LEVENTHAL, Circuit Judge:
Appellants are Pennsylvania dairy farmers who brought this action against the Secretary of Agriculture for themselves and for other milk producers similarly situated, seeking declaratory relief and an injunction restraining his enforcement of the so-called "nearby differential" provision
A court's deference to administrative expertise rises to zenith in connection with the intricate complex of regulation of milk marketing. Any court is chary lest its disarrangement of such a regulatory equilibrium reflect lack of judicial comprehension more than lack of executive authority. In this case, however, continued reflection and diligent study have strengthened rather than shaken our conclusion that the Secretary's order is an invalid departure from the statutory scheme established by Congress.
We shall first set forth the reasons why we think the judgment of the District Court must be reversed and then turn to questions concerning the appropriate judgment.
Since the mid-1930's, Congress has provided for the comprehensive regulation of the marketing of various agricultural commodities, including milk and milk products, in the metropolitan areas of this country. The basic plan for this sweeping economic program derives from the Agricultural Marketing Agreement Act of 1937, as amended, hereafter the Act.
Difficult and peculiar problems afflicting the milk industry have long prompted attempts to smooth out the erratic fortunes of milk marketing through the regulation of prices and production.
The regulation being challenged here arose under § 8c of the Act, empowering the Secretary to issue orders applicable to producers and handlers of the agricultural commodities specified.
The essence of the regulation is an effort to avoid the feverish competition by producers for the limited, but premium priced, fluid milk market by fixing a "blended" or average minimum price payable to all producers irrespective of the use to which their particular milk is ultimately put.
Section 8c(5) of the Act in pertinent part directs that milk marketing orders "shall contain one or more of the following terms and conditions, and (except as provided in subsection (7) of this section) no others: * * *." Among the provisions includable are those —
Relying on clause (c), the Secretary has incorporated in the Order three variables which he has generally denominated "location differentials":
The disputed "nearby differential" provided by § 1002.71(b) contains two elements that are notable. (1) The differential is calculated on the basis of the zone in which the producer's farm is located, with the band from 1-50 miles from Columbus Circle in New York City receiving the highest premium, with diminution in each subsequent ten mile arc. There are eight zones. With irrelevant exceptions no producer located more than 120 miles away may qualify for this nearby differential. However, the Secretary has decreed that "all farms located in the State of New Jersey shall be considered to be in the 1-50 mile zone."
Appellants, Pennsylvania dairy producers not eligible for the "nearby differential" due to location of their farms outside the 120-mile area, have standing to present their claim that the nearby differential provision exceeded the statutory power of the Secretary.
The District Court held that the nearby differential lay within the permissible
This informative legislative history is confirmed by the language used in the drafting of the statute. Section 8c(5) directs the Secretary to include in milk marketing orders "one or more of the following terms and conditions, and (except as provided in subsection (7) of this section) no others * * *." (Emphasis added.) Included in the allowable terms are the provision for the payment of uniform prices to all producers, "subject * * * only" to certain enumerated differentials. Subsection (7) relates to permissible terms generally available for insertion in any agricultural order, and is relevant only in authorizing provisions "(D) Incidental to, and not inconsistent with, the terms and conditions specified" in subsection (5), "and necessary to effectuate the other provisions of such order." (Emphasis added.)
Congress carefully explained that under Section 8c, orders "can contain only such terms and conditions as are expressly authorized in the bill. Furthermore, the amendments contain provisions intended to safeguard the exercise of and prevent abuses in the application of the regulatory power conferred upon the Secretary."
In Brannan v. Stark, 87 U.S.App.D.C. 388, 185 F.2d 871 (1950), invalidating payments out of the pool to producers' cooperatives, we pointed out that this statute was narrowly drawn under the impetus of Schechter to avoid broad delegation and that subsection (7) (D) must be read in light of and to avoid encroachment on the essential statutory objective of securing to all producers a fixed minimum price, without cutting down the share of that price paid to particular producers and diverting part to other producers, no matter what benign purpose prompts the Secretary to a contrary
In testing the Secretary's order in the case at bar we take into account the narrow confines of the Secretary's power and the need for determining validity in the light of the purported source of authority and the underlying rationale that the record discloses were relied on by the Secretary.
Although the Secretary of Agriculture called the nearby differential a "location differential,"
The Secretary's order reviews the several factors and considerations that had been advanced to him to support a nearby differential provision. Among them were (1) increased production costs in the immediate metropolitan area, (2) the historical payment of such adjustments, (3) the inherent value of nearby milk because of its availability and high quality, (4) the more intimate relation between producer and handler, (5) compensation for a relatively more even seasonal production, and (6) compensation of the nearby producer for reduction in his share of the fluid milk market resulting from his participation in a market-wide pool.
The Secretary rejected all but the last two of these proferred grounds, finding that these two alone might represent "values for which compensation appropriately may be derived from the pool rather than directly from the handler receiving the milk."
In the ultimate, therefore, the nearby differential was designed by the Secretary to compensate nearby producers for the reduction in their share of the fluid milk market resulting from their inclusion in the blended uniform price system. The findings underlying this approach were that historically a disproportionately significant segment of the premium-priced market for fluid milk had been captured by producers located nearest to the core of the New York metropolitan area, and thus by participating in the pool these producers were in effect surrendering a very real economic advantage.
The core of the Congressional program was a uniform minimum price for producers that did not turn on or vary with the nature of the use for which a producer was able to dispose of his milk. Hectic and unsettling competition among producers impelled Congress to formulate a device — uniform prices apportioned irrespective of individual utilization — that would recognize the use factor in the equation developed to compute the marketwide pool, but which would not distinguish between producers on the basis of the use made of their milk.
Calling the nearby differential a "location" adjustment does not establish its permissibility. It clearly is not based on the location of delivery to the handler, the terms in which the Act speaks. It disqualifies appellants and others because of the location of their farms, without regard to place of delivery to the handler. The critical element in the Secretary's view was that nearby producers traditionally occupied the lion's share of the fluid milk market. Possibly he also concluded that the product of nearby producers was preferred by handlers to milk of more remote producers for fluid milk purposes, for reasons not set forth or even conjectured by him — but plainly not reasons of quality or savings in transportation cost. This differential, he said, was explicitly intended "to give the nearby producer a somewhat greater share of the high-priced Class I-A [fluid] milk than he would obtain through marketwide pooling without such a differential * * *." 22 Fed.Reg. 4213-14 (1957). It was "designed to reflect the fact that under competitive conditions milk produced in this area has a traditional outlet as fluid milk * * *." 22 Fed.Reg. 4214 (1957).
The short answer is that Congress was well aware of the "competitive conditions" in this industry, and clearly intended to override them. For the general welfare of all, it decreed that some producers might have to foresake their peculiar advantages, by requiring that uniform prices be paid to all producers, subject only to a few narrow and well-defined adjustments. Congress precluded consideration of "the use to which such milk is put by the particular handler to whom any producer or association of producers sells its milk."
That the nearby differential adjustment turns on prohibited consideration of fluid milk use appears not only from the fact that eligibility for payments depends on farm location, but also from the fact that payments vary (inversely) with the
The reason for the differential was to compensate the eligible farmers for the loss of their special share of the fluid milk market.
The District Court relied on Green Valley Creamery, Inc. v. United States, 108 F.2d 342 (1st Cir. 1939), which approved a "location differential" in the Boston Milk Marketing Order based on the location of the producer's farm within 40 miles of Boston.
We are aware that the Secretary's findings state that the nearby producers have always been able to obtain a premium, over the price paid more distant producers, higher than can be accounted for in terms of cost of transportation to market. 22 Fed.Reg. 4213 (1957). If this history has any current significance, if the milk has greater "value" to the handler for reasons other than quality and location of delivery, it may be a reason for the producer to receive out of the handler's own pocket a premium above the minimum price, but this would not be a justification
We doubt that any additional comment is required on the argument of amicus curiae, that payments to nearby farmers are justified because otherwise they could establish their own milk routes or dairy stores for sale of milk in competition with established handlers, and that the statutory exclusion of any sales by producer-handlers would diminish blended prices of the non-nearby producer from the marketwide pool. We have no occasion to assess the likelihood of such competition with established and notoriously concentrated milk dealers.
The foregoing discussion showing that § 1002.71(b) of the New York-New Jersey Milk Marketing Order is unauthorized and void requires reversal of the judgment. Appellants have invoked the aid of equity in seeking a declaration of their rights and the prevention of further interference with them. We are concerned lest a declaration of invalidity in the context of such an action be deemed to require refund of moneys illegally paid and received under an invalid order.
Here we are confronted with an industry of labyrinthean complexity, in which hundreds of thousands of dollars in monthly adjustments were distributed to thousands of dairy farmers for a period of nine years. The recoupment of improper allowances from all "nearby" recipients would be a formidable task. Nor would elementary fairness permit the aggrieved producers to pick and choose farmers from whom they will demand redress. Doctrines of contribution among joint tort-feasors would have no automatic application to such a case. Even the producers benefited are not necessarily to be held to account for an ultra vires action taken by the Secretary in what he conceived to be the public interest.
Although the invalid nearby differential provision dates in its present form from 1957, no challenge was made to it until 1965. All but one of the appellants belonged to a producers' cooperative association which resisted this differential in 1957. Yet they waited eight years before filing this action. This is not laches barring all relief, but it certainly affects the relief that may be claimed by appellants.
We reverse the judgment with directions to fashion a decree that will grant the relief prayed in the complaint, namely declaration of the invalidity of § 1002.71 (b), and injunction against its future enforcement. Our judgment and opinion are not intended to afford any basis for recovery by appellants or their class based on past payments.
It is so ordered.
The Secretary's findings underlying Order No. 2 referred to the direct delivery differentials as both location differentials and "customary market differentials based upon the location of the plants to which producers deliver milk." 22 Fed.Reg. 4215 (1957). The nearby differential was not defended on this ground.
The Secretary does argue that another element in the decision in Green Valley Creamery is applicable here. The First Circuit noted that in re-enacting the Act in 1937, Congress included a general saving clause that "expressly ratified, legalized, and confirmed" outstanding orders. 50 Stat. 249. Even if this legislative technique were meant to do more than avoid mere technical abatements, it does not suggest authority to incorporate all similar administrative provisions in subsequent orders. In addition, the revealing conditions that make the present differential turn on the nearby location of the farm and on the percentage utilization of fluid milk did not appear in the New York Milk Marketing Order until 1957, and indeed there was no federal regulation of the New York market until 1938. See 3 Fed.Reg.1945 (1938). The significant extension to New Jersey did not come until 1957.
We note that the Secretary in opposing a stay and escrow of payments pendente lite, furnished an affidavit adverting to the decline in number of milk producers, and particularly nearby producers.