Case: 1:20-cv-02658 Document #: 55 Filed: 12/03/20 Page 1 of 8 PageID #:714
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`UNITED STATES DISTRICT COURT
`FOR THE NORTHERN DISTRICT OF ILLINOIS
`EASTERN DIVISION
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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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`No. 20 C 2658
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` Judge Feinerman
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`UNITED STATES’ RESPONSE TO THE MOTION OF DEFENDANT, DAIRY
`FARMERS OF AMERICA, INC., TO RETAIN THE FRANKLIN PLANT PURSUANT
`TO THE TERMS OF THE FINAL JUDGMENT
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`The United States submits its response to the Motion of Defendant Dairy Farmers of
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`America, Inc. (“DFA”) to Retain the Franklin Massachusetts Dairy Plant, including, the Franklin
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`Divestiture Assets as defined in the Final Judgment (Docket No. 4-2) (“Franklin Plant”). For the
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`reasons stated below, the United States supports Defendant DFA’s motion because the United
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`States and the Divestiture Trustee have not been able to identify a buyer who will competitively
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`operate the Franklin Plant. Under these circumstances, DFA’s retention of the Franklin Plant
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`Case: 1:20-cv-02658 Document #: 55 Filed: 12/03/20 Page 2 of 8 PageID #:715
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`provides the Franklin Plant the best chance to continue operating and supplying fluid milk to
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`retailers and schools as the country continues to work through the pandemic.1
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`I.
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`BACKGROUND
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`On May 1, 2020, the United States, along with the State of Wisconsin and the
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`Commonwealth of Massachusetts (“Plaintiffs”), filed a civil antitrust Complaint seeking to
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`enjoin DFA’s proposed acquisition of Dean Foods Company (“Dean”). The Complaint alleges
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`that DFA and Dean compete head-to-head to sell fluid milk in (1) northeastern Illinois and
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`Wisconsin and (2) New England and that the merger violates Section 7 of the Clayton Act, 15
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`U.S.C. § 18. (Docket No. 1). At the same time the Complaint was filed, the United States also
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`filed a proposed Final Judgment (Docket No. 4-2) and a Competitive Impact Statement (Docket
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`No. 16) describing the events giving rise to the alleged violation and how the proposed Final
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`Judgment remedies the competitive problems identified in the Complaint. After the parties
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`completed the requirements of the Tunney Act and a hearing was held, the Court entered the
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`Final Judgment on October 6, 2020 (Docket No. 53). The Final Judgment requires DFA to
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`divest three Dean fluid milk processing plants— the “Harvard Plant,” located in Harvard,
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`Illinois, the “De Pere Plant,” located in Ashwaubenon, Wisconsin, and the Franklin Plant,
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`located in Franklin, Massachusetts — and provides for the appointment of a Divestiture Trustee.
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`The Final Judgment afforded DFA 60 days to sell the Divestiture Assets on its own.
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`When DFA did not sell the Divestiture Assets within the time allotted under the Final
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`Judgment, the Court appointed Jerry Sturgill as the Divestiture Trustee on July 17, 2020.
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`(Docket No. 36). Under the Final Judgment, “the Divestiture Trustee will have the power and
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`1 The Divestiture Trustee executed a signed APA for the sale of the Harvard Plant and
`the DePere Plant on November 27, 2020.
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`authority to accomplish the divestiture(s) to Acquirer(s) acceptable to the United States.” Id., §
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`V.B. Following his appointment, the Divestiture Trustee worked closely with the United States
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`as he designed the sales process, identified potential buyers, and facilitated the sale and transition
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`of the Divestiture Assets process. The Divestiture Trustee filed with the Court his Report of the
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`Divestiture Trustee (Docket No. 45-48), made formal reports of his progress to the United States,
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`and communicated with the United States informally on an almost daily-basis to keep it
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`appraised of his efforts to sell the Divestiture Assets.
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`Due to Plaintiffs’ concerns that the Franklin Plant was losing money and might not be
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`saleable to a qualified operator, the plaintiffs included a provision in the Final Judgment to allow
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`DFA to move this Court to retain the Franklin Plant if the Divestiture Trustee could not sell the
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`Franklin Plant to a buyer acceptable to the United States. See Final Judgment, § V.G.; see also
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`Competitive Impact Statement at 22; United States Motion For Extension of Term For the
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`Court’s Divestiture Trustee at 2 (Docket No. 49). This provision is intended to maintain the
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`Franklin Plant in the market during a pandemic, even if a qualified, competitive buyer will not
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`buy the Franklin Plant. This approach is based upon principles of the “failing firm” defense. See
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`United States Department of Justice and Federal Trade Commission Horizontal Merger
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`Guidelines, § 11.
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`THE DIVESTITURE TRUSTEE’S EFFORTS TO SELL THE FRANKLIN
`PLANT DURING A PANDEMIC
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`II.
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`The dairy industry is distressed. Fluid milk consumption has declined and the two largest
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`dairy processors filed for bankruptcy last year. Complaint, ¶ 30. The Franklin Plant is
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`particularly distressed. It has lost money for years and requires significant capital improvements.
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`A potential buyer of the Franklin Plant must therefore be able and willing to invest a significant
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`amount of capital to cover losses, make capital improvements, and implement a turn-around of
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`the plant so that it can improve its performance and compete. Exhibit 1 (Declaration of Jerry
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`Sturgill), ¶ 8.
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` The Divestiture Trustee has worked diligently, creatively, and aggressively to identify a
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`qualified buyer who will operate the Franklin Plant competitively. The Divestiture Trustee
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`conducted an extensive search for buyers. Sturgill Declaration, ¶ 6. When no qualified buyer
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`bid for the Franklin Plant, he redoubled his efforts. The Divestiture Trustee discussed forming a
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`joint-venture between or among potential qualified buyers who could not provide the capital to
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`pay for operating losses and capital improvements in the plant by themselves, but may have been
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`able to do so jointly. Id., ¶ ¶ 6-9. Despite all of his efforts, the Divestiture Trustee was not
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`successful in identifying a qualified buyer for the Franklin Plant who would operate the plant in a
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`competitive manner.
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`The Divestiture Trustee advised the United States that he had been unable to locate a
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`suitable buyer that he was confident would operate Franklin in a competitive manner consistent
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`with the Final Judgment and who would be acceptable to the United States. In light of this
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`situation, and the poor financial condition of the plant and continuing pressures imposed by the
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`pandemic on the plant, the Divestiture Trustee recommended that the Franklin Assets remain
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`with DFA. Based upon its oversight of the Divestiture Trustee and experience reviewing
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`conduct, transactions, and divestitures in the dairy industry, the United States agreed with the
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`Divestiture Trustee’s conclusion and accepted his recommendation.
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`III. THIS COURT SHOULD ALLOW DFA TO RETAIN THE FRANKLIN PLANT.
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`Under § V.G. of the Final Judgment, the United States has “sole discretion” to determine
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`if a buyer is qualified. Based on the Divestiture Trustee’s exhaustive and unsuccessful efforts to
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`find a qualified buyer and his subsequent recommendation, and the United States’ involvement
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`in the Divestiture Asset sales process, the United States, exercising its sole discretion, has
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`accepted the Divestiture Trustee’s recommendation and determined through this process that no
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`qualified buyer exists to operate the Franklin Plant.2 Permitting DFA to retain the Franklin Plant
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`is in accord with the terms of the Final Judgment. First, despite his best efforts, the Divestiture
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`Trustee was unable to locate a qualified buyer who would operate the Franklin Plant
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`competitively. Second, the Final Judgment contemplates that the Franklin Plant should be
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`retained by DFA in circumstances such as this where a qualified buyer could not be found and
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`the asset was generating large losses in a financially challenged industry. Permitting DFA to
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`retain the asset in these circumstances, and in the midst of a pandemic, helps to ensure that the
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`plant will continue to produce processed fluid milk. If the plant closed now or if an unqualified
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`buyer failed, the plant would exit the market. Allowing DFA to operate the Franklin Plant under
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`these circumstances is consistent with the “failing firm” defense.
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`Significantly, DFA is committed to operating the Franklin Plant. DFA is committed to
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`making investments which will make it possible to operate the Franklin Plant in a competitive
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`manner. DFA Motion to Retain the Franklin Plant Under the Terms of the Final Judgment, at 1.
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`Despite the Divestiture Trustee’s best efforts to find a qualified, competitive buyer to operate the
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`Franklin Plant, it is better for consumers that DFA operate the Franklin Plant rather than the
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`2 A bidder for the Franklin Plant has expressed dissatisfaction with the Divestiture
`Trustee’s reaction to its bid for the Franklin Plant. The Divestiture Trustee, as set forth in the
`attached declaration, found that the bidder neither had the operational background nor capability
`to operate a large-scale fluid milk processing plant. The bidder also did not offer a plan for
`operating the plant. The Divestiture Trustee believed this bidder was not a qualified buyer of the
`Franklin Plant. The United States was aware of the potential buyer’s attempt to acquire Franklin
`on a contemporaneous basis and reached an independent conclusion consistent with the
`Divestiture Trustee that the potential buyer was not qualified to operate the Franklin Plant. The
`United States fully agrees with the Divestiture Trustee’s conclusion that this bidder was not
`qualified.
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`Franklin Plant closing in the absence of such a buyer —particularly during a pandemic when the
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`food supply is particularly important. In addition, selling the Franklin Plant to an unqualified
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`buyer would interject risk that the plant could close, resulting in a loss of supply of fluid milk to
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`consumers. Permitting the Franklin Plant, under these circumstances, to remain with DFA will
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`afford the plant the opportunity to continue processing milk for sale to consumers in New
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`England rather than to exit the market.
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`IV. CONCLUSION
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`For the reasons set forth above, the United States respectfully requests that this Court
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`grant DFA’s motion and allow it to retain the Franklin Assets.
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`Dated: December 3, 2020
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`Respectfully submitted,
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`/s/ Karl D. Knutsen
`Karl D. Knutsen
`Justin Heipp
`Nathaniel J. Harris
`Christopher A. Wetzel
`U.S. Department of Justice
`Antitrust Division
`Healthcare and Consumer Products Section
`450 Fifth Street, NW, Suite 4100
`Washington, DC 20530
`202-514-0976
`karl.knutsen@usdoj.gov
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`COUNSEL FOR PLAINTIFF
`UNITED STATES OF AMERICA
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`Case: 1:20-cv-02658 Document #: 55 Filed: 12/03/20 Page 7 of 8 PageID #:720
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`CERTIFICATE OF SERVICE
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`I, Karl D. Knutsen, hereby certify that on December 3, 2020, I caused a copy of the foregoing
`United States’ Response to the Motion of Defendant Dairy Farmers of America to Retain the
`Franklin Plant Pursuant to the Final Judgment to be served on Defendants by mailing the
`document electronically to their duly authorized legal representatives as follows:
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`For Defendant Dairy Farmers of America, Inc.:
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`W. TODD MILLER
`Baker & Miller
`2401 Pennsylvania Ave., NW
`Washington, DC 20037
`Tel: (202) 663-7822
`Fax: (202) 663-7849
`tmiller@bakerandmiller.com
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`MICHAEL G. EGGE
`Latham & Watkins LLP
`555 Eleventh Street, NW, Suite 1000
`Washington, DC 20004
`Tel: (202) 637-2285
`Fax: (202) 637-2201
`michael.egge@lw.com
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`GARRET RASMUSSEN
`Orrick Herrington & Sutcliffe LLP
`Columbia Center
`1152 15th Street, N.W.
`Washington, DC 20005
`Tel: (202) 339-8481
`Fax: (202) 339-8500
`grasmussen@orrick.com
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`For Defendant Dean Foods Company:
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`ARTHUR J. BURKE
`Davis Polk LLP
`450 Lexington Ave.
`New York, NY
`Tel: (212) 450-4352
`Fax: (212) 701-5800
`arthur.burke@davispolk.com
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`Case: 1:20-cv-02658 Document #: 55 Filed: 12/03/20 Page 8 of 8 PageID #:721
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`And other ECF registered users by ECF.
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` /s/ Karl D. Knutsen
`Karl D. Knutsen
`Attorney for the United States
`U.S. Department of Justice Antitrust Division
`450 Fifth Street NW, Suite 4100
`Washington, DC 20530
`Tel.: 202-514-0976
`Fax: 202-307-5802
`E-mail: karl.knutsen@usdoj.gov
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