Maryland and Virginia Milk Producers Assn., Inc. v. United States

PETITIONER:Maryland and Virginia Milk Producers Assn., Inc.
RESPONDENT:United States
LOCATION:Approximately half-way between Santa Marta, Colombia and Miami. Florida (by water)

DOCKET NO.: 62
DECIDED BY: Warren Court (1958-1962)
LOWER COURT:

CITATION: 362 US 458 (1960)
ARGUED: Jan 19, 1960 / Jan 20, 1960
DECIDED: May 02, 1960

Facts of the case

Question

  • Oral Argument – January 20, 1960
  • Audio Transcription for Oral Argument – January 20, 1960 in Maryland and Virginia Milk Producers Assn., Inc. v. United States

    Audio Transcription for Oral Argument – January 19, 1960 in Maryland and Virginia Milk Producers Assn., Inc. v. United States

    Earl Warren:

    Number 550 or number 62 rather, Maryland and Virginia Milk Producers Association, Appellant, versus, United States, and United States versus Maryland and Virginia Milk Producers Association.

    Mr. Bergson, you may proceed.

    Herbert A. Bergson:

    May it please the Court.

    This case is here on direct appeal by both parties from judgments of the United States District Court for the District of Columbia.

    This is a case that was brought under the antitrust laws charging violations of Section 2 of the Sherman Act, Section 3 of the Sherman Act, Section 7 of the Clayton Act.

    The court below held that agricultural cooperatives, which the defendant established it was, are exempt from prosecution under Section 2 of the Sherman Act, were not acting in combination with outsiders by virtue of the provisions of Section 6 of the Clayton Act and Sections 1 and 2 of the Capper-Volstead Act.

    The Government is appealing from this decision, in this judgment.

    The Court also held that the cooperative was not exempt when it acquires a retail dairy, where the effect of the acquisition is to restrain trade in violation of Section 3 of the Sherman Act or to substantially lessen competition or tend to create a monopoly in violation of Section 7 of the Clayton Act, from this judgment, the association appeals.

    The Government also appeals from this judgment on the issue of adequacy of the relief that was granted by the District Court.

    The issue that is central to both appeals is not whether, but to the extent — but the extent to which agricultural cooperatives are exempt from the normal operations of the antitrust laws by virtue of the provisions of the Clayton and Capper-Volstead Act.

    Now, there’s no dispute between the parties that there is some exemptions.

    William J. Brennan, Jr.:

    Of what?

    Herbert A. Bergson:

    Some exemptions.

    The Government in its main brief concedes that agricultural cooperatives were given a limited immunity from Section 2 of the Sherman Act, namely, the right to obtain a monopoly in the colloquial sense and I’m quoting, “Of controlling the entire source of supply in a particular area.”

    The Government also concedes that the act from this, an agricultural association to obtain a degree of control over supply, which in the case of ordinary corporations, might constitute unlawful monopolization.

    Further, in its reply brief, the Government states that it has not asserted that a cooperative by the mere possession of monopoly market power transcends any Capper-Volstead authorization.

    The Government’s position, as stated in its question presented, is whether monopolization or attempted monopolization by coercive and exclusionary means are immunized.

    It’s the association’s position, on the other hand, that the cooperative has complete immunization from antitrust prosecution, say it in two circumstances.

    One, where it combines with nonexempt — combines or conspires with nonexempt outsiders for the benefit of the nonexempt outsiders as was the case in Borden, and two, where the monopolization results in undue enhancement of prices.

    In that case, a special procedure is set up whereby the Secretary of Agriculture makes findings of fact, considers the question of monopolization and undue enhancement and authorizes and — and orders the association to desist from such monopolization or restraint of trade.

    Felix Frankfurter:

    Would you mind turning — turning to the page where one could put his eyes on the terms of the statute instead of the rephrasing it?

    Herbert A. Bergson:

    It’s in the appendix to our brief, Your Honor, our first brief at pages 3 (a) — no, excuse me —

    4 (a).

    Herbert A. Bergson:

    4 (a).

    Felix Frankfurter:

    It comes from Capper-Volstead, isn’t it?

    Herbert A. Bergson:

    Capper-Volstead.

    It is now a difference — it makes no difference (Inaudible) having she used — I haven’t read — of reading the Government’s (Inaudible)

    Herbert A. Bergson:

    I don’t think so.

    And then —

    Herbert A. Bergson:

    And we — we’re both talking about the same —

    (Voice Overlap) —

    Herbert A. Bergson:

    — statutes and I —

    — and the other provisions of the statute, they’re not —

    Herbert A. Bergson:

    No.

    No, Your Honor.

    Earl Warren:

    Well, Mr. Bergson, do I — do I understand that it is your position that as long as these cooperatives operate by themselves and without — not with outsiders, with the exception of — of this one price factor that you mentioned that it can, with impunity, violate any antitrust law that has been established.

    It can be as suppressive, as it wants.

    It can be as monopolistic as it — at once and that there is no — there’s no power in the antitrust laws to — to prevent it.

    Herbert A. Bergson:

    That’s right, Your Honor.

    Earl Warren:

    All right.

    I just want to understand.

    Herbert A. Bergson:

    That — that was the only procedure where they act alone as any event of going —

    Earl Warren:

    Yes.

    Herbert A. Bergson:

    — to enhancement of prices.

    Earl Warren:

    Yes.

    I — I —

    Herbert A. Bergson:

    And that is through the procedures set up in the — in the Department of Agriculture.

    Felix Frankfurter:

    Be it that, it doesn’t stay explicitly — it doesn’t — it’s lifted out of the Sherman law in terms of —

    Herbert A. Bergson:

    It does not, Your Honor.

    There is no — there is no explicit exemption from the Sherman Act either for the position that we take or for the position that the Government takes.

    Hugo L. Black:

    Protection of — of adjusting two potentially conflicting statutes.

    Herbert A. Bergson:

    Two potentially conflicting statutes which is resolved, I think, by a — a — clearly resolved by the legislative history and —

    Felix Frankfurter:

    And that’s — that’s the issue.

    Herbert A. Bergson:

    — that — that’s the issue, Your Honor.

    William J. Brennan, Jr.:

    Well, in answer to the Chief Justice, it’s all our competitors of the hearing before the Secretary of Agriculture to stand in the trial.

    Herbert A. Bergson:

    It is our position, Your Honor, that Congress intended to take agriculture out of the courts.

    That the — that Congress made it clear, the antitrust laws were not to be applicable to agriculture or to farmer’s cooperative when they associate in — under the provisions of the Capper-Volstead Act, unless they unduly enhance prices.

    And then, they proceed before the Department of Agriculture.

    And if the Department of Agriculture finds that there is undue enhancement of prices, then the Secretary’s order is referred to the Attorney General and the Attorney General can bring original proceedings in the District Court at which time he can seek all sorts of equitable relief against the violators.

    Potter Stewart:

    That’s in the event only if there’s —

    Herbert A. Bergson:

    But —

    Potter Stewart:

    — an obedience to the Secretary of Agriculture’s order.

    Herbert A. Bergson:

    Only — only in the event that the Secretary of Agriculture’s order is not complied with.

    Potter Stewart:

    Yes.

    Herbert A. Bergson:

    That’s right.

    Is that — and make this concrete.

    That means I take it, in your view, if an agricultural association starts a campaign to drive people who have not joined it, out of the market.

    You say they could not be reached of the antitrust?

    Herbert A. Bergson:

    Yes, Your Honor.

    I think — I think the legislative history of the Act makes that quite clear.

    Felix Frankfurter:

    What you’re saying is that a filthy difference issue for cooperatives as compared with (Voice Overlap) —

    Herbert A. Bergson:

    Quite right.

    Quite right, Your Honor.

    Felix Frankfurter:

    Isn’t that right?

    Herbert A. Bergson:

    That’s right.

    And I think that they — I think that the history of congressional enactment — enactments going back to the 19th century shows that.

    I think that this Court recognized that in — in Tigner against Texas, where it said that the — there was a — a special congressional policy towards agriculture.

    That the — that the — the evil at which the Sherman Act was directed, were the evils resulting from big business and not from an agrarian situation.

    And the — the Act — the — the legislative history, as I think I can demonstrate, showed that Congress consider all these problems.

    And they resolved the problem the same way the Sherman Act was resolved, but on the other side of the coin.

    Because as Justice — as — as Judge Hand said in the Aluminum case, that when they enacted the Sherman Act, they could not determine which were bad trusts and which were good trusts, so they forbade all trusts.

    So too, when they were enacting these agricultural statutes, they couldn’t determine which were bad and which were good and they permitted all.

    Say that on the once or in the two circumstances, where there was unduly enhancement of prices or where there was combination with outsiders.

    Charles E. Whittaker:

    Mr. Bergson, could I ask you please.

    Would assume just for the purpose of getting a concrete answer here, affirmance of the Court’s holding under Section 7 of the Clayton Act entirely support this judgment?

    Herbert A. Bergson:

    I — yes, it would because the judgment against the association is based solely on the — on the — well not solely, it’s under Section 3 of the Sherman Act and Section 7 of the Clayton Act.

    Charles E. Whittaker:

    But when — wouldn’t the judgment be supported entirely by Section 7 of the Clayton Act?

    Herbert A. Bergson:

    I think it would be.

    Yes.

    Charles E. Whittaker:

    All right.

    Charles E. Whittaker:

    Now, that — is that not a Borden situation?

    Herbert A. Bergson:

    No, sir.

    Because the Capper-Volstead Act permits the association to make contracts with outsiders, the association cannot live in a cocoon.

    It has to deal with outsiders.

    In the Borden case, Your Honor, you had a conspiracy between the association and outsiders where the object of the conspiracy was to benefit the outsiders and the — and — and the association was a participant in the conspiracy.

    Now, in the Section 7 situation, you have a single transaction of sale, an acquisition of a dairy.

    Charles E. Whittaker:

    Or it wasn’t —

    Herbert A. Bergson:

    There’s nothing to indicate that that — there’s nothing in the record in this case, Your Honor, to indicate that this acquisition took place for the benefit of anyone but the association.

    Charles E. Whittaker:

    Then let me ask you, if we add to that then, the second count under Section 3 of the Sherman Act, would that count plus the one under 7 of the Clayton Act, fully support this judgment?

    Herbert A. Bergson:

    Well, I think I — I —

    Charles E. Whittaker:

    And when would that be a — would that be a Borden situation?

    Herbert A. Bergson:

    No, Your Honor, because the facts don’t — the facts don’t substantiate the Borden type charge in this case.

    Charles E. Whittaker:

    If that were true, then it wouldn’t be necessary for us to pass on the Government’s appeal here, would it, because the result would be the same?

    Herbert A. Bergson:

    Well, I — I don’t think I should speak for the Government, but I’m quite confident, the Government would say that it would be necessary for you to —

    Charles E. Whittaker:

    If —

    Herbert A. Bergson:

    — pass on their —

    Charles E. Whittaker:

    I see —

    Herbert A. Bergson:

    — on their appeal.

    In — in the — in the Section 2 count, the count charging violation of Section 2 of the Sherman Act, the Government charges the association with monopolizing and attempting to monopolize the trade in milk in the District of Columbia market.

    And they charged various means of attempting to monopolize.

    In their original complaint, they charged merely that.

    They have now shifted their position so that the charge is monopolization or attempt to monopolize by coercive or predatory practices because they now conceive that irrespective of the language of the — the language on the face of the statute, which contains no language of exemption whatsoever, that Capper-Volstead, at least, permits the — an association to have a — a supply control position and a monopoly position in the supply of milk.

    Then they go on to say that you cannot use that supply control position and cannot maintain that supply control position by engaging in practices which they assert are predatory.

    Now, what is a predatory practice?

    What is a coercive practice?

    If you can have a monopoly, which they admit, and you refuse to deal with somebody, that’s a coercive practice.

    That’s a predatory practice, but does that mean that the — that a person with a monopoly can’t — can’t do — can’t refuse to do business with someone when they are — when — when the monopoly is authorized, even — even if the person whom — whom they refused to sell, refuses to pay the price asked by the association and which the Secretary of Agriculture has not said is unduly enhanced.

    We — we submit, Your Honor, that it’s impossible to draw a line here.

    That you can’t say that something is coercive or predatory and therefore, it is not immunized, and at something else which is a monopoly, which they concede that an association can have in which a business corporation can’t have is not immunized, because they put the catchphrase or the antitrust cliché, predatory or coercive against it.

    And I — and we submit, Your Honors, that — that the legislative history of the Capper-Volstead Act is so overwhelming on these point that — that it — it defy — it defies contradiction.

    Herbert A. Bergson:

    I think the best way to — to refer to the legislative history is — is not to say — not even to refer to what was said when the Act was being passed, but just what was done.

    When the bill was introduced in the House in the 66th Congress, it was — it was introduced in substantially the same form as it now stands, some modification which I will get to later.

    And it passed the House in that form and all of the — well, I will get — when it went to the Senate, an amendment was proposed by the Senate Judiciary Committee.

    And the Senate Judiciary Committee proposed that instead of the Secretary of Agriculture in Section 2, that the Federal Trade Commission be substituted.

    And also that an antimonopoly amendment be added to Section 2 and that amended — and that amendment reads as follows, “Nothing contained herein shall be deemed to authorize the creation of or attempt to create a monopoly or to exempt any association organized herein under from any proceeding instituted under the act entitle, an act to supplement existing law against unlawful restraints and monopolies and for other services approved on October 15, 1914 on account of unfair methods of competition in commerce.”

    That or those two amendments were adopted by the Senate in the 66th Congress.

    And the House refused to go along, so the bill came up again in the 67th Congress.

    And it was reintroduced in substantially the same form that it had been introduced by Congressman Volstead who was Chairman of Judiciary Committee in the 66th Congress.

    There was one change.

    And he left out a provision, any law to the contrary notwithstanding.

    And I will touch upon that later.

    The bill passed.

    The Senate reported the bill out again and yet omitted present Section 2, but it put the Walsh antimonopoly in them, with which I just read to you in the bill as an amendment to Section 1.

    And there was very, very vigorous debate in the Senate on whether or not the Walsh antimonopoly amendment should be adopted.

    And it was overwhelmingly defeated by a vote of 56 to 5.

    The bill then returned to the House and it became law.

    But the debates — and there, I submit is — is proof conclusive that the Senate and the House were both aware of the monopoly problems here.

    And they deliberately and overwhelmingly defeated a provision saying that monopolies were to be prohibited under this Act.

    But if you go to the debates in this Congress and you find out why this bill was introduced, why this — why was this legislation needed?

    Why did — why did the farmers think they needed a legislation of this kind?

    And of it, the debate show conclusively that it was the purpose of this legislation that get the farmers out of the courts.

    But the — the Clayton Act, Section 6 had been passed which as Your Honors will recall, is the provision which exempts the labor organizations and cooperatives from the operation — from — from the — their existence from the operation of the antitrust laws.

    After that Act was passed, prosecutions against farmer cooperatives continued.

    There was the King case in Massachusetts where the farmers were indicted for refusing to sell potatoes to people who wouldn’t pay the right price for it, the price that they fixed.

    They were indicted for it.

    No, there were no claims that there was any undue enhancement.

    They were just boycotting the purchases of potatoes, a predatory practice under the Government’s definition.

    But because of cases like that, the farmers asked Congress for additional protection and the debates are replete with statements that the purpose of the Capper-Volstead Act was to keep the farmers out of court.

    That the Secretary of Agriculture, if a break was needed so far as farmers were concerned, the Secretary of Agriculture was the man to supervise their conduct.

    Of course, the debates made clear that the — that the farmers were not to be immunized from the antitrust laws when they conspired with outsiders for the benefit of the outsiders, but where the farmer acted alone, he couldn’t monopolize.

    Herbert A. Bergson:

    And it’s a congressman ethics — there was never any dispute during the course of the debates as to the meaning of this legislation.

    The dispute was just to the desirability of it.

    Everybody recognized that this legislation would exempt farmers from the antitrust laws, except in the two cases or the two instances that I mentioned.

    And the opponents of the bill were against it, because they didn’t think that the — the farmers should be immunized from the antitrust laws.

    And Senator King, when the debates were — when the — when the bill was being debated in the Senate said that — as — as the proponents of the legislation, if they realized that if this legislation was passed without the so-called Walsh amendment, which I referred to, that this could result in monopolies so oppressive and so gigantic that if — that no one would want to approve of it.

    And the Senate, in the face of those statements, rejected the Walsh antimonopoly amendment by an overwhelming margin.

    We have in our brief, digested the legislative history.

    We have gone to considerable length in trying to make it — I digest, just as fair as possible.

    It would be a waste of the Court’s time at this time to try to cover these debates, but I think the — the conclusion is — is inescapable.

    That Congress knew exactly what it was doing, that what Congress intended to do was to keep the farmers out of court, and that if the Government’s prosecution in this case is upheld, the will of Congress will be defeated.

    Could you — could you give me an example of what you call your second — the second situation which you say that the associates to this kind could be prosecuted?

    Herbert A. Bergson:

    Well, that — well —

    With an outsider for the benefit of an outsider —

    Herbert A. Bergson:

    Right, the Borden —

    — and what you mean by that —

    Herbert A. Bergson:

    — the Borden situation.

    For example in the Borden case, there was a conspiracy between or a combination, call it what you will, in which the — an — an association was a party, all of the distributors in the market were a party.

    A labor union was a party.

    The health officials of the City of Chicago were named as defendants.

    And what was charged was a massive conspiracy to raise the price of milk to the consumer for the benefit of the distributor of the milk, not the cooperative and the cooperative participating in that — in that conspiracy.

    Now, this limitation on Borden has — I — I submit, there’s nothing that we’ve — isn’t something that we’ve dreamed of, because all through the Borden opinion, the reference is to conspiracy or conduct with outsiders.

    In the Allen Bradley case, where the unions were held to be subject to the antitrust laws because they were part of a conspiracy for the mutual benefit of the — of the union and for the manufacturers in the district, this Court, speaking through Mr. Justice Black, says that if — they emphasized in citing Borden, italicized the words, “acting together with outsiders,” in its opinion and suggested that if the union were doing this for itself alone and not for the benefit of outsiders that the union would be exempt.

    And following that suggestion in (Inaudible) that was decided the same day, where it is found that the union was not acting for the benefit of an outsider even though the union — the act of the union put the plaintiff trucking company, out of business.

    And even though the act of the union put the employees of the plaintiff trucking company, who wanted to join the union, out of business because they wouldn’t let them join them — the union.

    This Court said, “This is not a cause of action that is cognizable under the antitrust laws.

    This maybe a tort of some other kind, but the antitrust laws are not applicable here.

    Earl Warren:

    Suppose it conspire the — the — suppose Borden had conspired with the outsiders for some benefit to Borden —

    Herbert A. Bergson:

    Well, Borden was — was an outsider.

    Earl Warren:

    Well, let’s take the coop situation.

    And suppose the — the coop conspires with an outsider to violate the antitrust laws not for the benefit of the outsider, but for the benefit of the cooperative, would that make any distinction between Borden case and this?

    Herbert A. Bergson:

    Well, I don’t think we have that here, Your Honor.

    I —

    Earl Warren:

    Well, I — I know, but you emphasized —

    Herbert A. Bergson:

    I — I —

    Earl Warren:

    — that the fact — the fact that it was for an outsider — for an outsider.

    You said two or three times out of the fact —

    Herbert A. Bergson:

    That’s right.

    Earl Warren:

    — that it was for the benefit of an outsider, important to us here, who wouldn’t make any (Inaudible) of those — for the outsider or the insider.

    Herbert A. Bergson:

    Well, I think it is important that it’s for the benefit of the outsider.

    And — and I think the reason for it is demonstrated by — by the facts in this case which after a long time, I haven’t [Laughs] gotten to yet.

    In this case, Your Honor, the investigation was triggered by the association’s acquisition of Embassy Dairy.

    Earl Warren:

    Yes.

    Herbert A. Bergson:

    And that was what was held to be unlawful, the acquisition of Embassy Dairy.

    In the original complaint, in the charge for a violation under Section 2 of the Sherman Act, the acquisition of Embassy Dairy was particularized as a means of unlawful monopolization.

    That was held by the court below to be lawful.

    Then they charged that the acquisition of Embassy Dairy was a contract in restraint of trade and therefore, in violation of Section 3 of the Sherman Act.

    They also charged Section 1 of the Sherman Act that that has dropped out of the picture between the District Court and here.

    They further charged the acquisition of Embassy Dairy as a violation of Section 7 of the Clayton Act and that it substantially lessened competition to intend to decree a monopoly.

    Subsequently, they amended the complaint insofar as the Section 3 charge is concerned.

    And they said that instead of being a contract in restraint of trade, the Embassy acquisition became a conspiracy in restraint of trade.

    In fact, beginning in April, 1954 which was about a month before we acquired Embassy, we conspired with certain people in — to — to restrain trade in the District of Columbia.

    The people with whom we are alleged to have conspired are the contracting parties.

    At the trial, the Government adduced no evidence that the transaction of sale was for the benefit of — for the competitive benefit of the seller.

    And the Court made no such finding.

    The Court didn’t find that a contract combination or conspiracy — he founded a transaction of sale.

    Now, I think I should say this, that we don’t contend that if the antitrust laws are applicable to the association, that these acts do not violate Section 3 or Section 7.

    We are not urging as a factual matter that this — this contract of acquisition doesn’t restrain trade or it doesn’t substantially lessen competition.

    Our primary and I would say our sole defense is that Congress said that when an association not acting in concert with others for the benefit of the others, is not to be hold in a court by the Attorney General to determine whether its act of monopolization illicit or elicit, even though under ordinary antitrust statutes, no acts of monopolization elicit.

    And let the courts determine on the complaint of the Attorney General whether a particular transaction is a lawful act of monopoly or an unlawful act of monopoly.

    That the Congress said, “We’ll take our chances here.”

    Herbert A. Bergson:

    The agrarian economy, the — the agricultural economy is different from the — from the industrial economy.

    And the antitrust laws aren’t suited to the — the — to the — to the industry — to the agricultural economy.

    So we will put these farmers, unless they conspire with outsiders, in the hands of the Secretary of Agriculture, the man who knows them best.

    And if they unduly enhance prices, he can crack down on it.

    And if they don’t — if they don’t comply with the — with the order of the Secretary of Agriculture, then let the Attorney General come in and then let the Attorney General bring the action.

    And the Attorney General commented that time, bring his action against restraint or trade, monopolization or anything that he wants to bring into this.

    Is the outsider concept that you’re emphasizing here is something you’ll find in the legislative history or something that you deduce in the Borden case.

    Herbert A. Bergson:

    No.

    I — it’s — it’s both, Your Honor.

    They — we find it in the legislative history and I submit that you — that, Your Honor, that the Government hasn’t indicated anything to the contrary.

    And further than that, so far as the outsider concept is concerned, I think the Government — even the Government has abandoned that because they have made the test in their briefs, not whether the transaction of acquisition of Embassy restrains trade, but whether it was a necessary contract for the association.

    In the question of contact with an outsider or — or acting alone, but is this a necessary contract?

    Now, you can’t read their briefs without coming to the conclusion that they conceive that if a contract is for the financial benefit of the association, even though it may restrain trade, that they cannot proceed, but I submit, Your Honor, that that completely — if you adopted the test to that kind, you would completely frustrate the intention of Congress because you’re putting the cooperative right back in the courts again.

    Is the contract necessary or isn’t it necessary?

    And I think again, the fact in this case illustrates the — the impropriety of doing that.

    One of the things that — one of the things that the Government alleges here or asserts here is that we acquired Embassy for the purpose of eliminating competition, the competition of a supplier in the market who bought from people who were not members of the association.

    Charles E. Whittaker:

    That’s from Section 3, now.

    Herbert A. Bergson:

    Right, under Section 3.

    That we — that we foreclosed these other suppliers from the market as a result for this acquisition, that we wanted to get a competitive thorn out of our side, because Embassy Dairy was a price cutter in the market.

    And further than that, we paid an exorbitant price for Embassy.

    And they rely most heavily on the fact that we paid them an — an exorbitant price for Embassy.

    And that we paid some million or $1.5 million more than the physical assets were worth.

    And we did.

    We paid $1 million for a noncompete provision, which is a normal ancillary provision in the sale of a business, for a tenure noncompete in the Washington metropolitan area, no corresponding noncompete on our side.

    But — and the Government says that as a result of the operation of Embassy Dairy, we’ve lost money.

    And they adduced evidence at the trial from an FBI accountant — accountant showing that in the retail distribution phase of the Embassy business, the association lost X numbers of dollars.

    They completely overlooked, they completely ignore the fact that the association is an integrated operation.

    That as an integrated operation, it made millions of dollars as a result of the Embassy transaction, because it put surplus milk from manufactured use where they were getting about $3 a hundredweight, into the Class I usage, where they were getting $6.62 a hundredweight.

    And that the overall operation was in fact of financial benefit to the association.

    Now, they make much of the point that we wanted to get a price cutter out of the market.

    Herbert A. Bergson:

    Yet, this is what all of the agricultural acts, over the past 30 years, have looked to.

    What the Department of Agriculture has recommended time and time again, cooperative associations and which were the factors that were relied upon by the Department of Agriculture prior to the consummation of the Embassy transaction when they recommended to the Baltimore Bank for Cooperatives, which is an agency of the Federal Government to lend us $2,100,000, so that we could buy Embassy Dairy.

    And this — this acquisition for which we are being prosecuted under the antitrust laws was consummated with Government funds.

    Charles E. Whittaker:

    Suppose you could go on to finance —

    Felix Frankfurter:

    (Voice Overlap) —

    Charles E. Whittaker:

    — by these terms, I’d have you to say that if you are not exempt, these transactions you’ve just related would violate Section 3 — Section 3 of the Sherman Act and 7 of the Clayton Act?

    Herbert A. Bergson:

    Right.

    Charles E. Whittaker:

    If you were not exempt.

    Herbert A. Bergson:

    Right.

    Charles E. Whittaker:

    Do — would they also violate Section 2 of the Sherman Act?

    Herbert A. Bergson:

    Well, I think they could be charged — they could be charged as a means of violating Section 2 of the Sherman Act and it was charged as a means of violating Section 2.

    Charles E. Whittaker:

    The Judge Holtzoff held here — held the other way on — on that.

    Herbert A. Bergson:

    On that.

    That’s right.

    That’s right, Your Honor.

    Judge — the — the peculiar circumstance here is this, that Judge Holtzoff held that we could monopolize under — under the Clayton Act and the Capper-Volstead Act and that there were no strings on our monopolization, so long as we didn’t act with an outsider.

    Then he finds that the acquisition of Embassy Dairy is a tendency to monopoly or may substantially lessen competition —

    Charles E. Whittaker:

    In violation of Section 7.

    Herbert A. Bergson:

    — in violation of Section 7.

    Now, how can you have the power to monopolize and be guilty of tendency to monopolize?

    Now, I submit that this course of reasoning was that we’ve — had lost our exemption, because we had contact with an outsider and then — and each ordinary antitrust standards were applicable.

    Our position is that we don’t lose our — our exemption when we have contact with an outsider because if we had — if we lost our exemption when we had contact with an outsider, we could never sell milk.

    Charles E. Whittaker:

    Well, is that the broad — contact with an outsider could mean — could mean our positions in Government on Section 3 of the Sherman Act to say you’ve bought Embassy for the purpose of eliminating consensus and you paid too much money for it, all for the purposes of monopolizing commerce.

    Herbert A. Bergson:

    Right.

    Charles E. Whittaker:

    And that — didn’t Judge Holtzoff find for the Government or the Constitution?

    Herbert A. Bergson:

    He did, but he found for the Government on their account because we had lost on — he — under his theory, we had lost our immunity.

    Charles E. Whittaker:

    Or if you have entitled here under that circumstance —

    Herbert A. Bergson:

    All right.

    Right.

    Hugo L. Black:

    (Voice Overlap) —

    Herbert A. Bergson:

    Right.

    Hugo L. Black:

    — since 1924, you had combined with Embassy and fixed the price of milk.

    Herbert A. Bergson:

    At which — at which Embassy would resell milk?

    Hugo L. Black:

    Well, suppose you had to combine with another cooperative, could you do that?

    Herbert A. Bergson:

    We think we can, yes.

    And that’s charged —

    Hugo L. Black:

    Unless you could make agreement — most cooperative could make agreements between themselves.

    Herbert A. Bergson:

    Yes.

    The — the Act specifically provides that cooperatives may have marketing agents in common.

    And if they’re going to have marketing agents in common, they certainly can agree among the — on the price themselves.

    And that, as a matter of fact, Your Honor, is charged as one of the alleged means of unlawful monopolization in the part that Judge Holtzoff held was exempt, because there was an allegation that we can — conspired with the or combined with the Baltimore cooperative to fix the price of milk for sale to Government installation — to the Government installation at Fort Meade.

    Of course, the charge was that we fixed it too low, but not that we unduly enhanced price, but that we fixed the — an — an unusually low price for the sale of the Government installation.

    But the fact of the matter is that we were charged with monopolizing and as a means of monopolization was this agreement with another cooperative.

    Judge Holtzoff’s position was you don’t loose your immunity because your other — the other — other cooperative is not an outsider.

    It’s another cooperative.

    Hugo L. Black:

    Suppose you may have (Inaudible) —

    Herbert A. Bergson:

    Well, the — the — there isn’t any — any sort of an agreement that we — Embassy was an outsider, Your Honor.

    The —

    Hugo L. Black:

    Suppose you made that same agreement which you made with Baltimore cooperative is the same.

    Herbert A. Bergson:

    Well, we couldn’t, because we weren’t the same line of business.

    Embassy — Embassy is a — a distributor of milk.

    If the — our cooperative up until the time it acquired Embassy Dairy was a supplier of milk to distributors.

    Now, if we made an agreement with Embassy and fixed the price at which Embassy would resell its milk, well that’s the Borden situation.

    But —

    Hugo L. Black:

    And perhaps it was throughout the requiring of theories.

    Herbert A. Bergson:

    Well, the Government — the Government doesn’t contend that the — the — that a cooperative has no right to acquire Dairy and the Capper-Volstead Act specifically provides that you can acquire — I mean that — that cooperatives can get — can — can engage in the collective marketing, supplying, processing, manufacturing, distribution and so forth.

    And during the debates, Your Honor, I think this is particularly important.

    During the debates on the Walsh amendment, one of the horrible examples of Senator Walsh’s paraded before the Senate was this.

    “Suppose,” he says, “that all of the milk producers in the Washington area both from Virginia and Maryland get together and form a cooperative and exclude others from their cooperative and then refused to sell to distributors.

    And as a result, take over the distribution of milk so that they have the marketing of milk from the cow to the consumer themselves and thereby eliminate all of the distributors of milk, a more predatory practice or — I can think of — is that if you adopt the House version of this bill, that’s what you will permit.

    Herbert A. Bergson:

    And my amendment is designed to prevent just that.

    And his amendment was defeated, 56 to 5.

    And he had another amendment which I think Mr. Justice Harlan questioned the you — you were asked, Mr. Justice Harlan, bring it to mind.

    One of the — one of the effects of this Embassy acquisition was that the suppliers to Embassy was their outlet and they were farmers.

    They had three things — they — they could do three things.

    They could join the association.

    They could go off the market or they could sell to other distributors in this market.

    And what happened was that some 40 of them joined this, they’re 120 altogether.

    Some 40 of them joined the association, some 44 of them sold to other distributors in the market who bought partially from the association.

    And the remainder went to Baltimore and served the Baltimore market.

    They were Maryland producers and they served — served the Baltimore market.

    But during the course of the debates on this bill, Senator Walsh introduced another amendment.

    He said, “What if these associations get big enough and they have all they need and they decide that they won’t let anybody else join the association, what’s to happen to these nonmember producers?”

    And he introduced an amendment requiring the associations to admit in the membership, anybody who wanted to join.

    And that amendment was defeated and it was defeated in spite and in the face of language that some producers may not be able to continue to market their milk because of the size of the association.

    Congress’ intention, we submit, was to do the best they could to provide an equitable procedure against undue enhancement of prices to get the cooperatives out of court, to keep them from being prosecuted for violations of the antitrust laws, say, where they combined with the outsiders.

    Perhaps it was important to view your legal position for 30 years.

    You’re going to be able to present as to — the facts of the case?

    Herbert A. Bergson:

    [Laughs]

    Well I — I —

    (Inaudible)

    Herbert A. Bergson:

    I think — I think I have to — to a limited extent, Your Honor.

    The — the facts so far as the — the Government appeal is — is concerned or that they charged a violation of Section 2 that we have unlawfully monopolized.

    And they charged that we ended into — get all sorts of things in other to achieve that monopoly.

    We fixed arbitrary and unreasonable prices.

    We engaged in what they termed, predatory practices.

    We — there’s — there’s no need to detail and I think some of them could — could well be classified as predatory practices.

    And Judge Holtzoff held that Capper-Volstead and Section 6 of the Clayton immunized the association from the prosecution.

    So far as the Embassy acquisition is concerned, these are the facts.

    In 9 — in April of 1954, there was a tremendous surplus of milk in the District of Columbia market.

    Herbert A. Bergson:

    The association was trying to move its surplus milk in the so-called class 1 classification.

    I think there’s no need to go into the classified use plan because I think this Court is abundantly familiar with it.

    They went to Embassy Dairy and they asked Embassy to buy from the association.

    Embassy — the president of Embassy said to them that he would not buy from the association.

    And the secretary of the Association said, “Well, I guess that leaves us no alternative, but to apply for a federal marketing order.”

    Hugo L. Black:

    Apply for what?

    Herbert A. Bergson:

    A federal marketing order under the Agricultural Marketing Act, not the agreement’s act.

    The owner of Embassy Dairy said to — look, why do that?

    Why don’t you buy me out?

    He said, “I’m –I have a milk business in Baltimore.

    My health isn’t of the best and if the price is right, I’ll sell to you.”

    And the —

    Charles E. Whittaker:

    If the price is right.

    Herbert A. Bergson:

    Yes, if it’s an adequate price for — for the — for the sale.

    And he fixed the price which the association accepted it.

    Now —

    Charles E. Whittaker:

    If the price is right —

    Herbert A. Bergson:

    Sir.

    Charles E. Whittaker:

    Well, if the price is right.

    Herbert A. Bergson:

    The price was right.

    The reason that the association was interested in the acquisition was to have an outlet for 16,000 or 18,000 gallons of milk a day that was presently going — going into manufacture usage.

    William O. Douglas:

    But the — but the farmers have — have furnished Embassy milk for himself?

    Herbert A. Bergson:

    No, sir.

    They were independent farmers and Embassy bought some milk from outside the area.

    From — well, I don’t know — as far away as —

    William O. Douglas:

    The Embassy was strictly a distributor.

    Herbert A. Bergson:

    The Embassy was strictly a distributor.

    And it had producers, 120 producers, D.C. inspected producers who supplied its milk.

    William O. Douglas:

    Had a merger with coops to producers and distributors for the non-coop producers and distributors.

    Herbert A. Bergson:

    No.

    Herbert A. Bergson:

    At the time — the time of the merger, the coop was only a producer.

    It only became a distributor as a result of the merger.

    William O. Douglas:

    Wasn’t it — was not a distributor.

    Herbert A. Bergson:

    It was not in the distribution business before.

    William O. Douglas:

    Thereafter, that fact.

    Herbert A. Bergson:

    This was a vertical acquisition and not a horizontal acquisition, so far as we were concerned.

    It had — the Government contends vertical effect and that it foreclosed independent producers from supplying Embassy Dairy.

    And therefore, had a restraining effect on the independent producers who were supplying Embassy Dairy.

    William O. Douglas:

    Farmers and — supply Embassy, some membership of your producers coop.

    Herbert A. Bergson:

    We offered membership to all of them.

    40 of them did become members.

    44 of them served other distributors in this market.

    And the other 30 elected to go to Baltimore and continue to supply the owner of Embassy — old owner of Embassy Dairy.

    The — at — at the time that this purchase was under consideration, the officers of the cooperative went to the Department of Agriculture and said, “We are contemplating purchasing Embassy Dairy.

    And this is why we want to purchase it.

    We want to get as much milk as we can under Class I classification.

    In addition to that, Embassy’s activities in this market is having an effect on our lend price, because of their price cutting activities.

    And we would like to eliminate that threat to our pricing structure, which would be — I — I can see that this would be a — a complete violation under the — under — if there were no immunity.

    In analyzing this proposed acquisition, the Farmers Cooperative Service of the Department of Agriculture in looking at the benefits that would accrue from this acquisition said that among the benefits, would be the elimination of price cutting and the possible increase of the blend price as a result thereof.

    And in addition to that, there were — the association would be able to move more milk from Class I into the Class III into the Class I price.

    And they recommended to the Baltimore Bank for Cooperatives that the Baltimore Bank for Cooperatives make a loan to this association so that it could acquire Embassy Dairy.

    Hugo L. Black:

    Is that their official action?

    Herbert A. Bergson:

    Yes, sir.

    Hugo L. Black:

    Where is that in the record?

    Herbert A. Bergson:

    There’s a letter from the Farmers Cooperative Service to the Department of — to that — the Baltimore Bank for Cooperatives which is —

    Tom C. Clark:

    Do you claim they’re here for the interest.

    Where do you find that in the record?

    Herbert A. Bergson:

    No, sir.

    I — well, we have — we have two points on that, Mr. Justice Clark.

    One is that so far as Section 7 of the Clayton Act is concerned that there’s a series of events which result in this acquisition of Embassy Dairy being consummated pursuant to the authority of the Secretary of Agriculture and therefore, immunized.

    Herbert A. Bergson:

    But in addition to that, our — our position is that this transaction is immunized anyway because of the Capper-Volstead Act.

    Tom C. Clark:

    687 or —

    Herbert A. Bergson:

    Well, it’s 711 of —

    Tom C. Clark:

    Don’t — don’t bother with it.

    Herbert A. Bergson:

    It’s — it’s page 711 of the record, I think Your Honors.

    Tom C. Clark:

    711, all right.

    Herbert A. Bergson:

    Your Honor, I — just did — reminded that I have used up all my — almost all my time and we would like to save a little —

    Earl Warren:

    I think you made your questions.

    Herbert A. Bergson:

    — for rebuttal.

    Thank you, sir.

    Earl Warren:

    Mr. Elman.

    Philip Elman:

    Mr. Chief Justice, may it please the Court.

    If I understand Mr. — Mr. Bergson’s argument correctly on behalf of the association, he’s asking the Court to interpret the Capper-Volstead Act of 1922, as if it read substantially as follows.Except to the extent that an agricultural cooperative combines or conspires with outsiders for the purpose of advancing the latter’s interest.

    In antitrust laws shall be entirely inapplicable to agricultural cooperatives.

    That is not what the statute says.

    Earl Warren:

    With the one exception was made — they made one exception as to price.

    Philip Elman:

    That it — Mr. Chief Justice, that is not really an exception because the price provision is in Section 2 of the Capper-Volstead Act.

    Earl Warren:

    Oh, yes.

    Yes.

    Philip Elman:

    Now, the Capper-Volstead Act —

    Felix Frankfurter:

    Well, except — except that maybe — it is in Section 2 and bound up with a different procedure than it would be under the Sherman law.

    (Voice Overlap) —

    Philip Elman:

    As I understand the argument —

    Felix Frankfurter:

    Nobody —

    Philip Elman:

    — the Capper —

    Felix Frankfurter:

    (Voice Overlap) —

    Philip Elman:

    — the Capper-Volstead Act sets up — sets up an exclusive procedure of its own.

    Felix Frankfurter:

    No.

    What I mean (Voice Overlap) —

    Philip Elman:

    It’s entirely —

    Felix Frankfurter:

    — as the limitation which you recognize, which the Chief Justice could deal.

    You said that’s in the Capper-Volstead Act.

    Philip Elman:

    The — the price limitation.

    Felix Frankfurter:

    Price limitation —

    Philip Elman:

    Yes.

    Felix Frankfurter:

    — and I suggest that the price limitation there is somewhat different from what the price limitation arguably is under the Sherman law because of different —

    Philip Elman:

    Oh, of course.

    Felix Frankfurter:

    — different procedures.

    Philip Elman:

    Well, the — the —

    Felix Frankfurter:

    I’m not talking about the statement.

    Philip Elman:

    If I may — if I may respond to that precisely.

    The — as we read Section 2 of the Capper-Volstead Act, the price limitation, it deals with the situation of undue enhancement of prices, the — the charging of an exorbitant accessibly high price.

    That is not an antitrust standard.

    The antitrust laws don’t deal with high or low prices or reasonable or unreasonable prices.

    That — that, if I may suggest, is more comparable to the Lever Act of World War I which dealt with the charging of unreasonably high prices.

    And I think it’s consistent with the interpretation that you’re being asked to accept.

    To regard Section 2 not as an antitrust remedy, but as a Capper-Volstead undue enhancement of price, antiprofiteering remedy.

    Felix Frankfurter:

    Provided my comment isn’t addressed or dealt with the validity of the argument.

    Addressed to tell to your suggestion that the price limitation isn’t really — is taking care of rises under Capper-Volstead Act.

    Philip Elman:

    Yes.

    Felix Frankfurter:

    And what you’ve now said, it seems to me indicate, it doesn’t arise under the Capper-Volstead Act, it deals with a different thing.

    Philip Elman:

    No.

    Not — not at all.

    I — I — I’m afraid I may —

    Felix Frankfurter:

    Maybe I misunderstand you.

    Philip Elman:

    I’m afraid I have made myself clear.

    Their argument is that so far as the antitrust laws are concerned, Sherman Act, Clayton Act, Federal Trade Commission Act.

    The only respect in which an agricultural cooperative can be dealt with is combination or conspiracy with third person, not agricultural producers, Borden case.

    They also recognized that an agricultural cooperative which unduly enhances prices, in the opinion of the Secretary of Agriculture, can be dealt with under Section 2 of the Capper-Volstead Act.

    Now —

    Felix Frankfurter:

    But that’s a limit you’re dealing with.

    Philip Elman:

    Well, yes, sir.

    It’s a — it’s a —

    Felix Frankfurter:

    All right.

    Philip Elman:

    Now —

    Felix Frankfurter:

    Can — can — but — all right.

    Then — then —

    Philip Elman:

    There might (Voice Overlap) —

    Felix Frankfurter:

    And the prices of the —

    Philip Elman:

    Yes, sir.

    Felix Frankfurter:

    Apart from what Section 2 does, if you have no other ingredient, mere price combination is not subject to what otherwise it would be subject to under the Sherman law.

    Is that right?

    Philip Elman:

    Well, our position is —

    Felix Frankfurter:

    Because of that purpose.

    Philip Elman:

    Our position is that the scope of the immunity from the antitrust laws is determined by Section 1 of the Capper-Volstead Act.

    It’s not absolute.

    It’s not sweeping.

    It’s not a blanket license to violate —

    Felix Frankfurter:

    It is what it is in connection with reading the Sherman law.

    Philip Elman:

    Exactly.

    You have to — you have to read the Sherman law and the Clayton Act and the Capper-Volstead Act together.

    They’re all enactments of Congress, they’re all relevant here.

    And if — if there’s an immunity from the antitrust laws, it arises not by reason of any express exemption, not by reason of any express immunity in the Capper-Volstead Act.

    It arises by implication, by reason of the fact that the activities involved are authorized under Section 1 of the Capper-Volstead Act.

    And if they are authorized, if Congress has authorized the cooperative to do something, it’s clear that you can’t prosecute the cooperative for doing it.

    But it’s a — the — the defense is one which would have to be supported by a showing of affirmative authorization to engage in these activities, to be found in Section 1 of the Capper-Volstead Act.

    It is — this is not a situation where Your Honors have before you, something like the — the Shipping Act of 1916 or the McGuire Act, to the McCarran Act.

    Well, you’ve got a statute which says the antitrust laws shall not apply etcetera, to whatever maybe before the Court.

    You have to — you have to approach the — the — this case, I respectfully submit.

    In the terms as — which had — have been stated many times that exceptions to the — to the Sherman Act, the antitrust laws are — are not to be found lightly, except that the — the repeals by implication are not favored.

    Philip Elman:

    That was set in the Borden case itself.

    And here, we have an argument, a defense to activities which are concededly unlawful under the antitrust laws if engaged in by an ordinary business corporation.

    That — that concession is made in — in the briefs and its language of — renewed in the oral argument.

    We have no question here as to whether what was alleged and what was found, constitute violations of the antitrust laws, if the antitrust laws are considered in themselves.

    Felix Frankfurter:

    Well, you have a right to — to vouch the Borden case, where the postulate was laid down, namely that the immunities, the implied immunities that they’re not expressed, that the Capper-Volstead Act derived from Section 1.

    Philip Elman:

    Yes, sir.

    Felix Frankfurter:

    That’s the starting point —

    Philip Elman:

    That is the starting point.

    Felix Frankfurter:

    — starting point of Borden case.

    Philip Elman:

    That is the starting point so that in determining what the immunity is, we have to look to Section 1 of the Capper-Volstead.

    And — and if I may, I should like to refer to the — refer to the Court to the provisions of the statute which appear in the association’s brief, page 4 (a) of the appendix and in the Government’s brief at page 56.

    And Congress provided that persons engaged in the production of agricultural products as farmers, planters, ranchmen, dairymen, nut or fruit growers may act together in associations, corporate or otherwise, with or without capital stock in correctively processing, preparing for market, handling and marketing in interstate and foreign commerce such products of persons so engaged.

    Such associations may have marketing agencies in common.

    And such associations and their members, they make the necessary contracts and agreements to affect such purposes.

    So the question which is before you is whether the allegations of the complaint as to Section 2, the monopolization charge which the District Court did not allow to be tried since he dismissed the complaint in that respect and upheld the defense of immunity and which therefore must be taken as true, whether the findings of fact as to Section 7 of the Clayton Act and Section 3 of the Sherman Act which he made after the trial, whether on the basis of the — of the act — activities shown by those allegations and findings of fact, whether they are embraced within Section 1’s authorization.

    And it’s the Government’s position that they are not embraced within Section 1.

    For that reason, there is no immunity under Capper-Volstead.

    And for that reason, the District Court erred insofar as he dismissed the complaint as to Section 2.

    (Inaudible) with the situation before where we — before the (Inaudible) —

    Philip Elman:

    Well, the —

    Under the scope of exemption tendered to recognize under the Clayton Act.

    Philip Elman:

    Well, under — under Section 6 of the Clayton Act, it was clear that the mere existence of an agricultural cooperative which did not have capital stock was not in itself a violation of the antitrust laws.

    It was also clear that the members could not be proceeded against for lawfully carrying out the legitimate objects thereof, but it was not clear what was a legitimate object of an agricultural cooperative and because the Section 6 of the Clayton Act did not apply to cooperatives having capital stock and because it wasn’t clear that a cooperative could be formed for the purpose of establishing a single marketing agency for the single price for all the members who — for all the farmers who were — who joined that cooperative, since an agreement to fix prices would — would be a violation of the antitrust laws, the impetus came for the enactment of the Capper-Volstead Act.

    And it’s — it’s — there’s question, no question at all that the — that that Act of 1922 served a — a very valuable purpose so far as Congress was concerned in removing doubts as to the legality of the existence of these foreign cooperatives and removing doubts as to the extent to which they could eliminate price competition among the members of the cooperative in dealing with large processors and large middlemen.

    And the — the gist of — of the Government’s position in this case is that the Capper-Volstead authorization does not go so far as to permit a cooperative which has obtained a dominant position in the market to use that position for the purpose of driving out the competition of independent farmers who decided not to join the cooperative or to join some other cooperatives.

    Charles E. Whittaker:

    Mr. Elman (Inaudible)

    Philip Elman:

    Certainly, sir.

    Charles E. Whittaker:

    Nothing and you have to (Inaudible) that requirement was — all that the affirmance of count 1 or any of the sections worst than that.

    Well, that presumes a question of law —

    Philip Elman:

    Yes, sir.

    Charles E. Whittaker:

    Now, however, if what you was view on that.

    That was making decisions, have to go back to (Inaudible) would it not?

    Philip Elman:

    Yes, sir.

    Charles E. Whittaker:

    Now, my question would put a stop to this, maybe passed on that.

    Suppose these people, you want to represent (Inaudible) officially, do they not have to support your judgments?

    Philip Elman:

    Not at all.

    Well —

    Charles E. Whittaker:

    (Voice Overlap) —

    Philip Elman:

    — Mr. Justice, if I — if I may end —

    Earl Warren:

    Yes.

    Philip Elman:

    — to that question.

    Earl Warren:

    — yes, you go ahead, Mr. Elman.

    Philip Elman:

    So far as the Government is concerned, even though the opening argument here was made by agreement of counsel by the associations, we do not regard ourselves as the victorious party in the District Court.

    We — we think that the heart of this case is the Section 2 monopolization charge which the District Court did not try.

    We are not satisfied with the divestiture of the assets of the Embassy Dairy directed by the — the District Court.

    We think that the complaint alleged the monopoly, going back to 1932 and that if we succeed in substantiating the allegations of the complaint; we will be entitled to relief going far beyond the mere recision of the Embassy transaction.

    Thank you, sir.

    Earl Warren:

    We’ll recess now.