Crowley's Milk Co. Inc. v. Brannan, Secretary of Agriculture , 198 F.2d 861 ( 1952 )

CLARK, Circuit Judge.

It is now no secret that governmental regulation of the distribution of milk is complex and mystifying. Even so, this case appears to set a record of its own. For the question of classification for the purpose of payment of the milk product here in issue, at first 'blush apparently simple, has baffled even the experts and the trade for several years. The milk product, as manufactured by plaintiff at its Binghamton plant during the period involved, 1943-1948, was a “mix” of whole milk, cream, skimmed milk solids, sugar and a stabilizer, all of which were homogenized. There seems accord, therefore, that in its physical aspects it was an “homogenized mixture.” But the question comes as to whether it is to be treated as “in the form of frozen desserts or in the form of homogenized mixtures used in frozen desserts” or even as “cream,” to carry the lower rate of payment granted these products in the controlling milk order, or whether it must be paid for as whole milk of the highest grade for want of another and applicable classification. A portion of the product sold by plaintiff was eventually frozen by the purchaser, and payment for that has been assessed and paid at the lower rate. No question is raised as to this. The dispute concerns that portion of the product (the greater amount, in fact) sold to a purchaser who used it in making a product known as “Instant Whip.” Instant Whip is made 'by putting the mix into a patented tubelike container, and adding thereto nitrous oxide gas under pressure. When the valve on the container is opened the product emerges in a form similar to whipped cream and is ready for immediate use. It is distributed to drug stores, ice cream par-' lors and similar establishments, and serves the same purposes as whipped cream, including topping on frozen desserts.

So much of the manufacture and distribution of plaintiff’s mix product is undisputed. But just how much payment is due from it as handler has been a matter of varying views over the years. After a discussion with an auditor for the Market Administrator, plaintiff reported the mix as cream from 1943 until August, 1945. But for the months of October, 1943, to July, 1945, its reported designation as cream was changed by the Market Administrator to that of “homogenized mixture” — a change which did not affect the amount of the required payments. This new designation and the resulting classification was not questioned, and the payments so made during that period are not in issue here. After a conference with members of the Market Administrator’s staff, plaintiff, commencing in August, 1945, reported the mix as “homogenized mixture” in accordance with the previous designation of the Market Administrator. The Market Administrator, as authorized by the Order, issued rules and regulations —temporarily effective August 1, 1945, and made permanent as of November 1, 1945— which contained definitions, inter alia, of cream, frozen dessert, and homogenized mixture. In the latter part of 1947, it was discovered that a purchaser was using the product for Instant Whip and not for ice cream or a comparable frozen dessert. So plaintiff’s monthly reports were re-audited, this part of the product was reclassified as Class I-A fluid or milk not otherwise classified, and plaintiff was required to pay over $51,000 additional to the producer-settlement fund.

Thereupon plaintiff sought relief within the agency and a full hearing was had before a Hearing Examiner, who recommended that the classification be changed to that of cream under Class II-A. Both parties filed exceptions, and a hearing of arguments on the full record was had before the Judicial Officer of the Department who (as usual in these cases) was designated to act for the Secretary. The Judicial Officer made lengthy findings and, concluding that the plaintiff was not entitled to relief, dismissed the petition. Plaintiff thereupon sought in the district court below the relief afforded it under the Agricultural Marketing Agreement Act of 1937, 7 U.S.C.A. § 608c(15) (B). In a careful opinion Judge Brennan held the order of the Judicial Officer not in accordance with law and directed defendant and his representatives to classify plaintiff’s product as an “homogenized mixture” and to make the resulting refund to the plaintiff. This appeal 'by the Secretary followed.

Much of the legislative background, the governing statute, and the controlling Milk Order appear not only in Judge Brennan’s complete opinion, but also in the many decisions of this court in the field, including the majority and minority opinions in Kass v. Brannan, 2 Cir., 196 F.2d 791, and the opinion in Dairymen’s League Cooperative Ass’n v. Brannan, 2 Cir., 173 F.2d 57, cer-tiorari denied 338 U.S. 825, 70 S.Ct. 73, 94 L.Ed. 501. We shall not repeat this material in extenso here. The issue of classification comes down essentially to a decision between defendant’s contention that ultimate actual use of the product controls and plaintiff’s contention that its form as it leaves the handler’s plant is decisive. In addition are of course the usual queries as to the extent of our power of review.

This latter question, never easy, has not been rendered less difficult by the Congressional trend toward greater judicial powers of review of agency action, as upheld and interpreted by the Supreme Court in Universal Camera Corp. v. N. L. R. B., 340 U.S. 474, 71 S.Ct. 456, 95 L.Ed. 456. Despite this prodding it would seem that in a field so dependent on supervision by experts, with a milk order not only so complicated, but also so interrelated in all its parts, judicial interference must still be hesitant and cautious. But our doubts as to the extent of our power are somewhat softened by the obvious difficulty the agency officials have found in construing their own order, a difficulty not shown to be the less by the fact that in 1949, after this controversy arose, the Secretary amended his order to place butterfat as here used in the same classification with butterfat used in frozen desserts. 14 F.R. 7755, and see 7 CFR 927.101 (bb) now defining “whipped topping mixture.” Plaintiff, indeed, contends that the Judicial Officer accorded it too limited a hearing in restricting his determination to the issue whether the previous agency action was lawful; it says that, since by the statute it is the Secretary to whom is given the final power of ruling upon a handler’s petition for review, 7 U.S.C.A. § 608c(15) (A), he cannot thus be circumscribed in what he may do. We do not feel called upon to pass upon this question, for the power given the courts under id. (15) (B) to determine whether the Secretary’s ruling is “in accordance with law” seems to us ample for a final disposition of the case. An order requiring a most substantial additional payment, as here, cannot be considered in accordance with law if it is based upon an unreasonable interpretation of even the Secretary’s own order and regulations. Barron Cooperative Creamery v. Wickard, 7 Cir., 140 F.2d 485, 488, per Minton, J. And we believe with the court below that under all the circumstances here disclosed, the reading of the order made in the agency was unreasonable.

The Act itself authorizes a classification of the milk in accordance with either “the form in which or the purpose for which it is used.” 7 U.S.C.A. § 608c(5) (A). But, as we have had occasion to point out, classification as of the form in which it is held at, or moved from, the plant of the handler where the milk is received from dairy farmers is the basic plan of the order. Queensboro Farm Products v. Wickard, 2 Cir., 137 F.2d 969, 976, 979, 980; Waddington Milk Co. v. Wickard, 2 Cir., 140 F.2d 97, 101; Order 27, 7 CFR 927.4(a) (3). So much is conceded; argument starts because of exceptions which do exist. Plaintiff contends that each one is clearly and explicitly stated and depends upon some perceivable reason, among which geography (or variations made because of the territorial area covered) looms large. It argues, therefore, that in effect the exceptions prove the rule. With the first part of this contention defendant substantially agrees, but he urges that an exception for use is clearly stated here. The classifications which plaintiff claims for its mix are Classes II-D, II-E, and II-F, the significant language of each being that “all milk the butterfat from which leaves or is on hand at a plant * * * jn ^he form 0f frozen desserts or in the form of homogenized mixtures used in frozen desserts” shall be in one of these classes, depending on the geographical area in which “delivery” is made and also depending on whether the milk product is subsequently moved to or delivered to a “purchaser” in New York City. 7 CFR 1945 Supp. 927.4(c) (7) (8) (9). The accompanying Rules and Regulations also contain the following definition: “ ‘Homogenized mixture’ means the product which results from homogenizing a mixture * * * and which is prepared for use in the manufacture of frozen desserts.” 7 CFR 101 (x). These are the crucial words to be interpreted.

In defendant’s view this language amounts to a flat requirement that the product must be more than fitted for or usable as a frozen dessert, but must also always be frozen. This seems to us an unjustified literalism. The provisions appear to emphasize the nature of the product as it “leaves or is on hand at a plant,” in perfect accord with the basic standard of the order. The form is stressed; that word is repeated many times throughout the categorizations in question, while the fact of freezing is nowhere stated forthrightly as a requirement. And the expression “which is prepared for use” is, after all, substantially different from the expression “which is used,” which could so easily have been employed, had that been the drafting intent. When this language is viewed in the light of the circumstances, its reference to the form of the product at the plant, rather than its ultimate use in some final purchaser’s hand, seems strongly indicated. After all, this was a “mix” of various kinds of milk products which surely ought not to be assessed as of the value of Class I-A fluid milk, as is now clear from the latest amendments of the order. The Milk Administrator’s own ruling to like effect during the period of 1943-1945, while it may not estop the Government, Dairymen’s League Cooperative Ass’n v. Bran-nan, supra, certainly suggests an interpretation which seemed to the parties reasonable at the time. The findings of the Judicial Officer showed also that before August 1, 1945, unfrozen mixtures prepared and used for eggnog and charlotte russe were allowed the homogenized mixture classification by the Market Administrator’s Office and that Instant Whip itself had been so classified under New York State Order No. 127 in the Niagara Frontier Milk Marketing Area and had been ruled a “frozen desserts mix” under a New York statute giving the regulation thereof to the Commissioner of Agriculture and Markets, rather than the Health Commissioner. Aerated Products Co. of Buffalo v. Godfrey, 290 N.Y. 92, 48 N.E.2d 275. Finally the obvious administrative difficulties involved in rejecting the simpler test of form at or leaving the handler’s plant, making different rates apply to the same product, and requiring a search for ultimate use which (on defendant’s line of argument) ought logically to go beyond the Instant Whip distributors to the very consumers themselves, persuade against defendant’s interpretation.

Hence, in our view, the construction urged by the plaintiff is a natural and to-'be-' expected one, while that asserted by defendant is novel and unreasonable. The district court therefore properly sustained plaintiff’s claims of review of defendant’s order.

Affirmed.