National Dairy Products Corp. v. Hoffman

193 A.2d 125, 40 N.J. 475, 1963 N.J. LEXIS 202

Opinions

The opinion of the court was delivered by

Francis, J.

Appellant National Dairy Products Corporation, a licensed New Jersey milk dealer, was found guilty by respondent Eloyd R. Hoffman, Director of the Office of Milk Industry, of selling milk to Penn Eruit Company, Inc., a Pennsylvania corporation, in violation of certain regulations establishing dealer-store minimum prices. The penalty imposed was revocation of the dealer’s license and an order to sell its milk business and interests in this State, unless within 90 days of the order National Dairy agreed to cease selling milk to Penn Eruit at less than the fixed dealer-store prices, and pay a penalty of $25,000 to the Office of Milk Industry. National Dairy’s appeal from the order was certified by this court on its own motion before arguments were heard in the Appellate Division. We continued the stay of the Director’s order granted by the Appellate Division.

The facts are not involved, but for purposes of perspective a short recital of them appears necessary.

National Dairy Products Corporation is a corporation of the State of Delaware, with its principal office in New York City. It is engaged in the processing, sale and distribution of dairy products in a number of states. Offices are maintained in Philadelphia, Pennsylvania, as well as plants in Philadelphia and Chambersburg, Pennsylvania, Washington, D. C. and Camden, New Jersey. The record indicates that for purposes of economy and centralized distribution, National’s dairy products, after being processed at its plants elsewhere, are transported to the Camden, New Jersey plant at which they are either picked up at the platform by the customers or delivered to them by National’s trucking facilities. Eor example, milk in glass gallon jugs is bottled at the company’s 47th Street, Philadelphia location, cream buttermilk is processed at its Tabor Avenue, Philadelphia place, cottage cheese at Chambersburg, and sour cream at Washington, D. C. These products are then assembled at Camden for sale or distribution, or both. Some processing of milk, although not in glass gallon containers, is engaged in also at Camden.

National is licensed as a milk dealer in New Jersey under N. J. S. A. 4:12A-1. Such a dealer is defined in the act as:

“Any person who sells or distributes milk, including on consignment or for the account of a producer, or who purchases milk from producers or other milk dealers, as herein defined, and who, in addition thereto, pasteurizes in his own plant or bottles in his own plant for sale in this State to consumers or stores or other milk dealers or processors, as herein defined, except for consumption on the premises of the producers. * * *”

Penn Eruit Company, Inc. is a Pennsylvania corporation with its principal office in Philadelphia. It operates a chain of supermarkets in New Jersey, Pennsylvania, New York, Maryland and Delaware. Eleven such markets are maintained in New Jersey; each one is licensed in the name of Penn Eruit Company to sell milk as a store.

A store is defined to be:

“A grocery store, delicatessen, food market, hospital, institution, hotel, restaurant, soda fountain, dairy products store, any governmental agency, roadside stand and similar mercantile establishments.” N. J. S. A. 4:12A-1.

Penn Eruit has been a long-time customer of National, purchasing milk and other dairy products for its stores in Pennsylvania and New Jersey. Prior to the events giving rise to this proceeding, the method of operation between the two companies was a simple one. Penn Eruit would ascertain the needs of its individual stores in the two states, and then place the order with National indicating the requirement (including quantities of milk) of each store. National would then deliver the stipulated gallons and other quantities of milk and dairy products from the Camden plant in its own trucks directly to each store in New Jersey or Pennsylvania. During this period, National charged Penn Pruit the minimum or above-the-minimum price established by O. M. I. for dealer-store sales.

In August 1961 a change took place in their method of operation. On May 5, 1961 the Pennsylvania Milk Control Commission issued a milk dealer’s license to National. (The company is referred to frequently, both in Pennsylvania and here, as “Sealtest,” the designation given to the administrative division of National involved in these transactions. See Milk Control Commission v. Penn Fruit Company, 410 Pa. 242, 188 A. 2d 705 (Sup. Ct. 1963).) Consequently, National then held dealers’ licenses in New Jersey and Pennsylvania.

A milk dealer is defined by the Pennsylvania statute as:

“* * * [A]ny person, including any store * * * who purchases or receives or handles * * * -milk within the Commonwealth, for sale, * * *.” 31 P. S. § 700j-103.

Such a person cannot buy, distribute or sell milk within or without Pennsylvania unless licensed. 31 P. S. § 700j-401. The Commission is authorized to exempt stores (by official order) from the license requirements if all of the milk sold by them has been purchased or acquired from a Pennsylvania-licensed milk dealer. 31 P. S. § 700j-402. Penn Pruit has neither dealer nor store license in Pennsylvania.

In August 1961 Penn Pruit continued to give National the orders for milk and dairy products representing the requirements of its individual stores in New Jersey and Pennsylvania; National continued to charge the O. M. I. approved dealer-store prices for the New Jersey store sales. These products were delivered by National trucks from the Camden plant to the Penn Pruit New Jersey stores as in the past. But in that month, the orders for the Pennsylvania stores began to receive different treatment. Penn Eruit gave National the orders listing the needs of its individual stores in Pennsylvania. But, as of August 14, Penn Fruit sent its own trucks from Philadelphia to FationaPs Camden plant, picked up the orders for the Pennsylvania stores and delivered them at the individual store locations in that state by means of its own employees and equipment. According to the agreement of the parties (which O. M. I. concedes) these purchases and sales were made at FationaPs Camden plant; delivery and transfer of title of the milk took place there also.

The new arrangement with respect to Penn Eruit purchases at Camden for the Pennsylvania stores meant that some of the products involved, perhaps all (the record is not entirely clear), engaged in double transportation between the two states. For example, as has been indicated above, the gallon jugs of milk were processed and bottled at FationaPs 47th Street, Philadelphia plant; they were then transported to Camden, and the jugs purchased by Penn Eruit were delivered at that place to the Penn Eruit trucks which in turn brought them back into Pennsylvania for delivery to Penn Eruit stores in and around Philadelphia. The explanation for FationaPs failure simply to deliver the milk and other dairy products to Penn Eruit in Philadelphia is that the Camden plant is maintained as a central distribution point, and that Penn Eruit is only one of the customers supplied at that place. It does appear, however, that with the advent of the new system, National ceased charging Penn Eruit O. M. I. dealer-store prices. 0. M. I. dealer-subdealer prices were substituted.' These prices were substantially lower than those applicable to store sales.

A subdealer is defined as:

“Any milk dealer who does not own, operate or lease a plant and does not pasteurize or bottle milk, but who purchases milk from a milk dealer or processor and sells or resells to a store or consumer, but the aforesaid definition shall not be deemed to include a store.” N. J. S. A. 4:12A-1.

Subdealers represent a separate class of milk dealer commonly known to the trade in New Jersey for many years. They are independent businessmen, representing an operation between the dealer and the store or home consumer. They may be described in simple terms as milk delivery men who are in business for themselves; they deliver door-to-door to homes, and they may sell and deliver to licensed stores. They must be distinguished from milk delivery men who are employees of dealers and simply transport milk to customers of their employer-dealer.

The Legislature, by virtue of the statute, N. J. S. A. 4:12A-1, recognized this independent class of milk entrepreneur; established a separate classification for him, i. e., subdealer, and required that such an operator be licensed as a condition precedent to recognition and engagement in the business. The classification supports another, even more significant conclusion; in adopting the Milk Control Act, the lawmakers intended not only to recognize the sub dealer but to sanction, continue and preserve his existence.

Order 60-2 of the O. M. I. fixing minimum prices for milk sales in various classes of sellers and purchasers effectuated the legislative intent by establishing separate prices for the sub dealer. Listing of prices is not necessary for present purposes. Suffice it to say that minimum prices for dealer to store, dealer to consumer, or store to consumer sales are higher than those applicable to dealer to subdealer sales. The differential gives recognition to the independent subdealer operation. Furthermore, O. M. I. took cognizance of the fact that, in some cases, the dealers delivered the milk purchases to the place of business of the subdealers, while in other cases subdealers picked up their purchases of milk in their own trucks at the place of business of the dealer, and either made deliveries immediately from that point to the customers, or brought the milk to their business base and trucked it to their customers from there. By way of adjustment for the latter method of operation, 0. M. I. established a cartage allowance for subdealers. A small discount per unit, such as quart for example, was authorized; the allowance varied depending on the transportation distance between dealer and subdealer depots. Regulation H-6; see Garden State Farms v. Armstrong, 31 N. J. Super. 61 (App. Div. 1954).

In this connection, it is important to note that the regulations make no provision for cartage allowance to stores in the event they pick up their milk at the plant or distribution center of the dealer and transport it by their own equipment to their stores. Undoubtedly, this accounts for the method of operation between Penn Eruit and National prior to August 14, 1961, i. e., National delivered Penn Eruit purchases to both New Jersey and Philadelphia area stores of the latter, charging dealer-store prices therefor.

Penn Eruit has no subdealer’s license. There is nothing in the record to indicate that prior to the inception of the new modus operandi on August 14, 1961, an attempt was made to obtain one. It is plain from these proceedings and from conferences between National and O. M. I. before the order to show cause was issued, that Penn Eruit would not have been considered by O. M. I. as qualified to receive a subdealer’s license. In any event, National decided Penn Eruit should be classed as such a dealer and, as of August 14, 1961, began to charge it the lower subdealer prices on the sales to the Pennsylvania stores, and to grant a cartage allowance because Penn Eruit trucks picked up the products at the Camden depot and allegedly distributed them itself to its Pennsylvania stores. “Allegedly” is used only because O. M. I. made no thorough investigation of the products bought for, and delivered by, Penn Eruit trucks to its stores in Pennsylvania. The trucks were not followed or the deliveries physically traced to make certain that the interstate run was made in all cases and that no products ostensibly bought for Pennsylvania stores were delivered to New Jersey stores. According to O. M. I., it does not have sufficient facilities or personnel to engage in a thorough investigation. In fairness, it should be said that the records of National presently before us do not support a view of diversion of Pennsylvania purchases to New Jersey stores. And as has been said, neither snbdealer prices nor cartage allowances were granted by National for the products purchased for, and delivered to, the New Jersey stores by Penn-Eruit trucks.

One of the complaints made by 0. M. I. against National is that, assuming a cartage allowance to Penn Eruit was permissible under Regulation H-6, the discount was excessive. Such violation was found by the Director and is supported by the record. It is of incidental consequence, however, and obviously was inadvertent rather than willful.

The Pennsylvania Milk Control Law did not establish a separate subdealer classification for licensing purposes, nor has the Milk Control Commission of that state authorized different minimum prices for such dealers. See, Milk Control Commission v. Penn Fruit Company, supra. Penn Fruit was not a milk dealer or handler in Pennsylvania, nor licensed as such. It operated as a store at all times, and was exempted by the Commission from the requirement for license. under the provision of the statute which authorizes exemption for stores “selling milk, all of which has been purchased or acquired from a licensed milk dealer or handler.” 31 P. 8. § 700J-402.

When National began to treat Penn Eruit as a subdealer, the latter became able to buy milk in New Jersey for its stores in and around Philadelphia at considerably lower prices than would have been applicable under the Pennsylvania Commission regulations if the purchases and sales were made in Pennsylvania. Thus, the Penn Eruit margin of profit on its store sales was increased by reason of the differential and the cartage allowance. It had a distinct advantage over stores which were buying milk from dealers operating wholly within Pennsylvania. The Commission, apparently feeling that Penn Eruit should no longer be treated as a license-exempt store, because its milk was being purchased in New Jersey from National, a licensed New Jersey dealer, and seemingly concerned lest other stores similarly situated would begin to make and transport their purchases from National in Camden to the disadvantage of Pennsylvania producers, sought an injunction against the practice. The injunction was denied. The theory seems to have been that National had acquired the licensed status of a Pennsylvania milk dealer, and as such it had sold milk to Penn Eruit for resale in Pennsylvania. Therefore, Penn Eruit continued to qualify as an exempt store because all of the milk had been purchased from a Pennsylvania licensed dealer. The court did not consider that, in making the sales in New Jersey, National was operating as a milk dealer of New Jersey, licensed as such, and not as a Pennsylvania dealer. Milk Control Commission v. Penn Fruit Company, supra, 188 A. 2d, at pp. 708-709.

Subsequent to the injunction denial by the trial court in Pennsylvania, the order to show cause in the present proceeding was issued. Admittedly it was instigated by the Pennsylvania Commission as a result of the proof in its case that the purchases, sales and deliveries involved were New Jersey sales completed in this State with the title to the goods passing here.

The position taken by O. M. I. is that under the circumstances detailed above, Penn Fruit does not qualify as a subdealer with respect to the sales of milk destined for the Pennsylvania stores, cannot be treated as such by National, and therefore cannot receive the benefit of the lower sub dealer minimum prices on such milk sales. Moreover, O. M. I. says that under the statutory definition Penn Eruit is a store and must be charged the higher dealer-store minimum prices. It points out that these prices were charged by National on all the sales prior to August 14, 1961. Such prices were applied because Penn Eruit was regarded as a store. After August 14, 1961 the same dealer-store price practice continued with respect to the sales and delivery of milk to its New Jersey markets. But, according to National, when Penn Eruit began personally to truck its milk purchases from the Camden plant to its stores in and around Philadelphia, its statutory status was transformed from that of store to subdealer. The altered status, claims National, was projected into being by the substitution of Penn Pruit trucks as the means of transportation to the out-of-state stores. On the other hand, O. M. I. contends the mere fact that a store transports its own purchases of milk from the dealer’s place of business to its own does not alter its basic character as a store.

There is no doubt that Penn Pruit fits the descriptions of a store under the similar definition promulgated by the milk control laws of both New Jersey and Pennsylvania. N. J. S. A. 4:12A-1, supra; 31 P. S. § 700j-103. Its operation of the places of business in and around Philadelphia which are involved here was spoken of by the Pennsylvania Supreme Court as the conduct of stores. Milk Control Commission v. Penn Fruit Company, supra. Obviously, if a store sends its own trucks to the dealer’s distribution point to pick up its milk purchases, its status as a store would not be transformed into that of a subdealer. The fact of transportation is of itself not meaningful in that connection. The crucial fact distinguishing a store from a subdealer is the nature of the business. A subdealer is neither a dealer nor a store; he is the operator of an independent business standing squarely between the dealer and store, or dealer and consumer. He buys the milk from the licensed dealer at the lower prices fixed for his class of handlers and sells it to his own customers in his own interest. The statute does not require, as a condition to qualification for the class, that the subdealer transport the milk he purchases from the dealer’s place of business to his own distribution point. The only relevance such carriage has in milk price regulation is that it qualifies the sub dealer for a cartage allowance.

There is no suggestion that if Penn Pruit used its trucks to carry the milk for the New Jersey stores from National’s Gam-den plant to the various locations in this State, it would thereby become a subdealer. It would still be a store sending its own employees to pick up its milk purchases. The situation is not different in substance when Penn Pruit, as a store operator, takes delivery of the milk orders at the Dew Jersey plant and trucks them over the Walt Whitman Bridge to its markets in and around Philadelphia. It continues to be a store, using its employees to pick up its milk purchases from Dational. The parties agree that Dew Jersey sales of milk are involved. They are completed here, delivery and passage of title takes place here. Such sales are subject to regulation under our milk control act which classifies the purchaser, Penn Eruit, as a store for price-fixing purposes. There would appear to be no sound reason why a Dew Jersey sale to a store becomes a sale to a subdealer because the store’s employees truck the product of the sale a relatively short distance into a sister state for distribution to its various markets there. Under the circumstances, we agree with the Director of O. M. I. that Dational violated Order 60-2 in selling the milk in question to Penn Eruit at subdealer prices.

Dational contends that the Director’s finding and alternative order of license revocation, or abandonment of use of subdealer prices for milk sales to Penn Eruit Pennsylvania stores and payment of penalty for violation of the price-fixing regulation, constitutes an unconstitutional interference with interstate commerce. We cannot agree.

It has been settled for almost 30 years that the production and distribution of milk are so intimately identified with the public welfare, under the circumstances described in our statute, that reasonable price regulation of its sale has constitutional sanction. Nebbia v. New York, 291 U. S. 502, 54 S. Ct. 505, 78 L. Ed. 940 (1934); Abbotts Dairies, Inc. v. Armstrong, 14 N. J. 319 (1954). Do proof was offered in this proceeding to attack the minimum prices applicable to the various categories of sales as arbitrary or unreasonable. Accordingly, the presumption of validity controls.

The sales with which we are concerned are Dew Jersey transactions. They are essentially local in their character and are properly made subject to the pertinent price-fixing order. Assuming, without deciding, that transportation of the milk by Penn Eruit from Camden to points in and around Philadelphia gave the sales an interstate commerce hue, the problem is not whether such commerce is interfered with but whether the proved interference constitutes an undue or excessive burden on that commerce. Incidental interference or indirect burdens, which find their source and justification in a reasonable exercise of the police power of a state affected by the transaction, are not transgressive of the United States Constitution, in the absence of some controlling or superseding federal enactment or regulation. Regulation of the price of milk was directed by the Legislature to meet the requirement of local conditions and to protect the public interest from what it found to be the adverse effects of those conditions.

The statute created the dealer, subdealer and store classifications for sellers of milk. It is not suggested they are arbitrary or discriminatory, or that the minimum prices applicable to sales in each category suffer from similar invalidity. As we have said, the Director was justified in designating the sales in question as dealer to store rather than dealer to sub-dealer sales. When the transactions were completed in New Jersey by delivery of the milk orders at the Camden platform of National, Penn Eruit was free to do what it wished with the milk. Transportation to Pennsylvania was not compulsory. Adequate supervision by O. M. I. to determine the actual places of delivery was infeasible because of administrative difficulty, inconvenience, expense and lack of sufficient personnel. These factors and the substantially local character of the transactions provide strong support for the view that reasonable state regulation of the sales was permissible even if recognition is given to their asserted interstate aspects. Carmichael v. Southern Coal & Coke Co., 301 U. S. 495, 57 S. Ct. 868, 81 L. Ed. 1245 (1937); Superior Oil Co. v. Mississippi ex rel Knox, 280 U. S. 390, 50 S. Ct. 169, 74 L. Ed. 504 (1930).

Under all the circumstances disclosed by the record before us, we cannot say the application of the O. M. I. established minimum dealer-store prices to the sales involved constitutes a prohibited burden on interstate commerce. Milk Control Bd. v. Eisenberg Farm Products, 306 U. S. 346, 59 S. Ct. 528, 83 L. Ed. 752 (1939); Eastern Air Transport, Inc. v. South Carolina Tax Commission, 285 U. S. 147, 52 S. Ct. 340, 76 L. Ed. 673 (1932); W. W. Cargill Co. v. Minnesota, 180 U. S. 452, 470, 21 S. Ct. 423, 45 L. Ed. 619, 627 (1901); Cf. Head v. New Mexico Board of Examiners in Optometry, 374 U. S. 424, 83 S. Ct. 1759, 10 L. Ed. 2d 983 (1963).

The amount of the penalty stemmed from the Director’s belief and finding that National willfully and knowingly devised an illegal scheme to circumvent the minimum price structure established for New Jersey milk sales. But the legality of the plan was an arguable question and we do not believe the substantial evidence supports the view that the intention was to engage in a flagrantly-illegal effort to frustrate and circumvent the dealer-store price minimums. Cf. Superior Oil Co. v. Mississippi ex rel Knox, supra. For an example of blatant and obvious attempt at circumvention of a minimum price order, see Milk Control Commission v. McAllister Farm Dairy, 384 Pa. 459, 121 A. 2d 144 (Sup. Ct. 1956).

Under all the circumstances, we hold that the portion of the alternative penalty which imposes the $25,000 is excessive and should be reduced to $1,000. Accordingly, the order for revocation of National’s license as a milk dealer shall be recalled if, within 30 days from the date of our mandate, the reduced monetary penalty is paid, and an agreement is made forthwith to cease treating Penn Eruit as a subdealer in connection with the sales of milk described herein. The stay of the Director’s order is vacated, effective immediately.

Modified.