In Re Judicial Review by Arcadia Dairy Farms, Inc.

223 S.E.2d 323 (1976) 289 N.C. 456

Appeal of and Petition for Judicial Review by ARCADIA DAIRY FARMS, INC. of Amendment No. 27 to Milk Marketing Order # 2.

No. 17.

Supreme Court of North Carolina.

April 6, 1976.

Robert B. Long, Jr., Asheville, for appellant.

Harris, Poe, Cheshire & Leager by W. C. Harris, Jr., Raleigh, for appellee.

LAKE, Justice.

The Milk Commission, being an administrative agency created by statute, has no regulatory authority except such as is conferred upon it by Chapter 106, Art. 28B, of the General Statutes. Utilities Commission v. Merchandising Corp., 288 N.C. 715, 722, 220 S.E.2d 304 (1975); Milk Commission v. Galloway, 249 N.C. 658, 664, 107 S.E.2d 631 (1959). The powers conferred upon the Commission are set forth in GS 106-266.8, the pertinent portions of which read as follows:

"The Commission is hereby declared to be an instrumentality of the State of North Carolina, vested with power:

* * * * * *

"(3) To supervise and regulate the transportation, processing, storage, distribution, delivery and sale of milk for consumption; provided that nothing in this Article shall be interpreted as giving the Commission any power to limit the quantity of milk that any producer can produce, nor the power to prohibit or restrict the admission of new producers.

* * * * * *

"(7) To make, adopt, and enforce all rules, regulations and orders necessary to carry out the purposes of this Article. * * *

"(10)a. The Commission, after investigation and public hearing, may fix prices to be paid producers and/or associations of producers by distributors in any market or markets, and may also fix different prices for different grades or classes of milk. * * *"

GS 106-266.9 further provides:

"* * * No distributor shall violate the prices as established by or filed with the Commission or offer any discounts or rebates without authority from the Commission; and the Commission may prohibit such practices as it may deem to be contrary to the welfare of the public and the dairy industry, such as the use of special prices or special inducements in any form or any unfair trade practices in order to vary from the established prices. * * *"

By Amendment 27 to Milk Marketing Order # 2 the Commission has undertaken to require one, who purchases, from within or without the State, powdered milk, mixes it with water and, possibly, other substances, thereby "reconstituting" fluid milk, which he distributes to consumers in this State, to pay money to North Carolina producers of natural, fluid milk, from which producers he has purchased nothing and with which producers he has had no business dealing. The purpose of the Commission in so doing is to assure an adequate supply of fluid milk in North Carolina markets by providing for producers of natural fluid milk the same gross revenues they would have received had the distributor of the "reconstituted" milk purchased from such producers natural, fluid milk and distributed it instead of the "reconstituted" milk.

Arcadia contends that the statute, above quoted, does not authorize the Commission to require such payment by it. Arcadia further contends that if the statute, properly construed, does authorize the Commission to impose such requirement, the statute, as applied to Arcadia, violates both the Constitution of North Carolina and the Constitution of the United States.

If a statute is reasonably susceptible of two constructions, one of which will raise a serious question as to its constitutionality and the other will avoid such question, it is well settled that the courts should construe the statute so as to avoid the constitutional question. Milk Commission v. Food Stores, 270 N.C. 323, 331, 154 S.E.2d 548 (1967); State v. Barber, 180 N.C. 711, 104 S.E. 760 (1920). In National Labor Relations Board v. Jones & Laughlin Steel Corp., 301 U.S. 1, 57 S.Ct. 615, 81 L.Ed. 893, 108 A.L.R. 1352, 1361 (1936), the Supreme Court of the United States said: "The cardinal principle of statutory construction is to save and not to destroy. We have repeatedly held that as between two possible interpretations of a statute, by one of which it would be unconstitutional and by the other valid, our plain duty is to adopt that which will save the act. Even to avoid a serious doubt the rule is the same." See also: Crowell v. Benson, 285 U.S. 22, 52 S.Ct. 285, 76 L.Ed. 598 (1931); Federal Trade Commission v. American Tobacco Co., 264 U.S. 298, 44 S.Ct. 336, 68 L.Ed. 696, 32 A.L.R. 786 (1924); Re Keenan, 310 Mass. 166, 37 N.E.2d 516, 137 A.L.R. 766 (1941); 16 Am.Jur.2d, Constitutional Law, § 146, 16 C.J.S. Constitutional Law § 98b.

Arcadia purchases its milk powder from a supplier located in Wisconsin (or Tennessee). Presently, there is no producer of such powder in North Carolina. If Arcadia, having paid the price of the Wisconsin powder, the water and other ingredients of its "reconstituted" milk plus the labor cost of the reconstituting process, must also pay to its competitor distributors, for the benefit of their producers, the difference between the price of Class I milk and the price of Class II milk, the flow of the Wisconsin product into this State will be severely restricted, if not stopped altogether. In this respect, the effect would be the same as that produced by a North Carolina protective tariff.

In Baldwin v. Seelig, 294 U.S. 511, 521, 55 S.Ct. 497, 500, 79 L.Ed. 1032 (1935), the Supreme Court of the United States, in an opinion by Mr. Justice Cardozo, held that the State of New York may not forbid the sale therein of milk brought into New York from Vermont unless the price paid to the Vermont producers was one which would have been lawful upon a like transaction within the State of New York. The Court said:

"Such a power, if exerted, will 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. * * * Imposts and duties upon interstate commerce are placed beyond the power of a state, without the mention of an exception, by the provision committing commerce of that order to the power of the Congress. Constitution, Art. I, § 8, Clause 3. * * *

"The argument is pressed upon us, however, that the end to be served by the Milk Control Act is something more than the economic welfare of the farmers or of any other class or classes. The end to be served is the maintenance of a regular and adequate supply of pure and wholesome milk; the supply being put in jeopardy when the farmers of the state are unable to earn a living income. * * * This would be to eat up the rule under the guise of an exception. Economic welfare is always related to health, for there can be no health if men are starving. 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 to our national solidarity. * * *

"Neither the power to tax nor the police power may be used by the state of destination with the aim and effect of establishing an economic barrier against competition with the products of another state or the labor of its residents. Restrictions so contrived are 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. * * * The importer must be free from imposts framed for the very purpose of suppressing competition from without and leading inescapably to the suppression so intended."

In United States v. Rock Royal Co-op., 307 U.S. 533, 59 S.Ct. 993, 83 L.Ed. 1446 (1939), the Court sustained Federal regulations, pursuant to an Act of Congress, establishing a system for fixing prices to be paid to producers of milk through equalization pools which distributed the total value of all milk sold in a specified market among the producers supplying that market. However, in Hood v. DuMond, 336 U.S. 525, 539, 69 S.Ct. 657, 665, 93 L.Ed. 865 (1949), the Court, noting its decision in the Rock Royal case, nevertheless held that the State of New York could not constitutionally deny a Boston distributor the right to establish a facility within the State of New York for the purchase there of milk for shipment to the Boston market, saying, through Mr. Justice Jackson:

"Our system, fostered by the Commerce Clause, is that every farmer and every craftsman shall be encouraged to produce by the certainty that he will have free access to every market in the Nation, that no home embargoes will withhold his export, and no foreign state will by customs duties or regulations exclude them. Likewise, every consumer may look to the free competition from every producing area in the Nation to protect him from exploitation by any. Such was the vision of the Founders; such has been the doctrine of this Court which has given it reality."

In Lehigh Valley Cooperative Farmers, Inc. v. United States, 370 U.S. 76, 82 S.Ct. 1168, 8 L.Ed.2d 345 (1962), the Court held invalid "compensatory payment" provisions included in milk marketing orders promulgated by the Secretary of Agriculture. The provision in question required those who purchased milk outside the marketing area and brought it into the area for sale as fluid milk to pay to the farmers who supplied the area a fixed amount, measured (as is true in the present case) by the difference between the minimum price set by the Market Administrator for fluid milk and the minimum price for surplus milk. There the Court said the regulation violated the Act of Congress, which provided, "No * * * order applicable to milk and its products in any marketing area shall prohibit or in any manner limit, in the case of the products of milk, the marketing in that area of any milk or product thereof produced in any production area in the United States." While the Lehigh Valley case did not involve the question of the validity of state action in the light of the Commerce Clause, it recognized that a "compensatory payment" plan, similar to that now prescribed by the order of the North Carolina Milk Commission, would effectively limit the flow of milk from one area into another.

In Dean Milk Co. v. City of Madison, 340 U.S. 349, 71 S.Ct. 295, 95 L.Ed. 329 (1951), the Court held violative of the Commerce Clause an ordinance of the City of Madison, Wisconsin, forbidding the sale therein of milk, as pasteurized, unless such milk was processed and bottled at an approved plant within a radius of five miles from the central square of the city. Speaking through Mr. Justice Clark, the Court said:

"But this regulation, like the provision invalidated in Baldwin v. Seelig, Inc., supra, in practical effect excludes from distribution in Madison wholesome milk produced and pasteurized in Illinois. * * In thus erecting an economic barrier protecting a major local industry against competition from without the State, Madison plainly discriminates against interstate commerce. This it cannot do, even in the exercise of its unquestioned power to protect the health and safety of its people, if reasonable nondiscriminatory alternatives, adequate to conserve legitimate local interests, are available." (Emphasis added.)

In Polar Ice Cream and Creamery Co. v. Andrews, 375 U.S. 361, 84 S.Ct. 378, 11 L.Ed.2d 389 (1964), the Court had before it a Florida statute requiring a Pensacola distributor to accept its total supply of Class I milk from Florida producers at a fixed price so long as such producers had such milk available. The Court, speaking through Mr. Justice White, held the statute violated the Commerce Clause, saying:

"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. * * *

"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. * * * 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. 511, 55 S.Ct. 497, 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 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."

Quite clearly, there is, at least, serious doubt that GS 106-266.8, if construed to authorize the Commission to require the distributor of milk, "reconstituted" from Wisconsin milk powder, to make compensatory payments to North Carolina milk producers, can be reconciled with the Commerce Clause of the Constitution of the United States.

A reasonable, indeed the more reasonable, construction of GS 106-266.8 is that no such power was intended to be conferred upon the Commission by the statute. The order of the Commission does not fix the price which Arcadia pays to its supplier of milk powder, or to its supplier of raw milk, nor does it fix the price for which Arcadia sells its "reconstituted" milk. In Webster's International Dictionary, 2d Ed., "price" is defined as follows:

"In the broadest sense, the quantity of one thing that is exchanged or demanded in barter or sale for another; the exchange value of one thing expressed in terms of units of another thing; in the narrower and more common sense, the amount of money given, or set as the amount that will be given or received, in exchange for anything; * * * the terms or consideration for the sake of which something is done or undertaken. * * * The cost at which something is obtained * * *"

Arcadia obtains nothing in return for the payment it is required to make by the order of the Commission. It is required to make such payment to its competitor distributors from whom it elected to purchase nothing, for the benefit of producers from whom it purchased nothing. Likewise, the Commission, by this order, has not undertaken to supervise or regulate the processing of "reconstituted" milk or its sale. Its order has nothing whatever to do with the selection of the ingredients which go into Arcadia's "reconstituted" milk and nothing whatever to do with Arcadia's method of processing such milk. The order leaves Arcadia free to sell its "reconstituted" milk. There is no contention that such milk is not wholesome, that Arcadia is representing it to its customers as anything other than that which it is, or that Arcadia, in the sale of its "reconstituted" milk is engaged in unlawful price cutting or other unfair trade practices. The sole purpose and effect of the Commission's order is to require Arcadia to pay to its competitors, for the benefit of producers with whom Arcadia has no dealings, an amount equal to the difference between the price those producers receive for the milk delivered to those distributors and the price they would have received for such milk had Arcadia purchased from those distributors the milk sold to them by those producers.

We note, in passing, that if Arcadia, instead of distributing "reconstituted" milk, made from Wisconsin powder and North Carolina water, had elected to expand its own dairy herd and to distribute the natural milk derived therefrom, the effect on other producers supplying the Asheville area would have been the same. By the express language of GS 106-266.8(3) the Commission could not restrict Arcadia's right to do so. We find in the statute no indication of a legislative intent to empower the Commission to afford to other producers greater protection against competition from wholesome "reconstituted" milk.

To interpret GS 106-266.8 as conferring upon the Commission power to require a distributor of "reconstituted" milk to make such payments for the benefit of producers, with whom it has no dealings, would also give rise to serious doubt as to whether such exaction would be a violation of Article I, § 19, of the Constitution of North Carolina, which provides, "No person shall be * * * in any manner deprived of his * * * property, but by the law of the land." In Insurance Co. v. Johnson, Commissioner of Revenue, 257 N.C. 367, 126 S.E.2d 92 (1962), this Court held that a tax levied upon fire and lightning insurance premiums to establish a pension fund for firemen was invalid for the reason that it was a tax imposed exclusively upon a particular group of insurance companies for the special benefit of a particular group of public employees. This Court quoted Mr. Justice Roberts, who said in United States v. Butler, 297 U.S. 1, 56 S.Ct. 312, 80 L.Ed. 477 (1936), "The word [tax] has never been thought to connote the expropriation of money from one group for the benefit of another." In this respect, there is no distinction between a tax and the payment required by the order of the Commission.

The provision in GS 106-266.9 that "the Commission may prohibit such practices as it may deem to be contrary to the welfare of the public and the dairy industry, such as the use of special prices or special inducements in any form or any unfair trade practices in order to vary from the established prices," may not, in our opinion, be fairly construed to authorize the order here in question. We construe that provision to apply only to the pricing of milk and practices designed to bring about variations from the prices fixed by the Commission. If not so limited in its application, this provision raises serious doubts as to its constitutionality, since it would appear to confer upon the Commission unbridled discretion to determine what practices it may deem to be contrary to the welfare of the public.

We, therefore, hold that Amendment 27 to Milk Order # 2, insofar as it requires Arcadia to make the specified payments into the equalization fund set up by the Commission is in excess of the statutory authority of the Commission and is void. The judgment of the Superior Court, is, therefore, reversed, and this matter is remanded to the Superior Court for the entry by it of a judgment directing the custodians of the funds now held in escrow, as above stated, to repay those funds to Arcadia.

REVERSED AND REMANDED.