The United States Department of Justice (DOJ) filed an amicus brief in a lawsuit against Dairy Farmers of America, the United States’ largest dairy cooperative. The lawsuit, filed in Vermont U.S. District Court, alleges that DFA and other cooperatives agreed not to compete for each other’s farmer-members, conspired to share payment information in order to discourage competition and depress prices, and maintained those low prices market-wide by entering into supply agreements with Dean Foods and other dairy processors.
In 2016, DFA paid $50 million to dairy farmers to settle a class-action lawsuit that alleged DFA and its marketing arm, Dairy Marketing Services LLC, had conspired to monopsonize the fluid milk market in the Northeast. A significant outcome of that settlement was that a group of 116 farmers in the Northeast opted out of that settlement, instead working together to bring a separate lawsuit against DFA.
The lawsuit, filed in Vermont U.S. District Court, alleges that DFA and other cooperatives agreed not to compete for each other’s farmer-members, conspired to share payment information in order to discourage competition and depress prices, and maintained those low prices market-wide by entering into supply agreements with Dean Foods and other dairy processors.
In September of 2019, U.S. District Judge Christina Reiss issued a 58-page ruling that allowed the case to move forward. The judge ruled that the farmers had provided “admissible evidence from which a rational jury could conclude that DFA management favored growth of its commercial operations and empire building over the interests of its farmer-members.”
In its Statement of Interest for the brief, the DOJ makes three main arguments.
First, the allegations against DFA in the case are not shielded by the Capper-Volstead Act from antitrust laws. In other words, DFA cannot hide behind its technical status as a cooperative. If there is evidence that DFA conspired with nonexempt parties, (non-cooperatives) to act “anti-competitively against other farmers,” then “claims at issue in this case fall outside the heartland of Capper Volstead protection.” The DOJ states, “To the extent . . . that DFA, even when acting as a milk marketing cooperative, made agreements with non-cooperatives that would violate section 1 of the Sherman Act,” that “DFA had monopsony power and used it,” and that “it would be inconsistent with the (Capper-Volstead) Act to allow a monopsony to use (Capper-Volstead) as a shield.”
“The claims at issue in this case fall outside the heartland of Capper-Volstead protection because they do not involve claims that farmer cooperatives acted anticompetitively against processors and other middlemen, but rather claims that farmer cooperatives—through agreements with processors, middlemen, and other cooperatives—acted anticompetitively against other farmers,” DOJ said in its Statement of Interest.
In addition, the Capper-Volstead Act does not insulate exclusionary acts from the antitrust laws prohibiting monopsonization. Basically, this section argues that the definition of “predatory practices” should be applied broadly as violations of section 2 of the Sherman Act, and are “therefore outside the protection of the Capper Volstead Act.”
Finally, the Defendants (DFA) bear the burden of proof that they are protected by the Capper-Volstead Act. Since it is DFA’s claim that they are protected as a cooperative by Capper-Volstead, they must show proof of such claims. This argument is extremely significant, because it shifts the burden of proof away from the farmers. OCM has long argued that requiring farmers to show proof of harm is an unreasonable burden, and this argument from DOJ follows a similar line of reasoning.
The DOJ arguments clearly demonstrate that farmer and producer protection was one of the main reasons for passage of the Clayton and Sherman Acts.
“The Capper-Volstead exemption should be construed narrowly and consistent with the Act’s purpose to enhance the bargaining power of farmer-producers. It should be applied as an affirmative defense, with the defendant bearing the burden of showing that the exemption applies,” DOJ stated.
The case was slated for trial on July 1, 2020, but was postponed due to the Covid-19 pandemic.