
    Dave PEARCE, Commissioner of Agriculture & Immigration, v. Ernest KRAMER, dba Natchez Milk Company.
    No. 266.
    Court of Appeal of Louisiana. Third Circuit.
    March 22, 1961.
    Rehearing Denied April 4, 1961.
    Certiorari Denied May 12, 1961.
    Joel B. Dickinson, Baton Rouge, for plaintiff-respondent.
    Lloyd F. Love, Ferriday, for defendant-relator.
    R. R. Reeves, Jr., Harrisonburg, for in-tervenor.
    Before TATE, FRUGE, SAVOY, HOOD, and CULPEPPER, JJ.
   SAVOY, Judge.

Plaintiff in his capacity as Commissioner of Agriculture and Immigration of the State of Louisiana filed this suit against defendant, a milk distributor, to enjoin said defendant from violating the provisions of Act 193 of 1958 (LSA-R.S. 40:940.1 et seq.), known as the Orderly Milk Marketing Act, and the regulations promulgated thereunder, and particularly Section VII of said regulation, which reads as follows:

“The Unit costs for milk and milk products as listed in Section 1(F) of this regulation for processors or handlers shall be based on the average costs for such processor or handler during the previous 12 months, except the cost of milk and any other obvious change in costs shall be for the current month. In the case of frozen desserts, unit costs shall be based upon the average cost for the previous 12 months, except any obvious change in any cost shall be for the current month. In the case of a person beginning business, his price established with the Commissioner shall not be less than the lowest price within his trade area.”

Plaintiff alleged that defendant, a milk handler, entered the market in Louisiana in October, 1960, by selling milk in Vidalia, Ferriday and Jonesville, Louisiana, at below the lowest price within said trade area, and has continued to do so although notified by plaintiff’s agents and employees that he was in violation of said act and that it would be necessary for him to increase his prices to meet the lowest price within said area. Plaintiff alleged that such acts on the part of defendant constituted disruptive sales practices under the provisions of the Orderly Milk Marketing Act (LSA-R.S. 40:940.1 et seq.), and asked the district court to permanently restrain and enjoin the defendant, his agents and employees, from selling milk below the lowest price within the trade area, and particularly in the towns mentioned above.

Defendant filed an exception of no cause or right of action which was overruled, and after a trial on the merits, the district judge granted plaintiff a preliminary writ of injunction enjoining and prohibiting the defendant from selling milk below the lowest price posted with the Commissioner of Agriculture and Immigration of the State of Louisiana, in and for the trade area.

From this ruling the defendant applied to this Court for writs of certiorari, prohibition and mandamus. Writs were granted by this Court and a hearing was had. The matter was argued by counsel for both plaintiff and defendant and briefs were furnished to this Court by counsel for both parties.

Under the provisions of LSA-R.S. 40:-940.S, no processor, handler or distributor of milk products shall sell within the State of Louisiana, at wholesale or retail, any product listed in the act for less than the cost of the processor, handler or distributor.

The term “cost” is defined in LSA-R.S. 40:940.2, subsection (12), as follows:

“The term ‘cost to each processor, handler, distributor, bulk milk handler, or non-processing retailer,’ hereinafter referred to as ‘cost,’ shall include the cost of milk, or milk products and frozen dessert as listed or referred to in R.S. 40:940.1, plus the cost of doing business by each processor, handler, distributor, bulk milk handler, or non-processing retailer, which costs of doing business shall include but not be limited to, labor costs (including salaries of executives and officers), cost of receiving, cooling, processing, packaging, manufacturing, rent, depreciation, power, supplies, selling costs, delivery costs, storing, maintenance of plant and equipment, advertising, transportation, all types of licenses, taxes, fees, insurance, and all other costs of doing business as determined by the commissioner. Cost shall be allocated proportionately to each unit of product sold and in no case can any item or unit be sold for less than the unit cost; provided that in the absence of specific evidence that the cost of doing business as herein defined for a non-processing retailer is less than eight per cent, the cost of doing business by such non-processing retailer shall be presumed to be not less than eight per cent of the invoice price and this cost shall be calculated to the nearest half cent per sales unit. In the case of the non-processing retailer in the absence of evidence of costs, the eight per cent or cost herein provided shall apply to each unit of sale at the time and place of sale.”

The duties of the Commissioner are defined in LSA-R.S. 40:940.12, subsection A., which reads as follows:

“The commissioner is hereby declared to be the instrumentality of the state for the purpose of administering the provisions of this Sub-part and to execute the legislative intent herein expressed, and is hereby vested with the power to conduct public hearings, to promulgate, and administer regulations pertaining to the purchases and salce of products listed or referred to in R.S. 40:940.1 provided that nothing contained in this Sub-part shall be construed to alter, amend or repeal any of the laws of this state relating to the regulation of public health or to the prevention of fraud and deception, except as herein otherwise specifically provided.”

LSA-R.S. 40:940.12, subsections B. and F., which are the only sections applicable to this case, provide the following language:

“B. The commissioner shall initiate proceedings on the complaint in writing of any person or he may initiate proceedings on his own motion for the purpose of investigating or hearing evidence of the failure or refusal of any person to comply with the provisions of this Sub-part or the rules, regulations, and orders of the commissioner issued thereunder after giving fifteen days prior notice to the alleged violator as to the date and time fixed for the hearing, and the nature of the charge or charges. * * *
“F. The commissioner shall adopt such other rules, regulations, and orders necessary or appropriate to enforce the provisions of this Sub-part and not inconsistent with the laws of the state of Louisiana.”

The only complaint made by plaintiff is that defendant is selling milk in a trade area below the established price set by the Commissioner.

Defendant contended among other things that Section VII of the regulations mentioned herein is invalid in that it exceeds the administrative authority granted the Commissioner by the Orderly Milk Marketing Act.

The evidence reflects that the defendant was distributing milk in the Vidalia, Ferri-day and Jonesville area at a profit. This is not contradicted by the plaintiff.

LSA-R.S. 40:940.3 sets out the acts on the part of a processor, handler, distributor or bulk milk handler which shall constitute disruptive sales practices. Defendant is not charged with the violation of any of the provisions of LSA-R.S. 40:940.3.

The only issue to be determined by this Court is whether that part of Section VII of the regulation complained of exceeds the administrative authority of the Commissioner, delegated by the Legislature when it enacted the Orderly Milk Marketing Act.

LSA-R.S. 40:940.5 states in substance that no processor, handler or distributor shall, with the intent or effect of unfairly diverting trade from a competitor, sell within this state any product listed in the act for less than the cost of the processor, handler or distributor, as defined in this act. The act defines the elements and items to be used in considering the cost of a product. There is nothing in the act which states that the selling price of a new establishment or processor or distributor of milk and milk products for sale in the trade shall be governed by or be not less than the selling price of other firms already established in the business.

The legislative intent of the act was to prevent price cutting below cost. The act does not fix any other standard for determining the minimum price level.

We do not believe that the Commissioner can go beyond the plain provisions of the Orderly Milk Marketing Act.

73 C.J.S. Public Administrative Bodies and Procedure § 35, page 337, states that an administrative officer may apply only the policy declared in the statute with respect to the matter as to which he purports to act, and he may not set different standards or change the policy.

In Manhatten General Equipment Co. v. Commissioner of Internal Revenue, 297 U.S. 129, 56 S.Ct. 397, 80 L.Ed. 528, the Supreme Court stated that a regulation which created a rule out of harmony with the statute was a nullity. The Court stated further that the rule must he consistent with the statute and must be reasonable.

While the courts cannot displace the judgment of an administrative board as to any matter within its jurisdiction, the board cannot enlarge the powers given it by statute. Waite et al. v. Macy et al., 246 U.S. 606, 38 S.Ct. 395, 62 L.Ed. 892; Lynch v. Tilden Produce Co., 265 U.S. 315, 44 S.Ct. 488, 68 L.Ed. 1034; Werner v. United States of America, 7 Cir., 264 F.2d 489; Charbonnet v. Board of Architectural Examiners et al., 205 La. 232, 17 So.2d 261 ; Kramer v. State Board of Veterinary Medical Examiners, La.App., 55 So.2d 93.

We are of the opinion that the following portion of Section VII of the regulations promulgated by the Commissioner of Agriculture and Immigration, namely:

* * * In the case of a person beginning business, his price established with the Commissioner shall not be less than the lowest price within his trade area.”

exceeded the authority granted to him by Act 193 of 1958 (LSA-R.S. 40:940.1 et seq.).

For the reasons assigned, the judgment of the district court is now reversed and set aside, and judgment is hereby rendered in favor of defendant and against plaintiff, vacating and annulling the preliminary injunction granted by the district judge on January 23, 1961, and dismissing plaintiff’s suit. Plaintiff is to pay all costs taxable against him by law.

Reversed and rendered.

TATE, Judge

(concurring).

The writer concurs ultimately with the majority holding that the Commissioner’s regulation prohibiting new dairy businesses from selling below the lowest price of their competitors in their trade area is, as worded, invalid as exceeding the statutory authority delegated to him by the legislature, which pertinently is only to prevent the sales by processors, handlers, and distributors of milk products for “less than cost” LSA-R.S. 40:940.5. But, despite the really excellent argument by able counsel for the defendant-relator, I do not think that the Commissioner’s regulation is shown to be unreasonable or discriminatory.

The Commissioner seriously claims that he cannot administer the Orderly Milk Marketing Act — with a statutory duty as “the instrumentality of the state * * * to execute the legislative intent” thereof, LSA-R.S. 40:940.12, subd. A — unless he is given the power to regulate the prices of new businesses, and that the present regulation is a necessary incident of such statutory power and duty. See LSA-R.S. 40:940.12, subds. A, F, quoted in majority opinion. There is considerable justification in the present record for such a claim.

It is well to state also what is not at issue.

First, the wisdom or not of the statutory enactment and its stated policy of affording an adequate milk supply by protecting smaller producers and distributors from unrestricted price-competition of “business organizations financially strong enough to sell below their own costs for an extended period of time” (Preamble, Act 193 of 1958), is a matter solely for the legislature and one with which the courts can have no concern.

Second, this court cannot be concerned with the constitutionality of the legislation, upheld as valid by our State’s highest court. Schwegmann Bros. Giant Super Markets v. McCrory, 237 La. 768, 112 So.2d 606.

Third, the regulation in question — applying alike to all new dairying businesses — is not invalid as being discriminatory or a denial of equal protection of the laws, for a statute or its administration, which is applicable alike to all persons in similar circumstances does not deny equal protection of the laws to persons in such a category, even though other persons differently classified are treated differently, providing that the classifications are not arbitrary and unreasonable and unrelated to the aims for which the statute is validly enacted. State v. Morgan, 238 La. 829, 116 So.2d 682; Louisiana Motor Vehicle Commission v. Wheeling Frenchman, 235 La. 332, 103 So.2d 464; Louisiana State Board of Medical Examiners v. Beatty, 220 La. 1, 55 So.2d 761; City of Alexandria v. Breard, 217 La. 820, 47 So.2d 553; Standard Homestead Ass’n v. Horvath, 205 La. 520, 17 So.2d 811; Lakeside Day Care Center v. Board of Adjustment, La.App., 1 Cir., 121 So.2d 335, certiorari denied. Further, the classification is presumed to be reasonable, and the burden is on the person attacking it to prove to the contrary. Louisiana Motor Vehicle Commission v. Wheeling Frenchman, above-cited; Louisiana State Board of Medical Examiners v. Beatty, above-cited.

With regard to the present record, I think it is fair to state that, although the defendant stated that he was operating his new business at a profit, the unanimous opinion of all the dairy witnesses and the Commissioner’s experts was that it is impossible for a new business, with its initially lower volume, to sell dairy products at a unit-cost lower than the unit-cost of established businesses with their necessarily (at least initially) higher volume. Under LSA-R.S. 40:940.2(12), the cost per unit of the product sold includes a great number of items such as “depreciation”, “maintenance”, “advertising”, “licenses”, “taxes”, “fees”, “insurance”, which, when divided on a necessarily lower volume of milk to be sold in the first hour or on the first day or during the first week by a new distributor, must obviously greatly increase the cost per unit of each of these first units sold, as compared with the unit cost of the established producers with a stable and larger volume.

Both at the hearing which preceded the adoption of the regulation and also at the trial of this matter below, it was indicated that there are a great number of variable cost-items in the milk market, fluctuating from day to day and from season to season, so that 12 months was adopted as the most reasonable and fair basis upon which to determine the average cost per unit.

It should also be added that the evidence shows that in some periods of the year, when milk supplies are plentiful, premium prices are paid in order to assure a supply during the season of the year when milk is scarce. (In the latter periods, the quota or “base” established by the amount of milk then sold to a processor, will determine the amount of milk bought at premium prices during the periods of the year when much more milk is available than is needed for retail consumption.) This is an annual experience of the milk industry with sufficient relevancy to the determination of unit costs as to justify the use of a 12-months business yardstick.

In the case of new dairy businesses, the witnesses at the administrative hearing, as well as the Commissioner’s witnesses at the trial, felt it to be impossible to determine the unit-cost for new firms without the yardstick of a year’s business costs, when there would be adequate experience to determine the per unit-item for such variable annual costs as, for instance, maintenance. To require the new dairy business to supply the Commissioner his business expenditures each day or each week would obviously create great hardship upon a new firm and would also involve a great administrative burden upon the Commissioner. Or to charge all the first day’s or first week’s advertising costs to the first day’s or first week’s business volume might drive the new firm’s unit-cost so high as to prevent it from competing at all with the lower prices of its more established competitors.

The effects of the defendant’s price competition is very dramatically illustrated by the present record where, if Borden cuts its price to meet the defendant’s and also proportionately cuts the price it pays to the local small dairy producers who supply Borden with milk for the local market, then these local dairy farmers, with their low margin of profit, will be forced out of business.

However, while these small producers naturally feel that the defendant must be selling his milk at below cost, or else must have been furnished by Sealtest with milk at below its cost, since they themselves could not profitably furnish milk for processing and distribution at defendant’s prices, it must be admitted that there is no evidence to this effect. Further, the regulation in question ipso facto prohibits a new distributor from selling his milk at lower than his lowest competitor, even if (which the experienced witnesses deemed to be impossible) he could distribute his milk at a lower cost than his established competitors could. As adopted, the regulation in question does not permit the new distributor to prove to the Commissioner that his unit costs are actually lower than the lowest prices of his competitors, and thus to prove that in a particular instance sale of his milk at such lower price does not violate the legislative act administered by the Commissioner. The regulation therefore may in some few instances prohibit conduct not violative of the statute, and to that extent the regulation is invalid as exceeding the statutory authority delegated to the Commissioner.

At the same time, on the basis of the present record, speaking for myself alone, I think the Commissioner might cure the de-feet in his regulation if the last sentence of Section 7, quoted in the majority opinion , were redrawn so as to provide instead, e. g., that “In the case of a person beginning business, his unit cost shall be presumed to be not less than the lowest price within his trade area, unless by adequate showing before the Commissioner another unit cost is proven.”

Before closing, the writer does not think it inappropriate to observe that the purpose of the legislation was not, as sometimes assumed by the Commissioner’s witnesses, to prohibit price-competition, itself, but only to prohibit price-competition based upon the sale of milk products at below the cost to the handler or retailer. Providing that the unit-cost is not illegally lowered by securing a larger volume through such statutorily prohibited competition, any handler such as the defendant does not violate the statute by selling milk products lower than his competitors, if he does not sell them below his own cost. Although the regulation in question is intended only to prevent a new business (or an old firm in the guise of a new outlet) from disrupting the orderly marketing of milk by the means of illegal price-competition, it might also for instance prevent a new firm from selling its milk at a legal (i. e., not below cost) price if the other distributors in the local market had somehow established an artificially high price.

For the reasons perhaps too fully stated above, the writer ultimately concurs in the conclusion of his learned brethren of tlie majority.

On Application for Rehearing.

Rehearing denied, en Banc. 
      
      . It might well be argued that the evidence introduced proves that the regulation was reasonably calculated to advance the aim of the legislative provisions and was thus within the statutory power of the Commissioner “to adopt such other rules, regulations, and orders necessary or appropriate to enforce the provisions” of the statute. LSA-R..S. 40:940.12, subd. E\ In view of the strong expert and lay testimony that a new distributor’s initial unit-cost simply cannot be lower than the lowest price of his competitors in the trade area, and in view of what I feel the unquestioned power of the Commissioner at least to provide a presumption to such effect, I bad and have some doubt that the defendant could be entitled to question the regulation as prejudicial in the absence of stronger proof than his own self-serving statement that he was not selling at below his own cost, uncorroborated by records or any concrete evidence.
     
      
      . “ * * * In the case of a person beginning business, his price established with the Commissioner shall not be less than the lowest price within his trade area.”
     