By Robert B. Barnett Jr., J.D.
The farmer’s claims for restraint of trade under Sherman Act §1 and for monopsonization under §2 will be resolved by the jury, after the court denied the motion for summary judgment.
In an antitrust suit by northeastern dairy farmers against Dairy Farmers of America, Inc. (DFA) and Dairy Marketing Services, LLC (DMS), the dairy farmer’s claims for monopsonization and conspiracy to restrain trade survived a motion for summary judgment, except that the dairy farmers are prohibited from arguing a hub-and-spoke conspiracy to the jury, the federal district court in Burlington, Vermont, has ruled. Given that the dairy farmers were not pursuing a hub-and-spoke conspiracy theory anyway, the ruling allows the dairy farmers to go to the jury with their full range of Sherman Act claims intact against DFA, the nation’s largest dairy cooperative, and DMS, a milk marketing entity jointly owned by DFA (Sitts v. Dairy Farmers of America, Inc. September 27, 2019, Reiss, C.).
Background. A collection of dairy farmers who opted out of a class action settlement continued to pursue their Sherman Act §1 claim for restraint of trade and §2 claim for monopsonization against DFA and DMS. The farmers alleged that DFA and DMS conspired with milk cooperative co-conspirators and milk processor co-conspirators to depress prices paid to dairy farmers in the Northeast for their raw Grade A milk. Although the original complaint alleged both monopolization and monopsonization, the court granted DFA’s and DMS’s motion to dismiss the monopolization claims. All remaining claims sounded in monopsonization. After discovery, DFA and DMS filed a motion for summary judgment.
Capper-Volstead Act. Before addressing the merits of the summary judgment motion, the court addressed the impact of the Capper-Volstead Act, which shields agricultural cooperatives from certain antitrust activities. For example, the Act, in order to facilitate the bringing of goods to market, allows agricultural producers to form cooperatives that would otherwise be illegal because they were competing directly with each other. The Act, however, does not extend immunity to conduct outside the legitimate objects of a cooperative, including restraining trade, monopolizing trade, or suppressing competition. As a result, the court concluded, the Capper-Volstead Act did not confer immunity on these claims.
Conspiracy. DFA and DMS argued that the Sherman Act claims failed because the farmers failed to establish that the conspirators conspired not only with DFA and DMS but with each other, in a hub-and-spoke conspiracy. In other words, the conspiracy allegations failed because there was no "rim to the wheel." The farmers responded that they did not intend to establish a hub-and-spoke conspiracy and, furthermore, that they did not need to establish one in order to succeed on their conspiracy claims. The court concluded that in a claim such as this one, where the farmers were not alleging several conspiracies and were not alleging claims against multiple defendants, proof of a hub-and-spoke conspiracy was not required. "Antitrust jurisprudence is neither so rigid, nor so formulaic," the court said, as to conclude that the absence of a combination of vertical and horizontal conspiracies precludes a party from establishing a single conspiracy. As a result, in light of the farmers’ statement that they did not intend to pursue a hub-and-spoke conspiracy theory, the court granted DFA’s and DMS’s motion for summary on using a hub-and-spoke conspiracy theory.
The court then turned to whether the farmers could establish any conspiracy. DFA and DMS argued that the farmers had to prove that each agreement with a co-conspirator independently violated the Sherman Act. The court disagreed, siding with the farmers that the agreements at issue and the alleged anticompetitive impact of the conspiracy could be considered in the aggregate. The farmers were seeking to hold DFA and DMS responsible only for their own conduct and did not bring claims against the alleged co-conspirators. They would, therefore, be allowed to analyze the conspiracy based on aggregate anticompetitive impact.
Turning to whether the farmers had offered evidence of an overt act in furtherance of the conspiracy, the court focused on the four acts that farmers contended were overt acts: (1) written and unwritten non-solicitation agreements and sharing of information regarding farmer pay programs, (2) full supply agreements that exceeded one year, (3) most favored nation clauses and pricing, and (4) outsourcing agreements. Carefully examining each allegation, the court concluded that all four constituted valid overt acts. Most favored nation clauses, for example, are legal but can be misused, especially where a supplier provides preferential treatment to less than all of its customers. In its complaint, the farmers alleged that DFA and DMS used most favored nation pricing to attract non-cooperative processors to enter into agreements at the processor level with DFA and DMS, which DFA and DMS offset by paying dairy farmers less money for their milk. The outsourcing agreements, on the other hand, were allegedly used to force independent farmers to market their milk through DFA and DMS. As a result, the court denied DFA’s and DMS’s motion for summary judgment on the issue of the sufficiency of the farmer’s proof on whether DFA and DMS engaged in a conspiracy in violation of §1 and §2 of the Sherman Act.
Antitrust injury. DFA’s and DMS’s next line of defense was to argue that the farmers failed to establish an antitrust injury. Applying the Second Circuit’s recent three-step process for determining whether an antitrust injury had been established, the court concluded that the farmers had satisfied the test by (1) identifying the anticompetitive practice and the reasons it was anticompetitive, (2) describing how the anticompetitive practice placed the farmers in a worse position, and (3) comparing the anticompetitive effect to the actual injury that the farmers alleged. Once again, the farmers were permitted to rely on the aggregate effect of the alleged conspiracy. Through their expert witness, the farmers were able to meet their requirement that they establish a reasonable estimate of damages to competition. As a result, the court denied the motion for summary judgment as it applied to an antitrust injury.
Monopsony power. DFA’s and DMS’s final argument was that the farmers failed to establish that DFA and DMS held monopsony power. In these types of cases, the farmers had to establish not only that the DFA and DMS had monopsony power but that the power was derived from predatory acts. The farmers’ expert witness placed DFA’s and DMS’s market share at 61.9% to 75.8%, which was enough to satisfy the monopsony requirements. Courts have found monopsony power even where the defendant had less than 50%. The farmers had also adequately established that various acts, including coercing membership in DFA, helped create the monopsony power. As a result, the summary judgment on the question of monopsony power was denied.
The court, therefore, denied the motions for summary judgment, except that it granted the motion to the extent that the farmers were prohibited from presenting a hub-and-spoke conspiracy to the jury.
The case is No. 2:16-cv-00287-cr.
Attorneys: Dana A. Zakarian, Elizabeth A. Reidy, Joel G. Beckman, and William C. Nystrom (Nystrom Beckman & Paris LLP) for Garrett Sitts. Alfred C. Pfeiffer, Jr. (Latham & Watkins LLP) and Ian P. Carleton (Sheehey Furlong & Behm P.C.) 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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