U.S. Department of Justice urges narrow interpretation of antitrust exemption
Although a number of recent antitrust cases have tested the boundaries of a federal antitrust exemption for farmer-owned cooperatives, the U.S. Department of Justice has been largely silent on the questions posed. Until last week, that is. The government filed an unsolicited Statement of Interest in Sitts v. Dairy Farmers of America–an action brought by dairy farmers alleging that the cooperative Dairy Farmers of America (“DFA) conspired with others to maintain an unlawful monopsony, driving down prices paid to the very farmers the exemption was designed to protect.
The exemption, known was the Capper-Volstead Act, was enacted nearly 100 years ago when a large number of very small farmers produced the bulk of the nation’s food but, individually, lacked bargaining power to negotiate the prices they received from powerful middlemen, processors, and other buyers that held regional monopsonies. As a result, prices paid to farmers were often depressed and producers were at the mercy of their buyers. To combat that imbalance, farmers began forming associations to combine their marketing power by collectively processing and selling their products to those middlemen and other buyers, returning higher prices to farmer-members. But enforcement actions alleged the associations (made up of competitors) were violating the antitrust laws threatened the ability of farmers to level the playing field.
The Capper-Volstead Act was designed to protect such associations from prosecution and, in turn, their ability to protect their farmer members from monopsonists. It provides a limited exemption to the antitrust laws to allow farmers to form membership associations—often called “cooperatives”—to collectively process, prepare for market, handle, or market their members’ products and, importantly, set prices at which those products would be sold. That is, though such collective action among competitors is anticompetitive in a strict sense as against other middlemen, its purpose was to improve the competitive balance.
But the language of the Act is spare, expressly authorizing farmer associations that meet certain technical requirements and that are operated for the “mutual benefit” of their members to collectively process, market, and handle their farmer-members’ products. Courts have thus been left to interpret what conduct falls within and outside the protections of the Act. Cooperatives are permitted to enter into agreements and joint ventures with other cooperatives and non-cooperative entities where necessary to collectively market, process, or handle their members’ goods. But, among other limitations, courts have held that the exemption does not permit otherwise eligible cooperatives to conspire with non-producers or non-exempt entities to restrain competition, monopolize markets using unlawful practices, or engage in predatory conduct. Nor may a cooperative use its market “position, no matter how lawfully acquired, ‘to stifle or smother competition’”
Sitts v. Dairy Farmers of America – exclusionary and predatory conduct
DFA, originally a regional cooperative operating in the Midwest, began merging with other dairy cooperatives, acquiring proprietary milk processors, and entering into joint ventures with milk bottlers across the country beginning in the late 1990’s, making it by far the largest dairy cooperative in the nation,and, according to the Sitts plaintiffs, the largest milk processor in the world.
In Sitts, the plaintiffs—all dairy farmers—alleged that DFA and its affiliate Dairy Marketing Services (“DMS”) conspired with other cooperatives and non-cooperative milk processors to create and maintain a monopoly over milk and dairy product sales and a monopsony over milk purchases from farmers and engaged in exclusionary conduct in violation of Sections 1 and 2 of the Sherman Act.
Among other anticompetitive conduct, Plaintiffs alleged that DFA and DMS entered into agreements with the dominant proprietary fluid milk processor Dean Foods that gave DFA effective control over the Northeast milk supply and the power to force famers to join DFA or market their milk through DMS, agreed with other cooperatives and milk buyers to not compete against one another for farmers’ milk, coerced milk processors to enter into exclusive supply agreements with DFA, forcing independent farmers to sell through DMS, and coerced members to join or remain members of DFA. The result of this “vice grip” on competition, according to plaintiffs, was falling prices paid to both DFA’s farmer members and independent farmers.
The government weighs in
The Government’s Statement of Interest urged an interpretation of the scope of DFA’s liability under Section 2 of the Sherman Act against the background of the Capper-Volstead Act’s purpose to benefit, and increase prices paid to, farmers and protect them from the market power of large middlemen and processors.
First, it argued that the scope of the exemption should be interpreted narrowly and the range of conduct falling outside it should be interpreted broadly “to include exclusionary acts, and the totality of the defendant’s predatory acts.” The government urged that, in the context of Capper-Volstead, the court should reject any argument that conduct that is merely anticompetitive cannot rise to the predatory behavior courts have found to be outside the exemption. Nor is predatory conduct, in the context of the exemption, limited to conduct that lacks a legitimate business justification. That is, conduct such as joint ventures, marketing agreements, and contracts that, standing alone, might be facially legitimate and protected conduct under Capper-Volstead, must be analyzed together with other conduct to determine whether it constitutes predatory or exclusionary conduct: “An aggregation of acts also may amount to unlawful anticompetitive conduct, even if each specific act by itself might not be sufficient.” Animating DOJ’s Statement of Interest may be concern that the jury will hear evidence of the type of conduct that Capper-Volstead permits, such as contracts with processors that facilitate DFA’s milk marketing activities and the formation of marketing agencies like DMS, and may infer that such conduct is always exempt even when combined with other conduct.
Similarly, though Capper-Volstead ostensibly permits cooperatives to form monopsonies and monopolies to counteract the buying power of middlemen even though such conduct is anticompetitive against those buyers, the government argued that the Act did not insulate cooperative monopsonies that are anticompetitive against farmer-members. If plaintiffs prove that the cooperative “reap[ed] profits as a handler or processor from lower milk prices [paid to farmers] rather than for the mutual benefit of [its] members thereof, as such producers,” the Government argued, the conduct was not within the scope of the Act. In other words, otherwise protected conduct is outside the scope of the exemption when cooperatives act more like the processors and middlemen from which the Act intended to protect farmers.
Defendants responded this week that whether a cooperative is operated for the mutual benefit of producers is determined by the structure of the cooperative. Nevertheless, if profits were the proper metric, they argued that benefits should be determined not by the short-term prices farmers are paid for their milk, but rather by profits from the cooperative’s long-term investments that are purportedly returned to farmers.
Finally, the government asserted that because the exemption is an affirmative defense, it is the defendants’ burden to prove that the conduct it engaged in was not predatory and that the Act protects the specific conduct alleged, rather than the plaintiffs’ burden to show the conduct falls outside the scope of the exemption. The defendants countered that they bear only the burden to demonstrate that the cooperative meets the threshold technical qualifications for Capper-Volstead Protection (such as its membership composition); it is plaintiffs’ burden to show that defendants’ market power was obtained through unlawful acts. The court previously declined to rule on that argument.
The case is scheduled for trial in September 2020.
On August 5th, two cooperative trade associations and a financial cooperative filed a motion seeking the court’s permission to file an amicus (or “friend of the court”) brief responding to the government’s Statement of Interest, contending the government’s “construction of the ‘mutual benefit’ requirement [of the Capper-Volstead Act] . . . could have far-reaching implications for non-party farmer cooperatives . . . .” The proposed brief argues that “mutual benefit” is satisfied when there are no “non-producer interests” with decision-making authority in the cooperative’s governance (i.e., non-producers have no voting or other decisional rights).
The Plaintiffs opposed the motion because, they said, the amici were neither the type of neutral third-parties whose comments may aid the Court nor did they offer any uniques perspective or insights because, in part, DFA was a member of two of the proposed amici and the proposed brief merely rehashed the defendants’ arguments. They argued the “‘amicus brief’ is a transparent attempt . . . to have purported “neutral” parties counterbalance the Department of Justice’s outright rejection of Defendants’ legal arguments on Capper-Volstead.” In short, that the amici were “friends of Defendants,” not friends of the Court.
 See, e.g., In re Processed Egg Products Antitrust Litig., No. 08-md-2002 (E.D. Pa.) (concerning whether supply restraints fell outside exempt conduct, whether an association that neither processes, markets, nor handles members’ products qualifies for protection; and whether farmers can assert a good faith defense); In re Fresh and Process Potatoes Antitrust Litig., 10-md-2186 (D. Idaho) (concerning whether growers fully integrated into packing and distribution qualify for the exemption).
 Am. Compl., Sitts v. Dairy Farmers of America, Inc., No. 16-cv-287 (D. Vt. May 23, 2017), ECF No. 29.
 7 U.S.C.A. § 291
 See, e.g., National Broiler Marketing Ass' n v. United States, 436 U.S. 816, 825 (1978); Alison Peck, The Cost of Cutting Agricultural Output: Interpreting the Capper-Volstead Act, 80 Mo. L. Rev 455 (2015).
 See National Broiler Marketing Ass' n, 436 U.S. at 824- 827 (1978); Don Frederick, Antitrust Status of Farmer Cooperatives 88-130, U.S. Dep’t of Agriculture (September 2002), https://naldc.nal.usda.gov/download/38473/PDF (discussing legislative history of the Act).
 Antitrust Status, supra n. 4 at 62-70.
 The operative language of the exemption provides, in relevant part, only that:
“Persons engaged in the production of agricultural products as farmers, planters, ranchmen, dairymen, nut or fruit growers may act together in associations, corporate or otherwise, with or without capital stock, in collectively processing, preparing for market, handling, and marketing in interstate and foreign commerce, such products of persons so engaged. Such associations may have marketing agencies in common; and such associations and their members may make the necessary contracts and agreements to effect such purposes: Provided, however, That such associations are operated for the mutual benefit of the members. . . .
7 U.S.C.A. § 291.
 Treasure Valley Potato Bargaining Assoc. v Ore-Ida Foods, Inc. (CA9 Idaho) 497 F.2d 203 (9th Cir. 1974)
 Maryland & Virginia Milk Producers Ass'n, 362 U.S. at 471 (1960).
 United States v. Borden Co. 308 U.S. 188 (1939); Case-Swayne Co. v. Sunkist Growers, Inc., 389 U.S. 384 (1967); Alexander v. Nat’l Farmers Org., 687 F.2d 1173, 1182 (8th Cir. 1982); Maryland & Virginia Milk Producers Ass'n. v. United States, 362 U.S. 458 (1960).
 See, e.g., Maryland & Virginia Milk Producers, 362 U.S. 458 (1960).
 Fairdale Farms, Inc. v. Yankee Milk, Inc., 635 F.2d 1037, 1043 (2d Cir. 1980).
 Alexander, 687 F.2d at 1183 (citing Maryland Virginia Milk Producers Assoc., 362 U.S. at 463).
 U.S. Dep’t of Agriculture, Top 100 Agriculture Cooperatives, 2016 and 2015, by Total Gross Business Revenue, https://www.rd.usda.gov/files/USDA2016NewTop100AgCoop.pdf
 Statement of Interest on Behalf of The United States of America at 1, Sitts v. Dairy Farmers of America, Inc., No. 16-cv-287 (D. Vt. July 27, 2020), ECF No. 285.
 Id. at 10
 Id. at 11.
 Defs’ Dairy Farmers of America, Inc. and Dairy Marketing Services, LLC’s Resp. to Statement of Interest on Behalf of The United States of America at 7, Sitts v. Dairy Farmers of America, Inc., No. 16-cv-287 (D. Vt. Aug. 4, 2020), ECF No. 290.
 Op. and Order Granting in Part and Denying In Part Defs’ Mot. for Summ. J. 34, Sitts v. Dairy Farmers of America, Inc., No. 16-cv-287 (D. Vt. Sept. 27, 2019), ECF No. 130.
 Statement of Interest, supra n. 15 at 8 (quotations omitted).
 Defs’ Resp. to Statement of Interest, supra n.18 at 10-11.
 Statement of Interest, supra n. 15 at 13.
 Defs’ Resp. to Statement of Interest, supra n.18 at 4.
 Op. and Order, supra n. 19 at 35, 55.
 The motion was filed on behalf of the trade associations National Council of Farmer Cooperatives and the National Cooperative Business Association, and CoBank, a member-owned lender to cooperatives.