Opinion ID: 408097
Heading Depth: 3
Heading Rank: 4

Heading: Litigation and related harassment.

Text: 116 Mid-Am and AMPI filed separate actions against NFO in Wisconsin and Missouri, based upon membership disputes and alleged antitrust violations, issues on which NFO largely prevailed. 30 The membership dispute involved a claim that some farmers' marketing through NFO were contractually obligated to market through Mid-Am or AMPI and that NFO had induced these farmers to breach such agreements. Based upon this claim, Mid-Am, AMPI and, in one instance, CMPC on behalf of AMPI, engaged in a pattern of litigation, threatened litigation and related harassment against independent buyers of NFO milk. The controlling legal principle is clear in this case. Resort to judicial processes is exempt from antitrust attack under the Noerr-Pennington doctrine, unless it may be characterized as a sham cover for what is really just an attempt to directly interfere with the business relations of a competitor. See, e.g., Vendo Co. v. Lektro-Vend Corp., 433 U.S. 623, 97 S.Ct. 2881, 53 L.Ed.2d 1009 (1977); United States v. Otter Tail Power Co., 410 U.S. 366, 93 S.Ct. 1022, 35 L.Ed.2d 359 (1973); Hahn, Inc. v. Codding, Inc., 615 F.2d 830, 839-841 (9th Cir. 1980). Here, the actions directly against NFO come within the exemption, but the conduct directed toward NFO's customers clearly constitutes bad faith, unlawful harassment. 117 We recognize that the litigation directly against NFO was intended in part to hamper NFO's ability to compete. The burdensome cost of the litigation was one factor. Notes from internal AMPI meetings and corroborating testimony show, for example, that senior AMPI officials considered sponsorship of additional third-party litigation against NFO in the hope that the added cost of such litigation would break NFO's back. 31 Such third-party litigation was filed and was conducted by the same attorneys who represented AMPI, although the record does not clearly establish that it was brought in bad faith. Other evidence as to the goal of the litigation is that when Mid-Am commenced its action, it intended to have its membership certified as a class so as to restrict communication by NFO with Mid-Am's members during the pendency of the litigation. Mid-Am's action was also selectively directed at NFO: Mid-Am did not bring actions against other co-ops that the court found had solicited Mid-Am members to breach their Mid-Am marketing contracts. Midwest Milk, supra, 510 F.Supp. at 471. 118 Notwithstanding the foregoing evidence of intent, we cannot say that the legal claims against NFO were so groundless as to come within the sham litigation exception to the Noerr-Pennington doctrine. There were genuine disputes regarding NFO's solicitation methods. Thus, in our view, the direct litigation against NFO is not actionable as an antitrust violation. 119 Mid-Am, AMPI and CMPC, however, used the membership disputes with NFO as a pretext for threatening litigation against and otherwise harassing proprietary dairies which bought or considered buying NFO milk. At least one court has ruled that directing such conduct toward a competitor's customers is clearly outside the Noerr-Pennington exemption. See Oahu Gas Serv. Inc. v. Pacific Resources, Inc., 460 F.Supp. 1359, 1386 (D.Hawaii 1978). Here, Mid-Am, AMPI and CMPC argue that their conduct was intended merely to protect their legitimate marketing rights. Any legitimate claims as to unlawful membership raiding, however, could be fully pursued and vindicated in direct actions against NFO. The co-ops might also have sought specific performance of their marketing contracts. The findings and record evidence reveal instead a broad pattern of litigation threats and harassment against buyers of NFO milk. There may be circumstances in which actions against a competitor's customers are in good faith but, here, the pattern of conduct plainly establishes that the purpose was to put proprietary buyers into the middle of the membership dispute and to make NFO milk too hot to handle, all in order to deter such companies from dealing with NFO. 120 As noted above, AMPI's claim with respect to rights over certain Wisconsin milk marketed by NFO was the pretext for CMPC's threat to cut off Wanzer Dairy's supplies. See note 27, supra. Subsequently, when AMPI wrote to NFO announcing its intention to sue NFO and demanding certain payments for such milk, copies of the threat and demand were sent to Wanzer Dairy and to its parent corporation, Southland. Similarly, after NFO began making sales to Kraml Dairy in Chicago, AMPI wrote to Kraml asserting that some of the NFO milk was subject to AMPI's marketing rights' claim and demanding that AMPI be paid directly for such milk. 121 The pattern is hardly limited to AMPI and CMPC. Mid-Am participated in a number of threats, including some against dairies with which AMPI was having problems. Perhaps the most blatant threat involves the Beatrice Company's facility at Fort Worth, Texas, which had been a full supply customer of AMPI. The court's findings and underlying record evidence show that through most of 1970 and 1971, Beatrice and AMPI engaged in negotiations over maintaining AMPI purchases when AMPI's price was higher than the price paid by a number of Beatrice's competitors who were buying non-AMPI milk. See Midwest Milk, supra, 510 F.Supp. at 470. AMPI vigorously sought to retain its sales and premium price. At least one source of pressure on Beatrice apparently involved Beatrice's Tulsa facility, which faced competition from AMPI's Gold Spot division whose pricing practices prompted further complaints from Beatrice to AMPI. Id. at 471. 122 In any event, Beatrice began making purchases from or through NFO in July, 1970, and the volume of such purchases increased to several million pounds per month by February, 1971. 32 Id. The NFO milk sales in part involved milk from Missouri producers which Mid-Am asserted it had the right to market. In late 1970 or early 1971, Mid-Am advised Beatrice of its claim that NFO's marketing was illegal; in February, 1971, Mid-Am met with and corresponded with Beatrice to press its claim, demanding certain payments for the disputed NFO milk, threatening legal action against Beatrice and, on March 12, 1971, sued Beatrice along with NFO. Id. at 472-473. In late March, 1971, Beatrice notified NFO that because of payment disputes and NFO's unwillingness to indemnify Beatrice against the possible double payment situation, it was immediately terminating its NFO purchases from the Springfield facility. Id. at 462. 123 The Beatrice incident is just one illustration of Mid-Am's conduct. The Kraft Dairy in Springfield, Missouri, had been scheduled to receive NFO milk shipments at about the time that the Beatrice cutoff occurred. Id. at 473. Mid-Am wrote to Kraft, indicating it had become aware of a situation which might involve Kraft in Mid-Am's claim over some of the milk marketed through NFO's Springfield plant, and enclosed a copy of Mid-Am's complaint which had been filed against NFO and Beatrice. The letter stated that Mid-Am had not yet investigated the extent of involvement of Kraft, but that Mid-Am wanted to know what agreement Kraft Foods has made with respect to the price of this milk, with whom, and when payment will be commenced. At approximately the same time that Beatrice cut off NFO, Kraft notified NFO that it would no longer buy NFO milk. Id. 124 In May of 1971, NFO began selling milk to Marigold Dairy in Fort Worth. Id. at 474. On May 4, Mid-Am wrote Marigold to the effect that Mid-Am had learned of a possible sale of Grade A milk of Missouri producers by or through the auspices of NFO to Marigold. The letter described Mid-Am's claims regarding some of such milk and indicated that if its understanding of the possible sale was confirmed, then Mid-Am would enforce its contractual rights including the right to receive payments for said milk. Marigold ceased buying NFO milk later that same month. Id. 125 Another illustration is found in the deposition testimony of the president of Cloverleaf Creamery, a Twin Cities' dairy that had purchased NFO milk: 126 They (Mid-Am and TCMPA) told me that you buy milk from NFO and you are going to get yourself involved in some kind of a lawsuit spending all sorts of time involving yourself. And here I am. By God, they told the truth. 33 127 There is, finally, substantial evidence that Mid-Am's practice of threatening or harassing buyers of NFO milk was planned as a strategy at Mid-Am board meetings. A Mid-Am director admitted that at a board meeting shortly after filing the suit against NFO and Beatrice, Mid-Am's counsel asked the Board and staff to notify him of any NFO dealer solicitations so that he could inform such dealers that they might become involved in a lawsuit if they bought from NFO. Mid-Am's subsequent conduct shows that the board room discussion was not merely idle talk. 128 Mid-Am and AMPI ignore most of the foregoing incidents in their argument on appeal. On the one incident which is addressed-the Beatrice situation-Mid-Am does not attempt to justify its actions against Beatrice, but instead argues that its conduct was not the primary cause of Beatrice's termination of NFO purchases. 34 This argument misses the point. The effect of threatening conduct goes to the question of damages; it does not in any manner explain or justify the conduct itself. We must look to the complaint Mid-Am initially filed against Beatrice, which alleged essentially that Beatrice was a coconspirator with NFO in an antitrust conspiracy to reduce or eliminate responsible cooperatives like Mid-Am. On this record, however, all Beatrice had done was arrange to buy milk through NFO. That Mid-Am voluntarily dismissed Beatrice as a defendant, after Beatrice had stopped purchasing NFO milk, speaks volumes. Mid-Am's conduct as a whole, moreover, shows that its action against Beatrice was more a springboard for threatening other dairies than it was a legitimate complaint against Beatrice. 129 The only justification for the conduct directed against Wanzer Dairy would be that a Wanzer official appears to have assisted NFO in its efforts to get its cheaper milk marketed into Chicago. The discriminatory price treatment and other coercive conduct toward Wanzer, however, clearly establish that the true reason for harassing Wanzer was simply to deter NFO purchases so as to secure and maintain as large a supply as possible through CMPC. 130 No specific justification has been asserted for attempting to harass Kraft Dairy, Marigold Dairy or Kraml Dairy, nor has any justification been offered for Mid-Am's policy of broadly seeking out dealers which NFO was soliciting to warn them of possible litigation. The only defense offered is the generalized assertion of Mid-Am and AMPI that they intended only to protect their legitimate marketing rights over certain farmers' milk. There is simply no evidence in this record, however, that proprietaries were engaged in any sort of scheme to induce farmers to breach their marketing contracts with any co-op. Those who bought or considered buying from NFO were merely interested in obtaining an independent, hopefully cheaper source of supply. 131 When this pattern of litigation, threats of litigation and related harassment is viewed as a whole, it becomes obvious that such conduct was an unlawful attempt to deter dairies from buying NFO milk. The district court's findings are clearly erroneous to the extent they fail to recognize these incidents and reject or fail to draw the inferences which we have found inescapable from the record as a whole. 35 132