B-157950, NOV. 23, 1965, 45 COMP. GEN. 284

B-157950: Nov 23, 1965

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MAY BE REFUNDED UPON DETERMINATION BY THE SECRETARY OF AGRICULTURE THAT THE PRODUCER WAS IN SUBSTANTIAL COMPLIANCE WITH THE EXCESS STORAGE PROVISIONS OF THE REGULATIONS IMPLEMENTING THE AGRICULTURAL ADJUSTMENT ACT OF 1938. THE PERTINENT FACTS AND CIRCUMSTANCES ARE SET FORTH BELOW. MARKETING QUOTAS ON WHEAT ARE PROVIDED FOR BY THE AGRICULTURAL ADJUSTMENT ACT OF 1938. THE SECRETARY OF AGRICULTURE IS REQUIRED TO PROCLAIM A NATIONAL MARKETING QUOTA FOR WHEAT WHENEVER HE DETERMINES THAT THE TOTAL SUPPLY OF WHEAT IS LIKELY TO BE EXCESSIVE. QUOTAS ON WHEAT WERE PROCLAIMED AND APPROVED FOR THE 1954-1955 MARKETING YEAR AND EACH SUBSEQUENT MARKETING YEAR THROUGH 1963-1964. THUS MARKETING QUOTAS ON WHEAT WERE CONTINUOUSLY IN EFFECT FROM JULY 1.

B-157950, NOV. 23, 1965, 45 COMP. GEN. 284

AGRICULTURE DEPARTMENT - PRICE-SUPPORT PROGRAMS - WHEAT - QUOTA PENALTIES - REFUND THE PAYMENT OF WHEAT MARKETING QUOTA PENALTIES ASSESSED UNDER 7 U.S.C. 1340 (2) ON PRODUCTION IN EXCESS OF ACREAGE ALLOTMENTS, WHERE THE PRODUCER PERMITTED TO AVOID OR POSTPONE PAYMENT BY WAREHOUSING AND DEPLETING THE EXCESS BY FUTURE UNDERPLANTINGS, VIOLATED REGULATIONS BY DEPOSITING IN ESCROW WAREHOUSE RECEIPTS ON WHEAT PURCHASED RATHER THAN STORED WITH THE WAREHOUSE FIRM, THEN FARM-STORING THE EXCESS UNDER PERSONAL BOND UNTIL SOLD TO PAY THE PENALTY, MAY BE REFUNDED UPON DETERMINATION BY THE SECRETARY OF AGRICULTURE THAT THE PRODUCER WAS IN SUBSTANTIAL COMPLIANCE WITH THE EXCESS STORAGE PROVISIONS OF THE REGULATIONS IMPLEMENTING THE AGRICULTURAL ADJUSTMENT ACT OF 1938, AS AMENDED, 7 U.S.C. 1281 ET SEQ., AND THAT THE TECHNICAL DEVIATIONS BY THE PRODUCER DID NOT VIOLATE THE PURPOSE AND INTENT OF THE ACT TO THE DAMAGE OF THE GOVERNMENT; HOWEVER, THE PRODUCER HAVING SOLD THE EXCESS WHEAT REQUIRED TO REMAIN IN STORAGE UNTIL JULY 1, 1964 IN MAY 1964, THE DIFFERENCE BETWEEN THE HIGHER SALE PRICE AND THE JULY MARKET PRICE SHOULD BE DEDUCTED FROM THE REFUND.

TO THE SECRETARY OF AGRICULTURE, NOVEMBER 23, 1965:

BY LETTER DATED OCTOBER 29, 1965, THE ACTING SECRETARY OF AGRICULTURE REQUESTED A DECISION AS TO THE PROPRIETY OF REFUNDING $22,402.26 IN WHEAT MARKETING QUOTA PENALTIES PAID UNDER PROTEST BY WESTON BROTHERS (DUNFORD AND H. ROSCOE WESTON) ON MAY 19, 1964, UPON DEMAND OF THE IDAHO AND UTAH AGRICULTURAL STABILIZATION AND CONSERVATION STATE COMMITTEES, AGENCIES OF THE DEPARTMENT OF AGRICULTURE.

THE PERTINENT FACTS AND CIRCUMSTANCES ARE SET FORTH BELOW.

MARKETING QUOTAS ON WHEAT ARE PROVIDED FOR BY THE AGRICULTURAL ADJUSTMENT ACT OF 1938, AS AMENDED, 7 U.S.C. 1281 ET SEQ. (PARTICULARLY SECTIONS 1331 -1340). UNDER SECTION 332 OF THAT ACT (7 U.S.C. 1332), THE SECRETARY OF AGRICULTURE IS REQUIRED TO PROCLAIM A NATIONAL MARKETING QUOTA FOR WHEAT WHENEVER HE DETERMINES THAT THE TOTAL SUPPLY OF WHEAT IS LIKELY TO BE EXCESSIVE, BUT WHEAT MARKETING QUOTAS FOR ANY MARKETING YEAR DO NOT BECOME EFFECTIVE UNLESS APPROVED BY AT LEAST TWO THIRDS OF THE WHEAT PRODUCERS VOTING IN A NATIONAL REFERENDUM (7 U.S.C. 1336). QUOTAS ON WHEAT WERE PROCLAIMED AND APPROVED FOR THE 1954-1955 MARKETING YEAR AND EACH SUBSEQUENT MARKETING YEAR THROUGH 1963-1964. THUS MARKETING QUOTAS ON WHEAT WERE CONTINUOUSLY IN EFFECT FROM JULY 1, 1954 THROUGH JUNE 30, 1964.

THE ACT PROVIDES THAT WHENEVER QUOTAS ARE IN EFFECT WITH RESPECT TO ANY CROP OF WHEAT, THE PRODUCERS ON ANY FARM SHALL BE SUBJECT TO A PENALTY ON THE FARM MARKETING EXCESS OF WHEAT (7 U.S.C. 1340 (2) ); BUT THE ACT PERMITS THE PRODUCER TO AVOID OR POSTPONE PAYMENT OF THE PENALTY BY DELIVERY OF THE EXCESS TO THE SECRETARY OF AGRICULTURE OR BY STORING THE EXCESS IN ACCORDANCE WITH REGULATIONS PRESCRIBED BY THE SECRETARY OF AGRICULTURE (7 U.S.C. 1340 (3) ). THE LAW PROVIDES THAT IF A PRODUCER WHO HAS STORED WHEAT OF A PRIOR CROP OR CROPS TO AVOID PAYMENT OF PENALTY PLANTS AN ACREAGE TO WHEAT ON HIS FARM WHICH IS LESS THAN THE FARM ACREAGE ALLOTMENT, HE MAY DEPLETE THE STORED AMOUNT BY THE NORMAL PRODUCTION OF THE UNDERPLANTED ACREAGE (7 U.S.C. 1340 (6) ); LIKEWISE, IF HIS TOTAL PRODUCTION OF WHEAT ON THE FARM IS LESS THAN THE NORMAL PRODUCTION OF HIS FARM WHEAT ACREAGE ALLOTMENT, HE MAY REMOVE FROM STORAGE AN AMOUNT OF WHEAT EQUIVALENT TO SUCH DEFICIENT PRODUCTION (7 U.S.C. 1326 (B) AND 1340 (6) ). MOREOVER, IF QUOTAS BECOME INEFFECTIVE FOR ANY CROP OF WHEAT, ALL MARKETING QUOTAS (INCLUDING STORAGE REQUIREMENTS) APPLICABLE TO PREVIOUS CROPS OF WHEAT ARE TERMINATED (7 U.S.C. 1326 (C), 1340 (6), 1340 (12) ).

THE PRODUCTION OF EXCESS WHEAT IS NOT A CRIMINAL OFFENSE, BUT SUBJECTS THE PRODUCER TO LIABILITY FOR A MONETARY PENALTY WHICH HE MAY AVOID OR POSTPONE AS INDICATED ABOVE. IT IS COMMON PRACTICE AMONG FARMERS TO PRODUCE EXCESS WHEAT AND STORE THEIR EXCESSES WITH THE EXPECTATION THAT UNDERPLANTING OR UNDERPRODUCTION IN A SUBSEQUENT YEAR OR THE TERMINATION OF THE QUOTA PROGRAM WILL ENABLE THEM TO LIQUIDATE THEIR STORED EXCESSES.

THE DEPARTMENT OF AGRICULTURE ISSUED REGULATIONS (7 CFR PART 728) GOVERNING THE MARKETING OF WHEAT DURING THE YEARS THE WHEAT MARKETING QUOTA PROGRAMS WERE IN EFFECT PURSUANT TO THE APPLICABLE PROVISIONS OF THE AGRICULTURAL ADJUSTMENT ACT OF 1938, AS AMENDED. AMENDMENTS AND REVISIONS TO THE REGULATIONS WERE ISSUED FROM TIME TO TIME, THE LATEST REVISION HAVING BEEN ISSUED MAY 25, 1961, AND PUBLISHED IN THE FEDERAL REGISTER OF MAY 30, 1961 (26 F.R. 4716). SECTION 728.1169 OF THESE REGULATIONS GOVERNED THE STORAGE OF EXCESS WHEAT TO AVOID OR POSTPONE PAYMENT OF PENALTY. THIS REGULATION, WHICH IS SUBSTANTIALLY THE SAME AS THE REGULATION IN EFFECT WHEN WHEAT MARKETING QUOTAS WERE IMPOSED ON THE 1954 CROP OF WHEAT, WAS IN EFFECT AT THE TIME QUOTAS WERE TERMINATED AT THE END OF THE 1963-1964 MARKETING YEAR ON JUNE 30, 1964. THE REGULATIONS PROVIDED FOR SUCH STORAGE IN EITHER "LICENSED" STORAGE (WAREHOUSE OR ELEVATORS DULY LICENSED AND AUTHORIZED TO ISSUE WAREHOUSE RECEIPTS UNDER FEDERAL OR STATE LAWS) OR "NONLICENSED" STORAGE (ON THE FARM OR OTHER PLACE SUITED TO THE STORAGE OF WHEAT). IF LICENSED STORAGE WAS USED, THE WAREHOUSE RECEIPT OR RECEIPTS WERE REQUIRED TO BE DEPOSITED IN ESCROW TO INSURE THAT THE WHEAT WOULD REMAIN IN STORAGE; WHERE NONLICENSED STORAGE WAS USED, FUNDS IN ESCROW OR A BOND WAS REQUIRED TO BE DEPOSITED TO INSURE THAT THE STORED WHEAT WOULD NOT BE REMOVED WITHOUT AUTHORIZATION.

THE WESTONS OPERATED A WHEAT FARM IN POWER COUNTY, IDAHO, AND ANOTHER IN BANNOCK COUNTY, UTAH, DURING THE YEARS 1954 THROUGH 1962. THEY ALSO OWNED THE CENTRAL MILLING COMPANY, LOCATED AT LOGAN, UTAH, ENGAGED IN THE MILLING OF WHEAT. FOR SEVERAL OF THESE YEARS THEY PRODUCED WHEAT IN EXCESS OF THEIR FARM WHEAT ACREAGE ALLOTMENTS, THEREBY BECOMING SUBJECT TO MARKETING PENALTIES; IN EACH INSTANCE, HOWEVER, THE EXCESS WHEAT WAS STORED TO AVOID OR POSTPONE THE PENALTY. THE 1954 AND 1955 EXCESSES WERE FARM-STORED AND PERSONAL BOND GIVEN AS SECURITY. FOR ALL THE OTHER YEARS, WAREHOUSE RECEIPTS ON CROWTHER BROS., A LICENSED WAREHOUSE, WERE GIVEN TO SECURE THE PENALTY. IN SEPTEMBER 1957 WAREHOUSE RECEIPTS ON CROWTHER BROS. WERE GIVEN TO COVER THE 1954 AND 1955 EXCESSES ALSO. IN SEPTEMBER 1963, THE POWER COUNTY (IDAHO) ASCS COUNTY OFFICE HELD WAREHOUSE RECEIPTS ISSUED BY CROWTHER BROS. FOR WESTON EXCESS WHEAT PRODUCED ON THE IDAHO FARM IN THE AMOUNT OF 13,356 BUSHELS, COVERING EXCESS WHEAT FOR ALL THE YEARS IN WHICH EXCESS WHEAT WAS PRODUCED. AT THE SAME TIME, THE BANNOCK COUNTY (UTAH) ASCS COUNTY OFFICE HELD WAREHOUSE RECEIPTS FOR 5,863 BUSHELS, COVERING EXCESS WHEAT PRODUCED ON THE UTAH FARM FOR ALL THE YEARS IN QUESTION. THE TOTAL AMOUNT OF THE WAREHOUSE RECEIPTS HELD BY THE TWO COUNTY OFFICES WAS 19,219 BUSHELS.

INVESTIGATION DISCLOSED THAT EXCESS WHEAT PRODUCED BY THE WESTONS WAS NOT DELIVERED TO CROWTHER BROS. AGAINST WHICH THE WAREHOUSE RECEIPTS WERE ISSUED, BUT RATHER THE WESTONS PURCHASED WHEAT DIRECTLY FROM CROWTHER BROS. (IT NOW APPEARS THAT 4,789 BUSHELS OF WHEAT WAS ACTUALLY PRODUCED BY THE WESTONS AND DELIVERED TO CROWTHER BROS.) DEMAND WAS MADE ON THE WESTONS FOR PENALTY ON THE EXCESS WHEAT IN THE AMOUNT OF $22,402.26 BECAUSE THE REGULATIONS, AS INTERPRETED BY THE DEPARTMENT, DID NOT AUTHORIZE THE PURCHASE OF WHEAT STORED IN LICENSED STORAGE AND USE OF WAREHOUSE RECEIPTS BASED ON SUCH WHEAT TO AVOID OR POSTPONE PENALTY.

THE PENALTY WAS PAID UNDER PROTEST BY THE WESTONS ON MAY 19, 1964. THE WAREHOUSE RECEIPTS WERE RETURNED TO THE WESTONS, WHO IMMEDIATELY SOLD THE WHEAT REPRESENTED BY THE WAREHOUSE RECEIPTS.

THE WESTONS HAVE FILED A CLAIM FOR REFUND OF THE PENALTY PURSUANT TO SECTION 372 (C) OF THE ACT (7 U.S.C. 1372 (C) ( ON THE GROUND THAT THE PENALTY WAS "ERRONEOUSLY, ILLEGALLY, OR WRONGFULLY" COLLECTED.

YOUR DEPARTMENT HAS NOT ALLOWED THE REFUND BECAUSE THE WESTONS, AFTER THE RETURN TO THEM OF THEIR WAREHOUSE RECEIPTS UPON PAYMENT OF THE PENALTY ON MAY 19, 1964, IMMEDIATELY SOLD THE WHEAT REPRESENTED BY THE WAREHOUSE RECEIPTS, SO THAT FOR THE 5 OR 6 WEEKS IMMEDIATELY PRIOR TO JULY 1, 1964, THEY HAD NO WHEAT IN STORAGE, EITHER LICENSED OR NONLICENSED, TO COVER THE CUMULATIVE AMOUNT OF THEIR FARM MARKETING EXCESSES. THE LAW (7 U.S.C. 1340 (12) ( PROVIDES THAT IF MARKETING QUOTAS ON ANY CROP OF WHEAT ARE NOT IN EFFECT FOR ANY MARKETING YEAR, ALL PREVIOUS MARKETING QUOTAS APPLICABLE TO WHEAT SHALL BE TERMINATED, EFFECTIVE AS OF THE FIRST DAY OF SUCH MARKETING YEAR. THUS, AFTER QUOTAS ON THE 1964 CROP OF WHEAT WERE NOT APPROVED BY WHEAT PRODUCERS VOTING IN A NATIONAL REFERENDUM, ALL QUOTAS ON THE 1963 AND PRIOR CROPS OF WHEAT, INCLUDING STORAGE REQUIREMENTS, WERE TERMINATED, EFFECTIVE JULY 1, 1964. PURSUANT TO THIS PROVISION OF LAW, FARMERS WHO HAD STORED EXCESS WHEAT OF THE 1963 OR ANY PRIOR CROP OF WHEAT TO AVOID OR POSTPONE THE PENALTY WERE REQUIRED TO KEEP THE WHEAT IN STORAGE UNTIL JULY 1, 1964, OR IF THEY REMOVED WITHOUT AUTHORIZATION ANY OF THE STORED WHEAT PRIOR TO THAT DATE THEY WERE REQUIRED TO PAY THE PENALTY ON THE AMOUNT OF WHEAT SO REMOVED FROM STORAGE. THE WESTONS MAINTAIN THAT THE SOLE REASON FOR SELLING THEIR STORED WHEAT PRIOR TO JULY 1, 1964, WAS TO ENABLE THEM TO FINANCE THE PROMPT PAYMENT OF THE PENALTY UPON THE DEMAND OF THE DEPARTMENT, AND THAT THEY COULD NOT BE EXPECTED BOTH TO PAY THE PENALTY AND TO KEEP THEIR WHEAT IN STORAGE. THE ACTING SECRETARY STATES THAT BY SELLING IN MAY INSTEAD OF WAITING UNTIL JULY THEY RECEIVED A HIGHER PRICE FOR THEIR WHEAT, AS WAS INDICATED IN MAY BY THE FUTURES MARKET.

THE WESTONS MAINTAIN THAT AT ALL TIMES UNTIL THE PAYMENT OF THE PENALTY THE CUMULATIVE AMOUNT OF THEIR EXCESS WHEAT WAS STORED ON THE FARM, IN THE INVENTORY OF CENTRAL MILLING COMPANY (OWNED BY THE WESTONS), OR IN LICENSED STORAGE IN ACCORDANCE WITH THE REQUIREMENTS OF THE REGULATIONS AND CONSISTENT WITH THE PURPOSE OF THE AGRICULTURAL ADJUSTMENT ACT OF 1938, AS AMENDED, TO KEEP EXCESS WHEAT OFF THE MARKET, SO THAT EXCEPT FOR A TECHNICAL VIOLATION OF THE REGULATIONS THEY WERE IN COMPLIANCE AT ALL TIMES UNTIL PAYMENT OF THE PENALTY; THAT THE PROHIBITION AGAINST THE PURCHASE OF WHEAT IN LICENSED STORAGE TO AVOID OR POSTPONE THE PENALTY WAS NOT CLEARLY STATED IN THE REGULATIONS; THAT LOCAL ASCS OFFICIALS WERE AWARE OF THEIR OPERATIONS AND NEVER INFORMED THEM THAT THE REGULATIONS REQUIRED THAT WHEAT PRODUCED BY THEM RATHER THAN WHEAT PURCHASED BY THEM BE DELIVERED TO LICENSED STORAGE IN RETURN FOR WAREHOUSE RECEIPTS AS A CONDITION TO THE ACCEPTANCE OF SUCH RECEIPTS TO AVOID OR POSTPONE THE PENALTY; THAT IN FACT THE LOCAL ASCS OFFICIALS WERE NOT AWARE OF THE REQUIREMENTS OF THE REGULATIONS IN THIS RESPECT; AND IN ANY EVENT THAT THE DEMAND FOR PAYMENT OF PENALTY AS TO THE 4,789 BUSHELS OF WHEAT ACTUALLY PRODUCED BY THEM AND DELIVERED TO CROWTHER BROS. IN RETURN FOR WAREHOUSE RECEIPTS WAS IMPROPER.

THE DEPARTMENT'S POSITION APPEARS TO BE THAT THERE WAS NOT STRICT COMPLIANCE WITH THE REGULATIONS, WHICH WOULD BE INSISTED UPON IF THE MARKETING QUOTA WAS STILL IN EFFECT OR LIKELY TO BECOME EFFECTIVE SOON; BUT THAT THERE WAS SUBSTANTIAL COMPLIANCE UNTIL THE FARMER SOLD HIS WHEAT TO PAY THE PENALTY AND THAT HIS NONCOMPLIANCE WAS PERHAPS DUE TO LACK OF KNOWLEDGE OR MISINFORMATION FROM LOCAL DEPARTMENT OFFICIALS.

THE ACTING SECRETARY RECOGNIZES THAT THERE ARE EQUITABLE CONSIDERATIONS FOR REFUND OF THE PENALTY AND STATES THAT THE DEPARTMENT IS DESIROUS OF MAKING THE REFUND IN THE FULL AMOUNT. HE REQUESTS THAT WE CONSIDER THE MATTER AND ADVISE YOU OF THE PROPRIETY OF MAKING THE REFUND.

FROM THE RECORD BEFORE US IT APPEARS THAT THE WESTON BROTHERS SHIPPED THEIR EXCESS WHEAT FROM THEIR FARM TO THEIR FLOUR MILL AND PRIOR TO OR SIMULTANEOUS WITH SUCH SHIPMENTS BOUGHT AN EQUAL AMOUNT OF THE SAME QUALITY WHEAT FROM A WAREHOUSE, LEAVING IT IN STORAGE THERE. THEY THEN DEPOSITED THE WAREHOUSE RECEIPTS REPRESENTING SUCH PURCHASED WHEAT IN ESCROW AS REQUIRED BY THE PERTINENT REGULATIONS. THE REASON THE WESTON BROTHERS PURCHASED WHEAT FROM THE WAREHOUSE TO LEAVE IN STORAGE AND DELIVERED THE FARM EXCESS WHEAT TO THE MILL RATHER THAN TO STORAGE WAS TO SAVE CERTAIN TRANSPORTATION AND LOADING CHARGES THAT WOULD HAVE BEEN INCURRED IN TAKING THE ACTUAL EXCESS FARM WHEAT TO THE WAREHOUSE.

IF, IN LIGHT OF ALL THE FACTS AND CIRCUMSTANCES, THE SECRETARY OF AGRICULTURE DETERMINES THAT PRIOR TO THE SALE OF THE WHEAT IN MAY 1964 THE WESTON BROTHERS WERE IN SUBSTANTIAL COMPLIANCE WITH THE EXCESS STORAGE PROVISIONS OF THE PERTINENT REGULATIONS THAT THE PURPOSE AND INTENT OF THE STATUTE INVOLVED WERE NOT VIOLATED AND THAT THE GOVERNMENT SUFFERED NO DAMAGE AS A RESULT OF THE TRANSACTIONS DESCRIBED ABOVE, WE WOULD NOT OBJECT TO REFUNDING TO THE WESTON BROTHERS THE WHEAT MARKET QUOTA PENALTIES PAID BY THEM, SUBJECT TO WHAT IS SET FORTH BELOW.

HAD THE WESTON BROTHERS BEEN IN STRICT COMPLIANCE WITH THE REGULATIONS THE EXCESS WHEAT INVOLVED WOULD HAVE BEEN HELD IN STORAGE UNTIL JULY 1, 1964. BY SELLING THEIR WHEAT IN MAY 1964, IT IS REPORTED THEY RECEIVED A HIGHER PRICE THAN THEY WOULD HAVE, HAD THEY HELD THE WHEAT IN STORAGE UNTIL JULY 1, 1964, AND PRESUMABLY A HIGHER PRICE THAN OTHER PRODUCERS WHO WERE IN STRICT COMPLIANCE WITH THE REGULATIONS. WE DO NOT BELIEVE THAT EQUITY REQUIRES THAT THE WESTON BROTHERS BE PUT IN A BETTER POSITION THAN PRODUCERS WHO WERE IN STRICT COMPLIANCE WITH THE REGULATIONS OR IN A BETTER POSITION THAN THEY THEMSELVES WOULD HAVE BEEN HAD THEY BEEN IN STRICT COMPLIANCE WITH THE REGULATIONS. THEREFORE, THERE SHOULD BE DEDUCTED FROM ANY REFUND OF PENALTIES MADE TO THE WESTON BROTHERS THE DIFFERENCE BETWEEN THE PRICE THEY RECEIVED FROM THE SALE OF THEIR WHEAT IN MAY AND THE MARKET PRICE OF WHEAT ON JULY 1, 1964.