H. P. Hood & Sons, Inc. v. Du Mond/Dissent Frankfurter

Mr. Justice FRANKFURTER, with whom Mr. Justice RUTLEDGE joins, dissenting.

If the Court's opinion has meaning beyond deciding this case in isolation, its effect is to hold that no matter how important to the internal economy of a State may be the prevention of destructive competition, and no matter how unimportant the interstate commerce affected, a State cannot as a means of preventing such competition deny an applicant access to a market within the State if that applicant happens to intend the out-of-state shipment of the product that he buys. I feel constrained to dissent because I cannot agree in treating what is essentially a problem of striking a balance between competing interests as an exercise in absolutes. Nor does it seem to me that such a problem should be disposed of on a record from which we cannot tell what weights to put in which side of the scales.

In the interest of clarity, the controlling facts in this case may thus be fairly summarized.

Hood, the petitioner, is a Massachusetts corporation engaged in supplying the Boston market with fluid milk. In New York State, on the border of Vermont and Massachusetts, it operates two milk-receiving plants to which milk is delivered by local producers and whence it is shipped to Boston without processing. These two plants-at Eagle Bridge and Salem-are quite close together. On January 30, 1946, Hood applied to the Commissioner of Agriculture and Markets of New York for an extension of its New York license to purchase milk which would permit it to operate an additional receiving plant at Greenwich, New York. Greenwich is ten miles from Salem and twelve miles from Eagle Bridge. Hood proposed to divert to the plant at Greenwich milk deliveries of producers living in that vicinity who were then delivering to its more distant plants at Eagle Bridge and Salem and to take on at Greenwich twenty or thirty additional producers then delivering to competing dealers in the vicinity of Greenwich.

The Commissioner of Agriculture and Markets denied Hood's appl cation for extension of its license. In so doing, it rested its decision upon the following 'conclusions':

'If applicant is permitted to equip and operate another milk plant in this territory, and to take on producers now delivering to plants other than those which it operates, it will tend to reduce the volume of milk received at the plants which lose those producers, and will tend to increase the cost of handling milk in those plants.

'If applicant takes producers now delivering milk to local markets such as Troy, it will have a tendency to deprive such markets of a supply needed during the short season. * *  *

'The issuance of a license to applicant which would permit it to operate an additional plant, would tend to a destructive competition in a market already adequately served, and would not be in the public interest.'

Hood instituted proceedings in the Supreme Court of New York to review the order which were transferred without hearing to the Appellate Division. The Appellate Division sustained the Commissioner's action in a per curiam opinion, and leave to appeal to the Court of Appeals was granted. That court considered Hood's claim that the order violated the commerce clause and denied it on the ground that 'any interference with the free flow of interstate commerce was incidental only.' 297 N.Y. 209, 215, 78 N.E.2d 476, 478-479.

Some of the principles relevant to decision of this case are settled beyond dispute. One of these is that the prevention of destructive competition is a permissible exercise of the police power. Nebbia v. People of State of New York, 291 U.S. 502, 54 S.Ct. 505, 78 L.Ed. 940, 89 A.L.R. 1469; United States v. Rock Royal Cooperative, 307 U.S. 533, 59 S.Ct. 993, 83 L.Ed. 1446; Sunshine Anthracite Coal Co. v. Adkins, 310 U.S. 381, 395, 60 S.Ct. 907, 913, 84 L.Ed. 1263. Another is that a State is not barred from licensing an activity merely because it is interstate commerce. Even more basic is the principle that as to matters which do not demand that regulation be uniformly present or uniformly absent, see Cooley v. Board of Wardens, 12 How. 299, 13 L.Ed. 996, the State may impose its own requirements 'even though they materially interfere with interstate commerce.' South Carolina State Highway Dept. v. Barnwell Bros., 303 U.S. 177, 188, 625, 58 S.Ct. 510, 515, 82 L.Ed. 734. And only recently, be it noted, this Court has characterized the buying of milk for out-of-state shipment as an 'essentially local' business. Milk Control Board of Pennsylvania v. Eisenberg Farm Products, 306 U.S. 346, 352, 59 S.Ct. 528, 530, 83 L.Ed. 752.

Behind the distinction between 'substantial' and 'incidental' burdens upon interstate commerce is a recognition that, in the absence of federal regulation, it is sometimes-of course not alway -of greater importance that local interests be protected than that interstate commerce be not touched.

'When Congress has not exerted its power under the Commerce Clause, and state regulation of matters of local concern is so related to interstate commerce that it also operates as a regulation of that commerce, the reconciliation of the power thus granted with that reserved to the state is to be attained by the accommodation of the competing demands of the state and national interests involved.' Parker v. Brown, 317 U.S. 341, 362, 63 S.Ct. 307, 319, 87 L.Ed. 315.

'But the Commerce Clause does not cut the States off from all legislative relation to foreign and interstate commerce. South Carolina State Highway Dept. v. Barnwell Bros., 303 U.S. 177, 625, 58 S.Ct. 510, 82 L.Ed. 734; Western Live Stock v. Bureau of Revenue, 303 U.S. 250, 58 S.Ct. 546, 82 L.Ed. 823, 115 A.L.R. 944. Such commerce interprenetrates the States and no undisputed generality about the freedom of commerce from state encroachment can delimit in advance the interacting areas of state and national power when Congress has not by legislation foreclosed state action. The incidence of the particular state enactment must determine whether it has transgressed the power left to the States to protect their special state interests although it is related to a phase of a more extensive commercial process.' Union Brokerage Co. v. Jensen, 322 U.S. 202, 209-210, 64 S.Ct. 967, 972, 88 L.Ed. 1227, 152 A.L.R. 1072.

' * *  * in the necessary accommodation between local needs and the overriding requirement of freedom for the national commerce, the incidence of a particular type of State action may throw the balance in support of the local need because interference with the national interest is remote or unsubstantial. A police regulation of local aspects of interstate commerce is a power often essential to a State in safeguarding vital local interests. At least until Congress chooses to enact a nationwide rule, the power will not be denied to the State.' Freeman v. Hewit, 329 U.S. 249, 253, 67 S.Ct. 274, 277, 91 L.Ed. 265.

See also Southern R. Co. v. King, 217 U.S. 524, 533, 30 S.Ct. 594, 596, 54 L.Ed. 868; Illinois Natural Gas Co. v. Central Illinois Public Service Co., 314 U.S. 498, 506, 62 S.Ct. 384, 387, 86 L.Ed. 371.

The Court's opinion deems the decision in Baldwin v. G. A. F. Seelig, Inc., 294 U.S. 511, 55 S.Ct. 497, 79 L.Ed. 1032, 101 A.L.R. 55, as most relevant to the present controversy. But it is the essential teaching of that case that 'considerations of degree' determine the line of decision between what a State may and what a State may not regulate, when what is sought to be regulated is part of the shuttle-work of interstate commerce. 294 U.S. at page 525, 55 S.Ct. at page 501. What was there held and all that was held was accurately defined in Milk Control Board v. Eisenberg Farm Products, 306 U.S. 346, 353, 59 S.Ct. 528, 531, 83 L.Ed. 752: 'In Baldwin v. (G. A. F.) Seelig, (Inc.), 294 U.S. 511, 55 S.Ct. 497, 79 L.Ed. 1032, 101 A.L.R. 55, this court condemned an enactment aimed solely at interstate commerce attempting to affect and regulate the price to be paid for milk in a sister state, and we indicated that the attempt amounted in effect to a tariff barrier set up against milk imported into the enacting state.' The nakedness of New York's purpose to reach into Vermont was ill-concealed by the tenuous justification that if Vermont farmers got cheap prices for their milk they would be tempted to save the expense of sanitary precautions and thereby affect the health of New York consumers. 'If New York, in order to promote the economic welfare of her farmers, may guard them against competition with the cheaper prices of Vermont, the door has been opened to rivalries and reprisals that were meant to be averted by subjecting commerce between the states to the power of the nation.' 294 U.S. at page 522, 55 S.Ct. at page 500. But guarding against out-of-state competition is a very different thing from curbing competition from whatever source. A tariff barrier between States, moreover, presupposes a purpose to prefer those who are within the barrier; where no such preference appears there can be no justification for reprisals and there is consequently little probability of them. In the determination that an extension of petitioner's license would tend to destructive competition, the fact that petitioner intended the out-of-state shipment of what it bought was, so far as the record tells us, wholly irrelevant; under the circumstances, any other applicant, no matter where he meant to send his milk, would presumably also have been refused a license.

As I see the central issue, therefore, it is whether the difference in degree between denying access to a market for failure to comply with sanitary or book-keeping regulations and denying it for the sake of preventing destructive competition from disrupting the market is great enough to justify a difference in result. But for that difference in degree, the judgment below would fully rest on the Eisenberg case. If, on the other hand, petitioner's competitors were like itself engaged in interstate commerce, Buck v. Kuykendall, 267 U.S. 307, 45 S.Ct. 324, 69 L.Ed. 623, 38 A.L.R. 286; and Bush & Sons Co. v. Maloy, 267 U.S. 317, 45 S.Ct. 326, 69 L.Ed. 627, would be powerful precedents in favor of reversal. See also Lemke v. Farmers' Grain Co. of Embden, N.D., 258 U.S. 50, 42 S.Ct. 244, 66 L.Ed. 458; Shafer v. Farmers' Grain Co. of Embden, N.D., 268 U.S. 189, 45 S.Ct. 481, 69 L.Ed. 909.

This case falls somewhere between these most nearly decisive authorities. It is closer to the Buck and Bush cases than to the Eisenberg case in that the denial of a license to enter a market because the market is 'adequately served' imposes a disqualification beyond the power of the applicant to remove. In that respect the effect upon the free flow of commerce is more enduring than is the case where all that is required is compliance with a local regulation. The State's interest in restricting competition, moreover, is less obvious than its interest in preserving health or insuring probity in business dealings. Yet the commerce involved in the Buck and Bush cases-the operation of busses between Seattle, Washington, and Portland, Oregon-was exclusively interstate. Here, however, it does not appear that any of Hood's competitors sent milk out of the State, and, in fact, only about 8% of New York's entire production of milk is sent out. In this respect the case resembles the Eisenberg case, in which it appeared that only slightly more than 10% of the milk produced in Pennsylvania was exported. 306 U.S. at page 350, 59 S.Ct. at page 530, 83 L.Ed. 752. In upholding the State's licensing power in that case, the Court remarked that this percentage was 'only a small fraction of the milk produced by farmers in Pennsylvania' and concluded that as a consequence 'the effect of the law on interstate commerce is incidental.' 306 U.S. at page 353, 59 S.Ct. at page 531. But comparison could be carried further and still the similarities and dissimilarities of the facts in the record before us to the Eisenberg case and the Buck and Bush cases would be inconclusive. In an area where differences of degree depend on slight differences of fact, precedent alone is an inadequate guide.

It is argued, however, that New York can have no interest in the restriction of competition great enou h to warrant shutting its doors to one who would buy its products for shipment to another State. This must mean that the protection of health and the promotion of fair dealing are of a different order, somehow, than the prevention of destructive competition. But the fixing of prices was a main object of the regulation upheld in the Eisenberg case, and it is obvious that one of the most effective ways of maintaining a price structure is to control competition. The milk industry is peculiarly subject to internecine warfare, as this Court recognized in sustaining against due-process attack the precursor of New York's present milk-control law. Nebbia v. People of State of New York, 291 U.S. 502, 54 S.Ct. 505, 78 L.Ed. 940, 89 A.L.R. 1469. A picture of ruthless and wasteful competition was painted in that case as in each of the other cases in which the Court has upheld the regulation of the milk industry. United States v. Rock Royal Co-operative, 307 U.S. 533, 59 S.Ct. 993, 83 L.Ed. 1446; H. P. Hood & Sons v. United States, 307 U.S. 588, 59 S.Ct. 1019, 83 L.Ed. 1478; United States v. Wrightwood Dairy Co., 315 U.S. 110, 62 S.Ct. 523, 86 L.Ed. 726. And so far as appears, State action to maintain the price structure in conjunction with complementary regulation by the Secretary of Agriculture is no less necessary for the dairy industry than for the raisin industry. Compare Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315; see United States v. Rock Royal Co-operative, Inc., 307 U.S. 533, 548-549, 59 S.Ct. 993, 1001, 83 L.Ed. 1446. In view of the importance that we have hitherto found in regulation of the economy of agriculture, I cannot understand the justification for assigning, as a matter of law, so much higher a place to milk dealers' standards of bookkeeping than to the economic wellbeing of their industry.

As matters now stand, however, it is impossible to say whether or not the restriction of competition among dealers in milk does in fact contribute to their economic well-being and, through them, to that of the entire industry. And if we assume that some contribution is made, we cannot guess how much. Why, when the State has fixed a minimum price for producers, does it take steps to keep competing dealers from increasing the price by bidding against each other for the existing supply? Is it concerned with protecting consumers from excessive prices? Or is it concerned with seeing that marginal dealers, forced by competition to pay more and charge less, are not driven either to cut corners in the maintenance of their plants or to close them down entirely? Might these consequences follow from operation at less than capacity? What proportion of capacity is necessary to enable the marginal dealer to stay in business? Could Hood's potential competitors in the Greenwich area maintain efficient and sanitary standards of operation on a lower margin of profit? How would their closing down affect producers? Would the competition of Hood affect dealers other than those in that area? How many of those dealers are also engaged in interstate ommerce? How much of a strain would be put on the price structure maintained by the State by a holding that it cannot regulate the competition of dealers buying for an out-of-state market? Is this a situation in which State regulation, by supplementing federal regulation, is of benefit to interstate as well as to intrastate commerce?

We should, I submit, have answers at least to some of these questions before we can say either how seriously interstate commerce is burdened by New York's licensing power or how necessary to New York is that power. The testimony of the dealers with whom Hood seeks to compete is too inexplicit to supply the answers. Since the needed information is neither accessible to judicial notice nor within its proper scope, I believe we should seek further light by remanding the case to the courts of the State. It is a course we have frequently taken upon records no more unsatisfactory than this one. Compare Chastleton Corporation v. Sinclair, 264 U.S. 543, 44 S.Ct. 405, 68 L.Ed. 841; City of Hammond v. Schappi Bus Line, 275 U.S. 164, 48 S.Ct. 66, 72 L.Ed. 218; Borden's Farm Products Co. v. Baldwin, 293 U.S. 194, 55 S.Ct. 187, 79 L.Ed. 281; Polk Co. v. Glover, 305 U.S. 5, 59 S.Ct. 15, 83 L.Ed. 6; Gibbs v. Buck, 307 U.S. 66, 59 S.Ct. 725, 83 L.Ed. 1111; Mayo v. Lakeland Highlands Canning Co., 309 U.S. 310, 60 S.Ct. 217, 84 L.Ed. 774-all cases remanded to avoid constitutional adjudication without adequate knowledge of the relevant facts.

Nor should we now dispose of the case upon the claim that New York cannot discriminate against interstate commerce by keeping its milk for absorption 'by local markets such as Troy.' In support of this claim reliance is placed on State of Oklahoma v. Kansas Natural Gas Co., 221 U.S. 229, 31 S.Ct. 564, 55 L.Ed. 716, 35 L.R.A.,N.S., 1193, and Commonwealth of Pennsylvania v. State of West Virginia, 262 U.S. 553, 43 S.Ct. 658, 67 L.Ed. 1117, 32 A.L.R. 300, and there is much force in the argument that if a State cannot keep for its own use a natural resource like gas, as it can keep its wild game, Geer v. State of Connecticut, 161 U.S. 519, 16 S.Ct. 600, 40 L.Ed. 793; see People of State of New York ex rel. Silz v. Hesterberg, 211 U.S. 31, 41, 29 S.Ct. 10, 12, 53 L.Ed. 75, then a fortiori it cannot prefer its own inhabitants in the consumption of a product that would not have come into existence but for its commercial value. But compare Heisler v. Thomas Colliery Co., 260 U.S. 245, 43 S.Ct. 83, 67 L.Ed. 237; Oliver Iron Mining Co. v. Lord, 262 U.S. 172, 43 S.Ct. 526, 67 L.Ed. 929. It is only as to this aspect of the case, at any rate, that I can see the relevance of Baldwin v. G. A. F. Seelig Inc., 294 U.S. 511, 55 S.Ct. 497, 79 L.Ed. 1032, 101 A.L.R. 55, as dealing with what is characterized as 'the converse of the present situation.' Support is also sought in Foster-Fountain Packing Co. v. Haydel, 278 U.S. 1, 49 S.Ct. 1, 73 L.Ed. 147, and Toomer v. Witsell, 334 U.S. 385, 68 S.Ct. 1156, but in these cases what the State had done was to halt for the benefit of local processors a product already moving in interstate commerce without entirely withholding the product from interstate commerce.

Broadly stated, the question is whether a State can withhold from interstate commerce a product derived from local raw materials upon a determination by an administrative agency that there is a local need for it. For me it has not been put to rest by Commonwealth of Pennsylvania v. State of West Virginia, supra. More narrowly, the question is whether the State can prefer the consumers of one community to consumers in other States as well as to consumers in other parts of its own territory. It is arguable, moreover, that the Commissioner was actuated not by preference for New York consumers, but by the aim of stabilizing the supply of all the local markets, including Boston as well as Troy, served by the New York milkshed. It may also be that he had in mind the potentially harmful competitive effect of efforts by ealers supplying the Troy market to repair by attracting new producers, the aggravation of Troy's shortage which would result from the diversion to Boston of part of Troy's supply. These too are matters as to which more light would be needed if it were now necessary to decide the question.

In the view I take of the issue of destructive competition, however, this question need not now be decided. It is impossible to say from a reading of the opinions below that the Commissioner's finding that extension of Hood's license would tend to destructive competition would not by itself have been a sufficient basis for his order; and it is a basis which evidence adduced upon remand might put upon solid constitutional ground. A decision at this stage of the question of preferment of local needs, assuming that the record presents it, would prove to be purely advisory, therefore, if when the case came back to the State court, it found the order adequately supported by the justification of preventing destructive competition. It may be answered, to be sure, that the State would have no reason to decide whether or not the latter justification was adequate in the absence of an indication by this Court that the former-the retention of locally needed milk-is constitutionally invalid. And such an indication would amount to decision of the very constitutional issue professedly left open. To which my reply would be that it is a very different thing to recognize the difficulty of a constitutional issue and to point out circumstances in which it would not arise than it is to decide the issue.

My conclusion, accordingly, is that the case should be remanded to the Supreme Court of Albany County for action consistent with the views I have stated.