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decided: February 13, 1984.


Appeal from the Order of the Pennsylvania Milk Marketing Board in the case of Findings of Fact, Reasoning and Conclusions in Support of Official General Order No. A-847 for Zone 1 of the Southeastern Milk Marketing Area, Area No. 1, Zone 1, dated May 13, 1982.


Sheldon A. Weiss, with him Kevin J. McKeon, Rose, Schmidt, Dixon & Halsey, for petitioners.

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

President Judge Crumlish, Jr. and Judges Rogers, Williams, Jr., Craig, MacPhail, Doyle and Barry. Opinion by Judge Craig. Concurring and Dissenting. Opinion by Judge MacPhail.

Author: Craig

[ 80 Pa. Commw. Page 267]

Lily Penn Food Stores, Inc., Donna Thomas, and Joan Arnone, individually and on behalf of all Area 1 milk consumers (collectively referred to as "Lily Penn" in this opinion), appeal from Pennsylvania Milk Marketing Board (board) General Order No. A-847,

[ 80 Pa. Commw. Page 268]

    which, for Zone 1 (one of the two zones in Area 1), continues in effect minimum resale prices for 2% lowfat, 1% lowfat, and skim milk respectively at eight cents, twelve cents, and 24 cents per gallon less than the minimum resale price for whole milk.

We have been asked to decide if the board abused its discretion by refusing to lower minimum resale prices for lowfat and skim milk for all of Area 1. Because we conclude that it has, and has erred as a matter of law, we vacate the board's order and hold that existing minimum prices for lowfat and skim milk in all of Area 1 are invalid and therefore unenforceable.

Historical Background

Previous Litigation

Two decisions by this court which predate Order A-847 and certain actions by the board, after the filing of that order on May 13, 1982, bear directly upon the scope of our order here. In 1979, our court approved the division of Area 1 -- the Southeastern Milk Marketing Area -- into two marketing zones. Lily-Penn Food Stores, Inc. v. Pennsylvania Milk Marketing Board, 42 Pa. Commonwealth Ct. 92, 400 A.2d 661 (1979) (Lily Penn I). Zone 1 consisted of Philadelphia and Delaware counties and those portions of Bucks and Montgomery counties south of the Pennsylvania Turnpike; Zone 2 consisted of Chester County and those areas of Buck and Montgomery counties north of the Pennsylvania Turnpike.

In 1980, at the request of the Suburban Milk Dealers Association, the board convened hearings to review minimum prices in Zone 2 and then issued General Order No. A-837, increasing minimum resale prices for whole, lowfat, and skim milk by twelve cents per gallon. On appeal, we reversed, holding that the board had failed to use a representative cross-section of dealers in ascertaining a reasonable rate of return,

[ 80 Pa. Commw. Page 269]

    and had abused its discretion in rejecting the only material evidence on the issue of low fat and skim milk price margins. Lily Penn Food Stores, Inc. v. Pennsylvania Milk Marketing Board, 62 Pa. Commonwealth Ct. 597, 437 A.2d 485 (1981) (Lily Penn II) (allocatur denied). Accordingly, by order of November 25, 1981, we remanded the matter to the board for a redetermination of minimum prices for Zone 2, with instructions to (1) consider relevant unit cost evidence and (2) support future findings and conclusions with a discussion sufficient to permit meaningful appellate review.*fn1

To date, the board has not scheduled redetermination hearings for Zone 2. Rather, after our decision in Lily Penn II, the board promulgated regulations to amend its uniform system of accounts*fn2 and devised a set of instructions for Commonwealth milk dealers which will require them to submit certain unit cost information with their annual financial statements. Significantly, after issuing A-847 -- the order here on appeal -- the board also issued General Order No. A-848, recombining Zones 1 and 2 into a single marketing area.*fn3 Thus, Zones 1 and 2 no longer exist as board-recognized independent geographic entities; only Area 1 remains.

General Order A-847 -- The Present Board Decision

In October of 1980, counsel for the Milk Distributors Association of the Philadelphia Area, Inc.*fn4 filed

[ 80 Pa. Commw. Page 270]

    a petition with the board, seeking review of the minimum prices then in effect for Zone 1.*fn5 The board granted that review request and issued a notice of hearing dated February 26, 1981, approximately one month after the board issued the minimum price increase order for Zone 2 (A-837).

The board conducted seven days of hearings, from June 8 to June 22, 1981. As in Lily Penn II, Carl Herbein, a certified public accountant, was the principal witness for the milk dealers and Dr. Richard Stammer, an associate professor of agriculture economics at Rutgers University, the primary witness for Lily Penn. The board also heard testimony from Distributors Association staff vice-president Daniel F. Wettlin, III, management consultant Robert G. Havemeyer, the board's economics director Reed Miller, and the board's audit supervisor James Sullivan.

The parties filed post-hearing briefs during August and September of 1981, but the board took no action until after our Supreme Court denied the petition for appeal in Lily Penn II.

On the basis of our holding in City of Pittsburgh v. Pennsylvania Milk Marketing Board, 60 Pa. Commonwealth Ct. 422, 433 A.2d 561 (1981) (City of Pittsburgh II), which mandates that non-board documents underlying exhibits be made available for examination, the board excluded the financial exhibits upon which Distributors Association witness Herbein relied in support of a Zone 1 minimum resale price increase. The board also concluded that the only other financial evidence of record -- submitted by board employees -- could "not justify a change in the presently established minimum prices."

[ 80 Pa. Commw. Page 271]

A majority of the board, however, also refused to lower minimum resale prices for lowfat and skim milk, stating "that the record is devoid of evidence necessary to justify any change in the presently established minimum prices for Area 1, Zone 1. . . ."

Consumer member Olson dissented, describing the majority decision as an "attempt to negate the evidence by declaring it to be incompetent."

Lily Penn has requested reversal of Order A-847, insofar as it allegedly continues to impose unreasonably high minimum prices for lowfat and skim milk; neither dealers' association has interposed an appeal. In the alternative, Lily Penn has asked us to vacate Order A-847 and remand with instructions to reduce or terminate those prices.

Scope of Review

The setting of minimum prices for skim milk is a discretionary function committed to the expertise of the board. See section 802 of the Milk Marketing Law*fn6 (the Act). Section 802, however, does not refer to lowfat milk, presumably because that product was unknown when the ...

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