Fairdale Farms, Inc. v. Yankee Milk, Inc.

• Decision Date: 09 December 1980
• Docket Number: D,Nos. 1128,1412 and 1413,s. 1128
• Citation: 635 F.2d 1037
• Parties: 1980-81 Trade Cases 63,690 FAIRDALE FARMS, INC., Plaintiff-Appellant-Cross-Appellee, v. YANKEE MILK, INC. and Regional Cooperative Marketing Agency, Inc., Defendants-Appellees-Cross-Appellants. ockets 80-7028, 80-7034 and 80-7036.
• Court: U.S. Court of Appeals — Second Circuit

Page 1037

635 F.2d 1037

1980-81 Trade Cases 63,690

FAIRDALE FARMS, INC., Plaintiff-Appellant-Cross-Appellee, v. YANKEE MILK, INC. and Regional Cooperative Marketing Agency Inc., Defendants-Appellees-Cross-Appellants.

Nos. 1128, 1412 and 1413, Dockets 80-7028, 80-7034 and 80-7036.

United States Court of Appeals Second Circuit.

Argued June 16, 1980.

Decided Dec. 9, 1980.

Frederick U. Conard, Jr., Hartford, Conn. (Shipman & Goodwin, Hartford, Conn., H. Martyn Owen, Theodore M. Space, Thomas D. Clifford & Peter W. Benner, Hartford, Conn., on the brief), for defendant-appellee-cross-appellant Yankee Milk, Inc.

Fred I. Parker, Middlebury, Vt. (Langrock, Sperry, Parker & Stahl, Susan Humphrey, Middlebury, Vt., and Chapman & Clearwaters, Keith I. Clearwaters and Dudley H. Chapman, Washington, D. C., on the brief), for plaintiff-appellant-cross-appellee.

David P. O'Hara, Syracuse, N. Y. (Bond, Schoeneck & King, Syracuse, N. Y., John M. Freyer and David R. Sheridan, Syracuse, N. Y., on the brief), for defendant-appellee-cross-appellant Regional Cooperative Marketing Agency, Inc.

Andrea Limmer, Washington, D. C. (Sanford M. Litvack, Asst. Atty. Gen., and Barry Grossman, Washington, D. C., on the brief), for the U. S. amicus curiae.

Before VAN GRAAFEILAND and KEARSE, Circuit Judges, and NICKERSON, District Judge. ^*

VAN GRAAFEILAND, Circuit Judge:

This is a certified appeal under 28 U.S.C. § 1292(b) from a decision and order of Judge Coffrin of the United States District Court for the District of Vermont. Plaintiff Fairdale Farms, Inc. appeals from the summary dismissal of its claim under section 1 of the Sherman Act, 15 U.S.C. § 1, that defendants Yankee Milk, Inc. and Regional Cooperative Marketing Agency, Inc. (RCMA) illegally fixed raw milk prices. Yankee and RCMA appeal from the denial of their summary judgment motions to dismiss plaintiff's claim that defendants monopolized and attempted to monopolize trade in raw milk in violation of section 2 of the Sherman Act, 15 U.S.C. § 2.

We affirm that part of the order granting defendants summary judgment on the section 1 claim. We vacate that portion of the order dealing with the section 2 claim and remand to the district court for further proceedings consistent with this opinion.

Plaintiff Fairdale is both a producer and dealer-processor of milk. It is located near Bennington, Vermont and buys and sells in the Vermont, New York, and Massachusetts area. Yankee is a milk producers cooperative with a membership of approximately 6,000 New England farmers. In 1973 minimum dairy prices for the northeastern United States, set by the government under the Agricultural Marketing Agreements Act of 1937, 7 U.S.C. § 608c(5), were not providing an adequate return to the farmers. In order to secure prices with which their members could live, Yankee and six other area cooperatives organized RCMA as an agricultural cooperative marketing corporation whose primary function was to establish prices for the member farmers' milk. Between 1973 and 1975, these prices were usually higher than the federal order prices. Since August 1975, RCMA has not established an over-order price.

Until 1974, Fairdale bought a large portion of its milk from Yankee members. However, in 1974 Fairdale objected to paying the over-order price and, when negotiations with defendants proved fruitless, discontinued its purchases from Yankee farmers. In 1976, Fairdale brought this suit charging defendants with price fixing, monopolizing, and attempting to monopolize. Defendants alleged as an affirmative defense that the Capper-Volstead Act, 7 U.S.C. §§ 291-292, protected them against liability for the conduct of which Fairdale complained. ¹ The adequacy of this defense is the issue on appeal.

The Section 1 Count

Price fixing arrangements are generally held to be per se violations of section 1 of the Sherman Act. White Motor Co. v. United States, 372 U.S. 253, 260, 83 S.Ct. 696, 700, 9 L.Ed.2d 738 (1963). The Capper-Volstead Act provides, however, that farmers may act together in associations in collectively marketing their goods, and the associations may make the necessary contracts to effect this purpose. ² Fairdale does not contest Yankee's right under the Act to fix the prices its members charge. Confronted with Justice Black's opinion in Maryland and Virginia Milk Producers Association v. United States, 362 U.S. 458, 80 S.Ct. 847, 4 L.Ed.2d 880 (1960), Fairdale does not have much choice. Examining the legislative history of Capper-Volstead, Justice Black found that Congress intended to permit farmers to organize together to "fix prices at which their cooperative will sell their produce." Id. at 466, 80 S.Ct. at 853.

Fairdale contends, however, that RCMA does not have the same price-fixing right as does Yankee, and advances two arguments in support of its contention. It asserts first that Capper-Volstead gives only single cooperatives, not associations of cooperatives, the right to fix prices. Second, it contends that a cooperative association organized for the sole purpose of fixing prices is not entitled to Capper-Volstead protection. The district court rejected both contentions for reasons with which we agree.

The Capper-Volstead Act permits the formation of "associations" which may perform marketing functions and which may have "marketing agencies in common." The district court concluded that RCMA was one or the other of these organizations and that "grave legal consequences" should not be visited upon it as the result of a de minimis organizational distinction. Sunkist Growers, Inc. v. Winckler & Smith Citrus Products Co., 370 U.S. 19, 29, 82 S.Ct. 1130, 1135, 8 L.Ed.2d 305 (1962). See Treasure Valley Potato Bargaining Association v. Ore-Ida Foods, Inc., 497 F.2d 203, 213-17 (9th Cir.), cert. denied, 419 U.S. 999, 95 S.Ct 314, 42 L.Ed.2d 273 (1974). Fairdale's first argument is based upon a misreading of the Act and was properly rejected by the district court.

Fairdale's second argument is predicated upon a hyper-technical reading of the statute. Capper-Volstead provides that farmers may act together in associations in collectively "processing, preparing for market, handling, and marketing" their products. Fairdale contends that RCMA must do more than just fix prices in order to get the benefit of this statute. In the only two prior proceedings in which this argument was made, it was rejected. Northern California Supermarkets, Inc. v. Central California Lettuce Producers Cooperative, 413 F.Supp. 984, 992 (N.D.Cal.1976), aff'd, 580 F.2d 369 (9th Cir. 1978) (per curiam), cert. denied, 439 U.S. 1090, 99 S.Ct. 873, 59 L.Ed.2d 57 (1979); Central California Lettuce Producers Cooperative, (1977) Trade Reg. Rep. (CCH) P 21,337 (FTC). The establishment of price is an integral part of marketing. Id. at 21,237. It would be strange indeed if participation in this portion of the marketing process, standing alone, would subject a cooperative to antitrust liability, when the exercise of the full range of activities covered by Capper-Volstead would not. Northern California Supermarkets, Inc. v. Central California Lettuce Producers Cooperative, supra, 413 F.Supp. at 992.

We agree with the district court that Fairdale had no section 1 claim against the defendants. The district court did not err in granting the defendants' motion for summary judgment on this claim.

The Section 2 Count

Section 2 of the Sherman Act makes it unlawful for any person to monopolize, attempt to monopolize, or conspire with another to monopolize, trade. There is an inherent conflict between this provision and those of Capper-Volstead which legitimize the collective action of farmers in the marketing of their products. By exempting farmers from Sherman Act limitations on the ability to combine into cooperatives, Capper-Volstead gives farmers the right to combine into cooperative monopolies. The Act places no limits on combination; it does not forbid farmers from combining after their cooperative reaches a certain size. For a court to impose such limits and hold cooperatives liable for treble damages if they run afoul of a judicial standard would discourage the growth of these cooperatives. The Capper-Volstead Act recognizes that farmer cooperatives may grow into monopolies and includes precautions to prevent abuse of monopoly power. Section 2 of the Act, 7 U.S.C. § 292, permits the Secretary of Agriculture to order a cooperative to cease and desist if it monopolizes or restrains trade "to such an extent that the price of any agricultural product is unduly enhanced by reason thereof...." (emphasis added).

The district judge "(disagreed) with defendants' assertion that the Capper-Volstead Act adds to the elements of a monopoly claim when it is brought against a qualified cooperative," and stated that "a plaintiff claiming an agricultural cooperative has violated section 2 has no greater burden than if he sued a corporation." Disregarding the fundamental differences between a cooperative and a corporation, the district judge subscribed to the corporate monopolization test of United States v. Grinnell Corp., 384 U.S. 563, 570-71, 86 S.Ct. 1698, 1703, 16 L.Ed.2d 778 (1966), which proscribes the willful acquisition of monopoly power that is not the result of "a superior product, business acumen, or historic accident." We believe that the district court misconstrued the congressional intent evidenced in Capper-Volstead.

Although agricultural cooperatives have existed in the United States since the early 1800's, until the twentieth century they were mostly small local organizations with little power to bargain effectively on behalf of their members. Moreover, their growth was inhibited by both state and federal antitrust laws. Maryland and Virginia Milk Producers Association v. United States, supra, 362 U.S. at 464, 80 S.Ct. at 852. See generally Note, Trust Busting Down on the Farm: Narrowing the Scope of Antitrust Exemptions for...