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April 25, 1960

UNITED STATES of America, Plaintiff,
LEHIGH VALLEY COOPERATIVE FARMERS and Suncrest Farms, Inc., Defendants. LEHIGH VALLEY COOPERATIVE FARMERS, INC., Plaintiff, v. Ezra Taft BENSON, Secretary of Agriculture of the United States of America, Defendant. SUNCREST FARMS, INC., Plaintiff, v. Ezra Taft BENSON, Secretary of Agriculture of the United States of America, Defendant

The opinion of the court was delivered by: CLARY

This action arises under the Agriculture Adjustment Act of 1933, as amended by the Agricultural Marketing Agreement Act of 1937 (hereinafter referred to as the 'Act'), 7 U.S.C.A. § 601 et seq. Section 608c(15)(B) of that Act authorizes a district court's review of the rulings of the judicial officer of the United States Department of Agriculture, who acts pursuant to authority delegated to him by the Secretary of Agriculture. The particular questions which Lehigh Valley Cooperative Farmers and Suncrest Farms, Inc. *fn1" raised in this review proceeding deal with one of the numerous amendments to Order No. 27 by the Secretary (7 C.F.R. § 927) which originally regulated the handling of milk in the metropolitan New York milk marketing area. The ruling under attack upheld the validity of one of these amendments to Order No. 27, which amendment extended the marketing area defined in that Order to all or part of thirteen counties in northern New Jersey, effective August 1, 1957. Both of the plaintiffs, who distribute milk in this new area, strongly object to certain provisions in amended Order No. 27.

Prior to the present action and shortly after newly amended Order No. 27 became effective, the government brought suit in this Court under 608a(6) of the Act to enforce, by injunctive order, the terms of the amended Order against the present plaintiffs. United States v. Lehigh Valley Cooperative Farmers, D.C.E.D.Pa.1957, 161 F.Supp. 885. On motion by the defendants in that action (the plaintiffs here), this Court ruled that although it was the intention of Congress that reports as well as payments to the Producer Settlement Fund called for by Order No. 27 should be made during pendency of administrative review before the Secretary of Agriculture, where irreparable harm could come to the defendants by ordering them to pay into this fund because payments might be made to participants in the fund 'pool' who later leave the pool, the defendants would be ordered to make the required payments into the registry of the court pending the final outcome of review of amended Order No. 27 and would further be enjoined from violating the other requirements of Order No. 27. Now that the plaintiffs have unsuccessfully exhausted their administrative remedies, they ask this Court to review the action of the Secretary and rule that it is not in accordance with law. See 7 U.S.C.A. § 608c(15)(B).

 The government's original enforcement action (under which the plaintiffs continue to pay monies due into this court) and the plaintiffs' suit for review of the administrative ruling have been consolidated in this action. Since there is no genuine dispute as to the material facts and purely legal questions appear to be raised by the pleadings, both parties have moved for summary judgment under Rule 56 of the Federal Rules of Civil Procedure, 28 U.S.C.A. See Wawa Dairy Farms v. Wickard, 3 Cir., 1945, 149 F.2d 860.

 Our ruling here will thus determine the proper disposition to be made of these funds being deposited in the registry of the court pursuant to our Order in United States v. Lehigh Valley Cooperative Farmers, supra, and will, of course, affect the future operation of amended Order No. 27 itself.

 Also before the Court at this time is a motion by the government to modify our temporary injunction of October 4, 1957, in the case of United States v. Lehigh Valley Cooperative Farmers, supra. The government bases this motion upon a further amendment to Order No. 27, effective September 1, 1958, which it claims has changed the essential facts upon which the injunction rested. This further amendment gives to handlers in the position of the present plaintiffs a right to elect a nonpool plant status (which they were by necessity, under the facts which led this Court to grant the injunction) or face full regulation under Order No. 27. Since the economic burden of full regulation as a pool plant would be much worse than that of a partially regulated nonpool plant, the plaintiffs have naturally elected nonpool status.

 The government argues that by electing as of September 1, 1958 to be a nonpool plant, the defendants in the enforcement proceeding are thereafter obliged to pay money due under amended Order No. 27 directly to the Producer Settlement Fund and not into the registry of this court. It points out that the new provisions of Order No. 27 have not been contested by the defendants as unlawful and that this Court must therefore order them to comply with it. On the other hand, plaintiffs argue that there has been no essential change in the situation which gave rise to the injunction and therefore the motion to modify it should be denied.

 To properly understand the present controversy it is necessary to briefly describe the extremely complex operation of Federal milk control in general and the history and operation of Order No. 27 in particular. A full explanation of the problems involved in the regulation of the milk industry will not be attempted. *fn2"

 Milk is generally not sold by the farmer (referred to as 'producer' in the milk industry) directly to the consumer. Rather there is an intermediate step in its distribution. From the farmer it goes to a dealer (referred to as a 'handler' in the milk industry). *fn3" One handler will usually receive the raw milk from a number of producers. He in turn sells it in the form of fluid milk, cream or milk products. Since the return of profit on fluid milk is greater than on cream and the return on cream in turn greater than on milk products (such as butter, cheese, etc.), the producer whose handler sells a larger portion of his milk in fluid form could expect a greater price for his raw milk, while producers whose raw milk happens to be sold for nonfluid milk purposes could expect a correspondingly lower price for his milk. To avoid the danger to a stable market which is produced by this difference in the price of milk according to its particular utilization, the government has adopted as a basic scheme of regulation in most of its 115 marketing orders, a plan whereby each producer of milk is paid a uniform price for all of the raw milk which he delivers to his handler, regardless of what particular use it is thereafter put to by his handler.

 Briefly this is accomplished as follows: The Market Administrator determines a 'class price' which a handler must pay for each of the different uses he makes of the fluid milk (i.e., a class price for milk which he sells as fluid milk, a class price for milk which he sells as cream, and a class price for milk which he sells as a milk product.) He then computes the value of all of the milk used by a handler by multiplying the quantity of milk the handler uses for each class by the class price and totaling these sums. This amount is then divided by the total quantity of milk used by the handler to give him the uniform unit price to be paid each producer for the number of units of milk he produces.

 Furthermore in a marketwide pool a uniform unit price is determined on a marketwide basis rather than on an individual handler basis. This is accomplished by totaling the marketwide use for each class, times the class price, divided by the total volume of milk used in the whole market. In such a market there is need for a Producer Settlement Fund. Thus a handler whose own total use value of milk for a set period is greater than his total payments at the uniform unit price (which is the case where a handler sells the greater part of his milk as fluid milk), must pay the difference into the Producer Settlement Fund. Each handler whose own total use value of milk is less than his total payments to producers at the uniform price (which would be the case where a handler sold the greater part of his milk as milk products) is entitled to withdraw the difference from the Producer Settlement Fund. Grant v. Benson, 1955, 97 U.S.App.D.C. 191, 229 F.2d 765, 767, certiorari denied 1956, 350 U.S. 1015, 76 S. Ct. 658, 100 L. Ed. 875. In this way the producers are compensated solely according to the amount of raw milk which they handle and not according to the particular use to which their milk may be put.

 The plants at which the milk is received by these handlers who participate in the Producer Settlement Fund are called 'pool plants'. Prior to the August 1, 1957 amendment to Order No. 27, those handlers who sold less than one-half of their total milk sales in the Order No. 27 area could not have their plants recognized as pool plants and were not fully regulated under Order No. 27. Both of the plaintiffs in this action make only a small per cent of their sales in the Order No. 27 area (Suncrest Farms approximately 5% And Lehigh Valley approximately 4%), the remainder being sold in Pennsylvania. Therefore, they were not fully regulated pool plants under Order No. 27.

 Plaintiffs and other nonpool plants like them, which are not fully regulated by Order No. 27, posed a fundamental threat to the regulatory scheme above described. This threat is more than a simple competitive one between competing milk dealers. Rather it involves a danger accentuated by the government's uniform price-regulating program itself, which is imposed upon the regular suppliers to this area. Thus, if nonregulated milk handlers (such as plaintiffs) are allowed to sell their milk in fluid form in the regulated area, they theoretically displace an equal volume of fluid milk sales which would ordinarily be made by fully regulated members. This automatically decreases the uniform unit price paid to all regular Order No. 27 producers for raw milk in the market area, since fluid milk sales produce the highest unit return of all classes of sales. Therefore all of the pool producers who regularly supply the Order No. 27 area feel this loss. If such sales become substantial enough they could disrupt the basic plan of regulation. At any rate they admittedly have a harmful effect upon every fully regulated producer under Order No. 27. Moreover there is a constant temptation for those nonregulated handlers, whose primary supply areas lie outside of North Jersey and New York, to dump that raw milk which they can not sell as liquid milk in their own regular supply areas into the Order No. 27 area.

 This problem of outside producers selling fluid milk in the Order No. 27 area results in great part from the nature of fluid milk itself and from the peculiar marketing problems involved in its distribution. Fluid milk cannot be stored for a long period of time. Moreover the production of fluid milk varies with the season; less milk being produced in the fall and winter than in the spring and summer. Yet the demand for fluid milk is fairly constant. Thus, if there is to be an adequate supply of fluid milk during less productive seasons there must necessarily be a surplus in the more productive seasons. The economic burden created by this surplus milk (including necessary reserves and seasonal surpluses) which must be turned into far less remunerative products, such as butter and cheese, might, if it fell onto the shoulders of a few dairymen, force them out of business. To avoid the dangerous effect which cutthroat competition during the overproductive season might have upon dairymen, and thereby insure the highly populated areas of metropolitan New York an adequate supply of fluid milk during all seasons, the Federal government promulgated Order No. 27 with its uniform market price scheme essentially designed to distribute this burden of necessary surplus among all of the regular suppliers in that market area. Although the regular suppliers of milk to the Order No. 27 area together can withstand the harmful effect of these sales of fluid milk by nonregulated handlers, the practice if not checked in some way could disrupt the orderly regulation of milk in the area in question. All of the parties seem to agree that these sales from outside handlers if unchecked pose a real problem to the effective operation of Order No. 27. The present dispute stems from the method used to avoid this problem.

 There are three specific sections of Order No. 27 which the plaintiffs attack. First is Section 927.3 which extends the area covered by the former Order to include a number of counties in northern New Jersey. They base their attack on this section upon the alleged failure of the Secretary of Agriculture to give proper notice of the ...

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