By Sherry Bunting, Farmshine, July 31, 2020
BURLINGTON, Vt. – The U.S. Attorney General’s office and attorneys for the Department of Justice (DOJ) filed “Statement of Interest by the United States of America” Monday (July 27) in the civil lawsuit brought in October 2016 by Farmers United (Sitts, et. al.) alleging monopsony antitrust activity by Dairy Farmers of America (DFA) and Dairy Marketing Services (DMS).
The case is scheduled for a trial by jury beginning September 30, 2020 in the U.S. District Court of Vermont with Judge Christina Reiss presiding.
The plaintiffs are 116 dairy farmers who opted out of the earlier settlement by DFA of the Northeast class-action lawsuit approved by the U.S. District Court of Vermont.
In this Statement of Interest, the DOJ makes three main arguments: 1) The allegations against DFA in the case are not shielded by the Capper-Volstead Act from antitrust laws. 2) The Capper-Volstead Act does not insulate exclusionary acts from the antitrust laws prohibiting monopsonization. 3) The defendants (DFA) bear the burden of proof that they are protected by the Capper-Volstead Act.
According to the 15-page DOJ brief, the allegations in this case do not appear to have involved efforts to increase farmers’ bargaining power but rather efforts at monopsonization. Basically, the brief explains the “heartland protections” provided by the Capper-Volstead Act, and states the plaintiffs’ claims, if shown in Court, fall outside of those protections.
In fact, the DOJ brief notes that the claims at issue do not involve claims that farmer cooperatives acted anti-competitively against processors and other middlemen, but rather these are claims that farmer cooperatives – through agreements with processors, middlemen and other cooperatives – acted anti-competitively against farmers.
According to the Statement of Interest, “The United States is principally responsible for enforcing the federal antitrust laws… and has a strong interest in their correct application. In particular, the United States seeks to ensure that antitrust exemptions, including the Capper-Volstead Act, are not interpreted more broadly than necessary because antitrust law “is a central safeguard for the Nation’s free market structures.”
The full statement offers an analysis of the Capper-Volstead Act and the Sherman Antitrust Act as pertains to the claims made by the plaintiff dairy farmers should they be shown in Court. The Statement of Interest was filed as an aid to the Court in applying (Capper-Volstead) to this case.
“Congress enacted the Capper-Volstead Act to give farmers who produce food greater bargaining power with processors and other corporate handlers of food products. It would be inconsistent with the Act’s text and purpose to allow a defendant to use the Act as a shield when it acts as a food processor or exercises monopsony power to harm individual farmers,” the DOJ statement explains.
The brief goes on to state that Capper-Volstead “does not protect a cooperative’s agreements with non-cooperatives, and it should not protect agreements between cooperatives that have nothing to do with ‘processing, preparing for market, handling, and marketing’ the cooperatives’ products.”
On the monopsony claims, the DOJ brief indicates that the range of “predatory” conduct falling outside the scope of Capper-Volstead exemption “should be construed broadly… and the totality of the defendant’s predatory acts should be considered.”
The DOJ brief indicates that the Capper-Volstead Act “protects effort to increase farmers’ bargaining power against corporate food handlers and does not insulate monopsonies from the antitrust laws.”
Recounting the Court’s recognition in summary judgment that dairy cows produce milk seven days a week, and as a result, dairy farmers must find a processor that will take their milk regardless of demand, the DOJ brief states that this reality puts dairy farmers “at the mercy” of large milk processors seeking to buy raw milk at the cheapest price. In fact, the DOJ statement observes that farmers are potentially the main entities behind the passage of the Sherman Antitrust Act in the first place.
“The legislative history of the Sherman Act shows that its passage was motivated in large part by the harmful effect that agricultural trusts were thought to have had in reducing the prices paid to farmers,” the brief relates, describing a situation in the beef industry at that time, when members of Congress during passage of the Sherman Act condemned the beef trust for suppressing prices paid to cattle farmers.
When the Sherman and Clayton Acts did not sufficiently aid farmers, Congress sought a stronger statute in the 1920s, later passing the Capper-Volstead Act “to support the cooperative form of organization that would help equalize farmers’ bargaining power…”
The DOJ brief notes that Capper-Volstead allows cooperatives to have marketing agencies in common as long as “such associations are operated for the mutual benefit of the members thereof, as such producers, and conform to certain membership and organization requirements.”
In the statement, DOJ attorneys note that the Supreme Court recognized that the Capper-Volstead Act does not protect agreements that would be unlawful under Section 1 of the Sherman Act when they are between cooperatives and non-cooperatives, except perhaps when they are necessary to carry out the purpose of a cooperative as set forth in the Act.
For example, an exempt cooperative can lose its exemption if it conspires with nonexempt parties.
In other words, the case law cited in the DOJ brief indicate there is precedent set that cooperatives may not lawfully combine or conspire with non-cooperatives in the restraint of trade, nor may they use predatory or coercive practices to stifle competition.
“Such behavior remains subject to normal antitrust remedies,” the DOJ brief states.
In short, the Statement of Interest by the United States upholds that to the extent the plaintiff dairy farmers can show at trial that DFA violated the Sherman Act in reaping profits as a handler or processor from lower milk prices rather than for the mutual benefit of its members, “it would turn the (Capper-Volstead) Act on its head to allow DFA to use the Act as a legal shield,” according to the DOJ brief.
If at trial, the plaintiffs can show DFA had monopsony power and used it to injure other cooperatives or independent dairy farmers who actively – or potentially – compete with DFA, the DOJ statement is basically indicating that Capper-Volstead is not a shield for that.
“It would be inconsistent with the (Capper-Volstead) Act to allow a monopsony to use it as a shield when Congress had no intention to ‘vest cooperatives with unrestricted power to restrain trade or to achieve monopoly by preying on independent producers,’” the DOJ statement indicated.
Judge Reiss in her Opinion for the case to go to jury trial previously stated that, “a rational jury could conclude that DFA management favored growth of its commercial operations and empire building over the interests of its farmer-members.”
The jury trial is set to begin September 30. Stay tuned for more from the docket next week on a flurry of pre-trial activity occurring over the past week.
Note: The defendant in this civil suit, DFA, is the nation’s largest milk cooperative with 14,000 members (nearly half of all U.S. dairy farms), 42 dairy processing plants, plus joint ventures, and on May 1, consummated purchase of substantially all assets of the nation’s largest milk bottler Dean Foods — 44 of its 57 plants — in Chapter 11 bankruptcy sale. Previously in the U.S. District Court of Vermont, the Northeast Class Action Antitrust lawsuit alleged market control conspiracy by DFA and Dean Foods. Both settled for $50 and $30 million, respectively. The 116 dairy farmer plaintiffs in this current proceeding had previously opted out of the “class” when the class action settlement was approved by the Court.