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Smyser v. Block

decided as amended may 9 1985.: April 30, 1985.

SMYSER, ROBERT L., SMYSER, RODNEY R., SMYSER'S RICHLAWN FARMS, FETROW, HOWARD S., FETROW, RALPH E., BLUE-KNOLL FARMS, BESHORE, E. WAYNE, BESHORE, JED, BESHORE FARMS
v.
BLOCK, JOHN R., SECRETARY OF AGRICULTURE AND UNITED STATES DEPARTMENT OF AGRICULTURE, DAIRYMEN, INC., DEFENDANT-INTERVENOR, INTER-STATE MILK PRODUCERS' CO-OP, MARYLAND & VIRGINIA MILK PRODUCERS ASSOCIATION, MIDDLE ATLANTIC DIVISION OF DAIRYMEN, INC., CAPITOL MILK PRODUCERS, INC., LEHIGH VALLEY FARMERS, VALLEY OF VIRGINIA COOPERATIVE, PENNMARVA DAIRYMEN'S FEDERATION, INC., DEFENDANT-INTERVENORS, ROBERT L. SMYSER, RODNEY R. SMYSER, HOWARD S. FETROW, RALPH E. FETROW, E. WAYNE BESHORE AND JED BESHORE, APPELLANTS



On Appeal from the United States District Court for the Middle District of Pennsylvania (D.C. Civ. No. 83-0546).

Garth and Higginbotham, Circuit Judges, and McGlynn, District Judge.*fn*

Author: Higginbotham

Opinion OF THE COURT

A. LEON HIGGINBOTHAM, JR., Circuit Judge.

This is an appeal from a summary judgment of the district court sustaining the validity of certain "emergency" amendments to Department of Agriculture orders regulating the marketing of milk in the Middle Atlantic area, 7 C.F.R. part 1004 (1984), pursuant to the Agricultural Marketing Agreement Act of 1937, as amended, 7 U.S.C. § 601 et seq. (1982) ("the Act"). Because we find that the Secretary of Agriculture ("the Secretary") lacked statutory authorization to enact these amendments, we will reverse the judgment of the district court.

I.

This appeal requires us to "traverse the labyrinth of the federal milk marketing regulation provisions." Zuber v. Allen, 396 U.S. 168, 172, 24 L. Ed. 2d 345, 90 S. Ct. 314 (1969) (footnote omitted) (per Harlan, J.). It will be helpful to first summarize, in simplified form, the salient features of the regulatory scheme, and then the specific events leading to this appeal.

A. The Regulatory Scheme

For the past half-century the marketing of milk in a large portion of the United States has taken place under a federal regime designed to "establish and maintain such orderly marketing conditions . . . as will establish, as the price to farmers, parity prices. . . ." 7 U.S.C. § 602(1). The terms and conditions that the Secretary may include in "orders" regulating the marketing of milk and its products are found in subsections 8c(5) and 8c(7) of the Act, 7 U.S.C. §§ 608c(5), 608c(7). These provisions were intended to address the "two distinctive and essential phenomena of the milk industry" that had previously led to disorderly marketing conditions and depressed prices: "a basic two-price structure that permits a higher return for the same product, depending on its ultimate use, and the cyclical characteristic of production." Zuber v. Allen, 396 U.S. at 172.

Because cows produce significantly more milk in the Spring and Summer than in the Fall and Winter, while demand is relatively steady year-round (with some drop-off when schools are out of session), dairy farmers ("producers") must maintain herds that are sufficient to meet the Fall and Winter demand for the fluid milk products that cannot be stored for long periods of time, even though this will result in an inevitable surplus -- known as the "Spring flush" -- when production is at its peak. This surplus milk is directed to non-fluid uses, such as the manufacture of cheese and butter, for which milk can be transported and stored in less perishable form. Milk that is ultimately used for fluid purposes has traditionally commanded a higher price than milk of the same grade and quality used for manufactured products. This difference is not entirely accounted for by differences in cost. In an unregulated market "cutthroat" competition for the more profitable fluid milk sales can lead to an overall decline in prices. See generally Brooks, The Pricing of Milk Under Federal Marketing Orders, 26 Geo. Wash. L. Rev. 181, 181-83 (1958). It was this scenario that Judge Jerome Frank had in mind when he wrote that milk often provoked "as much human strife and nastiness as strong alcoholic beverages." Queensboro Farms Products v. Wickard, 137 F.2d 969, 974 (2d Cir. 1943).

The regulatory scheme authorized by the Act is designed to prevent such strife by having all producers in a regional market share equally in the burden created by surplus milk. This is generally accomplished, as in the Middle Atlantic area, through the marketwide pooling of milk under "orders" issued by the Secretary. The orders may classify milk according to its ultimate use -- fluid (Class I) or "non-fluid" (Class II and Class III) -- and fix uniform minimum prices that all "handlers" (the middlemen who process and market milk) must pay for each class, "subject only to adjustments for (1) volume, market, and production differentials customarily applied by the handlers subject to such order, (2) the grade or quality of the milk purchased, and (3) the locations at which delivery of such milk, or any use classification thereof, is made to such handlers." 7 U.S.C. § 608c(5)(A).

While handlers pay a higher uniform minimum price for Class I milk producers receive one uniform price -- the "blended" price -- for all their milk irrespective of its ultimate use, subject to the same enumerated adjustments. 7 U.S.C. § 608c(5)(B). Additional adjustments are authorized to encourage steady production levels year-round. Thus, 7 U.S.C. § 608c(5)(B) (ii) (d) authorizes the establishment of "base-excess" plans, under which producers receive only the lower Class II or Class III price for production in the Spring months that exceeds their Fall "base" production level. See, e.g., 7 C.F.R. § 1004.90 (base-excess plan for the Middle Atlantic area). 7 U.S.C. § 608c(5)(B) (ii)(e) authorizes so-called "Louisville" plans whereby the blended price is reduced in the Spring and the accumulated funds disbursed to producers in the Fall. See H.R. Rep. No. 1329, 91st Cong., 2d Sess. 17-19 (1970).

The blended price is, roughly speaking, the weighted average uniform price of all milk of all use classifications sold under the order during a given period. By paying a farmer according to the marketwide utilization of milk rather than according to the utilization of his particular milk, competition among farmers to sell their milk for fluid use is eliminated. The discrepancy between what handlers pay and what producers receive for their milk is reconciled through a "Producer Settlement Fund." Handlers whose "use value" (the weighted average uniform price of the milk they purchased) exceeded the blended price for the relevant period must contribute the difference to the fund, and handlers whose use value was less than the blended price may withdraw the difference from the fund. 7 U.S.C. § 608c(5)(C); see, e.g., 7 C.F.R. § 1004.70 (Producer Settlement Fund for the Middle Atlantic area). See generally Kessel, Economic Effects of Federal Regulation of Milk Markets, 10 J. Law & Econ. 51, 54-55 (1967).

The Act authorizes the Secretary to include a variety of additional specified terms in orders, see, e.g., 7 U.S.C. § 608c(5)(I) (providing for research, development and advertising projects financed by the deductions from the blended price), as well as terms or conditions "incidental to, and not inconsistent with, the terms and conditions specified in subsections (5) to (7) of this section and necessary to effectuate the other provisions of such order." 7 U.S.C. § 608c(7)(D). There are currently 45 regional marketing orders in effect. The Middle Atlantic ...


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