ZUBER v. ALLEN
Legal provision: 7 U.S.C. 601
Argument of Daniel M. Friedman
Chief Justice Warren E. Burger: Number 25 and Number 52.
Gentlemen as you observed, I sat on this case in the Court of Appeals and therefore, will not participate in it here.
I will yield in Senior Justice Black will preside and carry on.
Mr. Daniel M. Friedman: Mr. Justice Black and may it please the Court.
The principal question in these consolidated cases which are here on writ of certiorari to the Court of Appeals for the District of Columbia Circuit is one of the Secretary of Agriculture has authority under the Agricultural Marketing Agreement Act of 1937 to include in note marketing orders a provision for the payment of a premium to farmers who are located close to the center of the milk market.
More specifically, the case involves the validity of the so-called “farm differential payments in the Boston Rhode Island Milk Order.
Under which farmers whose farms are located within 40 miles of the center of the market are paid a differential over and above it the blended price of all farmers receive are 46 cents per 100 pounds of milk which is the equivalent of one cent a quart.
There's also a provision in the order which provide for payment of 23 cents a 100 pounds for farmers who are located in the next area 40 to in effect, 40 to 80 miles from the center of the mark.
But that involves a very small percentage of the differentials involved in under the order and I therefore sure limit my discussion because its considerations of equally applicable to the 46 cent differential.
The present case brought as a class action is by farmers in Vermont who are located beyond the area covered by these differentials and therefore under the order and not eligible for them.
The District Court and the Court of Appeals in this case held with the statute does not authorized these particular differentials and enjoined the enforcement and payment of the differential.
In so ruling of the Court appeals relied squarely on an earlier case which I shall discuss called Blair against Freeman which it struck down a similar differential in a New York-New Jersey Milk Marketing Order and I'd also say that the outset that these two decisions of the Court of Appeals saying the Secretary has no authority to include this differentials contrary to a decision of the Court of Appeals for the First Circuit in 1939, 30 years ago which specifically held these particular differentials.
Now, to put these statutory issues in the appropriate frame of reference, first, I just very briefly like it, refresh the Court on what I'm sure is already familiar to it.
The peculiarities of the way in which milk is sold in the problems that require this kind of legislation, and then I'd like to sketch the legislative history of full statutes involved and finally to describe the administrative background of this order and its predecessors.
We start with the fact of course, that milk basically has two uses.
The use of milk as fluid milk for drinking purposes which is known as Class I use and then the use of other milk for manufactured purposes, butter, cheese, ice cream which is known as Class II purposes.
The demand for so-called fluid milk, milk for drinking is relatively static throughout the whole year.
But unfortunately for the milk industry, the production of the cows is not static.
The cows produce more milk in the spring and the summer than they do in the fall and the winter.
So, this means in order to meet the uniform demand for class milk, one milk throughout the year, it is necessary to add sufficient cows to produce that amount during the winter months. When they're not producing as much and accordingly, the result is in the spring and summer months, there is a surplus of milk production.
Milk of course is a highly perishable commodity and the result is that milk that is produced of the great distance from the market cannot compete with locally produced milk for the Class I use.
Although of course, it can compete the Class II use.
That is in the Boston market, fresh milk from Wisconsin cannot compete with Massachusetts' milk, but obviously manufactured cheese from Wisconsin easily competes with manufactured cheese from the Massachusetts area.
Now traditionally, milk is which is used for Class I purposes has commanded a substantially higher price in the market than milk that is used for Class II purposes.
Now, the result of this combination of fact, this has been that without any regulation drastic and devastating cut throat competition developed among the farmers to try to get their milk sold for the Class I use which would yield them a higher amount.
The dairies for example would play different farmers off against each other driving the prices down.
And as a result by the time of the depression in the earlier 1930's, the milk prices had been drastically reduced and in some instance, farmers -- where farmers were forced to sell milk at less than their cost.
Now, in order to stabilize this completely disorganized milk market, two purposes were achieved.
First, it was important to raise the price of milk and secondly, it was important to avoid the destructive competition among farmers to try to get access to this Class I market.
And the Secretary in the Boston area has followed the same practice that he has followed in most other areas. He employs a system of so-called Market Pooling.
Under which, the amount each farmer receives for his milk doe not depend upon the particular use that that farmer's milk is put.
He gets the same price whether or not his milk is use all for Class I purposes, all for Class II purposes, or in some blend.
The way this is done is by the use of a so-called blended price.
Under which, the Secretary of Agriculture sets minimum prices for Class I and Class II milk, then determines how or for what purposes the milk.
All the milk sold in the market has been used and on this basis calculates the total value of the milk.
Then in effect device this by the total volume and ends up with a blended price with each farmer's to receive and by definition of this price, of course, is less than the Class I price and there something more than the Class II price.
Now, the particular milk dealers, the dairies, the manufactures who are in the statute to call handlers, what happens to them is if a particular dealer sells of more milk in the --
Justice Hugo L. Black: Go ahead.
Mr. Daniel M. Friedman: Yes.
I'll just add some if they're in explained, just take me one minute.
If the particular deal or sales more of his milk for Class I use which means he would under this calculation receive more than he has to pay his dairies, he in effect pays the excess into this producer's settlement fund.
Conversely, if more of the milk is use to Class II purposes so that he would not get enough on this calculation to pay his farmers what they're entitled to, he draws on this producer settlement fund, and the result is everyone gets the same price.
Justice Hugo L. Black: Mr. Friedman.
Mr. Daniel M. Friedman: Mr. Justice Black and may it please the Court.
I want to make one thing very clear that in determining the blended price pay to all farmers under the statute, these differentials are deducted before this is calculated that is out of the pool which is divided among the all farmers.
There is first pay out of various of statutory differentials.
And that of course is why we have this case because the effect of taking out the 46 cent nearby farm differential in the Boston milk market is to reduce by 12 cents, the blended price that is paid to all the farmers.
Justice Potter Stewart: The differentials come off the top so to speak?
Mr. Daniel M. Friedman: That's right.
They come off the top and then what is left is divided up and the theme of my argument will be that that precisely would Congress intended the scheme to be.
Now, these farm location differentials had their origins a long time ago.
In the marketing practices at the 1920's, the mid 1920's, long before, there was any federal regulation.
But that period under contracts that the various of the dairies had with cooperatives.
Farmers, whose farms were located close to the Boston area, received the greater amount with their milk than farmers whose farms were located distance away.
And when I say a greater amount and I will keep referring to the greater amount, I want to stress one thing because this is -- there's a challenge by our opponents.
This was an amount that exceeded the difference in the cost of transportation between bringing milk in from the distance and from nearby.
The indications are that these men received roughly a dollar more for 100 pounds which again in a very rough estimate was very close to the 46 cents that they now receive under the Boston --
Justice John M. Harlan: How can the economic justification for that?
Mr. Daniel M. Friedman: Well, they were numbered.
They are numbered Mr. Justice.
One of them was the fact of course that the farmers located close to the market would traditionally able to sell more of their milk at the Class I use which produced the higher price.
In addition to that, the farmers who are close in over the years had been able to make their milk production more even which was of advantage to the handlers to the dairies and then in the fact --
Justice Potter Stewart: Why could they do that just because of their geographical location?
Mr. Daniel M. Friedman: Well, its not that its not so much of the geographical locate, just developed over the years that they found that in order to do business with the handlers who is selling the most of the milk for Class I uses, it was important to continue -- for their relationship that they have an even production.
Justice Potter Stewart: But you can't and how the cows know that?
Mr. Daniel M. Friedman: Oh, well this entails them apparently in very involved farming practices through the use of artificial insemination.
They are able at some cost to spread the milk production over.
The expression they use is the cows of freshened, and apparently, the cows of freshened some of them in a way that they produced their milk in the fall and in the winter rather than in the spring and summer, and that is the technique they use.
Now, there's another advantage of course to the producers of having this relationship with the nearby farmers which is that these men were available in the event of an emergency.
That is if sudden those days if late in the day, they suddenly discovered they needed more milk, they could just send a truck out and get this milk more easily, then if they have to go a great distance away when we didn't have modern methods of refrigeration, and also of course in bad weather.
If you had a very bad snow storm in the area, it would be much better to have the source of supply.
Now, when Congress passed the Agriculture Adjustment Act in 1933, very early in the administration of this Act, the Secretary issued a so-called license to the Boston border.
This was the predecessor to the present order type of arrangement.
And under this license, the license continued the previous advantage that the nearby farmers had enjoyed.
That is the nearby farmers got more for their milk than the distant farmers.
To be sure, it was not in the present form of the differential.
It was not paying them a certain amount over and above the regular price.
It was, however, reflected a high up price paid for milk from the nearby farm is then was paid for the distant farm farmers.
Two years later from reasons unrelated to the differentially, Boston license was invalidated by a District Court decision.
Partly as a result of this Court's decision in the Schechter case, Congress in 1935 amended the Agriculture Adjustment Act.
The Amendment added the identical language it is now in Section 8c (5) which I'll come to in a couple of minutes dealing with milk marketing orders.
And in making these amendments, the committee report stated that the provisions dealing with milk marketing and distribution and I quote, “Follow the methods employed by cooperative associations of producers prior to the enactment of the Agricultural Adjustment Act.”
Now shortly thereafter, a new order was issued for Boston in 1936.
This order for the first time specifically provided for higher prices to any farmer whose farm is located within 40 miles of the state house of Boston.
Again, it provided of them not for the mechanism of differential a premium to this nearby for farmers of approximately 46 cents.
This was done by providing that these nearby farmers want to receive the Class I price rather than the somewhat low of branded -- blended price.
This order remain in effect for only six months when another District Court in Massachusetts upheld the amended statute unconstitutional.
The Secretary then suspended the order and the order remained suspended until Congress had passed the Agriculture Marketing Agreement Act of 1937.
That act utilized and bought in the identical language dealing with milk marketing orders that had been under the 1935 amendments to the triple Act.
But in addition to this, there was a specific provision in the 1937 Act Section 4 that stated, that it expressly ratified, legalized and confirmed all existing licenses market orders and provisions that had been issued under the Agriculture Adjustment Act and its amendments.
The Secretary reinstated the farm location differential in the Boston milk marketing order in 1937 and this time, for the first instance, explicitly provided for the 46-cent and then the 23-cent differential depending upon the distance from Boston.
And since that time, since 1937, every milk marketing order, the Secretary has issued for this New England area has included similar differentials both the amount of 46 cents and the 40 miles within the center of the market.
This included 1949 marketing orders for Springfield and Wister, 1958 when he passed/adopted an order for southeast to New England consisting of Rhode Island and Southern Massachusetts.
And finally, in 1964 when after extensive hearings, the Secretary consolidated before previous orders for this area into the present order.
And I would just like to quote three sentences which we set forth at our brief on pages 16 to 18 in which the Secretary explained why in 1964, he was reject in both proposals to eliminate the differential and proposals on the other side of the differential should be increased.
He said as follows.
Such farm location differentials have been in effect under the several New England orders since the inception of the orders.
The differentials were adopted to reflect in the pricing structure of the orders, historical price relationships by location which prevailed in these markets.
It is --
Justice Potter Stewart: Where are you reading from?
Mr. Daniel M. Friedman: This page 14 to 15 of our brief.
It's also contained in the record --
Justice Potter Stewart: I have it now, thank you.
Mr. Daniel M. Friedman: It was found that customarily somewhat higher values, above those which normally reflect the transportation costs, attached to milk produced near the principle consumption centers as compare to the market value of milk produced in a more distant areas of the milk shade.
So, if I may just very briefly recapitulate what I think we have before us is the following. First, since before the time of federal regulation, farmers located close to the Boston and New England milk marketing areas have always received more for their milk over above the transportation differential than farmers located further away.
Secondly, that when Congress in 1937 passed the Agricultural Marketing Adjustment Agreement Act, it ratified confirmed and legalized all previous licenses, orders and provisions which of course, included the nearby differential provisions of the Boston orders.
Just in passing, the Court of Appeals discounted this and said, it believed that all of that provision was intended to do is to avoid a lapse under the statute, and we have explained in our brief while we think that while that was one of the purposes, the legislative history also indicates that was further intended to approve and confirmed and ratify everything that had been done before.
I now like to turn to the statutory provisions involve in the case which we think determine the in control or legality of the farm location differentials.
They're set out at the bottom of pages 2 to 4 of our brief and it begins the statutes speaks of milk and its products terms and conditions or orders it says in the case of milk and its products.
Orders pursuant to this section shall contain one or more of the following terms and conditions and accept this provide else when no others.
And then over at the bottom of page 3, it should to provide -- milk orders may provide for the payment to all producers and associations of producers, delivering milk to all handlers of uniform prices for all milk so delivered, irrespective of the uses made of such milk by the individual handler to whom it is delivered.
And then it goes on it says, subject only to adjustments for volume, market and production differentials customarily applied by the handlers subject to such order.
Now, the Court of Appeals found that these orders were beyond the Secretary's authority for two reasons.
First, they apparently believe that the irrespective of the use provision by any consideration of the fact that historically farmers were receiving a higher amount for their milk because a larger portion of that was available in use for Class I purposes.
And secondly, the Court said, this in any event was not a market differential as that term is use in the statute.
Now, I first like to turn to the question of the Irrespective of Uses Clause which the Court in this case relied squarely on the prior holding in Blair.
And after saying that it accepted the whole naturally the holding in Blair that you, Secretary was barred from taking any account of the prior use of the milk, and then went on and examine what the Secretary had said in this, this case in concluded on the basis of the statements over the time that he promulgated all the orders.
That in fact, he had relied on this impermissible factor.
Now, we think that contrary to the view of the Court of --
Justice John M. Harlan: Did the Secretary try to bring them back case up here?
Mr. Daniel M. Friedman: No.
The Secretary did not Mr. Justice and the reason for that is that when we study the case, we felt there were various factors in it that would not make in the appropriate vehicle for reveiw by this Court.
Justice John M. Harlan: Different in the present case?
Mr. Daniel M. Friedman: Yes.
Yes Mr. Justice.
For one thing in the Blair case, the Secretary had relied solely on the fact of the use of the milk.
That is the higher percentage class used, Class I use.
Whereas in this case, we think he has indicated that the other factors.
Secondly in the Blair case, the Secretary relied solely on the claim not that this was a market differential, but this was another of the statutory differentials relating to the place at which the milk was delivered.
That was the sole basis of this opinion at the Blair case.
And for those reasons quite frankly, we did not feel that case would be inappropriate one to take to this Court for presenting the broad question of the Secretary's authority to include these provisions.
Now, this cost it seems to us the Irrespective Abuse Clause it seems to us, has nothing to do with differentials at all.
Rather, it's purpose is to make it clear that the Secretary may pay a uniform price to all farmers even though a particular farmer's milk was sold for the higher Class I use than someone else's milk.
Indeed, it was that factor that that was the basis for the unsuccessful attack in this Court in the Rock Royal Cooperative case in 307 U.S. upon the whole marketing equalization program that contention there was that it denied the farmer of his milk was being use for Class I purposes.
It took us property without Due Process of law and it was discriminatory that he didn't get the full value of his milk, that he got only the blended price.
And we think in Stark against Wickard, this Court made it very clear that that was the sole purpose of that.
Now of course under this arrangement, all of the farmers, all of the nearby farmers get the identical price for their milk without regard to the use made of their milk by the particular handlers.
Statute speaks and the use is made of that such milk by the individual handler to whom it is delivered.
Every single one of the farmers located within this nearby area gets the blended price, plus the differential.
He gets it whether his handler sells all of his milk for Class I use, all of his milk for Class II use or some blend.
And we fail for a think that the validity of these differentials does not at all depend upon the Irrespective of Use Clause that the way of determine the validity of these differentials is looking to the next clause which deals with the adjustments and differentials.
And therefore, it seems to us the critical question in the case is whether this market different leaves, differentials are market differentials customarily applied by the handlers.
The act of course does not define market differentials, and we think what this phrase means is a differential that customarily has been applied by the handlers in the market.
Now in the light of the history I have given, the statutory history --
Justice Potter Stewart: Your phrase -- when you talked about this phrase, you're talking about the one appearing at -- on the bottom line of the page 3?
Mr. Daniel M. Friedman: Yes.
The A and it would be forget --
Justice Potter Stewart: Market differentials?
Mr. Daniel M. Friedman: Market differentials over to the top customarily applied --
Justice Potter Stewart: Applied by the handlers.
Mr. Daniel M. Friedman: The handlers subject to set forth.
Justice Potter Stewart: Right.
Mr. Daniel M. Friedman: And we think that in the light of the history I have given, the previous experience before federal regulation, the history shown that Congress intended to adopt the procedures formerly applied by the cooperatives, the confirmation and ratification of 1937 that this definition cannot be given the very narrow reading that the Court of Appeals gave them.
The Court of Appeals said that all it is covered by the phrase market differential is payments which a farmer receives extra payments for delivering his milk to the country -- city plant rather than to the country plant.
That is, it's a differential for delivering they say in the city market rather than the country market.
That interpretation rest on a statement in the committee reports which so describes the market differential.
We think in the light of all this history that this decrypting was merely intended to be illustrative of the type of market differential and it was not intended to define the outer limits of the differential.
We have set forth in our brief, it's somewhat complicated the reasons why if this language was construed as the Court of Appeals construed it, it would not be particularly meaningful.
There be other phrase of the statute that will embrace the type of differential at the Court of Appeals thought was the market differential.
Now as I pointed out earlier that in 1939, the First Circuit upheld the validity of the market differentials in the 1937 Boston Milk Marketing Order and express -- explicitly held that they were market differentials.
And in addition to that as we develop in our brief, we think that this Court's decision in the Rock Royal Case, although, it dealt not with differentials paid on a market wise basis but by individual handlers, nevertheless since the operative language of the two sets in the statute is the same as equally applicable.
Justice John M. Harlan: What do you think the committee reported then?
Mr. Daniel M. Friedman: I think it just suggested that this was one of the types things.
I don't think it can fairly be said that the committee was saying that is all a market differential means.
I think, in the light of the history in the broad language market differential, it was intended to give the Secretary the authority to continue this payment.
Mr. Justice, I think the whole history of this statute shows that, what Congress was trying to do in this case was to stabilize milk markets to eliminate the cut throat competition within the existing pricing structure.
It is not intended to radically alter the relationships that it existed from many years among the different groups of producers.
Justice John M. Harlan: Exception for weed out the unused would been the test or justification for any differential?
Mr. Daniel M. Friedman: That's right because that Mr. Justice, it was the fact that payments would tied to the end use that led to this drastic and devastating competition among the farmers driving down the price.
And that's what they were attempting to do, it seems to us, was to eliminate as a fact that leading to the depressing of milk prices.
Farmers fighting each other to see which one could have the greatest share of the Class I market and preventing the handlers from using this is to leaver to fight them.
But once that was accomplished, once that type of the limp competition was eliminated, it seems that what cut to us that would Congress was trying to do was to say that that was as far as you could go.
You could eliminate this type of pricing competition that was not to be the radical realignment, the radical changing of the structure of the milk marketing that is results from this decision below.
Now, the respondents repeatedly tell us that this is a very unfair thing that the effect of this differential is basically requiring the farmers in the distant markets to subsidies a nearby farms.
And they say, if in fact this nearby milk has some value to do the handlers, let the handlers pay for it.
Don't make us pay for it.
This again it seems to us rests on the mistaken notion that under the act, all farmers have to be treated equally.
We think under the act, what it is that all farmers are to be treated equitably.
That is they are to receive the same prices subject to the various differentials provided.
And if as we believe the market differentials that here are permissible that farm location differentials are valid as market differentials, it seems it's quite immaterial with the effect of paying this differential as to reduce the blended price.
That's precisely we think, but the statute contemplates.
And if the handlers would give them discretion to decide to whom to make payments for the additional values, how much under what circumstances fee -- its very clear.
This will be exactly this sort of thing that Congress was trying to prevent; the same kind of cut throat competition that you have back in the early days.
And finally, the arc man it seems to us rests on a mistaken, at least, a dubious factual assumption, the assumption that somehow, if you'll eliminated the nearby differential and increase the blended price, the distant farmers would be much better off.
Well of course they'll be much better off immediately.
They get 12 cents more a 100-pound, but it doesn't follow at all.
But in the long run, they'll be any better off because once you increase the blended price in the Boston market, the result is likely to be that handlers operating in other areas will begin to bring their milk into the Boston market.
This will create a surplus.
This in turn will result in depressing the price in the Boston market and the end result for all that appears is that the prices maybe driven down, indeed even below the present level.
And then there's another problem is which is that everyone knows farms is having a hard time today that the nearby farmers for more than 30 years have acted on the assumption that would receive this differentials.
That these differentials have suddenly terminated.
There's a reason to believe that a large number of nearby farmers in the Boston area have may decide either that they can use their land more profitably for something other than farming and they sell out to the real estate, subdivided it, etcetera.
So, the end result again is likely that it be a serious shortage of milk for the nearby area and once again, leading to great instability in the market.
Justice Hugo L. Black: Mr. Hollman.
Argument of Lawrence D. Hollman
Mr. Lawrence D. Hollman: Mr. Justice Black, may it please the Court.
I'm Lawrence D. Hollman, counsel for petitioner's Frederick T. Zuber et al, seven nearby milk farmers located within the 46-cent or nearby zone within the Massachusetts, Rhode Island milk marketing area.
They and some two thousand other farmers have been consistently for over 30 years under federal orders recipients of the nearby differentials at the identical race that are now in effect 46 cents and 23 cents either under the Massachusetts, Rhode Island order or under the constituent Boston and secondary market orders which were consolidated in 1964.
Essentially, these are farmers who deliver their milk to urban centers within the concentrated populations of New England, Massachusetts for example on Boston, Worcester, Springfield, Brockton, Holy Oak, Fall River cities which are fairly sizeable.
And one other point, these nearby farmers are not the large and affluent farmers within the marketing area, anymore than are the distant farmers.
There's evidence in the original record affidavits that were submitted by the seven nearby farmers, file as Government exhibit three in support of its opposition of preliminary injunction, which indicates that their return on investment is a very neither one.
And that without the nearby differential, that could well shift their neither profits to losses as a result of their dairying operations.
Justice Hugo L. Black: What differential did you say have been receiving many years?
Mr. Lawrence D. Hollman: The nearby differential Mr. Justice Black, that is the farm location differential either under the Massachusetts Rhode Island Milk Marketing Order.
Under the orders --
Justice Hugo L. Black: Which was how much?
Mr. Lawrence D. Hollman: Which was 46 cents and 23 cents Your Honor.46 cents?Right.
Of the same identical rate under the Boston order, originally promulgated in 1937 after the Agriculture Marketing Agreement Act of 37 and under the secondary marketing orders which will promulgated by the Secretary in 1949 for Worcester and Springfield, and in 1958 I believe for Southeastern New England.
Approximately the same differentials were also paid under the 1936 Boston order of the Secretary and essentially the same in subsequence that is the same amount to the same people were paid under licenses, Boston license, issued under the 1933 Act or perhaps even more importantly.
Approximately the same amount was paid to these nearby farmers before federal regulation began and here I'd like to supplement certain comments that Mr. Freidman made.
Before federal regulation commence in these markets, most large for preponderance of the farmers in the Mass, Rhode Island markets, both nearby and distant were members of cooperatives.
These cooperatives, the largest of which I believe at the time and still today is New England Milk Producers Association, entered into collective bargaining agreements with handlers that started in the 20's and perhaps even shortly before.
Under these collective bargain agreements, the nearby farmers receive a higher price which in effect reflected the 46-cent differential that they received today.
But the one problem that develop with respect to these collective bargaining agreements in the early 30's and why federal regulation was necessary and indeed why the triple A in part was pass was because destructive competition had in sued within the market.
This was competition among the handlers and let me explain this.
Under the collective bargaining agreements, a handler would agree to pay certain prices.
A handler or dairy would agree to pay certain prices to the cooperatives.
The cooperatives at that time were also using a system not at all dissimilar in fact quite similar to the equalization fluid and blend price enforced today under the Secretary's order.
And under that equalization and blending classified price system in nearby farmers received a higher price by approximately 46 cents per hundredweight.
But all handlers would not enter into these agreements with the cooperatives.
And as long as you had any significant number of handlers who would not do so, they could then go to other farmers within the market place not numbers of the cooperative, and offer them a price not equal to the Class I fluid milk price.
But just slightly above the blend price that the cooperatives were paying to their members under the collective bargaining agreements.
As a result of that, they could charge lower prices these outside handlers not members of the collective bargaining agreements could charge lower prices to consumers and thereby increase their consumer markets.
As a result the coops who are members of the collective or parties to the collective bargaining agreements, then had to reduce their price which means they had to put pressure on their producers to take lower prices and this kept going on and on.
So that what Congress intended to do as at under the triple A of 33 and the 35 Act expressly to follow the same patterns that the cooperatives had followed and they stated this in their committee reports.
But to bring all handlers in under regulation because it is the handlers who are regulated under the orders.
Not the producers as such directly.
A producers have no right to go into court to appeal from an order under the statute.
Their right is established here for example under this Court's holding and Stark against Wickard, to the extent they can complain of any diminishment in what they should rightfully or otherwise, get from the equalization pool.
But the regulations is a regulation of handlers and as long as a particular farmer or groups of farmers sell to a handler who markets some milk in this market today for fluid milk purposes, that farmer gets the advantage of the blend price.
Now in fact, the requirement here is really quite minimal that is much of the milk that many farmers sell to handlers is use for the lower price, manufacturing purposes; cheese, butter, etcetera.
But because their handler may shift no more than a 25% of his milk into the market for fluid purposes during a few months of the year, and I believe 15% during three other months.
That handler qualifies all his farmers for the fluid milk price, even though, most or all or large part of their milk is going for Class II are manufactured milk purposes.
I'd like to comment on what the interest is of the nearby farmers here because I think there are at least three points which reflect in the opinion of the Court below and on the equities here.
The nearby farmers have consistently received these differentials over the years and always in excess of transportation and handling cost savings.
Overwhelmingly, these orders have been approved by referendum both the Mass, Rhode Island Order in 64, the Boston order in 37, and the secondary market orders.
Each time, an overwhelming approval by farmers and farmers must vote to approve this order by a vote more than two thirds of the farmers in the market.
If that vote is not obtained, there is no regulation.
This is a unique partnership between the Secretary and the farmers and perhaps the most salient point here is that the nearby farmers who have voted for this order have always been a minority of the farmers in the market.
The distant farmers have I think consistently over the years numbered well over 50%, indeed over the two third that is necessary to approved the order that --
Justice Potter Stewart: Is the voting one farmer, one vote, or does it depends upon the size of his herd or the amount of his acreage?
Mr. Lawrence D. Hollman: My understanding Your Honor is that the system the Secretary employs is one-farmer-one-vote by referendum and approving these orders.
Now, in fact however Your Honor, the statute also authorizes cooperatives to vote for their members and so, in this voting from time to time, I think quite consistently in fact, the cooperatives due vote for their members.
The largest cooperative in the Mass, Rhode Island market, I believe Your Honor, is still today is NEMPA which is more heavily distant producers than nearby producers.
The vote, excuse me.
Justice John M. Harlan: Do you say that if the nearby farmers who voted against these marketing orders because of the failure of getting differential?
Would it carry anyway?
Mr. Lawrence D. Hollman: I believe so Your Honor.
It would always depend at any given time on the mix of nearby and distant farmers.
I think quite clearly under the Boston order if it would have carried anyway and I believe today, the nearby farmer's number no more than one third of those.
Now, it may vary between one third and 40%.
Justice Potter Stewart: But a cooperative votes for its members, does it do it by block voting?
Mr. Lawrence D. Hollman: I believe, well, I believe it can do at either way Your Honor.
I believe --
Justice Potter Stewart: I mean that's the majority and -- in other words like the Electro college in a state and in a presidential election if the 51% are for come down on one side and that the propertive is it empower them to vote its entire membership by that side?
Mr. Lawrence D. Hollman: Your Honor, I'm not sure --
Justice Potter Stewart: -- 49% of it?
Mr. Lawrence D. Hollman: If I understand your question, I'm not sure that the cooperative may each time internally ballot or request to votes of its members on this.
I believe the cooperatives place their votes based on what the Board of Directors of the cooperative decide.
I'm not sure of this Your Honor.
And I think, this may indeed vary among cooperatives.
So obviously, if a cooperative voted against the interest of its majority, it would be a simply matter for the majority either to leave that cooperative or to vote out the Board of Directors.
Justice Potter Stewart: Yes, if the majority but I wondered if well, I guess you don't know the answer?
Mr. Lawrence D. Hollman: I don't know how the internal workings of the cooperative is, no, Your Honor.
The respondents have alleged that the 64 consolidation order that change drastically the economics of the markets place and so far as the nearby differential is concern.
That simply isn't so.
The 46-cent and 23-cent differentials were retained in the identical rate that they were under the constituent orders.
What did happen was that as a result of bringing into the Boston order which was the by far largest order here counting for over 75% of the farmers in the market by bringing in secondary markets which had high fluid use, the ultimate result for those distant producers, marketing in the Boston order just before consolidation was to increase the amount of money they receive in the 12-month period after consolidation.
Three cents more per hundredweight in what they had received before.
One other quite obvious reason that the nearby farmers are interested here and indeed, they sort to intervene before the District Court.
That intervention was denied.
It was pursued on appeal.
The motion for summary reversal was filed and denied by the Court of Appeals.
Thereafter, the District Court rendered it summary judgment below.
At that point, the nearby farmers sought a stay of the summary judgment order in aid of their appeal on intervention.
In that proceeding, the Court of Appeals denied the stay, a stay which already been denied in effect to the Government by the District Court.
Court of Appeals denied the stay but gave the nearby farmer applicants for intervention, the choice by mooting their appeal on the intervention point to go -- to take -- to become interveners for the purpose of filing an appeal.
Not to enter into the District Court proceeding which had already terminated.
In effect, that was a Hobson's choice since for the nearby farmers not to have elected that option would have meant that the escrow fund would have been distributed out to the distant farmers, farmers who would never relied on it.
As a result, the nearby farmers chose the route, which enable them.
One, to prosecute an appeal at that time the Government have not noted an appeal and also to move before the District Court for a stay since the Court of Appeals had denied the state of a nearby farmers.
The nearby farmers obtained that stay and that is why there is now and when I say stay, I mean preservation of the status quo on effect where the escrow, the differential continually as computed and then added to the fund.
There is now an escrow somewhat over $8 Million.
I'd like to comment on the -- that part of the statute involving the volume of market and production differentials customarily applied.
We've commented at length in our brief and Mr. Friedman is already commented to you on the uniform price irrespective of use portion of the statute.
With respect to the volume market and production differentials customarily apply.
These are certainly crucial words in the statute.
We submit that these are price variation relating to marketing's of milk.
Not all price variations, not any price variations that might come into existence after the act was pass.
They had to be variations that were customarily paid by the handlers.
Usual market variations, I believe that's what this Court in 39 decision in Rock Royal referred to the matters and they had to be not sporadically applied by handlers before the act was pass and before the order, I'm sorry, before the order took effect.
They had to be customarily applied by handlers before that.
Again, Congress intended to preserve as much as possible of free market competition that had existed before 1933 and 1935.
The Secretary has consistently interpreted volume market and production differential, marketing differential customarily applied language to enable him to provide for the nearby differential in the Mass, Rhode Island market.
This Court in Rock Royal 20 cents of a 25-cent differential was born by the pool in Rock Royal.
Its not an individual handler pool, I believe it was a market pool but in the pool born -- bore that 20 cents just as the pool bears today, the 46 cents, and this Court upheld the differential in that case.
It was not identical with the differential involved here.
It provided not only for farm location but said also that farmers must deliver to plants located within the nearby zone.
But that impractical effect is always what nearby farmers have done in the Mass, Rhode Island market.
They did so years ago and we're advised today by the Market Administrator in the market that virtually all nearby farmers delivered the plants within the market's core -- close to the major markets.
We believe one of the major reasons that the Court of Appeals went astray as Mr. Friedman is already commented, is that they looked to -- they made erroneous factual assumptions.
They thought that the differential pre 1937 was not one paid over and above transportation and handling cost savings was not one paid to distant farmers who delivered to a nearby zone.
That is factually incorrect.
And we have pointed out at length in our brief, pages 51 and 52 that that isn't correct.
Your Honor, if the Court pleases, I'd like to save the remaining time for rebuttal for me.
Justice Hugo L. Black: Alright, Mr. Hollman.
Mr. Lawrence D. Hollman: I'd like to know if you have more time for rebuttal.
Justice Hugo L. Black: You have 15 minutes.
Mr. Lawrence D. Hollman: I have 15 minutes?
Then if I may, I'd like to complete my argument if the Court pleases?
Mr. Justice Harlan, you have commented on the committee and what the committee report means.
We've set forth the committee report as an appendix to our brief and the particular provisions relevant here are on page 24(a) of the appendix to our brief, the green brief.
Frankly, the committee report language regarding market differential is not a model of clarity.
Among other things, the report language would indicate that the differentials they were talking about were usually paid in secondary markets.
And I believe the Court in Blair said that market differential there depended upon the nature of the market.
Nature of the market I believe, they thought of a secondary markets.
But in fact, not only the nearby differentials but the country station differentials which respondent say in the Court of Appeals below says, where market differentials are those paid in primary markets and traditionally, they've been paid in primary markets.
While the lower court did not get into the question of substantial evidence, they certainly looked to certain excerpts from the evidence in analyzing the interpretation and construction of the statute.
For that reason and because we believe that if this Court reverses finding that the Secretary had the authority to put a nearby farm location differential in the Mass, Rhode Island market, then it can at that point dispose of this case rather than remanding it.
I should like to comment and make it --
Justice Hugo L. Black: You said that we believe what now?
Mr. Lawrence D. Hollman: If you believe contrary to the Court of appeals Your Honor that the Secretary had the authority and has the authority today under the market differential customarily applied language to put a nearby differential in the Mass, Rhode Island order that is the 46-cent and 23-cent differentials that we're talking about here.
This Court if you in other words affirm the Secretary's power reversing the lower court.
There are then possible questions of substantial evidence which has -- have been raised in the initial complaint of respondents that have not been passed upon by the lower court here and were not passed upon by the District Court.
We believe that even though this is a truncated record and it is a truncated record, it contains only illustrative excepts from the administrative proceedings in 64 and in years passed that there are still sufficient evidence to support the Secretary's determination that a nearby differential in the Mass, Rhode Island, marketing order was necessary and would support market's stability.
And in effect, this is what he found in proposing for referendum vote by the farmers and what he had to find them to the statute that the order with the differential would promote market stability.
Commenting of the evidence, this --
Justice Byron R. White: Did you think that was essential under the statute to make that finding?
Mr. Lawrence D. Hollman: To make a finding that the order is a whole would promotes --
Justice Byron R. White: They dare by the Court?
Mr. Lawrence D. Hollman: No, I don't Your Honor.
I think, he need only find that the order as a whole.
This is an integral -- interweave of provisions.
I do not think that --
Justice Byron R. White: Well does the issue here on the whole order in this Court?
Mr. Lawrence D. Hollman: Well, what is being challenge here is simply the nearby differential Your Honor.
Justice Byron R. White: But, was the whole order in that state if the Court in Court of Appeal?
Mr. Lawrence D. Hollman: Well, no.
I think just the nearby different -- the Court of Appeals took the position that they could strike the nearby differential provision.
But that the order would still remain viable.
We took the contrary position before the Court of Appeals.
Justice Byron R. White: Which they leave the rest to the order standing?
Mr. Lawrence D. Hollman: They left the rest of the order standing.
Justice Byron R. White: How could they have done it without resolving whatever issues they were about facts?
Mr. Lawrence D. Hollman: Your Honor, I'm not sure -- what they did is simply going the --
Justice Byron R. White: You say that there are some leftover questions about evidence whether the evidence supports the finding that it would promote the market's stability?
How could the Court of Appeals leave the rest of the orders standing without --
Mr. Lawrence D. Hollman: Well, we believe in short Your Honor that they should not have done that, that it was improper for them.
But in terms, they never commented upon the substantial evidence points.
They commented only and held only with respect to whether or not the Secretary had authority to put the nearby differential in the order.
They never reach the question of substantial evidence.
Justice Byron R. White: Okay, but the orders still outstanding except for these provisions?
Mr. Lawrence D. Hollman: Yes, because it's a Separability Clause in the order and they promise that their elimination of the differential --
Justice Byron R. White: I know but they left the -- and apparently, the part of what they thought was valid and let it stand?
Mr. Lawrence D. Hollman: Well, the only evidence they have before them was evidence regarding the differential, not evidence.
There was not administrative record before the Court regarding the entire order.
They only had select --
Justice Byron R. White: But how can the issue -- how can we broaden the case if they still put the case appear?
Mr. Lawrence D. Hollman: Well we believe Your Honor that even this excerpts which have been supplied and given the consistent administrative into the both on a basis of these excerpts and on the basis of the consistent administrative interpretation by the Secretary over 30 years.
Justice Byron R. White: But we don't have to abuse of either through the Courts below on this question, do we?
Mr. Lawrence D. Hollman: On substantial evidence?
No Your Honor.
The District Court judgment was limited to its holding that on the basis of Blair, an injunction will be granted.
I started to say that these marketing orders are not something that once promulgated or left alone.
They're delicate and very intricate complex of interrelated economic and marketing factors.
Experts pay close attention to them both the Secretary and experts within his department and the farmers themselves.
There are constant amendments, suspensions, decisions or orders affecting each marketing order.
The Boston order and the Mass, Rhode Island order since 1936, just two orders had been the subject of suspensions, amendments, decisions or orders 208 times according to the records to the Department of Agriculture.
There been some 47 Amendments to these orders over the year.
The farmers and the Secretary together have cautiously and zealously observed the workings of the order and modified it.
The provisions of it are an instreakably intermingled.
Its with that thought in mind that we maintain that even if the -- this Court were to believe that there were questions regarding the statutory authority that it would not be possible simply to excise one provision from the order and leave the order standing.
An expert from the Department of Agriculture, one of the leading experts in the dairy industry, Mr. Herbert Forest in an affidavits submitted to the District Court in which is in our appendix in the record here stated that in his belief, the elimination of differential would cause disruption and instability in the market place.
But the whole purpose of the order is to promote market stability.
And if taking out this provision will promote market instability, then this matter, if there are questions regarding the Secretary's authority must be remanded to enable him, we believe and submit to determine what will make the order stable.
He has other powers which may accomplish some of the inherent economic values at the nearby differential, that he can employ in this regard.
But we also believe under the ruling of this Court in Addison against Holly Hills on the basis of that case, if there is any question regarding his authority, a remand is an order and under this Court's statement in Lehigh, we believe that the Secretary should then be given an opportunity to resort pro tanto to the escrow fund, which we believe in any of the event should be the property of the nearby producers who have relied on the differential for so many years.
Who have made investment decisions and marketing decisions on the basis of the differential.
I would like now to reserve my time for rebuttal if I may?
Justice Hugo L. Black: Mr. Ryan.
Argument of Charles Patrick Ryan
Mr. Charles Patrick Ryan: Mr. Justice Black and members of the Court.
First, I'd like to make a couple of preliminary observations.
This particular differential has no relationship at all to any 40-mile zone from any principal consumption center or the City of Boston or any other city.
That was true of the 1937 greater Boston order.
But at the present time under the consolidated orders, all dairy farmers within the State of Connecticut and all dairy farmers within the State of Massachusetts other than one county are all classified as nearby producers.
Initially, the under the greater Boston market order, there were over 7,400 distant producers serving that market.
They supplied approximately 92% of the milk.
At that time, there were 672 nearby producers.
And at the present time as the petitioners have indicated, there are over 2,000 approximately 2,200 nearby producers.
Justice Potter Stewart: So, the percentage under the old regime was nearby producers for something about 8% or so?
Mr. Charles Patrick Ryan: That's correct.
Justice Potter Stewart: And now, the percentage is what?
Mr. Charles Patrick Ryan: Approximately one third.
The significance -- the significance of that Your Honor, Mr. Justice is this.
That under the Boston order, the distant producers, so-called distant producers only paid under this nearby differential.
Two to three cents per hundredweight, they did not have to pay the 46 cents simply for the reason if they were so many distant producers.
As their numbers have been cut and as the nearby producers have increased in number, the differential that is deducted from their milk price has grown.
Initially, it was a factor that was regarded as admittedly illegal, but that they could afford to wink at it so to speak, in order to get the benefits of federal regulation.
But at the present time it has grown like the proverbial topsy and it has a resulted in its incorporation and to other others simply because of the fact that existed in the Boston order.
Now on that connection, I think its important to realize that this particular differential exist in only one other milk order in the United States out of approximate 75 federal milk marketing orders.
That fact conclusively indicates that is not a vital provision.
It's not a necessary provision.
The only effect that it has is to discriminate against the marketings of distant producers.
The only other milk order which contain is particular differential is a Connecticut federal milk marketing order.
And that illustrates very graphically the injury that a differential provision of this type can effect upon distant producers.
Under the Connecticut milk order, there are only 89 to 95 dairy farmers that are characterized as distant or non-nearby dairy farmers.
There are approximately 2,000 that are characterized as nearby dairy farmers.
All of your dairy farmers within the State of Connecticut are termed nearby dairy farmers even though at least 50% of the milk for that market is supplied by out of state dairy farmers.
Now, the result is under the computation in that exactly reverse situation that the distant dairy farmers marketing under that order have to pay 44 cents for every hundred pounds of milk of their needed milk that they regularly market in the State of Connecticut.
Now, how this is benefit the Connecticut nearby producer?
It increases his price not by 46 cents but by 2 cents per hundredweight.
That is simply a trivital to the fact that there are not enough distant producers to pay this differential.
The distant producers under that order loose from $5,000.00 to $6,000.00 a year in order to benefit the nearby producer in the amount of approximately $12.50 a month.
Justice Potter Stewart: You're not referring to the order that's before us to this case?
Mr. Charles Patrick Ryan: Not in this case, no Your Honor.
Justice Potter Stewart: Yet you're talking about the Connecticut, are you?
Mr. Charles Patrick Ryan: I'm talking about how that it exist and only one other order out about 75 in the countries --
Justice Potter Stewart: And it did exist under New Jersey order but that was not out in the Blair case.
Mr. Charles Patrick Ryan: That is correct Your Honor.
And that order incidentally is functioning much better than it ever has simply because of the fact that dairy farmers are able to cooperate and act in harmony.
Justice Potter Stewart: This order covers the State of Connecticut and powered also, doesn't it?
Mr. Charles Patrick Ryan: That is one reason why I brought in the Connecticut order.
Justice Potter Stewart: That's what confuses --
Mr. Charles Patrick Ryan: Yes, it is very confusing.
The distant farmer in Vermont, take for example, if he wants to market his milk, his needed milk, although, he is supplied Boston, say for instance for over 30 years.
He has to pay this differential to nearby producers located in the States of Connecticut and Massachusetts and Rhode Island.
Rhode Island is a very small factor.
They produce only about 1% of the milk for the market and are not significant factor in the case.
However, if the Vermont producer or the main producer of the New Hampshire producer wants to market his needed milk in the State of Connecticut.
He also has to pay the same differential.
Only this time in a much larger amount.
By the same token, the Connecticut producer collects both ways.
He and the Rhode Island producer does also.
He is entitled to this differential irrespective of what market his milk goes to.
So, it's not simply a question --
Justice Potter Stewart: No, but do not all of State of Connecticut as I read it, its east of the Connecticut River plus the towns of Grandview and Sophia.
Mr. Charles Patrick Ryan: Yes, that is in respect to the order that presently considering.
In respect to the Connecticut order, it does encompass the entire state, and in both orders --
Justice Potter Stewart: That's Connecticut market?
Mr. Charles Patrick Ryan: That's correct and those are the only two milk orders in United States that have this particular provision.
Justice Hugo L. Black: Are their any groups of these farmers who contend that the order has writing or has change by the Court of Appeals will cause them to be compelled to sell their milk at a lowest.
Mr. Charles Patrick Ryan: As a result of the Court of Appeals decision?
Justice Hugo L. Black: Yes.
Mr. Charles Patrick Ryan: No, and in fact, it's my contention and I think this would be substantiated that most nearby dairy farmers are not desirers of exacting this penalty payment from their fellow dairy farmers.
It's not necessary in any other area of the country.
In this particular differential like all others of its type has been brought about really through the inconsistence of a very limited group and it's been perpetuated in the same manner.
Justice Hugo L. Black: But is it true then for instance, what I'm trying to get at is, actual effect on it.
Is there any one group that contends that by reason of this owner, they'll be compelled to produce and sell market and sell milk have a substantial loss?
Mr. Charles Patrick Ryan: Not under our view.
The case except for the fact that the record shows that shortly after the consolidation of these orders in which the Boston, Southeastern New England, the Worcester and the Springfield orders were consolidated previously.
Those nearby producers could only obtain this particular differential by delivering to that particular market that they were associated with.
After the --
Justice Hugo L. Black: Which group do you represent?
Mr. Charles Patrick Ryan: Well, we represent by a class action order that was contested in the District Court.
We represent the distant producers.
Justice Hugo L. Black: Distant producers.
Mr. Charles Patrick Ryan: Approximately 6,500 dairy farmers and after --
Justice Hugo L. Black: And there's no claim on your part because I understand it that whether this Court of Appeals order stands or not.
Your clients will actually have to sell milk at less than it cost them to produce it?
Mr. Charles Patrick Ryan: Not at less than it cost to produce, no.
Justice Hugo L. Black: It's only the profit that's involve?
Mr. Charles Patrick Ryan: That is correct.
Justice Hugo L. Black: Division of profits?
Mr. Charles Patrick Ryan: That is correct Your Honor.
Justice Hugo L. Black: And you understand that to be true with reference to all others?
Mr. Charles Patrick Ryan: That is my understanding.
However, I will say this that the margin of profit is something that very amongst different producers.
Justice Hugo L. Black: Undoubted to that have to be just --
Mr. Charles Patrick Ryan: And it does affect some more than it does others.
For instance, when this order consolidated in 1964 so that a producer did no have to have any historical association with any particular market.
He could receive the nearby producer could receive this differential irrespective aware his milk was delivered.
Then, we find that approximately one year, within one year, at least 1,000 distant dairy farmers were forced out of business by this particular differential.
Now, we do make that claim and we think it's substantiated.
Now, I would like to mention what we regard the congressional program to be here.
Justice Byron R. White: Well, if you didn't quite finish -- at least, I don't think you get on that explaining how this came about.
You said it represents the views of only a very limited group of people?
Mr. Charles Patrick Ryan: Yes.
I was coming to that in period Mr. Justice White.
Justice Byron R. White: And how -- that is also represents the views of the Secretary of Agriculture I suppose?
Mr. Charles Patrick Ryan: No, it represents the view the Secretary of Agriculture only to the extent that it has been included in these two orders out of about 75 in the United States.
Justice Byron R. White: But he is most -- as they rather recently reaffirmed his views that --
Mr. Charles Patrick Ryan: His actual finding in 1964 was that the differential was not resulting in such disorderly conditions as with warrant, its deletion at this time.
Now, we don't think that that is a proper finding.
Number one under the act, he is definitely obligated to find that not only the order but the every provision of the order will tend to effectuate the policy of the act.
Justice Potter Stewart: As I understand that the basic question is one of power for that when he gets the power.
Not what you see now to be addressing yourself to that he does have power but he exercise mistakenly or wrongly on a wrong state by their own understanding?
Mr. Charles Patrick Ryan: Well, what I'm saying there is that he also fail to make the proper finding even assuming that he have this power.
But we are saying that he definitely does not have this power that a more --
Justice Potter Stewart: And that's what the Court of Appeals held to understand it that without power --
Mr. Charles Patrick Ryan: That's correct.
Justice Potter Stewart: Put any differential.
Mr. Charles Patrick Ryan: That a more basic violation of the act could not be comprehended.
It's our contention that initially the Agricultural Adjustment Act was passed for the simple reason that all dairy farmers were receiving very low prices for the milk.
The fact that some dairy farmers have received higher prices than others in the 1920's has no real relevancy here.
The fact is that the private sector of the milk industry that cooperatives and so forth, there were varying prices that actually contributed to the market instability here and it resulted eventually in all producers receiving low prices for their milk, below the cost the production actually in the 1929 to '33 period.
And consequently because of the fact that a state as this Court held in Bowman versus Ceiling could not regulate the price of milk that moved across interstate borders, the Congress was force to meet this problem by the enactment of the Agriculture Adjustment Act of 1933.
That provided primarily for solving the problem through marketing agreements and supplementing licenses.
But the licenses and the marketing agreements were at that time relegated solely to the prevention of unfair trade practices and the act was very vague and nebulous.
As a result, many different features were included within these licenses that were doubtful legality and definitely against public policy.
As a result, the handlers actually refuse to comply with the different provisions of these licenses as did the producers and this compounded the situation, in fact that Congress was well aware from different reports from the Federal Trade Commission that the situation was such that the act would have to be amended if it was to be made workable.
And in 1935, they so amend the act so extensively that is referred to as the 1935 Act which is the Court has also characterized it as such some of its decisions of that particular 1935 Act get away with the licenses and included a provision whereby the Secretary was authorized to issue milk marketing orders.
But the Congress was very definite and stating that these orders could contain the enumerated terms and conditions and no others.
The Secretary of course has discretion concerning which terms to include in this particular others.
But he of course, cannot amend the act or reappeal by including within it various provisions without any statutory basis.
And as the petitioners have indicated the primary problem involved here in the milk industry is not only that milk is highly perishable, but also that there is a surplus of milk, a necessary surplus even in a short production season of the year approximately 20%.
This, of course results in a much larger surplus during the flash production season of the year and this is unnecessary surplus and in a Secretary has found as recently as 1957 that without regulation.
We find that the level of prices to all producers would be below the cost of production.
Justice Potter Stewart: Why is the necessary surplus in the land the lowest production period?
Mr. Charles Patrick Ryan: Well, there are, although the demand for milk is fairly constant, there are daily fluctuations.
For instance, during the summer months, you have various areas that the countries that are resort areas for instance that have an influx of population --
Justice Potter Stewart: Of that the high production period?
Mr. Charles Patrick Ryan: Yes.
Well, not always.
There's different -- you have in Vermont for instance, the skiing dairy --
Justice Potter Stewart: Well in other words, you have peak periods --
Mr. Charles Patrick Ryan: Yes we do.
Justice Potter Stewart: And you have to have enough production --
Mr. Charles Patrick Ryan: And this is in the right period.
There's no dispute as to this.
This is in the record that you have to maintain the necessary reserved in order to protect the consumer by an adequate milk supply.
And it is the contention of the respondents here that the Congress was motivated to solve this problem by apportioning the burdens of surplus along with the benefits of the Class I or fluid milk price through the issuance of a program that call for a uniform price to all dairy farmers, irrespective of the use of their particular milk.
Now, of course, this was the big problem that some dealers had a fluid milk outlet for their milk.
Producers that were selling to that particular handler or dealer where sometimes able to obtain a higher price than other dairy farmers and other handlers serving another handler who was able not to sell in the fluid milk market.
And although the petitioners here cite the case of Rock Royal is authority for this differential, we contend that it was -- is clearly just the opposite and the Rock Royal actually, it was -- there were no producers before the Court.
It was a case that involves solely handlers and it was shortly after the passage of the 1937 Act.
The handlers contended that it violated their constitutional rights to require them to pay a part of the monies that they have obtained from the Class I sales into the market wide pool or producer settlement fund in order that these monies would be paid over to other handlers who have low fluid sales.
Most of their milk was dispose of for manufacturing purposes, but it's obvious that the congressional plan couldn't work unless there was a provision of this nature and also that Congress did not provide for any great unusual situation here.
They provided for minimum milk prices that the handler was obligated to pay for milk.
Now, the Court in Rock Royal held that it was not a violation of Due Process or the taking of the handler's property to require him to pay the excess of his fluid sales over the market wide average into the producer settlement fund for distribution to other handlers who in turn would pay these monies to their own producers.
Now, its very evident that if a handler could not retain these monies over the market wide blend price and pay them into his own producer and was obligated to pay this into the fund that a dairy farmers that server that particular handler certainly couldn't make the same claim that this could be accomplish indirectly through a nearby differential.
Now, we contend that the words irrespective of use simply mean that a dairy farmer is entitle to the payment of the uniform price irrespective of the use of his milk and in every case in which this Court has considered the milk appeal, they have indicated that this is the interpretation of the congressional language.
Now, the contentions of the petitioners would actually nullify the act, if they were to delete that language and simply say that this means that you can pay a dairy farm around the basis of use of his milk.
This is clearly just the opposite of what the Congress contended should be done.
Now, the petitioners acknowledge that in the Blair case that the adjustments to the uniform price in that case involved a location differential.
Location differential really is nothing more than a differential that is allowed for the transportation element that enters into the price of milk.
Milk that is delivered to one part of the milk shed naturally is has to be delivered to the primary consumption center.
These are the large cities and the dairy farmer does have to pay for those transportation cost.
We make no objection in that regard even though that does detract from our milk price.
Justice John M. Harlan: I think that supported that the use of 45-cent importing?
Mr. Charles Patrick Ryan: In our brief, we have outlined the report of both the House and the Senate in great detail and if quotes the language of the reports where the report does say that that location differential is for transportation purposes from the place, from the plant where the milk is delivered to the principal consumption center.
And you have to have the system whereby you set up zones and fix a particular transportation charge for each zone as related to the principal consumption center because this is the where the milk is going, this is where its produced.
And of course, the Court in Blair held that this was not a proper differential to justify the one that was in the New York order in which was very similar to the one that is in this order that that related strictly to transportation.
Now, if the petitioners -- I don't understand whether they currently maintain that that is a proper differential that would support the location differential that would support the nearby differential involve in this case.
But they seem to be limiting their argument at the present time to the fact that it is a market differential.
Now, the reports clearly state that a market differential is a differential that is paid to a dairy farmer for delivering his milk to a city market rather than to a country plant because in a country plant, there are double handling cost involved.
And the measure of this particular market differential is normally the difference between the receiving cost that the country plant and that at the city plant.
And the dairy farmers pay that particular differential because he actually performs a service there and he accomplishes a reduction and the cost of the handler that maintains the various country plants.
Now the Congress, if the reports are examined both the House and Senate reports show that they gave great consideration to this particular 1935 Act because of the reason Schechter case and the recent case of Panama versus Ryan, the other particular case that dealt with delegation of powers.
It was very careful to spell out in complete detail what provision the Secretary could include in this milk orders.
And we contend that there's a no possible basis for saying that there's any statutory justification for the nearby differential when that particular differential is not even mention either in the act or in any of the reports.
Now, the act provides for a volume market and production differentials and our understanding of the petitioner's contention here is that the market differential is simply illustrative in nature.
Now if this was true, there'd be no point in the Congress specifying the volume differential, the production differential, the butter fat differential, the quality differential, the location differential.
They could simply have set all customary market differentials, if this was what they meant by market differential.
But it was not and this is clearly reflected in the reports.
Incidentally, the nearby producer can deliver his milk to a country plant and still receive this nearby differential.
Whereas the distant producer can deliver his milk right to the market center and he does not receive this differential.
And in fact he has to pay the nearby producer this particular differential out of his milk price.
So, it's just exactly the opposite of what the Congress has defined the market differential to be; one for delivery to the city market.
Also, the only exception to the uniform price that is authorized by the act is one which is provided for in Section 8c (5) (B) pertaining to new producers.
The Congress was concern that handlers were bringing milk into various markets and beating down local prices within that reach of market.
But it was also concerned that if wanted to make sure that new producers would be given reasonable opportunities to enter markets.
In other words, that these would not be close markets.
Consequently, provision 8c (5) (B) provides that a new producer is to conceive the same price as any other producer after he serves a particular market for two months.
Now, the two months probationary period is obviously for the purpose of assuring that he is going to regularly supply that market.
During that period, he receives the lowest price use classification price.
During that particular two months and this is to assure that he will not market his milk in a particular region only when it's an opportunity time for him to do so.
Now, under the particular provision 8c (5) (B) pertaining to new producers that specifically states that that lowest used price that he is to receive during those two months is subject to all other adjustments authorize under the act.
Now for instance, he would receive the butter fat differential if his milk wanted it, he would be subject to the transportation differential.
He would be subject to the market differential for direct delivery of milk.
But under the act he would also, if this nearby differential is a valid differential, he would also be subject to the nearby differential and this would result in a new producer whom the act requires to receive the lowest possible price during the first two months of his delivery because of the fact that he is never supplied this market.
He would receive a differential under this nearby differential provision which would pay him because of the fluid use his milk on a historical basis, even though he had never supplied the market.
Now, this is a double link consistency that cannot be attributed to the Congress.
This is an inconsistency that is particularly applicable only to the Secretary and even if he didn't pay this nearby differential to these new producers, this simply could not be explain the way by a second violation because the act requires that all of the adjustments be taken into account even in respect to these new producers.
Justice Potter Stewart: Mr. Ryan earlier in your arguments, you told us that there are now only two marketing orders is the same these nearby differentials.
This one and the one governing the Connecticut market?
Mr. Charles Patrick Ryan: Yes, sir.
Justice Potter Stewart: And of course, I understand, it's your position that no of them should have them because the Secretary has no power to --
Mr. Charles Patrick Ryan: Yes, sir.
Justice Potter Stewart: To impose them.
But that to one side, what is the reason from the Secretary's point of view, what is the reason why other milk marketing orders do not contain these nearby differentials?
Do you know?
Mr. Charles Patrick Ryan: Well, he has not given a reason for other markets.
He has said in respect to Massachusetts, Rhode Island and Connecticut producers that historically, dairy farmers in the States of Massachusetts, Rhode Island and Connecticut because of their location with reference to the large population concentrations of New England have disposed of a substantially larger percentage of their production for fluid use than have dairy farmers in the up country area.
Hence, nearby producers have been able to realize that price higher in relation to more distant producers than can be accounted for by the advantage of the transportation to market.
Under market wide pooling here in propose and without some adjustment mechanism, the nearby producer notwithstanding would be paid on the basis of the air utilization of all milk in the milk shed rather than according to the utilization of his milk.
Now, this is a direct admission of a violation of the act because the act specifically states that no dairy farmer is to be paid on the basis of the use of his milk.
He is to be paid a uniform price irrespective of the use of his milk.
The Secretary also found that under a regulated market, the nearby producer also obtains the protection of the federal regulatory program and receives in many instances, a higher price and he would otherwise received.
So, we come to the a situation where prior to federal regulation, all dairy farmers where receiving low prices and even prior to the 1964 Act.
Much of the local produced milk had been dispose of for manufacturing your surplus purposes and its just not an accuracy to say that nearby producers consistently supply the fluid milk market.
In fact as recently as 1946, the Secretary had to amend the Boston order because of the fact that the nearby producers where supplying milk to the country plants and were receiving actually a higher price than what they were entitled to at those particular plants.
Now, we also feel that this Court's specifically stated in Rock Royal that any variants between uniform prices would result in a discrimination and would actually cause certain producers to bear an unfair burden of the surplus market.
And this is exactly what the nearby differential does.
It reserves the fluid milk market or a larger percentage of it to nearby producers and it cast on other producers who regularly supply the market a larger share of the burden of surplus.
Now, the Secretary has also admitted that nearby milk has no inherent value that should be compensated for by nearby producers.
In his New York decision, all of these particular factors where raised in apparent justification for this differential.
He rejected all of them.
He rejected the factor of inherent value of nearby milk.
He rejected the factor of its availability or its accessibility.
He rejected the factor of so-called increased production cost.
He rejected everything except the fact that he thought they should be paid on the basis of the historical use of their milk.
And of course, this is a direct violation of the act.
Now also in Hood, in the Hood case decided on the very same day that the Rock Royal case was decided.
This Court also stated in that case that the producers, the intervene in that case where not entitled to maintain a historically price under this particular Act.
The lower court had stated that the only right to a historical price higher price that producer's head depended upon the unconstitutionality of this Act and that they were entitled only to a blend price or to the uniform price.
And we feel that the Hood case is a direct authority for our position here that historical prices are not the criterion for insertion into a milk order that the criterion is uniform prices rather than varying historical prices.
Now, the petitioners have also indicated that there some question as to the record in this case.
Actually, the case in the New York-New Jersey milk order was also heard on motions for summary judgment, cross motions for summary judgment.
I don't know of any milk case that hasn't been heard on excerpts from the record.
Now, when they say excerpts from the record, they imply that there some deficiency here, but there is no deficiency in the Blair case.
There was a 15,000-page record with hundreds of exhibits.
It was necessary to excerpt a relevant material in order that the Court could actually comprehend the problem.
The same thing occurred in this case and every page of the administrative record that was pertinent to the issue was before the District Court.
And the nearby producers, although they presently say that they were denied intervention in the District Court.
They were accorded every opportunity to present whatever argument that they might desired to in that case in the District Court.
They filed a brief amicus curiae through the state of or rather the Commonwealth of Massachusetts in that case.
And the District Court had every conceivable argument that could be made before when it ruled that this particular provision was beyond the statutory power of the Secretary.
Now, we also contend that this is not only discriminatory as well as beyond the statutory power of the Secretary, but that it constitutes a trade barrier.
In other words, the fact for instance in the Connecticut order illustrates this very graphically where you only have 89 or to 95 dairy farmers that are able to market their milk on a regular basis in that particular order.
Now, they have to pay a large share of there milk price, even though it benefits the nearby producer by only 2 cents per carton, cart hundred pounds.
And the inconceivable to contend that this was meant to reward nearby producers, 2 cents per hundredweight rather than to penalize distant producers and to keep distant producers out of this particular market or any market that has this particular penalty provision.
Now, if this particular differential was legalized and it spread to other markets, one can readily visualize that it would simply create chaos and disorderly marketing.
In fact the very reason that this particular milk order that consolidated order came about was because of the different and varying conditions that these differentials participated, that they actually commanded to which market the milk would go.
It was very uneconomical and very unrealistic because the farmer wanted his milk to go the market where he would get this differential rather than have it go to a market where it could be distributed most economically for the benefit of the consumer in all dairy farmers.
So, we contend that is a much more discriminatory and vicious differential then was look and validated in the Blair case.
In the Blair case, we had a differential where when the fluid milk in the market reach 80% total.
This particular differential would actually seize to exist.
In this particular differential, it would have to reach 100% before it would seize to exist.
In other words, the differential provides that is 46 cents or such lesser amount as will equal the Class I or fluid milk price.
This means that when surplus and the market is the greatest, the differential is the greatest. And the nearby producer can actually increase his production and contribute to this surplus without worrying that his is going to sustain a reduction in this differential.
On the other hand, the distant producer, he, when he increases his production actually increases the amount that he pays under this protector of differential.
So actually, it provides protection to the nearby producer and at the same time it injures the distant producer when he needs this protection the most.
Now, we don't think that there's any possible basis that has been set forth here for remand.
The Court has fully considered all of the factors involved in this case.
And we would also like to mention that the producer association that was mentioned by Mr. Hollman, the New England Milk Producers Association, does vote for the farmers on whether a milk order as a whole should be approved.
But no dairy farmer has the right to vote on this particular provision of the order.
Now, this is very crucial when you realize that the New England Milk Producers Association which is Boston base actually attempted to intervene in the suit as a defendant without advising any of their membership of this.
And it's a matter of record that its counsel fails to consult its membership whenever he proposes vary administrative provision that will effect their very livelihood.
And we contend that that any attempt that remand here would actually simply cause the respondents to have the attorneys for the nearby producers represent them because the NEMPA is actually controlled by nearby producer's representatives.
Now, they have a much larger proportion of their membership in the distant areas.
But in the particular dairy field that we're examining here today, dairy farmers did not take that much interest.
I shouldn't say interest, but they're unable to effectuate changes in these dairy organizations as much as they would like to particularly when they are not advice as to what this actually going on.
So, if under any question of remand or any vote here, we would find that the New England New England Milk Producers Association would vote for the great majority or the plaintiffs that have brought this action and that the attorneys for the New England Milk Producers Associations is Mr. Hollman his associate counsel below.
Now, we also feel that the Congress specifically intended to prevent this type of thing because there's another type of pooling other than market wide pooling which is called individual handler pooling.
Under this particular provision, alternative provision of the act, all dairy farmers serving the same handler have to be also paid a uniform price, but the price does vary amongst handlers.
Now, this particular type of pooling individual handler pooling is only appropriate in a market where the supplies are very short and where there is practical uniformity amongst all handlers.
And this type of pooling has been found to be totally inappropriate for this particular market.
But the important thing is that in order to institute that type of pooling, the Congress has provided that every producer should have one vote on that particular issue alone in a separate referendum on that one issue.
And this, in our mind indicates that the Congress was concern that the associations could sometimes vote hand different things that would affect their membership if they fail to consult with them and the Congress wanted to preclude this type of happening.
Also, we would like to point out that in respect to summary judgment that the Lehigh Valley case was heard on motion for summary judgment.
The New York Currency Producers versus Wickard case was heard on motion for summary judgment.
And indeed, the petitioners here propose in January, shortly after the institution of this suit that the case be heard on cross motions for summary judgment.
Now subsequently, they withdrew that particular proposal, but nevertheless, they were desirers of disposing of the suit at that time and nothing was brought up in the District Court that would in anyway reflect on the propriety of the granting of summary judgment.
The record was very voluminous five large files in the administrative record numbered many hundreds of pages as illustrated by the 753-page appendix here before this Court.
So, every facet of this particular differential was considered and also the act requires that the Secretary institute only differential that had been customarily applied by handlers.
Now, the record, the administrative record reflects that this differential had never been applied by handlers, and this is the reason why the petitioners advert to the contracts of various cooperatives.
None of these being in a matter of record and in this case or any other case that I know of, there's no document dairy evidence whatsoever to this effect.
The fact is that the records choose conclusively that this particular differential did not exist until August 1, 1937 in the Boston order.
It could not have been legalized or validated by the Congress because of the fact that the 1937 reenactment occurred on June 3, 1937.
Of this particular differential was instituted subsequent to that time.
So, there's no actual question of reenactment even involved this case.
Also, they alleged that similar differentials existed prior the 1937 however.
But actually, this is not the case because the similar differentials actually number one, required delivery of the milk to the city market and the nearby differential does not.
So, we have that distinguishment here between the pre 1937 and the post 1937 differential.
Also, the similar differentials that they're referring to is actually what is known under the act base rating.
Base rating requires that all dairy farmers receive the same fluid or Class I milk price for their base milk.
But under the 1936 order, only the nearby producer received the Class I or fluid milk price for his base milk.
Many producers were never even assigned a base and --
Justice Potter Stewart: But what's base milk means?
Mr. Charles Patrick Ryan: It means this that they compute the demand, the normal demands of the market and they divide up the market, the fluid milk market and assign each producer a base.
And the base is a quota that he supposed to produce.
For that particular quota, he will received the fluid milk for Class I milk price.
Anything he produces in excess of that, he will receive the manufactured or surplus price.
Now, he is free to produce as much milk as he likes, but any milk produce in excess of his base is paid for at the surplus price.
Under the act and this has been reaffirmed in 1965 in the Food and Agriculture Act, all producers are entitled to received that fluid or Class I price for their base milk.
You cannot give it that price to the nearby producers and the rest of the surplus to the distant producers and this is what is referred to a similar differentials by the petitioners here.
Actually, this is an admission of the illegality of the so-called similar differentials because of the very fact that they are related to use and constitute a violation of the base rating plans of the act.
Now, they have mentioned the case of the Green Valley Creamery from the First Circuit has been authority for the promulgation of this particular nearby differential as a market differential.
We just like to point out that in the Green Valley case, there were no producers before the Court.
That was a handler case for enforcement and involved entirely different issue.
Moreover, the Court there did not even examine this issue for the very reason that it was not properly before the Court.
This was the contention of the Government that handlers could not question disbursements from out of the pool and that therefore, when the handlers attempted to raise this argument concerning the nearby differential, the Government's argument was accepted that this particular contention or issue could not be raise by handlers.
So, we have the Government contending that they have relied on the Green Valley decision when that Court actually accepted its argument for that particular issue concerning the legality of a nearby differential was not even before the Court.
Also the Green Valley Court actually fail to realize that the market differential which it said was a valid differential on which we agree was already in the order.
It confused the market differential with the nearby differential.
The Court and Green Valley thought that there was a benefit in a service provided when milk was delivered to the city market and it stated that it was of the impression that nearby producers did deliver their milk to the city market.
Now, there is no question but what this is a compensable service or value.
But this was already in the order and a reading of the Green Valley case will illustrate that that Court did not realize that this particular differential was already in the order and the producers were compensated for delivering their milk to the city market.
Justice John M. Harlan: But what is this termed to nearby differential?
Is that a term of colloquial term or is it a term of art?
Mr. Charles Patrick Ryan: Well, when the regulation was first instituted in the Boston milk market, there were a small number of producers nearby the market who formed an association known as a Nearby Producers Association.
Although, it was beyond any contradiction that all producers where receiving low prices for their milk at that time, they contended that they were entitled to a special price that they were not subject to equalization as required by the act and they threatened to become an menace to the enforcement of the act.
At that time the act in this program was in a very fledgling state and they needed the enforcement support of the State of Massachusetts.
The State of Massachusetts refuse to give this enforcement support unless this particular concession was made to its producers.
And they were other view the distant producers and the Government at that time that this was a temporary concession.
But like all concessions once their made, it's very difficult to have the individual set or receiving the particular benefit give it up.
In fact the --
Justice John M. Harlan: You don't find that term in any of the marketing?
Mr. Charles Patrick Ryan: No, Your Honor.
Not to my knowledge.
In fact, it's not in the act, it's not in report send, it's --
Justice Hugo L. Black: Well what concession was given to him if you say temporarily?
Mr. Charles Patrick Ryan: Yes, state claim that they were not required that they could not be required to equalize their milk production with other dairy farmers.
And in order to gain the --
Justice Hugo L. Black: They can equalize the price?
Mr. Charles Patrick Ryan: Yes.
In other words, come in to the blend price and this was in effect, a temporary acknowledgement or concession to them, in order to gain the enforcement support of the Massachusetts Milk Control Board.
This was found by the lower court to be a fact also.
In order words, the case of Whiting Milk Company, United States versus Whiting Milk Company in the Boston market in the 30's found that is little as 2,000 quarts of milk or one tank load of milk introduce in the Boston market, not subject to regulation or control could affect the entire price of all dairy farmers.
Consequently, you had to have control of the interstate milk and unless the local authorities would enforce that control why you had no way of actually controlling the milk market price of all the dairy farmers.
So, this was a temporary concession in that respect, although, it was recognized that it was a deviation from the requirements of the act.
Now, as I indicated has grown and the only evidence that was introduce during 1935 hearing, 1936 hearings was the testimony of one individual who referred to the alleged milk price receive by one dairy farmer out of about 20,000 that were supplying the market.
And even that price to one dairy farmer was admittedly subject to correction.
The only other evidence that was introduce that would purport to justify this was the prices paid by two handlers, smaller handlers out of hundreds that were operating in that particular market.
So there actually wasn't any real evidential basis for the awarding to this differential, and this is all brought out in the record.
These hearings, the pertinent parts of them are in the appendix.
Justice Hugo L. Black: You mean by that, there is no support that giving a differential to a farmer based on the location of his farm?
Mr. Charles Patrick Ryan: No.
Not at that time because of the fact that all farmers receiving low prices at that time.
Justice Hugo L. Black: Yes.
Mr. Charles Patrick Ryan: And the Assistant Attorney General of Vermont is trying to address the last five minutes.
Argument of Edwin H. Amidon, Jr.
Mr. Edwin H. Amidon, Jr.: Mr. Justice Black, may it please the Court.
My name is Edwin H. Amidon.
I'm Assistant Attorney General of the State of Vermont, here representing the State of Vermont and its Attorney General and its Secretary of Agriculture who incidentally are here today.
The legal argument had certainly been well covered.
I just like to briefly emphasize some additional aspects of the factual context.
Vermont, unlike I think almost any other state in the country is overwhelmingly dependent on the dairy industry.
Much more so, even in Wisconsin and in addition, the overwhelming majority its dairy production is sold under this order.
The Vermont dairy industry secondly is in a great deal of trouble right now.
It is lost over a thousand producers since 1965.
Third, unlike the 1930's when this type of differential was first adopted, the cause of dairy farming in Vermont are now fully as high as they are in Southern New England.
Taxes, labor fee, the equipment, the various things that go into cause of producing milk.
Justice Potter Stewart: Did that cost differential which you imply that exist the generation ago?
I think that was part this differential or part of a ground that --
Mr. Edwin H. Amidon, Jr.: Yes, Your Honor.
I think that may been implicit in the Secretary's --
Justice Potter Stewart: It wasn't represented if they on the grounds in the Secretary's submission here today?
Mr. Edwin H. Amidon, Jr.: That's true Your Honor.
I believe that is not to be found in any of the orders, but I think it's a sub silentio factor if I may say so.
Fourthly unlike the 1930's, I think the accessibility, availability, reliability of non-nearby producers milk is equal now wholly to the milk of Southern New England producers and evenness of production Your Honors, if formally was not compensated it is, it is now compensated.
Fifth, I should say that the Vermont farmers who are the overwhelming majority of the non-nearby producers have bought this nearby differential from the very beginning.
They have never acquiesced in it.
They have always opposed it.
And of course, when it comes to vote on a milk order, they have to vote for the milk order in order to avoid the chaos of unregulated milk market where they sell most of their milk.
If they didn't vote for the order with this nearby differential in it, they'd be out of the ball game anyway, if I may use that slang.
Sixth, there's been no record of any disruption of the New York-New Jersey milk market since the decision in Blair.
Seventh, and this is already been said in Vermont, we wonder why Vermont should be the only shall we say recipient of this nearby differential.
We are most of the non-nearby producers and this nearby differential is only found in New England milk orders.
So finally in conclusion, it is our position that this is not the nearby differential or farm location differential is not an authorize adjustment the Agricultural Marketing Act of 1937.
It in fact constitutes really a de facto tariff which must be paid by Vermont farmers for the privileges of selling milk in Southern New England.
Thank you Your Honors.
Justice Hugo L. Black: Mr. Freidman.
Rebuttal of Daniel M. Friedman
Mr. Daniel M. Friedman: Mr. Justice Black and may it please the Court.
I have just fourth brief points I'd like to make in rebuttal in each of them really arises in response to a question of number from -- of the Court.
First, Mr. Justice Harlan asked the question of the origin of this phrase “nearby differentials”.
I think that's colloquial phrase but what the Secretary, the word Secretary used in this order in 1964, he spoke of it as farm location differentials.
Farm location differential which I think is a more accurate representation.
Now, Mr. Justice Black asked the question whether anybody would loose as a result of this decision.
They were presented in the District Court in opposition to the motion for summary judgments and it is referred to at page 84 of the record, affidavits by some of the nearby farmers which indicated that if this differential is abandoned, if this differential is struck out, they will in fact not be getting back the total expenses as result of the blended price they received.
And then I'd like to refer to --
Justice Hugo L. Black: Is there a finding on this?
Mr. Daniel M. Friedman: There is no finding on that, no Mr. Justice.
I'd like to refer the two questions that Mr. Justice Stewart asked.
The first you inquired Mr. Justice as to how the cooperatives vote?
They do vote as a unit.
That is if there is a division all the votes are cast in one way.
On the other hand, it seems very clear that if that this vote must represent from votes of the majority and --
Justice Potter Stewart: At least the majority.
Mr. Daniel M. Friedman: That's right.
Justice Potter Stewart: If the management's going to say --
Mr. Daniel M. Friedman: And of course, the evidence in this case that indicates that when this 1964 order was put to a vote, it was approve by something like 89% of all the farmers in the area.
Justice Potter Stewart: But this so-called referendum is a plebiscite on the whole order or all -- take it or leave it --
Mr. Daniel M. Friedman: That's right, take it or leave it and then many situations -- this is true of many situations, you face when you've deciding whether to do something with the pros and the cons.
Justice Potter Stewart: I understand.
Mr. Daniel M. Friedman: Now finally, I'd like to talk just a minute about this point that they are only two other orders in the whole United States that have this provision.
Originally, a few years ago, there were four orders.
The New York-New Jersey order that was struck down, an order in Chicago which was subsequently vacated because of the unwillingness of the handlers to accept certain changes.
The present order which been struck down and the Connecticut order which of course is now under litigation before the Court of Appeals for the Second Circuit in the Cranston case.
While, these are only four out of 70 orders, they it covered roughly 40% of all the milk production in the United States.
And in addition to that, we have something which I think it's quite significant.
There's testimony in this record at page 549 and I'd like to refer to it.
As to the extent of the hold's problem of how these differentials come into being, what that causes is 549 statements -- statement that in the State of California and the State of California is a state, one of the states that has no federal regulation at all.
This is statement of State of California, produces located nearby Los Angeles distributing plants are able to obtain more favorable contracts and thus, a higher Class I utilization then produces that are located in the central valley or any other place.
In order words, even without a milk marketing order at the present time, handlers are willing to pay more to farmers who located near the or -- near the center of the market than to distant farmers.
No coercion, no claimant, the distant farmers are required to accept to the -- quite accept this.
This is the operation, the normal operation of the market and I think the reason why we don't have anymore of these provisions in milk marketing orders is just the way markets have a reason.
Some of the areas of the country, smaller areas what has happen is you haven't had the problem.
The farmers had been closer in.
You haven't hired this kind of competition for the Class I market characterized these Eastern markets.
Justice John M. Harlan: You could -- you can argue I suppose to prevail the status that the secondary that introduce this differential in any marketing are real waste?
Mr. Daniel M. Friedman: If, if depending on what the circumstances, if that he have -- if an appear that prior to the time of the marketing order, they had this existing -- I -- it would be --
Justice John M. Harlan: That fact would have to exist?
Mr. Daniel M. Friedman: Well, I'm not sure about that.
If for example the Secretary found, I would think it would have to -- yes, it would have to exist Mr. Justice, I retract my question.
It would have to exist because the statute's speaks of market differentials customarily applied.
Justice Potter Stewart: And you would mean, that would mean customarily in that marketing area?
Mr. Daniel M. Friedman: In that marketing area.
Justice Potter Stewart: Right then.
Mr. Daniel M. Friedman: Thank you.