CASE-SWAYNE CO. v. SUNKIST GROWERS
Legal provision: 7 U.S.C. 291
Argument of William H. Henderson
Chief Justice Earl Warren: Number 66, Case-Swayne Company Incorporated, petitioner versus Sunkist Growers Incorporated.
Mr. Henderson, you may proceed with your argument.
Mr. William H. Henderson: Mr. Chief Justice, may it please the Court.
Mr. Justice Fortas, my associates have advised me that I did not precisely answer your last question to me.
At times I do not hear as well as I did 20 years ago.
So please bear with me.
Your Honor asked me whether the commercial packing houses, which constitute approximately 15% of Sunkist membership, all handle oranges and canned and freeze them.
Now they do all handle oranges and in the year 1957, 1958 for example this amounted to $15 million worth of oranges, but they do not freeze or can oranges.
This is done by the processing division of Sunkist.
Here is what the packing houses do.
They purchase the oranges from the growers under a cost plus contract which I will go into; they pick, wash, grade and then market the fruit through Sunkist as a Sunkist member.
Now I would like to, if I may, turn briefly to discuss some of the answers Sunkist does raise to our conventions.
Justice Byron R. White: If you just --
Justice Abe Fortas: I assume --
Justice Byron R. White: Go head.
Justice Abe Fortas: I assume that you will address yourself at some point to the question of whether they are mere agents or they are growers?
Mr. William H. Henderson: Yes I have that as one of the points, I will address the Court.
Justice Byron R. White: Who owns the packing houses?
Mr. William H. Henderson: Normally private corporations.
Justice Byron R. White: Profit making corporations?
Mr. William H. Henderson: Profit making corporations.
They have stipulated they are not associations organized under the Capper-Volstead Act.
Now Your Honors I have read and reread Sunkist brief.
I haven't found a single sentence, not a single word that bases up to this fact.
The language in Section 1 of the Act before this Court explicitly provides only actual farmers; growers may form a Capper-Volstead Association.
I have not found a single word, not a single sentence showing that Congress did not mean that when they enacted the act.
Now I have found pages of argument as to what Congress intended when it passed the General Agricultural Marketing Act, the Sherman Act and the Farm Laborers Exemption and Appropriation Acts and I have read Sunkist story of the California Association Raisin Company problem with the Federal Trade Commission, but I don't think that as of any consequence, but I am going to refer one moment to the California Raisin Corporation.
Sunkist contention to abbreviate seemed to be that a Capper-Volstead Association may have non-grower investors who may receive dividends not to exceed 8%.
Well let us assume this is correct, the legislative history is entirely clear.
Well that isn't the question we have to contend with and now you are not going to contend the questions not before the Court.
Sunkist is not a capital stock corporation and there is no legislative history supporting the view that middlemen, packers, commercial packing houses could comprise the membership of a Capper-Volstead Association.
Now I do notice Sunkist cites one reference to the affect that this California Raisin Association may have been contemplated by the act.
It may impact that a Capper-Volstead Association, well that was the capital stock association could have commercial investors, but it was clear that the membership had to be packers as such.
Chief Justice Earl Warren: Had to be what?
Mr. William H. Henderson: Had to be growers or associations of growers which ID to be the same thing.
For example I am going to read one quote from the legislative history of HR 13931, which is a history they quote -- they re-quote one referenced to it.
Now it's the 65th Congress predecessor Bill of 1920.
Senator Lenroot of Wisconsin:
“I think that under this measure there might be various kinds of organizations and that they could all combine into one new organization.
I do not believe however that under the terms of the Bill an organization of wheat farmers could combine with an organization of cotton growers and the association of wheat growers, sell cotton or deal with it in any way.
” Senator King: “but could they combine with the millers or the warehouse men?
” Senator Lenroot, who was one of the sponsors of the Bill: “certainly not, a miller would not be within the terms of the proposed law at all nor would a warehouse be.
” Now Your Honor, Sunkist contends that the issue presented by this writ or decided by the Court in Sunkist Growers Inc.
versus Winckler & Smith Citrus Products Company.
This was Sunkist's primary contention in the District Court and Court of Appeals.
For example in the District Court, the District Court asked Sun, stated he says, I am not going into the issue, that's the Capper-Volstead issue that was decided by the Court in the Winckler case and he asked Sunkist counsel, don't you think that's correct and the counsel replied and I quote, “we believe the court is absolutely correct.
” Our position on this is simply this.
The issue before this Court was not disposed off in the Winckler case.
Winckler conceded that that Sunkist was a Capper-Volstead Association.
On the other hand, we challenge the wholeness of the majority decision of the Court of Appeals that Sunkist was a Capper-Volstead Association.
Next contention; Sunkist argues that membership of its non-growers, that is its commercial packing houses has no legal or economic significance.
This seems to have emerged as the principal contention before this Court.
The main theme is stated at page 55 of the Sunkist brief.
It argues, a membership certificate is of the minimus importance without economic significance.
In other words, they say that membership in Congress -- in Sunkist is just a scrap of paper.
We do not agree.
Our position is that permitting non-growers, middlemen, packers, commercial packing houses to organize a Capper-Volstead Association is not of the minimus importance and it is not without great economic significance.
In this case alone, for example Sunkist non-grower membership of commercial packing houses furnished approximately 13% of Sunkist citrus fruit.
In the year 1957, 1958 this 13% amounted to over $15 million of oranges alone controlled by Sunkist, not counting the lemons and the grape fruit and for the same year it amounted to over $23 million of Sunkist total sales.
Your Honors thus these non-grower commercial packing houses very appreciably strengthen Sunkist monopoly power.
They very appreciably enabled Sunkist to wrongly use monopoly power and attempt to monopolize in violation of the Sherman Act.
It would hardly need mentioning that members of a membership association control the association, its management and the packing houses are the most important members of Sunkist.
Only the packing houses which include these commercial packing houses have proprietary rights and interests in Sunkist.
Congress deliberately chose language that would preclude the middlemen, flour mills, packers, commercial packing houses from organizing Capper-Volstead Association.
May I ask Your Honors, if 15% could become members of a cooperative why not 50%, why not a 100%.
Justice John M. Harlan: What's the governing body -- is it the Board of Directors?
Mr. William H. Henderson: The Board of the Directors is the governing body
Justice John M. Harlan: The packers are represented on the board of directors?
Mr. William H. Henderson: The packers are represented on the Board of Directors through the agency of the district exchange.
The district exchange represents the packing houses that the board is controlled by the volume of fruit from the packing houses only the packing houses contribute fruit.
The district exchange is a conduit of information as described.
They do not grow fruit.
They communicate between Sunkist and the packing houses, but basically the ownership in the corporation is restricted to the packing houses and the packing houses through the district exchange and depending upon the volume of fruit select the governing body of Sunkist directors.
So in other words, we submit that a holding by this Court that non-growers such as commercial packing houses may combine in cooperatives and fix the price of their products or services would open the door to price fixing by packers, commercial packing houses or anyone who in a broad sense produces an agricultural product, but does not grow it and the Act and the Congressional history states, the members must be growers or I will say Capper-Volstead Association of grower which I deem would be the same thing.
Now Sunkist argues that despite the provisions of the contract under which Sunkist non-grower members obtained the growers fruit, the tile to the fruit does not pass to the commercial packing houses.
This is the argument been picked up in the majority decision in the Court of Appeals and I think this is the point Justice Fortas have interested.
Now here what the majority decisions states.
He asked this question; does the fact that the so called agency associations constitute a class of membership prevents Sunkist from being a person engaged in the production of an agricultural product under Section 1 of the Act?
Now that question is confusing because Sunkist has never contended that Sunkist was a producer of agricultural product.
The contention that has been that Sunkist is Capper-Volstead Association that markets the fruit of its members.
Then the majority decision posed the preamble to that part of the Capper-Volstead relation which providing that the exhibit B to the stipulation is a typical contract under which Sunkist non-grower members acquire a growers fruit.
Now this preamble states that these commercial packing houses or costs and a fixed fee furnish their services on an independent contract basis unrelated to their returns from the fruit.
This preamble is but one way of stating that these commercial packing houses will not gamble their profits or as a assured as with the commercial enterprise profits that provided the war materials under cost plus contracts in World War II.
The important points on this are first; the growers under this cost plus contract have no control over the costs of these commercial packing houses.
Second; the growers have no control over these commercial packing houses when they as Sunkist members control Sunkist management and its policies.
Sunkist argues title doesn't pass and I think that's an idle argument because the title passes at some point.
The contract specifically provides that it does pass and they sell it, but it passes at least when it has reached the supermarket or when the fruit have may reached Your Honors at your breakfast table.
The point is they are non-growers, they are middlemen and they purchase their fruit or acquire it from commercial packing houses and they have no voice in fixing the cost of these commercial packing houses and they have no voice in the management of Sunkist.
Sunkist also argues that Capper-Volstead Association could legally enter into a contract such as exhibit B with non-grower.
A grower or a cooperative could have entered into this contract, perhaps he could.
A Capper-Volstead Association no doubt and may does enter in many types of contracts with packers, packing houses, painters, plumbers, lawyers, knowing the people, but that's not the issue Your Honor.
The issue on this writ of certiorari is who may comprise the membership of a Capper-Volstead Association, not who may a duly organized Capper-Volstead Association contract with.
Your Honor another argument Sunkist argues that it has done a good job for the California citrus food industry that seems a theme that pervades entire brief.
Now may it please the Court, we are the first to admit that it -- Sunkist has done a splendid job.
For Sunkist, one such job was the elimination of other manufactures of orange product such as General Fruits Corporation, Highland Stanford Corporation.
TreeSweet had to build a plant in Florida to supply its demand for a single strength juice in California, but we also admit such a fine job is not compatible with the Sherman Act.
Justice Abe Fortas: Well suppose, suppose the commercial packing houses are eliminated as members of Sunkist, what practical effect would that have, perhaps I shouldn't ask you that question?
Mr. William H. Henderson: Well yes, I am glad answer question.
The practical effect would be this.
To the extent of oranges I think I said $13 million these would be independent and may -- these oranges would have or might have been available to the processors.
Justice Abe Fortas: Or couldn't Sunkist buy them, buy the oranges anyway from the packing houses or make a contract with the packing houses by which the packing houses would agree to sell to Sunkist all of their oranges that they process for the growers?
Would there be anything wrong with that under Capper-Volstead?
Mr. William H. Henderson: Sunkist can buy their oranges from packing houses, yes, but when they make the members of it then they have a restrictive agreement that they cannot sell to anyone else and therefore you have -- have your packing houses that this that they are not available, the oranges they control, they were not available to process that.
Justice Byron R. White: Isn't that really the point, as long as they were doing something with these people inside as members which they could do by contract with outsiders?
Isn't that Justice Fortas [Voice Overlap] it really doesn't make any difference?
You may still have a completely other rather sterile argument on at least --
Mr. William H. Henderson: No, because for this reason, when they made them members, they do three things.
They eliminate that fruit from the availability to others.
I mean they can't bid, the members agree that they supply all this fruit to Sunkist.
Next when they make the members, they dilute the memberships with middleman, those members are the only ones, those members, the councilors, they sit with the packers and form the policy, and they are commercial packing houses.
Second, the grower has no control over the cost of these commercial packing houses, they fix their own costs.
Justice Byron R. White: They certainly have control in the sense that their cost gets too high, they're not going to --
Mr. William H. Henderson: They can negotiate it, but it isn't cost driven, yes, but when they make the members they increase Sunkist control of oranges, I mean they tie them up.
Justice Byron R. White: Now have you -- could you just clear me up for a moment because I think it's relevant what we're talking about, was the Section 1 charge in this case dismiss the during the trial or before trial?
Mr. William H. Henderson: The section was -- what Your Honor?
Justice Byron R. White: Was the Section 1 charge dismissed before trial or during trial or after evidence of it?
Mr. William H. Henderson: The Section 1 trial was dismissed by a pretrial order in the same order that the Court --
Justice Byron R. White: So it's dismissed -- is it dismissed on the assumption that that no matter what is alleged about the dealings with this member, this Capper-Volstead Association is exempt.
Mr. William H. Henderson: Yes, in other words, when we --
Justice Byron R. White: So do we take -- in assessing this do we take the allegations in the complaint as true?
Mr. William H. Henderson: I think --
Justice Byron R. White: The charge was dismissed, wasn't it?
Mr. William H. Henderson: Yeah, the allegation we think it was true.
There were three --
Justice Byron R. White: Well you got -- there's certainly a whole series of allegations, there's complaint which were dismiss before trial?
Mr. William H. Henderson: No, we didn't dismiss, the pretrial order of the Court --
Justice Byron R. White: That's what I mean, it was dismissed before trial?
Mr. William H. Henderson: Before trial of the Court --
Justice Byron R. White: [Voice Overlap]
Mr. William H. Henderson: The Court ordered it out.
Justice Byron R. White: Yeah, on a motion to dismiss I suppose?
Mr. William H. Henderson: No, on a pretrial order, when the Court decided that --
Justice Byron R. White: Well, in any event the Court must have said that without having a trial on these issues, even assuming everything you say is true in this complaint, I nevertheless dismiss it because this association is exempt under Section 1 of Sherman Act Charge, is that right?
Mr. William H. Henderson: Well, there was one previous attempt; first we alleged a conspiracy between Sunkist exchange orange and exchange lemon.
Then the Court ruled that the Capper-Volstead issue was in favor of Sunkist.
So they said upon that basis, we -- the Court ordered the case combined to simply a such motion Section 2 case
Justice Byron R. White: Well --
Mr. William H. Henderson: Then the Court later --
Justice Byron R. White: I take it, alright go ahead.
Mr. William H. Henderson: Then the Court later, after trial directed a verdict under the Section 2 charge.
Justice Byron R. White: Yes, I understand that, but as far as the Section 1 charge is concerned the Court rule that no matter what was alleged in the complaint, and no matter what your fruit might be under Section 1 that the association was exempt.
Mr. William H. Henderson: Under yes -- as per Section 1.
Justice Byron R. White: So that if you're saying that anything -- that the association could do anything they wanted to inside the association as long as that profit making entity was a member.
Mr. William H. Henderson: The Court said yes, it said it could do anything it wanted to do, yes.
Justice Byron R. White: Even though it might be some things that if it was a nonmember, it obviously couldn't do.
Mr. William H. Henderson: Correct and it was a nonmember, they had no exemptions, there were many things the Court could not do --
Justice Byron R. White: Mr. Justice Fortas asked you about what difference does it make, if what they're doing with this packer as a member, they could do with that packer as a nonmember and the other side of the coin is what if some of the things that you alleged they were doing as a member, they could not do if the packer was a nonmember and at least the Court --
Mr. William H. Henderson: Well, what Sunkist could do?
Justice Byron R. White: At least the Court ruled that that no matter what, no matter what is alleged about the dealings with that member packer, that the association is exempt under Section 1 charge.
Mr. William H. Henderson: The Court rule exempt.
Chief Justice Earl Warren: The Court of Appeals didn't follow that brief now, did it?
The Court of Appeals said that if it wasn't for the exemption you would have justiciable --
Mr. William H. Henderson: Yeah, it says, the Court of Appeals said even with the exemption we had a Section 2 case.
Now, the importance of the membership is that this, that this membership permits non-packers, commercial enterprisers, the middleman to be part of the organization and it ties up the fruit to that extent because the agreements under which they obtained their fruit are restricted tie-in agreement, you have to give us all your fruit, your product fruit, we're concerned the product fruit, but if you don't give us your -- all your fruit, including your product fruit you can't use the Sunkist label.
So that works when they tied up say $13 million of fruit by restricted tie-in agreements, they enhanced their control of the California, Arizona market of oranges to that extent.
They were able to more effectively exercise wrongful use of monopoly power and they were more effectively able to attempt to monopolize under the antitrust laws.
In other words, these contracts with the members which are in the bylaws of the organization, say the packing house, the packing house is the member that's the only member that Sunkist gets it's fruit from, but the packing house goes out and ties up contracts with non-growers and they're restrictive contracts with growers, they tie them up with growers and they are restrictive contracts.
They have to turnover all their fruit.
So therefore they as a member and these commercial packing houses were members to the extent of $13 million of orange juice tied up that much fruit.
And that enabled them to that extent to enlarge their control over the oranges grown in California and Arizona and to that extent enable them to attempt to monopolize under Section 2 of the Sherman Act.
Justice Abe Fortas: Well, I don't know that it's important, not even sure not relevant but I notice Article 4 of the Exhibit B, the agreement between the grower and the packing house and that does provide that mechanism by which the grower might be able to sell his crop in bulk that they grow, if he can get a higher price for it.
I notice that it says if the packing house agrees that the price is higher than you are likely to get from the packing house operation, but in any event the theory that at least the contract would make it possible for your client to outbid the packing the house for the fruit of grower, of growers.
Mr. William H. Henderson: Yes, and it also provides that they get paid $2.50 a case, but the point is Your Honor the actual members of Sunkist are the packing houses, that's who Sunkist gets the oranges from, that's how oranges are marketed through packing house.
Justice Abe Fortas: Well I understand that, but the problem of your complaint is that the arrangement is not merely technical and vulnerable, but then it also, I shouldn't say the government, you complaint as I understand it, you are saying that you are making to us not merely a technical point, but a point that has some functional substance?
Mr. William H. Henderson: Yes, well the point on that is Your Honor, that the packing house agreed that all the fruit it can tie up with a turnover to the Sunkist for marketing.
Now it enters into these contracts with the growers.
There is an escape clause or a penalty that as much as it as it is tied up, but it does go -- it does go to the packing house and through their restrictive agreement it does go to Sunkist.
Justice Abe Fortas: Well I thought you are perhaps inadvertently over stated, didn't you?
Mr. William H. Henderson: I beg your pardon.
Justice Abe Fortas: Well I thought you had perhaps inadvertently overstated the extent to which the grower is tied into the packing house contract, there is an escape clause for what its worth?
Mr. William H. Henderson: The articles of association do provide that that's their duty is tie up fruit of the growers.
Justice Abe Fortas: I know but that --
Mr. William H. Henderson: And I suppose they did to the best way they could and that this is the difficult part.
Justice Abe Fortas: In fact there is in an escape clause.
Mr. William H. Henderson: Yes.
It goes back to say that these -- what it emphasis the fact that these commercial packing houses they are not controlled by their cooperative, they are looking out for themselves, they are middlemen and they say we want cost plus and then if you are going to take some of the fruit away from it whether you got to pay us a penalty, but the point is, under the articles of association that you are obligated that is the packing house members to tie up the fruit of the growers.
Now this the best perhaps they could tie up with a commercial packing houses.
But they -- and they do tie them up except for -- except when Your Honor they pay him penalty of $250 a ton.
Justice Abe Fortas: Now wait a minute the penalty is $2.50 not per box but per ton?
Mr. William H. Henderson: Per ton all the fruit used for processing yes.
Justice Abe Fortas: $2.50 but --
Mr. William H. Henderson: Yes, yeah, that's correct.
That's the processing fruit the processors use.
Justice Hugo L. Black: If the farmer's cooperative and can be controlled of the farmers plus 15% of all the package, why couldn't it be controlled within the farm plus all the packaging?
What would be the --
Mr. William H. Henderson: I think that it can be composed of 15% commercial packing houses could be composed of 100%.
Justice Hugo L. Black: And that's what I asked you.
Mr. William H. Henderson: Yeah.
I see no reason.
Justice Hugo L. Black: Logic would be against you.
What you are arguing here is that Congress intended to provide special privileges for cooperating farmers.
Mr. William H. Henderson: Correct.
Justice Hugo L. Black: Maybe something like Sherman Anti-trust law cannot be violated by common and Labor [Inaudible] now it can be violated by Labor union joining with industries to create a monopoly.
Mr. William H. Henderson: Yes.
Now the legislative history and this colloquy between Senator Cummings and Townsend and I referred to this, they referred specifically to this section and they said, do you mean -- does that mean that someone who in a broad sense in producers of agriculture product like a packing house or a packer like my clients need to produce some agriculture products or is it restricted to farmers or actually who grow it, want to grow the crop and they said it is restricted to farmers and I went through that list of legislative history and I find very clearly that, that was intent for the man who tills the soil, the farmer who grows the crops, they only could combine.
Justice Hugo L. Black: What would have been the reasons for passage in the law had that not been referred?
Mr. William H. Henderson: Beg your pardon.
Justice Hugo L. Black: What would have been the reason for the passage of the law had that not been referred?
Mr. William H. Henderson: Well had that not been the purpose it would have permitted packers to fix prices.
It would have permitted any man to fix prices.
It -- the reason was to protect the farmer.
There wouldn't be any other reason.
That was clear, the reason was to let these farmers fix their prices through a cooperative.
Now when I say a farmer and the grower I will concede that if it is a farmer organization that is the Capper-Volstead Association, it can be a member because basically then it is a grower.
Justice Abe Fortas: Suppose it's a large corporate farm and suppose that it also holds and operates packing house, will that in your judgment disqualify from membership in Capper-Volstead in the Association?
Mr. William H. Henderson: I didn't get the first part, what was it what?
Justice Abe Fortas: It is a large corporate operation that actually grows oranges or whatever and suppose that also owns and operates a packing house.
Mr. William H. Henderson: I would have serious questions on that because that's a question we don't have to answer because perhaps a corporation may be a grower but these corporations, these packing houses were normally, mostly corporations and they did not grow fruit.
So I don't answer the question.
Justice Abe Fortas: Are there any of them that do grow fruit?
Mr. William H. Henderson: Yes there are about four some odd percent who grow fruit and operate their own packing houses and they also are Sunkist members.
They supply about 4%.
Justice Abe Fortas: Well is it your submission that those operations which grow fruit and also operate packing houses are not qualified for membership?
Mr. William H. Henderson: No we do not take that because we do -- I felt we do not have to because the corporations we are involved with do not grow fruit and therefore we don't have to argue about the ones that do grow.
Justice Abe Fortas: What does that mean, does that mean that you are talking about a 11%?
Mr. William H. Henderson: No I am talking about 15% are normally corporations, they do not grow fruit, they are stipulated to be non-cooperatives.
Now there are 4% --
Justice Abe Fortas: In addition.
Mr. William H. Henderson: In addition.
Justice Abe Fortas: I see.
Mr. William H. Henderson: That are corporations that do grow fruit and operate packing houses.
We don't quarrel with that additional 3 to 4%.
Thank you Your Honor.
Chief Justice Earl Warren: M. Hufstedler.
Argument of Seth M. Hufstedler
Mr. Seth M. Hufstedler: Mr. Chief Justice may it please the Court.
With the Court's permission this morning I should first of all like to talk about a matter of two terminology and then perhaps briefly review the Sunkist system and its units before we go forward with some of the more complicated questions of the membership within the system.
I was interested to note in Mr. Henderson's opening remarks that he referred to the petitioner herein as a small packer and the Sunkist as the dominant combination marketing citrus fruit.
I suppose we could easily get into a battle of adjectives and I think if we have to fight about dominative, Sunkist could probably do very well in that battle, because we represent the small grower who has a backyard full of citrus trees, who has two or three acres as well as the larger growers who are large enough to pack their own fruit in their own packing houses.
But we do not feel this is basically a question of who is bigger than whom or who is smaller than whom.
We believe we are dealing here as the Court indicated in the Winckler case with a question of substance.
What is the economic effect of this membership that the petitioner complains about and is there something proscribed about that membership or about the effect it has in the Capper-Volstead Act? I think one other question of terminology should be examined.
Mr. Henderson pointed out that although the stipulation which both parties signed described these associations as agency associations he doesn't now like that term.
He wants to call them commercial packing houses and of course he may define his terms in any sense he prefers here.
But to me and to the orange industry the term commercial packing house means something different and I think it points out precisely what this litigation is about.
A commercial packing house to me means an individual business enterprise which buys up fruit.
Generally speaking that enterprise will go out to the farmer, he will look at his growth and he will by the fruit on the tree, often perhaps in advance as a hedge against a free use or something of that sort and the packer then owns that fruit, it's his and he may now speculate on the market.
He can hope to hold it at a time when the market will bring a higher price for that fruit and whatever price he gets for that fruit is his.
He no longer owes the grower a cent, other than purchase price that he buys.
Now this is precisely the kind of middleman which the Capper-Volstead Act was aimed at.
The man who had money in his pocket, who could go out and buy the farmer's product and then he could speculate on what he could make on that product.
That's the flouring mills that have been referred to in the legislative history Mr. Henderson talks about and that to us is a commercial packing house.
Stipulation here is crystal clear.
There is no commercial packing house in the Sunkist system in that sense.
The stipulation points out on pages 36 and 37 of the record that all of the economic benefit of the Sunkist system returns to the grower, through these agency associations.
The agency association has no gain or loss because of the increased price if any or the lesser price if any, because of marketing to the Sunkist system.
He has a fixed contract for a fixed return.
Justice Byron R. White: But it does make a profit?
Mr. Seth M. Hufstedler: It does indeed make a profit.
Justice Byron R. White: It inherits the benefit of his shareholders?
Mr. Seth M. Hufstedler: That's correct Your Honor, that's correct.
Now that profit is a profit which it makes at a fixed fee which is specified in it's contract.
Justice William O. Douglas: Is that a contract for each grower or with Sunkist?
Mr. Seth M. Hufstedler: It's a contract with each grower Your Honor.
The -- each agency association maintains a contract with an individual grower, so there are only two parties to the contract.
Justice William O. Douglas: These packing houses, they do the actual picking, do they?
Mr. Seth M. Hufstedler: Generally speaking.
There are --
Justice William O. Douglas: Do they do the spraying also?
Mr. Seth M. Hufstedler: Generally not.
I think it might be helpful if we talk briefly about the Sunkist system, but before departing from this point, I want to make it clear that when I refer to a commercial packing house, I am talking about a packing house which buys the fruit and thereafter owns it and receives all the benefit of the sale.
The agency associations as we refer to them are a distinct kind of operation and they are packing fruit where the returns of the proceeds go back to the grower.
Justice Hugo L. Black: May I ask you whether, is there's any difference between you and your brother, with reference to the point he stressed most vigorously, that is that your clients are not growers and that they do constitute -- do business on 15% of the oranges grown.
Mr. Seth M. Hufstedler: There is a very substantial dispute with respect to who our parties are and who in the real sense are the members of the Sunkist system.
I do not dispute the fact and it is stipulated that the persons who own the agency houses which amount to about 15% of the fruit in the Sunkist System, are not necessarily growers.
The stipulation says --
Justice Hugo L. Black: But are they growers at all?
Mr. Seth M. Hufstedler: The stipulation says specifically some of them have been, some of them are not.
In other words there are some agency houses within the system.
Justice Byron R. White: Is this 15%?
I thought -- as I understood it, it was 15% of the membership?
Mr. Seth M. Hufstedler: A little of both Your Honor and let me read the stipulation.
The stipulation with respect to these two matters, which both of these last questions are addressed to appears at page 35 of the record and it says first that agency associations constitute 14.9% by number and 12.9% by volume of the associations within the system.
Now more specifically about 13% of the oranges which are marketed through Sunkist come into the system through an agency association.
If you count the number of packing houses, roughly a 120 in the system, well about 15% of them are agency associations.
More specifically with respect to fruit growing Mr. Justice Black, that provides about four pages -- about six lines from the bottom.
Some have been fruit growers and some have not been fruit growers.
We do not here claim that all of the agency associations are fruit growers, but some of them certainly have been.
Now that's not a point --
Justice Hugo L. Black: Well it does -- the issue is kind of presented than is it not that he is trying to present.
Mr. Seth M. Hufstedler: Yes Your Honor.
Justice Hugo L. Black: Whether the association, cooperative associating can be composed in the part of people who are not growers.
Mr. Seth M. Hufstedler: That's correct Your Honor.
It is our position that we may have in the form in which we have them in Sunkist, an agency association as a corporate member of Sunkist Growers Incorporated, which is not a grower of the fruit.
Now you will note that I draw the distinction between the member of the Sunkist system as a whole and the technical membership as a corporate member of Sunkist Growers Incorporated.
These are different unities in my view and I'll come to that point in a moment, but that's only one of the many unities and structures in Sunkist Grower System as a whole.
Let's take a look at the system, because it seems to me that it would be helpful to know a little bit more about how Sunkist operates and what these various structures do.
I want to point out that the facts I'm now going to discuss on what the plaintiff says as it's critical issue are actually quite different for the two halves of this lawsuit, because as I understand the plaintiff's position is a very simple one.
The agency association is a member of Sunkist Growers, therefore per se, that terminates the question on exemption.
That wasn't true as a fact, when this lawsuit was filed and is not true for about half of the period covered by the lawsuit.
The complaint was filed in this lawsuit on April 15, 1958, seeking damages for three years.
A supplemental complaint was filed in June 1962 adding almost an additional four years to January 1962.
So we cover a period of little less than seven years.
On October 31, 1958 various changes were made in the Sunkist structure.
So for a period now about three and a half years to start with, we have a different fact situation, from the second period of a little less than three and a half years.
Now let me tell you first about the first half of this lawsuit and then what the changes were for the second half of the lawsuit.
As you now know, Sunkist is basically a pyramidal structure, it's built on a principle of representation.
We have at the base as the record says some 12,000 growers, actually the number of growers in California are decreasing; subdivisions, increased property taxes are cutting down the production of oranges.
But nevertheless the growers at the base and the grower on an individual non-cooperative basis produces his own fruit up to the point of picking.
Generally speaking the Sunkist System or the packing house has nothing to do with raising the fruit.
They have research assistants.
They may do -- provide some assistance with respect to problems of growing, but that's an individual problem for the grower.
When he brings his fruit to the point where it's ready to picked, generally the packing house picks it.
Now it may on occasion not be picked by the packing house, but it is then brought to a packing house.
At the packing house the physical handing of the fresh fruit for marketing takes place.
Now bear in mind this lawsuit is for product fruit and therefore I mentioned fresh fruit only in passing because it does tie into the structure of Sunkist.
But the packing house function is a function dealing with fresh fruit primarily.
There the fruit is sorted, it's washed, it's graded, it's packed and when it's sold it's shipped directly from the packing house to the ultimate purchaser, it doesn't go to any other Sunkist facility.
When however a decision is made that the fruit is to be product grouped, for whatever reason, it probably is already at the packing house, it may still be at the farm. But when that decision is made, the fruit is moved directly to the processing facilities of Sunkist and it may never go to the packing house or it may be there only briefly and go to Sunkist.
And it is at the processing facilities of Sunkist known generally as Exchange Orange, where the fruit is juiced, it's processed into either concentrated juice or however it's sold.
It maybe sold as chilled juice, it maybe sold into various peeled products, it maybe sold peeled products as fertilizer or various pharmaceuticals, whatever product is built from it.
When product fruit -- the product that is then made or perhaps I should go back a step, the determination as to whether that fruit will be sold perhaps a whole fruit to a processor or will be processed into a particular product is made by Sunkist, it's not made by the packing house.
Sunkist also makes the determination where it will be sold, when it will sold, what the price will be, and who the purchaser is.
As you can appreciate the fruit from mini growers is pooled in this kind of a process and therefore an accounting is kept on the quality of the fruit which comes in, the percentage of solids that the fruit has, so the grower can be fairly paid and when Sunkist has a return, the return is paid back first to the packing house on product fruit.
The packing house in turn under the agreement determines which of its growers brought that fruit into Sunkist.
The packing house deducts its fixed fee and its costs and returns the net proceeds of operation back to the grower.
Now in terms of the formal organization of Sunkist, the grower signs the contract, which is attached as Exhibit B to the stipulation, if he is dealing with an agency association.
Justice Abe Fortas: Excuse me sir.
Mr. Seth M. Hufstedler: Yes Mr. Justice.
Justice Abe Fortas: Does that description apply equally to the cooperative packing houses and to the agency association?
Mr. Seth M. Hufstedler: The handling of the fruits is identical.
Justice Abe Fortas: And the distribution of proceeds?
Mr. Seth M. Hufstedler: It is identical with one exception.
So far as the operating funds are concerned, Sunkist operates on the basis of revolving funds, so that from product fruit an amount not to exceed $0.50 a tonne is withheld as a revolving fund.
As it's paid in, it's paid back out to the people who first had that deduction made and that means in effect that a growers gets back all of his money now except this assessment and about six or seven years later he gets back that small amount which operates as Sunkist's operating capital.
Now that applies uniformly across the board.
If however the grower is dealing through a cooperative association and you are aware I am sure that about 80% of the Sunkist fruit comes in through cooperatives, the cooperative will also have a similar arrangement for paying its capital costs, so that it generally will have either a capital contribution or a revolving fund.
When the fund is paid back from Sunkist to a cooperative, it will deduct its capital charge and then return the proceeds after its costs, return its proceeds to the grower.
When the funds come back to the agency association, instead of deducting the capital fund it deducts its charges.
In other words, to put the situation I think simply in effect the grower and the agency association is running the facilities and paying a rental today for the services he gets.
The grower who uses a cooperative does it on an amortizing basis where he participates in a revolving fund and must maintain a part of the capital to maintain those facilities and the end result of this for the grower you can see is a substantial advantage.
It means the growers has two choices instead of one.
Instead of getting into a cooperative where he must commit his capital to maintain the packing house facilities, he may pay it on a current basis, a rental type basis.
Instead of my building the house, I'll have you build it and I'll pay you so much a year out of the fruit that goes through it.
Now of course as you also aware both the contract here which is set up as between the grower and the agency association and each of the units in the Sunkist have the right every year to terminate that relationship.
So that if the grower doesn't like the amount that he is having to pay to this agency association he can terminate it at the end of any year in addition to the escape clause which was mentioned few moments ago and this serves a very healthy purpose within the system.
As I've indicated we have the order of the 120 packing houses.
If you've ever driven through the oranges growers, orange district of Southern California and gone into a little town such as Redlands or San Bernardino or Orange and gone down by the railroad track, you'll see lined up one after the other orange packing houses, agency house, a cooperative, a cooperative, an agency house, and if you are a grower you can walk into any one of those and sign them up for next year and if you don't like the fees in one house and you don't like the way you are getting paid you have a good healthy competition between them or if you think an agency -- if you think the cooperative can serve you better, you can walk next door and have your fruit delivered to a cooperative.
After you get your fruit on a truck, it's only a question of 30 or 40 minutes on a good highway to dozens of packing houses within your area.
So we have a healthy competition between the packing houses that means an additional service and benefit to grower.
Now let me go back to the formal organization of Sunkist.
We know now how they --
Chief Justice Earl Warren: May I ask you, the whole territory that Sunkist serves is compact to that?
Mr. Seth M. Hufstedler: Not entirely Your Honor.
Sunkist serves an area up into the San Joaquin Valley.
As you know the large orange growing areas are centered between say Redlands and down into Orange County, but there are oranges into San Diego, there are citrus product -- there is citrus production in the Coachella Valley and there are now large new growers being planted in the San Joaquin Valley, largely navels for the fresh fruit market, however navels don't process very well and there are packing houses in that area.
So you are quite correct Your Honor there is a concentration in Southern California, but there are outlying areas and there are I believe eight or nine houses in Arizona.
Chief Justice Earl Warren: How about in Arizona?
Mr. Seth M. Hufstedler: Yes, Your Honor.
Now let's go back to the formal structure.
We know now that the growers are in the packing houses and one of these three kinds of relations, an agency association, a cooperative or they may have their own packing house which they've built.
They are then organized into district exchanges.
Historically the stipulation points out how the district exchanges grew as the first unit of development to bring them together in their market.
The associations are members of the district exchanges.
They are non-profit cooperative membership associations.
The packing houses elect the representatives to the district exchanges.
Looking now at the first half of this lawsuit.
Chief Justice Earl Warren: And then the district exchange has what relation to Sunkist?
Mr. Seth M. Hufstedler: The district exchange during the first half of the lawsuit Your Honor, each nominated a person who became the member of Sunkist Growers Incorporated and who served on the Board of Directors.
Now in answer to Justice Black's question a few moments ago, Sunkist is in fact run by a Board of Directors.
Sunkist is a corporation.
It's a nonprofit membership corporation.
Its members and its Board of Directors were identical in the first half of this lawsuit, approximately 17 individuals each nominated by a district exchange.
They determine the policy of Sunkist and equally important they hire the principal employees, the economists who are necessary for examination of the market, the statisticians or the general manager right on down the line.
So Sunkist is operated in effect by that Board of Directors.
Justice Abe Fortas: Let me see if I understand this.
Mr. Seth M. Hufstedler: Yes Your Honor.
Justice Abe Fortas: Are you saying that during the first half of the period covered by this lawsuit the only members of Sunkist were the exchanges, district exchanges?
Mr. Seth M. Hufstedler: Exactly Your Honor.
Justice Abe Fortas: So that the growers were not themselves were not members?
Mr. Seth M. Hufstedler: The growers have never been called members of Sunkist.
Justice Abe Fortas: And still they are not.
Mr. Seth M. Hufstedler: Still they are not.
Justice Abe Fortas: They are only members of Sunkist via the district exchanges and the agencies, is that right?
Mr. Seth M. Hufstedler: Yes Your Honor, during the first half of the lawsuit, the only members were approximately 17 individuals.
Now bear in mind --
Justice Abe Fortas: Well the individuals were -- the individual nominated by the district exchanges --
Mr. Seth M. Hufstedler: Yes Your Honor.
Justice Abe Fortas: Were the members?
Mr. Seth M. Hufstedler: Yes You Honor.
Now there is some confusion in the articles of by laws and in some of the passages there are indications that maybe the member was really the district exchange, but the individuals are called the members.
Justice Abe Fortas: And those -- some of those members I suppose were not themselves growers?
Mr. Seth M. Hufstedler: Quite possibly they were not.
This was the initial position which the petitioners raised in this case.
Justice Abe Fortas: How do you reconcile that with the [Inaudible] anticipate, but I assume --
Mr. Seth M. Hufstedler: Now I think perhaps now is the time to answer that question directly Your Honor.
Justice William J. Brennan: Before [Inaudible]
Mr. Seth M. Hufstedler: Certainly.
Justice William J. Brennan: [Inaudible]
Mr. Seth M. Hufstedler: The cooperatives are members of the district association--
Justice William J. Brennan: They were not limited to the agency.
Mr. Seth M. Hufstedler: No that's correct.
All 120 packing houses approximately each are members of agencies.
Justice William J. Brennan: Whether a cooperative or an agency?
Mr. Seth M. Hufstedler: That's correct or whether an individual grower who has his own packing house.
Now let's go back to this question which Justice Fortas has asked because this is -- it seems to me precisely the problem we are dealing with here.
What is a member that we are talking about, what's the critical sense of member in this litigation?
I haven't been talking about members of the Sunkist system or the member of the cooperative at all in my sense of the word and yet I think what I have said the impression you have is yes we are talking about the same members.
I am talking about a corporate structure.
Sunkist Growers Incorporated is a nonprofit corporation.
For its purposes and its by laws its corporate members are designated to certain people and they come through a representative system.
They do and they did during half of the lawsuit.
Now I don't think when we talk about the Capper-Volstead cooperative or the Capper-Volstead qualification we're necessarily talking about that member at all, who we call a member in our bylaws as a matter of corporate technical structure of the organization.
When we talk about the Sunkist System as a whole now, this Court has already said in Winckler that we are dealing with a unified organization the Sunkist system.
Now let's set apart for a moment the Sunkist system over here as a whole and Sunkist Growers Incorporated, a nonprofit corporation which sits at the apex of that pyramidal structure, who are the members of the Sunkist system?
Well I would suggest to you members of the Sunkist system are those people who have its beneficial interest.
It obviously, if I am permitted to get a substantial portion of the profit that this entire marketing system is making, I can't escape the consequences of that by not calling myself a member.
Conversely if I don't call myself a member certainly I am one of the people who is a member.
And may I suggest to you that in looking at this pyramidal structure now, for purposes of Capper-Volstead the people who have the benefit of this system are the growers, because they receive every cent that the Sunkist system has expect for costs with the one qualification of the area we have talked about, they pay a rental and fixed fee to the agency association, but that's not a participation in the variables from marketing, that's a negotiated fee for the their services.
And so every cent of their operation filters back down to the grower and therefore I would suggest to you when we talk about the Capper-Volstead Act, that we're talking about the grower as the member, even though we do not issue a membership certificate to him and even though the man who holds a membership certificate in the corporation, Sunkist Growers Incorporated, may now be an agency association.
Now that --
Chief Justice Earl Warren: Would this be oversimplifying to say that the entire -- under the Capper-Volstead Act that the entire membership of the organization could be corporations for profit on the same basis that these packing concerns are and that there were no growers in it at all.
But still according to the method of organization the present time, the profits all went to growers, do you think that could be all?
Mr. Seth M. Hufstedler: I don't think there's any question about that Your Honor and let me cite to you the language of Capper-Volstead Act specifically.
It says, the first sentence, the 50 word sentence Mr. Henderson has talked about says that farmers may act together in associations and it then says corporate or otherwise, now corporate obviously requires stock, corporate or otherwise, with or without capital stock and that's broad authorizing language.
They can act in corporations or not and they can have stock or not.
Now the qualifications down below --
Chief Justice Earl Warren: But isn't there some language right after that that might bear upon its construction?
Mr. Seth M. Hufstedler: Yes sir, its quite a bit Your Honor, quite a bit.
Chief Justice Earl Warren: Would you read that?
Mr. Seth M. Hufstedler: There are two clauses that follow that which we believe are critical to the Capper-Volstead Act.
The second sentence says, such associations may have marketing agencies in common.
Now the marketing agencies obviously are someone outside the grower realm who they may employ to market their fruit.
Going on, and such associations and their members may make the necessary contracts and agreements to affect such purposes, so that they also have the power to contend and may I point out the first time --
Chief Justice Earl Warren: Would you read the rest of the language, so that connects that all up so we won't have to detach?
Mr. Seth M. Hufstedler: I will Your Honor.
That's followed by a colon, provided however, that associations are operated for the mutual benefit of the members thereof as such producers.
Chief Justice Earl Warren: As such producers.
Mr. Seth M. Hufstedler: As such producers and conform to one or both of the following requirements.
And then you remember there are two alternate requirements, either no member is allowed more than one vote because of the amount of stock he has or membership capital he has contributed or the association doesn't pay dividends in excess of 8%.
And then in any case the following, which is the last requirement, that the association shall not deal in the products of non-members to an amount greater in value than such as are handled for its members.
Now that's the complete statute.
Chief Justice Earl Warren: Then what?
Mr. Seth M. Hufstedler: Then are handled for its members.
The last clause is important Mr. Justice Black because it says that the association may have non member fruit and sometime ago Mr. Justice Black asked -- Mr. Justice Fortas asked Mr. Henderson, what would happen if we simply excluded all of the agency associations, wouldn't we reach the result just by marketing their fruit?
I don't think there's any question that the result here is one that can clearly be reached under the non-membership fruit.
Let's suppose we said alright agency associations go out, we have nothing to do with them, but we'll market your fruit for you and we'll call you non-members, you have nothing to do with our association but we will market your fruit for you.
This paragraph says that we can market fruit in as large an amount as we already are marketing by acquiring it from non-members and this is dealing only with 14 or 15% or actually 13% of the fruit in the system.
Justice Byron R. White: Well could you agree would they accept an outsider that you wouldn't sell to anybody else in any time?
Mr. Seth M. Hufstedler: Could we agree with the outsider that he wouldn't?
I would think not Your Honor.
I wouldn't attempt to do it.
Justice Byron R. White: Could you agree -- but he may ask you to agree not to sell any oranges to anybody else?
Mr. Seth M. Hufstedler: No I would think not.
I would think that would be inappropriate, but let me suggest the answer to it.
Justice Byron R. White: Or would you say that if he wasn't -- that if he was -- if this independent suddenly was made a member, do you think he could do either one of those two things?
Mr. Seth M. Hufstedler: I would say --
Justice Byron R. White: Just because he became a member?
Mr. Seth M. Hufstedler: I would say you'd have to divide up your groups of members Your Honor.
Justice Byron R. White: This is what I just asked about.
Mr. Seth M. Hufstedler: Well I'm going to try to answer that but I think you can't answer it until you tell me who the member is, who is applying.
Justice Byron R. White: The member is the one we would just, that you ask those other -- those other questions about, the independent factor outside you said we could make these same arrangements with this particular member who suddenly becomes a non-member?
Mr. Seth M. Hufstedler: If we're taking the identical packer I would say yes, there's no question about it.
Justice Byron R. White: About what?
Mr. Seth M. Hufstedler: And the reason, there is no question that we could market all of these fruit and that we could -- whether he is himself a grower or not, we could tie him to the identical contract we have now.
The reason being --
Justice Byron R. White: Now because you also, if you became a non-member, could you also say to him, don't you deal with anybody else.
Could he say to you don't you deal with anybody else, could you both agree to that?
Mr. Seth M. Hufstedler: Yes I believe we could Your Honor.
Justice Byron R. White: Even if he's an outsider?
Mr. Seth M. Hufstedler: Subject to the qualification that you haven't permitted me to state yet, which I now will state.
And that is, that, that agency with whom we are dealing, returns all of the proceeds of the sale to his growers, I think as long as the growers receive that benefit, we can make the arrangement until all of the growers producing that product are involved in the system.
Now that's the key.
If this man is what Mr. Henderson calls a commercial packing house, so that he goes out and buys his own fruit, no, I don't think we can make that kind of an arrangement with him, I certainly would not suggest it.
We're obviously not dealing with that situation here.
But the Capper-Volstead Act says that associations of growers may have marketing agencies in common and I don't think you would argue with the proposition that we can have cooperative A, which has a marketing agent and we have cooperative B which has a marketing agent and those two marketing agents in common can represent the associations, because the statute says we can have associations in common.
Justice Abe Fortas: Yes, but doesn't the Section 1 of the act contemplates that the growers would be the members and isn't that the purpose of defining that no member should have more than one vote?
Mr. Seth M. Hufstedler: No Your Honor I would say --
Justice Abe Fortas: What do you do with the language of --?
Mr. Seth M. Hufstedler: I would say that provision with respect to no member having one vote illustrates just the opposite, that it does contemplate non-grower members and --
Justice Abe Fortas: I don't understand that.
Mr. Seth M. Hufstedler: Or let me put it this way.
Perhaps we are going to draw a distinction here and it maybe appropriate between members and stockholders.
But it is apparent that first of all the Senate particularly looked carefully at the Raisin Growers Association and they found first of all that the raisin growers had non-grower stockholders.
There are about 2,400 grower stockholders there were about 800 non-grower stockholders.
So roughly about a quarter of the stockholders were non-growers.
They also had in their bylaws however that they could not pay dividends more than 8%, that's apparently where this came from.
So they contemplated that here was an association with non-grower stockholders who could participate in both their stock but that they were limited to an 8% return on their capital.
Now I think the key also maybe found in the phrase, which talks about what we believe to be the fundamental test of Capper-Volstead, and that is provided however this is the test to our way of thinking of the validity of Capper-Volstead qualification, provided however that such associations are operated for the mutual benefit of the members thereof as such producers.
Now why would the qualification as such producers be necessary?
If those members didn't have some standing, some status other than as a producer, the producers, the non-producers are limited now with respect to that next requirement, to the extent of their capital requirement they can get only 8% on their investments.
But they're shareholders, they can participate, they have a membership status in effect, but they're limited to an 8% return and thereafter all of the benefit of the operation must go to the grower himself and that's the principle which we seek to live up to, that's the principle which I think the stipulation clearly shows that we have lived up to in Sunkist.
We operate for the grower and we return our benefits to the grower regardless of how this fruit comes into the system and we treat every grower on an equivalent basis.
Chief Justice Earl Warren: Mr. Hufstedler, may I ask you this question, what control have the growers themselves in your Sunkist system for determining what the cost and fixed fee are to be in this relationship?
Mr. Seth M. Hufstedler: The contract with the agency association Your Honor is a negotiated contract.
The grower sits down and negotiates with the agency association on what he will charge.
If the grower --
Chief Justice Earl Warren: But what organization bargains with the agency?
Mr. Seth M. Hufstedler: I think there is no organization that bargains with it Your Honor.
I think it's an individual bargaining by the farmers themselves with respect to costs.
Chief Justice Earl Warren: Being a two and three acre farmer?
Mr. Seth M. Hufstedler: Yes, Your Honor, that's correct, that's correct.
But bear in mind, this agency association must be competitive with its nearby agency association and most give the same sort of return that the cooperatives give.
Now frankly, one of the facts that agency associations are able to compete with cooperatives is you have businessman running them and they're willing to devote the 12 or 18 or 20 hours a day to run that business and run it efficiently and therefore they can run as efficiently as a cooperative organization.
Chief Justice Earl Warren: As I understood it the organization that determines the policies for Sunkist is composed of these agencies and they are the ones who would govern I presume in determining whether they were being given a fair price or were being charged to fair price by the agencies for the services they performed.
Mr. Seth M. Hufstedler: That's partly correct and partly wrong Your Honor.
Chief Justice Earl Warren: Haven't you got the agencies setting in two positions, they're on these negotiations, they're affecting the price for themselves as agencies and then they are determining whether that's a fair price on behalf of the growers.
Mr. Seth M. Hufstedler: Well, no, you're quite correct that they're determining what their price will be with their farmer, but the negotiation between the individual farmer and the agency association involves only those two.
Now, it is true, Sunkist itself, the Corporation Board up here that has the Board of Directors running it has the right to call those contracts in and review them and if they don't like what's going on they can terminate them.
Now they --
Chief Justice Earl Warren: But how is it a man who has two acres or three acres of oranges as lot of them do, going to be able to bargain with a lot of these big packing houses as to how much they will charge for processing his fruit.
Mr. Seth M. Hufstedler: He hasn't Your Honor, not at all, and I wouldn't suggest he is.
Chief Justice Earl Warren: But I thought you said he must do it individually.
Mr. Seth M. Hufstedler: That's correct.
As Your Honor well knows with the citrus growers in California and elsewhere, they know what's going on in the business.
There are several packing houses which they can select and they talk to the man next door who has two acres.
They can't talk the agency association to cutting its price in half.
But he can go to the agency, a house next door or the cooperative next door to that if he doesn't get a good price.
Chief Justice Earl Warren: Well, there maybe two answers to that one of them I see that he is in the community where there's only one packing house and you yourself said a little while ago that in some parts of California and Arizona that would probably be true, but we don't take -- maybe we shouldn't the concentrated area like Orange County and San Bernardino County where there are so many of them.
But the other answer might be this, I wonder if it is that 15% of these packing houses are now in Sunkist.
Suppose that Sunkist incorporated 50% more of the packing houses into it's agency or organization having 65% of all oranges in the district.
And by that time the packing houses were in a clearly dominant position in the industry and suppose they chose to raise the cost of processing to the grower and the growers didn't like it, but they couldn't do anything about it.
Wouldn't that tend towards monopoly?
Mr. Seth M. Hufstedler: It would be a terrible situation if it occurred Your Honor.
Chief Justice Earl Warren: Beg your pardon?
Mr. Seth M. Hufstedler: It would be a terrible situation that if it occurred.
Chief Justice Earl Warren: Well why couldn't it?
Mr. Seth M. Hufstedler: Well, first of all, it isn't the situation we're aware of that --
Chief Justice Earl Warren: No, it isn't but --
Mr. Seth M. Hufstedler: All right.
Now secondly could it occur?
Chief Justice Earl Warren: Yes.
Mr. Seth M. Hufstedler: The farmer has his choice with respect to that.
The farmer selects how he's going to participate in the Sunkist system.
Chief Justice Earl Warren: Well, if there's only -- if it gets to a dominant position what choice has he got?
Mr. Seth M. Hufstedler: You're assuming that that's what the farmer wants, because it'll only get that way if the farmer wants it Your Honor.
If the farmer wants to say to the packing house, you take all of my fruit and market it, do anything you want to do, I don't want to see it again, he is entitled to do that under Capper-Volstead isn't he?
Chief Justice Earl Warren: How many orange growers are there in Southern California?
Mr. Seth M. Hufstedler: I can't answer that specifically Your Honor to say --
Chief Justice Earl Warren: You must have some idea.
Mr. Seth M. Hufstedler: Yes, today as I stand here, Sunkist has approximately 9,000 members and the record below shows that we were handling about 67% of the product fruit.
Now, our membership has gone down since that time and the product production has gone down, but that will give you some general idea of the number of other producers.
Chief Justice Earl Warren: That's because the orange growers going out of the existence or housing I suppose.
Mr. Seth M. Hufstedler: Particularly in Southern California as I've said we're picking up a few in the Central Valley now, but let me go back to this question --
Justice Abe Fortas: What do you mean when you say Sunkist has 9,000 members.
Mr. Seth M. Hufstedler: I'm sorry I – [Laughter] Sunkist has 9,000 growers.
We always consider --
Justice Abe Fortas: It gets to the heart of our problem --
Mr. Seth M. Hufstedler: It does Your Honor, I must agree that --
Justice Abe Fortas: You're saying they have 9,000 members and it's very different when you say that 9,000 growers just in terms of the statute, I am not talking about the for the price, I am talking about the statute.
Now, how many members has Sunkist got, members?
Mr. Seth M. Hufstedler: Sunkist has approximately a 119 today.
Justice Abe Fortas: 119 members?
Mr. Seth M. Hufstedler: Yes.
Justice Abe Fortas: And you service about 9,000 growers.
Mr. Seth M. Hufstedler: That's correct, Your Honor.
Chief Justice Earl Warren: How many growers, are there any growers in that 119?
Mr. Seth M. Hufstedler: Yes.
Chief Justice Earl Warren: How many would you say?
Mr. Seth M. Hufstedler: Well, first of all most of them are cooperative associations.
Justice Byron R. White: Of growers?
Mr. Seth M. Hufstedler: Of growers, so we'll exclude those for the moment.
Chief Justice Earl Warren: Those are the 4% of the growers?
Mr. Seth M. Hufstedler: Those are about 80%.
Chief Justice Earl Warren: Beg your pardon?
Mr. Seth M. Hufstedler: About 80% are cooperatives.
Chief Justice Earl Warren: 80%?
Mr. Seth M. Hufstedler: We take out another roughly 5% because those are growers who have their own packing houses.
Justice Byron R. White: That 80% is covered by Winckler?
Mr. Seth M. Hufstedler: Yes, Your Honor.
Justice Byron R. White: I mean that this can be, Sunkist can be an association of cooperative?
Mr. Seth M. Hufstedler: That's correct Your Honor and they petitioner here concedes, that Sunkist so held, I mean, that Winckler so held in their brief.
Now, we come back then to the remaining 15% by number approximately which are agency associations as we have descried.
Our last review, some of them are cooperation, some of them are partnerships, some of them are individual proprietorships, our last review show that either the association itself or the stockholders who were in the association were fruit growers except two or three situations.
But we still had as of the time we last looked, at least one perhaps two, perhaps three, of these agency associations who were not growers.
But let me suggest that that is the fallacy of this kind of a test.
If all we're looking for is a grower, isn't it really a senseless act for us to say that these 19% of these agency associations, go out and buy yourself a couple of acres of oranges, that is not the answer to our problem.
It doesn't make sense to have the packing house have a acres of oranges and say this is a technical statute, you got to be a grower, now you are grower and the slate is clean, that isn't our problem.
Justice Abe Fortas: Do you think it's essential to define growers that way that is say, that is to say --
Mr. Seth M. Hufstedler: No --
Justice Abe Fortas: -- the growers, that if you are going to -- that any definition of growers would have to admit into that select company?
Mr. Seth M. Hufstedler: No --
Justice Abe Fortas: Who owns a couple of acres even though he may have an investment of $100 million in packing plant --
Mr. Seth M. Hufstedler: I suppose thought we'd have to draw the line some place, wouldn't we?
He does become a grower at some point.
Justice Abe Fortas: Well that's the law from the -- is a classical phrase.
Mr. Seth M. Hufstedler: But let me come back to our central issue, my time is running short and I'll try to make two or three points rather quickly.
Chief Justice Earl Warren: Well I would like to know one thing more before you get to that.
About 15% of these packing houses now are in Sunkist.
Suppose the figured were just reverse 85% of them were in the Sunkist and the other 15% out, would that change your position any here?
Mr. Seth M. Hufstedler: It would not change my position at all Your Honor so long as all the economic benefits were returning to the grower.
So long as the middle men --
Chief Justice Earl Warren: In this situation -- I mean with the organizational system just as it is, would it make any difference in your argument if the figures were reversed and 85% of the product were agency and agency controlled and 15% without?
Mr. Seth M. Hufstedler: No Your Honor it wouldn't and let me put what seems to me to be a clear example.
The Winckler case has already said that a 100% of the -- all of these growers could organize into one association.
Let's avoid the membership problem, because it's that label that follows it and let's suppose we organize a single cooperative with 12,000 growers or however many there are, as the members and the cooperative markets the fruit, is there any question that that cooperative now having a 100% of the fruit could contract with all of the packing house agencies to do exactly what they are doing now?
To bring the fruit in from the grove, to wash it, to pack it, to ship it and is there any question if they wanted to, those growers and their cooperative could say, not only do we want you to do that we want you to be our marketing agent.
Capper-Volstead says they can have a marketing agent.
Now essentially every function that the agency association performs is a clear cooperative legitimate cooperative activity.
Certainly the washing, packing, sorting, shipping, that's a legitimate activity.
The farmers can hire someone to do that, what about the marketing?
Well to the extent that they participate in the marketing that's a legitimate activity.
Now if we could have those associations as our marketing agent and have them do everything then Mr. Chief Justice is it not appropriate to say to those agency associations, I as a farmer want you to represent me in this Sunkist system, you are my representative and is he not doing a great deal less than marketing the fruit.
Now what are these terrible things that these members in Sunkist --
Chief Justice Earl Warren: But to answer that, couldn't they say well -- but you wouldn't have rights through our Board of Directors to determine the policy of the organization and at the same time have the right as a packing house to fix your price for dealing with us at any level which you wish.
Mr. Seth M. Hufstedler: Yes, that might very well be -- I am not, I am not sure whether that's right or not, but let me suggest that is not the fact here.
We were talking about that a few moments ago when we got off on to another subject.
The grower selects the agency association to represent him, other growers select the cooperatives.
If I as a grower don't want the agency association representing me, I can join a cooperative and I can participate that way in the Sunkist system.
The eventual Board of Sunkist is made up off those person elected by the district exchanges.
Now throughout --
Chief Justice Earl Warren: How many houses?
Mr. Seth M. Hufstedler: Well there are now 17 or 18 Your Honor, there is one association in process as a district exchange.
Chief Justice Earl Warren: But they are association of packing houses?
Mr. Seth M. Hufstedler: They are associations of packing houses that's correct.
Now it is true that the agency associations has a vote along with the other packing houses in that system which elects the representatives to the district exchange and then by further representation the district exchanges elect the Board of Sunkist.
But to extent that they are participating is only in the sense that they are actually selecting the governing body of Sunkist which will make the determinations.
Now that body therefore represents all of the people down this representative structure.
A very small portion of the growers of which have come through representative houses, because they selected them as their representative.
The contract between the farmer and the agency association is a competitive contract, it's on the market, if he isn't meeting the competition the grower won't sign up with him.
So the value and of his cost, and of his service is protected by the competition between the parties.
Sunkist does not purport from the governing board to tell him what he can or cannot charge, at the same time Sunkist has the right to and does review these contracts from time to time, if they find them unfair they can terminate the membership of that individual.
Chief Justice Earl Warren: What do you mean unfair?
Who reviews it, the Board of Directors?
Mr. Seth M. Hufstedler: Yes the representatives of the Board.
Chief Justice Earl Warren: Yeah and those are the packing houses themselves, aren't they?
Mr. Seth M. Hufstedler: Very indirectly Your Honor yes, yes, now three steps removed you understand.
Chief Justice Earl Warren: If they are passing upon how much they are going to get for their services as packing houses and on the other hand between the right of the grower to get the profits that result of this system which you speak of, what interest do you think they would favor?
Mr. Seth M. Hufstedler: I think if they favor their own they would be out on their area Your Honor, because the growers control this organization and let me you why.
You are talking only about a maximum of what 12.9% of the fruit, 15% by number, so you are talking about 15% of the vote.
Now how many constituencies are dominated by 15% of the vote, how many Congressmen are elected by 15% of their vote?
The other 85% is also voting.
Chief Justice Earl Warren: I know but you just told me it wouldn't make any difference whether there are 85% of these --
Mr. Seth M. Hufstedler: Oh that's right.
Chief Justice Earl Warren: Now the other 15%.
Mr. Seth M. Hufstedler: That's correct, I didn't tell you that and here is the reason.
If I decide I want to elect a Congressmen for me, then I can certainly select him for me, but I'm bound by what he does, if I don't like him I'll go over and get into another district and elect another Congressmen.
That packing house is a representative because I personally selected him as a grower.
If I don't want him to represent me I'm not going to sign my contract with him, I'll sign it with someone else.
Justice Hugo L. Black: You don't want the grower to be in the same predicament as the citizen here, if we got to move to another Congressional district, it's a different problem.
Mr. Seth M. Hufstedler: I must confess that it's a little easier for them to switch than it is for me to switch a Congressman Your Honor.
But to come back to this basic point the agency associations are there because the farmer wants him to be the representative Your Honor.
If the farmer didn't want him to be the representative he wouldn't be there and so the ultimate choice in every case rests with the farmer.
The farmer could select him to market the fruit entirely, if he wanted to do so.
Justice Abe Fortas: Well isn't that something like saying that the farmer has a great deal of control over [Inaudible] of California Packing Corporation, the price he gets because if he didn't, they don't pay him what he thinks he is entailed to, you sell it to somebody else, it's about what your are saying.
Mr. Seth M. Hufstedler: No Your Honor it really isn't here.
Justice Abe Fortas: Isn't difficulty here is that Sunkist has a sort of vast market powers?
Mr. Seth M. Hufstedler: In any large organization it's difficult for me as a citizen to control what my Congressman does, much less what the President does.
When we have 8,000 growers I suppose it's pretty hard for one of them to do it.
But there just can't be any question that the voting power and the authority in the Sunkist system rests with the grower, he makes the choice.
Justice Abe Fortas: Yeah may I address a moment and ask you whether there have been attempts in the Congress to obtain legislative clarification to this problem?
Mr. Seth M. Hufstedler: I know --
Justice Abe Fortas: When it comes to [Inaudible] of the Congress from time to time?
Mr. Seth M. Hufstedler: I don't know of any Your Honor it's possible to have them but I know of no challenge to either the Sunkist system or to cooperative generally on this basis.
Justice Abe Fortas: I am not talk about cooperatives, I am talking about [Inaudible] Congress in some years to clarify this problem of what are membership requirements of the Capper-Volstead Act?
Mr. Seth M. Hufstedler: I don't believe so Your Honor that could very well have been but I know of none and I don't believe so.
Justice Hugo L. Black: Let us say that in your collision with Chief Justice, it's been rather to me before you constantly said that that is not the case now.
Those are not the facts now.
But isn't one of the objects of the Anti Trust Act to prevent the same in that [Inaudible] so that they will not move over to a situation where they would [Inaudible] proscribed results?
Mr. Seth M. Hufstedler: Certainly a valid point Your Honor certainly we must look to the effects of any decision on cooperative generally and on the economy generally yes.
Justice Hugo L. Black: That if it be proved that the ownership or whatever the relationship is, a 15% of those who are non-growers might tend to do what the chief apprehends, would that not be a reason for stopping it in its infancy?
Mr. Seth M. Hufstedler: Yes I think that's correct Your Honor, I think that's correct and that's why I would suggest that I think in application of what Capper-Volstead is and does would not prohibit, but the Chief Justice has asked --
Justice Hugo L. Black: That's saying that it doesn't have that tendency?
Mr. Seth M. Hufstedler: Yes now let me point out that there are the restrictions I think which protect the society generally.
Capper-Volstead to my way of thinking does basically two things.
It permits the farmers to get together in a very liberal fashion to market their fruit.
It lays down a test and that is it must be done for the benefit of the producers.
Now that's the test that's within Capper-Volstead and I suggest to you that if we meet that organizational test as the Bill itself said if the farmers in good faith are cooperatively marketing their fruit that they are qualified to do so.
Now Mr. Justice Black clearly laid down the additional requirements which should be mentioned here because it's important in this particular area where you have just questioning me.
In Maryland and Virginia this Court said that you may have Capper-Volstead organization duly qualified, but it still may violate the Antitrust Act if it does certain things.
Now what's the test?
Well, there are two key phrases there, which I think very clearly lay out what the basic problem is here.
The key test was this.
Are the acts which the cooperative has engaged in legitimate cooperative activities or are there predatory trade practices?
Now to the extent that we attempt to corral all of the packing house facilities and prevent somebody else from using them, if that constitutes a predatory trade practice as it's probably would and the manner in which the question was stated to me, the cooperative is liable for the damage it causes.
Now let's note the difference.
There is a still a Capper-Volstead cooperative.
It still maybe organized appropriately, but it has monetary civil and criminal liability for violation of antitrust statutes.
Now when Mr. Henderson points out that he claims here that we monopolize the oranges in some way to do him harm, that's not our question here today.
Our question today is are we qualified? We are going back and we are perfectly happy and willing to live by that Maryland and Virginia standard.
If we have engaged in predatory trade practices we expect to pay for it and that's the issue we are going to try when we go to the district court.
That's not our question here today, but in terms of application of the qualification isn't our real question under the terms of Capper-Volstead, are we as a groups of farmers collectively acting for the benefit of the farmer?
If we're acting in good faith for the benefit of the farmer we are qualified.
Now we'll go back and try the antitrust problem is when we go back to --
Justice Byron R. White: Yes, but the only problem you're going to try are those which arise under Section 2, as far as I can see section 1 is out of the case.
Mr. Seth M. Hufstedler: Well, if Mr. Henderson will stipulate that's out of the case Your Honor I'll be most happy to accept that.
Justice Byron R. White: Isn't that what the part of the deal decided that, isn't -- that Sunkist was immune by reason of Capper-Volstead for any liability under Section 1 of the Sherman Act?
Mr. Seth M. Hufstedler: Only to the extent of the organization itself Your Honor.
Let's talk about what Capper-Volstead qualification means is as I understand it.
If we are qualified it means that our organization per se does not constitute a combination and violation of the Antitrust statutes.
It does not mean that any of our conduct with respect to anyone else is exempted in any way.
It's simply that the arrangement itself is not a combination.
Now if we have conspired with anyone outside of the Sunkist organization then obviously the qualification wouldn't cover, but with respect to the units of the Sunkist system, yes I would take it that we're qualified, a claim cannot be made that there is an illegal conspiracy under Section 1 with an agency association.
Justice Byron R. White: Would you explain then what is it that, what practices there are that you want shielded by an exemption and what difference, you apparently are arguing to some extent you start violating the anti trust laws?
Mr. Seth M. Hufstedler: We are not even arguing the facts with respect to the trial court matter, but what I am saying is this.
Our contract with the agency association is not a violation of the antitrust statute.
Justice Byron R. White: Whether you have an exemption or not?
Mr. Seth M. Hufstedler: Well, if we had no exemption we still will argue that it is not an unreasonable restraint that's correct Your Honor with or without it, but certainly we don't get the benefit of Capper-Volstead if we are not qualified.
And I think as a second area which might or might not be in question and that is if we have lost our exemption entirely are the farmers themselves in the cooperatives entitled to contract with each other.
We think the Capper-Volstead Act would permit them to do so but conceivably if the whole system is invalidated we then have to --
Justice Byron R. White: This case only concerns Sunkist, isn't it?
Mr. Seth M. Hufstedler: That's correct.
Justice Byron R. White: And even if Sunkist were held unqualified it wouldn't mean that the underlying cooperatives --
Mr. Seth M. Hufstedler: No, but it would then raise the question as to whether the dealing is between the cooperatives --
Justice Byron R. White: That's right.
Mr. Seth M. Hufstedler: -- were qualified under Capper-Volstead.
We would then might have to fall back on Section 6 of the Clayton Act or general antitrust law.
Justice Byron R. White: That question might be raised but it wouldn't be decided by the Sunkist decision?
Mr. Seth M. Hufstedler: Well this case might very well have to decide when we go back in the trial court, what kind of conduct among the elements of Sunkist is invalid if they do not have the qualification.
Justice Byron R. White: I guess what you -- I take at your position is it if Sunkist is qualified that there are no transactions among the members of Sunkist or any of its subsidiary organizations which would violation of the anti trust laws?
Mr. Seth M. Hufstedler: Not necessarily.
Justice Byron R. White: As an organization you are exempt under anti trust law?
Mr. Seth M. Hufstedler: No that's not quite our position, it's almost.
Our position is that they organic structure per se is not any improper combination.
We still could engage in predatory trade practices I suppose.
Justice Byron R. White: Inside the organization?
Mr. Seth M. Hufstedler: That's correct, that's correct.
Justice Byron R. White: Would you still concede that there --
Mr. Seth M. Hufstedler: No I think you stated it correctly as long as we can find all of the effect to the matter inside the association.
Justice Byron R. White: You would say that there is nothing you could do to each other inside the association without dealing with outsider, that would violate the anti trust law?
Mr. Seth M. Hufstedler: I would say that there could be no conspiracy between them as separate parties, yes.
Thank you Your Honor.
Chief Justice Earl Warren: Mr. Henderson.
Rebuttal of William H. Henderson
Mr. William H. Henderson: Mr. Chief justice, may it please the Court.
I am only going to take up to few points.
First the stipulation so that we shall be clear just what we are speaking about.
There were some questions of whether we were talking about non-growers.
Now I want to refer Your Honors to page 35 of the record.
Three corporate growers were not concerned with the ones that corporation that grow fruit.
They constitute for 0.975 by number and for 0.72 by volume, but we are concerned with item 4, what are called agency associations and we call them commercial packing houses and the stipulation is clear on that, they are non-growers.
For example, agency associations constitute 14.91% by number and 49% by volume of all associations in the Sunkist system.
The agency association is normally a private corporation.
Such agency associations do not qualify nor do they claim to be cooperative associations acting under Section 1 of Capper-Volstead Act.
The agency association furnishes these facilities on the independent contract basis and relate it to net returns.
A contract between such an agency association and it's growers which maybe deemed typical of such associations is attached here to as Exhibit B. Further showing they're not growers, this Court may refer in page 41 where it defines the different functions, on the second whole paragraph with regard to the physical handling of fruit, the growers cares for the fruit, cares for the trees and brings the citrus fruit to the point where it is ready to be picked.
The packing house association then normally sends its specialized crews into the groves to pick the fruit and it is stipulated that they obtain their fruit under Exhibit B to the contract now, and that provide the sale of the fruit.
Now, I'm also going to mention Mr. Hufstedler's argument that for the first half of the lawsuit the member -- these commercial associations or these packing houses, all members were not members.
Well, this lawsuit commenced May 15, 1958.
On October 3, the October 1, 1958 then all packing house members became direct denominated members of Sunkist.
And may I refer the Court to page 3 of our brief.
Only the packing house members have property rights and interests in Sunkist.
Now, as to the district exchange, they only representative, the packing houses and that is stipulated here.
Even before they were direct members, they were indirect members through the packing -- through the district exchange.
Justice Byron R. White: Well when the packing house became a member as you say --
Mr. William H. Henderson: Yeah.
Justice Byron R. White: -- that's all they did.
They just become a member.
It still retained it's same corporate structure, isn't it?
Mr. William H. Henderson: Yes.
Justice Byron R. White: And it was just a separate corporation which was members of Sunkist?
Mr. William H. Henderson: Yes, correct.
In other words before October 31 they were represented to the district exchange which has stipulated to its one of the conduits of communication and representation between the packing house association and Sunkist.
So before that time they were indirect members.
After October 1, 1958 and during most of the period of this suit they became direct members and they are the only packing house members that have property rights and interests in Sunkist.
Justice Byron R. White: Now has something else happened since then?
Mr. William H. Henderson: Not that I know of.
Our discovery -- this -- all I know is up to this -- we stipulated that up till 1962 during the period encompassed so far that's how it remained.
They are all members, they're denominated members, they still are the only members who have interest before that, realistically they were the only members who had interests in Sunkist.
Now, the next argument is that the growers receive all the benefits.
Well that isn't true.
When the packing house is the Capper-Volstead Association then the growers are in practical affect Sunkist members.
We don't quarrel with that, we think the Court implied that in the Winckler Case.
But when the packing house is an agency association or more accurately a commercial packing house it's neither a grower, neither an association growers, it is not in any realistic theory a Sunkist member and the grower does not receive the benefits of cooperative marketing.
First, a grower is marketing his fruit through a middleman or he -- or for his fruit he receives the net returns from the fruit less the cost of the commercial packing house and he has no control over the cost of this commercial packing house.
And then there's a fixed fee per case of fruit, it's the cost plus contract, the type of contract which was so popular in World War II.
Second, the agency association over which the grower which belongs to it has no control, that association is the member that sits in the Sunkist meetings.
He is the member who controls Sunkist in the final analysis and he determines the policy that is all the packing, whether it's the benevolent or whether it's predatory.
Now, Your Honor in conclusion, we are not concerned with the provisos.
We are concerned with the first sentence of the first section.
The first sentence says who may be a member of a Capper-Volstead Association and the history is clear that is the farmer.
It is stipulated that these agency associations are not cooperative so that they do not comply with provisos one, two or three, we don't have to argue that because they stipulate, they don't comply.
The legislative history shows that this was the intent of Congress and this Court's decision in Milk Producers Association versus United States stated this to be the intent of Congress and Your Honor in the Gordon (ph) case this Court stated the persons to whom the Capper-Volstead Act applies are defined in Section 1 as producers of agricultural products.
In the Milk Producers case, the Court said that Congress intended actual farmers that was the intent to take advantage of this Act.
Now under that situation may it please the Court, I believe it's settled law.
It is not a judicial function to rewrite the language of a statute clearly, ambiguity and permit non-growers, commercial packing houses to organize Capper-Volstead Association, that is our contention that it's only for farmers.
Well, we believe this language means what it says and it applies all associations, even Sunkist, thank you.
Chief Justice Earl Warren: Very well.