Case-Swayne Co. v. Sunkist Growers, Inc.

389 U.S. 384, 88 S. Ct. 528, 19 L. Ed. 2d 621, 1967 U.S. LEXIS 2943

Opinions

'Mr. Justice Marshall

delivered the opinion of the Court.

This is a treble-damage action under § 4 of the Clayton Act, 38 Stat. 731, 15 U. S. C. § 15, for alleged violations of both § 1 and § 2 of the Sherman Act, 26 Stat. 209, as amended, 15 U. S. C. §§ 1, 2. The District Court granted a directed verdict, at the close of plaintiff’s case, for the defendant, Sunkist Growers, Inc. The Court of Appeals for the Ninth Circuit reversed as to that portion of the complaint predicated on § 2 of the Sherman Act, holding that sufficient evidence was presented that Sunkist monopolized or attempted to monopolize trade in the relevant market;¹ it affirmed as to the dismissal of the Sherman Act § 1 charge, holding that Sunkist qualified as a cooperative organization under the Capper-Volstead Act, 42 Stat. 388, 7 U. S. C. § 291,² and therefore could not be held for any intraorganizational conspiracy to restrain trade. In order to determine the scope of that exemption from the antitrust laws, we granted certiorari. 387 U. S. 903 (1967).

The issue is whether Sunkist is an association of “[p]er-sons engaged in the production of agricultural products as . . . fruit growers” within the meaning of the Capper-Volstead Act, notwithstanding that certain of its members are not actually growers. We hold that it is not.

I.

The organizational structure of the Sunkist system is as follows. At the base are some 12,000 growers of citrus frpit in Arizona and California. The growers are organized into “local associations,” as they are designated in Sunkist’s bylaws, numbering approximately 160, each of which operates a packing house for the preparation of the fruit for market. The vast majority of these local associations — about 80% by number and 82% by volume of fruit marketed in the Sunkist system — are, it is stipulated, cooperative associations in which all members are fruit growers.³ A few of the local associations — no more than 5% by number and volume of fruit — are corporate growers whose total volume is sufficient to justify installation of their own packing house facilities.

The remainder of the local associations (also designated as “agency associations”) — about 15% by number handling about 13% of the fruit in the Sunkist system — are private corporations and partnerships, owning and operating packing houses for profit. Their relationship to the growers whose fruit they handle is defined not by a cooperative agreement but by a marketing contract, i. e., these packing houses contract with each grower to handle his fruit for cost plus a fixed fee. It is the membership of these agency associations in the Sunkist system that gives rise to the issue presented here.

The local associations, including these private packing houses, are members of “district exchanges,” nonprofit membership corporations. The principal functions of the approximately threescore district exchanges are in the marketing of the fresh fruit of their member associations; they negotiate sales, arrange for shipment, and serve as conduits of communication between the local associations and Sunkist. Representatives of the district exchanges select the board of directors of Sunkist.

Sunkist itself, since 1958,⁴ has two classes of “members”: the district exchanges, whose principal membership function is to select the board of directors, and the local associations, which vote on all other matters and which have the proprietary ownership of Sunkist’s assets. The corporate entity Sunkist Growers, Inc., owns the trade name “Sunkist” under which the fruit of its members is marketed. It has an extensive sales organization; employs marketing and traffic specialists; and performs many other services for its members through, for example, its research facilities.

More particularly, Sunkist owns processing facilities for what is known as “product” fruit, i. e., fruit that for various reasons is not sold in the fresh fruit market, but rather is used for processed fruit products such as canned or concentrated juices.

Sunkist controls approximately 70% of the oranges grown in California and Arizona, and approximately 67% of the product oranges. This control is manifested through various contractual agreements. For example, each grower in the cooperative local associations agrees that he will market all of his fruit through his association. Each grower who contracts with an agency association packing house appoints it as the marketing agent for all of his fruit. That agreement is generally for five shipping seasons, although it may be canceled at any time “by mutual consent” or on written notice by the grower during August of any year in which it is in force. An escape clause permits the grower to sell such fruit as may be “mutually agreed upon” between him and the packing house to others, if he can obtain a price higher, in the judgment of the packing house, than that which the grower would obtain through his agreement with it. Should the grower be so released from his agreement, he is to pay to the packing house $2.50 per ton of fruit released.

Each of the local associations, including the private packing house agency associations, contracts with its district exchange and with Sunkist Growers, Inc., to market all of its fruit — product and fresh — in the Sunkist system. Each association, under the Sunkist-District Exchange-Association Agreement, reserves the right to decide to what market it will ship and what price it is willing to receive for its fruit; however, Sunkist may decide to pool product fruit and fruit for export, in which event that fruit is handled solely in Sunkist’s discretion. Sunkist also determines “the maximum amount of fresh fruit to be marketed currently,” and allocates the “opportunity to ship equitably among Local Associations.” Each local association agrees not to release any of its growers from the marketing contract without notifying its district exchange and Sunkist, and must obtain the approval of both if releases total more than 5% of the volume of the particular variety of fruit handled by the association. Further, each district exchange and local association agrees that “[a] 11 prices, quotations and allowances shall be issued and distributed solely by Sunkist.”

Petitioner Case-Swayne manufactures single-strength orange juice and other blended orange juices. In its complaint, insofar as relevant to the issues here, petitioner charged that the Sunkist system was a conspiracy in restraint of trade in violation of § 1 of the Sherman Act, the effect of which was to limit sharply the supply of product citrus fruit available to petitioner during the period covered by the complaint.

II.

Section 1 of the Capper-Volstead Act (see n. 2, supra) privileges collective activity in processing and marketing on the part of “[p]ersons engaged in the production of agricultural products as farmers, planters, ranchmen, dairymen, nut or fruit growers . . . .” 42 Stat. 388, 7 U. S. C. § 291. Despite that specific language, Sunkist argues that Congress, in enacting the measure, intended to give sanction to any organizational form by which the benefits of collective marketing inured to the grower; and that, because the agency packing houses, by charging cost plus a fixed fee⁵ for their services, do not participate directly in the gain or loss involved in the collective marketing of fruit through the Sunkist system, they are in the Sunkist system a privileged form of organization for the growers who contract with them.⁶ We think that argument misconceives the requirements of the Act and runs counter to the relevant legislative history.-

Congress enacted § 6 of the Clayton Act in response to the urgings of those who felt the Sherman Act’s prohibition against combinations in restraint of trade might be applied to imperil the development of cooperative endeavors, principally unions.⁷ That section provided that the antitrust laws were not to be “construed to forbid the existence and operation of labor, agricultural, or horticultural organizations, instituted for the purposes of mutual help, and not having capital stock or conducted for profit,” i. e., such organizations were not to be deemed “illegal combinations or conspiracies in restraint of trade . . . .” 38 Stat. 731, 15 U. S. C. § 17. From the standpoint of agricultural cooperatives, the principal defect in that exemption was that it applied only to non-stock organizations. The Capper-Yolstead Act was intended to clarify the exemption for agricultural organizations and to extend it to cooperatives having capital stock.⁸

The reports on both H. R. 13931, the predecessor bill that failed of passage, and H. R. 2373, which became the Capper-Volstead Act, state:

“Section 1 defines and limits the kind of associations to which the legislation applies. These limitations are aimed to exclude from the benefits of this legislation all but actual farmers and all associations not operated for the mutual help of their members as such producers.” (Emphasis added.) H. R. Rep. No. 24, 67th Cong., 1st Sess., 1 (1921); H. R. Rep. No. 939, 66th Cong., 2d Sess., 1 (1920).

That it was intended that only actual producers of agricultural products be covered by the legislation is demonstrated in the debates on the two bills, e. g., the following exchange involving Senator Kellogg, a principal sponsor of the measure:

“Mr. CUMMINS. . . . Are the words 'as farmers, planters, ranchmen, dairymen, nut or fruit growers’ used to exclude all others who may be engaged in the production of agricultural products, or are those words merely descriptive of the general subject?

“Mr. KELLOGG. I think they are descriptive of the general subject. I think 'farmers’ would have covered them all.

“Mr. CUMMINS. I think the Senator does not exactly catch my point. Take the flouring mills of Minneapolis: They are engaged, in a broad sense, in the production of an agricultural product. The packers are engaged, in a broad sense, in the production of an agricultural product. The Senator does not intend by this bill to confer upon them the privileges which the bill grants, I assume?

“Mr. KELLOGG. Certainly not; and I do not think a proper construction of the bill grants them any such privileges. The bill covers farmers, people who produce farm products of all kinds, and out of precaution the descriptive words were added.

“Mr. TOWNSEND. They must be persons who produce these things.

“Mr. KELLOGG. Yes; that has always been the understanding.” ⁹

To be sure, a principal concern of Congress was to prohibit the participation in the collectivity of the predatory middleman, the speculator who bought crops in the field and returned but a small percentage of their eventual worth to the grower. Sunkist focuses on the expression of that concern, urging that the agency associations are not such predatory middlemen. That focus is wide of the mark. We deal here with “special exceptions to a general legislative plan,” Allen Bradley Co. v. Local No. 3, 325 U. S. 797, 809 (1945) (§ 6 of the Clayton Act), and therefore we are not justified in expanding the Act’s coverage, which otherwise appears quite plain. The Act states those whose collective activity is privileged under it; that enumeration is limited in quite specific terms to producers of agricultural products.¹⁰

Nor does the proviso in § 1 — “[t]hat such associations are operated for the mutual benefit of the members thereof” — broaden the earlier language. That provision, in conjunction with the other prerequisites for qualification under the Act — either that each member be limited to one vote without regard to the capital he furnished or that dividends on capital be limited to 8%, and that dealings in products of nonmembers be limited — was designed to insure that qualifying associations be truly organized and controlled by, and for, producers. In short, Congress was aware that even organizations of producers could serve a purpose other than the mutual obtaining of a fair return to their members, as producers, or be controlled by persons other than producers, and the proviso adds a measure of insurance that such organizations do not gain the Act’s benefits.¹¹ Moreover, virtually the only mention in the legislative history of possible participation in a Capper-Volstead cooperative by nonproducers occurs with respect to cooperatives issuing capital stock.¹² Whatever may be the effect and significance of that recognition of the financial stake of non-producers in an otherwise solely producer organization, their participation and role being narrowly restricted by the voting and dividend prerequisites of the Act, they are unpersuasive here. Capital participation by non-producers — and that is the extent to which the debates can fairly be read as contemplating their participation at all¹³ — does not directly enlarge the market share already possessed by the producers themselves. The participation in Sunkist of the agency associations has precisely that effect.

Sunkist suggests that “membership” of the agency associations has no “economic significance,” relying on that provision of the Capper-Volstead Act permitting an association to deal in the products of nonmembers. The argument is that if the agency packing houses were not members of the Sunkist system, Sunkist would still be free to handle their products. But this Court has held that the antitrust implications of the relationship between a cooperative association and others is governed by entirely different standards. “The right of . . . agricultural producers thus to unite [under the Act] . . . cannot be deemed to authorize any combination or conspiracy with other persons in restraint of trade that these producers may see fit to devise.” United States v. Borden Co., 308 U. S. 188, 204-205 (1939); accord, Maryland & Virginia Milk Producers Assn. v. United States, 362 U. S. 458, 466-467 (1960). Moreover, the agency associations participate in the control and policy making of Sunkist, even though they may be private profit-making operations.¹⁴ We think Congress did not intend to allow an organization with such nonproducer interests to avail itself of the Capper-Volstead exemption.¹⁵

The judgment below is reversed and the case is remanded for further proceedings consistent with this opinion.

It is so ordered.

1

369 F. 2d 449 (1966), cert. denied, 387 U. S. 932 (1967). See Maryland & Virginia Milk Producers Assn., v. United States, 362 U. S. 458 (1960); Sunkist Growers, Inc. v. Winckler & Smith Citrus Products Co., 370 U. S. 19 (1962).

2

Section 1 of the Act reads:

“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 collectively 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 may make the necessary contracts and agreements to effect such purposes: Provided, however, That such associations are operated for the mutual benefit of the members thereof, as such producers, and conform to one or both of the following requirements:

“First. That no member of the association is allowed more than one vote because of the amount of stock or membership capital he may own therein, or,

“Second. That the association does not pay dividends on stock or membership capital in excess of 8 per centum per annum.

“And in any case to the following:

“Third. That the association shall not deal in the products of nonmembers to an amount greater in value than such as are handled by it for members.” 7 U. S. C. § 291.

3

“Limitation of membership in local associations to actual citrus-fruit producers is a cardinal principle of the Exchange [i. e., Sunkist] system.” Gardner & McKay, California Fruit Growers Exchange System 88 (U. S. Dept. of Agriculture, FCA Cir. No. C-135 (1950)). See also Cumberland, Cooperative Marketing — Its Advantages as Exemplified in the California Fruit Growers Exchange 87 (1917). The corporate name of Sunkist prior to 1952 was the California Fruit Growers Exchange.

4

In 1958, approximately the midpoint of the period relevant to this complaint, Sunkist altered its structure in two principal respects: first, local associations became members of Sunkist Growers directly, whereas under the old bylaws they had been represented through the district exchanges; second, two wholly owned corporate subsidiaries of Sunkist — Exchange Lemon Products Co. and Exchange Orange Products Co. — were merged into Sunkist. Since the parties have agreed that these changes in no way affect the issue here, we discuss Sunkist in its post-1958 form.

5

Under the marketing contract, the agency packing house obtains for its services “all of its costs of every kind incurred in connection with” processing and marketing the fruit; the so-called “fixed fee,” in the contract in this record, is an amount “not in excess of 5 cents per field box on grapefruit, 10 cents on oranges,” etc. We are not advised how that fixed fee is determined, other than that it is the result of bargaining between the company and the grower. It may well be that the fixed fee is dependent on the benefits of collective marketing through Sunkist, in the limited sense that it represents to the parties what one can charge and the other can pay, both anticipating the return the grower may achieve through pooling his fruit with the Sunkist organization. The stipulation, we note, provides only that the agency association “does not itself participate in either the gain or loss involved in marketing fruit through Sunkist beyond the recovery of its costs and fixed fee for packing.” (Emphasis added.) In our view, however, that discrepancy in the record is not crucial to the decision here.

6

The majority below held that the issue here was resolved sub silentio in favor of Sunkist in Sunkist Growers, Inc. v. Winckler & Smith Citrus Products Co., 370 U. S. 19 (1962). But nongrower participation in Sunkist was not pointed out nor was the issue raised in that case; indeed, it was conceded by the respondents there that Sunkist was a Capper-Volstead cooperative.

7

See H. R. Rep. No. 627, 63d Cong., 2d Sess., 14-16 (1914) ; Allen Bradley Co. v. Local No. 8, 325 U. S. 797 (1945).

8

The purpose and object of the limited exemption of the Capper-Volstead Act is fully discussed in Maryland & Virginia Milk Producers Assn. v. United States, 362 U. S. 458, 464-468 (1960); see also Hanna, Antitrust Immunities of Cooperative Associations, 13 Law & Contemp. Prob. 488 (1948).

9

62 Cong. Rec. 2052 (1922). See also 60 Cong. Rec. 369 (1920) (remarks of Senator Lenroot). It is significant that an amendment was offered on the floor of the Senate to bring within the bill processors of agricultural products where the grower’s return depended upon the price the processor obtained for the finished product, reference being made to the beet sugar manufacturer. 62 Cong. Rec. 2273 (1922). Like Sunkist’s argument here, it was stated that “the beneficiary of this [amendment] would be the producer.” Id., at 2274. But as Senator Norris stated in opposition to the inclusion of the processors (id., at 2275):

“They are not cooperators; they are not producers; it is not an organization composed of producers who incorporate together to handle their own products ...”

The amendment was rejected. Id., at 2275, 2281.

10

See Hulbert, Legal Phases of Farmer Cooperatives 170 (U. S. Dept, of Agriculture, FCS Bull. No. 10, 1958):

“This and other language which appears in the act make it plain that a cooperative, to come within the act, must be composed of producers.”

See also Hulbert, Legal Phases of Cooperative Associations 45 (U. S. Dept, of Agriculture, Bull. No. 1106, 1922); Mischler, Agricultural Cooperative Law, 30 Pocky Mt. L. Rev. 381, 385 (1958); 36 Op. Atty. Gen. 326, 339 (1930); Note, 44 Ya. L. Rev. 63, 69-70, 100 (1958).

11

Cf. Sheffield Farms Co., 44 F. T. C. 555 (1948); Gold Medal Farms, Inc., 29 F. T. C. 356 (1939).

12

E. g., 62 Cong. Rec. 2271 (1922); 60 Cong. Rec. 365 (1920).

Sunkist — a membership, rather than stock, corporation — points out that it, then known as the California Fruit Growers Exchange, was favorably referred to during the debates, see, e. g., 62 Cong. Rec. 2052, 2267, 2271, 2277 (1922); 60 Cong. Rec. 312, 315, 360-361, 370 (1920). There is nothing to show, however, that Congress was aware that nonproducers participated in the marketing of fruit in the Sunkist system; in our reading of those references, it is more likely that Congress assumed the organization was solely of producers. For that matter, Senator Walsh, for one, doubted that the Exchange’s federation of cooperative associations would even be encompassed by the Act (62 Cong. Rec. 2277-2278). In any event, we cannot take those remarks as intending specific approval of Sunkist, in light of the language of the Act and its other history.

13

It was recognized, for example, that producers who desired to organize for collective marketing might not have, at the outset, the necessary finances to do so, and might therefore seek capital from nonproducers. See 60 Cong. Rec. 365 (1920) (remarks of Senator Walsh); 62 Cong. Rec. 2271 (1922) (same); 62 Cong. Rec. 2273 (1922) (remarks of Senator Norris). See also Hearings on H. R. 2373 before a Subcommittee of the Senate Judiciary Committee, 67th Cong., 1st Sess. (1921).

14

As such, the agency association's interests may in some situations be antithetical to those of the growers with which it has contracted. For example, Sunkist has the power to review contracts between growers and the agency associations. Obviously, to the extent that the agency associations are represented in the councils of Sunkist, they in effect review their own contracts.

15

All we decide is that Sunkist Growers, Inc., is not entitled to assert Capper-Volstead as a defense to the suit based on § 1 of the Sherman Act. We express no views on the merits of that suit.