Polar Ice Cream Creamery Company v. Andrews/Opinion of the Court

We have before us the recurring question of the validity of a State's attempt to regulate the supply and distribution of milk and milk products. Challenged in this case is Florida's system of regulation of the dealings between milk distributors and local producers.

The appellant, Polar Ice Cream & Creamery Company, located in Pensacola, Florida, 16 miles from the Florida-Alabama state line, is a processor and distributor of fluid milk and milk products. It sells fluid milk and milk products for human consumption to consumers and dealers within the State of Florida in competition with nearby Alabama distributors. Pursuant to contracts let after competitive bidding, it also supplies large quantities of milk to military installations, both within and without the State of Folrida. It purchases, processes and sells as fluid milk or milk products approximately 5,000,000 gallons of milk each year.

Prior to the regulations challenged here, Polar purchased approximately 30% of its milk requirements from dairy farm producers located within the State of Florida. The remaining 70% was procured from producers, producer pools or brokers in other States, such as Alabama, Mississippi, Wisconsin, Minnesota, Missouri, Virginia, and Illinois. Its customary arrangement with Florida producers was to pay 61 cents per gallon for a specified quantity of milk from each producer and approximately 35.5 cents per gallon for all milk over that quantity. The price Polar paid its out-of-state sources varied; some milk was purchased for as low as 30-35 cents per gallon from Alabama, Virginia, and Arkansas sources. Polar's Florida producers could at no time supply all of Polar's milk requirements, but at times produced and sold to Polar amounts equal to or greater than Polar's sales of fluid milk for human consumption to consumers and dealers in Florida, excluding sales to the military, sales on reservations, and sales to local schools.

The statute and the orders of the Florida Milk Commission challenged by Polar regulate the dealings between milk distributors and milk producers located within the Pensacola Milk Marketing Area. First, they require that a Pensacola milk distributor pay a minimum price of 61 cents per gallon for all milk purchased from Pensacola producers and sold in Florida as Class I milk, defined as fluid milk or milk products sold in fluid form with exceptions, and substantially lower minimum prices for milk sold as Class II, III, and IV milk, consisting chiefly of nonbeverage milk such as cream, sour cream and other dairy products.

Second, the Commission has established a method by which a proportion of a distributor's monthly sales in various classes is allocated to designated Pensacola producers. Each Pensacola producer with whom Polar does business between September 1 and November 30 of each year, called the base-fixing period, is assigned an earned base, representing the ratio of milk delivered by such producer to the total milk delivered by all of Polar's Pensacola producers during the base-fixing period. The resultant percentage is then applied to the number of gallons of milk Polar sells in Class I, II, III, and IV channels monthly, in that order, to determine the number of gallons for which each earned-base producer must be paid the minimum prices assigned to each class or utilization. The allocation of a producer's deliveries must first be to Class I utilization, with allocation continued thereafter in descending order through the lower classifications. Only deliveries by Pensacola producers are considered in calculating the ratio of each producer's deliveries to total deliveries to Polar during th base-fixing period and therefore the percentage assigned to these producers totals 100%. The result is that all of Polar's Class I sales must be attributed to its Pensacola earned-base producers. Only then may their milk be used for the less remunerative utilizations, and only if these producers do not fulfill Polar's need for Class I milk may other milk be used for this purpose and thus command a premium price. Moreover, the formula requires that all the milk Polar sells in Florida be first attributed to the purchases that it makes from Pensacola producers. The earned-base percentages remain the same until the next base-fixing period.

Third, the statute forbids termination of the business relationship between a distributor and producer with whom the distributor has had a continuous course of dealing without just cause and provides that rejection or refusal to accept any milk tendered or offered for delivery by a producer in ordinary continuance of a previous course of dealings is a ground for revocation of the distributor's license. These statutory provisions have been construed to mean that a Florida distributor in a regulated marketing area must accept from his earned-base producers all the milk tendered by such producers, including milk in excess of Class I needs. A distributor is relieved of the obligation to purchase milk from earned-base producers only upon a showing of just cause, which is not met by a demonstration that the Commission's minimum prices are burdensome or that milk is available elsewhere at a lower price.

It is this three-pronged regulatory structure, requiring Polar to accept its total supply of Class I milk, military milk aside, from designated Pensacola producers at a fixed price, and obligating it to take all milk which these producers offer, which Polar argues imposes an undue burden on interstate commerce.

The Florida Milk Commission also proposed special provisions dealing with milk that is sold to military installations of the United States-military milk. Although challenged by Polar at the outset of this litigation, this plan was not voted into effect. While the present status of military milk under Florida law is not entirely clear from the record or arguments of the parties, we read the testimony of the Commission to mean that Polar is not required to purchase military milk from its Pensacola producers, as it is Class I milk. However, if Polar does utilize milk obtained from its earned-base producers for military sales, it must pay the minimum price applicable to Class I sales. Polar challenges this producer price requirement as inconsistent with the federal procurement policy of competitive bidding, and the Federal Government's exclusive jurisdiction over the installations on which this milk is consumed.

To finance the activities of the Milk Commission, Florida imposes a tax or regulatory fee of 15/100 of 1 cent per gallon of all milk handled by Florida distributors regardless of where purchased or to whom it is sold, including milk that Polar sells to military installations. This tax abates if at any time the revenue exceeds by 25% the total amount of Com ission expenditures as budgeted for that fiscal year. Polar, which clearly is obliged to pay this fee, contends that the State is without jurisdiction to include milk sold and delivered to military reservations, exclusive jurisdiction to which has been ceded to the United States, in calculating the amount of the tax.

Since Polar's objections to the Florida Milk Control Act posed substantial federal questions, a three-judge District Court was convened, 28 U.S.C. § 2281, and testimony was taken and arguments heard in respect to the above questions. This court found that the Florida Milk Control Act was a reasonable exercise of the State's police power and accordingly rejected Polar's claims that the Act, in fixing producer prices without assuring Polar any rate of return and in compelling Polar to take all the milk of its earned-base producers, denied it due process of law and equal protection. The District Court also found that Florida's fee on milk distributed by Polar to military installations was a regulatory fee based on the privilege of doing business in Florida and not a tax and concluded that this measure therefore did not unduly burden interstate commerce or infringe upon the exclusive jurisdiction of the United States over the military installations Polar serves. The Florida producer price controls were said not to conflict with the Federal Procurement Statutes, 10 U.S.C. § 2301 et seq., since they did not impose any restriction on the price paid by the Federal Government for its purchases from Polar. Although finding that the Florida regulations were intended to protect and favor Florida milk producers, the court upheld these regulations over Commerce Clause objections because there was no showing that the alleged discrimination against out-of-state producers burdened or restricted interstate commerce. The decision in Baldwin v. G. A. F. Seelig, Inc., 294 U.S. 511, 55 S.Ct. 497, 79 L.Ed. 1032, invalidating a state restriction imposed on a milk distributor to shield local milk producers from the effects of out-of-state competition, was deemed inapplicable to Florida's regulations. Because of the serious questions raised under the Commerce Clause and previous decisions here dealing with milk regulations, we noted probable jurisdiction. 372 U.S. 939, 83 S.Ct. 932, 9 L.Ed.2d 966. We have determined that under prior cases in this Court dealing with state regulation of the milk industry the Florida law as applied in this case cannot withstand attack based upon the Commerce Clause and that the judgment below must be reversed.

The controlling cases are Baldwin v. Seelig, 294 U.S. 511, 55 S.Ct. 497, 79 L.Ed. 1032; Hood & Sons v. Du Mond, 336 U.S. 525, 69 S.Ct. 657, 93 L.Ed. 865; and Dean Milk Co. v. Madison, 340 .S. 349, 71 S.Ct. 295, 95 L.Ed. 329.

In Baldwin, the Metropolitan Milk District in the State of New York obtained about 70% of its supplies from New York sources, the remaining 30% from other States. The New York law forbade the sale in New York of milk obtained by a distributor from other States unless the distributor had paid a price which would be lawful under the New York price regulations. This provision was attacked by a New York milk distributor, all of whose milk supply was purchased in Vermont for less than the established New York price. Remarking that the New York law aimed at keeping 'the system unimpaired by competition from afar,' 294 U.S., at 519, 55 S.Ct., at 498, 79 L.Ed. 1032, the Court struck down this provision as an impermissible burden upon interstate commerce. New York could not outlaw Vermont milk purchased at below New York prices, for to do so would 'set a barrier to traffic between one state and another as effective as if customs duties, equal to the price differential, had been laid upon the thing transported,' 294 U.S., at 521, 55 S.Ct., at 500, 79 L.Ed. 1032-which is forbidden to the States by the Constitution, Art. I, § 10, cl. 2, and reserved to Congress by Art. I, § 8, cl. 3. Nice distinctions between direct and indirect burdens were said to be irrelevant.

'when the avowed purpose of the obstruction, as well as its     necessary tendency, is to suppress or mitigate the      consequences of competition between the states. * *  * (A)      chief occasion of the commerce clauses was 'the mutual      jealousies and aggressions of the States, taking form in      customs barriers and other economic retaliation.' Farrand,      Records of the Federal Convention, vol. II, p. 308; vol. III,      pp. 478, 547, 548; The Federalist, No. XLII; Curtis, History      of the Constitution, vol. 1, p. 502; Story on the      Constitution, § 259. 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 522, 55 S.Ct., at 500, 79      L.Ed. 1032.

To the argument that the law was in reality a health measure, since farmers must be protected from competition if they are to provide the reliable supply of healthful milk which the locality is entitled to have, the Court said,

'Let such an exception be admitted, and all that a state will     have to do in times of stress and strain is to say that its      farmers and merchants and workmen must be protected against      competition from without, lest they go upon the poor relief      lists or perish altogether. To give entrance to that excuse     would be to invite a speedy end of our national solidarity. The Constitution was framed under the dominion of a political     philosophy less parochial in range. It was framed upon the     theory that the peoples of the several states must sink or swim together, and that in the long      run prosperity and salvation are in union and not division.'      294 U.S., at 523, 55 S.Ct., at 500, 79 L.Ed. 1032.

Bald in was heavily relied upon in both Du Mond and Dean, supra. In Du Mond, New York was found to have no power under the Commerce Clause to forbid an out-of-state distributor from establishing additional processing plants and additional sources of milk within the State. In Dean, the City of Madison was prevented from reserving the Madison market to producers and distributors located within a specified distance of the city, although purported considerations of public health were advanced as justifying the restriction.

The principles of Baldwin are as sound today as they were when announced. They justify, indeed require, invalidation as a burden on interstate commerce of that part of the Florida regulatory scheme which reserves to its local producers a substantial share of the Florida milk market.

Under the controls challenged here, Polar must buy from its Florida producers, and pay 61 cents per gallon for it, an amount of raw milk equal to its Class I sales if it is available from these producers. If more than this amount is offered, Polar must also take the surplus at the lower established prices. And these obligations continue to bind Polar even though both its Class I needs and the surplus obtainable from Florida producers may steadily increase. Polar obviously will not and cannot use outside milk for those uses for which it is required to use Florida milk. Polar may turn to out-of-state sources only after exhausting the supply offered by its Pensacola producers. Under the challenged regulations, an Alabama dairy farmer could not become one of Polar's regular producers and sell all of his milk to that company. Since he could not share in the Class I market-Pensacola producers are probably able to supply that market-his milk could command only the lower prices applicable to the less remunerative uses, prices which would not cover his cost of production.

The consequences for interstate commerce are clear. In Baldwin New York's price control removed any economic incentive for a local distributor to purchase out-of-state milk and thereby encouraged its distributors first to consume the local supply of milk before turning to out-of-state sources. Out-of-state milk was denied an equal opportunity to compete with New York-produced milk to the extent that the out-of-state supply bore additional transportation charges. The Florida controls preempt for the Florida producers a large share of the Florida market, especially the most lucrative fluid milk market. Out-of-state milk may not participate in this part of the Florida market, unless local production is inadequate, and given the exclusive domain of the Florida producers over Class I sales, out-of-state milk may not profitably serve the remainder of the Florida market, since it is relegated to the surplus market alone. These barriers are precisely the kind of hindrance to the introduction of milk from other States which Baldwin condemned as an 'unreasonable clog upon the mobility of commerce. They set up what is equivalent to a rampart of customs duties designed to neutralize advantages belonging to the place of origin. They are thus hostile in conception as well as burdensome in result.' 294 U.S., at 527, 55 S.Ct., at 502, 79 L.Ed. 1032.

The exclusion of foreign milk from a major portion of the Florida market cannot be justified as an economic measure to protect the welfare of Florida dairy farmers or as a health measure designed to insure the existence of a wholesome supply of milk. This much Baldwin and Dean made clear. Nor is it an escape from Baldwin to say that Polar has no interest in providing a satisfactory blend price as a basis for ongoing relationships with any out-of-state producer and that its only interest is in buying surplus milk at distress prices from out-of-state sources and selling it at Class I prices in the Florida market, all to the detriment of Florida producers and an orderly market. For this is but another assertion that a State may preempt its market for its own producers to the exclusion of production from other areas. Florida has no power 'to prohibit the introduction within her territory of milk of wholesome quality acquired (in another state), whether at high prices or at low ones,' 294 U.S. 521, 55 S.Ct. 499, 79 L.Ed. 1032; the State may not, in the sole interest of promoting the economic welfare of its dairy farmers, insulate the Florida milk industry from competition from other States.

Florida, it is true, does not prevent distributors located in other States from selling wholesome fluid milk in the Florida market. But allowing competition on the distributor level is no justification for barring interstate milk from the most lucrative segment of Florida's raw milk market. Given such distributor competition as there is, there is still milk in other States which Polar can and wants to acquire and which it will not acquire in the face of the Florida regulations. The burden on commerce and the embargo on out-of-state milk remain.

The cases relied upon by the Commission do not save the regulatory scheme challenged here. Nebbia v. New York, 291 U.S. 502, 54 S.Ct. 505, 78 L.Ed. 940, established that minimum retail and wholesale prices for milk purchased and sold within the State do not offend the Due Process and Equal Protection Clauses. Nor is such price regulation an impermissible burden upon commerce, Highland Farms Dairy v. Agnew, 300 U.S. 608, 57 S.Ct. 549, 81 L.Ed. 835, even as applied to a distributor who purchases and cools milk within the State and then transports it to another State for processing and sale, since the burden on commerce is indirect and only incidental to the regulation of an essentially local activity. Milk Control Board of Pennsylvania v. Eisenberg Farm Products, 306 U.S. 346, 59 S.Ct. 528, 83 L.Ed. 752. In none of these cases was there any attempt to reserve a local market for local producers or to protect local producers from out-of-state competition by means of purchase and allocation requirements imposed upon milk distributors.

The power which we deny to Florida is reserved to Congress under the Commerce Clause, and we are offered nothing indicating either congressional consent to, or acquiescence in, a regulatory scheme such as Florida has employed. On the contrary, under the present Act authorizing federal marketing orders in the milk industry, such an order may not 'prohibit or in any anner limit, in the case of the products of milk, the marketing *  *  * of any milk or product thereof produced in any production area in the United States.' This provision, as the Court explained in Lehigh Valley Cooperative v. United States, 370 U.S. 76, 82 S.Ct. 1168, 8 L.Ed.2d 345, was intended to prevent the Secretary of Agriculture from setting up trade barriers to the importation of milk from other production areas in the United States. We seriously doubt that Congress, in denying the power to the Secretary, thereby granted it to the States.

We turn to the matter of Polar's sales to United States military reservations. Florida does not purport to regulate the price which Polar must charge for milk sold to the Government on or off military bases. Florida regulates only the price which Polar must pay for its milk, not what it must sell it for. Since the holding in Paul v. United States, 371 U.S. 245, 83 S.Ct. 426, 9 L.Ed.2d 292, dealt only with the conflict between federal procurement regulations and a State's attempt to prescribe the prices which a distributor must charge for milk sold to the United States, it is not applicable here. Likewise, because Florida regulates only producer prices applicable to sales made by producers to the distributor, none of which occur on military bases, its law is not vulnerable as an attempt to legislate with regard to transactions occurring within federal enclaves subject to the exclusive jurisdiction of the United States. Cf. Standard Oil v. California, 291 U.S. 242, 54 S.Ct. 381, 78 L.Ed. 775, and James v. Dravo Contracting Co., 302 U.S. 134, 58 S.Ct. 208, 82 L.Ed. 155.

However, in the Paul case the United States initially attacked California's producer prices, along with its distributor prices, as in conflict with federal procurement regulations, an issue which was abandoned in this Court and which was expressly saved in the Court's opinion. It is that issue which Polar now presents to us.

For good reason we again put off decision of this question to another day. At the outset of this litigation, the trial court temporarily enjoined the application to Polar of a Milk Commission order establishing prices to be paid Florida producers for milk to be sold to military installations and requiring purchases of such milk from designated producers. That order, however, was voted down by the Pensacola producers, leaving considerable confusion, amply demonstrated by the record before us, concerning the status of so-called military milk under the outstanding orders of the Commission. It would seem-although we are not sure, and there were no findings below about these matters-that military milk is Class I milk but that Polar nevertheless need not use Pensacola milk for military sales and is free to purchase out-of-state milk for this purpose, although if it does use milk purchased from its earned-base producers, it must pay 61 cents per gallon for it. It was apparent from the oral argument that Polar and the Commission were in dispute as to the impact of the existing regulations upon military sales, and we would hesitate to adjudicate the issue tendered in the absence of more helpful testimony and additional consideration of the matter in the court below, particularly since it is not at all clear that Polar has been using Pensacola milk for its military sales, or even that it wants to in the future. If it is free to utilize outside milk, acquired at whatever price, it may not want to pursue the matter at all. Besides, Polar is obtaining a substantial percentage of its total needs from outside the State and the production of Polar's Pensacola producers may be wholly exhausted by other, nonmilitary, uses to which it may be put.

Moreover, consideration of the possible impact of producer-pricing systems upon federal procurement regulations may be premature at this time, in view of our invalidation of other provisions of the Florida law, provisions not entirely unrelated to the issue of military milk. The whole problem of military sales may take on a different aspect upon remand of this case.

Polar challenges that provision of the Florida Milk Control Act which imposes a tax in the amount of 15/100 of 1 cent upon each gallon of milk distributed by a Florida distributor. To the extent the computation of the tax includes milk which it sells to Fort Benning, Tyndall Air Force Base, and the Pensacola Naval Air Station, all being federal enclaves over which the United States exercises exclusive jurisdiction, Polar argues that the taxing measure is invalid as beyond the jurisdiction of the State to impose. We do not agree.

Polar's reliance on James v. Dravo Contracting Co., 302 U.S. 134, 58 S.Ct. 208, 82 L.Ed. 155, and Standard Oil v. California, 291 U.S. 242, 54 S.Ct. 381, 78 L.Ed. 775, is misplaced. The James case dealt with a 2% gross receipts tax levied upon every person engaging in the business of contracting within the State, as applied to a contractor undertaking construction of locks and dams for the United States in certain navigable streams. The Court denied West Virginia's jurisdiction to assess a grossreceipts tax with respect to work done by the contractor at its plants in Pennsylvania, as well as to work done within the exterior limits of West Virginia on property over which the United States had acquired exclusive jurisdiction. In Standard Oil v. California, California undertook to lay an excise tax upon every gasoline distributor for each gallon of motor vehicle fuel 'sold and delivered by him in this State.' The Court found the tax invalid where both sale and delivery occurred within the boundaries of the Presidio of San Francisco, a federal enclave over which the United States exercised exclusive jurisdiction.

In these cases the tax was deemed to fall upon the facilities of the United States or upon activities conducted within these facilities, the principle of both cases being that there was nothing occurring within the State, beyond the borders of the federal enclave, to which the tax could attach. Contrariwise, the Florida tax is on the privilege of engaging in the business of distributing milk or acting as a distributor; a distributor is defined as 'any milk dealer who operates a milk gathering station or processing plant where milk is collected and bottled or otherwise processed and prepared for sale.' Fla.Stat. § 501.02, F.S.A. The incidence of the tax appears to be upon the activity of processing or bottling milk in a plant located within Florida, and not upon work performed on a federal enclave or upon the sale and delivery of milk occurring within the boundaries of federal property. Standard Oil and Dravo do not reach this case, for the activity Florida taxes-the processing or bottling of milk-occurs at Polar's plant prior to the sale and delivery of milk to the Government.

It may be urged that a distributor is a dealer and that a dealer is one who sells milk, including one who sells to and upon federal enclaves. But even so, distributing has, by definition, its processing dimension, a substantial activity occurring within Florida. This is enough to sustain the tax. Besides, 4 U.S.C. § 105, enacted subsequent to James and Standard Oil, supra, confers upon the States jurisdiction to levy and collect a sales or use tax 'in any Federal area,' and a sales or use tax is defined as 'any tax levied on, with respect to, or measured by, sales * *  * of tangible personal property *  *  * ' 4 U.S.C. § 110. We think this provision provides ample basis for Florida to levy a tax measured by the amount of milk Polar distributes monthly, including milk sold to the United States for use on federal enclaves in Florida.

The judgment is reversed and the case is remanded for further proceedings consistent with this opinion. It is so ordered.

Judgment reversed and case remanded.