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Milk v. Benson

February 27, 1961


Author: Forman

Before McLAUGHLIN, HASTIE and FORMAN, Circuit Judges.

FORMAN, Circuit Judge.

This is an appeal from a judgment of the United States District Court for the District of New Jersey granting a motion by the appellee, the Secretary of Agriculture of the United States of America (the Secretary), for summary judgment*fn1 and denying a similar motion by the appellant, Newark Milk and Cream Company (Newark Milk). Involved is the construction to be given certain sections of Federal Marketing Order No. 27*fn2 (Order 27) as they existed during the period of June 1954 to March 1955, when Order 27 only regulated the handling of milk in the New York Milk Marketing Area (Marketing Area).*fn3

Newark Milk, a New Jersey corporation, operated pool plants*fn4 at Canisteo and Oquaga, New York, respectively, and also operated a non-pool plant at Newark, New Jersey. It received milk at its pool plants in the State of New York from producers and shipped it to its non-pool plant in Newark, New Jersey in the form of cream, milk and skim milk. There it was processed, packaged and distributed to its customers. The Newark plant was not licensed to sell, distribute, or otherwise deliver milk in the Marketing Area from its non-pool plant in Newark.

From June 1954 through March 1955, Newark Milk shipped 473,088 pounds of skim milk from its pool plants in New York to its non-pool plant in newark. It is not disputed that all of this milk was received at the non-pool plant in Newark. The Market Administrator conducted an audit of the records of the non-pool plant in Newark which while indicating the receipt of the skim milk in Newark did not disclose what ultimate disposition or utilization had been made of large quantities of it. Thereupon the Market Administrator charged Newark Milk with the differential on the 473,088 pounds of skim milk pursuant to § 927.44 of Order 27. It was billed for $8,054.72 which it paid to the producer-settlement fund. Following the payment of the above sum Newark Milk petitioned the Secretary under § 8c(15) (A) of the Agricultural Marketing Act of 1937, 7 U.S.C.A. § 608c(15) (A) (Act) complaining that Order 27 was improperly applied and requesting the return of the payment.

A hearing was held before an Examiner as a result of which he issued a report recommending the dismissal of the petition. To this report exceptions were filed and a further hearing was held before the Judicial Officer of the Department of Agriculture who denied the petition. Newark Milk then sued fsor a review in the United States District Court of New Jersey under § 8c(15) (B) of the Act, 7 U.S.C.A. § 608c(15) (B). The Secretary and Newark Milk each moved for summary judgment. As indicated heretofore the court granted the motion of the Secretary and found that the order of the Market Administrator was "in accordance with law."

The two sections of Order 27 basically involved here are §§ 927.44 and 927.31. Section 927.44 provides in pertinent part:

"Sec. 927.44 Fluid skim differential. For skim milk derived from Class II or Class III milk which skim milk enters the marketing area in the form of milk, fluid skim milk * * * or cultured milk drinks and there utilized or disposed of [in one of such forms], and for all other skim milk derived from Class II or Class III milk which is not established to have been otherwise utilized or disposed of, the handler shall pay a fluid skim differential * * *." (Emphasis added.)

Section 927.31 provides in pertinent part:

"Sec. 927.31 Burden of proof. In establishing the classification of milk received from producers, the burden rests upon the handler who received the milk from producers to show that the milk should not be classified as Class 1-A, and that the skim milk in Class II and Class III should not be subject to the fluid skim differential * * *." (Emphasis added.)

Newark Milk submits that it fully complied with the above sections when the records at its pool plants and nonpool plant established that the skim milk had been shipped and received at its non-pool plant in Newark which, at the time, was outside the Marketing Area. In other words, it contends that §§ 927.44 and 927.31 did not require it to establish the ultimate utilization or disposition of the skim milk outside the Marketing Area.

In general, Order 27*fn5 seeks to achieve a fair division of the more profitable fluid milk market among all producers in the Marketing Area thereby eliminating the disorganizing effect of cutthroat competition. United States v. Rock Royal Co-operative, Inc., 1939, 307 U.S. 533, 59 S. Ct. 993, 83 L. Ed. 1446; Elm Spring Farm v. United States, 1 Cir., 1942, 127 F.2d 920.

Section 927.44 is the means of fulfilling this goal as far as fluid skim milk is concerned. It requires pool handlers to make payments to the producer-settlement fund for the fluid skim milk which they send into the Marketing Area or for which they do not otherwise account. As argued by the Secretary, when fluid skim milk enters the Marketing Area and no differential is paid with respect to it, the purpose of § 927.44 is frustrated regardless of whether entry into the area is from a pool plant or a non-pool plant. In either even if no differential is paid the benefit to the producers covered by Order 27, gained from the more lucrative fluid milk market is lost since the uniform price is, of necessity, lowered.

In view of the above it would appear clear that the words "otherwise utilized or disposed of" as they appear in § 927.44 mean ultimate utilization or disposition outside the Marketing Area. It is only by such construction that the purpose of the section can be fulfilled. See Hogansburg Milk Co. v. Jones, 6 ...

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