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    LIBERTY WAREHOUSE CO. v. BURLEY TOBACCO GROWERS' CO-OP. MARKETING, 276 U.S. 71 (1928)

    U.S. Supreme Court

    LIBERTY WAREHOUSE CO. v. BURLEY TOBACCO GROWERS' CO-OP. MARKETING, 276 U.S. 71 (1928)

    276 U.S. 71

    LIBERTY WAREHOUSE CO.
    v.
    BURLEY TOBACCO GROWERS' CO-OP. MARKETING ASS'N.
    No. 18.

    Argued Feb. 23, 1927.
    Decided Feb. 20, 1928.[ Lib. Warehouse Co. v. Burley Tobacco

    Growers' Co-op. Mar. Ass'n. 276 U.S. 71 (1928) ]

    [276 U.S. 71, 73]   Mr. Allan D. Cole, of Maysville, Ky., for plaintiff in error.

    [276 U.S. 71, 78]   Mr. Aaron Sapiro, of New York City, and Robert S. Marx, of Cincinnati, Ohio, for defendant in error.

    [276 U.S. 71, 83]  

    Mr. Justice McREYNOLDS delivered the opinion of the Court.

    The Liberty Warehouse Company, a Kentucky corporation, operates a warehouse at Maysville, in that state, and there receives and sells loose- leaf tobacco for the accounts of growers. The Burley Tobacco Growers' Co- operative Marketing Association, incorporated under the Bingham Co- operative Marketing Act (chapter 1, Acts Ky. 1922), commenced this proceeding against the warehouse company in the Mason county circuit court. It charged the warehouse company with willful violation of the act by selling pledged tobacco, and asked judgment for the prescribed penalty ($ 500) and attorney's fees.

    The Bingham Act (32 sections) authorizes the incorporation of nonprofit co-operative associations for the [276 U.S. 71, 84]   orderly marketing of agricultural products, and provides only producers may become members and that the corporation may contract only with them for marketing such products. It declares that these contracts shall not be illegal, prescribes penalties for interfering therewith, and further provides that the association shall not be deemed a conspiracy, illegal combination, or monopoly. Three pertinent sections follow:

    'Sec. 26. Misdemeanor to Induce Breach of Marketing Contract of Co- operative Association-Spreading False Reports about the Finances or Management Thereof.

    'Sec. 27. Warehousemen Liable for Damage for Encouraging or Permitting Delivery of Products in Violation of Marketing Agreements.

    'Sec. 28. Associations are Not in Restraint of Trade.

    The petition (filed Dec. 14, 1923) alleges:

    That the association was organized to provide means for orderly marketing of tobacco grown or acquired by members and no others. Identical contracts (the standard form is exhibited) with many growers obligate them to deliver to it all of their tobacco during five years. Tobacco received under these contracts is sold to manufacturers and dealers as market conditions permit and the proceeds less expenses are distributed among the members, according to quality and quantity of their deliveries.

    That one Mike Kielman joined the association and executed the standard contract. Notwithstanding this he delivered two thousand pounds of the 1923 crop to the warehouse company and it sold the same, with full [276 U.S. 71, 86]   knowledge of the circumstances. Before the sale the association notified the warehouse company of Kielman's membership and of his marketing contract, requested it not to sell his tobacco and called attention to the prescribed penalties.

    The standard contract provides:

    The warehouse company presented an amended answer and counterclaim in three sections.

    The first sets up 'in estoppel and in bar' of the alleged action that the association since January 13, 1922, has been a trust or combination of the capital, skill and acts of divers persons and corporations doing commercial business in Kentucky and between that state and other states and foreign countries 'organized and conducted for the express purpose of unlawfully and contrary to the common law, creating and carrying out restrictions in trade' under the guise of stabilizing prices.

    The second asserts that sections 26 and 27, Bingham Act, conflict with the Fourteenth Amendment, abridge defendant's privileges and immunities as a citizen of the United States, deprive it of corporate life, liberty, and property without due process of law and deny it equal protection of the laws.

    The third seems to be based upon the Kentucky Declaratory Judgment Law. It advances a counterclaim; also asks the court to determine whether the Bingham Act is valid and for a declaration of rights and duties.

    The trial court struck section 3 'from the records' and sustained demurrers to sections 1 and 2. The [276 U.S. 71, 88]   warehouse company elected to plead no further. Trial by jury was waived, 'the petition being submitted to the court on the law and facts.' Judgment for $500-the prescribed penalty-and $100 attorney's fees went for the association, and was affirmed by the Court of Appeals.

    In order to prevail here, the warehouse company must show that enforcement of the challenged judgment would deprive it-not another-of some right arising under the Constitution or laws of the United States properly asserted below. Southern Railway Co. v. King, 217 U.S. 524 , 30 S. Ct. 594; Standard Stock Food Co. v. Wright, 225 U.S. 540 , 32 S. Ct. 754; Hendrick v. Maryland, 235 U.S. 610, 621 , 35 S. Ct. 140; Jeffrey Mfg. Co. v. Blagg, 235 U.S. 571, 576 , 35 S. Ct. 167; Dahnke-Walker Co. v. Bondurant, 257 U.S. 282, 289 , 42 S. Ct. 106.

    No federal right was impaired by striking section 3 from the amended answer and counterclaim. Proceedings in state courts must conform to the reasonable requirements of local law. Whether they do is primarily for those courts to determine. Here we find no abuse of that power.

    Section 3 asserts:

    Apparently the declaratory judgment statute authorizes plaintiffs only to ask for judgments. It also provides:

    [276 U.S. 71, 89]   'The court may refuse to exercise the power to declare rights, duties or other legal relations in any case where a decision under it would not terminate the uncertainty or controversy which gave rise to the action, or in any case where the declaration or construction is not necessary or proper at the time under all the circumstances. Section 6.'

    This court has no jurisdiction to review a mere declaratory judgment. Liberty Warehouse Co. v. Grannis, 273 U.S. 70 , 47 S. Ct. 282.

    Section 1 presents no federal question. It does not mention the Constitution or any statute of the United States, but claims that the association is an unlawful trust or combination under common-law rules. But the present controversy concerns a statute, and a state may freely alter, amend, or abolish the common law within its jurisdiction. Baltimore & Ohio R. R. v. Baugh, 149 U.S. 368, 378 , 13 S. Ct. 914.

    Section 2 challenges sections 26 and 27 of the Bingham Act, because they offend the Fourteenth Amendment, 'in that said sections and each of them abridges defendant's privileges and immunities as a citizen of the United States and deprives defendant of its corporate life, liberty and property without due process of law and denies to it the equal protection of the laws.' This suggests the only federal questions open for our consideration. The pleadings allege no burden upon interstate commerce amounting to regulation, nor do they property and definitely advance any claim under a federal statute.

    A corporation does not possess the privileges and immunities of a citizen of the United States within the meaning of the Constitution. Western Turf Ass'n v. Greenberg, 204 U.S. 359, 363 , 27 S. Ct. 384; Selover v. Walsh, 226 U.S. 112 , 33 S. Ct. 69. The allegation concerning deprivations of corporate life is unimportant.

    Certainly the statute impaired no right of the warehouse company guaranteed by the Fourteenth Amend- [276 U.S. 71, 90]   ment, by merely authorizing corporations with membership limited to agriculturists and permitting contracts for purchase and resale of farm products. This also is true of the declaration that such associations shall not be deemed monopolies, combinations or conspiracies in restraint of trade, and that contracts with members shall not be illegal. The state may declare its own policy as to such matters.

    Sections 26 and 27 prohibit interference with contracts permitted by local law and not alleged to conflict with federal law. Section 26 declares any person or corporation who knowingly induces a member to break his marketing contract guilty of a misdemeanor and subjects him to a fine; also to suit for the penal sum of $500. Section 27 hits warehousemen who solicit, persuade, or permit a member to break his marketing contract by accepting or receiving pledged products for sale and subjects them to penalties. It was under the latter section that judgment went against the warehouse company.

    The court below affirmed:

    Considering this and further declarations in the same opinion, we cannot say that any common-law rule recognized in the state of Kentucky forbade associations or contracts similar to those before us when intended to promote orderly marketing. Undoubtedly the state had power to authorize formation of corporations by farmers for the purpose of dealing in their own products. And there is nothing to show that since the Bingham Act producers may not form voluntary associations and through them make and enforce contracts like those expressly authorized.

    Do the provisions of the Bingham Act which afford peculiar protection to marketing contracts with members of the association deprive the warehouse company of [276 U.S. 71, 91]   equal protection of the laws, or conflict with the due process clause of the Fourteenth Amendment, because without reasonable basis and purely arbitrary? These questions may be fairly said to arise upon the present record.

    The statute penalizes all who wittingly solicit, persuade, or induce an association member to break his marketing contract. It does not prescribed more rigorous penalties for warehousemen than for other offenders. Nobody is permitted to do what is denied to warehousemen. There is no substantial basis upon which to invoke the equal protection clause.

    Connolly v. Union Sewer Pipe Co., 184 U.S. 540 , 22 S. Ct. 431, is much relied upon. But there the circumstances differed radically from those here presented, and always to determine whether equal protection is denied there must be consideration of the peculiar facts. Connolly resisted judgment for the purchase price of pipe upon the ground that the Union Company, the vendor, belonged to a combination or trust forbidden by an Illinois statute. The statute defined a trust, made participation therein criminal, and directed that those who purchased articles from an offending member should not be held liable for the price. Section 9 declared:

    This court held that because of the exemption the Union Company was denied the equal protection of the law. It was forbidden to do what others could do with impunity. Here the situation is very different. The questioned statute undertakes to protect sanctioned contracts against any interference-no one could lawfully do what the warehouse company did.

    Counsel maintain that the Bingham Act takes from the warehouse company the right to carry on business in the usual way by accepting and selling the tobacco of those [276 U.S. 71, 92]   who voluntarily seek its services and thus unduly abridges its liberty. Undoubtedly the statute does prohibit and penalize action not theretofore so restricted and to that extent interferes with freedom. But this is done to protect certain contracts which the legislature deemed of great importance to the public and peculiarly subject to invasion. We need not determine whether the liberty protected by the Constitution includes the right to induce a breach of contract between others for the aggrandizement of the intermeddler-to violate the nice sense of right which honorable traders ought to observe.

    In Minnesota, etc., Marketing Association v. Radke (1925) 163 Minn. 403, 204 N. W. 314, provisions of the Co-operative Marketing Act of Minnesota (Laws 1923, c. 264) substantially like section 27 were declared invalid. The Supreme Court said:

    On the other hand, in Commonwealth v. Hodges (1910) 137 Ky. 233, 125 S. W. 689, the Kentucky Court of Appeals sustained a statute which made it a criminal offense knowingly to purchase a crop pledged to an unincorporated marketing association. The same doctrine is accepted by the opinion below.

    It is stated without contradiction that co-operative marketing statutes substantially like the one under review have been enacted by 42 states. Congress has recognized the utility of co-operative association among farmers in the Clayton Act (38 Stat. 731 (15 USCA 17), the Capper- Volstead Act (42 Stat. 388 (7 USCA 291-292), and the Co-operative Marketing Act of 1926 (44 Stat. 802 (7 USCA 451-457)). These statutes reveal widespread legislative approval of the plan for protection [276 U.S. 71, 93]   scattered producers and advancing the public interest. Although frequently challenged, we do not find that any court has condemned an essential feature of the plan with the single exception of the Supreme Court of Minnesota in the above-cited case.

    In the court below it was said:

    The Supreme Court of Alabama declared in Warren v. Alabama Farm Bureau Cotton Association (1925) 213 Ala. 61, 104 So. 264:

    In Manchester Dairy System, Inc., v. Hayward (1926) 132 A. 12, the Supreme Court of New Hampshire said:

    Northern Wisconsin Co-operative Tobacco Pool v. Bekkedal, 182 Wis. 571, 197 N. W. 936:

    The purpose of the penalty clause (section 27) was pointed out by the Supreme Court of Tennessee in Dark Tobacco Growers' Co-op. Ass'n v. Dunn ( 1924) 150 Tenn. 614, 266 S. W. 308:

    Other pertinent cases are assembled in margin. 1  

    The opinion generally accepted-and upon reasonable grounds, we think- is that the co-operative marketing statutes promote the common interest. The provisions for protecting the fundamental contracts against interference by outsiders are essential to the plan. This court has recognized as permissible some discrimination intended to encourage agriculture. American Sugar Refining Co. v. Louisiana, 179 U.S. 89, 95 , 21 S. Ct. 43; Cox v. Texas, 202 U.S. 446 , 26 S. Ct. 671. And in many cases it has affirmed the general power of the states, so to legislate as to meet a definitely threat- [276 U.S. 71, 97]   ened evil. International Harvester Co. v. Missouri, 234 U.S. 199 , 34 S. Ct. 859, 52 L. R. A. (N. S.) 525; Jones v. Union Guano Co., 264 U.S. 171 , 44 S. Ct. 280. Viewing all the circumstances, it is impossible for us to say that the Legislature of Kentucky could not treat marketing contracts between the association and its members as of a separate class, provide against probable interference therewith, and to that extent limit the sometime action of warehousemen.

    The liberty of contract guaranteed by the Constitution is freedom from arbitrary restraint-not immunity from reasonable regulation to safeguard the public interest. The question is whether the restrictions of the statute have reasonable relation to a proper purpose. Miller v. Wilson, 236 U.S. 373, 380 , 35 S. Ct. 342, L. R. A. 1915F, 829; Lindsley v. Natural Carbonic Gas Co., 220 U.S. 61, 78 , 31 S. Ct. 337, Ann. Cas. 1912C, 160. A provision for a penalty to be received by the aggrieved party as punishment for the violation of a statute does not invalidate it. St. Louis, Iron Mountain & Southern Ry. Co. v. Dicksey Williams, 251 U.S. 63, 66 , 40 S. Ct. 71.

    Affirmed.

    Footnotes

    [ Footnote 1 ] Owen County Burley Tobacco Society v. Brumback, 128 Ky. 137, 107 S. W. 710; Burley Tobacco Society v. Gillaspy, 51 Ind. App. 583, 100 N. E. 89; Bullville Milk Producers Ass'n v. Armstrong, 108 Misc. Rep. 582, 178 N. Y. S. 612; Anaheim Citrus Fruit Ass'n v. Yeoman, 51 Cal. App. 759, 197 P. 959; Washington Cranberry Growers' Ass'n v. Moore, 117 Wash. 430, 201 P. 773, 204 P. 811, 25 A. L. R. 1077; Poultry Producers of Southern California v. Barlow, 189 Cal. 278, 208 P. 93; Kansas Wheat Growers' Ass'n v. Schulte, 113 Kan. 672, 216 P. 311; Brown v. Staple Cotton Co-op. Ass'n, 132 Miss. 859, 96 So. 849; Oregon Growers' Co-op. Ass'n v. Lentz, 107 Or. 561, 212 P. 811; Texas Farm Bureau Cotton Ass'n v. Stovall, 113 Tex. 273, 253 S. W. 1101; Potter v. Dark Tobacco Growers' Ann'n, 201 Ky. 441, 257 S. W. 33; Tobacco Growers' Co-op. Ass'n v. Jones, 185 N. C. 265, 117 S. E. 174, 33 A. L. R. 231; Milk Producers' Marketing Co. v. Bell, 234 Ill. App. 222; Dark Tobacco Growers' Co-op. Ass'n v. Mason, 150 Tenn. 228, 263 S. W. 60; Rifle Potato Growers v. Smith, 78 Colo. 171, 240 P. 937; Clear Lake Co-op. Live Stock Shippers' Ass'n v. Weir, 200 Iowa, 1293, 206 N. W. 297; Minnesota Wheat Growers' Co-op. Ass'n v. Huggins, 162 Minn. 471, 203 N. W. 420; Nebraska Wheat Growers' Ass'n v. Norquest, 113 Neb. 731, 204 N. W. 798; Harrell v. Cane Growers' Co-op. Ass'n, 160 Ga. 30, 126 S. E. 531; California Bean Growers' Ass'n v. Rindge Land & Navigation Co., 199 Cal. 168, 248 P. 658; Louisiana Farm Bureau Cotton Growers' Co-op. Ass'n v. Clark, 160 La. 294, 107 So. 115; List v. Burley Tobacco Growers' Co-op. Ass'n, 114 Ohio St. 361, 151 N. E. 471; South Carolina Cotton Growers' Co- op. Ass'n v. English, 135 S. C. 19, 133 S. E. 542; Tobacco Growers' Co-op. Ass'n v. Danville Warehouse Co., 144 Va. 456, 132 S. E. 482.

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