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Borden Inc. v. Butz

November 1, 1976

BORDEN, INC., PLAINTIFF-APPELLANT,
v.
EARL L. BUTZ, SECRETARY OF AGRICULTURE, DEFENDANT-APPELLEE.



Appeal from the United States District Court for the Northern District of Illinois, Eastern Division No. 74 C 2533 - James B. Parsons, Judge.

Author: Sprecher

Before SPRECHER and BAUER, Circuit Judges, and KUNZIG, Judge.*fn*

SPRECHER, Circuit Judge. This appeal concerns the validity of certain amendments to milk marketing orders by the Secretary of Agriculture under a provision of the Agricultural Marketing Agreement Act of 1937, 7 U.S.C. § 608c (5)(A).

I

Prior to September 1, 1970, Borden operated a milk processing plant at Rock Island, Illinois, which served the Quad Cities - Dubuque Market Area and which was regulated under the Quad Cities - Dubuque Milk Marketing Order No. 63, 7 C.F.R. Part 1063 (1970). Also prior to September 1, 1970, Borden operated another milk processing plant at Des Moines, Iowa, which was regulated under the Des Moines Milk Marketing Order No. 79, 7 C.F.R. Part 1079 (1970). This second plant served the Des Moines area, but also served the Cedar Rapids - Iowa City area (Order No. 70), the North Central Iowa area (Order No. 78), the Greater Kansas City area (Order No. 64), the Nebraska - Western Iowa area (Order No. 65) and the Quad Cities - Dubuque area (Order No. 63).

The Rock Island plant purchased its principal milk supply from Mississippi Valley Milk Producers Association and the Des Moines plant purchased its principal milk supply from Mid-America Dairymen, Inc.

On September 1, 1970, Borden discontinued bottling operations at the Rock Island plant and its fluid milk accounts in the Quad Cities - Dubuque area were thereafter served from the Borden plant at Des Moines. After September 1, the Des Moines plant's supplies of milk were purchased from Mississippi Valley.

Under the terms of Order Nos. 63 and 79, any particular plant is regulated in the market where it has the greatest distribution of milk. Consequently, upon the closing of the Rock Island plant and the assuming of its business by the Des Moines plant, the Des Moines plant became subject to the Quad Cities - Dubuque Order.

Borden's Des Moines plant was subject to the Quad Cities - Dubuque Order from September 1, 1970 through July 31, 1971, when the Des Moines plant was shut down. During that period the Class I price under the Quad Cities - Dubuque Order was 15 cents per hundredweight lower than the Class I price under the Des Moines Order.

The Quad Cities - Dubuque Order also provided that the price for Class I milk should be reduced

[at] a plant located outside the marketing area and 70 miles or more, by the shortest hard-surfaced highway distance... from the nearer of the City Hall, Rock Island, Ill., or the Post Office, West Liberty, Iowa, by 10 cents and by an additional 1.5 cents for each 10 miles or fraction thereof that such distance exceeds 80 miles.

7 C.F.R. § 1063.52 (a)(2) (1970).

Inasmuch as Borden's Des Moines plant was approximately 140 miles from the Quad Cities base point, it was entitled to a "location adjustment" of 10 cents per hundredweight plus 1.5 cents per 10 miles for the 60 miles by which 140 exceed 80 miles, or a total location adjustment of 19 cents per hundredweight, which, when added to the 15 cents price differential, resulted in Borden's Des Moines plant paying 34 cents per hundredweight less than other milk handlers located in Des Moines but subject to the Des Moines Order. However, any Des Moines plant which desired to distribute all or the greater of its milk in the Quad Cities - Dubuque area would have had exactly the same advantage in thereby transferring its plant from the operation of the Des Moines Order to the Quad Cities - Dubuque Order.

Borden had no competitive advantage over other handlers subject to the Quad Cities Order, since those handlers also paid 15 cents less than the Des Moines Order price for Class I milk and the 19 cents location adjustment was offset by the transportation costs involved in distributing milk to the Quad Cities - Dubuque area from 140 miles away in Des Moines.

Borden had no competitive advantage in the Des Moines market area since it voluntarily agreed with its producers to pay the same price paid by other Des Moines handlers for milk purchased for resale in the Des Moines area.

Under the milk marketing orders as they then existed, Borden's closing down of the Rock Island plant and supplying its Quad Cities customers from the Des Moines plant was entirely lawful and proper. Borden's mistake apparently was an economic one of deciding to purchase milk from Mississippi Valley Milk Producers Association, an independent dairy cooperative, after the changeover, instead of from Mid-America Dairymen, Inc., another independent dairy cooperative. Mid-America promptly requested the Department of Agriculture to suspend the 19 cents location adjustment.

There followed the issuance of three orders of the Secretary of Agriculture, the validity of which form the basis for this appeal:

1. October 1, 1970 order. On September 12, 1970, the Department of Agriculture caused to be published in the Federal Register a notice of proposed suspension of 7 C.F.R. § 1063.52 (a)(2) of the Quad Cities - Dubuque Order for the months of September and October 1970. The notice did not provide an opportunity for a hearing, and no hearing was held. Borden submitted its exceptions to the proposed suspension, noting that it would only affect Borden and none of its competitors. On October 1, 1970, the Secretary issued an order suspending 7 C.F.R. § 1063.52 (a)(2) for the month of October only. The order is worded in such a manner as to apply only to Borden.

2. October 29, 1970 order. On September 30, 1970, notice was issued, and on October 3 it was published, of a hearing to be held on October 8 on five proposed amendments to the Quad Cities - Dubuque, Cedar Rapids - Iowa City and Des Moines marketing orders. An order was issued on October 29, effective November 1, 1970, amending the Quad Cities - Dubuque Order No. 63 by permanently eliminating the 19 cents minus location adjustment applicable to Borden's Des Moines plant and for a six-month period through April 1971, providing for a 15 cent plus location adjustment applicable to plants located within the Des Moines marketing area. The order increased Borden's price for Class I milk by 34 cents per hundredweight by amending 7 C.F.R. § 1063.52 (a)(2), as follows (added language emphasized):

At a plant located outside the marketing area and outside the Des Moines, Iowa, marketing area... and 70 miles or more, by the shortest hardsurfaced highway distance... from the nearer of the City Hall, Rock Island, Ill., or the Post Office, West Liberty, Iowa, subtract 10 cents and subtract an additional 1.5 cents for each 10 miles or fraction thereof that such distance exceeds 80 miles.

The October 29, 1970 order also added a new § 1063.52 (a)(3) as follows:

During the period November 1, 1970, through April 1971 at a plant located within the Des Moines, Iowa, marketing area, add any amount by which the price specified... is less than the applicable Class I price at the same location pursuant to... [Order No. 79] regulating the handling of milk in the Des Moines, Iowa, marketing area.

The October 29 order did not amend the Cedar Rapids - Iowa City or the Des Moines marketing orders. Although phrased in general terms, the order was worded so as to apply only to Borden.

3. April 28, 1971 order. Pursuant to notices published on April 7 and 9, 1971, hearing was held on April 13, resulting in the issuance on April 28, 1971 of an order removing the April 1971 expiration date from § 1063.52 ...


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