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Lehigh Valley Farmers v. Block

argued: June 15, 1987.

LEHIGH VALLEY FARMERS, ATLANTIC PROCESSING, INC., DAIRYLEA COOPERATIVE, INC., MOUNT JOY FARMERS COOPERATIVE, MONROE COUNTY MILK PRODUCERS COOPERATIVE RUTH, ALPHEUS; GEHMAN, ROBERT; HETRICK, ROY; HARTUNG, RICHARD; HAFER, EARL R., ON BEHALF OF HIMSELF AND THE MEMBERS OF THE BERKS COUNTY DAIRY FARMERS PROTECTIVE ASSOCIATION, AND HOLLENBACH, CARL AND CAROLYN ON BEHALF OF THEMSELVES AND THE MEMBERS OF BERKS COUNTY DAIRY FARMERS PROTECTIVE ASSOCIATION
v.
BLOCK, JOHN R., PENNMARVA DAIRYMEN'S COOPERATIVE FEDERATION, INC. & THE INDIVIDUAL MEMBERS THEREOF (INTERVENORS), EASTERN MILK PRODUCERS COOPERATIVE ASSOC. INC. & GROUP OF PRIVATE INDEPENDENTLY OWNED PROPRIETARY HANDLERS (INTERVENORS), JOHN R. BLOCK, SECRETARY OF AGRICULTURE, APPELLANT IN NO. 86-1592; FARMERS' COOPERATIVE DAIRY INC.; SPIECE, GUY E.; COOK, DONALD L.; DRASHER, A. CHARLES; HILLIARD, FOSTER E., JR.; MYLET, ANDREW M.; TRAVELPIECE, LUTHER R.; AND YODER, SAMUEL A., ON BEHALF OF THEMSELVES AND ALL MEMBERS OF FARMERS' COOPERATIVE DAIRY, INC.; LEATHERMAN, JOHN; RHEIN, DAWN F.; HEISLER BROS.; LEATHERMAN, BRUCE; MARTIN, RONALD; HOLLENBACH, CARL; BROWN CARL; HEFNER, RALPH T/A JERSEY ACRES FARMS; KURTZ, HARRY; WOLF, MARVIN; MOYER, WILBERT; DAUBERT, WILLIAM R.; PETRAVICH, ALVIN; MOYER, LESTER; LEIBY, BERTRAM; HEISLER, CARL; HEISLER, PAUL, SCHNOKE, SAMUEL; HUBER, ROBERT; MOYER, AMOS, JR.; KREAGER, KENNETH; CUERS DAIRY, INC.; AND VALLEY FARMS, INC. V. BLOCK, JOHN R., PENNMARVA DAIRYMEN'S COOPERATIVE FEDERATION, INC. (INTERVENOR), EASTERN MILK PRODUCERS COOPERATIVE ASSOC. INC. & GROUP OF PRIVATE INDEPENDENTLY OWNED PROPRIETARY HANDLERS (INTERVENORS), JOHN R. BLOCK, SECRETARY OF AGRICULTURE, APPELLANT IN NO. 86-1593; LEHIGH VALLEY FARMERS, ATLANTIC PROCESSING, INC., DAIRYLEA COOPERATIVE, INC., MOUNT JOY FARMERS COOPERATIVE, MONROE COUNTY MILK PRODUCERS COOPERATIVE RUTH, ALPHEUS; GEHMAN, ROBERT; HETRICK, ROY; HARTUNG, RICHARD; HAFER, EARL R., ON BEHALF OF HIMSELF AND THE MEMBERS OF THE BERKS COUNTY DAIRY FARMERS PROTECTIVE ASSOCIATION, AND HOLLENBACH, CARL AND CAROLYN, ON BEHALF OF THEMSELVES AND THE MEMBERS OF BERKS COUNTY DAIRY FARMERS PROTECTIVE ASSOCIATION V. BLOCK, JOHN R., PENNMARVA DAIRYMEN'S COOPERATIVE FEDERATION, INC. & THE INDIVIDUAL MEMBERS THEREOF (INTERVENORS), EASTERN MILK PRODUCERS COOPERATIVE ASSOC. INC. & GROUP OF PRIVATE INDEPENDENTLY OWNED PROPRIETARY HANDLERS (INTERVENORS), STOCKER BROTHERS DAIRY, PROPOSED INTERVENOR, APPELLANT IN NO. 86-1633



On Appeal from the United States District Court for the Eastern District of Pennsylvania-Philadelphia, D.C. Civil Nos. 85-6422, 85-6484.

Seitz, Mansmann, Circuit Judges, and Debevoise,*fn* District Judge.

Author: Seitz

Opinion OF THE COURT

SEITZ, Circuit Judge.

The Secretary of the Department of Agriculture appeals the order of the district court enjoining him from implementing amendments to the Middle Atlantic (Order 4) and New York-New Jersey (Order 2) Milk Marketing Orders that would expand the area regulated by the two orders. Stocker Brothers Dairy appeals the denial of its motion to intervene as a plaintiff. This court has jurisdiction pursuant to 28 U.S.C. § 1291 (1982).

I.

To understand this case, it will be helpful to describe briefly the federal regulatory scheme for the marketing of milk. The marketing of milk has taken place in large measure under the aegis of federal control since the 1930s. During the Depression, dairy farmers engaged in fierce competition and "utter chaos" in the dairy industry ensued. See Zuber v. Allen, 396 U.S. 168, 172-74, 90 S. Ct. 314, 317-18, 24 L. Ed. 2d 345 (1969). In an effort to bring this destabilizing competition under control, Congress authorized the Secretary of Agriculture to issue milk marketing orders that establish a uniform price to be paid to producers (dairy farmers) by handlers (those who manufacture raw milk into bottled milk and other products) in the Agricultural Marketing Agreement Act of 1937, as amended, 7 U.S.C. § 601 et seq. (1937) (the Act). The purposes of the Act are to maintain orderly marketing conditions that will result in parity prices for farmers and will protect consumers. See 7 U.S.C. § 602 (1982).

The complex federal regulations governing the milk industry are designed to address two distinct phenomena of the industry. First, cows produce significantly more milk in the spring and summer than they do in the fall and winter. Because the demand for milk is relatively constant, dairy farmers must maintain sufficient herds to meet the fall and winter demand for milk. Thus, there is inevitably a surplus of milk during the more productive months. Second, milk that is ultimately used for fluid consumption by consumers (Class I milk) commands a higher price than milk of the same quality that is used in the manufacture of dairy products such as cheese and butter (Class II milk). In the absence of regulation, the intense competition by dairy farmers for the more lucrative fluid sales market can lead to depressed prices and unstable markets. See Zuber v. Allen, supra, 396 U.S. at 172-74, 180-81, 90 S. Ct. at 317-18, 321-22; Smyser v. Block, 760 F.2d 514, 515-16 (3d Cir. 1985).

To prevent such disorderly marketing conditions, the Act authorizes the Secretary to issue orders providing for "all producers in a regional market [to] share equally in the burden created by surplus milk." See Smyser v. Block, supra, 760 F.2d at 516. The orders generally accomplish this goal by requiring the marketwide pooling of milk.*fn1 The orders classify milk as Class I or Class II milk according to its use and set minimum prices that the handlers must pay for each class.

Producers receive a uniform price, "the blended price," for all their milk regardless of the ultimate use of the milk. 7 U.S.C. § 608c(5)(B) (1982). The blended price is based on a weighted average value of all milk sold within the marketing area regulated by a federal order. By mandating that producers within a market area receive a uniform price based on the use of milk within the area, the Act eliminates the incentive for dairy farmers to attempt to compete with their neighbors through lowering their prices.

To account for the difference between what the handlers pay and what the producers receive, the orders establish producer settlement funds. Handlers who supply more fluid milk than the average utilization for the area regulated by a federal order, and therefore have a higher "use value" than the blended price, must contribute to the fund. Conversely, those handlers whose "use value" is less than the blended price receive the difference from the fund.

This case involves the Secretary's decision to expand the areas covered by the Middle Atlantic (Order 4) and New York-New Jersey (Order 2) Milk Marketing Orders to include twenty counties in Pennsylvania that are not currently regulated by the federal government.*fn2 The Secretary declined to extend the two orders to regulate these Pennsylvania counties in 1975. 40 Fed. Reg. 14702 (1975). In 1983, however, the Secretary announced that he would again hold hearings on whether the twenty counties should be included in the market covered by Order 2 and Order 4. 48 Fed. Reg. 28655 (1983). The proposal to add the counties was supported by producers under Order 4 and a number of the handlers regulated by Order 4 and Order 2.

After twenty four days of hearings, the Secretary issued his decision that the nonfederally regulated counties should be added to the area regulated by the two federal orders. See 50 Fed. Reg. 32716 (1985).*fn3 A number of dairy farmers and cooperatives from the nonregulated handlers filed this action in district court pursuant to 7 U.S.C. § 608c(15)(B), seeking a preliminary injunction against the implementation of the amendments. The district court entered the preliminary injunction against the Secretary following a four-day hearing.

The district court thereafter granted the plaintiffs' request for a permanent injunction prohibiting the Secretary from implementing the amendments on the ground that the Secretary's decision to expand the area regulated under Order 2 and Order 4 was not supported by substantial evidence. See Lehigh Valley Farmers v. Block, 640 F. Supp. 1497 (E.D. Pa. 1986). In addition, the court denied the motion of three handlers to intervene on the plaintiffs' behalf because the handlers had not exhausted their ...


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