BY KEN LITTLE
The two sides in the contentious and drawn-out Southeast Milk Antitrust Litigation case in U.S. District Court reached a preliminary settlement agreement announced Tuesday, on the eve of trial in Greeneville.
Jury selection was to begin today in the milk price-fixing trial, which had been estimated to last between six and eight weeks.
Dairy farmers throughout the Southeast and Appalachian regions who made allegations of price-fixing against defendants such as Dairy Farmers of America, Inc. (DFA), will receive a settlement of $140 million to be placed into an escrow account, along with $18.6 million placed in another account to be distributed to plaintiffs in 2014 and 2015 if certain utilization goals aren't achieved.
"The proposed settlement blends the elements of a $140 million monetary settlement, market changes to improve utilization, resolution to opt-out of block voting to be voted on by DFA members, and increased transparency in DFA practices," said Julie Walker, owner of the Newport-based agrimarketing firm AgriVoice Enterprises, in a news release Tuesday.
In United States agricultural policy, utilization refers to the percentage of milk in federal milk marketing orders that is used in each of the classes: Class IV (butter and nonfat dry milk), Class III (cheese), Class II (all other manufactured products), Class I (milk used for fluid consumption), according to Wikipedia, the online encyclopedia.
Utilization rates serve as weights for determining the weighted average price, or blend price, received by dairy farmers within a region each month.
'A BUSINESS DECISION'
For DFA, signing off on the settlement as the trial was about to start "was a business decision," Chief Financial Officer Rick Smith said Tuesday in a teleconference with the news media.
DFA is a national dairy marketing cooperative owned by nearly 15,000 members in 48 states.
Plaintiffs in the class action lawsuit include about 7,500 current and former dairy farmers.
"We make no admission of wrongdoing," Smith said. "We will pay $140 million to the plaintiff class and an additional $18.6 million over two years to be refundable based on Class I (milk) utilization rates."
Settling defendants in the agreement are DFA, National Dairy Holdings, LP (NDH); Dairy Marketing Services, LLC; Mid-Am Capital LLC, and Gary Hanman, former chief executive officer of DFA. Hanman was released from all liability in the settlement, Smith said.
The sizable settlement won't have any impact on DFA's day-to-day operations or payments to farmer-members, Smith stated.
The money has already been set aside, he said.
Consumers won't be asked to pick up the bill, Smith added.
"My own opinion is, it's going to have no impact on the consumer," he said.
The payment is broken down in allocations: $70 million to DFA, $50 million to NDH, and $20 million allocated to Mid-Am Capital.
U.S. District Judge J. Ronnie Greer scheduled a "Fairness Hearing" for April 3 to consider final approval of the settlement.
Any class member who objects to the settlement may state his or her case at the Fairness Hearing, or be represented by a lawyer.
NO ADMISSION OF GUILT
A 35-page document filed Monday in connection with the preliminary settlement outlines its terms.
The defendants in the case "deny each and every one of plaintiffs' allegations of unlawful conduct, have not conceded or admitted any liability, and have asserted a number of defenses to [the] plaintiffs claims," according to the document.
For their part, the plaintiffs in the lawsuit considered the facts of the case and concluded that, in light of the "risks associated with continued litigation, and the applicable law," a settlement with defendants under agreed-upon terms and conditions "is in the best interest of [the] plaintiffs and class."
Defendants enter into the agreement, the settlement document said, "solely to avoid the further expense, inconvenience and burden of protracted litigation, and the distraction and diversion of its personnel and resources, and thereby to put to rest this controversy, and to avoid the risks inherent in uncertain, complex litigation."
The settlement states that plaintiffs and defendants agree that settlement terms "shall not be deemed to or construed to be an admission or evidence of any violation of any statute or law or of any liability or wrongdoing by settling defendants or of the truth of any of the claims or allegations in the complaint."
Typical of settlement agreements, "the defendants admitted no guilt," Walker said.
FINANCIAL RECOVERY: 73%
"With this $140 million settlement, plus the $18.6 million in price increases added to the previous $145 million Dean Foods/SMA monetary settlement, there was a recovery of 73 percent of estimated damages," Walker said.
She said that, according to class-action experts, "This is an extraordinary financial recovery of damages. Typical Class Action pre-trial settlements average 20 percent recovery."
"Both parties faced inherent risks if they proceeded to trial," Walker said.
Many issues of contention in the case go back to 2001, and some of the allegations go back 15 years, Smith said.
The DFA has changed in many ways since some of the allegations were made, he noted.
"I took over in 2006, and through a process of the farmers involved, we made a great deal of changes [with] transparency and disclosure," he said.
Defendants had said since the lawsuit was filed in July 2007 that they were prepared to try the case.
"We were scheduled to go to trial, and we had vigorously defended this lawsuit and thought the case might be dismissed," Smith said.
But as the courtroom date moved closer, continued, "We just thought [with] the risk of going to trial, [the members' interest would best be served to make a business decision to put it behind us."
Plaintiffs claimed $419 million in damages due to alleged activities of the DFA-related entities, legal observers said.
"An automatic trebling of that amount to $1.2 billion occurs if a jury reaches a positive verdict for [the] plaintiffs," Walker recently said.
A July 2012 court supplemental order states that plaintiffs "have offered convincing proof" that DFA and DFA-related defendants "have engaged in illegal conduct in violation of the Sherman (Antitrust) Act and that the members of the DFA subclass have, across the board, suffered common injury as a result of the DFA defendants' conduct."
DEAN FOODS SETTLEMENT
The case has already included an unprecedented $145 million monetary settlement between plaintiffs and Dean Foods, the Southern Marketing Agency (SMA) and defendant James Baird.
Dean Foods, a large food and beverage company, agreed last year to pay $140 million of that amount over four years.
Greer filed an order on Jan. 8 clearing the way for the first payments from the $145 million Dean/SMA settlement funds.
The Dean Foods settlement had some bearing on the decision made by the other defendants, Smith said.
"As a practical matter, the fact that the other defendants settled or had settled played a part [in the decision]," Smith said.
CO-OP IS OK
The first thing DFA members will want to know is "if the co-op is going to be OK," Smith said.
"The cooperative is financially strong. It's not going to affect how we operate the business," he said.
"With some members, there will be a great sense of relief because they know this was out there."
PLAINTIFFS IN CASE
Plaintiffs named in the lawsuit are Sweetwater Valley Farm, Inc.; Barbara Arwood and Victor Arwood, doing business as VBA Dairy; Jeffrey P. Bender; Randel E. Davis; Farrar & Farrar Dairy Inc.; Fred Jaques; John M. Moore; D.L. Robey Farms; Robert D. Stoots; Virgil C. Willie; Thomas R. Watson; James D. Baisley and Eva C. Baisley, doing business as Baisley Farms; Stephen J. Cornett, Payne Dairy and Jerry L. Holmes, on behalf of themselves and all members of the class.
While the settling defendants agreed to pay $18.6 million penalty, Smith said DFA is optimistic that much of that money will be returned.
"To the extent that Class 1 utilization rates strengthen, we expect to get the money back," he said.
The $18.6 million represents the benefit to class members of a 3.3 percent annual increase in the annual weighted average percentage for Federal Milk Marketing Orders 5 and 7, guaranteeing uniform prices for the orders.
The guarantee period will cover two calendar years, 2014 and 2015. Amounts are broken down to $9.3 million for each year to reflect the increase in uniform prices.
"The class period" in the lawsuit is from Jan. 1, 2001 through the present.