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Public Notices

April 24, 2014

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Appeals Court Ruling Should Not Affect Settlements Reached With Dairy Farmers

Originally published: 2014-01-13 10:50:40
Last modified: 2014-01-13 10:54:13
 


Walker: Ruling Applies To

An Entirely Separate Case

BY KEN LITTLE

STAFF WRITER

A recent ruling by the U.S. Circuit Court of Appeals reinstating an antitrust lawsuit against Dallas-based Dean Foods and the Dairy Farmers of America (DFA) will have no bearing on settlements that were reached in a different lawsuit against Dean Foods and DFA in U.S. District Court here, according to a close observer of the cases.

The Jan. 3 ruling by the 6th Circuit Court of Appeals reinstated one count of a lawsuit that had previously been dismissed by U.S. District Judge J. Ronnie Greer.

But the Circuit Court decision won't have any effect on the separate, multi-million-dollar DFA settlement with dairy farmers reached last year, or on a 2012 settlement between dairy farmers and Dallas-based Dean Foods, said Julia Walker, owner of the Newport-based agrimarketing firm AgriVoice Enterprises.

THE DAIRY FARMERS' LAWSUIT

Both the DFA settlement in 2013 and the Dean Foods settlement in 2012 came out of a single lawsuit brought by Southeastern and Appalachian dairy farmers, and resulted in payments being made to dairy farmers in Tennessee and other states in the region.

The dairy farmers who brought the lawsuit alleged that there had been price-fixing by the defendants in the amount paid to dairy farmers by bottling companies in return for the dairy farmers' milk.

The defendants did not acknowledge any guilt, but said they were agreing to the settlement in order to bring the litigation to close.

Most farmers involved in that lawsuit have already received checks in the DFA settlement and will continue to receive checks from Dean Foods as part of a five-year payment plan agreed upon in 2012, Walker said.

The DFA settlement totals $140 million to be placed into an escrow account, along with $18.6 million placed in another account to be distributed to plaintiffs this year and in 2015 if certain utilization goals aren't achieved.

The case has already included a separate, unprecedented $145 million settlement between the dairy farmer plaintiffs and Dean Foods, the Southern Marketing Agency (SMA) and defendant James Baird.

Dean Foods agreed in 2012 to pay $140 million of the $145 million settlement over five years.

THE RETAILERS' LAWSUIT

The new Circuit Court ruling should have no impact on the dairy farmers' lawsuit and its settlement because the reinstated lawsuit "is a completely different lawsuit," Walker stated last week in an interview with The Greeneville Sun.

"It was a parallel lawsuit, and it was filed from a retailer's angle as opposed to a farmer's angle," she said.

According to Walker, the new lawsuit has a retail focus because "it was brought on behalf of retailers who would have been purchasing processed dairy products at wholesale/distributor prices from Dean Foods and DFA's processing company -- National Dairy Holdings."

Reinstating that lawsuit would only affect certain dairy farmers, Walker said.

As far as dairy farmers are concerned, the main impact of the reinstatement would be on farmers who are members of DFA and farmers who are members of cooperatives affiliated with the Southern Marketing Agency, which is also a defendant in the civil lawsuit.

The reinstatement would have an effect on those two groups of farmers "because they will continue to have defense costs associated [with the reinstated lawsuit] that would be taken out of the milk checks," Walker said.

BACKGROUND

Milk-bottling companies buy milk from farmers, process it in their bottling plants, and sell it at wholesale prices to distributors, such as grocery stores, who re-sell it at retail prices to the public.

The lawsuit that has now been reinstated was brought by Food Lion grocery stores and Jonesborough resident Fidel Brito, doing business as Family Foods.

The lawsuit alleges that Dean Foods, the DFA, and another milk processor called National Dairy Holdings acted together to drive up the price of milk to distributors, and thus to the public.

In 2001, Suiza Foods Corporation, the largest milk-bottler in the U.S., acquired another large milk-bottler, Dallas-based Dean Foods, which was also a partial owner of DFA. Suiza kept the Dean Foods name for the combined company.

Dean Foods had bought most of its milk from independent farmers, and Suiza Foods had purchased most of its milk from a Suiza Foods subsidiary that was partially owned by Dairy Farmers of America.

As part of the Suiza Foods-Dean Foods merger agreement that was required by the U.S. Department of Justice in order to preserve competition in the sale of milk, Suiza sold its interest in that Suiza Foods subsidiary to DFA.

As a result, DFA became the owner of six milk-processing plants that had been previously owned by the Suiza subsidiary.

The six plants were then transferred to a new partnership called National Dairy Holdings (NDH), which was owned in part by DFA and in part by former Suiza Foods executives.

After NDH opened more milk-processing plants, NDH became one of the largest milk-bottlers in the Southeast.

CONFLICT OF INTEREST?

The North Carolina-based Food Lion grocery store chain and its co-plaintiffs alleged in a 2007 lawsuit that, while NDH (owned partially by DFA) had actually been formed in order to compete with Dean Foods in the sale of milk to distributors, Dean Foods retained partial ownership of DFA.

That ownership combination created a conflict of interest for DFA, the plaintiffs said, because DFA -- the partial-owner of NDH -- also had contracts to supply milk to Dean Foods (to be sold to distributors).

The lawsuit by the grocery store chain and others alleged that Dean Foods, DFA and NDH controlled 77 percent of processed-milk bottling capacity in the Southeast.

Dean Foods filed for summary judgment -- in other words, asked to have the case dismissed -- on all five counts of the lawsuit, and the case was dismissed in 2012 by Judge Greer.

He said in his ruling that the plaintiffs were not sufficiently affected by the agreement among the three milk processors to give the plaintiffs legal status to bring their lawsuit.

He also ruled that the plaintiffs (Food Lion and others) had not established that the arrangement produced an anti-competitive effect in Tennessee and elsewhere in the Southeast.

EXPERT TESTIMONY ISSUE

In the process leading up to his ruling, Greer had decided to exclude expert testimony, a decision which played a role in his decision on the anti-competitive question which was the crux of the plaintiffs' case.

A three-judge panel of the 6th U.S. Circuit Court of Appeals found that the expert testimony should not have been excluded.

The panel's judges stated in their ruling that plaintiffs had met their burden of proof in raising "a genuine issue of material fact as to whether Dean Foods violated the antitrust laws."

The Appeals Court sent the case back to U.S. District Court in Greeneville for further proceedings.

 
For more information and stories, see The Greeneville Sun.

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