Lemke v. Farmers Grain Co.

delivered the opinion of the court.

This suit was brought.by the complainant,-a-cooperative association incorporated under the laws of North Dakota, and engaged in the business of operating a public elevator and warehouse for the purchase, sale, distribution and storage of wheat,, oats, rye, barley, seeds and flax at the village of Embden in that State. The association retains no profit. If there is a surplus over operating expenses at the close of the season, such surpluses distributed among the grain growers according to the amount sold by each. The’ purpose of the suit is to enjoin the enforcement of the North Dakota Grain Grading and Inspection Act, passed February 11, 1919, c. 138, North Dakota Laws, 1919. The bill, omitting allegations

Upon filing its bill, complainant moved for a temporary-injunction, which application was heard before’three federal judges. A motion to dismiss the suit was also filed.' •The court denied this motion and granted.a temporary injunction, finding that the North Dakota law imposed, a substantial burden -upon interstate commerce, and was /in conflict with the Federal Grain Standards Act. After-wards an- answer was filed by the Attorney. General of North Dakota on behalf of all the defendants, and later a separate answer was filed on behalf of Ladd'and McGovern, officials-charged with the execution of the state laws. Upon trial the District Court denied’the injunction, and held that the state statute did not place a burden upon interstate commerce,-and was not in conflict with the Federal Grain Standards Act, and entered a decree accordingly, from which appeal was taken to the Circuit Court of Appeals for the Eighth Circuit. That court reversed the decree of the District Court, held the state statute unconstitutional, and invalid as in conflict with the federal statute, and directed the issuance of a permánent injunction to prevent the enforcement of the state-law. 273 Fed. 635 .

. At the threshold we are met with a question of the jurisdiction of the Circuit Court of Appeals to review the decree of the District Court. It is well settled that when the jurisdiction of the District Court rests solely upon an attack upon a state statute because of its alleged violation of the Federal Constitution, a direct appeal to this court is the only method of review. § 238, Judicial Code.

We pass to a consideration of the merits. The record discloses that North Dakota is a great grain-growing State, producing annually large crops, particularly wheat, for transportation beyond its borders. Complainant, and other buyers of like character, are owners of elevators and purchasers of grain bought in North Dakota to be shipped to and sold at terminal markets in other States, the principal markets being at Minneapolis and Duluth. There is practically no market in North Dakota, for the grain purchased by' complainant. The Minneapolis prices are received at the .elevator of the complainant from Minneapolis four times daily, and are posted for the information of those interested. To these figures the buyer adds the freight and his “spread,” or margin, of profit. The

That such course of dealing constitutes interstate commerce, there can be no question. This court has so held in many cases, and we have had occasion to discuss and decide the nature of such commerce in a case closely analogous in its facts, and altogether so in principle. Dahnke-Walker Milling Co. v. Bondurant, 257 U. S. 282 . In that case the facts disclose' that a company organized in Tennessee and carrying on business there, went into Kentucky and, through an agent there, bought wheat for shipment to the company’s mill in Tennessee. The state court held that the transaction was merely a purchase of wheat in Kentucky, and made the Tennessee company amenable to the regulatory statutes of the State. This court rejected the conclusion of the state court, and held that the buying, no less than the selling, of grain under such circumstances was a part of interstate commerce, committed.to national control by the Federal Constitution. Applying the principle of that decision, and the previous decisions

Nor is this conclusion opposed by cases decided in this court and relied upon by appellants, in which we have had occasion to define the line between state and federal authority under facts presented which required a definition of interstate commerce where the right of state taxation • was involved, or manufacture or commerce of an intrastate character-was the subject of consideration. In those cases we have defined the beginning of interstate commerce as that túne when goods begin their interstate journey by delivery to a carrier or otherwise, thus passing beyond state authority into the domain of federal control. Cases of that type are not in conflict with principles recognized as controlling here. None of them indicates, much less decides, that interstate commerce does not include the buying and selling of products for shipment beyond state lines. It is true, as appellants contend, that after the wheat was delivered at complainant’s elevator, or loaded on the cars for shipment, it might have been diverted to a locai market or sent to a local mill.' But such was not the course of business. The testimony shows that /practically all the wheat purchased by the complainant '■-was for shipment to and sale in the Minneapolis market. .That was the course of business, and fixed and determined the interstate character of the transactions. Swift & Co. v. United States, 196 U. S. 375 ; Eureka Pipe Line Co. v. Hallanan, 257 U. S. 265 ; and United Fuel Gas Co. v. Hallanan, 257 U. S. 277 .

In view of this state of facts we come to inquire whether the North Dakota statute is a regulation of interstate

Nor will it do to say that the state law acts before the interstate transaction begins. It seizes upon the grain and controls its purchase at the beginning of interstate commerce. Pennsylvania R. R. Co. v. Clark Brothers Coal Mining Co., 238 U. S. 456 , 468.

It is contended that these regulations may stand upon the principles recognized in decisions of this court which permit-the State to make .local laws under itsvpolice power' in the interest of the welfare of its-people, which are valid

“ The principle, which determines this classification [between federal and.state power], underlies the doctrine that the States cannot under any guise impose direct burdens upon interstate commerce. For this is but to hold that the States are not permitted directly to regulate or restrain that which from its nature should be under the control of the one authority and be free from restriction save as it is governed in the manner that the national legislature constitutionally ordains.

“ Thus, the States cannot tax interstate commerce, either by laying the tax upon, the business which constitutes such commerce or the privilege of engaging in it, or' upon the receipts, as such, derived from it (State Freight Tax Case, 15 Wall. 232 ; Robbins v. Shelby Taxing District, 1 20 U. S. 489 ; Philadelphia & Southern Mail S. S. Co. v. Pennsylvania, 122 U. S. 326 ; Leloup v. Mobile, 127 U. S. 640 ; McCall v. California, 136 U. S. 104 ; Brennan v. Titusville, 153 U. S. 289 ; Galveston, Harrisburg & San Antonio Railway Co. v. Texas, 210 U. S. 217 ; Western Union Telegraph Co. v. Kansas, 216 U. S. 1 ; Pullman Co. v. Kansas, 216 U. S. 56 ; Meyer v. Wells, Fargo & Co., 223 U. S. 298 ; Crenshaw v. Arkansas, 227 U. S. 389 ). . . .”

Applying the principle here, the statute denies the privilege of engaging in interstate commerce except to dealers licensed by state authority, and provides a system which enables state officials to fix the profit which may be made in dealing with a subject of interstate commerce.

Nor is the appellants’ contention upheld by the decision of this court in Merchants Exchange v. Missouri, 248 U. S. 365 . In that case this court sustained the con-, stitutionality of a statute of Missouri providing that in cities having more than seventy-five thousand inhabitants buildings used for the storage of grain shall be deemed public warehouses; and prohibiting the issue of weight certificates by other than authorized bonded state weighers; We held that the state statute did not violate the due process,clause or the interstate commerce clause of the Federal Constitution. Furthermore, it was held that the act, under the facts of that case, did not violate the United States Grain Standards Act, as the latter did not! regulate' weighing; and, for reasons stated, did not violate the United States Warehouse Act. The act, there in question, did not undertake to regulate the buying of grain in interstate commerce, nor to levy a license tax upon the privilege, nor to fix the profit which could be realized on grain bought, shipped, and sold in interstate commerce.

It is alleged that such legislation is in the interest of the grain growers' and essential to protect them from

We agree with the Circuit Court of Appeals that this legislation is beyond the power of the State, as it is a regulation of interstate commerce when applied to complainant’s business. This conclusion renders it unnecessary to consider whether the provisions of the state act are in contravention of the regulations provided in the Federal Grain Standards Act as was held by the Circuit Court of Appeals.

The decree of the Circuit Court of Appeals is

Affirmed.

Mr. Justice Brandéis dissenting, with whom Mr. Justice Holmes aiid Mr. Justice Clarke concur.

The United States Grain Standards Act of August 11, 1916, c. 313, Part B, 39 Stat. 482 , 483, authorizes the Secretary of Agriculture to establish standards (or grades) of quality and condition for different kinds of grain and provides that, when such standards shall have been established, shipment of any such grain for sale by grade in interstate commerce is prohibited, unless the grain has either been inspected before shipment or is to be inspected en route or at destination, by an inspector licensed under the federal act. Shipment without such inspection is permitted whenever the sale is by sample or by some description other than the official grade. The act does not purport to deal in any way with sales in. intrastate commerce.

To protect the North Dakota farmer against these frauds practiced by local buyers its Legislature enacted c. 138 of the Laws of 1919. The statute seeks to effect protection (a) by establishing a system of state inspection, grading and weighing; (b) by prohibiting anyone from purchasing grain before it is inspected, graded and weighed (except that one producer may buy from another); (c) by ascertaining in the course of inspection, grading and weighing, the amount of dockage, and requiring a purchaser of the grain either to pay separately for the dockage or to return the same to the farmer; (d) by requiring payment to the farmer of the fair value of grain — the value to be

Ordinarily when a State’s police power is exerted in connection with sales it is the buyer whom the law seeks to protect; and the seller is licensed as part of the machinery to enforce the- regulations prescribed. I cannot doubt that the State has power as broad to protect the seller and, to that end, to license the buyer. Compare House v. Mayes, 219 U. S. 270 . Ordinarily the function of inspection, grading and measurement is committed to a public official or other impartial person. .But I am not aware of any constitutional- objection to imposing the duty upon the buyer, where conditions demand it. The requirement that the amount of the dockage shall be ascertained and that it shall be paid for separatély or be returned, does not differ in principle from the requirement upheld in McLean v. Arkansas, 211 U. S. 539 , that coal shall be measured before screening, or the requirement upheld in Knoxville Iron Co. v. Harbison, 183 U. S. 13 , that store orders shall be redeemed in cash, or that upheld in House v. Mayes, supra, which prohibited, in the purchase of grain; making arbitrary deductions from the actual ‘weight. The requirement that the -buyer shall take only a proper margin for graded grain is, in effect, requiring that he pay a fair price. Laws designed to prevent unfair prices are ordinarily enacted to protect consumers. But there is no constitutional objection to protecting producers against unconscionable bargains, if con

Whether the purchases involved in this case were intrastate or interstate commerce we need not decide. For the fact that a sale or purchase is part of a transaction in interstate commerce does not preclude application of state inspection laws, unless Congress has occupied the field or the state regulation directly burdens interstate commerce. That neither of these exceptions applies here appears from the description of the operation of the federal and the state laws given below in the opinion of Judge Amidon. Compare Savage v. Jones, 225 U. S. 501 ; Merchants Exchange v. Missouri, 248 U. S. 365 ; Corn Products Refining Co. v. Eddy, 249 U. S. 427 ; Crescent Cotton Oil Co. v. Mississippi, 257 U. S. 129 , and New York Central R. R. Co. v. Winfield, 244 U. S. 147 , 156, note 1. The requirement of a license and the payment of a $10 license fee, if applied to non-residents not regularly engaged in buying grain within the State, might perhaps be obnoxious to the Commerce Clause. But the objection, if sound, would not afford this plaintiff ground for attacking the validity of the statute. Lee v. New Jersey, 207 U. S. 67 . It is a North Dakota corporation, owner of an elevator within the State, and is carrying on business there under the laws of the State as a public warehouseman. Compare Brass v. Stoeser, 153 U. S. 391 , 394, 396. It is possible also that some provision in the license or some regulation issued by the State Inspector is obnoxious to the Commerce Clause. If so a licensee may disregard it. Cargill Co. v. Minnesota, 180 U. S. 452 . Even if the margin clause should be held a burden upon interstate commerce, still that would not invalidate the whole statute. The margin clause is separable from the other pro

To strike down this inspection law, instead of limiting the sphere of its operation, seems to me a serious curtailment of the functions of the State and leaves the farmers of North Dakota defenseless against what are asserted-to be persistent, palpable frauds.