Case 2:16-cv-00287-cr Document 29 Filed 05/23/17 Page 1 of 74
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`UNITED STATES DISTRICT COURT
`FOR THE DISTRICT OF VERMONT
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`
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`Docket No. 2:16 cv-00287-cr
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`GARRETT AND RALPH SITTS, LEON ATWELL,
`VICTOR BARRICK, DANIEL BAUMGARDER,
`WILLIAM BOARD, GEORGE BOLLES, ROGER
`BOLLES, ANDY BOLLINGER, THOMAS
`BOLLINGER, LOGAN BOWER, DWIGHT
`BRANDENBURG, BERNARD BROUILLETTE,
`THOMAS BROUILLETTE, AARON BUTTON,
`HESTER CHASE, THOMAS CLARK, THOMAS
`CLATTERBUCK, PAUL CURRIER, GERRY
`DELONG, PETE AND ALICE DIEHL, MARK
`DORING, MARK AND BARBARA DULKIS, GLEN
`EAVES, MIKE EBY, WILLIAM ECKLAND, DOUG
`ELLIOT, JAMES ELLIOT, WENDALL ELLIOTT,
`MICHAEL FAUCHER, DAVID AND ROBIN
`FITCH, DUANE AND SUSAN FLINT, JOSEPH
`FULTS, RICHARD GANTNER, STEFAN AND
`CINDY GEIGER, WILLIAM GLOSS, JOHN
`GWOZDZ, DAVID AND LAURIE GRANT, JIM
`AND JOYCE GRAY, DENNIS HALL, ROGER AND
`JOHN HAMILTON, NEVIN AND MARLIN
`HILDEBRAND, JAKE AND HARLEN HILLYERD,
`RICHARD AND TERRI HOLDRIDGE, PAUL
`HORNING, TERRY AND ROBERT HUYCK,
`DONALD SCOTT HYMERS, TERRY INCH,
`RANDY AND LYNETTE INMAN, THEODORE
`JAYKO, JACK KAHLER, JAMES AND TERESA
`KEATOR, JIM AND SHARON KEILHOLTZ,
`GEORGE KEITH, LEE AND ELLEN KLOCK,
`MIKE AND LISA KRAEGER, FRED LACLAIR,
`TIM LALYER, FRANK AND JOHN LAMPORT,
`CORRINE LULL, CHARLES AND GRETCHEN
`MAINE, THOMAS AND DEBORA MANOS, FRED
`MATTHEWS, RUSSELL MAXWELL, GERRY
`MCINTOSH, STEPHEN MELLOTT, JOHN AND
`DAVID MITCHELL, THOMAS MONTEITH,
`WALT MOORE, RICHARD AND SHEILA
`MORROW, DEAN MOSER, MELISSA MURRAY
`AND SEAN QUINN, THOMAS NAUMAN,
`CHARLES NEFF, DAVID NICHOLS, MICHAEL
`NISSLEY, LOU ANN PARISH, DANIEL PETERS,
`MARSHA PERRY, CAROLYN AND DAVE POST,
`JUDY LEE POST, SCOTT RASMUSEU, BRIAN
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`Case 2:16-cv-00287-cr Document 29 Filed 05/23/17 Page 2 of 74
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`REAPE, DAVID AND LYNETTE ROBINSON,
`BRIAN AND LISA ROBINSON, CALVIN ROES,
`BRADLEY ROHRER, PAUL AND SARAH
`ROHRBAUGH, ROBERTA RYAN, SCOTT AND
`LIN SAWYER, S. ROBERT SENSENIG, THOMAS
`AND DALE SMITH, DALE AND SUSAN SMITH,
`DENNIS SMITH, DONALD T. AND DONALD M.
`SMITH, ROGER AND TAMMY, SMITH, TODD
`SNYDER, RICHARD SOURWINE, DANNY
`SOURWINE, RANDY SOWERS, SHANE
`STALTER, GEORGE AND SHIRLEY
`STAMBAUGH, TRACY STANKO, STEPHEN
`SOURWINE, RICHARD SWANTAK, GEORGE
`AND PATRICIA THOMPSON, JEREMY
`THOMPSON, KEN AND JUDY TOMPKINS,
`DANIEL VAUGHN, MARK VISSAR, ERIC
`WALTS, EDWARD WALLDROFF, GERALD
`WETTERHAHN, JR., EUGENE WILCZEWSKI,
`STEVE WILSON
`
`
`v.
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`DAIRY FARMERS OF AMERICA, INC., and
`DAIRY MARKETING SERVICES, LLC,
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`
`
`
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`Plaintiffs,
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`Defendants.
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`REVISED FIRST AMENDED COMPLAINT AND JURY DEMAND
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`Plaintiffs, who collectively represent more than 115 Federal Milk Marketing Order 1
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`
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`dairy farms and over 20,000 head of cattle (referred to herein as “Farmers United” or
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`“Plaintiffs”), file this action against Defendants Dairy Farmers of America, Inc. (“DFA”) and
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`Dairy Marketing Services, LLC (“DMS”) (together referred to as “Defendants”). Plaintiffs seek
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`treble damages and injunctive relief for Defendants’ violations of Sections 1 and 2 of the
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`Sherman Act, 15 U.S.C. §§ 1 and 2.
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`Case 2:16-cv-00287-cr Document 29 Filed 05/23/17 Page 3 of 74
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`NATURE OF THE CASE
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`1.
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`Each Plaintiff herein was a class member in Alice H. Allen et al. v. DFA and
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`DMS, Case No. 5:09-CV-230 (D. Vt. 2009) (the “Class Action”). Pursuant to the Court’s Order
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`Granting Preliminary Approval of the Settlement dated February 8, 2016, putative class
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`members were granted the right to “opt-out” of the Class Action and pursue claims directly
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`against Defendants. Each of the Plaintiffs has done so.
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`2.
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`Plaintiffs are cognizant of the fact that the Class Action has been pending since
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`2009 and that the Court (Reiss, J.) has issued a series of substantive orders, including on a
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`motion to dismiss and a motion for summary judgment. Plaintiffs, therefore, have included
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`herein the claims that the Court has already ruled sufficient to proceed to trial.
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`3.
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`Plaintiffs have attempted to mirror the allegations in the Revised Consolidated
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`Amended Class Action Complaint dated November 12, 2010 (the “Class Action Complaint”).1
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`Due to Defendants’ liberal use of the April 29, 2010 protective order, much of the record for the
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`Class Action is under seal and/or heavily redacted, including the entire record of summary
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`judgment and even portions of the Class Action Complaint itself.
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`4.
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`At the same time, some of the information and allegations in the Class Action
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`Complaint -- most recently amended in 2010 -- is stale. Plaintiffs, therefore, have updated the
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`allegations to the best of their ability without access to the record evidence.
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`5.
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`As detailed herein, since the Class Action Complaint, the Defendants’ vice-grip
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`on the Northeast milk industry has tightened and choked some of the last remaining vestiges of
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`competition.
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`1Footnote intentionally deleted pursuant to Court’s May 2, 2017 directive.
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`Case 2:16-cv-00287-cr Document 29 Filed 05/23/17 Page 4 of 74
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`6.
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`Defendants’ acquisition appetite remains unsatiated. In particular, since the filing
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`of the Class Action Complaint, Defendants and their Co-conspirators have made a number of
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`mergers and acquisitions including, without limitation:
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`a. On April 1, 2009, Dean acquired the Consumer Products Division of Foremost
`Farms USA, a dairy cooperative, including two milk processing plants in
`Wisconsin.
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`b. On April 19, 2011, DFA acquired Keller’s Creamery LP (“Keller’s”), based in
`Harleysville, Pennsylvania, the nation’s second-largest manufacturer of butter. In
`July 2012, DFA closed the Harleysville facility, moving the warehousing and
`distribution to Balford Farms, a privately-owned dairy distributor in Burlington,
`New Jersey.
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`c. On or around February 21, 2012, DFA acquired Guida-Seibert Dairy Co., Inc.
`(“Guida’s Milk”), located in New Britain, Connecticut, the leading milk
`processors in New England.
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`d. On or around September 4, 2013, DFA acquired Dairy Maid Dairy (“Dairy
`Maid”), located in Frederick, Maryland, a dairy processor. Rick Smith, the CEO
`of DFA, explained that the acquisition of Dairy Maid aligned with DFA’s
`“strategy to increase its commercial footprint and expand ownership in the fluid
`and fresh dairy category.”
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`e. On or around January 31, 2014, DFA acquired Oakhurst Dairy (“Oakhurst”), a
`family-owned dairy processor located in Portland, Maine.
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`f. On or around April 1, 2014, DFA and Dairylea Cooperative, Inc. (“Dairylea”), a
`cooperative based in the Northeast, merged. This combined Dairylea’s 1,200
`members with DFA’s 13,000 members nationwide, thereby drastically increasing
`DFA’s market share
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`g. On or around December 31, 2015, DFA acquired the Müller Quaker yogurt plant
`in Batavia, New York, a $208 million facility previously owned by PepsiCo and
`the Theo Müller Group.
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`h. On June 20, 2016, Dean acquired the manufacturing and retail ice cream business
`of Friendly’s Ice Cream.
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`In short, as of 2015, DFA had a stake in 77 dairy processing facilities across the
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`7.
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`United States. And, as of 2016, DFA was the largest milk processor in the world. DFA’s 8,000
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`(plus) member farms nationwide produce approximately 46 billion pounds of milk annually,
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`Case 2:16-cv-00287-cr Document 29 Filed 05/23/17 Page 5 of 74
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`representing more than 20% of the total United States milk production. DFA also markets
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`approximately 30% of the total United States milk production, which constitutes approximately
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`three-quarters of DFA’s total revenue.
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`8.
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`Thus, DFA’s market share as a cooperative has drastically increased. Indeed, in
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`2000, 26% of the milk marketed in the United States was by non-cooperatives. This number
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`dropped to 14% in 2014. In the Northeast in particular, there were about 40% fewer
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`cooperative associations operating in 2014 as compared to 2000. While DFA controlled
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`approximately 11% of the producers in the Northeast in 2010, that number has increased to
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`approximately 21% as of 2016.
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`9.
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`Dean currently owns more than 110 processing plants across the country and is
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`one of the largest processors and distributors of milk and other dairy products in the United
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`States.
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`10.
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`Not only has Defendants’ market share increased since the filing of the Class
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`Action Complaint, Defendants’ threats and retaliation against Northeast dairy farmers -- each of
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`which constitute a continuing violation of the antitrust law -- have escalated, as further detailed
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`herein.
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`11.
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`The most recent (and blatant) example of which is DFA and DMS milk inspectors
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`making “special trips” (i.e., unrelated to scheduled milk inspections) to thousands of dairy farms
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`to coerce support for the Class Action settlement. By sending the very people who are
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`empowered to reject the farmers’ milk, the unmistakable message being sent by Defendants was
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`“support the settlement or face the consequences.” As a result, Defendants were able to extract
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`over 1,200 form letters of support for the 2015 settlement - - compared to the three letters of
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`support they had for the 2014 settlement (which was for the same monetary amount).
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`12.
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`Upon information and belief, DFA has also threatened farmers who opted out of
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`the Class Action to join this lawsuit.
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`13.
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`The conspiracy described herein has netted Defendants, their Co-conspirators and
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`their management tremendous sums of money. For example, Gary Hanman (DFA) was paid
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`$31.6 million during his seven-year tenure at DFA, including bonuses for increasing the
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`cooperative’s market share. Gregg Engles (Dean) was paid approximately $156 million between
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`2004 and 2012. Plaintiffs, however, did not share in DFA’s success.
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`Plaintiffs
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`PARTIES
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`14.
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`Plaintiffs are more than 115 Order 1 dairy farms, whose names and addresses are
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`listed on Exhibit A. Plaintiffs collectively are referred to herein as “Farmers United” or
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`“Plaintiffs.”
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`a. Each of the Plaintiffs is either:
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`i. A current or former supplier to and/or member of DFA;
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`ii. A current or former supplier to DMS;
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`iii. A current or former supplier to one or more of the Co-conspirators;
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`iv. A current or former competitor of DFA; or
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`v. A current or former competitor of DMS.
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`b. Each Plaintiff has suffered antitrust injury as a direct and proximate result of the
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`acts complained of herein. As described below, the anticompetitive acts of
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`Defendants and the Co-conspirators suppressed the price (specifically, the over
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`order premiums) that dairy farmers in the Northeast received for the sale of their
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`milk. Plaintiffs - - who are all dairy farmers - - are the only group that suffered
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`Case 2:16-cv-00287-cr Document 29 Filed 05/23/17 Page 7 of 74
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`(or could suffer) this specific injury. As such, Plaintiffs are efficient enforcers of
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`the antitrust laws.
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`Defendants
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`15.
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`DFA is ostensibly a not-for-profit corporation organized and existing under the
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`laws of the State of Kansas with its principal place of business at 10220 North Ambassador
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`Drive, Kansas City, Missouri 64153, and with its Northeast Council headquarters located at 5001
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`Brittonfield Parkway, East Syracuse, New York 13057. DFA is organized as a “cooperative
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`marketing association” under Chapter 17, Article 16 of the Kansas General Statutes. DFA is by
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`far the largest dairy cooperative in the United States with over 14,000 dairy producers. DFA has
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`approximately 2,446 member farms in the Northeast, which represents a 27% increase since
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`2009. DFA is a vertically integrated cooperative that not only engages in the production of raw
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`Grade A milk, but also markets, hauls, processes, bottles and distributes raw Grade A milk.
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`Indeed, DFA is also the largest milk processor in the world.
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`16.
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`DMS is a limited liability company organized under Delaware law with its
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`principal place of business at 5001 Brittonfield Parkway, Syracuse, New York 13221. DMS was
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`established in 1999 through an agreement between DFA and Dairylea Cooperative Inc. DMS is
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`currently owned by DFA and St. Albans Cooperative Creamery, Inc. (“St. Albans”) and DFA
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`exercises control over DMS. DMS is a marketing agency that markets milk for more than 5,500
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`farms, including independent dairy farmers and cooperatives, throughout the Northeast even
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`though DMS received no authorization from independent dairy farmers to do so. Upon
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`information and belief, DMS markets approximately 50% of raw Grade A milk in the Northeast.
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`Co-conspirators
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`17.
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`Co-conspirator Dean is a for-profit corporation organized and existing under the
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`laws of the State of Delaware with its principal place of business at 2515 McKinney Avenue,
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`Suite 1200, Dallas, Texas 75201. Dean is one of the largest raw Grade A milk processors in the
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`Northeast and in the United States.
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`18.
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`Defendants also have conspired with Dairylea (prior to its acquisition by DFA),
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`Agri-Mark Family Dairy Farms (“Agri-Mark”), members of the Greater Northeast Milk
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`Marketing Agency (“GNEMMA”), Farmland Dairies LLC, National Dairy Holdings LLC
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`(“NDH”), HP Hood LLC (“Hood”) and other processors, certain individuals named below and
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`other entities and persons, the identities of which are presently unknown (collectively “Co-
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`conspirators”).
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`JURISDICTION, VENUE, AND INTERSTATE COMMERCE
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`19.
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`This action is brought under Sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1
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`and 2.
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`20.
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`This Court has subject matter jurisdiction over Plaintiffs’ claims pursuant to 28
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`U.S.C. §§ 1331 and 1337 and 15 U.S.C. §§ 15 and 26.
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`21.
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`This Court has personal jurisdiction over DFA and DMS because they
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`systematically and continuously transact substantial business in the United States and in this
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`District.
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`22.
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`Venue is proper in this District pursuant to 15 U.S.C. § 22 and 28 U.S.C. § 1391
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`because Defendants inhabit, transact business, reside, are found, or have an agent in this District,
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`and a substantial part of the events or omissions giving rise to the claim occurred in this District.
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`23.
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`Defendants’ business activities that are the subject of this complaint are within the
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`flow of, and substantially have affected, interstate trade and commerce. DFA markets, processes
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`and ships raw Grade A milk across state lines. DMS markets raw Grade A milk across state
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`lines. Both Defendants send and receive substantial payments across state lines from the sale of
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`raw Grade A milk.
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`The Relevant Market
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`THE MILK INDUSTRY
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`24.
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`The relevant geographic market is the Northeast United States. The Northeast
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`market consists of Federal Milk Marketing Order 1 (“Order 1”), which covers areas in Delaware,
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`District of Columbia, Connecticut, Maryland, Massachusetts, New Hampshire, New Jersey, New
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`York, Pennsylvania, Rhode Island, Vermont and Virginia. Since Order 1’s formation in 2000,
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`the number of producers has declined from 18,009 in 2000 to 11,519 in August 2016, which
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`represents a 36% decrease.
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`25.
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`DFA’s Northeast Council manages its operations in the same geographic areas as
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`the Northeast. DFA and DMS evaluate and treat the Northeast as a separate market in their
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`business activities and internal documents. Gregory Wickham, DFA’s current CFO who
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`previously served as president and CEO of DMS, referred to the Northeast as a distinct market in
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`connection with DFA’s and DMS’s milk sales, production and marketing activities. The Court
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`has ruled in the Class Action that Plaintiffs can establish at trial that Order 1 is a relevant
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`geographic market. See Class Action D.E. No. 525, Opinion and Order Granting in Part and
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`Denying in Part Defendants’ Motion for Summary Judgment (“SJ Order”) at 12.
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`26.
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`The relevant product market is the market for raw Grade A milk. This “raw
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`Grade A milk market” is treated as a distinct market by the Defendants, the industry and by
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`federal regulations and has been recognized as a relevant product market by federal courts. Raw
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`Grade A milk is a homogenous product such that one farmer’s production of it is undifferentiated
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`from another farmer. Dairy farmers do not have substitute markets available for their raw Grade
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`A milk. The distinct nature of the raw Grade A milk market is recognized by the Defendants in
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`their internal documents and treated as such by the Defendants in connection with their business
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`activities. The Court has ruled in the Class Action that Plaintiffs can establish at trial that raw
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`Grade A milk is a relevant product market. See D.E. No. 81, Opinion and Order Granting in Part
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`and Denying in Part Defendants’ Motions to Dismiss (“MTD Order”) at 9-14.
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`Raw Grade A Milk
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`27.
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` Raw Grade A milk is highly perishable. Dairy farmers milk their cows at least
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`twice a day and the milk must be transported from farms to raw Grade A milk processors nearly
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`every day. Raw Grade A milk is typically stored in refrigerated bulk tanks until it is picked up
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`by a milk hauler who transports it in insulated trucks to raw Grade A milk processing plants.
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`Fluid Grade A milk bottling plants prepare fluid raw Grade A milk for human consumption as
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`beverages by processing and packaging it into bottles or cartons for wholesale or retail sale. As
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`used in this complaint, a raw Grade A Milk processing plant prepares raw Grade A milk for
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`human consumption and processes it into either beverage milk products or other dairy products,
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`such as sour cream, cottage cheese, ice cream, cheese, butter or dry milk. As used in this
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`complaint, a bottling plant is a processing plant, but not all processing plants are bottling plants.
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`28.
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`Federal milk sanitation standards distinguish between milk eligible for use in fluid
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`products, known as Grade A milk, and milk eligible only for manufactured dairy products,
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`known as Grade B milk. The highest standards are established for Grade A milk because of
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`safety risks associated with fluid milk products. There is no substitute for raw Grade A milk.
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`29.
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`Pursuant to the 1937 Agriculture Act, the USDA classifies raw Grade A milk into
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`four classes for minimum pricing purposes based upon the actual end-use of the milk:
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`• Class I milk is used in beverage milk products for human consumption.
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`• Class II milk is used to manufacture “soft” dairy products, such as sour cream,
`cottage cheese, ice cream, and custards.
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`• Class III milk, also known as “cheese milk,” is commonly used to
`manufacture “hard” dairy products such as cheddar cheese.
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`• Class IV milk is used to produce butter and nonfat dry milk.
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`Each month, the USDA calculates minimum prices pursuant to USDA formulae
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`30.
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`for each of the four classes of Grade A milk marketed in each of the geographic regions, known
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`as Federal Milk Marketing Orders (“FMMO” or “Order”). Currently, there are 10 Orders. This
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`complaint is concerned with raw Grade A milk in Order 1, which is commonly referred to as the
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`“Northeast.”
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`31.
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`USDA regulations mandate that cooperatives and independent dairy farmers
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`participating in the FMMO program receive at least the weighted uniform average or minimum
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`“blend” price for raw Grade A milk that is “pooled” on an Order. Dairy farmers “pool” raw
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`Grade A milk on an Order by delivering specified minimum quantities of raw Grade A milk to
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`USDA-regulated fluid Grade A milk bottling plants associated with that Order. Dairy farmers’
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`delivery of the minimum quantity of raw Grade A milk to fluid Grade A milk bottling plants is
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`referred to as “touching base.” USDA regulations require that dairy farmers touch base each
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`month they are pooled on an Order. Dairy farmers cannot qualify or touch base by delivering
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`raw Grade A milk to processing plants of non-fluid products, such as sour cream (Class II),
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`cheese (Class III) and butter (Class IV).
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`32.
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`The minimum blend price for an Order is based upon the end uses of all Grade A
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`milk pooled on that Order. Thus, for example, if 60% of all raw Grade A milk pooled on an
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`Order was used as Class I milk (beverage milk), and the remaining 40% was used as Class III
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`milk (cheese milk), the minimum blend price for all raw Grade A milk pooled on the Order
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`would consist of the Class I price for 60% and the Class III price for 40%.
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`33.
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`USDA minimum prices for raw Grade A milk represent the minimum prices that
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`raw Grade A milk processors must pay for raw Grade A milk marketed pursuant to USDA
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`regulation. These minimum prices, however, are less than the farmers’ cost to produce the milk.
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`As such, the farmers must sell their milk for more than these minimum prices in order to
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`survive.
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`34.
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`One of the key responsibilities of cooperatives such as DFA is to negotiate prices
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`higher than the FMMO minimum prices (and the farmers’ production cost). The amounts by
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`which prices paid for raw Grade A milk exceed FMMO minimum prices are known generically
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`as “over-order premiums.” Prior to Defendants’ antitrust violations, dairy farmers in the
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`Northeast received over-order premiums for raw Grade A milk that more accurately reflected
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`competitive market conditions.
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`35.
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`The actual price a dairy farmer receives for raw Grade A milk is referred to as the
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`“mailbox price.” The mailbox price for an independent dairy farmer is comprised of the FMMO
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`minimum blend price plus any over-order premium in excess of the federal minimum blend price
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`and bonuses for volume or quality, minus marketing costs. The mailbox price received by dairy
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`cooperative members is calculated in the same way except additional charges may be deduced by
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`the cooperative. Prior to Defendants’ antitrust violations, dairy farmers in the Northeast received
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`mailbox prices for raw Grade A milk that included over-order premiums that more accurately
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`reflected competitive market conditions.
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`36.
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`Access to fluid Grade A milk bottling, processing and balancing plants in the
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`Northeast and receipt of FMMO minimum prices and over-order premiums is necessary and
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`essential to the economic viability of Northeast dairy farmers.
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`DAIRY COOPERATIVES
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`37.
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`The Capper-Volstead Act, 7 U.S.C. §§ 291, 292, authorizes certain agricultural
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`producers (including dairy farmers) to form voluntary cooperative associations for purposes of
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`producing, handling and marketing farm products. Specifically, it exempts cooperatives from
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`application of the antitrust laws so long as they meet certain criteria.
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`38.
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`Dairy cooperatives are associations of dairy farmers who agree to collectively
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`market their raw Grade A milk. Dairy cooperatives are supposed to be owned, operated, and
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`controlled by their member farmers. In other words, dairy cooperatives, which are considered
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`not for profits, are “not organized to make [a] profit for themselves . . . but only for their
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`members as producers.” K.S.A. § 17-1602.
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`39.
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`Cooperatives typically locate buyers for their farmers’ raw Grade A milk,
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`negotiate sales prices, coordinate the hauling, perform the testing, record and report related data
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`to milk market regulators, and process payments to member farmers for their raw Grade A milk.
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`40.
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`Dairy cooperatives (at least those organized under Kansas law such as DFA) are
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`prohibited from: (i) marketing, handling, processing, storing or dealing in the products of
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`nonmembers; (ii) manufacturing, selling or supplying nonmember services, products, machinery,
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`equipment or supplies; or (iii) otherwise engage in business with nonmembers, to an “amount
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`greater in value than such as are handled by the association for members.” K.S.A. § 17-1604.
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`41.
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`Dairy cooperatives owe their producer members the duty to obtain the highest
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`possible price for their Grade A milk. As a result, cooperatives traditionally do not invest in
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`Case 2:16-cv-00287-cr Document 29 Filed 05/23/17 Page 14 of 74
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`business ventures with processors when the profitability of these ventures depends on obtaining
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`low cost Grade A milk.
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`42.
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`Dairy farmers can market their raw Grade A milk to processing plants in the
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`Northeast by: (a) joining a cooperative, such as DFA; or (b) by remaining independent.
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`43.
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`Cooperatives other than DFA are referred to herein as “independent dairy
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`cooperatives,” even though some of them have very close ties to DFA.
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`44.
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`Dairy farmers that are not members of cooperatives are referred to herein as
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`“independent dairy farmers.”
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`45.
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`Independent dairy cooperatives and independent dairy farmers seek to market
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`their raw Grade A milk to processing plants by directly contracting with plants or through agents
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`and/or marketing associations.
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`46.
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`None of the independent dairy cooperatives or independent dairy farmers in the
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`Northeast have sufficient market share to impede the exercise of the monopoly/monopsony
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`power of DFA or DMS (which is controlled by DFA).
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`DAIRY FARMERS OF AMERICA
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`Formation and Expansion of DFA
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`47.
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`On January 1, 1998, four dairy cooperatives (including two cooperatives that had
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`been previously sued by the United States Department of Justice (“DOJ”)) merged to form DFA.
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`Those merging cooperatives were: Associated Milk Producers, Inc. (“AMPI”), Mid-America
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`Dairymen, Inc. (“Mid-Am”), Milk Marketing, Inc. and Western Dairy Cooperative, Inc.
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`48.
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`The CEO and CFO of Mid-Am, Gary Hanman and Gerald Bos respectively,
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`became the CEO and CFO of DFA.2
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`2 In 2008, the U.S. Commodity Futures Trading Commission found that Hanman and Bos attempted to manipulate
`the price of Class III milk futures contracts and fined them $12 million in civil monetary penalties.
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`Case 2:16-cv-00287-cr Document 29 Filed 05/23/17 Page 15 of 74
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`49.
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`DFA is now the largest dairy cooperative in the country - - with approximately
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`2,400 members in the Northeast alone. DFA’s growth and expansion, however, has not
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`increased the number of dairy farmers in the country. To the contrary, DFA anti-competitive
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`behavior has driven many small farms out of business and decimated the number of dairy farms
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`in the United States.
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`a. Defendants and the Co-conspirators have used their monopsony power to block
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`access to the processors and leave the independent farmers and independent co-
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`operatives without a market for their milk. In doing so, they have eliminated
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`competition in the supply base and obtained a monopoly on the sell side of the
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`market. This monopoly further enables Defendants and the Co-conspirators to
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`further reduce the supply base and eliminate competition on the sell side of the
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`market.
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`b. The anticompetitive conduct of the Defendants and Co-conspirators also has
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`created substantial barriers to entry of the market for the sale and purchase of raw
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`Grade A milk in the Northeast. IBecause Defendants and their Co-conspirators
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`control the “buy” side (i.e., the processors) through direct ownership / interests
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`and/or full supply agreements, it is difficult (if not impossible) for new dairy
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`farmers to enter the market and secure buyers for their milk. Moreover,
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`Defendants and their Co-conspirators control the vast majority of milk supply in
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`the Northeast, thereby making it unlikely that a new processor would easily be
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`able to enter the market and obtain sufficient milk supply. These barriers further
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`insulate Defendants and Co-conspirators from free and fair competition.
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`Case 2:16-cv-00287-cr Document 29 Filed 05/23/17 Page 16 of 74
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`DFA is Supposed to Operate for the Benefit of its Members
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`50.
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`A Membership and Marketing Agreement (the “Member Agreement”) governs
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`the relationship between DFA and its member dairy farmers. The Member Agreement
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`incorporates and is controlled by the Bylaws of DFA.
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`51.
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`A true and accurate copy of DFA’s Bylaws are attached as Exhibit B and
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`incorporated by reference herein.
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`52.
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`The DFA Bylaws provide:
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`This Association shall be operated on a cooperative, non-profit basis for the
`mutual benefit of its members as producers, and membership in the Association
`shall be restricted to producers who patronize the Association. (Bylaws, § V.b).
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`53.
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`DFA’s Chief Operating Officer, Brad Keating, has publicly stated that “[a]s a
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`farmer owned cooperative, we work hard to ensure the success and profitability of dairy farmers.
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`It is our responsibility and obligation to act in their best interest. We take this very seriously.”
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`54.
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`A true and accurate copy of Keating’s Statement is attached as Exhibit C and
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`incorporated herein by reference.
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`55.
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`DFA’s website further provides that “Dairy producers are not just members of
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`DFA, they are owners. As owners, members receive: Earnings from the Cooperative . . . An
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`equal voice . . . A guaranteed market for their milk . . . A competitive price for their milk . . .
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`[and] Returns on investments made on their behalf.”
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`56.
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`True and accurate screenshots from DFA’s website are attached as Exhibit D and
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`incorporated by reference herein.
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`DFA is Bound by the Antitrust Laws and Its Own Antitrust Policy
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`57.
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`The Capper-Volstead Act provides some immunity from the antitrust laws to
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`DFA in connection with its marketing of milk produced by its members. This limited immunity,
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`Case 2:16-cv-00287-cr Document 29 Filed 05/23/17 Page 17 of 74
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`however, does not extend to all agreements with other cooperatives or to the operations of its
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`dairy affiliates or other processing plants.
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`58.
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`As a result of prior cases -- particularly those against Mid-Am and AMPI -- DFA
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`is subject to ongoing consent decrees (the “Consent Decree”), which greatly restrict its activities.
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`59.
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`In an effort to comply with the Consent Decree and applicable antitrust laws,
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`DFA drafted a set of guidelines (the “Antitrust Policy”) to set forth whether certain conduct is or
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`may be prohibited.
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`60.
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`A true and accurate copy of DFA’s Antitrust Policy is attached hereto as Exhibit
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`E and incorporated by reference herein.3
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`61.
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`DFA’s Antitrust Policy states that “DFA’s objective is to vigorously and
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`effectively compete in the market place within the spirit and letter of the law. Any departure
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`from honest and fair competition is a violation of DFA rules and will not be sanctioned.”
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`62.
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`DFA’s Antitrust Policy groups conduct into three categories: (i) the Black List;
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`(ii) the Gray List; and (iii) the White List.
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`63.
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`The Black List prohibits conduct that appears likely to violate the antitrust laws or
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`a major restriction in the Consent Decree. It expressly prohibits:
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`A. Conduct concerning members and other producers:
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`1. Do not coerce or threaten a member to refrain from terminating its
`DFA membership or from delivering milk to DFA.
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`2. Do not coerce or threaten a non-member producer to join DFA or to
`deliver milk to DFA.
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`
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`3. Do not enter into or enforce any contract that prevents any member
`(or non-member producer), after termination of its contract with
`DFA, from selling milk to any other purchaser on any terms.
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`3 DFA’s Antitrust Policy is posted on Vermont’s Attorney General’s website, available at: http://ago.vermont.gov/
`assets/files/Dairy%20Farmers%20of%20America%20Antitrust%20Policy%20-%20Exhibit%20OOO.pdf (last
`accessed September 29, 2016).
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`Case 2:16-cv-00287-cr Document 29 Filed 05/23/17 Page 18 of 74
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`4. Do not enter into any discussions or agreements with another
`cooperative which prohibit the solicitation of (i) each others’
`members or (ii) producers located in any particular geographic area.
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`***
`B. Conduct concerning milk haulers
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`7. Do not enter in any agreement or understanding with any haule