Zuber v. Allen/Opinion of the Court

This action was brought by respondent Vermont dairy farmers, 'country' milk producers, seeking a judgment invalidating as contrary to the Agricultural Marketing Agreement Act of 1937, as amended, 50 Stat. 246, 7 U.S.C. § 601 et seq. (1964 ed. and Supp. IV) the so-called farm location differential provided for by order of the Secretary of Agriculture. The effect of that order is to require milk distributors to pay to milk producers situated at certain distances from milk marketing areas, 'nearby' farmers, higher prices than are paid to producers located at greater distances from such areas. The District Court issued a preliminary injunction on January 16, 1967, against further payments and on respondents' motion for summary judgment transformed its decree into a permanent injunction on June 15, 1967. The Court of Appeals for the District of Columbia Circuit affirmed. 131 U.S.App.D.C. 109, 402 F.2d 660 (1968). We granted certiorari to resolve the important issue of statutory construction involved in this aspect of the administration of the federal milk regulation program. 394 U.S. 958, 89 S.Ct. 1302, 22 L.Ed.2d 559 (1969).

* BACKGROUND

Once again this Court must traverse the labyrinth of the federal milk marketing regulation provisions. While previous decisions have outlined the operation of the statute and the pertinent regulations, a brief odyssey through the economic and regulatory background is essential perspective for focusing the issue now before the Court.

The two distinctive and essential phenomena of the milk industry are a basic two-price structure that permits a higher return for the same product, depending on its ultimate use, and the cyclical characteristic of production.

Milk has essentially two end uses: as a fluid staple of daily consumer diet, and as an ingredient in manufactured dairy products such as butter and cheese. Milk used in the consumer market has traditionally commanded a premium price, even though it is of no higher quality than milk used for manufacture. While cost differences account for part of the discrepancy in price, they do not explain the entire gap. At the same time the milk industry is characterized by periods of seasonal overproduction. The winter months are low in yield and conversely the summer months are fertile. In order to meet fluid demand which is relatively constant, sufficiently large herds must be maintained to supply winter needs. The result is oversupply in the more fruitful months. The historical tendency prior to regulation was for milk distributors, 'handlers,' to take advantage of this surplus to obtain bargains during glut periods. Milk can be obtained from distant sources and handlers can afford to absorb transportation costs and still pay more to outlying farmers whose traditional outlet is the manufacturing market. To maintain income farmers increase production and the disequilibrium snowballs.

To protect against market vicissitudes, farmers in the early 1920's formed co-operatives. These cooperatives were effective in eliminating the self- defeating overproduction by pooling the milk supply and refusing to deal with handlers except on a collective basis. During the 1920's era of relative market stability the nearby farmers enjoyed premium prices for their product. These favorable prices were apparently attributable to reduced transportation costs and also the nearby farmer's historic position as a fluid supplier.

The drop in commodity prices during the depression years destroyed the equilibrium of the 1920's and utter chaos ensued. Congress, in an effort to restore order to the market and boost the purchasing power of farmers, enacted the licensing provisions of the Agricultural Adjustment Act, 48 Stat. 31, 35. Under § 8(3) the Secretary of Agriculture was empowered

'(t)o issue licenses permitting processors, associations of     producers, and other to engage in the handling, in the      current of interstate or foreign commerce, of any      agricultural commodity or product thereof, or any competing      commodity or product thereof. Such licenses shall be subject     to such terms and conditions, not in conflict with existing      Acts of Congress or regulations pursuant thereto, as may be necessary      to eliminate unfair practices or charges that prevent or tend      to prevent the effectuation of the declared policy and the      restoration of normal economic conditions in the marketing of      such commodities or products and the financing thereof. The     Secretary of Agriculture may suspend or revoke any such      license, after due notice and opportunity for hearing, for      violations of the terms or conditions thereof. * *  * '

Under the licensing system base-rating plans not unlike the private arrangements that obtained in the 1920's were adopted. Producers were assigned bases which fixed the percent of their output that they would be permitted to sell at the Class I price that was paid for fluid milk. The viability of the licensing scheme was jeopardized, however, by judicial decisions disapproving a similarly broad delegation of power under the National Industrial Recovery Act provisions, 48 Stat. 195. A.L.A. Schechter Poultry Corp. v. United States, 295 U.S. 495, 55 S.Ct. 837, 79 L.Ed. 1570 (1935). With its agricultural marketing program resting on quicksand, Congress moved swiftly to eliminate the defect of overbroad delegation and to shore up the void in the agricultural marketing provisions. Section 8(3) of the 1933 Act was amended in 1935 and the pertinent language has been carried forward without significant change into § 8c of the present Act. Agricultural Marketing Agreement Act of 1937, 50 Stat. 246, as amended, 7 U.S.C. § 608c (1964 ed. and Supp. IV).

The present system, which differs little in substance from the shceme conceived in 1937 for regulating the Boston market, provides for a uniform market price payable to all producers by all handlers. Prices are established for Class I and Class II uses. The total volume of milk channeled into the market in each category is multiplied by the appropriate coefficient price and the two results are totaled and then divided by the total number of pounds sold. The result represents the average value of milk sold in the marketing area and is the basic 'uniform' price. Were all producers to receive this price they would share on an equal basis the profits of Class I marketing and assume equally the costs of disposting of the economic surplus in the Class II market. The actual price to the producer is, however, the 'blended' price which is computed by adding and subtracting certain special differentials provided for by statute and order. See 7 CFR § 1001.64 (1969). The deduction for differential payments withheld for the benefit of nearby producers reduces the uniform 'blended' price to those producers ineligible to collect this particular adjustment. The provision is contained in § 1001.72 of the order and provides:

'In making the payments to producers * *  * each handler shall      add any applicable farm location differential specified in      this section.

'(a) With respect to milk received from a producer whose farm     is located within any of the places specified in this      paragraph, the differential shall be 46 cents per      hundredweight, unless the addition of 46 cents gives a result      greater than the Class I price determined under §§ 1001.60,      1001.62, and 1001.63 which is effective at the plant at which      the milk is received. In that event there shall be added a     rate which will produce that price.'

A differential of 23¢ is provided for deliveries from farms in intermediate nearby zones. § 1001.72(b).

The foregoing provisions appear in the so-called 1964 Massachusetts-Rhode Island Order, which consolidated into one region the four sub-markets which were previously regulated separately under the so-called four 'New England' orders: the 1951 Boston order which carried forward the order adopted for the Boston area in 1937; the Springfield order promulgated in 1949; and the Southeastern New England order of 1958. Each order included a provision for a nearby differential payment to farmers within a stated radius of a designated market center. For example the differential under the Boston order was payable to farmers located within a 40-mile radius of the State House in Boston; a slightly lower differential was paid to farmers within an 80-mile radius. Under the 1964 order there is no central point for the computation of the radius for payment of the differential; the Secretary has retained the differential provisions as they appeared in the previous four orders. Farmers who would have been entitled to the differential under any one of the previous four marketing regulations continue to receive those payments under the present order. These nearby farmers are eligible for the differential on any shipments within the New England Marketing area, even though their milk may actually be used outside the radius of their particular nearby zone.

The foundation of the statutory scheme is to provide uniform prices to all producers in the marketing area, subject only to specifically enumerated adjustments. The question before the Court, stated most simply, is whether payment of farm location differentials, set forth above, is a permissible adjustment under § 8c(5)(B) to the general requirement of uniformity of price.

The Secretary has in the past labeled the 'nearby' differential a 'location' differential and defended its inclusion in his orders on that ground. The justification and argument are now, however, pitched in a different key. The Government has apparently abandoned all but one of the numerous theories advanced below, and pressed most vigorously in the Blair v. Freeman litigation (125 U.S.App.D.C. 207, 370 F.2d 229 (1966)), and it now stresses the provision in § 8c(5)(B) for 'volume, market, and production differentials customarily applied by the handlers subject to such order.'

While the proper resolution of the issue is by no means self-evident, we are persuaded that 'market * *  * differentials customarily applied' contemplates cost adjustments. The plain thrust of the federal statute was to remove ruinous and self-defeating competition among the producers and permit all farmers to share the benefits of fluid milk profits according to the value of goods produced and services rendered. The Government's proposed reading of the Act, bottomed, as it is, on the historical payment of a premium to nearby farmers during the monopolistic era of the cooperative pools, would come to perpetuate economic distortion and freeze the milk industry into the competitive structure that prevailed during the 1920's.

Without the benefit of government muscle to eliminate crippling price warfare in the summer months, neither nearby nor country producers could share in the monopoly-type profits that accrue from fluid milk sales. Absent regulation only the handlers, if anyone, would stand to benefit from the 'fluid' monopoly. While we cannot project what would be the case today if a free market prevailed, we might well anticipate that the nearby producers' winter advantages would be negligible in view of reduced transportation costs and more reliable refrigeration. Thus even in winter handlers might be free to play nearby and outlying farmers against each other since handlers would be free of the leverage exercised by the nearby cooperatives during the 1920's. Nearby producers now seek the best of both worlds. Having achieved the security that comes with regulation, they seek under a regulatory umbrella to appropriate monopoly profits that were never secure in the unregulated market.

We are reluctant to attribute such intent to Congress and, simply in the name of administrative expertise, to follow a path not marked by the language of the statute. Indeed, such signposts as may be discerned from the legislative history point in a very different direction. The legislative history strongly suggests that 'market differentials,' as well as all the other differentials, contemplated particular understood economic adjustments. The House Report, in discussing the allowable adjustments characterizes the market differential as a payment over and above the transportation costs, i.e., a location differential, for delivery to the primary market. Thus farmers would share with handlers the savings from by-passing country-station processing and handling the milk only at the city plant.

The significance of the legislative history emerges upon study of the subsequent administrative practice. The original Boston order obscures the market differential payment by providing in place of a labeled adjustment a two-price structure which allowed an additional 18¢ per cwt. for city-delivered milk over and above the costs of transporting the milk from the country plant. However, the testimony of Mr. Aplin for the Market Administrator erases any doubt that those responsible for administering the Act fully understood the meaning of the Committee's explanation of market differential.

Subsequent orders have combined the country station handling adjustment, properly the market differential, and the location-transportation differential into the so-called zone differential.

The statute before us does not contain a mandate phrased in broad and permissive terms. Congress has spoken with particularity and provided specifically enumerated differentials, which negatives the conclusion that it was thinking only in terms of historical considerations. The prefatory discussion in the House Report emphasizes the congressional purpose to confine the boundaries of the Secretary's delegated authority. In these circumstances an administrator does not have 'broad dispensing power.' See Addison v. Holly Hill Fruit Products Co., 322 U.S. 607, 617, 64 S.Ct. 1215, 1221, 88 L.Ed. 1488, 153 A.L.R. 1007 (1944). The congressional purpose is further illumined by the character of the other statutory differentials for 'volume,' 'grade or quality,' 'location,' and 'production,' all of which compensate or reward the producer for providing an economic service of benefit to the handler.

The general language of the committee report indicating that Congress intended to carry forward the basic regulatory approach adopted under the 1933 Act, following the precedent of the 1920's, is stressed by the dissent to this opinion. This committee language, it is argued, reinforces the continuity connotations of the 'customarily applied' language, a thrust that is not blunted by any specific language indicating a legislative purpose to treat all farmers equally.

Legislative silence is a poor beacon to follow in discerning the proper statutory route. For here the light illumines two different roads. If nearby payments had the notoriety and significance in the milk distribution industry attributed to them by the dissent, Congress could have given its blessing by carving out another specific exception to the uniform price requirement. In an Act whose very purpose was to avoid the infirmity of overbroad delegation and to set forth with particularity the details for a comprehensive regulatory scheme, it would have been a simple matter to include in a list of enumerated differentials, 'nearby' payments, or at least allude to them in the report of the draftsmen. It is clear that Congress was not conferring untrammeled discretion on the Secretary and authorizing him to proceed in a vacuum. This was the very evil condemned by the courts that the 1935 amendments sought to eradicate. It would be perverse to assume that congressional drafters, in eliminating ambiguity from the old Act, were careless in listing their exceptions and selecting the illustrations from the committee report from which their words would ultimately derive content.

We consider our conclusions in no way undermined by the colloquy on the floor between Senator Copeland and Senator Murphy upon which the dissent places such emphasis. A committee report represents the considered and collective understanding of those Congressmen involved in drafting and studying proposed legislation. Floor debates reflect at best the understanding of individual Congressmen. It would take extensive and thoughtful debate to detract from the plain thrust of a committee report in this instance. There is no indication, however, that the question of nearby differentials and the meaning of 'market * *  * differentials customarily applied' were precisely considered in the floor dialogue. The exchange is not only brief but also inconclusive as to meaning. Indeed, Senator Murphy apparently acquiesced in Senator Copeland's implied criticism of the statute for providing uniform prices for distant and nearby producers within the marketing region. When Senator Copeland pursued his inquiry, asking whether the Act recognized the higher cost for taxes on nearby lands, Senator Murphy merely recited the differential provisions of the Act and suggested that they 'adopt the present practice of business,' but conspicuously lacking is an affirmative statement that any specific differential covered these costs. This is not impressive legislative history especially in light of Senator Murphy's earlier agreement with Senator Copeland's statement that '(t)he provisions of the equalization * *  * provide that a producer who is producing his milk on farms near to cities would receive the same price for his product as a farmer who produces his milk, say, 40 or 50 miles away from the same community,' and the specific business illustrations of the House Report.

While market differentials customarily applied need not be restricted to the sole illustration in the House Report, that illustration, taken in conjunction with the discussion of all the statutory differentials, suggests that the permissible adjustments are limited to compensation for rendering an economic service. The challenged nearby differentials do not fall into this category.

Nor has the Secretary advanced any economic justification for these differential payments. It is plain from the administrative record that the nearby differential was included in the original Boston order as a recognition of the favored position of nearby producers in the fluid market and as an inducement to nearby farmers to approve the Secretary's order. (J.A. 237 .) The only sense in which the handler may be said to gain economically is by virtue of the elimination of the nearby producer as a potential competitor. While this factor is mentioned in the findings accompanying the 1937 order, it has not been emphasized in the 1964 findings and the testimony at the 1963 hearings suggests that support in the record is indeed scant. That entry of the nearbys into the distribution market would bring unwanted competition, is irrelevant if it does not jeopardize market stability. We think the analysis of the court below was correct: if there is any economic benefit here, producers should receive their compensation directly from the handlers and not out of the marketwide pool. 131 U.S.App.D.C., at 114, 402 F.2d, at 665.

While petitioner nearby farmers do not concede so readily the absence of economic foundation for the differential, no justifications are advanced that find any substantial support in the record. The allusion to the evenness of production on nearby farms would not justify the exclusive payment of this differential to nearby farmers. If the Secretary intended a production differential, all producers who qualify would be eligible. Some amici and petitioners point to higher taxes on nearby lands and opportunity costs as reason for retaining the differential. These are, admittedly, additional costs of nearby production, but they are of no concern to handlers who seek only to obtain reliably milk at the cheapest price. See Kessel, Economic Effects of Federal Regulation of Milk Markets, 10 J.Law & Econ. 51 (1967). This Court has been slow to attribute to Congress an intent to compensate for inefficient allocation of economic resources. Cf. West Ohio Gas Co. v. Public Utilities Comm'n, 294 U.S. 63, 72, 55 S.Ct. 316, 321, 79 L.Ed. 761 (1935). While petitioners argue that the differential is a necessary inducement to keep the nearby farmers in business, the record does not reveal that the Secretary acted out of concern that the nearby farmers would quit the market, nor is there any evidence demonstrating the present necessity for nearby producers. In an era where efficient transportation is available this may be of nominal concern. At most this may have been an unspoken consideration in 1937.

Since the Secretary made no findings to that effect, the Court need not consider whether they would justify payment of the nearby differential in view of the legislative history indicating that the statute contemplates adjustments primarily for economic costs to handlers that are absorbed or reduced by the producers. Further if the representations of respondents are correct-and they are not without support in the record-it appears that the elimination of the 40-mile zone nearby differential payments of 46, even with the suspension of the intermediate differential payments of 23¢, would result in a higher uniform price to those farmers now receiving the 23¢ differential.

Our holding does not represent a departure from this Court's precedents. No opinion of this Court has ever explicitly approved the nearby differential. Reliance on United States v. Rock Royal Co-op., 307 U.S. 533, 59 S.Ct. 993, 83 L.Ed. 1446 (1939), is misplaced. This Court's refusal to invalidate the payment of a nearby differential to farmers in certain counties named in the New York order must be taken in the context of that action which was initiated by the Government against handlers who refused to obey the regulations. That decision did not repudiate the District Court's finding that the provision was 'discriminatory as between producers.' Id., at 567, 59 S.Ct., at 1009, 1010. The narrow reach of our Rock Royal holding was recognized in Stark v. Wickard, 321 U.S. 288, 64 S.Ct. 559, 88 L.Ed. 733, (1944), where we noted that Rock Royal held the handlers without standing 'to object to the operation of the producer settlement fund,' id., at 308, 64 S.Ct., at 570, except as it affected handlers. The Court in Rock Royal went on to reject Rock Royal's contention that the payments placed those handlers without customers in the nearby counties at a competitive disadvantage.

Our attention is also drawn to the First Circuit's decision in Green Valley Creamery, Inc. v. United States, 108 F.2d 342 (1939). As in Rock Royal, supra, the parties did not have standing to raise the invalidity of the nearby differential. To the extent the First Circuit's view is contrary to our present holding, we disapprove it.

While this Court has announced that it will accord great weight to a departmental construction of its own enabling legislation, especially a contemporaneous construction, see Udall v. Tallman, 380 U.S. 1, 16, 85 S.Ct. 792, 801, 13 L.Ed.2d 616 (1965); Power Reactor Development Co. v. International Union of Elec., etc., 367 U.S. 396, 408, 81 S.Ct. 1529, 1535, 6 L.Ed.2d 924 (1961); it is only one input in the interpretational equation. Its impact carries most weight when the administrators participated in drafting and directly made known their views to Congress in Committee hearings. See Power Reactor Development Co. v. International Union of Elec., etc., supra; United States v. American Trucking Assns., 310 U.S. 534, 539, 60 S.Ct. 1059, 1061 1062, 84 L.Ed. 1345 (1940). In such circumstances, absent any indication that Congress differed with the responsible department, a court should resolve any ambiguity in favor of the administrative construction, if such construction enhances the general purposes and policies underlying the legislation. See American Power & Light Co. v. SEC, 329 U.S. 90, 112-114, 67 S.Ct. 133, 145-146, 91 L.Ed. 103 (1946).

The Court may not, however, abdicate its ultimate responsibility to construe the language employed by Congress. Those props that serve to support a disputable administrative construction are absent here. There is no suggestion in the findings, nor have the parties explained, how the present differential contributes to the broad, general purpose of eliminating crippling competition. Nor in the present case has the Court's attention been drawn to any hearings that suggest that Congress acted with the particular administrative construction before it in either 1935 or 1937. And if those administrators who participated in drafting the 1935 Act understood market differentials to encompass the farm location differential, they obviously failed to communicate their understanding to the drafters of the committee report. It is also evident that the 1937 re-enactment of the 1935 amendments was routine and did not follow a comprehensive review of the issues that had been explored in detail by the 1935 draftsmen who wrote the committee reports.

It is true that a report from the Federal Trade Commission set forth the computations employed under the 1936 Boston order which apparently provided for a nearby differential. But the stark figures, set forth in the appendix to the report without explication, can hardly be said to have given the administrative construction the 'notoriety' that this Court found persuasive in Udall v. Tallman, 380 U.S., at 18, 85 S.Ct., at 802. In Udall the Court was impressed by the fact that the Secretary's interpretation had 'been a matter of public record and discussion.' Id., at 17, 85 S.Ct., at 802. Even despite active congressional involvement in reviewing certain administrative action in connection with particular leases, the Court noted that it would not attribute ratification to Congress. Udall v. Tallman, supra. Nor can petitioners put flesh on this argument by citing § 4 of the 1937 re-enactment, 50 Stat. 249, and the committee report, H.R.Rep. No. 468, 75th Cong., 1st Sess., 4 (1937), which merely states in the language of the Act that § 4 purports to ratify, legalize, and confirm all action taken pursuant to the agreement and order provisions under the 1935 statute.

Petitioners allude to the fact that the orders in question have been specifically approved by the farmers concerned as required by § 8c(9)(B)(i) and (ii) of the Act. While the contention is adumbrated, the argument appears to run as follows: since provision is made for approval of orders by the regulated subjects, the Secretary's discretion should be generously interpreted. If provision for such approval could ever legitimize a regulation not authorized by statute, the provision has no significance in the case before us, in light of the considerations already discussed. It is the Secretary, not the farmers, who is responsible for administering the statute and initiating orders.

Although the Secretary does not press the point, the private petitioners argue that this Court should at the very least reverse for a trial on the merits or alternatively reverse with instructions to remand to the Secretary for further consideration.

This is not a case where a department has acted without a formal record. In such instances a trial might be appropriate to afford the department an opportunity to develop those facts which underpin its action. When action is taken on a record the department cannot then present testimony in court to remedy the gaps in the record, any more than arguments of counsel on review can substitute for an agency's failure to make findings or give reasons. A remand to the Secretary is inappropriate in the absence of a request by the Government. Counsel for the Department has advanced no new theory for sustaining the order. Cf. SEC v. Chenery Corp., 318 U.S. 80, 92, 63 S.Ct. 454, 461, 87 L.Ed. 626 (1943).

Unlike Addison v. Holly Hill Co., 322 U.S. 607, 64 S.Ct. 1215, 88 L.Ed. 1488 (1944), we do not have before us a definition in a regulation that is necessary to give meaning and content to the administrative scheme. Nor does our decision have the effect of engrafting a definition on a particular statutory term, a function that should, in the first instance, be left to the appropriate administrative body. The 1964 order, moreover, expressly provides for severance of any provision that is found invalid. See 7 CFR § 1001.96.

Petitioner farmers' last line of retreat is their contention that they are entitled to escrow monies that have been accruing since the District Court's entry of the order granting the respondents' motion for a preliminary injunction. The court below struck an equitable balance in awarding to petitioners, nearby farmers, all escrow monies collected prior to the entry of final judgment by the District Court. This is a fair solution, and one this Court will not disturb. Petitioners have been on notice since Blair v. Freeman, 125 U.S.App.D.C. 207, 370 F.2d 229 (1966), that nearby differentials were bottomed on a shaky statutory premise. Lest losing parties be encouraged to prolong litigation by frivolous appeals in order to reap a windfall, we think respondents deserve the fruits of their victory as of the date of final judgment at trial.

The judgment below is affirmed.

Affirmed.

THE CHIEF JUSTICE and Mr. Justice MARSHALL took no part in the consideration or decision of these cases.

Mr. Justice BLACK, with whom Mr. Justice WHITE joins, dissenting.