Inter-State Milk Producers' Cooperative v. Hoffman

Citations: 79 N.J. Super. 209; 191 A.2d 190; 1963 N.J. Super. LEXIS 396

Court: New Jersey Superior Court Appellate Division; May 23, 1963; New Jersey; State Appellate Court

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Goldmann, S. J. A. D. delivered the court's opinion regarding the appeal by Inter-State Milk Producers’ Cooperative (Cooperative) against the Director of the Office of Milk Industry’s determination that the Cooperative qualifies as a milk dealer under the Milk Control Act, requiring licensing. The Cooperative, established in 1936 as a Pennsylvania cooperative, operates as a bona fide agricultural cooperative in New Jersey and has been recognized under the state's Agricultural Cooperative Association Act. Its primary role involves representing producer-stockholders at price hearings, advocating for favorable producer prices, and acting on behalf of its members.

From its inception until October 5, 1962, the Cooperative represented several hundred producers from Pennsylvania and New Jersey, negotiating the sale of their milk to southern New Jersey dealers. Producers typically received payments directly from dealers after Cooperative's dues were deducted, though in some instances, dealers paid Cooperative directly. On September 1, 1962, the Cooperative entered an agreement with Borden-Castanea Dairy, allowing the Dairy to purchase milk from producers and pay Cooperative for the milk at federally determined prices. The agreement facilitated the Cooperative's role as an agent to collect payments for its members' milk sales, with provisions for selling any unsold milk outside New Jersey and blending the proceeds for payment to producers.

N.J.S.A. 4:13A-31 allows approved producer cooperative associations to blend net sales proceeds and distribute them to members. The Cooperative affirms it will not sell New Jersey milk outside long-term contracts and will notify the Director if it diverts milk. All funds from milk sales are kept in a separate account and are disbursed to members semimonthly, per marketing agreements. Milk is delivered by producers to trucks owned by haulers, with hauling costs deducted by Dairy on behalf of producers. The Cooperative does not take possession of the milk but acts according to marketing agreements. Under Milk Industry Order No. 57-1, Dairy acquires title to the milk once it is removed from the producer's holding tank. Prior to September 1, 1963, the Director was aware of the Cooperative's role in representing members but only learned of milk payments and distributions after that date. Following a conference, the Director asserted that cooperatives must be licensed, citing the definition of “milk dealer” in N.J.S.A. 4:12A-1. He indicated he would not impose procedural defenses should the Cooperative appeal a licensing requirement. However, the Director's October 5, 1962, decision lacked factual findings as mandated by N.J.S.A. 4:12A-20. The Director's determination that the Cooperative qualifies as a “milk dealer” stems from its role in designating dairies for milk delivery and receiving payments, which collectively meet the statutory definition of handling milk. Consequently, the Cooperative would be subject to an annual licensing fee of approximately $1,000.

Dairy operates as a milk dealer and is subject to an annual license fee based on milk sales. There are three producer cooperatives in the state: one is a licensed milk processor, another acts as a bargaining group, and the third is the plaintiff. Producer cooperatives are distinct from regular corporations as they represent their members, focusing on their interests. These cooperatives gained prominence post-World War I, with Congress acknowledging their value, as highlighted in Liberty Warehouse Co. v. Burley Tobacco Growers Coop. Marketing Ass’n. New Jersey's Agricultural Cooperative Associations Act, established in 1924, aims to support agricultural producers, including those in the dairy sector. 

The Director referenced the Milk Control Act's definition of a "milk dealer," which includes various roles related to the sale and distribution of milk, including cooperatives. The definition implies that the Director has discretion in determining what constitutes a milk dealer, which the Cooperative argues constitutes an invalid delegation of legislative power due to a lack of clear standards. Although the state's brief does not directly address this concern, a deputy attorney general acknowledged the ambiguity in the phrase “as the director may determine.” The court did not resolve this issue but noted that the Supreme Court has indicated that standards for delegated powers need not be explicitly stated if they can be reasonably inferred from the entire statutory framework.

The definition of "milk dealer" in the Milk Control Act (N.J.S.A. 4:12A-1) lacks a clear definition for "handling of milk," which the State acknowledges. While the term may refer back to "milk," as defined in the same section, related statutes provide no further clarity. In contrast, Pennsylvania's statute defines "handle" comprehensively, including actions such as buying, selling, and controlling milk. "Handle" has varied meanings, from physical interaction to managing and transacting. An analysis of the Cooperative's operations reveals it is engaged in the "handling of milk" based on its agreements with producer-members, which require producers to consign all milk and cream to the Cooperative for sale, designate delivery methods, and allow the Cooperative to blend and equalize sales proceeds among producers. The Cooperative guarantees payment for milk sold and can collect payments directly from purchasers. While the Cooperative functions as a marketing agent for its members and does not take possession of milk, it still plays a significant role in the distribution process.

Cooperative acts on behalf of its producer-members primarily by representing them at price hearings before milk control agencies, adopting a stance that typically opposes milk dealers who buy milk directly from producers at prices set by these agencies. The Agricultural Cooperative Associations Act (N.J.S.A. 4:13-3(a)) allows cooperatives to market agricultural products, including dairy. It permits marketing agreements with members and allows bylaws to mandate exclusive sales through the cooperative. Similar provisions exist under Pennsylvania law. The Legislature actively supports the development of cooperatives. The central issue is whether Cooperative's actions in marketing its members' milk classify it as a milk dealer under the Milk Control Act, which has evolved since 1933 to ensure fair prices for producers and prevent the detrimental economic impacts on the milk industry. The Milk Control Act aims to stabilize milk supply and prices, reflecting ongoing legislative concern for producers’ welfare. By identifying Cooperative as a milk dealer, the core objective of providing collective bargaining power to milk producers would be undermined.

A cooperative cannot simultaneously function as a 'milk dealer' while advocating for producers against milk dealers due to inherent conflicts, which would undermine New Jersey's agricultural cooperative program. The relevant statutes, N.J.S.A. 4:12-1 et seq., define 'dealer' as anyone buying or receiving milk or cream from a producer for sale, and 'producer' as individuals or cooperatives producing milk or cream in New Jersey. Under these definitions, the Cooperative qualifies as a 'producer.' The Director's claim that the Cooperative is a milk dealer is based on three points: (1) it decides which dairy receives each producer's milk; (2) it occasionally collects payments for the milk; and (3) a supposed longstanding interpretation that cooperatives must be licensed as milk dealers. However, the first point is within the cooperative's rights under the Agricultural Cooperative Associations Act, while the second merely indicates a service role without ownership of the milk. The Director's interpretation lacks sufficient evidence of past cooperatives and their activities. Consequently, the determination that the Cooperative is a milk dealer is reversed, affirming that its operations do not fit the statutory definition or intent of the Milk Control Act.