The opinion of the court was delivered by: BARTELS
This is a proceeding under Section 8c(15)(B) of the Agricultural Marketing Agreement Act of 1937, as amended, 7 U.S.C. § 608(c)(15)(B), to review a ruling of the Judicial Officer of the Department of Agriculture, requiring plaintiff, as a handler of milk, to account and pay for certain alleged milk to the Market Administrator under Federal Order No. 27, promulgated by the Secretary of Agriculture under said Act and regulating the handling of milk in the New York metropolitan area.
Under Section 608(c)(15)(A) of said Act, a handler objecting to the ruling of the Market Administrator or of the Department must file a petition for review thereof before the Department. The Judicial Officer of the Department of Agriculture (sometimes referred to as the 'Officer') having denied plaintiff's petition, plaintiff now seeks review of such denial pursuant to the above Section 8(c)(15)(B).
A motion for summary judgment was filed by the defendant, whereupon the plaintiff filed its cross-motion for summary judgment.
Under Order No. 27, as amended, 7 C.F.R. 927,
regulating the handling of milk in the New York-New Jersey marketing area, all milk handlers are required to pay minimum prices to farmers for milk purchased. In order to determine whether all such milk was paid for at the minimum prices, the Market Administrator under Order No. 27 and the Regulations issued thereunder is required to verify the receipts and utilization of milk received by the handler from the farmer. Milk is received and paid for in terms of pounds but is disposed of in terms of quarts. To balance disposition of milk with receipts, the amount disposed of must be converted into pounds. If in the process of converting quarts into pounds it becomes apparent that the milk handler has disposed of more milk than he has received, then a question is raised as to the source of the excess and whether upon an accounting any funds are due for such excess. If records of the specific weights of milk disposed of are kept by the handler, no difficulty arises. If he does not produce such specific weights upon an accounting, then a conversion factor must be employed. To provide for such a case the Market Administrator included in the Rules and Regulations Section 927.231 to the effect that 'in the absence of specific weights', milk in a quart unit shall be deemed to weigh 2.15 pounds.
In reviewing the legality of the Secretary's action we must bear in mind the limitation upon the Court's power to review the findings of administrative agencies including milk marketing agencies. If the Secretary's ruling is supported by substantial evidence and is otherwise legal, it cannot be disturbed. Ogden Dairy Co. v. Wickard, 7 Cir., 1946, 157 F.2d 445; New York State Guernsey Breeders Co-op. v. Wickard, 2 Cir., 1944, 141 F.2d 805, 153 A.L.R. 1165. The crux of the case is whether there was substantial evidence to justify the finding of the Judicial Officer
that the milk handler had failed to supply specific weights, which in turn authorized the Judicial Officer to apply Sections 927.231 and 927.79 of the Rules and Regulations issued under Order No. 27 requiring the application of the conversion factor of 2.15 pounds per quart of milk in determining the amount of milk disposed of and also the payment for any excess so determined as a payment for milk for which the farm source was not established.
Plaintiff is a milk handler in Brooklyn engaged in the business of buying milk from farmers and others and pasteurizing, processing and packaging same for distribution to consumers and others. Plaintiff is subject to Federal Order No. 27, promulgated by the Secretary of Agriculture, under which is prescribed the minimum prices paid by handlers to farmers upon milk subject to said Order (7 U.S.C. § 608c). As prescribed by the Order, the Market Administrator audited plaintiff's records for the purpose of verifying the receipts and utilization of milk at plaintiff's Brooklyn plant as reported by it for the months of September, 1956 through February, 1957.
The audit showed that plaintiff's records disclosed the amount of milk received at its plant in pounds and the amount of milk disposed of in quarts, pints, half pints and one-third pints. To reconcile disposition of the milk with the receipts of the milk, the Market Administrator applied the conversion factor of 2.15 pounds per quart as specified in Section 927.231 of the Classification and Accounting Rules under Order No. 27. The use of this conversion factor resulted in more pounds of milk as having been disposed of by plaintiff than were shown by the records as having been received by it. The Market Administrator accordingly billed plaintiff for the amount of $ 8,859.32 for payment into the Producer Settlement Fund pursuant to the provisions of Sections 927.143 and 927.79 of the Rules and Regulations under Order No. 27 on the ground that the excess milk must be treated as having been received in the form of milk from an 'undisclosed source'.
Plaintiff claims that the application of this conversion factor was unjustified because it had produced reasonable evidence of specific weights which showed that its quart units weighed not more than 2.125 pounds. Plaintiff further argues, among other things, that the application of the conversion factor of 2.15 pounds per quart resulted in a theoretical or paper excess in pounds of milk to be accounted for, and that the Market Administrator treated the paper excess as milk from an 'undisclosed source', whereas Section 927.79 of the Order is applicable only to milk 'for which the farm source is not established' and not to milk whose source, as in this case, had been established by the handler's records.
The pertinent portion of Section 927.231 of the Rules and Regulations includes the following:
'Sec. 927.231. Weights.
In the absence of specific weights the following table shall be used:
Product Unit Net Weight
Cream (16% bf) 40 quarts or 40-quart can 85.42
* * * * * *
Milk 40-quart can 85.00
Milk (packaged) Quart (in any package) 2.15"
From this section it is obvious that the 2.15 pounds per quart standard comes into play only in the absence of specific weights. It is incumbent, therefore, upon the plaintiff to come forward and produce the specific weights if it wishes to stay the operation of the conversion factor. Plaintiff claims it has produced this evidence by (a) certain records for 84 of the 152 operating days which show the weights of quarts dispensed during that period by three machines, (i) American Canco Filling Machine (Canco), (ii) Sealking No. 1 machine, and (iii) Sealking No. 2 machine; (b) oral testimony as to the accuracy of the operation of the above machines after the valves of the same were properly set in relation to a calibrated quart, and (c) oral testimony that similar records were kept for the remaining 68 days but thereafter lost. The Judicial Officer indicated that this evidence was insufficient because (1) records for 68 days were missing, (2) the records which were kept for the 84 days showed that pints measured on one of the Sealking machines were not in adjustment with the quart measurement, and (3) the Canco machine could become maladjusted.
Plaintiff's plant, in addition to facilities for bottling milk in glass, has three machines for packaging milk in paper, a Canco machine and two Sealking machines. The Canco machine packages only quarts in preformed containers and consists of 18 valves, each packaging a quart. The two Sealking machines, on the other hand, form the paper containers and each machine has two sides containing four valves, each valve dispensing a half pint, a quart being thus filled after being run under the four valves. Evidence was introduced by plaintiff to the effect that before commencing operations a container was filled from each of the 18 valves of the Canco machine, taken off the machine and weighed individually to ascertain the actual weight of each container for each value. If the weight was not correct an adjustment was made in the valves of the machine and the weight was rechecked. A similar procedure was adopted with ...