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Early State Decisions

Some of the cases involving cooperatives that were decided by State courts prior to the enactment of cooperative statutes in the States concerned are discussed in the following paragraphs.

An Iowa case involving a cooperative, decided in 1913, was disposed of in accordance with what the court conceived to be the applicable common law principles. A bylaw of the association provided that any member of the association should forfeit 5 cents for every hundredweight of product or livestock sold to any competitor of the association.

A buyer of hogs, who operated in the territory in which the association functioned, brought an injunction suit to prevent the association from enforcing the bylaw. In holding against the association, the Supreme Court of Iowa said that the bylaw was in restraint of trade because the plaintiff was placed at a disadvantage and could not compete with the society in purchasing hogs from its members, and the members were not free to deal with plaintiff. If they dealt with him, he either forfeited his profits by reason of having to pay too much for his hogs, or they forfeited a part of the purchase price as a penalty for selling to him.8

In a Colorado case, a bylaw provided that stockholders might sell grain to competitors of the association in a particular town by paying 1 cent per bushel to the association for all grain so sold.

A stockholder who had agreed to the bylaw sold 3,500 bushels of grain to a competitor of the association and the cooperative brought suit against him to recover $35. The bylaw was held invalid on the ground that it was in restraint of competition, and the association lost the suit.

The Colorado cases followed the Iowa cases. Other cases in which the courts held against the cooperatives involved, on the ground that they were operating in restraint of trade, are here given. 10

Reeves v. Decorah Farmers' Co-op Soc., 160 Iowa 194, 140 N. W. 844, 44 L.R.A. (N.S.) 1104 (1913); followed in Ludewese v. Farmers' Mut. Co-op Co., 164 Iowa 197, 145 N.W. 475 (1914).

'Burns v. Wray Farmers' Grain Co., 65 Colo. 425, 176 P. 487, 11 A.L.R. 1179 (1918); followed in Atkinson v. Colorado Wheat Growers' Association, 77 Colo. 559, 238 P. 1117 (1925).

10 Georgia Fruit Exchange v. Turnipseed, 9 Ala. App. 123, 62 So. 542 (1913); Ford v. Chicago Milk Shippers' Association, 155 Ill. 166, 39 N.E. 651, 27 L.R.A. 298; Maryland and Virginia Milk Producers' Association, Inc. v. United States, 362 U.S. 458, 80 S. Ct. 847, 4 L. Ed. 2d 880 (1960).

In each of the States where decisions adverse to cooperatives were rendered, later cases have been decided favorable to cooperatives. The Iowa Supreme Court upheld the right of an association formed under the State cooperative act passed in 1921 to recover liquidated damages. In upholding the liquidated damages clause in the association's contract and in approving the validity of the association in general, the court apparently was of the opinion that the association was legal at common law. But in response to the argument that the cooperative act under which the association was organized violated an earlier statute of the State prohibiting pools and trusts, in that it authorized associations to provide for liquidated damages, the court said that the cooperative act "is as much a declaration of public policy as the earlier statute referring to pools and trusts."

The Colorado Supreme Court, in upholding the legal status of cooperatives, held that the public policy of the State had been expressly changed by the cooperative act enacted in 1923.12

Not all early cases involving cooperation were adverse to the associations concerned. In Illinois, New York, and Alabama,13 it was held, apparently in pursuance of common law principles, that the associations involved were not operating in restraint of trade even though their contracts, or bylaws, provided for liquidated damages.

In Indiana, 14 the State Supreme Court, applying common law principles, upheld a cooperative's contention and ruled that it was not operating in restraint of trade.

State Antitrust Laws

Comparatively early in their history, nearly all of the States included provisions in their constitutions or statutes prohibiting monopolies, trusts, and restraint of trade. Efforts were made to except associations of farmers from these prohibitions, either by including an exception in the statute or by a proviso in the con

Clear Lake Co-op Live Stock Shippers' Association v. Weir, 200 Iowa 1293, 206 N. W. 297 (1925).

12 Rifle Potato Growers' Co-op Association v. Smith, 78 Colo. 171, 240 P. 937 (1925); Austin v. Colorado Dairymen's Coop. Association, 81 Colo. 546, 256 P. 640.

13 Milk Producers' Marketing Co. v. Bell, 234 Ill. App. 222 (1924); Bullville Milk Producers' Association v. Armstrong, 178 N.Y.S. 612, 108 Misc. Rep. 582 (1919); Castorland Milk & Cheese Co. v. Shantz, 179 N. Y.S. 131 (1919); Ex parte Baldwin County Producers' Corporation, 203 Ala. 345, 83 So. 69 (1919).

14 Burley Tobacco Society v. Gillaspy, 51 Ind. App. 583, 100 N.E. 89 (1912).

stitution. For instance, in 1893 the State of Illinois passed an antitrust act declaring that "the provisions of this act shall not apply to agricultural products while in the hands of the producer or raiser." This provision was later made the basis for a decision by the Supreme Court of the United States in the famous Connolly case. 15

Briefly, the facts in the case were these: Connolly was indebted to the Union Sewer Pipe Company on two notes given on account of the purchase by him of some sewer pipe. When sued on the notes, Connolly claimed that the plaintiff was a trust, and as the antitrust act specifically stated that any purchaser of any article from any corporation operating as a trust was not liable for the purchase price, that he could not be held for the purchase price of the pipe.

The sewer pipe company claimed that the Anti-Trust Act of Illinois was void because it exempted products in the hands of the producer, which exemption, it contended, violated the 14th amendment of the constitution, to wit, the equal-protection clause. The Federal district court, in which the case originated, held that this was true, and the Supreme Court of the United States affirmed the decision.

In 1889, Texas enacted an antitrust act which contained language exempting agriculture identical with that contained in the Illinois act. The legality of this provision in the Texas act was questioned in a Federal court, which held that it violated the equalprotection clause in the 14th amendment. 16

A provision in the Colorado Anti-Trust Act excepting therefrom any combination or association "the object and purposes of which are to conduct operations at a reasonable profit or to market at a reasonable profit those products which cannot otherwise be so marketed," caused the United States Supreme Court to hold the statute invalid. 17

The Court said: "Such an exception in the statute leaves the whole statute without a fixed standard of guilt in an adjudication affecting the liberty of the one accused."

15 Connolly v. Union Sewer Pipe Co.. 184 U. S. 540, 22 S. Ct. 431, 46 L. Ed. 679 (1902); a similar conclusion was reached in Georgia in a like case, Brown v. Jacobs' Pharmacy Co., 115 Ga. 429, 41 S.E. 553, 57 L.R.A. 547, 90 Am. St. Rep. 126.

16 In re Grice, 79 F. 627 (N.D. Tex. Cir. 1897), 169 U. S. 284, 18 S. Ct. 323, 42 L. Ed 748 (1898).

17 Cline v. Frink Dairy Company, 274 U. S. 445, 457, 47 S. Ct. 681, 71 L. Ed. 1146 (1927), modifying Beatrice Creamery Co. v. Cline, 9 F. 2d 176 (N. D. Colo. 1925).

The Anti-Trust Act of California was amended so as to contain a similar exception and this statute was likewise held invalid, 18

Inasmuch as the Supreme Court of the United States found that the Court of Appeals of Kentucky had construed the constitution, the antitrust statute, and the statute of that State authorizing persons to pool crops of wheat, tobacco, and other farm products raised by them "for the purpose of obtaining a higher price than they could get by selling them separately,” as meaning that "any combination for the purpose of controlling prices" was lawful "unless for the purpose or with the effect of fixing a price that was greater or less than the real value of the article," it held the antitrust statute unconstitutional as affording no standard of conduct that could be known in advance and complied with. 19

On similar grounds, a statute of Kentucky was held unconstitutional in a case in which a farmer had entered into a pooling contract covering his tobacco and then had disposed of his tobacco contrary to such contract, thereby violating such statute.20

The effect of the decision by the Supreme Court of the United States in the Connolly case and of the lower Federal court in the Texas case was to invalidate the antitrust statutes of the States in question, assuming that the court decisions in question were given full force and effect.

On reflection, this conclusion is distinctly different from holding that farmers are barred from forming cooperatives. On the contrary, the effect of the decisions referred to, and of any other similar decisions that might be rendered, is merely to leave a State without any antitrust legislation.

The decision of the United States Supreme Court in 1928, in a case involving the Burley Tobacco Growers' Cooperative Association, indicated a change of attitude on the part of that court toward the right of States to provide expressly for the organization of associations, 21 and in 1940 the Connolly case was specifically overruled. 22

18 Blake v. Paramount Pictures, 22 F. Supp. 249 (S.D. Calif. 1938).

19 International Harvester Company v. Kentucky, 234 U.S. 216, 220, 221, 34 S. Ct. 853, 58 L. Ed. 1284 (1914).

20 Collins v. Kentucky, 234 U.S. 634, 34 S. Ct. 924, 58 L. Ed. 1510 (1914). 21 Liberty Warehouse Co. v. Burley Tobacco Growers' Co-op Marketing Association, 276 U. S. 71, 48 S. Ct. 291, 72 L. Ed. 473 (1928), affirming 208 Ky. 643, 271 S.W. 695 (1925).

22 Tigner v. Texas, 310 U.S. 141, 60 S. Ct. 879, 84 L. Ed. 1124, 130 A.L.R. 1321 (1940).

Most of the State statutes providing for the incorporation of agricultural marketing cooperatives now include a provision to the effect that a cooperative incorporated under such a statute does not thereby violate the antitrust laws of the State.23

In an Ohio case24 involving a milk bargaining association, incorporated under a cooperative statute containing an exemption provision, the court stated that "unless contracts made under and by virtue of this act are in their restraint of trade unreasonable as to character, scope or operation, they are valid and binding obligations." Thus, the court did not give the statutory provision in question a literal interpretation.

The Supreme Court of Florida refused to hold the antitrust statute of that State unconstitutional because agricultural and horticultural nonprofit associations were exempt therefrom by the terms of that statute and by the cooperative marketing act of the State. The court said:

Orderly, systematized cooperative marketing asso-
ciations which are authorized to prevent a sacrifice of
the products described in the exempting statutes and to
realize reasonable profits thereon have no analogy to
financial combinations in restraint of trade and by a
parity of reason no analogy to combinations of skill and
labor in the same enterprises to accomplish the same
lawful purposes. 25

In a Texas case26 decided by an intermediate court, it appeared that producers began the formation of an association with the intention of incorporating under the cooperative act of Texas. But they failed to incorporate, and later sought to enjoin a member from violating his contract.

The court held that the contract of the association violated the antitrust act of the State, but it also held that if the association had

23See, for example, the Kentucky Agricultural Cooperative Associations Act, KRS 272.295.

24 Stark County Milk Producers' Association v. Tabeling, 129 Ohio St. 159, 194 N.E. 16, 19, 98 A.L.R. 1393 (1934); Hanna, John, Cooperative Milk Marketing and Restraint of Trade, 23 Ky. L.J. 217 (1935).

25 Brock v. Hardie, 114 Fla. 670, 154 So. 690, 695. See also Williams v. Quill, 277 N. Y. 1, 12 N.E. 2d 547, appeal dismissed, 303 U.S. 621, 58 S. Ct. 650, 82 L. Ed. 1085.

26 Fisher v. El Paso Egg Producers' Association, 278 S.W. 262 (Tex. Civ. App.).

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