Capitol Foundry Co. v. Bowles , 146 F.2d 855 ( 1944 )

MARIS, Chief Judge.

The complainant is a producer of gray iron castings in Phoenix, Arizona. The Arizona Iron Works is or recently was in the same business in Phoenix.¹ Its nearest competitors are hundreds of miles away in Los Angeles and El Paso. Maximum Price Regulation No. 244 (gray iron castings)² froze complainant’s prices at the highest price at which it had sold or offered for sale the same or substantially the same castings between August 1, 1941 and February 1, 1942. Complainant’s business has been very successful under the personal supervision and management of its two officers who are its sole stockholders. But in 1943 it found its labor and other costs rising and its profits decreasing and it made application to the Price Administrator for an adjustment of its maximum prices pursuant to the adjustment provisions contained in Section 1421.157(a) of the Regulation, as-amended.³ The Administrator denied the complainant’s application and subsequent protest, whereupon the complainant brought the case here.

The provisions of Section 1421.157(a) of the Regulation, as amended, under which the application was filed, are as follows:

“(a) Any seller of gray iron castings may file an application for adjustment of his maximum prices for any or all such castings: Provided, That he is prepared to show:

“(1) That his maximum prices for such castings are below his costs of producing them, or are inadequate to maintain continued production of such castings, and

“(2) That such castings are necessary to-the war effort, and either

“(3) That he has entered into or proposes to enter into Government contracts or subcontracts under such contracts for the sale of such castings, or

“(4) That unless adjustment is granted applicant will cease or will not undertake-production of such castings, and as a result the purchaser will be materially handicapped in its operations for one or more of the following reasons:

“(i) Applicant possesses special knowledge and experience in the production of such castings,

“(ii) No other foundry properly equipped to produce such castings is located within a convenient distance of purchaser,

“(iii) There is a general shortage in the type of facility possessed by applicant for the production of such castings,

“(iv) The purchaser will be unable to procure such castings from another satisfactory source except at prices higher than those requested by applicant.

“Such adjustments may be granted by the administrator or, in an appropriate case, by the regional administrator for the appropriate regional office of the Office of Price Administration, and shall be based upon a consideration of changes in applicant’s costs of production, his over-all returns and such other circumstances as may be pertinent to the maintenance of an adequate supply of gray iron castings needed for the war effort. * * * ”

It will be observed that the adjustments here contemplated are only those individual adjustments which are required in order to keep up in a particular plant the production of castings necessary for the war effort. This particular section does not concern itself with modifications in the maximum prices which may be necessary in order to keep those prices generally fair and equitable. The complainant’s failure to observe this distinction has led it to advance in support of its requested adjustment considerations which would only have been available to it if it had protested the continued validity of the Regulation itself on the ground that increasing costs and decreasing profits had rendered the maximum prices fixed by the Regulation no longer generally fair and equitable.⁴ Since this is an adjustment proceeding the complainant is not in a position to question the validity of the regulation under the terms of which the adjustment is sought, hut is restricted to the question whether the Administrator was arbitrary or capricious in holding that the complainant had failed to bring itself within the terms of Section 1421.157(a) of the Regulation. Armour and Company of Delaware v. Brown, Em.App.1943, 137 F.2d 233; Goodman v. Bowles, Em.App.1943, 138 F.2d 917. We accordingly turn to the consideration of that question.

The primary standards set by subpara-graph (1) of Section 1421.157(a) are that the maximum prices for the applicant’s castings are either below the cost of producing them or inadequate to maintain continued production of them. Complainant does not assert that its prices are below its cost of production. Consequently the question is whether the Administrator erred in holding that the complainant had failed to show that its maximum prices are inadequate to maintain continued production of castings at its plant. The Administrator asserts, we think rightly, that an objective test is here involved. Certainly a subjective test would be wholly incompatible with price control since it would make price adjustment dependent upon the feelings of an applicant rather than upon the facts of his situation.

The Administrator has adopted a uniform standard by which to determine whether the maximum prices of an applicant for adjustment are adequate to maintain continued production of castings by it. It is based upon the proposition, which we cannot hold to be unreasonable, that a producer will ordinarily continue production of a commodity if he is realizing the same rate of profit that the industry generally realized during a representative prewar period. We have held that the adoption of standards by the Administrator for the sake of uniformity in making necessary adjustments in maximum prices is not only permissible but highly desirable. Gillespie-Rogers-Pyatt Co., Inc. v. Bowles, Em.App. 1944, 144 F.2d 361.

The Administrator ascertained that the average earnings of gray iron foundries during the period 1936 to 1939, inclusive, were approximately 4% of sales. He concluded, therefore, that if a producer of gray iron castings was realizing current profits of 4% or more of sales there was reasonable ground to believe that he would continue production. Accordingly, the Administrator tells us, he has adopted the uniform rule of action on applications for adjustment under Maximum Price Regulation No. 244 that no adjustment would be granted having the effect of returning profits in excess of 4% of sales.

The record shows, and the complainant admits, that although its rate of earnings has greatly dropped it is still in excess of 4% of sales. It will thus be seen that the Administrator was right in holding that the complainant had failed to meet the standard which the Administrator had prescribed as a basis for adjustment. The complainant, however, urges that the Administrator’s action in thus strictly applying his standard was arbitrary and capricious for a number of reasons. We think that these contentions are based upon the misconception of the scope and purpose of the adjustment provision to which we have already adverted and, while possibly relevant in support of a protest against the continuing validity of the Regulation itself, they are not available to the complainant in a proceeding in which it must accept the Regulation, including the limitations of the adjustment provisions, as valid and binding upon it.

Thus the complainant argues that the Administrator’s, order denying its application is erroneous as compelling changes in its business practices, cost practices and methods in violation of Section 2(h) of the Emergency Price Control Act, SO U.S.C.A. Appendix, § 902(h). The practices to which it points are those of adjusting its prices to increases in costs under escalator clauses contained in the contracts with its customers. In pressing this point the complainant asks us to overrule our decision in Philadelphia Coke Co. v. Bowles, Em.App.1943, 139 F.2d 349, in which similar practices were involved. But it is clear that the increases provided by the complainant’s escalator clauses are prohibited by Section 1421.151 (a) of the Regulation itself and not by the order here under review. That section provides : “On and after October 26, 1942, regardless of any contract, * * * no person shall sell or deliver gray iron castings * * * at prices higher than the maximum prices * * It will thus be seen that the question is not before us in this case.

It is urged that the Administrator’s action was discriminatory in that while refusing complainant’s application for adjustment he granted a similar application made by its competitor, the Arizona Iron Works, thereby allowing the latter a higher maximum price than that fixed for the complainant. This argument loses sight of the fact that the sole purpose of the adjustment provision was to assure production of castings needed for the war effort. It appeared that the prices of the Arizona Iron Works did not afford it a return of 4% on sales and on some castings did not even cover its cost of production. Thus the application to the Arizona Iron Works of the same standard which had been applied to the complainant called for an ádjustment in the case of the former but not in the case of the latter. Moreover the Act does not require uniform maximum prices for all the competing members of an industry. Indeed the freeze date method of establishing maximum prices, which we have upheld,⁵ and which is incorporated in Maximum Price Regulation No. 244 under which the complainant and its competitors are operating, has the effect of retaining the price variations which previously existed in the industry.

Complainant also argues that it.has been discriminated against because its profits" have been reduced from 16.45% on sales for the period 1936 to 1939, inclusive, to little more than 4%, whereas the industry generally has enjoyed an increase in earnings over the prewar years. This, however, has been brought about by the operation of the Regulation, not by the order here in question. If the Regulation is no longer generally fair and equitable the complainant may secure relief by filing a protest against it upon that ground. As has already been pointed out, we are here concerned only with the question whether an adjustment of complainant’s maximum prices was necessary to keep its foundry in production of castings needed for the war effort. Upon the application of an objective standard which we deem reasonable the Administrator concluded that a price adjustment was not needed for that purpose. The record does not suggest that the standard has not been uniformly applied throughout the industry in considering applications for adjustments under Section 1421.157(a) of the Regulation.

The Administrator’s order denying complainant’s application for adjustment directed it to refund to its customers any payments received by it in excess of the maximum prices permitted by the Regulation and to make a report to the Office of Price Administration with respect thereto. The complainant contends that the Administrator was without authority to make such an order. We cannot agree. Section 1421.156 of the Regulation authorized the complainant while its application for adjustment was pending to “make sales, deliveries or offers of sale at prices adjustable in accordance with the disposition of such * * * application” and directed that the applicant “shall refund to the purchaser any moneys or other consideration paid which are in excess of the maximum price.” Section 202(a) of the Act, SO U.S. C.A.Appendix, § 922(a), authorizes the Administrator “to obtain such information as he deems necessary or proper to assist him in * * * tkg administration and enforcement of this Act and * * * orders * * * thereunder.” It will thus be seen that the order for the refunds was authorized by the Regulation, the validity of which is not subject to question in this proceeding, and that the order for the report was authorized by the Act.

The complainant’s other objections are primarily directed to the validity of the Regulation and the constitutionality of the Act and consequently, for the reasons already stated, are not properly raised in this proceeding. They, therefore, need not be further discussed.

We conclude that the order under review was neither arbitrary nor capricious.

A judgment will be entered dismissing the complaint.

1 Counsel for complainant stated at bar that the Arizona Iron Works ha-s now gone out of the business of producing gray iron castings.

2 7 F.R. 8558.

3 Amendment No. 3, 8 F.R. 3002.

4 The Emergency Price Oontrol Act of 1942, 50 U.S.C.A.Appendix § 901 et seq., sets no time limit on the filing of a protest based on new grounds sucb as these. R. E. Schanzer v. Bowles, Em.App.1944, 141 F.2d 262.

5 United States Gypsum Co. v. Brown, Em.App.1943, 137 F.2d 803.