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From Antitrust Law Daily, June 13, 2014

Milk cooperative granted partial summary judgment in dairy farmers’ price-fixing action

By Linda O’Brien, J.D., LL.M.

In a class action by dairy farmers against a milk cooperative and subsidiary marketing organization for allegedly conspiring to fix the prices for raw Grade A milk, the federal district court in Rutland, Vermont has granted partial summary judgment to the cooperative and marketing organization in relation to an alleged conspiracy to fix milk prices with a milk marketing agency. However, summary judgment was denied with respect to the monopsony power and monopsony conspiracy claims (Allen v. Dairy Farmers of America, Inc., June 11, 2014, Reiss, C.).

Dairy Farmers of America, Inc. (DFA) is a dairy cooperative that produces, processes, and distributes raw Grade A milk. A group of dairy farmers filed a putative class action against DFA and its subsidiary milk marketing organization Dairy Marketing Services, LLC (DMS), alleging a wide-ranging conspiracy at both the processor and cooperative levels to fix, stabilize, and artificially depress prices for raw Grade A milk and to allocate markets in the Northeast United States. The defendants moved for summary judgment, contending that the plaintiffs could not establish a relevant geographic market; the plaintiffs’ price-fixing, monopsonization, attempted monosponization, and monopsony conspiracy claims were deficient; and the plaintiffs’ claims were time-barred.

Relevant market. The court found that the plaintiffs were precluded at trial from presenting a definition of the relevant market that required a dairy farmer to be physically located within the market’s geographic boundaries to be considered a supplier in that market. The plaintiffs alleged that the relevant geographic market covered certain states in the Northeast United States (“Order 1”) and to be considered a supplier to Order 1, a dairy farmer must be physically located in within Order 1’s geographic boundaries. The court noted that the plaintiffs offered no evidence that the relevant market included only class members—dairy farmers located within Order 1’s geographic boundaries—and that the plaintiff’s expert testimony specified that a relevant geographic market did not require a dairy farmer supplier to be located within its boundaries. The plaintiffs could, however, present evidence at trial, using expert testimony, to support their definition of Order 1 as a relevant market.

Price-fixing. There was no genuine issue for trial regarding the plaintiffs’ claims that the defendants, milk processors, and the Greater Northeast Milk Marketing Agency (GNEMMA) engaged in a conspiracy to unlawfully fix the prices of raw Grade A milk paid to dairy farmers, according to the court. The Capper-Volstead Act grants dairy cooperatives limited antitrust immunity with respect to price-fixing agreements with other dairy cooperatives, provided that such associations are operated for the mutual benefit of its members. Although the defendants conceded that cooperative members in GNEMMA discussed whether consumers would pay a premium for milk without the rBST growth hormone due to its higher processing costs, mere exchanges of information, including pricing, were not necessarily illegal absent evidence of an agreement to engage in unlawful conduct. Moreover, the plaintiffs’ expert testified that the effect of GNEMMA’s activities was to lower transaction costs and the plaintiffs presented no evidence that the over-order premiums in Order 1 would have been higher absent GNEMMA’s activities or that GNEMMA members agreed to fix prices that caused injury to the plaintiffs.

Damages. The court determined that the plaintiffs could not seek damages beyond the four-year statute of limitations period based on a speculative damages theory. The plaintiffs offered no evidence their damages outside the limitations period “could not be proved with reasonable certainty” at the time of the alleged conduct occurred. However, the defendants failed to show as a matter of law that the plaintiffs had knowledge of the claims prior to the limitations periods or could have acquired that knowledge with due diligence. Thus, material issues of fact remained whether the plaintiffs could benefit from tolling the limitations period under fraudulent concealment.

Monopsony power. However, the plaintiffs presented evidence of DFA’s market share, that DFA controlled DMS and marketed all its milk through DMS, and that DMS marketed over 60 percent of the milk pooled during the relevant time period. A monopsony may exist when buyers exert unlawful control over where suppliers may sell their products or the prices at which they can sell them. Material issues of fact remained whether DFA and DMS had monopsony power during the relevant time period and whether the defendants’ conduct exerted an actual adverse effect on competition.

Additionally, material issues of fact remained whether an inference of conspiracy was reasonable and plausible in light of competing inferences drawn from the plaintiffs’ evidence, the court determined. The plaintiffs alleged that dairy cooperatives and major fluid milk processors engaged in a conspiracy to restrain competition by restricting the ability of Order 1 processors to solicit suppliers of milk outside the DFA-DMS supply chain, eliminated competition between dairy cooperatives, and suppressed the over-order premiums paid by Order 1 processors to dairy farmers. Their evidence of milk supply agreements, payments for noncompetition to certain suppliers, uniformity of pricing, and higher over-order premiums compared to other markets was sufficient to plausibly support their allegations of a conspiracy to control the supply of raw Grade A milk to Order 1 processors during the relevant time period. However, the plaintiffs must prove at trial that the milk processors actually participated in the alleged conspiracy, the court concluded.

The case is No. 5:09-cv-230.

Attorneys: Danyll W. Foix (Baker & Hostetler LLP) for Alice H. Allen. Amber L. McDonald (Baker & Miller PLLC) for Dairy Farmers of America, Inc. and Dairy Marketing Services, LLC.

Companies: Dairy Farmers of America, Inc.; Dairy Marketing Services, LLC

MainStory: TopStory Antitrust VermontNews

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