Opinion ID: 408097
Heading Depth: 2
Heading Rank: 1

Heading: Price-fixing and the Capper-Volstead Exemption.

Text: 24 Central to the antitrust claims of Mid-Am and AMPI is the contention that a number of NFO programs constituted horizontal price-fixing, a per se violation of the Sherman Act unless exempt. See, e.g., United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 60 S.Ct. 811, 84 L.Ed. 1129 (1940). Mid-Am and AMPI further argue that NFO cannot claim the Capper-Volstead exemption, principally because a small number of non-farmers were nominal members of NFO during certain periods at issue here. 25 The district court did not rule on the Capper-Volstead question because it concluded that NFO's activities did not constitute price-fixing. Midwest Milk, supra, 510 F.Supp. at 423-426. We cannot agree with this conclusion. In reviewing the district court's decision, we note that most of the relevant facts are not in dispute. The parties stipulated to 3,206 facts with respect to Mid-Am's Phase I claims against NFO and the district court noted: (T)he real disputes in regard to Phase I    present legal questions and relate, on the facts, to questions of what inferences should be drawn from stipulated and undisputed underlying factual circumstances. Id. at 386. 26 The stipulated facts are that, initially, NFO did not market milk at all, but instead promoted a common marketing agency for co-ops and individual farmers-an organization that could bargain more effectively by collectively representing a larger share of milk producers. NFO later presented Master Contracts to cooperatives which, by their terms, would be activated once sixty percent of the milk supply in a particular area was subject to such agreements. One purpose of the Master Contracts was to enable NFO to bargain for the price paid to producers for their milk. These Master Contracts were never activated, however, because the sixty percent share level was never reached. NFO later began direct marketing of milk, pursuant to supply contracts with various processors. Under these agreements, the processor would pay a flat formula price for all NFO milk which, in turn, would be paid to the individual producers of such milk. 7 27 The foregoing practices are the principal basis of the price-fixing allegations made by both Mid-Am and AMPI. It is arguable whether NFO's efforts to promote a common marketing agency could constitute actionable price-fixing. Such an entity, if ever formed, presumably could have been structured to comply with the Capper-Volstead exemption for cooperatives. The price-fixing dimension of the NFO Master Contract program is also somewhat unclear because such contracts were never activated and their operation in practice, therefore, cannot be fully ascertained. The NFO Supply Contracts, however, involved direct milk marketing by NFO. Individual farmers signed supplemental agreements under which NFO would represent them for purposes of selling milk. Buyers of NFO milk entered into supply contracts that provided a fixed formula price to be paid to the NFO National Trust which, in turn, was paid on a patronage basis to the individual producers of such milk. This arrangement plainly reflects a horizontal combination of producers agreeing to have NFO fix the prices at which their product will be sold. Unless exempt from the antitrust laws, horizontal price-fixing is, of course, a per se violation of the Sherman Act. See, e.g., United States v. Trenton Potteries Co., 273 U.S. 392, 47 S.Ct. 377, 71 L.Ed. 700 (1927). Because the stipulated facts make out a prima facie case of price-fixing, it was error for the district court to conclude otherwise without reaching the issue of NFO's exemption. NFO is nonetheless not liable for price-fixing, however, because its milk marketing arrangements were exempt under the Capper-Volstead Act. 28 The Capper-Volstead Act, 7 U.S.C. § 291, was adopted in 1922 to make clear that the antitrust laws would not prohibit farmers from organizing collectively for purposes of marketing their products. The Supreme Court has construed the exemption as permitting farmer-producers to    fix prices at which their cooperative will sell their produce    without thereby violating the antitrust laws. Maryland & Virginia Milk Producers Assoc. supra, 362 U.S. at 466, 80 S.Ct. at 853 (emphasis added). Thus, the milk marketing arrangements of NFO are clearly within the scope of activities contemplated under the Capper-Volstead exemption. 29 The exemption is an affirmative defense and NFO introduced sufficient evidence to establish prima facie entitlement to the exemption. The stipulated facts show that NFO is a nonprofit, non-stock corporation which gives collective bargaining and marketing services exclusively to its members in connection with their agricultural commodities. The record further shows that in 1970, the Department of Agriculture deemed NFO to be a qualified cooperative marketing association, although the parties disputed that determination when it was made and do so here as well. The challenge to NFO's exemption relates to (1) the corporate structure of its marketing program, and (2) certain non-farmers who appear to have been members of NFO at various periods. 30 The structural issue arises because NFO's bylaws prohibit distribution of income to its members. As a result, when it began to market milk, NFO created a separate legal entity-essentially a trust custodial account-that received payment for milk sales and, in turn, paid the producers. The Capper-Volstead Act requires that a cooperative be operated for the mutual benefit of the members thereof, as such producers. 7 U.S.C. § 291. Mid-Am argues that because NFO cannot distribute income, its marketing program cannot be considered to be for the mutual benefit of its members. This precise claim was squarely rejected in Waters v. NFO, Inc., 328 F.Supp. 1229, 1245 (S.D.Ind.1971). We also find no merit in Mid-Am's claim. 31 Mid-Am concedes that the NFO Trust properly operates for the mutual benefit of producer-members who market through NFO. Mid-Am insists, however, that each entity must be considered entirely independent for Capper-Volstead purposes. Such reasoning is contrary to the facts and would defeat the purpose of the Capper-Volstead exemption. NFO members who sold milk were in fact paid on a patronage basis for their products and buyers of such milk who paid the NFO National Trust knew they were dealing with NFO as essentially one organization. Under less compelling circumstances, the Supreme Court has indicated that organizational distinctions should not be permitted to defeat the clear purposes of the Capper-Volstead exemption. In Sunkist supra the Supreme Court was presented with three legally distinct entities formed by a huge group of citrus growers. The three entities were alleged to have illegally conspired with each other, although the actual activity was lawful if engaged in by any one cooperative. The Supreme Court held they must be considered as one organization for Capper-Volstead purposes, noting: 32 To hold otherwise would impose grave legal consequences upon organizational distinctions that are of de minimus meaning and effect to these growers who have banded together for processing and marketing purposes within the purview of the Clayton and Capper-Volstead Acts. 33 Sunkist I, supra, 370 U.S. at 29, 82 S.Ct. at 1135. 34 The Sunkist I rationale applies with special force where, as here, it is obvious that NFO's milk marketing, through the mechanism of the Trust Account, was fairly operated for the mutual benefit of all dairy farmers who participated. 35 The second and primary challenge to NFO's exemption, made by both Mid-Am and AMPI, relates to a small number of persons who appear to have been non-farmer members of NFO for certain periods in the late 1960s and early 1970s. Although this issue is more serious than the structural claim raised by Mid-Am, we again are guided by the overriding purpose of the Capper-Volstead Act which, in our view, supports upholding the exemption claimed by NFO. 36 The unmistakeable purpose of the Capper-Volstead Act is to permit farmers and only farmers to band together and benefit economically from collective marketing of their products. See, e.g., Case-Swayne Co., Inc. v. Sunkist Growers, Inc., 389 U.S. 384, 391-393, 88 S.Ct. 528, 532-533, 19 L.Ed.2d 621 (1967) (Sunkist II ). Here, this purpose unarguably has been served by NFO. There is no dispute that only dairy farmers-true producers-marketed milk through NFO. Only such farmers sold milk through NFO and only such farmers were paid for NFO's sale of their milk products. Moreover, NFO complied with the requirement that non-farmers be excluded from membership by adopting bylaws in 1970 which make clear that any member who quits farming shall automatically cease to be a member, and his or her membership agreement shall become null and void. 8 Such bylaws also restrict membership to those engaged in actual production of agricultural products. 37 The non-farmer issue arises largely because of ignorance or sloppiness on the part of NFO in policing its membership rolls. The stipulated record includes letters from approximately twenty-five individuals which generally indicate they never were or no longer were farmers, had received membership dues billings from NFO and did not want to pay such dues. Mid-Am and AMPI assert that these letters are conclusive proof that NFO had non-farmer members and thus should be denied the Capper-Volstead exemption. On the unusual facts of this case, we disagree. 38 The issue is a close one because of language in a 1978 Supreme Court decision which suggests that even one non-farmer member disqualifies a cooperative from claiming the Capper-Volstead exemption. See National Broiler Marketing Assoc. v. United States, 436 U.S. 816, 827-829, 98 S.Ct. 2122, 2129-2130, 56 L.Ed.2d 728 (1978). Although it was clear prior to National Broiler that only farmers were within the scope of the Capper-Volstead exemption, it was not at all clear that careless membership practices would, standing alone, preclude operation of the exemption. The district court read National Broiler as imposing a duty to police one's membership to ensure that not even one non-farmer is a member. Midwest Milk, supra, 510 F.Supp. at 426. On this ground, the district court indicated that if it had reached the exemption question, it would have ruled that NFO was disqualified. The district court further indicated that, except for National Broiler, it would be inclined to sustain NFO's exemption because the non-farmer issue was factually predicated upon mere record-keeping formalities-the mere presence on the membership list of names of individuals who, by express bylaw provision, had been stripped of all vestiges of membership. Id. at 425. The district court's discussion of the exemption is, of course, only dicta because the Court expressly did not reach the issue. It is helpful here, however, because it confirms how different the NFO situation is from the non-farmer issue in National Broiler. 39 National Broiler involved a marketing association of vertically integrated poultry producers. A number of the members were only processors in that they did not own or control breeder flocks, hatcheries or grow-out facilities. Id. at 822, 98 S.Ct. at 2127. The United States challenged the exemption because these members were essentially middlemen, not farmers, and the Supreme Court agreed that Congress did not intend to exempt even one such middleman. Id. at 826-828, 98 S.Ct. at 2129-2130. The Supreme Court's rationale is consistent with its earlier decision in Sunkist II, supra, in which it denied the Capper-Volstead exemption to a citrus growers association because approximately fifteen percent of its members were non-farmer processors. Both cases make clear that no middlemen are to be permitted to infiltrate otherwise exempt cooperatives; and that vertical integration in agricultural industries cannot extend to a point where non-farmer middlemen can claim the Capper-Volstead shield. The not even one language in National Broiler cannot be divorced from that Court's emphasis on the economic role of such middlemen and on the intent of Congress not to permit such middlemen to participate in price-fixing. National Broiler, supra, 436 U.S. at 827-829, 98 S.Ct. at 2129-2130. 40 There is no suggestion here that dairy industry processors were members of NFO. On the contrary, the stipulated record shows that the non-farmers who were putative members of NFO included, for example, a car dealer, a truck driver, a fertilizer salesman, a school teacher, a retired farmer, a TV salesman and a telephone company employee. The letters in the record further indicate that many of these non-farmers never considered themselves NFO members. When they received dues' billings, they typically wrote of having made donations to help get things started and of not wanting to continue doing so. 41 It appears that NFO may have been overly broad in its solicitation of support, but receipt of twenty-five dollars in dues from a handful of individuals is hardly the same as shielding middlemen from price-fixing liability, as in Sunkist II and National Broiler. Moreover, unlike the cooperatives in those two cases, NFO does not contend that the putative non-farmer members should be permitted to claim any exemption. Indeed, NFO's bylaws prohibit such persons from asserting any membership interest and there is no contention that such persons bought or sold milk through NFO. 42 We are not called upon to decide whether National Broiler requires a rigid rule for membership practices employed after that case was decided in 1978. The district court's view on such a question may well be proper. The issue here only relates to the late 1960s and early 1970s and is much narrower. Simply put, the question is whether NFO can claim the exemption for its milk marketing activities during the period at issue here, when such activities were conducted exclusively for true dairy farmers, notwithstanding that a small number of non-farmers, unrelated to the dairy industry, apparently paid dues to NFO during that period. We think the answer is yes in light of the overriding purpose of the Capper-Volstead Act. 43 As Justice Brennan noted, concurring in National Broiler, supra, 436 U.S. at 830, 98 S.Ct. at 2131, the Capper-Volstead Act was populist legislation designed to allow farmers to band together in order to survive against the economically dominant manufacturing, supplier, and purchasing interests with which they had to interrelate. NFO is the kind of populist farm organization contemplated by the Capper-Volstead Act. Regardless of the wisdom of its programs, NFO's entry into milk marketing exclusively on behalf of dairy farmers is precisely the kind of cooperative endeavor that Congress intended not to be subject to antitrust attack. To hold otherwise would defeat the purpose of the Capper-Volstead Act. Moreover, it would be cruelly ironic to exempt large co-ops like Mid-Am and AMPI-professionally managed and operated by many non-farmers-while denying exemption to the farmers who banded together in NFO. We decline to do so. 44 Thus, we hold that the milk marketing contracts and programs promoted by NFO during the period at issue in this action do not constitute actionable price-fixing in light of the Capper-Volstead exemption. 45