# Opinion — Shafer v. Farmers Grain Co. of Embden

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Opinion
- **Published:** January 1, 1925
- **Citation:** 268 U.S. 189

## Text

Grain

ota,

SUPREME COURT OF THE UNITED STATES.

No. 34.—Octoser Term, 1924.

_ > lerenny age a ¥ Appeal from United States
orth Dakota, - » Appellant, District Court for North

Farmers Grain Co. of Embden, et al. Dakota.

[January 5, 1925.]

This cause is restored to the docket for reargument on all the
questions involved, particularly including the following:

1. Whether the North Dakota statute of 1922 differs materially
in its provisions and operation from the statute of 1919 which was
held invalid by this Court in Lemke v. Farmers Grain Co., 258
U. 8. 50, and Lemke v. Homer Farmers Elevator Co., 258 U. 8S. 65.

2. Whether and to what extent section 17 of the statute of 1922
gives effect to and continues in force the provisions of the statute
of 1919.

8. Whether and in what particulars the statute of 1922 en-
eroaches upon the field of regulation occupied by the United States

Grain Standards Act or conflicts with that Act or with its ad-
ministration.

SUPREME COURT OF THE UNITED STATES.

No. 34.—OctToBEerR TERM, 1924.

George F. Shafer, Attorney General o
North Dakota, et al., Appellants,
vs.
Farmers Grain Company of
Embden, et al.

Appeal from the District
Court of the United
States for the District of
North Dakota.

[May 4, 1925.]

Mr. Justice VAN DEVANTER delivered the opinion of the Court.

This is a suit to restrain the enforcement of the North Dakota
Grain Grading Act, an initiated measure approved at a state
election November 7, 1922. North Dakota Laws 1923, p. 549. The
plaintiffs own and operate country elevators within the State, at
which they buy wheat from farmers for shipment to markets in
other states; and the defendants are officers of the State, who are
charged by the Act with the duty of enforcing it. The plaintiffs
challenge the validity of the Act under the Constitution of the
United States on the grounds, first, that it interferes with and
burdens interstate commerce, and, secondly, that it conflicts with
the United States Grain Standards Act, c. 313, 39 Stat. 482. An
injunction preventing its enforcement pending the suit was granted
by the District Court, three judges sitting; and that interlocutory
decree is here for review under section 266 of the Judicial Code, as
amended March 4, 1913, ec. 160, 37 Stat. 1013.

A prior statute concededly ‘‘having the same general purpose’’
was adopted by the state legislature in 1919 and held invalid by
this Court in Lemke v. Farmers Grain Company, 258 U. 8S. 50,
as an interference with interstate commerce. There are differences
between that statute and the present one, of which the parties take
divergent views. It would serve no purpose to take up these
differences in detail. We shall describe the situation to which the

2 Shafer et al. vs. Farmers Grain Co. of Embden et al.

present Act is intended to apply, state its material provisions, and
then come to its operation on interstate commerce.

Wheat is the chief product of the farms of North Dakota, the
annual crop approximating 150,000,000 bushels. About 10 per cent,
is used and consumed locally, and about 90 per cent. is sold within
the State to buyers who purchase for shipment, and ship, to termi.
nal markets outside the State. Most of the sales are made at
country elevators to which the farmers haul the grain when har.
vested and threshed. These elevators are maintained and operated
by the buyers as facilities for receiving the grain from the farmers’
wagons and loading it into railroad cars. The loading usually
proceeds as rapidly as grain of any grade is accumulated in car.
load lots and cars can be obtained. When a car is loaded it is
sent promptly to a terminal market and the grain is there sold.
This is the usual and recognized course of buying and shipment.
Occasionally a farmer has his grain stored in the country elevator,
or shipped to a terminal elevator for storage, and awaits a possible
increase in price; but even in such instances he usually sells to the
buyer operating the country elevator, and the latter then sends the
grain to the terminal market if it has not already gone there.

The price paid at the country elevators rises and falls with the
price at the terminal markets, but is sufficiently below the latter to
enable the country buyer to pay for the intermediate transporta-
tion and have a margin of profit. All transactions at the terminal
markets, including the price, are based on the grade of the wheat,
and by reason of this all buying at the country elevators is by
grade.

The grading at the terminal markets is done by inspectors licensed
under the United States Grain Standards Act, who are required
to apply to all interstate shipments the grading standards promul-
gated under that Act by the Secretary of Agriculture. There are
no inspectors licensed under that Act at the country elevators; and
so the grading is done there unofficially by the buyers or their
agents as an incident and part of the buying.

Grading includes an ascertainment of the proportions of clean
wheat and of dockage in each lot of grain and an ascertain
’ ment of the quality of the wheat. Dockage consists of separable
foreign material, such as dirt, pieces of straw, chaff, weed stems,
weed seeds and grain other than wheat. Its proportion varies in

Shafer et al. vs. Farmers Grain Co. of Embden et al. 3

different lots, but generally is less than five per cent. When not
separated it causes the grain to bring a lower price per bushel than
clean wheat would bring. When separated it has a value for poultry
and stock feed which usually is in excess of the cost of separation.
Occasionally the farmer separates it at the farm and sells only the
clean wheat, and occasionally the buyer separates it at the country
elevator, charges the farmer for that service, and buys and ships
only the clean wheat; but generally the grain is sold by the farmer
and shipped by the country buyer with the dockage included. The
influence of dockage on the value of the grain and the current
modes of handling it are shown in publications of the Agricul-
tural Department of the United States, pertinent excerpts from
which are set out in the margin.*

1Extracts from Farmers’ Bulletin No. 1118, United States Department of
Agriculture, pp. 5, 21:

“The foreign material in wheat may seriously affect its value in that it
often increases the cost of milling, and causes injury to the baking qualities
of flour. Therefore, that factor is considered in the inspecting and grading of
wheat. The amount of dockage present has a bearing upon the commercial
value of a lot of wheat. Especially when present in large amounts, it is a
factor of considerable importance to the parties interested in the marketing
or storage of grain.’’

‘All of the following methods of handling dockage are employed in normal
times and all are generally found to be satisfactory :

j- a wheat is cleaned on the farm and only the clean wheat is hauled
market.

2. The wheat delivered by the farmer is run over the proper cleaning

machinery at the country elevator or mill, and the dockage is separated and
returned to the farmer,

3, The wheat is screened by the local buyer, payment is made to the seller
on the basis of the grade of the clean wheat only, and the dockage is retained
by the elevator or mill as compensation for services in removing it.

4. The wheat is screened by the local buyer, payment is made to the seller
on the basis of the grade of the clean wheat, and the dockage is retained
by the elevator or mill, and if the value of the dockage separated exceeds the
cost of separation, payment is made for it.

5. The wheat containing the dockage is consigned to the large market by
the country mill or elevator, where the dockage is separated and its value is
taken into consideration in connection with the price paid for the entire car-
load of dockage-free wheat. In some localities it is the practice to make a
small charge for such services, while in other localities the services are per-
formed without cost.

6. The wheat containing the dockage is sold to a local buyer, who in turn
consigns it to the terminal market with the understanding that the price se-
cured will be based upon the commercial value of both the wheat and the

The first two methods mentioned, in which only the screened wheat is de-
livered to the local buyer, tend to minimize the differences of opinion with

ag

4 Shafer et al. vs. Farmers Grain Co. of Embden et al.

As many as 2,200 country elevators are operated within the
State in the business here described—generally two or more by
competing buyers at each station. Some of the buyers are indi.
viduals and others are corporations. A large number are farmers’
cooperative companies, which buy grain grown by their stock.
holders and others in the vicinity of their elevators, ship and sel]

. the same, and distribute as patronage dividends the surplus arising
from such transactions—no profit being retained by the companies,

The plaintiffs comprise many buyers, individual and corporate,
including 11 farmers’ cooperative companies. In the aggregate

regard to the grade of wheat delivered and therefore establish greater con.
fidence in the grades given by the local buyer. Furthermore, these methods
enable the farmer to utilize the foreign material for feed or to seli it locally,”

Extracts from Farmers’ Bulletin No. 1287, United States Department of
Agriculture, pp. 5, 21:

‘¢The benefits derived from clean wheat are shared by the farmer and the
country elevator. If the farmer cleans his wheat before delivering it to the
elevator he saves the cost of hauling the dockage to market, and he may be
able to use it to advantage for feed, and make a saving in his feed bill. In
many cases these savings will repay the farmer for the time and trouble re
quired to clean his wheat. The contention as to the amount of dockage in
the wheat which frequently arises between the farmer and the elevator oper
ator will be avoided if clean wheat is delivered. The price paid for clean
wheat at the elevator is usually more per bushel than the price paid for unclean
wheat, because the elevator operator must consider either the cost of removing
the dockage or the freight charges on it to the terminal market.’’ |

‘<The farm is the logical place to clean wheat, preferably as part of the
thrashing operation, because the necessary power is available and later handling
is avoided. Since satisfactory cleaning is not always possible under presest
conditions at thrashing time, other means of cleaning must be used.

The fanning mill is the most practical cleaning machine for farm use, and
if properly adjusted and operated will clean wheat satisfactorily for comme:
cial purposes with but little loss of wheat in the screenings.’’

‘<The operators of country elevators are beginning to realize more keealy
each year that it pays to clean wheat before shipping it to the termiml
markets. Many of the country elevators not only clean wheat for themselves
but for the farmers as well. The latter is known as ‘custom cleaning,’ fe
which country elevators located in the central Northwest ordinarily charge
from 2 to 3 cents per bushel, based on the gross weight of the grain before
cleaning. A higher charge is made for cleaning the grain for seed purposs
The shrinkage in the weight of the grain is borne by the owner, but te
screenings may be returned to him. The returns from eustom cleaning adds
considerable amount to the income of some country elevators during the yeat.”

Shafer et al. vs. Farmers Grain Co. of Embden et al. 5

they own and operate several hundred country elevators, widely
distributed over the State, and buy and ship about 30,000,000
bushels of wheat a year. They carry on the business severally,
each buying and shipping independently of the others. All buy
with the purpose of shipping to and selling in terminal markets
outside the State and carry out this purpose in the manner already
deseribed.

The North Dakota Act in terms covers all farm products, but as it
is chiefly aimed at dealings in wheat and the parties have discussed
it on that basis, our statement of its provisions will be shortened
by treating them as if relating only to wheat.

The title to the Act describes it as one whereby the State
undertakes (a) “‘to supervise and regulate the marketing’’ of
wheat, (b) to prevent ‘‘unjust discrimination, fraud and extor-
tion in the marketing’’ of such grain, and (ec) to establish ‘‘a sys-
tem of grading, weighing and measuring”’ it. The first section de-
clares the purpose of the State to encourage, promote and safeguard
the production of wheat and commerce therein by establishing a
uniform system of grades, weights and measures. The second and
third sections provide for a State Supervisor of Grades, Weights
and Measures and give him authority to make and enforce neces-
sary orders, rules and regulations to carry out the provisions of the
Act.

The fourth section provides that the Supervisor shall establish
a system of grades, weights and measures for wheat ‘‘and shall in
a general way investigate and supervise the marketing of same with
a view of preventing unjust discrimination, unreasonable margins
of profit, confiscation of valuable dockage, fraud and other unlaw-
ful practices’’; declares that whenever grades, weights and meas-
ures for wheat are established by the Secretary of Agriculture
under the United States Grain Standards Act they shall become
the grades, weights and measures of the State; and concludes by
saying, ‘‘In establishing such grades, weights and measures, the

value of dockage shall be considered, and the buyer shall not be
permitted to retain the same without just compensation, He shall
pay the fair market value for Same or separate it and return it to
the producer.’ The fifth section provides that no person shall buy
any wheat ‘‘by grade’’—excepting where one producer buys from
another producer—unless it has been inspected and graded by a

—

6 Shafer et al. vs. Farmers Grain Co. of Embden et al.

licensed inspector under the provisions of the Act, or those of the
United States Grain Standards Act, and is bought by a grade
fixed and recognized thereunder.

The sixth section provides for the issue, by the Supervisor, of

where they pass a satisfactory examination.. Each license js to
be held on condition that the licensee shall honestly and correctly
determine the grades and dockage and shall likewise weigh the
grain. The seventh section authorizes the Supervisor to suspend
or revoke any such license where, after investigation, he finds that
the licensee is incompetent, knowingly or carelessly has graded
grain improperly, has short-weighed it, has taken valuable dock-
age without compensation, or has violated any provision of the Act
or of the United States Grain Standards Act.

The eighth section requires every buyer operating an elevator to
obtain from the Supervisor a yearly license, the fee for which is to be
adjusted by the Supervisor to the capacity of the elevator at not
exceeding $1.00 for each 1,000 bushels. The ninth section requires
every elevator operator or individual ‘‘buying or shipping for
profit,’’ who does not pay cash in advance, to file with the Super-
visor a sufficient bond, running to the State, to secure payment
for all wheat bought on credit. The tenth section requires every
buyer operating an elevator to keep a record of the wheat bought
at the elevator and to show therein the price paid and grades
given, and ‘‘the price received and the grades received at the
terminal markets;’’ and further requires him to furnish this in-
formation to the Supervisor when requested. The twelfth section
makes it unlawful for any person to grade wheat who does not have
a license therefor under the Act or under the United States Grain
Standards Act. And other sections make every violation of the
Act a misdemeanor and charge the Attorney General of the State
and its other law officers with the duty of prosecuting such viola-
tions.

The Act dispenses with grading where the buying is by sample,
by type or by certain designations; but this has no bearing here,
for the buying for interstate shipment is all by grade. The Aet
also dispenses with grading by an inspector licensed thereunder, if

Shafer et al. vs. Farmers Grain Co. of Embden et al. 7

the grain be graded by an inspector licensed under the United
States Grain Standards Act; but this is an idle provision, for there
are in North Dakota no inspectors licensed under that Act. Such
inspectors are found only at terminal markets, and there is no
terminal market in North Dakota.

This statement of the provisions of the Act discloses its full pur-

pose and scope; but some of its features, of special importance
here, will be noticed again as we proceed.
_ Buying for shipment, and shipping, to markets in other States
when conducted as before shown constitutes interstate commerce—
the buying being as much a part of it as the shipping. We so
held in Lemke v. Farmers’ Grain Company, supra, following and
applying the principle of prior cases. Later cases have given effect
to the same principle. Stafford v. Wallace, 258 U. S. 495, 516;
Binderup v. Pathe Exchange, 263 U. §. 291, 309.

Wheat—both with and without dockage—is a legitimate article
of commerce and the subject of dealings that are nation-wide. The
right to buy it for shipment, and to ship it, in interstate com-
merce is not a privilege derived from state laws and which they
may fetter with conditions, but is a common right, the regulation
of which is committed to Congress and denied to the States by
the commerce clause of the Constitution.?

The decisions of this Court respecting the validity of state laws
challenged under the commerce clause have established many rules
covering various situations. Two of these rules are specially in-
voked here—one that a state Statute enacted for admissible state
purposes and which affects interstate commerce qnly incidentally
and remotely is not a prohibited state regulation in the sense of
that clause ;* and the other that a State statute which by its neces-
sary operation directly interferes with or burdens such commerce
is a prohibited regulation and invalid, regardless of the purpose

*Crutcher v, Kentucky, 141 U. 8, 47, 57; Western Union Telegraph Co. v.
Kansas, 216 U. §, 1, 21; Oklahoma v. Kansas Natural Gas Co., 221 U. 8.
229, 260; Buck Stove Co. v. Vickers, 226 U, §. 205, 215; Adams Express Co.
0. New York, 232 U. 8, 14, 31; Dahnke-Walker Co, v. Bondurant, 257 U. 8.
282, 291, 299.

Sherlock v. Alling, 93 U. 8. 99, 102-104; Kidd v. Pearson, 128 U. 8. 2.

22, et seq.; Geer v. Connecticut, 161 U. 8. 519, 532; Sligh v. Kirkwood, 237
U. 8. 52, 59-61,

—

8 Shafer et al. vs. Farmers Grain Co. of Embden et al,

with which it was enacted. These rules, although readily under.
stood and entirely consistent, are occasionally difficult of applieg.
tion, as where a state statute closely approaches the line which
separates one rule from the other. As might be expected, the de.
cisions dealing with such exceptional situations have not been jn
full accord. Otherwise the course of adjudication has been cop.
sistent and uniform.

In our opinion the North Dakota Act falls certainly within the
second of the two rules just stated. By it that State attempts to
exercise a large measure of control over all wheat buying within
her limits. About 90 per cent. of the buying is in interstate com.
merce. Through this buying and the shipping in connection with
which it is conducted the wheat which North Dakota produces in
excess of local needs—more than 125,000,000 bushels a year—finds
a market and is made available for consumption in other States
where the local needs greatly exceed the production. Obviously
therefore ‘the control of this buying is of concern to the people
of other States as well as to those of North Dakota.

Only by disregarding the nature of this business and neglecting
important features of the Act can it be said to affect interstate
commerce only incidentally and remotely. That it is designed to
reach and cover buying for interstate shipment is not only plain but
conceded. To conform to recognized commercial practices such
buying must be by grade, and it is so conducted. The Act pre-
vents buying by grade, unless the buyer secures from the State
a grading license for. himself or his agent. The general prac-
tice is to buy and ship without separating the dockage from
the wheat, the price paid carrying a right to both. The Act re
quires the buyer to separate the dockage and return it to the pro-
ducer, unless it be distinctly valued and paid for. A failure to
comply with this or any other requirement of the Act is made
cause for revoking the grading license. It is practically essential
that the buyers have and operate elevators as facilities for handling

¢Crutcher v. Kentucky, 141 U. 8. 47, 56, 58; Western Union Telegraph ©.
v. Kansas, 216 U. 8. 1, 27; International Paper Co. v. Massachusetts,
U. 8. 135, 141; Western Union Telegraph Co. v. Foster, 247 U. 8. 105, 14;
Pennsylvania v. West Virginia, 262 U. 8. 553, 596; Air-Way Corporation ¢.
Day, 266 U. 8. 71, 81.

Shafer et al. vs. Farmers Grain Co. of Embden et al. 9

and loading the wheat. The Act requires every such buyer to
give to the State, if he buys on credit, a bond securing payment
for all wheat so purchased; to keep a record of all wheat bought,
showing the grade given and price paid at his elevator and
the grade fixed and price received at the terminal market; and
to furnish such data to the State Supervisor when requested. The
Act also intends and declares that the State Supervisor ‘‘shall in
a general way investigate and supervise the marketing’’ of the
grain with a view of ‘‘preventing’’ various things deemed unjust
or fraudulent, including ‘‘unreasonable margins of profit’’ and
“confiscation of valuable dockage ;’’ and, to the end that this and
other provisions may be made effective, the Act invests him with
authority to make and enforce such orders, rules and regulations
as may be necessary to carry out all of its provisions,

We think it plain that, in subjecting the buying for interstate
shipment to the conditions and measure of control just shown, the
Act directly interferes with and burdens interstate commerce, and
is an attempt by the State to prescribe rules under which an im-
portant part of such commerce shall be conducted. This no State
can do consistently with the commerce clause.

The defendants cite several cases as making for a different con-
clusion, but we do not so read them. In some the commerce clause
was in no way involved, and those in which it was involved give
no support to what is attempted in the Act now before us. In
Munn v. Illinois, 94 U. 8. 113, 123, 135, the question was whether,

restriction on buying or shipping was involved. In Cargill Co. v.
Minnesota, 180 U. §. 452, the Court had before it a state statute,
much of which had been pronounced unconstitutional by the state

Plainly the case is not
Missouri, 248 U. §. 365,

10 Shafer et al. vs. Farmers Grain Co. of Embden et al.

the statute involved required that public weighers appointed for
the purpose should do the weighing and issue weigh* rtificates
at elevators used for storing or transferring grain for hire, and pro
hibited any other person from issuing weight certificates at a»
elevator where a public weigher was stationed. Objection was
made to the prohibition on the ground that as applied to grain
received from or shipped to points without the State it burdened
interstate commerce. Of course the objection was overruled, the
statute being an admissible regulation of the business of conducting
an elevator for hire, like the statute considered in Munn v. Illinois.
The defendants make the contention that we should assume th
existence of evils justifying the people of the State in adopting
the Act. The answer is that there can be no justification for th
exercise of a power that is not possessed. If the evils suggested
are real, the power of correction does not rest with North Dakots
but with Congress, where the Constitution intends that it shall k
exercised with impartial regard for the interests of the people of
all the States that are affected.

The defendants further contend that the Act is simply an at
tempt on the part of the State, through inspection regulations, te
assist in carrying out the purposes of the United States Grain
Standards Act. We think the Act discloses an attempt to do much
more. To require that dockage be separated by the buyer and &
returned to the producer unless it be distinctly valued and paid
for is not inspection. Nor does the federal Act contain or give
support to such a requirement. To exclude one from buying by
grade unless he secures a grading license for himself or his agent
is apart from what usually is comprehended in inspection. Nothing
like this is found in the federal Act. On the contrary, it declares
that persons licensed to grade under it shall not be interested in
any grain elevator or in buying or selling grain, or be in the employ
of any owner or operator of a grain elevator. Equally unrelated
to inspection are the provisions exacting a bond to pay for al
wheat bought on credit; requiring that a record be kept of the
price paid in buying at the local elevator and the price received
in selling at the terminal market; and authorizing the State Super-
visor to investigate and supervise the marketing with a view
preventing unreasonable margins of profit. None of these finds any
example in the federal Act; and their presence in the state Ac

Shafer et al. vs. Farmers Grain Co. of Embden et al. 11

makes it a very different measure from what it would be without
them. Aside from the adoption of the grades established and
promulgated under the federal Act, we find little in the state Act
to support and much to refute the assertion that it is merely an at-
tempt to carry out the purposes of the federal Act.

For the reasons here given we hold that the Act is a direct regula-
tion of the buying of grain in interstate commerce, and therefore
invalid, and that the District Court rightly granted the injunction.

Decree affirmed.
Mr. Justice Baanpess dissents.

A true copy.

Test:

Clerk, Supreme Court, U. S.

---

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