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decided: November 25, 1981.


Appeal from the Order of the Pennsylvania Milk Marketing Board in the case of In the Matter of Minimum Prices for Southeastern Milk Marketing Area, Area 1, Zone 2, Official General Order A-837.


James R. Morgan, Jr., with him Walter W. Wilt, Hepford, Swartz, Menaker & Wilt, Sheldon A. Weiss and Wayne M. Thomas, Kohn, Savett, Marion & Graf, P.C., for petitioners.

Daniel T. Flaherty, Jr., Chief Counsel, for respondent.

Harold W. Swope, Duane, Morris & Heckscher, with him J. Jackson Eaton, III, Butz, Hudders & Tallman, for intervenors.

President Judge Crumlish, Jr. and Judges Mencer, Craig, MacPhail and Palladino. Opinion by Judge Craig.

Author: Craig

[ 62 Pa. Commw. Page 598]

Lily Penn Food Stores, Inc. and Joan Arnone, individually and on behalf of all Area 1, Zone 2*fn1 milk

[ 62 Pa. Commw. Page 599]

    consumers, petition for review of the Pennsylvania Milk Marketing Board's order A-837, which increased minimum resale prices for whole, lowfat and skim milk by twelve cents per gallon.*fn2

The price increase was precipitated by a request for hearings to review minimum prices filed on April 16, 1980 by the Suburban Milk Dealers Association (Association), representing four milk dealers located in Zone 2.*fn3 The board convened the hearings on September 8, 1980; the dealer's primary witness was their accountant, Carl Herbein.

Lily Penn, which owns and operates a chain of dairy convenience stores in Area 1 under the trade name Cumberland Farms, presented several witnesses. The board also heard testimony from three of its staff members: an audit supervisor, the economic director and director of the bureau of statistics, and its executive secretary.

Following the parties' submission of proposed findings, the board issued order A-837 on January 28, 1981, with an effective date of February 4. Petitioners Lily-Penn and Mrs. Arnone obtained a stay from this court pending determination of their appeal.

The pertinent section of the Milk Marketing Law*fn4 is Section 801, which states in part:

The board shall base all prices upon all conditions affecting the milk industry in each milk

[ 62 Pa. Commw. Page 600]

    marketing area, including the amount necessary to yield a reasonable return to the producer, which return shall not be less than the cost of production and a reasonable profit to the producer, of the quantity of milk necessary to supply the consumer demand for fluid milk plus a reasonable reserve supply as determined by the board, and a reasonable return to the milk dealer or handler. However, where the board determines that the market for Pennsylvania produced milk is threatened it may establish producer prices designed to market the milk. In ascertaining such returns, the board shall utilize a cross-section representative of the average or normally efficient producers and dealers or handlers in the area and shall consider the cost of containers according to size and type.

All provisions of all price-fixing orders of the board shall be presumed to be valid, and the burden of proving any invalidity of any provisions thereof shall be upon the person asserting the same.

The Cross-Section Used

The petitioners' submit that order A-837 is not supported by substantial evidence, is arbitrary, unreasonable and not in accordance with law.

However, the pivotal issue is whether the board used a "cross-section representative of the average of normally efficient . . . dealers or handlers in the area" in ascertaining the dealer's reasonable return, as mandated by Section 801. Embraced within this issue is the petitioners' assertion that the board failed to consider "all conditions affecting the milk industry" in the area.

[ 62 Pa. Commw. Page 601]

In its order, the board concluded that the four member dealers of the Association were a representative cross-section of dealers in Zone 2 for 1979. The board (and the Association, as intervenor in this appeal) defend that decision on the grounds that: (1) the plants of all four dealers are physically located within Zone 2; (2) they are full service dealers handling a complete line of products and selling milk to home delivery customers, stores, restaurants, institutions and schools; and (3) the cross-section accounts for approximately 39% of the net sales dollars for Zone 2 in 1979.

Because the testimony of the expert witnesses was conflicting on many points, the board, in its findings and conclusions, evaluated the evidence and explained its reasons for accepting as more credible certain statements over others.

Although we may not infringe upon the board's exclusive function as arbiter of credibility barring complete absence of evidentiary support, Lily-Penn Food Stores, Inc. v. Milk Marketing Board, 42 Pa. Commonwealth Ct. 92, 400 A.2d 661 (1979), our review of the record leads us to conclude that the board erred as a matter of law in holding that the four dealers were a representative cross-section of the average or normally efficient dealers or handlers in the area.

The record establishes, and the board so found, that the four dealers accounted for only 28% of the volume of milk sold in Zone 2 by weight. The board's own exhibits demonstrate that the dealers used in the representative examination comprise only one-fourth of the sixteen licensed dealers whose plants are physically located within Zone 2. Twenty-one additional dealers with plants located outside the zone are listed as selling milk within the zone.

A significant amount of the evidence related to the changing characteristics of milk sales to consumers, such as the current predominance of non-returnable

[ 62 Pa. Commw. Page 602]

    plastic gallon containers, the ascendant consumer practice of purchasing milk in supermarkets, and the decrease in home ...

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