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JONES v. BERGLAND

June 30, 1978

Lester C. JONES, William T. Fulton, Inter-State Milk Producers' Cooperative, Lehigh Valley Cooperative Farmers, Maryland Cooperative Milk Producers, Inc., Maryland and Virginia Milk Producers, Capitol Milk Producers Cooperative, Pennmarva Dairymen's Federation, Inc.
v.
Bob BERGLAND, Secty. of Agriculture of U. S., Dairylea Cooperative, Inc.& Northeast Dairy Cooperative Federation, Inc. and Tuscan Dairy Farms, Inc. (Intervenor)



The opinion of the court was delivered by: GREEN

MEMORANDUM

Plaintiffs challenge the validity of a final partial decision and order of the defendant Secretary of Agriculture of the United States (Secretary) dated August 12, 1977, issued pursuant to an administrative rulemaking proceeding, Docket No. AO-71-A71, regarding Federal Milk Marketing Order No. 2 (7 C.F.R. 1002) which regulates the marketing of milk in the New York-New Jersey Marketing area. The final partial decision regarding proposed amendments to Milk Marketing Order No. 2 was published in 42 Fed.Reg. 41582; the amended order became effective on November 1, 1977 as provided for by Final Rule of September 27, 1977, published in 42 Fed.Reg. 52379.

 FACTS AND PROCEDURAL HISTORY

 The Agricultural Adjustment Act of May 12, 1933, 48 Stat. 31, as amended, 7 U.S.C. ยง 601, et seq., authorizes the Secretary to promulgate regulations called marketing orders to establish minimum prices and otherwise regulate the handling of milk in the particular marketing areas of the United States as designated by him. Pursuant to authority under the Agricultural Adjustment Act (Act), the Secretary has promulgated Order 2 to regulate the marketing of milk in North Jersey and the New York Metropolitan Area and other areas not relevant hereto; and Order 4 to regulate the marketing of milk in South Jersey and the Philadelphia Metropolitan Area and other areas not relevant hereto. Prior to the amendment of Order 2, the legality of which is the issue in this action, the basic Class I price in Order 2 was the basic formula price (7 C.F.R. 1002.50), plus an add-on of $ 2.40 (7 C.F.R. 1002.50a). The basic Class I price in Order 4 is the basic formula price (7 C.F.R. 1004.51) plus an add-on of $ 2.78 (7 C.F.R. 1004.50).

 A classified price plan divides milk received by handlers into classes according to use and assigns appropriate minimum prices for the classes. Under each marketing order, the aggregate amount of milk used monthly in each of the classes by all handlers under the order is determined, and then multiplied by the applicable class prices. The total is then divided by the total number of pounds of milk in all classes. The resulting number (subject to certain adjustments) is the uniform price. Each producer (or if a member of a qualified cooperative, the cooperative) is entitled to receive this uniform price (subject to certain adjustments) for the pounds of milk delivered by him to handlers under the respective orders, regardless of the use made of the milk by the particular handler to whom the producer sold his milk. The handler however pays for the milk delivered to him based on his class use; and any difference between the prices so payable and the uniform price paid to the producers delivering milk to him, is adjusted through a fund the Producer Settlement Fund maintained under the particular order.

 On January 9, 1976, the Secretary issued a notice of hearing for Order 2 which was published in the Federal Register, January 14, 1976, Volume 41, No. 9 at pages 2092 and 2093. The notice, insofar as it is relevant to issues herein considered, contained proposals for adjustment of certain location and transportation differentials in Order 2. The hearing was held at New York, New York on February 17-20, 1976 and at Syracuse, New York on February 23-26, 1976.

 The final partial decision and order issued by the Secretary effectively reduced the Order 2 Class I price add-on (7 C.F.R. 1002.50a(a)) from $ 2.40 to $ 2.25. *fn1"

 The individual plaintiffs are producers of milk under Order 2 or Order 4. The corporate plaintiffs are associations of producers marketing the milk of their members in Orders 2 or 4 or in both Orders 2 and 4. *fn2"

 Intervenor-defendants Dairylea Cooperative, Inc. and Northeast Dairy Cooperative Federation, Inc. market a substantial portion of the milk of their members under Order 2. *fn3" Intervenor-defendant Eastern Milk Producers Cooperative Association, Inc. is a cooperative corporation whose producer-members are subject to Order 2. *fn4" Intervenor-defendant Tuscan Dairy Farms, Inc. is a handler of Class I milk regulated under Order 2. *fn5"

 Initially plaintiffs sought preliminary injunctive relief, urging that this Court enjoin the defendant Secretary from permitting Order 2, as amended, from becoming effective on November 1, 1977. A hearing on plaintiffs' motion for injunctive relief was held on October 13, 1977. In our Memorandum Opinion and Order of October 28, 1977, we denied plaintiffs' motion, concluding that plaintiffs would not sustain irreparable harm if the Order as amended was not stayed.

 On December 16, 1977, a final hearing was held on this matter during which defendant and intervenor-defendants made a joint motion to dismiss plaintiffs' complaint, or in the alternative, for summary judgment under Fed.R.Civ.P. 12 and 56. We reserved ruling on that motion and permitted plaintiffs to proceed to trial without prejudice to the motion. The court admitted into evidence (1) the entire administrative rulemaking record in Docket No. AO-71-A71 which had been previously certified and filed with the court by defendant; and (2) the testimony of Paul E. Hand presented at the hearing for preliminary relief held on October 13, 1977, for the limited purpose of establishing the factual basis for plaintiffs' allegation of standing in this action. Following plaintiffs' presentation of their evidence, defendant and intervenor-defendants jointly moved for involuntary dismissal under Fed.R.Civ.P. 41(b) on the alleged ground that upon the facts and law plaintiffs had shown no right to relief. This motion was also made without prejudice to defendant and intervenor-defendants' preliminary motion and taken under advisement by this Court.

 After careful consideration of the arguments made by counsel at the hearings, the evidence adduced, and the memoranda of law submitted, this Court finds that plaintiffs have in fact stated a cause of action and that there is a genuine issue as to a material fact, as will more fully appear in the balance of this Memorandum Opinion. Accordingly, we deny the said motions of defendant and intervenor-defendants to dismiss the complaint or in the alternative for summary judgment. We proceed directly to the merits of plaintiffs' case and on the basis of the entire trial record before this court we grant defendant and intervenor-defendants' motion for involuntary dismissal of this action under Fed.R.Civ.P. 41(b). *fn6"

 Plaintiffs challenge the Secretary's action on both procedural and substantive grounds. The grounds averred in support of plaintiffs' prayer that this court enjoin the Secretary from enforcing the amendments promulgated by his decision and order of August 12, 1977 are as follows: (1) the notice of hearing was improper in that there was no notice of intention to consider a reduction in the Class I price; *fn7" (2) there was no record evidence to support a reduction in the uniform price because General Finding (b) of the Decision, finding that the producer minimum price must be reduced, was not supported by substantial evidence; *fn8" (3) the reduction of the Class I price was not supported by substantial record evidence; *fn9" and (4) the Secretary has no authority under the Act to equalize handler costs or to equalize handler costs at the expense of producers. *fn10"

 STANDING AND JURISDICTION

 As indicated, defendant and intervenors argue that neither plaintiff Order 2 producers nor plaintiff Order 4 producers have standing to maintain this action for the reason that plaintiffs' claim as pled falls outside of the limited area specified by case law wherein producers have standing to contest the Secretary's action under a marketing order which regulates their milk. Inasmuch as we determine that plaintiff Order 2 producers have standing to bring this suit, we do not reach the question whether plaintiff Order 4 producers, who are only indirectly affected by the amended order, have legal standing. We assume that they have standing.

 Defendant and intervenors are correct insofar as they state that case law specifies a limited area in which producers have standing to contest the Secretary's action under a marketing order which regulates their milk.

 In Stark v. Wickard, 321 U.S. 288, 64 S. Ct. 559, 88 L. Ed. 733 (1944), Order 4 producers brought suit against the Secretary to enjoin him from carrying out certain provisions of marketing Order 4 which it was alleged would unlawfully divert funds which belonged to them. The contested provisions directed the market administrator to deduct a sum for the purpose of meeting certain payments to cooperatives. Plaintiffs argued that the Act did not authorize the Secretary to include in his order provision for payments of that kind or for deductions to meet them. The court found that "the challenged deduction reduces Pro tanto the amount actually received by the producers for their milk." Stark v. Wickard, supra, 321 U.S. at 302, 64 S. Ct. at 567, 88 L. Ed. at 744. The court noted that certain rights are vested in producers, stating:

 
The statute (the Act) and Order create a right in the producer to avail himself of the protection of a minimum price afforded by Governmental action. Such a right created by statute is mandatory in character and obviously capable of judicial enforcement. Stark v. Wickard, supra, 321 U.S. at 303, 64 S. Ct. at 567-568, 88 L. Ed. at 744.

 On the basis of plaintiffs' allegations that they had delivered milk to Order 4 handlers which entitled them to a minimum price which was subject to the illegal deductions, the court determined that plaintiffs had such a personal claim as justified judicial consideration. Accordingly, the court found that the plaintiff producers had legal standing to contest the alleged illegal provisions. *fn11"

 Stark holds that the Act confers standing upon producers for the limited purpose of challenging unlawful administrator action which adversely affects their minimum price. We note that plaintiffs allege that the contested decision and order will immediately reduce the uniform price paid to Order 2 producers by shifting from Order 2 handlers to Order 2 producers the costs of hauling milk and by the reduction of the Class I price by 15 cents per hundredweight. *fn12" Additionally, plaintiffs allege that the Secretary's action will reduce the Producer Settlement Fund in Order 2. *fn13" Inasmuch as both the uniform price and the Producer Settlement Fund are aspects of the minimum price, plaintiffs effectively allege that the contested provisions will reduce their minimum price. As stated, plaintiffs aver in their second amended complaint that the Secretary's action is unlawful for the reasons that the notice of hearing is invalid, certain provisions are unsupported by substantial record evidence, and the Secretary lacks authority to equalize handler costs. This court finds that on the allegations of the complaint, the Order 2 producer plaintiffs have legal standing to challenge alleged unlawful action by the Secretary which adversely affects their minimum price.

 Defendant-intervenor Tuscan Dairy Farms, Inc. argues that the above cases regarding producers' standing turn on the diminution of the Producer Settlement Fund or equalization pool. That is, Tuscan claims that the above referenced cases hold that producers are entitled to judicial consideration only where the primary impact of the contested action is upon the fund or pool as prescribed by the Secretary. We disagree. Stark, the seminal case on this matter, determines that producers are entitled to contest any unlawful governmental action which adversely affects their minimum price. See page 6, Infra. The Class I price add-on is part of the minimum price assured producers. The fact that the Class I price add-on falls within that portion of the minimum price which handlers pay directly to producers rather than within the Producer Settlement Fund from which handlers make indirect payments to producers does not bar producer plaintiffs herein from judicial consideration of governmental action it is alleged unlawfully reduces the Class I price add-on.

 However, even if producers are only entitled to challenge governmental action which unlawfully diminishes the Producer Settlement Fund, we find that the reduction of the Class I price add-on may ultimately reduce the fund, as plaintiffs allege. *fn14" If the reduction of the Class I price results in a reduction of the blend price, as plaintiffs argue, handlers could be required ...


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