B-142279, MAY 9, 1961

B-142279, MAY 9, 1961

TO MCCUTCHEN, DOYLE, BROWN AND ENERSEN:

BY LETTER OF JANUARY 26, 1961, YOU, ON BEHALF OF FILICE AND PERRELLI CANNING COMPANY, APPEALED THE ACTION OF THE DEPARTMENT OF AGRICULTURE IN REQUESTING REFUND OF AN ADVANCE PAYMENT MADE BY THE DEPARTMENT TO THE COMPANY AND IN DENYING THE COMPANY'S FURTHER CLAIMS UNDER CRANBERRY PAYMENT PROGRAM AMM181A. TWO SEPARATE CLAIMS ARE INVOLVED: ONE CONCERNING CRANBERRIES RECEIVED FROM GROWERS, THE OTHER FOR CRANBERRIES RECEIVED FROM COOPERATIVE ASSOCIATIONS. FROM INFORMATION CONTAINED IN YOUR LETTER AND AN ADMINISTRATIVE REPORT IN THE MATTER, THE FACTORS PERTINENT TO THE FIRST CLAIM MAY BE SUMMARIZED AS FOLLOWS:

UNDER THE TERMS OF THE PROGRAM, THE FORMER SECRETARY OF AGRICULTURE OFFERED TO MAKE PAYMENTS WITH RESPECT TO WHOLESOME AND MARKETABLE CRANBERRIES PRODUCED AND HARVESTED IN 1959 IN THE UNITED STATES AND DISPOSED OF BEFORE NOVEMBER 1, 1960. PAYMENTS WERE TO BE COMPUTED TO GIVE AN AVERAGE RETURN OF $10.34 PER BARREL OF SCREENED BERRIES WITH MAXIMUM PAYMENT UNDER THE PROGRAM LIMITED TO $8.02 PER BARREL. SUCH PAYMENTS WERE TO BE MADE TO GROWERS WHO GREW CRANBERRIES FOR COMMERCIAL MARKETS, OR TO GROWERS' COOPERATIVES, AGENTS, OR DEALERS, WHO WERE TO DISTRIBUTE SUCH PAYMENTS TO THE GROWERS.

FILICE AND PERRELLI FILED A GROWERS' REPRESENTATIVE'S APPLICATION AND CERTIFICATION (FORM FV-4) AND AN INVOICE FOR ADVANCE PAYMENT (FORM FV-5) UNDER CONTRACT 12-25-010-1510 SHOWING AN ADVANCE PAYMENT DUE UNDER THE PROGRAM OF $13,479.36 WHICH WAS PAID. ON NOVEMBER 7, 1960, THE COMPANY FILED AN INVOICE FOR FINAL PAYMENT (FORM FV-6) CLAIMING AN ADDITIONAL $13,411.91 UNDER THE CONTRACT.

SECTION 517.477 (F) OF THE PROGRAM TERMS AND CONDITIONS PROVIDES THAT:

"/F) REPRESENTATIVE MEANS A GROWERS' COOPERATIVE, AGENT, OR DEALER THROUGH WHOM GROWERS MARKET THEIR CRANBERRIES IN FRESH OR PROCESSED FORM, UNDER POOLING OR SIMILAR ARRANGEMENTS (HEREINAFTER REFERRED TO AS THE POOL) WHEREBY SUCH REPRESENTATIVES TAKE TITLE TO (OR HAVE THE POWER TO SELL OR OTHERWISE DISPOSE OF) THE CRANBERRIES WITH THE UNDERSTANDING THAT EACH GROWER WILL RECEIVE THE SAME RATE OF RETURN FOR HIS CRANBERRIES AS ALL OTHER GROWERS IN THE POOL, WITH ADJUSTMENT ON AN EQUITABLE BASIS FOR SERVICES PERFORMED. A "POOLING OR SIMILAR ARRANGEMENT" DOES NOT INCLUDE CASES WHERE GROWERS' COOPERATIVES PURCHASE CRANBERRIES AT A FIXED PRICE WITH NO FURTHER OBLIGATION TO THE GROWERS OTHER THAN AN OBLIGATION TO PAY PATRONAGE REFUNDS AND THE GROWER HAS NO OBLIGATION TO THE COOPERATIVE IF IT FAILS TO REALIZE ALL OR ANY PART OF SUCH PRICE UPON RESALE.'

AND SECTION 517.490 (A) OF THE TERMS AND CONDITIONS, AS AMENDED, PROVIDES THAT:

"/A) SALES FOR A FIXED PRICE WHERE TITLE HAS PASSED.

"IF A GROWER HAS SOLD HIS CRANBERRIES FOR A FIXED PRICE TO A HANDLER OR PROCESSOR AND TITLE TO THE CRANBERRIES HAS PASSED, THIS TRANSACTION HAS BEEN COMPLETED. IT IS IMMATERIAL WHETHER OR NOT THE HANDLER OR PROCESSOR HAD DISPOSED OF THE CRANBERRIES. IF THE GROWER RECEIVED TOTAL PAYMENTS OF $10.34 OR MORE A BARREL FOR SCREENED BERRIES OR $9.74 OR MORE A BARREL FOR UNSCREENED BERRIES, HE IS NOT ELIGIBLE FOR PAYMENT UNDER THE CRANBERRY PROGRAM. IF HE RECEIVED TOTAL PAYMENTS AMOUNTING TO LESS THAN $10.34 PER BARREL FOR SCREENED BERRIES OR $9.74 PER BARREL FOR UNSCREENED BERRIES, HE MAY APPLY FOR PAYMENT UNDER THE PROGRAM. IF HE RECEIVED ONLY A PART PAYMENT IN CASH AND HAS AN ACCOUNT RECEIVABLE FOR THE BALANCE OF THE SALES PRICE, HE IS NOT ELIGIBLE TO APPLY FOR PAYMENT UNDER THE PROGRAM, UNLESS THE TOTAL OF THE CASH PAYMENT RECEIVED AND THE ACCOUNT RECEIVABLE IS LESS THAN $10.34 PER BARREL FOR SCREENED BERRIES AND $9.74 FOR UNSCREENED BERRIES.'

ON THE BASIS OF SECTION 517.477 (F), THE DEPARTMENT FOUND THAT THE COMPANY'S OPERATIONS ON CRANBERRIES ARE COMMINGLED WITH OTHER COMMODITIES IN A MANNER THAT DOES NOT CONFORM TO THE PROGRAM TERMS AND CONDITIONS, THEREBY MAKING CRANBERRIES HANDLED BY THE COMPANY INELIGIBLE FOR PAYMENTS UNDER THE PROGRAM. THE DEPARTMENT ALSO FOUND THAT THE COMPANY'S POOLING ARRANGEMENTS FIXED NET RETURNS TO GROWERS AT MORE THAN $10.34 PER BARREL AND CITED SECTION 517.490 (A) AS ANOTHER REASON WHY THE CRANBERRIES COVERED BY THE COMPANY'S APPLICATION AND INVOICES ARE NOT ELIGIBLE FOR PAYMENTS UNDER THE PROGRAM. FINALLY, THE DEPARTMENT STATED THAT:

"THE CRANBERRIES COVERED BY YOUR APPLICATION BECAME A PART OF A COMMON POOL WITH OTHER COMMODITIES. THE NET RETURNS FROM ALL OF THE VARIOUS COMMODITIES IN THE COMMON POOL, ACCORDING TO THE AGREEMENTS, ARE ALLOCATED TO EACH GROWER FOR COMMODITIES DELIVERED TO THE POOL IN THE SAME RATIO TO THE RESPECTIVE ESTABLISHED VALUES OF SUCH COMMODITIES AS THE TOTAL NET RETURNS OF EACH POOL BEAR TO THE TOTAL ESTABLISHED VALUE OF ALL COMMODITIES IN THAT POOL. UNDER THIS ARRANGEMENT THE NET RETURNS TO CRANBERRY GROWERS OF $12.00 PER BARREL WERE NOT DEPENDENT UPON SALES OF CRANBERRIES, AND THE CRANBERRY GROWERS WERE NOT OBLIGATED TO REFUND ANY PART OF THE PAYMENTS RECEIVED BY THEM IF NET RETURNS FROM THE SALES OF CRANBERRIES WERE LESS THAN THE ESTABLISHED VALUE OF $12.00 PER BARREL.'

YOU CONTEND THAT THE DEPARTMENT'S FINDINGS ARE ERRONEOUS BOTH AS TO THE FACTS AND THE LAW IN THE MATTER. WITH RESPECT TO THE FINDING THAT FILICE AND PERRELLI'S POOLING ARRANGEMENTS DO NOT COMPLY WITH THE PROGRAM REQUIREMENTS BECAUSE OF COMMINGLING YOU CONTEND THAT THE DEPARTMENT'S CONSTRUCTION OF THE REGULATIONS IS DISCRIMINATORY AND UNFAIR; THAT THE REGULATIONS DO NOT STATE THAT ONLY POOLS CONSISTING WHOLLY OF CRANBERRIES ARE ELIGIBLE NOR DO THEY PROVIDE FOR EXCLUSION OF POOLS IN WHICH CRANBERRIES ARE COMMINGLED WITH OTHER PRODUCTS; THAT ON THE CONTRARY, IT IS QUITE CLEAR THAT THE REGULATIONS ARE INTENDED TO INCLUDE EVERY POOLING OR OTHER ARRANGEMENT IN WHICH ALL PARTICIPATING GROWERS SHARE RATEABLY IN THE GAINS AND LOSSES, SO LONG AS THE GROWER IS NOT ENTITLED TO A FIXED SALE PRICE REGARDLESS OF WHAT THE RETURNS MAY BE TO THE POOL; AND THAT THIS IS TRUE OF THE POOLING ARRANGEMENT HERE INVOLVED.

YOU STATE FURTHER, QUOTING FROM YOUR LETTER, THAT:

"THE PURPOSE OF THIS PROGRAM, AS CLEARLY STATED IN SEC. 517.475 OF THE REGULATIONS, IS TO PROVIDE FOR PAYMENTS TO CRANBERRY GROWERS WHICH WILL HELP THEM REALIZE AN AVERAGE RETURN OF $10.34 PER BARREL OF SCREENED BERRIES. THE ELIGIBILITY TEST UNDER THE PROGRAM, AS SET FORTH IN THE REGULATIONS, IS THE GROWERS' NET RETURN FROM THE BERRIES. IT IS NOT, AS THE DEPARTMENT IMPLIES, A GROSS OR NET INCOME TEST WHICH TAKES INTO ACCOUNT INCOME REALIZED BY A CRANBERRY GROWER FROM OTHER SOURCES. NO ONE WOULD CONTEND, WE ARE CERTAIN, THAT AN INDIVIDUAL FARMER WHO RAISED BOTH CRANBERRIES AND PEACHES IN 1959 IS REQUIRED TO SET OFF HIS INCOME FROM PEACHES AGAINST HIS LOSSES FROM CRANBERRIES IN DETERMINING HIS ELIGIBILITY UNDER THE PROGRAM. BY THE SAME TOKEN, PARTICIPATION IN AND RECEIPT OF INCOME FROM A COOPERATIVE'S MULTIPLE PRODUCT POOL SHOULD NOT RENDER A GROWER INELIGIBLE SO LONG AS THE POOL RECEIVED LESS THAN $10.34 PER BARREL OF SCREENED BERRIES AND LESS THAN $9.74 PER BARREL OF UNSCREENED BERRIES. WHATEVER THE POOL RECEIVES WITH RESPECT TO CRANBERRIES IS ALL THAT THE CRANBERRY GROWER RECEIVES WITH RESPECT TO CRANBERRIES. ANY EXCESS PAYMENT IS IN EFFECT A CONTRIBUTION MADE BY THE OTHER MEMBERS OF THE POOL IN CONSIDERATION OF THEIR MUTUAL MEMBERSHIP IN THE POOL AND TO PROMOTE THE ORDERLY MARKETING OF THEIR PRODUCTS. IN THIS CASE, THE PROCEEDS RECEIVED BY F AND P FROM THE SALE OF THESE CRANBERRIES AFTER PROCESSING WERE APPROXIMATELY EQUAL TO THE COST OF PROCESSING AND SELLING. THUS, THERE WERE NO NET PROCEEDS TO THE POOL (I.E., THE GROWERS) AND THEREFORE NO PAYMENT WHATEVER FOR THE RAW FRUIT.'

CONCERNING THE DEPARTMENT'S ASSERTION THAT THE POOLING ARRANGEMENT FIXED NET RETURNS TO GROWERS AT MORE THAN $10.34 PER BARREL, YOU STATE, AGAIN QUOTING FROM YOUR LETTER, THAT:

"THIS IS PATENTLY FALSE. THE POOLING ARRANGEMENT DID NOT FIX NET RETURNS AT ALL. NET RETURNS TO GROWERS FROM CRANBERRIES WERE DETERMINED AT THE END OF THE ACCOUNTING PERIOD AND, AS IT TURNED OUT, THERE WERE NONE. NOR WAS THERE, AS THE DEPARTMENT SUGGESTS, A FIXED PRICE AT WHICH GROWERS SOLD THEIR CRANBERRIES. A BRIEF DESCRIPTION OF THE OPERATION IS IN ORDER. THE BEGINNING OF THE SEASON, THE COOPERATIVE DETERMINES WHAT IS REFERRED TO AS THE "ESTABLISHED VALUE" FOR EACH PRODUCT. THIS FIGURE IS NOTHING MORE THAN AN ESTIMATE OF WHAT THE COMMERCIAL PRICE MAY BE DURING THE SEASON. THE ESTIMATE IS MADE TO GIVE A BASIS FOR MAKING ADVANCES TO MEMBERS UPON DELIVERY. WHAT THE GROWERS MAY ULTIMATELY RECEIVE DEPENDS ON THE TOTAL PROCEEDS REALIZED BY THE POOL WHICH MAY BE MORE OR LESS THAN THE AGGREGATE OF THE ESTABLISHED VALUES.

"APPROXIMATELY ONE-HALF OF THE ESTABLISHED VALUE IS ADVANCED TO THE GROWER ON DELIVERY. THE BALANCE IS PAID "AT SUCH TIMES AND IN SUCH AMOUNTS AS THE BOARD OF DIRECTORS MAY DETERMINE" (BYLAWS, SEC. 7.2) THERE IS NO GUARANTEE WHATEVER THAT THE GROWER WILL RECEIVE ANY MORE THAN THE AMOUNT PAID ON DELIVERY, NOR IS THERE A FIXED CONTRACTUAL OBLIGATION TO MAKE ANY FURTHER PAYMENT. PAYMENT OF ALL OR A PART OF THE BALANCE DEPENDS UPON THE PROCEEDS REALIZED BY THE POOL AND THE BOARD OF DIRECTORS' DECISION HOW MUCH TO PAY AND WHEN. THUS, THE DEPARTMENT IS ABSOLUTELY WRONG WHEN IT STATES THAT TITLE TO THE BERRIES WAS ACQUIRED BY THE COOPERATIVE UNDER CONTRACTS FIXING A PRICE OF $12 PER BARREL WHICH HAD TO BE PAID WITHIN 12 MONTHS. THE FACTS ARE

"/A) THAT THE CRANBERRIES WERE DELIVERED TO THE COOPERATIVE BY MEMBER- GROWERS UNDER THE STANDARD MEMBERSHIP AGREEMENT;

"/B) THAT IN ACCORDANCE WITH THE AGREEMENT AN ADVANCE OF HALF OF THE SO- CALLED ESTABLISHED VALUE, OR $6 WAS MADE ON DELIVERY;

"/C) THAT NO FIXED PRICE WAS INCORPORATED INTO THIS AGREEMENT AND THAT UNDER THE BYLAWS THE BOARD OF DIRECTORS WAS FREE AT ALL TIMES TO CHANGE THE ESTABLISHED VALUE (BYLAWS, SEC. 7.2);

"/D) THAT THE CRANBERRY GROWERS HAD NO CONTRACTUAL RIGHT WHATSOEVER TO RECEIVE ANY GIVEN AMOUNT FOR THEIR CRANBERRIES;

"/E) THAT THE BOARD OF DIRECTORS, IN ITS DISCRETION LAWFULLY EXERCISED, DETERMINED THAT IN THE BEST INTERESTS OF THE COOPERATIVE, THE LOSS SUFFERED BY THE CRANBERRY GROWERS SHOULD BE SPREAD OVER THE ENTIRE POOL.

"WHAT THE COOPERATIVE DID HERE WAS TO ADVANCE TO ITS CRANBERRY GROWERS OUT OF ITS POOL FUNDS IN EXCESS OF WHAT THE POOL ULTIMATELY WAS ABLE TO RECOVER. THE DEPARTMENT SEEMS TO CONTEND THAT THIS RENDERS THE COOPERATIVE INELIGIBLE UNDER THE PROGRAM NOTWITHSTANDING THE FACT THAT THE POOL RECOVERED VIRTUALLY NOTHING TO PAY FOR THE RAW FRUIT AND THUS SUFFERED A TOTAL LOSS AS TO CRANBERRIES. YET THE DEPARTMENT'S REGULATIONS PLAINLY CONTEMPLATE THIS KIND OF A SITUATION. SECTION 517.483 STATES:

" ". . . THAT A REPRESENTATIVE WHOSE ADVANCE PAYMENTS TO ANY GROWER ON POOLED 1959 CROP CRANBERRIES HAVE NOT BEEN FULLY RECOVERED FROM THE NET PROCEEDS OF SALE OF SUCH CRANBERRIES, MAY RETAIN SUCH PORTION OF THE PAYMENTS RECEIVED ON BEHALF OF SUCH GROWER UNDER THIS PROGRAM AS WILL BE SUFFICIENT FOR SUCH REPRESENTATIVE TO RECOVER SUCH ADVANCES.'

THIS REGULATION CLEARLY AUTHORIZES RECOVERY BY F AND P HERE.'

THE ISSUE TO BE RESOLVED NARROWS TO TWO BASIC QUESTIONS: (1) HOW MUCH DID THE GROWERS RECEIVE FOR THEIR CRANBERRIES? AND (2) WERE THE GROWERS ENTITLED AS A MATTER OF LEGAL RIGHT TO RECEIVE AND RETAIN THE PAYMENTS MADE TO THEM BY THE POOL ASSOCIATION? THE CRANBERRY PAYMENT PROGRAM WAS INSTITUTED BY THE FORMER SECRETARY OF AGRICULTURE AS A GRATUITY UNDER THE AUTHORITY OF SECTION 32, PUBLIC NO. 320, 74TH CONGRESS, AS AMENDED, 7 U.S.C. 612C, TO REESTABLISH THE PURCHASING POWER OF CRANBERRY GROWERS WHO SUFFERED LOSS IN CONNECTION WITH THE PRODUCTION OF AND BY REASON OF THE NONMARKETABILITY OF THEIR 1959 CROP. CONSEQUENTLY, IF IT CAN BE ESTABLISHED THAT THE CRANBERRY GROWERS INVOLVED DID NOT SUFFER A LOSS OF PURCHASING POWER BELOW THE MINIMUM STANDARDS SET IN DISPOSING OF THEIR 1959 CROP, PAYMENT UNDER THE PROGRAM WOULD NOT BE AUTHORIZED, NOTWITHSTANDING THAT PERSONS OTHER THAN THE GROWERS MAY HAVE SUFFERED LOSSES IN CONNECTION WITH THAT CROP. THERE IS NO AUTHORITY UNDER THE BASIC STATUTE OR THE PROGRAM TO MAKE PAYMENTS TO OR ON BEHALF OF ANYONE OTHER THAN CRANBERRY PRODUCERS.

THE ADMINISTRATIVE REPORT SHOWS THAT FILICE AND PERRELLI CANNING COMPANY IS A NONPROFIT AGRICULTURAL COOPERATIVE ASSOCIATION WITH A SINGLE MEMBER OF WHICH IT IS A WHOLLY OWNED SUBSIDIARY--- CALIFORNIA CANNERS AND GROWERS (CAL-CAN), ALSO A NONPROFIT AGRICULTURAL COOPERATIVE ASSOCIATION. CAL-CAN ACQUIRED FROM THE GROWERS THE CRANBERRIES WHICH ARE THE SUBJECT OF THE INSTANT CLAIM AND PAID THE GROWERS AN ADVANCE OF $10.50 PER BARREL AGAINST AN "ESTABLISHED PRICE" OF $12 PER BARREL. CAL-CAN ACQUIRED TITLE TO THE BERRIES AND PASSED IT TO FILICE AND PERRELLI, WHICH HAD ADVANCED TO CAL- CAN THE AMOUNTS PAID TO GROWERS. THE FINANCIAL ARRANGEMENTS BETWEEN FILICE AND PERRELLI, CAL-CAN, AND ALL GROWER MEMBERS ARE SUCH THAT LOSSES ON ANY COMMODITY OPERATION, BASED ON THE ESTABLISHED PRICES PAID, ARE BORNE BY ALL THE MEMBERS OF CAL-CAN. THUS, GROWERS OF COMMODITIES OTHER THAN CRANBERRIES BORE LOSSES FROM THE CRANBERRY OPERATION THROUGH A REDUCTION IN THEIR NET RETURN FROM ALL OPERATIONS. NEVERTHELESS, CAL CAN REALIZED A NET PROFIT ON OVER-ALL OPERATIONS FOR ITS FISCAL YEAR ENDING MAY 31, 1960, AND RECOVERY OF AMOUNTS PAID TO CRANBERRY GROWERS WILL NOT BE MADE. AT THIS POINT, IT WOULD BE WELL TO REFER TO CERTAIN PROVISIONS IN THE ASSOCIATION BY-LAWS AND IN THE AGREEMENTS UNDERLYING THE CRANBERRY TRANSACTIONS INVOLVED. "EXCERPT FROM THE BY-LAWS OF CALIFORNIA CANNERS AND GROWERS

DATED OCTOBER 21, 1957

"ARTICLE VII. FINANCIAL

"SECTION 7.1. ASSOCIATION FINANCING. THIS ASSOCIATION SHALL BE FINANCED AND OPERATED THROUGH THE USE OF CAPITAL CONTRIBUTIONS OF ITS MEMBERS AS PROVIDED IN SECTION 2.6 OF THESE BY-LAWS AND THE USE OF RETURNS DERIVED FROM THE PRODUCTS HANDLED BY THE ASSOCIATION FOR MEMBER AND NONMEMBER PATRONS.

"SECTION 7.2. ADVANCE PAYMENT OF ESTABLISHED VALUE. THE ASSOCIATION SHALL PAY TO THE PATRON ON DELIVERY OF HIS PRODUCTS TO THE ASSOCIATION AT LEAST ONE-HALF OF THE ESTABLISHED VALUE OF SUCH PRODUCTS IN THE RAW STATE AS DETERMINED BY THE BOARD OF DIRECTORS PURSUANT TO THE ASSOCIATION'S BY- LAWS. THE BALANCE OF SUCH ESTABLISHED VALUE SHALL BE PAID TO THE PATRON AT SUCH TIMES AND IN SUCH AMOUNTS AS THE BOARD OF DIRECTORS MAY DETERMINE.

" "ESTABLISHED VALUE" MEANS THE MARKET VALUE OF LIKE AGRICULTURAL PRODUCTS IN THE DISTRICT FROM WHICH THE PRODUCT IS DELIVERED AS DETERMINED BY THE BOARD OF DIRECTORS.

"SECTION 7.3. DETERMINATION OF NET RETURNS. THE ASSOCIATION SHALL DETERMINE THE NET RETURNS FROM THE HANDLING OF PRODUCTS DELIVERED BY PATRONS DURING THE FISCAL YEAR BY DEDUCTING FROM THE GROSS AMOUNT RECEIVED FROM THE HANDLING OF PRODUCTS DELIVERED BY ALL PATRONS DURING THE YEAR THE EXPENSES OF PROCESSING, SELLING, MARKETING AND OTHERWISE HANDLING PATRONS' PRODUCTS. EXPENSES SHALL INCLUDE ALL COSTS OF ADMINISTRATION, PROCESSING, SELLING AND MARKETING, REASONABLE ALLOWANCES FOR DEPRECIATION AND BAD DEBTS, INTEREST UPON LONG-TERM DEBT, INTEREST (IF AUTHORIZED) ON CAPITAL CONTRIBUTIONS AND PAYMENT OF ESTABLISHED VALUES OF PATRONS' PRODUCTS AS HEREINBEFORE PROVIDED.

"SECTION 7.4 ALLOCATION OF NET RETURNS. NET RETURNS SHALL BE ALLOCATED TO EACH PATRON FOR PRODUCTS DELIVERED TO EACH POOL IN THE SAME RATIO TO THE RESPECTIVE ESTABLISHED VALUES OF SUCH PRODUCTS AS THE TOTAL NET RETURNS OF EACH POOL BEAR TO THE TOTAL ESTABLISHED VALUE OF ALL PRODUCTS IN THAT POOL. ALL OF THE NET RETURNS SHALL BE AND REMAIN THE PROPERTY OF THE PATRONS OF THIS ASSOCIATION REGARDLESS OF THE PURPOSE TO WHICH THEY MAY BE APPLIED BY THE BOARD OF DIRECTORS AND THE ASSOCIATION SHALL BE OBLIGATED TO PAY OR ALLOCATE SUCH NET RETURNS TO ITS PATRONS, LESS ANY AMOUNTS OWED BY PATRONS TO THE ASSOCIATION. SUCH PAYMENT OR ALLOCATION SHALL BE MADE WITHIN EIGHT AND ONE-HALF MONTHS OF THE CLOSE OF EACH FISCAL YEAR OF THE ASSOCIATION.

"SECTION 7.5. APPLICATION OF NET RETURNS. THE BOARD OF DIRECTORS SHALL APPLY THE NET RETURNS AS FOLLOWS:

"/A) TO PAY THE LONG-TERM DEBTS AND OBLIGATIONS OF THE ASSOCIATION INCURRED IN CONNECTION WITH ACQUISITION OF FACILITIES.

"/B) TO ESTABLISH SUCH FUNDS OR RESERVES OR TO MAKE SUCH INVESTMENTS OR ACQUISITIONS AS MAY BE NECESSARY FOR THE CONTINUED OPERATION OF THE ASSOCIATION.

"/C) TO REVOLVE ALLOCATION CERTIFICATES, CREDITS AND OTHER INSTRUMENTS ACCORDING TO THE TERMS THEREOF.

"/D) TO REVOLVE INVESTMENT CERTIFICATES ISSUED UPON PAYMENT OF CAPITAL CONTRIBUTIONS.

"/E)TO MAKE SUCH FURTHER DISTRIBUTIONS OF CASH TO PATRONS AS IT MAY DEEM APPROPRIATE.

"SECTION 7.6. LOSSES. THE BOARD OF DIRECTORS MAY CHARGE LOSSES AS CURRENT OPERATING EXPENSE OR CARRY SUCH LOSSES FORWARD TO BE CHARGED AGAINST FUTURE PROCEEDS OR IT MAY CHARGE SUCH LOSSES RATEABLY AGAINST ANY RESERVES OR FUNDS OF THE ASSOCIATION, AS IT MAY DEEM FIT.

"SECTION 7.7. CERTIFICATES AND CREDITS. THE BOARD OF DIRECTORS MAY FROM TIME TO TIME CAUSE THIS ASSOCIATION TO ISSUE SUCH ALLOCATION CERTIFICATES OR OTHER INSTRUMENTS REPRESENTING CREDITS AND INTERESTS IN THE PROPERTY AND ASSETS OF THE ASSOCIATION, TO MEMBER AND NONMEMBER PATRONS, AT SUCH RATES OF INTEREST (IF ANY) AND UPON SUCH TERMS AND CONDITIONS RESPECTING THE MATURITY DATES AND REVOLVING THEREOF, THE TRANSFERABILITY THEREOF, AND ANY OTHER MATTERS AS IT MAY DEEM APPROPRIATE.

"SECTION 7.8. INTEREST OF MEMBERS IN ASSOCIATION. THE INTEREST OF EACH MEMBER IN THE PROPERTY AND ASSETS OF THIS ASSOCIATION SHALL BE EQUAL TO THE SUM OF INVESTMENT CERTIFICATES, ALLOCATION CERTIFICATES, CREDITS AND OTHER SUCH INSTRUMENTS HELD BY SUCH MEMBER. IN ADDITION, THE INTEREST OF EACH MEMBER IN THE PROPERTY AND ASSETS OF THIS ASSOCIATION WHICH HAVE NOT BEEN SPECIFICALLY ALLOCATED OR CREDITED TO MEMBERS SHALL BE IN THE PROPORTION OF THE VALUE OF PRODUCTS DELIVERED BY HIM DURING THE PERIOD OF HIS MEMBERSHIP TO THE TOTAL VALUE OF ALL PRODUCTS DELIVERED BY ALL MEMBERS TO THE ASSOCIATION.'

THE BY-LAWS OF FILICE AND PERRELLI CANNING COMPANY ARE SUBSTANTIALLY SIMILAR TO THOSE OF CAL-CAN.

THE CROP PURCHASE AND MEMBERSHIP AGREEMENT UNDER WHICH THE GROWERS SOLD THEIR BERRIES TO CAL-CAN PROVIDES, IN PART, AS FOLLOWS:

"PAYMENTS TO MEMBER

"5. THE ASSOCIATION AGREES TO ADVANCE TO THE MEMBER IN CASH UPON DELIVERY OF HIS PRODUCTS ONE-HALF OF THE ESTABLISHED VALUE OF SUCH PRODUCTS IN THE RAW STATE AS DETERMINED BY THE ASSOCIATION. THE BALANCE OF SUCH ESTABLISHED VALUE SHALL BE PAID TO THE MEMBER AT SUCH TIMES AND IN SUCH AMOUNTS AS THE ASSOCIATION MAY DETERMINE, IT BEING CONTEMPLATED THAT TO THE EXTENT THAT NET RETURNS ARE AVAILABLE AFTER RETAINS AND WITHHOLDING, AND BALANCE SHALL BE PAID IN CASH BY THE ASSOCIATION IN FOUR INSTALLMENTS IN AMOUNTS DETERMINED BY THE BOARD OF DIRECTORS ON THE LAST DAY OF THE THIRD, SIXTH, NINTH AND TWELFTH MONTHS FOLLOWING DELIVERY OF SUCH PRODUCTS.

"ALLOCATION OF NET RETURNS

"6. THE ASSOCIATION SHALL DETERMINE AND ALLOCATE THE NET RETURNS AS PROVIDED IN THE ASSOCIATION'S BY-LAWS. THE ADVANCE MADE TO THE MEMBER IN CASH UPON DELIVERY OF HIS PRODUCTS SHALL BE CHARGED TO THE MEMBER'S SHARE OF THE NET RETURNS. THE ASSOCIATION MAY MAKE RETAINS OR WITHHOLDINGS FROM THE NET RETURNS FOR SUCH PURPOSES AND IN SUCH AMOUNTS AS MAY BE DETERMINED BY THE ASSOCIATION PURSUANT TO ITS BY LAWS. WITHOUT LIMITING THE AUTHORITY OF THE ASSOCIATION TO WITHHOLD MORE, IT IS CONTEMPLATED THAT THE TOTAL AMOUNT OF RETAINS OR WITHHOLDINGS WILL BE 15 PERCENT OF TOTAL NET RETURNS, OR THE AMOUNT OF NET RETURNS OVER AND ABOVE THE ESTABLISHED VALUE OF ALL RAW PRODUCTS RECEIVED BY THE ASSOCIATION, WHICHEVER IS GREATER. ANY SUCH WITHHOLDINGS OR RETAINS SHALL BE ALLOCATED TO THE MEMBERS AS PROVIDED IN THE BY-LAWS, AND ALLOCATION CERTIFICATES SHALL BE ISSUED THEREFOR.

"TITLE TO PRODUCTS

"7. THIS AGREEMENT SHALL PASS TO THE ASSOCIATION THE TITLE TO ALL PRODUCTS COVERED THEREBY UPON DELIVERY THEREOF. IN ORDER TO AID IN THE PERFORMANCE AND ENFORCEMENT OF THIS AGREEMENT, THE ASSOCIATION SHALL HAVE THE FURTHER RIGHT, IF IT DEEMS IT NECESSARY AND APPROPRIATE, TO ENTER UPON THE PREMISES DESCRIBED IN THE APPENDIX AND TO REMOVE THE PRODUCTS SUBJECTTO THIS AGREEMENT FOR THE ACCOUNT OF AND AT THE EXPENSE OF THE MEMBER, BUT THE MEMBER'S OBLIGATIONS UNDER THIS AGREEMENT SHALL NOT THEREBY BE REDUCED OR AFFECTED. ANY EXPENSES THEREBY INCURRED BY THE ASSOCIATION MAY BE DEDUCTED FROM ANY AMOUNTS DUE THE MEMBER.'

"ADDENDA TO CALIFORNIA CANNERS AND GROWERS

CROP PURCHASE AND MEMBERSHIP AGREEMENT"

"* * * REFERENCE IS MADE TO THE TERM,"ESTABLISHED VALUE" AS SAID TERM IS USED IN PARAGRAPHS 5 AND 6 OF CROP PURCHASE MEMBERSHIP AGREEMENT:

"FOR THE SEASON OF 1959-60 THE "ESTABLISHED VALUE" SHALL BE DEEMED TO BE 12 CENTS PER POUND F.O.B. SHIPPING POINT COOS BAY AREA.'

THE CROP PURCHASE AND MEMBERSHIP AGREEMENT BETWEEN CAL-CAN AND FILICE AND PERRELLI PROVIDES, IN PART, THAT:

"2. DURING THE TERM OF THIS AGREEMENT THE MEMBER AGREES TO SELL AND DELIVER TO THE ASSOCIATION AND THE ASSOCIATION AGREES TO PURCHASE AND RECEIVE ALL OF THE PRODUCTS PRODUCED AND/OR FURNISHED BY MEMBER OR FOR ITS ACCOUNT. THIS AGREEMENT SHALL PASS TO THE ASSOCIATION THE TITLE TO ALL SUCH PRODUCTS UPON DELIVERY THEREOF.

"3. THE ASSOCIATION AGREES TO ACCEPT SAID PRODUCTS, TO CAN, DRY OR OTHERWISE PROCESS SAID PRODUCTS, AND TO SELL, MARKET AND DISTRIBUTE SAID PRODUCTS. ALL OF THE ASSOCIATION'S PRODUCTS MAY BE SOLD BY THE ASSOCIATION AT SUCH TIMES, AT SUCH PRICES AND ON SUCH TERMS AS THE ASSOCIATION IN ITS DISCRETION MAY DEEM APPROPRIATE. ASSOCIATION SHALL HAVE THE RIGHT TO SHIP, SELL, DIVERT OR OTHERWISE DISPOSE OF ANY OF MEMBER'S PRODUCTS IN THEIR RAW STATE WHEN IN ITS DISCRETION IT IS TO THE BEST INTERESTS OF ASSOCIATION TO DO SO.

"5. THE ASSOCIATION SHALL DETERMINE AND ALLOCATE THE NET RETURNS AS PROVIDED IN THE ASSOCIATION'S BY-LAWS. THE ADVANCES MADE TO THE MEMBER IN CASH SHALL BE CHARGED TO THE MEMBER'S NET RETURNS. THE BALANCE OF THE NET RETURNS SHALL BE PAID TO MEMBER IN CASH AS SOON AS POSSIBLE AFTER THE CLOSE OF ASSOCIATION'S FISCAL YEAR; PROVIDED, HOWEVER, THAT ALL OF THE NET RETURNS FOR EACH FISCAL YEAR SHALL BE PAID OR ALLOCATED TO MEMBER NOT LATER THAN 8 1/2 MONTHS AFTER THE CLOSE OF ASSOCIATION'S FISCAL YEAR.'

WHILE IT IS TRUE, AS STATED IN YOUR LETTER, THAT THE POOLING ARRANGEMENTS DID NOT FIX NET RETURNS FOR THE CRANBERRY GROWERS IN THAT THE GROWERS WERE LIABLE FOR ANY LOSSES WHICH MIGHT HAVE BEEN INCURRED, IT IS NEVERTHELESS CLEAR FROM THE QUOTED PROVISIONS THAT, HAVING MADE AN OVER-ALL PROFIT, FILICE AND PERRELLI WAS LIABLE TO CAL-CAN FOR THE REMAINDER OF "ESTABLISHED PRICES" AND THAT CAL-CAN IS NOT LEGALLY ENTITLED TO RECOUP ANY OF THE FUNDS ADVANCED TO THE GROWERS. WE CANNOT AGREE THAT THE ESTABLISHED VALUE OF 12 CENTS PER POUND IS SUBJECT TO CHANGE DURING THE 1959-1960 SEASON, SO FAR AS THE GROWERS AND THEIR INTEREST IN THE POOL ARE CONCERNED. SEE, PARTICULARLY THE PORTIONS OF THE ADDENDA TO THE CAL-CAN AND GROWERS CROP PURCHASE AND MEMBERSHIP AGREEMENT QUOTED ABOVE. THE WHOLE TENOR OF THE POOL ARRANGEMENT IS, AS THE ADMINISTRATIVE REPORT SHOWS, FOR ALL MEMBERS TO SHARE LOSSES AS WELL AS PROFITS. SINCE THE POOL AS A WHOLE EARNED A PROFIT NOTWITHSTANDING ITS LOSS ON CRANBERRIES, THERE DOES NOT APPEAR TO BE ANY BASIS UPON WHICH THE POOL MAY PROPERLY RECOUP ANY PORTION OF THE $10.50 PER BARREL ADVANCED TO CRANBERRY GROWERS. INDEED, IT WOULD APPEAR THAT ADDITIONAL PAYMENTS OR CREDITS ARE DUE THE GROWERS. AND SINCE THE MONEYS PAID BY CAL-CAN TO THE GROWERS INVOLVED WERE PAID UNDER AN OBLIGATION RELATING ONLY TO CRANBERRIES RECEIVED, IT CANNOT BE MAINTAINED, AS YOU SUGGEST, THAT THE INCOME TO THE GROWERS CONSTITUTES INCOME FROM OTHER COMMODITIES. ANY PAYMENT TO FILICE AND PERRELLI UNDER THE PROGRAM WOULD, THEREFORE, INURE PRIMARILY TO THE BENEFIT OF OTHERS THAN CRANBERRY GROWERS AND SUCH BENEFIT AS WOULD INURE TO THE GROWERS WOULD BE OVER AND ABOVE THE $10.34 PER BARREL LEVEL OF INCOME TO BE MET UNDER THE PROGRAM.

ACCORDINGLY, THE DENIAL OF YOUR CLIENT'S CLAIM UNDER CONTRACT 12-25 010- 1510 BY THE DEPARTMENT OF AGRICULTURE WAS CORRECT; AND YOU ARE ADVISED THAT FILICE AND PERRELLI CANNING COMPANY IS INDEBTED TO THE UNITED STATES GOVERNMENT IN THE AMOUNT OF $13,476.36, REPRESENTING THE ADVANCE PAYMENT ERRONEOUSLY MADE TO THE COMPANY UNDER THE CRANBERRY PAYMENT PROGRAM.

THE SECOND CLAIM INVOLVES CRANBERRIES PURCHASED BY FILICE AND PERRELLI FROM OTHER GROWER COOPERATIVES AT A FIXED PRICE. YOU POINT OUT THAT THESE BERRIES WERE PURCHASED ON BEHALF OF THE MEMBERS OF FILICE AND PERRELLI BECAUSE THE MEMBERS THEMSELVES COULD NOT GROW SUFFICIENT QUANTITIES TO SUPPLY THE ORDINARY PROCESSING REQUIREMENTS OF THE POOL. THE COMPANY PAID THE SELLING GROWERS' REPRESENTATIVES $12 PER BARREL, THUS ELIMINATING ANY CLAIM BY THE SELLING GROWERS FOR PAYMENTS UNDER THE PROGRAM. HOWEVER, SINCE THE NET RETURN TO FILICE AND PERRELLI FROM THE SALE OF THESE BERRIES WAS ONLY 26 CENTS PER BARREL, RESULTING IN A LOSSPER BARREL OF $11.74, AND THE LOSS WAS CHARGED AGAINST THE COOPERATIVE POOL FALLING ON THE MEMBER GROWERS THE SAME AS IF THEY THEMSELVES HAD GROWN THE BERRIES, YOU CONTEND THAT THIS SECOND CLAIM FALLS WITHIN THE PURPOSE AND POLICY OF THE PROGRAM AND SHOULD BE ALLOWED.

AS STATED ABOVE, THE PURPOSE OF THE CRANBERRY PAYMENT PROGRAM WAS TO REESTABLISH THE PURCHASING POWER OF CRANBERRY GROWERS WHO SUFFERED LOSS IN CONNECTION WITH THE PRODUCTION OF AND BY REASON OF THE NONMARKETABILITY OF THEIR 1959 CROP. THE GROWERS OF THE BERRIES WHICH ARE THE SUBJECT OF THIS CLAIM DID NOT SUFFER A LOSS OF PURCHASING FOR PAYMENT UNDER THE PROGRAM, AND IT DOES NOT MAKE ANY DIFFERENCE THAT THE PURCHASERS IN THIS CASE WERE GROWERS OF OTHER CRANBERRIES. THEREFORE, THE DENIAL OF THIS CLAIM BY THE DEPARTMENT OF AGRICULTURE WAS ALSO CORRECT.