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June 20, 1967


The opinion of the court was delivered by: DAVIS

DAVIS, District Judge.

On February 20, 1967, D.C., 264 F. Supp. 1001 this three judge court denied the plaintiff's motion to enjoin the defendant from the operation or enforcement of any minimum sale prices of milk to stores and subdealers. The plaintiff, a processor of milk and other dairy products, had contended that the establishment of these prices was causing it irreparable harm and was in violation of the Due Process Clause of the Fourteenth Amendment of the Constitution of the United States.

 The court held that there was no substantial constitutional question as to the validity of the Pennsylvania Milk Control Law, Pa.Stat.Ann. tit. 31 § 700j-101ff (hereinafter referred to as "the Act") as a whole and that Pennsylvania possessed constitutional authority to establish minimum wholesale prices covering sales to stores and subdealers.

 In denying the preliminary injunction, however, the court stated that the plaintiff could reapply for further relief after the results of a price hearing already scheduled by the defendant were published. After the hearing, the Pennsylvania Milk Control Commission on May 22, 1967 issued Official General Orders No. A-688 and No. A-689 which completely revised minimum wholesale milk prices in areas I and I-A, the Philadelphia and suburban Philadelphia milk marketing areas.

 The plaintiff has now reapplied for preliminary injunctive relief on the ground that the new minimum wholesale price schedule as set forth in General Orders No. A-688 and No. A-689 violates the United States Constitution. It contends that the prices established are unconstitutional, because (1) a great bulk of milk brought into Pennsylvania stores is not subject to price control as to the cost to stores; (2) the prices set are too high to enable the plaintiff to compete with out-of-state competition; and (3) the prices are arbitrary and capricious in that they prevent plaintiff from selling to smaller wholesale customers at the much lower price available to larger customers. *fn1"

 Under the recent general orders, the minimum wholesale price for standard milk with 4% butterfat or less is 43.2 cents per half gallon, a price that includes the 20% discount where physical possession of the milk is taken by the purchaser at the plant and where the quantity is at least 200 quarts. The Orders also provide for a 29% discount or a price of 38.34 cents per half gallon where the minimum sale shall be equivalent to 2,000 quarts.

 The present minimum wholesale prices below which processing dealers in and around Philadelphia may not sell milk to subdealers, retail stores, hotels, restaurants and similar establishments, went into effect May 29, 1967, less than a month ago. In its new price order that is now attacked, the Commission has undertaken to give substantial relief to Sylvan Seal which had complained earlier that the disparity between now superseded Pennsylvania minimum wholesale prices and the prevailing and permitted selling and processing prices in nearby New Jersey and Delaware had caused Sylvan Seal, a regulated Philadelphia processor and wholesale seller dealing principally with large chain stores, to lose almost all of its business to out-of-state competitors. Unquestionably, before the adoption of the May 29 price order the plaintiff's losses to these competitors had been all but catastrophic. It faced the prospect of soon being forced out of business.

 The plaintiff complained to the Commission that the earlier price scheme made no provision for sales by a processing wholesale dealer at a substantial discount to stores and subdealers that would be willing to pick up their large orders at the wholesale seller's platform. To remedy this situation Sylvan Seal proposed that a minimum price of 37 cents per half gallon be established for such large transactions. Other processors suggested minimum prices from 38 1/2 cents to 39 1/2 cents per half gallon for such large platform sales. In suggesting a 37 cent minimum, Sylvan Seal admitted at the hearing before the Commission that it cannot make a profit on its present volume of business at that price. However, if it can regain about half of the large volume of business it lost in recent years, it believes it can sell profitably at 37 cents. Other processing wholesalers, particularly smaller ones, are understandably less optimistic as to their ability to sell at 37 cents.

 Despite the minimum prices set by the Commission, we find that the plaintiff is not prevented by law *fn2" from implementing the same sort of economic and business arrangements that some of the chain stores and milk processors are using with New Jersey processors in lawful avoidance of the wholesale selling prices by the defendant. We accept the testimony of Mr. Maurice Martin, Secretary to the Milk Control Commission that it has no ruling which would prohibit stores from obtaining licenses under § 403 of the Milk Control Act so that they could have their milk processed by Sylvan Seal and thus avoid the Commission's minimum wholesale prices to stores.

 In addition we must consider that one of the paramount reasons for economic regulation in the form of price control is to prevent unfettered competition. The test used by the Commission is to give the processors a reasonable return based upon a cross section of the industry. The Commission neither takes the most efficient nor the least efficient processor as the standard. It begins with the average normally efficient dealer in an effort to protect the dealers as a group. Price regulation by its very nature is not an exact science, and some businesses are helped greatly while some are hindered. Yet, the Commonwealth has a right to promote the general good over the individual good in the sphere of economic regulation. So long as the pricing structure is not arbitrary, capricious, and unreasonable, we have no power to strike it down as unconstitutional, no matter what our position might be if we had to pass on it as legislators. Nebbia v. People of State of New York, 291 U.S. 502, 54 S. Ct. 505, 78 L. Ed. 940 (1934). In the present case, the Milk Control Commission took testimony over a four day period. They heard seventeen witnesses and received into evidence some fifty-seven documents. In determining the platform prices to be paid to processors here, the Commission took many factors into consideration. It weighed the return from operations; the return before taxes; the return after taxes; the increase in labor and other operating costs. It also took cognizance of the fact that some processors distribute milk in areas outside of Pennsylvania at lower prices than are set in this state. The Commission's price structure was designed to give the average normally efficient processor the following returns: From operations 4.32% Before taxes 4.27% After taxes 2.38% Net Worth 8.61% Employed capital 8.45%


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