Appeals from the District Court of the United States for the Northern District of New York.
[307 U.S. 533, 539] Messrs. Frank Murphy, Atty. Gen., and Robert H. Jackson, Sol. Genl., for the United States.
Mr. Milo R. Kniffen, of Cobleskill, N.Y., for appellant Noyes.
Mr. Seward A. Miller, of New York City, for appellant Dairymen's League Cooperative Ass'n.
Mr. John E. Larson, of Washington, D.C., for appellant Metropolitan Cooperative Milk Producers Bargaining Agency.
Mr. Leonard Acker, of Brooklyn, N.Y., for appellee Central New York Cooperative Association, Inc.
Mr. Willard R. Pratt, of Utica, N.Y., for appellees Rock Royal Co- operative, Inc., et al.
Mr. Justice REED delivered the opinion of the Court.
These appeals involve the validity of Order No. 27 of the Secretary of Agriculture, issued under the Agricul- [307 U.S. 533, 540] tural Marketing Agreement Act of 1937, 1) regulating the handling of milk in the New York metropolitan area.
On October 27, 1938, the United States of America filed a complaint against the Rock Royal Co-operative, Inc., the Central New York Cooperative Association, Inc., and Schuyler Junction New York Milk Shed Cooperative, Inc., seeking a mandatory injunction requiring the defendants and their representatives to comply with the provisions of the Order. On November 26, 1938, a similar action was filed in the same court against the Jetter Dairy Company, Inc. On December 2 these causes were consolidated. The original proceedings had sought relief not only for violations of the Order of the Secretary of Agriculture but also, if the court should find that the defendants or any of them were not subject to that Order, for violation of Official Order No. 126 issued by the Commissioner of Agriculture and Markets of the State of New York. The two orders are in pari materia, one covering milk moving in or directly burdening, obstructing or affecting interstate commerce and the other2 covering milk in intrastate commerce. Each defendant is a dealer handling milk moving in interstate commerce. On December 15, Holton V. Noyes, as Commissioner of Agriculture and Markets of the State of New York, was permitted to intervene as a party plaintiff in the consolidated action. He sought an injunction commanding the defendants and their representatives to comply with Order No. 126 or, should it be determined that their milk was not subject to this Order, to comply with the Order of the Secretary of Agriculture.
In their answers, the defendants pleaded certain affirmative defenses, setting up the invalidity of Order No. 27 because of improper efforts to secure its adoption. [307 U.S. 533, 541] Broadly speaking, these defenses were based upon erroneous representations alleged to have been made by officials and by certain private organizations to bring about the approval of the Order and upon an alleged conspiracy of the same private organizations to create a monopoly by means of the Order. The motion to strike these defenses having been overruled, the Dairymen's League Cooperative Association, hereinafter called the League, and the Metropolitan Cooperative Milk Producers Bargaining Agency, Inc., hereinafter called the Agency, were permitted to intervene to combat them.
The answers also challenged the two orders and the Act as contrary to the Fifth and Fourteenth Amendments to the Constitution, U.S.C.A., and the Act as involving improper delegation of legislative power. The Central New York Cooperative Association denied the power of the Congress to enact the legislation under the Commerce Clause and set up as a further defense that it was not subject to either order.
After a hearing upon the merits, the District Court dismissed the complaints. The state order was eliminated from consideration on the understanding, not questioned here, that the milk of all four defendants is covered by the Federal Order, if valid. It was further held that Sections 8c(5)(B)(ii) and 8c(5)(F) of the Act, 7 U.S.C.A. 608c(5)(B)(ii ), (F), violate the due process clause of the Fifth Amendment, that the Order is discriminatory and takes property without compensation, that approval of the producers was secured by unlawful misrepresentation and coercion and that important provisions of the Order, authorizing payments to cooperative and proprietary handlers, have no basis in the Act. United States v. Rock Royal Co-operative, D.C., 26 F.Supp. 534, 544, 545, 548, 550, 553. As the unconstitutionality of certain sections of an Act of Congress was one ground of the decision an appeal was allowed directly to this Court. 3 [307 U.S. 533, 542] The Statute. 4 The controversy revolves almost entirely around Order No. 27. Back of the Order is the statute under which it was issued, the Agricultural Marketing Agreement Act of 1937 which reenacted and amended certain provisions of the Agricultural Adjustment Act. 5 [307 U.S. 533, 543] As its name implies, it was aimed at assisting in the marketing of agricultural commodities.
By Section 1, 7 U.S.C.A. 601, it is declared that 'the disruption of the orderly exchange of commodities in interstate commerce impairs
_________ for fixing, minimum prices for each such use classification which all handlers shall pay, and the time when payments shall be made, for milk purchased from producers or associations of producers. Such prices shall be uniform as to all handlers, 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.
subject, in either case, only to adjustments for (a) volume, market, and production differentials customarily applied by the handlers subject to such order, (b) the grade or quality of the milk delivered, (c) the locations at which delivery of such milk is made, and (d) a further adjustment, equitably to apportion the total value of the milk purchased by any handler, or by all handlers, among producers and associations of producers, on the basis of their marketings of milk during a representative period of time.
__________ all markets in all use classifications, and making distribution thereof to its producers in accordance with the contract between the association and its producers: Provided, That it shall not sell milk or its products to any handler for use or consumption in any market at prices less than the prices fixed pursuant to paragraph (A) of this subsection (5) for such milk.
(N.B. (6) relates to products other than milk.)
(7) 'In the case of the agricultural commodities and the products thereof specified in subsection (2) orders shall contain one or more of the following terms and conditions:
No person acting as a member of an agency established pursuant to this paragraph (C) shall be deemed to be acting in an official [307 U.S. 533, 545] By Section 2, 7 U.S.C.A. 602, it is declared to be the policy of Congress, through the exercise of the powers conferred upon the Secretary of Agriculture, 'to establish and maintain such orderly marketing conditions for agricultural commodities in interstate commerce as will establish prices to farmers at a level that will give agricultural commodities
__________ capacity, within the meaning of section 10(g) of this title, unless such person receives compensation for his personal services from funds of the United States.
(18) 'The Secretary of Agriculture, prior to prescribing any term in any marketing agreement or order, or amendment thereto, relating to milk or its products, if such term is to fix minimum prices to be paid to producers or associations of producers, or prior to modifying the price fixed in any such term, shall ascertain, in accordance with section 2(602) and section 8e (608e of this title), the prices that will give such commodities a purchasing power equivalent to their purchasing power during the base period. The level of prices which it is declared to be the policy of Congress to establish in section 2(602) and section 8e (608e of this title) shall, for the purposes of such agreement, order, or amendment, be such level as will reflect the price of feeds, the available supplies of feeds, and other economic conditions which affect market supply and demand, for milk or its products in the marketing area to which the contemplated marketing agreement, order, or amendment relates. Whenever the Secretary finds, upon the basis of the evidence adduced at the hearing required by section 8b or 8c (608b of this title or this section), as the case may be, that the prices that will give such commodities a purchasing power equivalent to their purchasing power during the base period as determined pursuant to section 2(602) and section 8e (608e of this title) are not reasonable in view of the price of feeds, the available supplies of feeds, and other economic conditions which affect market supply and demand for milk and its products in the marketing area to which the contemplated agreement, order, or amendment relates, he shall fix such prices as he finds will reflect such factors, insure a sufficient quantity of pure and wholesome milk, and be in the public interest. Thereafter, as the Secretary finds necessary on account of changed circumstances, he shall, after due notice and opportunity for hearing, make adjustments in such prices.' 7 U.S.C.A. 608c (1-5, 7, 18). [307 U.S. 533, 546] a purchasing power with respect to articles that farmers buy, equivalent to the purchasing power of agricultural commodities in the base period . ...'
Under Section 2 of the Act, the base period for agricultural commodities, except tobacco and potatoes, is fixed at the pre-war period of August, 1909, to July, 1914. Where the purchasing power during the base period cannot be satisfactorily determined from available statistics within the Department of Agriculture, the Secretary is authorized to take as the base period from August, 1919, to July, 1929, or a portion thereof. Section 8e. In prescribing minimum prices for milk the statute authorizes the Secretary to fix minimum prices without restriction to the purchasing power during the base period so as to reflect the prices of available supplies of feed and other economic conditions, if he finds after a hearing that minimum prices with a base period purchasing power are unreasonable. Section 8c(18).
Section 8a(6) gives jurisdiction to the district courts of the United States to enforce and to prevent and restrain any person from violating any of the orders, regulations or agreements under its provisions.
Section 8b authorizes the Secretary of Agriculture to enter into marketing agreements with the producers and others engaged in the handling of agricultural commodities in or affecting interstate commerce. These agreements may be for all agricultural commodities and their products, are entirely voluntary and may cover the handling of the commodity by any person engaged in the various operations of processing or distribution. Agreements are involved only incidentally in this proceeding.
Section 8c provides for a use of orders, instead of agreements, in certain situations. These orders apply only to specified commodities, including milk. 6 They are to be entered only when the Secretary of Agriculture has rea- [307 U.S. 533, 547] son to believe that the issuance of an order will tend to effectuate the declared policy of the Act with respect to any commodity or product thereof, and after notice and an opportunity for hearing. It is necessary also for the Secretary of Agriculture to set forth in such order a finding upon the evidence introduced at the hearing that the issuance of the Order and of the terms and conditions thereof will tend to effectuate the declared policy. 7 When, as here, the commodity is milk, the Act requires8 that the Order contain one or more of terms specified in Section 8c(5) and no others, except certain terms common to all orders and set out in Section 8c(7). These terms, as used in the Order under examination, will be referred to later. Orders may only be issued9 after hearing upon a marketing agreement which regulates the handling of the commodity in the same manner as the order. Without special determination of the Secretary of Agriculture and approval of the President, orders are not to become effective unless approved by handlers as required by the Act. 10
Notwithstanding the refusal or failure of handlers to sign a marketing agreement relating to such commodity, the Secretary of Agriculture, with the approval of the President, may issue an order without the adoption of an agreement if he determines that the refusal or failure of the handlers to sign a marketing agreement tends to prevent the effectuation of the declared policy with respect to the commodity and that the issuance of the order is the only practical means of advancing the interest of the producers. In such a case the order must be approved or favored by two-thirds of the producers in number or volume who have been engaged, during a representative period, in the production for market of the [307 U.S. 533, 548] commodity within the production area or two-thirds of those engaged in the production of the commodity for sale in the marketing area specified in the marketing agreement or order. Section 8c(9). Section 8c(19) authorizes a referendum to determine whether the issuance of the order is approved by the producers. Section 8c(12) provides that the Secretary shall consider the approval or disapproval by any cooperative association as the approval or disapproval of the producers who are members, stockholders or patrons of the cooperative association.
Section 8c(15) provides for administrative review by the Secretary on petition of a handler objecting to any provision as not in accordance with law and seeking a modification or exemption therefrom. By (15)(B) the district courts have jurisdiction to review such ruling.
The Problem.-In accordance with the provisions of the Act the Secretary of Agriculture, before promulgating Order No. 27, conducted public hearings attended by handlers, producers and consumers of milk and their representatives throughout the milkshed. No defendant, however, was represented. These hearings followed the presentation by the Agency to the Secretary and to the Commissioner of a proposed marketing agreement and order regulating the handling of milk in the New York marketing area with a request for action under the Federal and New York statutes. The hearings were jointly held by the Federal and state governments. The cooperation of the two governments was the culmination of a course of investigation and legislation which had continued over many years. The problem from the standpoint of New York was fully considered and the results set out in the Report of 1933 of the Joint Legislative Committee to Investigate the Milk Industry. This investigation was followed by the creation of the Milk Control Board with broad powers to regulate the dairy business of the state. This board had power to fix prices to [307 U.S. 533, 549] be paid to purchasers and to be charged to consumers. 11 A later New York act, the Rogers-Allen Act,12 authorized the state commissioner to cooperate with the Federal authorities acting under the present Marketing Agreement Act, and to issue orders supplementary to those of the Federal Government to be carried out under joint administration.
The problems concerned with the maintenance and distribution of an adequate supply of milk in metropolitan centers are well understood by producers and handlers. In the milkshed and marketing area of metropolitan New York these problems are peculiarly acute. 13 It is generally recognized that the chief cause of fluctuating prices and supplies is the existence of a normal surplus which is necessary to furnish an adequate amount for peak periods of consumption. This results in an excess of production during the troughs of demand. As milk is highly perishable, a fertile field for the growth of bacteria, and yet an essential item of diet, it is most desirable to have an equate production under close sanitary supervision to meet the constantly varying needs. The sale of milk in metropolitan New York is ringed around with requirements of the health departments to assure the purity of the supply. Only farms with equipment approved by the health authorities of the marketing area and operated in accordance with their requirements are permitted to market their milk. More than sixty thousand dairies located in the states of New York, Connecticut, Massachusetts, Maryland, New Jersey, Pennsylvania and Vermont hold certificates [307 U.S. 533, 550] of inspection and approval from the Department of Health of the City of New York. More than five hundred receiving plants similarly scattered have been approved for the receiving and shipping of grades A and B milk. Since all milk produced cannot find a ready market as fluid milk in flush periods, the surplus must move into cream, butter, cheese, milk powder and other more or less nonperishable products. Since these manufactures are in competition with all similar dairy products, the prices for the milk absorbed into manufacturing processes must necessarily meet the competition of low-cost production areas far removed from the metropolitan centers. The market for fluid milk for use as a food beverage is the most profitable to the producer. Consequently, all producers strive for the fluid milk market. It is obvious that the marketing of fluid milk in New York has contacts at least with the entire national dairy industry. The approval of dairies by the Department of Health of New York City, as a condition for the sale of their fluid milk in the metropolitan area, isolates from this general competition a well recognized segment of the entire industry. Since these producers are numerous enough to keep up a volume of fluid milk for New York distribution beyond ordinary requirements, cut-throat competition even among them would threaten the quality and in the end the quantity of fluid milk deemed suitable for New York consumption. Students of the problem generally have apparently recognized a fair division among producers of the fluid milk market and utilization of the rest of the available supply in other dairy staples as an appropriate method of attack for its solution. Order No. 27 was an attempt to make effective such as arrangement under the authority of the Agricultural Marketing Agreement Act. [307 U.S. 533, 551] Order No. 27.14 The Secretary of Agriculture found that two-thirds of the milk produced for the New York marketing area actually moves in interstate commerce and that the remaining one-third produced within the [307 U.S. 533, 552] State of New York was 'physically and inextricably intermingled' with the interstate milk; that all was handled either in the current of interstate commerce or so as to affect, burden and obstruct such interstate commerce in
Article VII, Section 1. 'Time of Payment.-On or before the 25th day of each month each handler which is not a co-operative association of producers shall make payment to each producer for all milk delivered by such producer at any plant during the preceding month at not less than the uniform price, subject to differentials set forth in sections 2 and 3 of this article.'
Article VII, Sec. 2. 'Transportation and Location Differentials.-The uniform ice shall be plus or minus the differential shown in column B of the schedule contained in section 3 of article IV for the zone of the plant as established for the purposes of section 3 of article IV, plus 25 cents in the case of plants located in the counties listed in paragraph 8 of section 1 of article VI.'
Article VII, Sec. 5. 'Payments to Cooperative Associations.-Any cooperative association of producers may apply to the Secretary for a determination of its qualifications to receive payments pursuant to this section by reason of its having and exercising full authority in the sale of the milk of its members, using its best efforts to supply, in times of short supply, Class I milk to the marketing area and to secure utilization of milk, in times of long supply, in a manner to assure the greatest possible returns to all producers, and having its entire activities under the control of its members. ... Such payments shall be made to each cooperative association of producers under the following conditions and at the following rates:
__________ by such association and on which such handler has made the reports and payments required by this order.
By the Order the marketing area is defined as the City of New York and the counties of Nassau, Suffolk and Westchester. A producer is any person producing milk delivered to a handler at a plant approved by a health authority for the receiving of milk for sale in the marketing area. A handler is a person engaged in the handling of milk or cream received at an approved plant for similar sale. 'Handler' includes cooperative associations. The administrative sections of the Order setting up a milk administrator and defining his duties are not attacked. Nor are those which classify milk.
Article IV is important since it establishes minimum prices for milk. There are various differentials based upon use, butter fat content, and distances between the points of production and consumption which it is unnecessary to analyze. For the purposes of this opinion it is sufficient to say, as an example, that the minimum price each handler should pay for milk is fixed by a formula which varies with the butter-price range for 92- score butter at wholesale in the New York market during the 60 days preceding the 25th day of the preceding month. The handlers are required to file reports as to their receipts and utilization of milk of the various classes. It should be understood, however, that this minimum price is not the amount which the producer receives but the price level or so- called 'value' from which is calculated the actual amount in dollars and cents which he is to receive.
By Article VI a uniform price is computed and it is this uniform price which the producer is actually paid by [307 U.S. 533, 555] the proprietary (noncooperative) handlers. The uniform price is determined by a computation which in substance multiplies the amount of milk ( classified according to its use) received by all handlers, less certain quantities of milk permitted to be deducted, by the minimum prices fixed by Article IV for the different classes of milk. From the result various payments and reservations are deducted and the remainder is divided by the total quantity of milk received. To equalize, handlers pay into the producer settlement fund. While much over-simplified the operation will be made clear by summarizing the provisions of Article VII to require that handlers shall pay to the producer settlement fund the amount by which their purchased milk multiplied by the minimum prices for the various classes is greater than their purchased milk multiplied by the uniform price. When the handlers' purchased milk multiplied by the minimum prices is less than when it is multiplied by the uniform price, the producer settlement fund pays them the difference for distribution to their producers. These provisions give uniform prices to all producers, with exceptions to be herein stated, in accordance with the general use of milk for the preceding period.
Other provisions of the Order upon which an attack is made will be pointed out in the discussion of the particular objections.
Suspension of Order. It developed at the argument of the causes in this Court that the Secretary of Agriculture on March 18, 1939,15 had suspended Order No. 27 on account of the effect of the decree below on its administration and enforcement. Section 8c(16)(A). Since this suspension is authorized by the statute and the Order preserves accrued rights, we are of the opinion this step does not make these proceedings moot. Reports [307 U.S. 533, 556] of their receipts and classified sales of milk, accounting of their pool obligations in the determination of the uniform price and settlement with their producers on the basis of the Order, as well as the payment of money, are sought from the defendants. The controversy over the validity of the Order and the power to enforce its provisions remains.
Adoption of the Order. Before considering the validity of the Marketing Act and the provisions of the Order under attack, we shall examine the contention of the defendants that the Order was adopted under circumstances which require a court of equity to refuse to enforce it. After dealers had refused or failed to sign the proposed marketing agreement, the Secretary conducted a referendum under Section 8c(19) to ascertain whether the issuance of Order No. 27 was approved by two-thirds of the producers, as required by Section 8c(9). Vigorous campaigns were waged by both proponents and opponents of the Order. Among the proponents were the League and the Agency. After the vote, the Secretary on August 24, 1938, with the approval of the President, determined that the issuance of the Order was favored by at least two-thirds of the producers, and declared it effective as of September 1, 1938.16
The defendants base their appeal to the conscience of the chancellor upon matters connected with the referendum which they claim amount to fraud in its adoption. The alleged fraud is said to consist of widespread public misrepresentations to the effect that all producers would receive the same price for their milk and a conspiracy between the League and others to convert the state and national acts into instruments for the creation of a monopoly in large handlers in the sale of fluid milk in the marketing area. [307 U.S. 533, 557] The findings supporting the charges of misrepresentation and conspiracy may be summarized as determining that the intervening plaintiffs, the League and the Agency, participated actively in proposing, adopting and inducing both producers and handlers to accept the Order. In greater detail, the findings show that the League was instrumental in the organization of the Agency; that it has representatives upon the Agency's Board of Directors; that the Agency has acted as an organization for promoting action under both federal and state acts; that both League and Agency published papers which gave vigorous support to the campaign for approval of the order. At the time of the hearings the Agency issued an explanatory booklet stating that an equal purchasing price would be paid by all dealers for milk of the same use and that each producer would share equally the benefits of the fluid milk market. Both Agency and League announced repeatedly that handlers would be required to pay a uniform price and that no handler would receive a competitive advantage over the others. The Agency expended over $63,000 between December 1, 1937, and June 1, 1938, and over $45,000 between the latter date and September 1, 1938, the date the order went into effect, as it actively supported the Federal-state order program. Voting on the Order took place August 18, 19 and 20. Of 38,627 votes counted as valid in the referendum, 33,663 or 87.1 percent were in favor of the issuance of the Order, and 4,964 or 12.9 percent were opposed. Of the favorable votes, the League cast 22,287.
Supporting evidence beyond the coordinated activities of the Agency, the League and other cooperatives for the charge of conspiracy to monopolize by securing the adoption of the Order was found by the District Court in the provisions of the Order. Competitive advantages to cooperatives in the Order were thought by it to indicate an improper influence by them in its drafting. These will [307 U.S. 533, 558] be discussed later from the point of view of their legality under permissible classification. The court found that the conspiracy to obtain a monopoly was carried out by coercive tactics on the part of producers, under the leadership of the League and the Agency. These tactics consisted of threats to handlers that if they did not comply with the Order, the producers would withhold delivery of milk. These schemes, the lower court determined, were so successful in securing the drafting, adoption and acceptance of the Order that a conspiracy to monopolize interstate commerce contrary to the Sherman Anti-Trust Act, 15 U.S.C.A. 1-7, 15 note, was established. It held that the occurrence of the incidents just detailed compelled refusal of the injunction. We do not agree.
While considering the manner of the adoption of the Order, the validity of the Act and the provisions of the Order must be assumed. The Order was submitted to the producers for approval after the hearings specified in the statute. The full text of the Order with explanatory pamphlets was mailed each prospective voter. In the face of this fact, erroneous statements cannot be permitted to render the submission futile. There is no evidence that any producer misunderstood. A casual sentence in one of the pamphlets of the Department of Agriculture and a number of other statements in publications of the League and Agency were to the effect that dealers would pay all producers the uniform price for milk. Such assertions need the qualifications given in the Order that they are not applicable to milk sold outside the marketing area or to milk handled by cooperatives. The variation from the facts is not immaterial in view of the value or volume of milk involved. But the Order, Article VII, plainly stated that cooperatives were not covered by the payment requirements and it appeared, also, that milk sold outside the marketing area was not [307 U.S. 533, 559] within its terms. A study of the official form of the Order would have cleared up any misconception created by the language. The Secretary of Agriculture declared that three-fourths of the producers affected by the Order approved its terms. The litigants do not deny that three-fourths of the voters voted for the institution of the Order. There is no authority in the courts to go behind this conclusion of the Secretary to inquire into the influences which caused the producers to favor the resolution.
The coercion by the League and the Agency, exercised upon the handlers after the adoption of the Order to force or induce them to acquiesce in its operation, is of the same indirect character as the alleged misrepresentation. It is the partisan coercion of the producer seeking to compel dealer support of the plan by the threat of the use of his economic power over his own milk. The coercion was ineffective upon these defendants. Producers' organizations urged in their papers and meetings diversion of milk from handlers to influence them to agree to the Order. Such efforts could not have had an effect on the prior vote of the producers. It is quite true that the League which itself cast two-thirds of the favorable votes was in a position to cast more than one-third of the total qualified vote against the Order. This arises from the provision of the Act, authorizing cooperatives to express the approval or disapproval for l of their members or patrons. 17 This is not an unreasonable provision, as the cooperative is the marketing agency of those for whom it votes. If the power is in the Congress to put the order in effect, the manner of the demonstration of further approval is likewise under its control. These associations of producers of milk have a vital interest in the establishment of an efficient marketing system. This ade- [307 U.S. 533, 560] quately explains their interest in securing the adoption of an order believed by them to be favorable for this purpose. If ulterior motives of corporate aggrandizement stimulated their activities, their efforts were not thereby rendered unlawful. 18 If the Act and Order are otherwise valid, the fact that their effect would be to give cooperatives a monopoly of the market would not violate the Sherman Act or justify the refusal of the injunction.
Correlation of Order and Act. There is another phase of the argument against the Order which is not affected by the validity of the Act or its application in the Order and therefore is ready for disposition before the constitutional questions need be reached. Defendants contend there is no statutory basis for the sections of the Order exempting cooperatives from the payment of the uniform price19 and authorizing payments to them and certain handlers from the producer settlement fund. 20
The Government makes the point that none of the defendants, all handlers, can object to these terms of the Order because only producers delivering milk to cooperatives are affected by the exemption of cooperative handlers from the requirement to pay at not less than the uniform price and only producers are affected by the use of the pooled money for Sections 5 and 6 payments to cooperative and other handlers. Although three of the defendants cannot complain of the benefits conferred upon cooperatives, for they are cooperatives, the defendant Jetter Dairy Company has standing to raise the issue of want of statutory authority to except cooperative handlers from the payment of the uniform price. It is a proprietary corporation, a handler of milk, required by the Order [307 U.S. 533, 561] to pay uniform prices for the milk it purchases. 21 This requirement to pay uniform prices arises from the provisions of Article IV that it shall pay minimum prices. The two are the same except for the deduction of certain service payments. The cooperatives are excepted from the payment. The burden of payment is laid directly upon Jetter while others are excepted. None of the defendants, on the other hand, is in a position to raise the issue of lack of statutory authority for the payments authorized by Article VII, Sections 5 and 6. Whether cooperative or not, the defendant corporations have no financial interest in the producer settlement fund. All defendants pay into, or draw out of, that fund in accordance with their utilization of the milk delivered to them by their patrons. The defendants' profit or loss depends upon the spread each receives between the class price and sale price. If the deductions from the fund are small or nothing, the patron receives a higher uniform price but the handler is not affected. 22
We now consider whether the Act authorizes the exception of the cooperatives from the uniform payment provisions of Article VII, Section 1. This authority, if it exists, is in Section 8c(5)(F) of the Act. The earlier paragraphs provide for minimum prices to be paid by handlers to producers and associations of producers, subject to usual quality and location differentials not important here. These would require minimum prices to be paid by cooperatives when, as here, they were handlers under the definition of the Order,23 were it not for the exception of [307 U.S. 533, 562] these same cooperatives under subsection (F): 'Nothing ... shall ... prevent a cooperative ... from ... making distribution thereof (net proceeds) ... in accordance with the contract between the association and its producers.' This language specifically permits, indeed requires, the Order to except cooperatives from the requirement of paying minimum prices to producers. As the minimum price is paid to the producer through the payment of the uniform price, after equalization in the pool, there is authority in the Act to except the cooperative from the payment of the uniform price.
I. Terms of the Order.
Certain provisions of the Order were found by the District Court to show unconstitutional discrimination against one or more of the defendants. The discriminations of which complaint is made arise from the application to the New York problem of Section 8c(5) of the Act relating to milk.
A. Uniform Price. The Jetter Dairy Company, a proprietary handler, urges that as milk cooperatives need not pay producers a uniform price, it is unreasonably discriminatory and violative of the due process clause of the Fifth Amendment to require it to pay this uniform price. In Section 8c( 5)(F) there is a definition of the type of cooperative permitted to settle with its members in accordance with the membership contract. The general characteristics of cooperatives are well understood. The Capper-Volstead Act defines such cooperatives as associations of producers, corporate or otherwise, with or without capital stock, marketing their product for the mutual benefit of the members as producers with equal voting privileges, restricted dividends on capital employed and dealings limited to 50 percent non-member products. 24 Different [307 U.S. 533, 563] treatment has been accorded marketing cooperatives by state and Federal legislation alike. 25 Indeed the Secretary is charged by this Act to 'accord such recognition and encouragement to producer-owned and producer- controlled cooperative associations as will be in harmony with the policy toward cooperative associations set forth in existing Acts of Congress, and as will tend to promote efficient methods of marketing and distribution.' 26 These agricultural cooperatives are the means by which farmers and stockmen enter to the processing and distribution of their crops and livestock. The distinctions between such cooperatives and business organizations have repeatedly been held to justify different treatment. 27 Frost [307 U.S. 533, 564] v. Corporation Commission28 in fact recognized the validity of such classification. The Commission was enjoined from issuing a license for the operation of a cooperative cotton gin, under a proviso directing it to do so on petition of 100 citizens and taxpayers without the showing of public necessity required for other ginners. The applicant was organized for profit, though dividends were limited, and its membership was not confined to producers. The court thought the distinctions had no reasonable relation to the subject of the legislation, special opportunities for cooperatives. It was said the Court had 'no reason to doubt' that the classification was valid as applied to true cooperatives. 29
The producer cooperative seeks to return to its members the largest possible portion of the dollar necessarily spent by the consumer for the product with deductions only for modest distribution costs, without profit to the membership cooperative and with limited profit to the stock cooperative. It is organized by producers for their mutual benefit. 30 For that reason, it may be assumed that it will seek to distribute the largest amounts to its patrons. [307 U.S. 533, 565] The commodity handled by a cooperative corresponds for some purposes to the capital of a business corporation. Either may cut sale prices below cost, one as long as its members will deliver, the other as long as its assets permit. When proprietary corporations lower sales prices, they naturally seek to lower purchase prices. Their profit depends on spread. On the other hand, the cooperative cannot pass the reduction. All the selling price less expense is available for distribution to its patrons. As its own members bear the burden of price cutting, it was reasonable to exempt it from the payment of the fixed price. The cooperative member measures his return by the market or uniform price the business handler pays. In commodities with the wide market of staple dairy products, quotations are readily available. If distributions do not equal open prices, the cooperators' reactions would parallel those of stockholders of losing businesses. Neither the Act nor the Order protects anyone from lawful competition, nor is it essential that they should do so. 31 We do not find an unreasonable discrimination in excepting producers' cooperatives from the requirement to pay a uniform price.
B. Unpriced Milk. Another discrimination is said to reside in that part of the Order which limits minimum prices to milk 'sold in the marketing area or which passes through a plant in the marketing area.' Other milk, though from the same production area, is 'unpriced milk' and does not figure in the computation of the uniform price. Where both priced and unpriced milk are dealt in by a handler, he must furnish a statement to the producer showing the percentage of his milk paid for at the uniform price. 32 The defendants handle only milk which is sold in the marketing area. They assert that an un- [307 U.S. 533, 566] reasonable discrimination results in favor of handlers, such as the League, which market milk both in and outside the marketing area.
The basis of the complaint is that large dealers and cooperative handlers with extensive gathering and distributing facilities are permitted to purchase milk throughout the milk shed at any price they please, if the milk does not pass through a plant in the marketing area, and sell it at any price they please, provided the sale is outside the limited New York marketing area. By reason of the fact that milk sells for more in New Jersey than in New York, a greater profit is made by the handler. If he so desires, the handler can use this profit to replace losses on New York area sales and still be in a position to pay the uniform price to producers on pool milk. This is said to create a discrimination against the defendants.
It is possible for the handlers with unpriced milk to use their profits from the profitable extra area trade in the way suggested. It was equally possible for them to do so before the Order. It is a competitive situation which the Order did not create and with which it does not deal. We are of the view that there is no discrimination by reason of this situation.
The District Court, 26 F.Supp. 534, found that handlers of unpriced milk 'are permitted to blend prices paid or purported to have been paid for such milk sold in other markets, with the uniform price announced by the Administrator for milk sold in the area, thereby reducing the actual price paid by such handlers, for milk sold in the Metropolitan Area, in competition with milk sold by the defendants.' 'If the price figured by the handler for unpriced milk, is lower than its actual market value, the handler, by blending, is thereby permitted to pay producers for all milk at less than the Order price, and less than the actual value thereof.' It is erroneous to suppose that by buying some milk at less than the minimum, the [307 U.S. 533, 567] 'actual price' paid for milk sold in the marketing area is reduced. The price paid for all milk sold by proprietary handlers in that area is the uniform price. Unpriced milk from the same producer may be bought for less. The average paid the producer may be below the minimum but for the part sold in the marketing area or passing through plants there located the minimum is paid. This is all that justifies the language of the finding that 'the handler, by blending, is thereby permitted to pay producers for all milk at less than the Order price. ...'
c. Nearby Differentials. Provision is made by the Order for special differentials of 20 cents on milk from certain counties located most favorably to the marketing area. 33 This is to enable handlers to pay the producers at these plants. 34 The five cent difference is absorbed by the handlers. The Act authorizes such an arrangement. 8c(5)(A). This was found discriminatory as between producers by the District Court but there was no finding or conclusion of law as to any discrimination against defendants. The District Court was of the opinion this was unfair to these defendants who have no patrons in these counties. Here the defendants urge further advantages from this arrangement to their competitors who have patrons in these counties because near locations, freight differentials considered, have lower transportation costs. The differential increases milk prices to the producers. This payment tends to stimulate production. Larger production means more benefit from the freight advantage to competitors. The discrimination seems fanciful and remote. It would not justify a court in overturning the Secretary's determination of the propriety of the differentials on evidence found by the lower court to be substantial. Such an administrative determination carries a presumption of the existence of a state [307 U.S. 533, 568] of facts justifying the action far too strong to be overturned by such suggestions as are made here. 35
II. Constitutionality of the Act.
A. Minimum Prices. The Act authorizes and the Order undertakes the fixing of minimum prices for the purchase of milk 'in the current of interstate or foreign commerce, or which directly burdens, obstructs, or affects, interstate or foreign commerce' in milk. 36 There is no challenge to the fact that the milk of all four defendants reaches the marketing area through the channels of interstate commerce. Nor is any question raised as to the power of the Congress to regulate the distribution in the area of the wholly intrastate milk. It is recognized that the Federal authority covers the sales of this milk, as its marketing is inextricably intermingled with and directly affects the marketing in the area of the milk which moves across state lines. 37
The challenge is to the regulation 'of the price to be paid upon the sale by a dairy farmer who delivers his milk to some country plant.' It is urged that the sale, a local transaction, is fully completed before any interstate commerce begins and that the attempt to fix the price or other elements of that incident violates the Tenth Amendment, U.S.C.A.Const. But where commodities are bought for use beyond state lines, the sale is a part of interstate com- [307 U.S. 533, 569] merce. 38 We have likewise held that where sales for interstate transportation were commingled with intrastate transactions, the existence of the local activity did not interfere with the Federal power to regulate inspection of the whole. 39 Activities conducted within state lines do not by this fact alone escape the sweep of the Commerce Clause. Interstate commerce may be dependent upon them. 40 Power to establish quotas for interstate marketing gives power to name quotas for that which is to be left within the state of production. 41 Where local and foreign milk alike are drawn into a general plan for protecting the interstate commerce in the commodity from the interferences, burdens and obstructions, arising from excessive surplus and the social and sanitary evils of low values, the power of the Congress extends also to the local sales.
This power over commerce when it exists is complete and perfect. 42 It has been exercised to fix a wage scale for a limited period,43 railroad tariffs44 and fees and charges for live-stock exchanges. 45
The authority of the Federal government over interstate commerce does not differ in extent or character from that retained by the states over intrastate com- [307 U.S. 533, 570] merce. Since Munn v. Illinois, this Court has had occasion repeatedly to give consideration to the action of states in regulating prices. 46 Recently, upon a reexamination of the grounds of state power over prices, that power was phrased by this Court to mean that 'upon proper occasion and by appropriate measures the state may regulate a business in any of its aspects, including the prices to be charged for the products or commodities it sells.'