KNUDSEN CREAMERY CO v. BROCK (1950)

District Court of Appeal, Second District, Division 2, California.

KNUDSEN CREAMERY CO. v. BROCK, Director of Agriculture.

Civ. 17723.

Decided: August 16, 1950

Vaughan, Brandlin & Wehrle, J. R. Vaughan, and Pat. B. Trapp, all of Los Angeles, for appellant. Fred N. Howser, Attorney General of the State of California, Walter L. Bowers, Assistant Attorney General, for respondent.

The decision in this case turns upon the validity of an order issued by the Director of Agriculture with respect to the stabilization and marketing plan for fluid milk for the San Diego County Marketing Area, especially that portion of the order defining ‘Distributor's Plant.’

Contending that the order is void and unenforceable plaintiff brought the action for declaratory relief in order to determine the power and jurisdiction of the Director to make and enforce it. From a judgment in favor of defendant plaintiff appeals.

Appellant is a distributor of fluid milk and fluid cream. It maintains a plant in the city of Los Angeles in which it processes, pasteurizes and packages in containers for resale milk which it purchases from various producers. Approximately five per cent of the fluid milk received by appellant at its Los Angeles plant is transported in packaged form to its plant in San Diego for distribution in that county.

The Milk Control Act, Div. 4, Ch. 10, Agr. Code, authorizes the Director of Agriculture to designate marketing areas ‘wherein he finds the conditions affecting the production, distribution and sale of fluid milk, * * * are reasonably uniform.’ Agr. Code, sec. 736.¹ Los Angeles county and San Diego county respectively have been designated as marketing areas and stabilization and marketing plans have been formulated establishing minimum prices which distributors must pay producers. Sec. 736.1. The minimum price to the producer is governed by the price fixed in the marketing area wherein the milk is sold and delivered to the consumer. Sec. 736.3.

Pursuant to proceedings had as required by the provisions of Chapter 13, Division 4 of the Agricultural Code, the stabilization and marketing plan for the San Diego marketing area was amended and Order Number 26 was issued by respondent effective April 1, 1949. The stabilization and marketing plan as amended establishes a minimum price to be paid by distributors for fluid milk purchased ‘f. o. b. distributor's plant’ and provides that any distributor who purchases, receives or otherwise handles fluid milk at the producer's dairy location for sale or distribution within the San Diego County Marketing Area may deduct from the specified minimum price an amount ‘not in excess of the lowest rate for transportation of said commodity then in effect for public carrier * * * from point or points of shipment to such distributor's plant within the Marketing Area.’ A distributor's plant is defined in the order as ‘any building in which milk is received, weighed, tested, and processed for distribution to consumer.’

Appellant's plant in San Diego is used solely for storage and distribution. By reason of the fact that no milk is processed for distribution in its San Diego plant, appellant has no ‘distributor's plant’ within the definition contained in Order Number 26 in the San Diego County Marketing Area and therefore in computing the minimum price payable to producers it is prohibited from deducting a sum equal to the cost of transporting the fluid milk in bulk from the producer's dairy to appellant's plant in San Diego. It is permitted to deduct the cost of transporting the milk from the dairy to its distributing plant in Los Angeles.

Appellant contends that Order Number 26 as interpreted by the Director of Agriculture is void in that it is in direct conflict with the Milk Control Act; that the definition of a ‘Distributor's Plant’ is void; that the effect of the order as interpreted is to prescribe one minimum producer's price for a marketing area applicable to distributors whose processing facilities are located within the marketing area and another, higher minimum producer's price for the same marketing area applicable to distributors whose processing facilities are located outside the marketing area; that it is confronted with a competitive inequality which requires the distribution of milk at a loss; that it has but two alternatives: (1) Cease distribution in the area because of inequality of competitive opportunity and thereby promote local monopoly or (2) build a processing plant within the marketing area.

The purposes of the Milk Control Act are, among others, to ‘authorize and enable the director to prescribe marketing areas and to determine prices to producers for fluid milk or fluid cream, or both, which are necessary due to varying factors of costs of production, health regulations, transportation and other factors in said marketing areas of this State, provided that the cost to distributors within any marketing area, for fluid milk or fluid cream shall be uniform with all other distributors purchasing fluid milk and fluid cream of similar grade or qualify under like terms and conditions' Sec. 735.1(b), and to ‘eliminate economic disturbances and unfair trade practices in the milk industry which threaten both the quality and adequacy of the supply of fluid milk and cream.’ In re Willing, 12 Cal.2d 591, 594, 86 P.2d 663, 664. The act expressly states that it is the legislative intent that ‘Nothing in this chapter shall be construed as permitting or authorizing the development of conditions of monopoly in the production or distribution of fluid milk or fluid cream.’ Sec. 735.1(d).

The act is aimed primarily at what the producer shall receive and not what the dealer or consumer shall pay. United Milk Producers v. Cecil, 47 Cal.App.2d 758, 768–9, 118 P.2d 830. In prescribing minimum prices to be paid by distributors the Director must take into consideration the ‘economic relationship of the price of fluid milk for the marketing area involved to the price of manufacturing milk, taking into consideration the additional costs incurred in producing and marketing fluid milk over and above such costs incurred in producing and marketing manufacturing milk.’ Sec. 735.4(b)(4).

A distributor is defined in section 735.3(f) as ‘any person, whether or not such person is a producer or an association of producers, who purchases or handles fluid milk or fluid cream for sale, including brokers, agents, copartnerships, cooperative corporations and incorporated and unincorporated associations.’ Appellant contends that since it is a distributor under the statutory definition it is entitled to all the benefits of section 735.1(b) which provides that the cost to distributors within any marketing area shall be uniform with all other distributors purchasing milk under like terms and conditions; that since it is not permitted to deduct the cost of transporting the milk in bulk form from the producers' dairies to its place of distribution in San Diego, the cost to it is not uniform with that of other distributors. Appellant concedes the authority of the Director to establish reasonable regulations, including definitions, but asserts that he is without power either to enlarge or to abridge classifications established by the Legislature; that since the Legislature has defined a distributor as ‘any person, * * * who purchases or handles fluid milk or fluid cream for sale, * * *’ the Director, by defining a distributor's plant as ‘any building in which milk is received, weighed, tested and processed for distribution to consumer’, has placed a qualification upon the statutory definition of distributor which removes from the class of distributors all those who do not receive, weigh, test and process milk for distribution to the consumer in a plant in the San Diego County Marketing Area.

It is the function of the Legislature to declare a policy and fix the primary standard. To promote the purposes of the legislation and carry it into effect it may authorize an administrative or ministerial officer to ‘fill up the details' by prescribing administrative rules and regulations. First Industrial Loan Co. v. Daugherty, 26 Cal.2d 545, 549, 159 P.2d 921. The rule is established, however, that a ministerial officer may not, under the guise of a rule or regulation thought necessary to carry out the purpose of an act, vary or enlarge the terms or conditions of the legislative enactment nor compel that to be done which lies without the scope of the statute. First Industrial Loan Co. v. Daugherty, supra; Whitcomb Hotel, Inc. v. California Emp. Com., 24 Cal.2d 753, 757, 151 P.2d 233, 155 A.L.R. 405; Boone v. Kingsbury, 206 Cal. 148, 161, 273 P. 797.

The Legislature in defining a distributor has not included in the definition any requirement that he process the milk. Any person ‘who purchases or handles fluid milk or fluid cream for sale, including brokers, agents * * *’ is a distributor. Sec. 735.3(f). Thus a broker or an agent may be a distributor without having any processing plant or being a processor. Section 735.3 containing definitions, including that of distributor, was added to the code in 1935. Stats.1935, Ch. 241, p. 922. That section has been amended six times. Stats.1937, Ch. 3, p. 44; Ch. 57, p. 151; Stats.1939, Ch. 941, p. 2641; Stats.1941, Ch. 1214, p. 3008; Stats.1945, Ch. 1001, p. 1930; Stats.1949, Ch. 1400, p. 2444, but in none of the amendments has the Legislature changed the definition of distributor so as to require him to maintain a processing plant in the marketing area in which he distributes fluid milk nor has it indicated any such intent or authorized the Director to make any such requirement.

Neither the place of receiving the milk nor the place of processing is recognized by the Legislature in setting the standards under which the Director must operate. Under section 736.3 every producer is entitled to the price established for the marketing area in which his milk is finally sold and distributed and he must bear the cost of conveying his product to that area. The cost to the distributor must be uniform with that of all other distributors in the same area purchasing milk under like terms and conditions. Sec. 735.1(b). The Director in defining a distributor's plant has added a requirement that the milk be processed in the plant in order that the distributor may deduct the cost of transportation from the producer's dairy to his plant. He has thereby established a separate classification of processor-distributor and the cost to the distributor is not uniform with that of other distributors in the area unless he falls within such classification. If the Director can define a distributor's plant as a building where milk is received, weighed, tested and processed for distribution he could as well enlarge the definition to include other functions not required by statute. He is without authority or jurisdiction so to vary the terms of the Milk Control Act.

Respondent asserts that since appellant does not have a processing plant in the San Diego Marketing Area it is not purchasing milk ‘under the same terms and conditions' as other distributors. That appellant has a different operating procedure from other distributors in that it chooses to process its milk at a place other than where it is distributed does not affect the terms and conditions under which it purchases milk. Respondent has not pointed out any substantial difference in the terms or conditions under which appellant purchases its milk from producers from the terms and conditions under which those distributors having processing plants in the area purchase milk. Appellant purchases quantities of milk for distribution in San Diego county for which it must pay the minimum producer price. The point at which milk is received does not in any way affect that minimum price, nor does the place of processing the product affect the conditions of purchase, since the only transportation charge which appellant is permitted to deduct from the minimum price to the producer is the cost of transporting the milk in bulk form from the dairy to its plant within the marketing area of sale and distribution to the consumer. Contrary to respondent's contention, appellant is not seeking to deduct the cost of transporting the milk in packaged form to its San Diego plant. The fact that it stops the milk enroute for the purpose of processing it should in nowise affect the rights to which it is entitled by statute.

Respondent's contention that the producer might be compelled to pay the cost of transportation of his product to any point in the state is without merit. The evidence is clear that there is not sufficient milk produced in the San Diego County Marketing Area to supply the requirements of that area and that about twenty per cent of the milk distributed there must be brought in from other areas. The producer need not contract to sell his product in the San Diego area if the cost of transportation would make it unprofitable. Upon the other hand, the producer might find it more profitable to pay the cost of transportation if he can thereby obtain the price for class 1 or class 2 milk which has a higher minimum price than that of class 3 or 4.

Judgment reversed with directions to make findings and conclusions and to enter judgment as follows: That the definition of ‘Distributor's Plant’ as contained in Order Number 26 is void; that plaintiff is a distributor within the San Diego County Marketing Area; that the plant maintained by plaintiff in the San Diego County Marketing Area is a distributor's plant, and to make such other findings, conclusions and judgment as are necessary to conform with this opinion.

FOOTNOTES

1.  All sections cited in this opinion are in the Agricultural Code.

WILSON, Justice.

MOORE, P. J., and McCOMB, J., concur.