to the present. To force plaintiffs to make payments directly to the Market Administrator after September 1, 1958, pending such final review, would be to defeat the very purpose of our original injunction.
At this point we might add a word concerning the government's argument based upon the case of Titusville Dairy Products Co. v. Brannan, supra. It advanced the argument throughout its brief in support of the motion for summary judgment, and most astutely in its brief in support of the motion to modify our injunction. The argument took this form: The Secretary undoubtedly has the power to fully regulate handlers such as the plaintiffs. Titusville Dairy Products Co. v. Brannan, supra. But partial regulation under the present compensatory payment provision is economically less onerous regulation than full regulation. Therefore, the Secretary undoubtedly has the power to partially regulate handlers such as the plaintiffs under the present compensatory payment provisions. Accepting both premises as true for argument sake, the conclusion does not follow. Any form of regulation, no matter how slight its economic burden, must conform to the Act of Congress by virtue of which that regulation purports to be promulgated. The present scheme of partial regulation does not. Kass v. Brannan, supra. Therefore it must fail.
For many years prior to the promulgation of amended Order No. 27, which incorporated northern New Jersey into its coverage, each of the plaintiffs here had regularly established retail milk routes in and around Phillipsburg, New Jersey, which city is located immediately adjacent to that part of Pennsylvania in which the plaintiffs' distributor plants are located. The economic effect of the amended Order was that plaintiffs were required by the terms of the Order to make payments to the Producer Settlement Fund for every quart of fluid milk which they thereafter sold in northern New Jersey. Under no circumstances could they participate in any return from the Producer Settlement Fund into which they were required to pay. However, this fact standing alone would not preclude the Secretary, viewing the situation areawise, in including Phillipsburg, New Jersey, in the area set aside for the operation of amended Order No. 27. Nevertheless, in the light of the Kass v. Brannan decision, supra, the Order as promulgated did not comply with Section 608c(5)(A) of the Agricultural Marketing Agreement Act, 7 U.S.C.A., in that the prices were not uniform as to all handlers and in particular as to these two plaintiff handlers. Therefore, that part of the Order requiring compensatory payments to the Producer Settlement Fund by them must be stricken down.
Counsel for plaintiffs in Civil Actions No. 26048 and No. 26109 will submit, within twenty (20) days hereof, a proposed form of Decree consistent with the foregoing opinion.