Case: 1:20-cv-02658 Document #: 54 Filed: 12/03/20 Page 1 of 10 PageID #:696
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`IN THE UNITED STATES DISTRICT COURT
`FOR THE NORTHERN DISTRICT OF ILLINOIS
`EASTERN DIVISION
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`Case No. 1:20-cv-02658
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`Judge Gary S. Feinerman
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`UNITED STATES OF AMERICA,
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`COMMONWEALTH OF
`MASSACHUSETTS,
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`and
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`STATE OF WISCONSIN,
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` Plaintiffs,
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`v.
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`DAIRY FARMERS OF AMERICA, INC.,
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`and
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`DEAN FOODS COMPANY,
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` Defendants.
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`DAIRY FARMERS OF AMERICA, INC.’S UNOPPOSED MOTION
` TO RETAIN THE FRANKLIN PLANT PURSUANT
`TO THE TERMS OF THE FINAL JUDGMENT
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`Defendant Dairy Farmers of America, Inc. (“DFA”) files this Unopposed Motion to Retain
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`the Franklin Plant Pursuant to the Terms of the Final Judgment (“Motion”) because the Divestiture
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`Trustee was unable to sell the Franklin Plant to a qualified purchaser and DFA wants to operate,
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`invest in, and improve the Plant. Even though the Franklin Plant has been losing a substantial
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`amount of money, DFA is strongly committed to the success and continued operation of the
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`Franklin Plant because the Plant’s operation is central to DFA’s core purpose as a dairy cooperative.
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`DFA is the country’s largest dairy cooperative, made up of and owned by approximately
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`Case: 1:20-cv-02658 Document #: 54 Filed: 12/03/20 Page 2 of 10 PageID #:697
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`7,500 family-owned dairy farms spread throughout the country. Its fundamental purpose is to
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`market and find a home for the raw milk produced by its member owners; this includes operating
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`plants at which the raw milk is processed into beverage milk (“Fluid Milk”), ice cream, cheese,
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`non-fat dry milk, butter, and other dairy products. At the time of DFA’s acquisition of assets of
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`the then-bankrupt Dean Foods Company (“Dean”), the subject of the instant litigation, Dean was
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`the country’s largest processor of Fluid Milk and DFA’s largest customer.
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`When Dean filed for bankruptcy in November 2019, DFA knew that it had to act quickly
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`to preserve Dean’s operations in order to protect it as an outlet for DFA member and other dairy
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`farmers’ milk. DFA therefore bid to acquire the substantial majority of Dean’s plants to keep those
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`plants operating for the benefit of dairy farmers, employees, customers, and other stakeholders.1
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`Notwithstanding the exigencies of Dean’s bankruptcy, the United States and the other Plaintiffs
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`raised concerns with DFA’s acquisitions of certain plants in areas where DFA already had Fluid
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`Milk operations. Recognizing the urgency of the situation, the dire financial situation of Dean and
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`of certain Dean assets in particular, to avoid plant closures, and, ultimately, to avoid litigation, the
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`parties agreed that DFA would attempt to divest three plants – one in each of Massachusetts,
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`Illinois, and Wisconsin – as reflected in the Final Judgment. The uncertainty of divesting assets
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`of a bankrupt company, particularly where the individual assets may be losing substantial sums of
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`money, among other reasons, resulted in the inclusion of an additional provision that permits DFA
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`to move this Court for permission to retain the plant in order to keep the plant open and operating
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`if a purchaser acceptable to the United States could not be found for one or more of those plants.
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`1
`But see Response of Plaintiff United States to Public Comments on the Proposed Final
`Judgment, Dkt. No. 42, at p. 2, n.1 (indicating that DFA did not bid for certain plants in Minnesota,
`South Dakota, and North Dakota because of antitrust concerns expressed by the United States).
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`Case: 1:20-cv-02658 Document #: 54 Filed: 12/03/20 Page 3 of 10 PageID #:698
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`That is the situation faced here with regard to the plant located in Franklin, Massachusetts
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`(“Franklin Plant”). No purchaser acceptable to the United States has been forthcoming to purchase
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`the Franklin Plant. This is not surprising given the circumstances. The Franklin Plant was
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`hemorrhaging money at the time of DFA’s acquisition. But, because of its critical importance as
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`an outlet for DFA and other dairy farmers’ raw milk in the Northeast and the value that those
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`farmers receive as a result of having a secure home for their milk, DFA acquired the plant to ensure
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`that it remained operational, and then sought to divest the Franklin Plant as required by the Final
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`Judgment. During the six full months under DFA ownership, the plant has lost over $3.5 million.
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`Despite substantial efforts by DFA and the Court-appointed Divestiture Trustee (see Dkt.
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`No. 36), no qualified bids were received for the Franklin Plant, either to DFA or to the Divestiture
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`Trustee. Accordingly, consistent with the explicit terms of the Final Judgment (Dkt. No. 53), DFA
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`hereby moves to retain the Franklin Plant and related assets (defined in the Final Judgment as the
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`“Franklin Divestiture Assets”) and to terminate DFA’s obligation under the Asset Preservation
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`and Hold Separate Stipulation and Order, Dkt. No. 13, to hold the Franklin Divestiture Assets
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`separate from DFA’s other operations. This Motion is unopposed by Plaintiffs.
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`Dairy Farmers of America
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`BACKGROUND
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`DFA is a milk marketing cooperative made up of approximately 7,500 family-owned dairy
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`farm member-owners who produce milk throughout the country. Declaration of Greg Wickham,
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`at ¶¶ 4, 5 (“Wickham Decl.”). The majority of these farmers—roughly 6,600—operate small
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`family farms with an average size of 87 cows. About 45% of DFA’s member farms milk less than
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`50 cows. Id. at ¶ 6. Their product, raw milk, is unlike other crude commodities because it is a
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`highly perishable and is the product of 2-3 milkings per day. It must be received, processed, and
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`made into products within 48 to 72 hours from the milking, or it becomes worthless. Id. at ¶ 8.
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`This central fact drives the economics of this industry, and requires that processing and distribution
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`networks exist within economic shipping distances from the farms and are capable of consistent
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`and reliable processing of raw milk. Because the time to get raw milk to a processor is limited,
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`DFA itself owns milk processing plants, including Fluid Milk plants in certain parts of the United
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`States, to ensure that its members have an outlet for their raw milk. Id. at ¶ 11.
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`Dean Foods and Its Bankruptcy
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`At the time it filed for bankruptcy, Dean was DFA’s largest customer and a significant
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`outlet for DFA’s member milk. Id. at ¶ 14. See also Competitive Impact Statement (“CIS”) (Dkt.
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`No. 16), at 4 (reciting Dean’s bankruptcy filing); In re Southern Foods Group LLC, Case No. 19-
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`36313 (Bankr. S.D. Tex. Nov. 19, 2019) (petition). At the time of that filing, Dean was the
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`country’s largest processor of Fluid Milk, operating 57 Fluid Milk processing plants in 29 states.
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`(CIS at 3). The bankruptcy court ordered a bidding process and then accelerated that process
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`because of Dean’s liquidity condition and a concern that Dean would not be able to pay farmers
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`for raw milk or to continue to process Fluid Milk beyond May 1, 2020, with tremendous adverse
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`consequences for Dean’s employees, customers, and suppliers. (CIS at 4).
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`On March 30, 2020, DFA bid for 44 of Dean’s Fluid Milk processing plants and related
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`assets (CIS at 4) because of the critical importance of those plants as an outlet for DFA farmer-
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`member, and other dairy farmers’, milk. Wickham Decl. at ¶ 16. No other bidder submitted a bid
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`for as many plants, or anything even close to the number of plants, as DFA did consistent with the
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`process order by the bankruptcy court. (CIS at 4). While there were other bidders for a few of the
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`plants for which DFA submitted a bid (including for the plants in Illinois and Wisconsin), there
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`was no other bidder for the Franklin Plant. Wickham Decl. at ¶ 16. DFA’s bid was accepted by
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`Dean, bids for certain other plants excluded from DFA’s bid were also accepted, and Dean began
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`the process of closing plants for which there were no bidders. (CIS at 4).
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`On April 3, 2020, the bankruptcy court approved DFA’s acquisition of certain of Dean’s
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`facilities, including the Franklin Plant. At the time, the United States and several State Attorneys
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`General were in the process of investigating DFA’s proposed acquisition. To resolve their
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`concerns about the potential elimination of horizontal competition between DFA and the then-
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`Dean plants in the Midwest and the Northeast, the parties to the instant litigation (the United States,
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`the State of Wisconsin, and the Commonwealth of Massachusetts, along with DFA) reached an
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`agreement that required DFA or a Divestiture Trustee to attempt to divest the Franklin Plant, along
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`with two other plants in the Midwest located in Chemung (Harvard), Illinois, and DePere,
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`Wisconsin, but allowed DFA to maintain any of those plants if a suitable purchaser was not located.
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`DFA and the Divestiture Trustee were required to accomplish the divestitures in a manner
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`consistent with the Final Judgment to an Acquirer or Acquirers acceptable to the United States in
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`its sole discretion. This agreement was reflected in the proposed Final Judgment filed with the
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`Court on May 1, 2020 (Dkt. No. 4), which stated that:
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`[i]f, at the expiration of the initial time period and any extension thereof, the
`Divestiture Trustee has not secured a definitive agreement for the sale of the
`Divestiture Assets consistent with this Final Judgment and acceptable to the United
`States, in its sole discretion, DFA may file a motion with the Court, which the
`United States will not unreasonably oppose, requesting that, solely with respect to
`any Divestiture Assets for which the Divestiture Trustee was unable to secure a
`definitive divestiture agreement, (i) the Asset Preservation and Hold Separate
`Stipulation and Order be terminated and (ii) this Final Judgment be modified to
`permit DFA to retain those assets.
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`Dkt. No. 4 at 22.
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`In conjunction with the proposed Final Judgment, and also on May 1, 2020, the Plaintiffs
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`filed a civil antitrust Complaint challenging the proposed transaction under Section 7 of the
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`Clayton Act, 15 U.S.C. § 18 (Dkt. No. 1) and an agreed-to Asset Preservation and Hold Separate
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`Stipulation and Order (Dkt. No. 8). That Order, which was entered by the Court on May 1, 2020,
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`allowed DFA to proceed immediately with its acquisition of the Dean assets, provided that DFA
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`held the three plants to be divested separate from its other operations and otherwise complied with
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`the proposed Final Judgment. DFA therefore consummated its acquisition on May 1, 2020, and
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`has since complied with the proposed Final Judgment and the Asset Preservation and Hold
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`Separate Stipulation and Order. (Wickham Decl. at ¶ 15).
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`The United States subsequently filed a Competitive Impact Statement (Dkt. No. 16),
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`describing the events giving rise to the alleged violation and the proposed Final Judgment. The
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`United States published the Competitive Impact Statement in the Federal Register, and one
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`comment was received. That comment did not pertain to the provision regarding DFA’s ability to
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`retain a plant for which no qualified purchaser was found. See Dkt. No. 42. Plaintiffs moved the
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`Court for entry of the Final Judgment on September 29, 2020. Dkt. No. 50.
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`On October 6, 2020, the Court held a hearing on the matter, found that requirements of the
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`Antitrust Procedures and Penalties Act (commonly known as the Tunney Act) had been met and
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`that the Final Judgment was in the public interest, and entered it as a Final Judgment (Dkt. No. 53).
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`The Final Judgment entered by the Court included the same mechanism in the proposed Final
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`Judgment that allowed DFA to move to modify the Final Judgment to be permitted to retain any
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`assets for which there was no sale agreement acceptable to the United States, in its sole discretion.
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`The Franklin Plant
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`The Franklin Plant is a very important outlet for raw milk for both DFA’s dairy farmer
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`members and all New England dairy farmers. It is a relatively large fluid milk processing plant
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`that is capable of processing about 90 million pounds of raw milk per month, but is only operating
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`at slightly over 50% of its capacity. Wickham Decl. at ¶ 17. DFA has been and is responsible for
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`supplying over 95% of the plant’s raw milk needs. DFA sold the plant 476.8 million pounds of
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`raw milk for the ten-month period of January 1, 2020, through October 31, 2020, almost 70% of
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`which was from DFA member farms. The DFA dairy farmer member milk marketed to the
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`Franklin Plant came from over 300 farms spread across 7 different Northeastern states. Shipments
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`to the Franklin Plant account for about 5% of DFA’s member milk in the Northeast and an even
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`higher percentage of DFA member milk in the New England states. Id. The remaining raw milk,
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`approximately 156 million pounds, was delivered through milk exchange relationships with
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`another dairy cooperative or other milk processing companies. Id.
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`The Franklin Plant was losing a substantial amount of money under Dean’s ownership,
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`sometimes over $1 million in a single month. In the last six-month period of operations (May 1,
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`2020, to October 31, 2020), the Plant lost over $3.5 million. Id. at ¶ 22. Because DFA has been
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`required to hold the Franklin Plant separate from its other operations (which has precluded, among
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`other things, access to certain information about those operations), DFA has not yet had the
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`opportunity to study or work on ways to improve the performance of the Plant. Id. at ¶ 24.
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`Nonetheless, DFA is anxious to integrate the Franklin Plant into its operations in order to reverse
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`this situation and is committed to making the investments necessary to return the Franklin Plant to
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`profitability and long-term economic stability. Id.
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`The Franklin Plant sits on over 150 acres of leased land, estimated to be valued at over $20
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`million. Id. at ¶ 18. Dean had a long-term assignable lease (potentially lasting another 50+ years)
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`and a non-assignable option to acquire the land exercisable only at certain intervals (the “Option”),
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`which Dean had not exercised. While DFA acquired the right to assume the long-term lease and
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`the right to acquire the Option, the Option cannot be further assigned to a divestiture buyer of the
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`Franklin Plant. Id. DFA does not now have title to the land and is not in a position to acquire it
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`before February 2022.2
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`ARGUMENT
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`Neither DFA nor the Divestiture Trustee have been able to secure a definitive agreement
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`to sell the Franklin Plant to a purchaser who was acceptable to the United States. The conditions
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`permitting DFA to seek elimination of its divestiture obligation under the Final Judgment have
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`therefore been met. See Dkt. No. 53 at 21.
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`As explained above, because of the “dire financial circumstances of Dean, the distressed
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`condition of the fluid milk industry, the likelihood of additional fluid milk processing plant
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`closures, and the desire to keep the plants operating,” the Final Judgment included a provision
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`which allows DFA to request that the Court eliminate the divestiture obligation should a buyer
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`acceptable to the United States for any of the plants not be found. (CIS at 21). In order for that
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`provision to be invoked, the Final Judgment requires that the Divestiture Trustee fail to accomplish
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`the divestiture in the time period contemplated by the Final Judgment to a person and on conditions
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`acceptable to Plaintiff United States. (Dkt. No. 53 at 21).3
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`2
`The owner of the real estate and lessor to DFA has challenged the Bankruptcy Court’s
`ability to transfer the Option to DFA. See Creditor Bernon Land Trust, LLC’s Motion for Relief
`from Order Concerning Executory Contracts (Doc. No. 2037). Because this objection has not yet
`been resolved, it is not clear that DFA would be able to exercise the Option at the next permitted
`period in February 2022.
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`DFA was required to accomplish the divestitures within 30 calendar days after the Court’s
`entry of the Asset Preservation and Hold Separate Stipulation and Order, subject to potential
`extension of this period to be granted by the United States in its sole discretion (Dkt. No. 53 at 12).
`Consistent with that Order, the United States granted DFA a 30-day extension of the divestiture
`period. Because DFA did not succeed in obtaining a definitive agreement for divestiture of any of
`the three plants during that time period, the Plaintiffs moved the Court in July 2020 to appoint a
`Divestiture Trustee. See Dkt. No. 35. The Court appointed Jerry Sturgill as the Divestiture Trustee
`on July 24, 2020 (Dkt. No. 36).
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`Both DFA and the Divestiture Trustee made substantial efforts to seek an acceptable
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`purchaser. Wickham Decl. at ¶ 19; Declaration of Jerry Sturgill, Ex. 1 to United States’ Response
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`to the Motion of Defendant, Dairy Farmers of America, Inc., to Retain the Franklin Plant Pursuant
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`to the Terms of the Final Judgment (“Sturgill Decl.”) at ¶ 6. DFA promptly engaged Harry Davis
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`& Company, LLC (“Harry Davis”), a well-known and reputable broker of dairy assets, to
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`disseminate information about and assist DFA in locating a potential purchaser of the Franklin
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`Divestiture Assets. Harry Davis has been engaged to this day to seek an acceptable purchaser.
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`Wickham Decl. at ¶ 19. DFA was not successful in finding a viable purchaser for the Franklin
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`Plant during the period that it was responsible for attempting such divestiture. Id. at ¶ 20.
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`Once the Divestiture Trustee was appointed by the Court and took over the responsibility
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`for attempting to divest the Franklin Plant, he also engaged in activities to sell the Franklin Plant.
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`Sturgill Decl. at ¶ 6. Nonetheless, the Divestiture Trustee was not able to secure a definitive
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`agreement to divest the Franklin Plant as required by the Final Judgment. Sturgill Decl. at ¶ 8.
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`In November 2020, the Divestiture Trustee notified the United States that the efforts to sell
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`the Franklin Plant to a third party have been unsuccessful and recommended that DFA be permitted
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`to integrate the Franklin Plant into its operations. The United States accepted the recommendation
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`on November 13, 2020. Sturgill Decl. at ¶ 11.
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`Because the Franklin Plant is an important and critical outlet for DFA member milk and
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`other dairy farmers’ milk in the Northeast, DFA is committed to its success. DFA intends to
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`continue to operate it and seek ways to expand its raw milk throughput. As a result, DFA believes
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`that, no other purchaser acceptable to the United States having presented itself, it is in the best
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`interests of dairy farmers, the employees of the Franklin Plant, other suppliers, and consumers
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`alike that DFA be permitted to retain and integrate the Franklin Plant into its operations.
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`Case: 1:20-cv-02658 Document #: 54 Filed: 12/03/20 Page 10 of 10 PageID #:705
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`CONCLUSION
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` For the foregoing reasons, DFA respectfully requests that, solely with regard to the
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`Franklin Plant, (i) the Asset Preservation and Hold Separate Stipulation and Order be terminated
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`and (ii) the obligation to divest the Franklin Plant be terminated to permit DFA to retain the
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`Franklin Plant and related assets. This Motion is unopposed by Plaintiffs, and a proposed order
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`has been submitted.
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`DATED: December 3, 2020
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`Respectfully submitted,
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`/s/James J. Ktsanes
`W. TODD MILLER (admitted pro hac vice)
`Baker & Miller, PLLC
`2401 Pennsylvania Ave., NW
`Washington, D.C. 20037
`TEL: (202) 663-7822
`Email: tmiller@bakerandmiller.com
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`JAMES J. KTSANES
`Latham & Watkins LLP
`330 N. Wabash Avenue
`Suite 2800
`Chicago, IL 60611
`TEL: (312) 777-7112
`Email: james.ktsanes@lw.com
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`MICHAEL EGGE (admitted pro hac vice)
`Latham & Watkins LLP
`555 Eleventh St., NW
`Washington, D.C. 20004
`TEL: (202) 637-0100
`michael.egge@lw.com
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`Attorneys for Dairy Farmers of America, Inc.
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