Bergjans Farm Dairy Co. v. Sanitary Milk Producers

• Decision Date: 26 March 1965
• Docket Number: No. 62 C 316(2).,62 C 316(2).
• Citation: 241 F. Supp. 476
• Parties: BERGJANS FARM DAIRY CO., Ozark Dairy Company, Patke Farm Dairy, Inc., the Dairy Maids, Inc., the North Hills Dairy Company, Woodlawn Farm Dairy Co., Plaintiffs, v. SANITARY MILK PRODUCERS, Clarence B. Palmer, Karl B. Althage, R. D. Pennewell, Russell Spaulding, Defendants.
• Court: U.S. District Court — Eastern District of Missouri

241 F. Supp. 476

BERGJANS FARM DAIRY CO., Ozark Dairy Company, Patke Farm Dairy, Inc., the Dairy Maids, Inc., the North Hills Dairy Company, Woodlawn Farm Dairy Co., Plaintiffs, v. SANITARY MILK PRODUCERS, Clarence B. Palmer, Karl B. Althage, R. D. Pennewell, Russell Spaulding, Defendants.

No. 62 C 316(2).

United States District Court E. D. Missouri, E. D.

March 26, 1965.

COPYRIGHT MATERIAL OMITTED

Riddle, Baker & O'Herin, Malden, Mo., Gray L. Dorsey, Chesterfield, Mo., for plaintiffs.

Wilburn A. Duncan, Wayne B. Wright, St. Louis, Mo., for defendants.

MEREDITH, District Judge.

This is a case brought by six small dairy processors against a dairy producers' cooperative and four individuals. The plaintiffs, all corporations, are Bergjans Farm Dairy Co., Inc., Ozark Dairy Company, Inc., Patke Farm Dairy, Inc., The Dairy Maids, Inc., The North Hills Dairy Company, Inc., and Woodlawn Farm Dairy Company. The defendants are Sanitary Milk Producers, Inc., General Manager Russell Spaulding, President Clarence B. Palmer, Treasurer Karl B. Althage, and Director R. D. Pennewell. Plaintiffs allege violations of sections 1 and 2 of the Sherman Act, and of section 2(a) of the Clayton Act, as amended by the Robinson-Patman Act. Defendant Sanitary Milk Producers counterclaims on a common law conspiracy to interfere with business relations, violation of section 1 of the Sherman Act and violation of the Non-Profit Cooperative Marketing Law of Missouri (R.S.Mo. 274.270, V.A.M.S.). Jurisdiction is under sections 4 and 16 of the Clayton Act. The jury heard the case on the question of damages and the Court for the purpose of an injunction.

Defendant Sanitary Milk Producers (hereinafter called Sanitary) is an Illinois corporation organized under the Agricultural Cooperative Act of that state and authorized to do business in the State of Missouri, and transacting and doing business in the Eastern Division of the Eastern District of Missouri, and having offices and agents for the transaction of business in the City of St. Louis, Missouri. Russell E. Spaulding is the General Manager of defendant Sanitary, and can be found within said district. Clarence B. Palmer is the President of defendant Sanitary, and resides and can be found within said district. Karl B. Althage is the Treasurer of defendant Sanitary, and resides and can be found within said district. R. D. Pennewell is a director of defendant Sanitary, and resides and can be found within said district.

For many years prior to December 1961 defendant Sanitary had been engaged solely in assisting its members in marketing their raw milk, selling to dairies in the St. Louis area for them to process for consumption as fluid milk or to manufacture as dairy products. Prior to December 1961 Sanitary had no facilities for processing fluid milk, but had receiving plants in Missouri and in Illinois, as well as facilities for cooling, storing, manufacturing, and transferring milk.

Under regulation by the United States Department of Agriculture, each dairy farmer or producer receives one price for his milk sold to regulated handlers, regardless of what the handler does with it. It is a blend price determined by the Market Administrator according to the total amount of locally produced milk sold in Class I and the total amount sold in Class II, and the prices for those uses established by an order issued by the Secretary of Agriculture. The local Federal Milk Market Administrator announces each month the Class I and Class II prices as calculated per order of the Secretary of Agriculture. All raw milk processed for consumption as fluid milk is in Class I; raw milk used in manufactured dairy products, such as ice cream, butter, cheese, etc., is in Class II. The Class I price is higher than the Class II price by perhaps 40% or more.

The dairy farmers collectively naturally want to have as much as possible of the milk produced in the St. Louis area sold at the more profitable Class I price. The sale in the St. Louis area, for Class I use, of milk brought in from beyond this market area results in an increase of the percentage of local producers' milk sold at the less profitable Class II price. It is, therefore, to the advantage of all local producers to prevent the importation of milk and to sell in Class I use all locally produced milk before milk from any other area is purchased for that purpose.

In the period immediately prior to December, 1961, the Class I sales of milk processors in the St. Louis area were not satisfactory to the management and members of defendant Sanitary. Adams Dairy Company, and other processors, were bringing milk in from other market areas and were refusing to accept a full supply contract from defendant Sanitary.

On or about December 1, 1961, defendant Sanitary purchased the processing plant of Quality Dairy of O'Fallon, Illinois, and began processing some of the milk of its own members and selling processed milk in Illinois and in St. Louis and in St. Louis County. Members of other dairy cooperatives who had been supplying milk to Quality of O'Fallon were cut off as suppliers and only members of Sanitary Milk Producers were allowed to serve the new processing division of Sanitary. Defendant Spaulding made an announcement that the purchase was designed to forestall importation of more milk from outside the St. Louis area which might occur if a non-local processor bought the plant, to increase the bargaining power of Sanitary, and to get more Class I sales for its members.

Quality of O'Fallon had been selling milk at wholesale to stores in Illinois, in East St. Louis and elsewhere, and had been supplying Schnucks Markets in St. Louis. It had been selling Tomboy Stores on the east side but had not been selling Tomboy Stores in St. Louis and St. Louis County.

Early in 1962 defendant Spaulding announced that its Quality of O'Fallon division would sell milk under private label to all or nearly all of the Tomboy Stores of St. Louis and St. Louis County. Adams Dairy announced that it would meet all price competition whether from private label or brand name milk. Defendant Sanitary was selling at 32¢, several cents under the wholesale price most processors were then charging in St. Louis. When Adams met this price, Sealtest, Pevely, and Quality, and then the small dairies, including plaintiffs, had to meet it. This destroyed the price advantage upon which Sanitary was counting to gain a large volume of sales for its processed milk through supermarkets in St. Louis and St. Louis County.

On or about March 1, 1962, defendant Sanitary attempted to regain the advantage by dropping its price to 30½¢ and then to 29½¢, but Adams, the other major dairies, and then smaller dairies, followed Sanitary. On or about May 7, 1962, in an effort to get the desired differential by deception, defendant Spaulding announced that Sanitary would charge 35¢ for a half-gallon of whole milk in a paper carton. The major dairies and the small dairies raised to 35¢. Defendant Sanitary, in fact, did not raise its price, but gave 5¢ differentials in secret cash rebates in brown envelopes to most of its customers in St. Louis City and County and to some of its customers on the east side. This deception would not have worked if the customers who in fact were still buying at about 30¢ a half gallon had not raised their retail price for milk. The favored stores did raise their retail price on milk from Sanitary on or about May 7, 1962, going from a retail price of two for 69¢ to two for 79¢. Tomboy Stores, Inc., sent a flier to all their stores announcing that the retail price would be two for 79¢ and stating that no deviation would be tolerated. This price increase was contrary to individual self-interest of the retail stores. Milk is an effective loss leader item. A low price on milk is used to attract customers into the store, where they may purchase their whole market basket. The lower price on Sanitary milk would have enabled Sanitary's supermarket customers to undersell other stores and gain a substantial advantage in volume of customers. The rise in retail price was vital to defendant Sanitary. Unless the retail stores raised their price to reflect the supposed increase by defendant Sanitary, the deception would have been immediately discovered and the other processors would not have charged 35¢. Late in July or early in August, 1962, the deception of defendant Sanitary was discovered and the other processors lowered their price to meet the price that Sanitary was actually charging. In 1962 and all through 1963, the price war continued in St. Louis. The battle was particularly strong between Adams Dairy Company and Sanitary. Adams was the trigger that set off the opposition of the whole industry to defendant Sanitary's predatory pricing practices. Defendant Sanitary could not build up volume for processed milk and thus increase sales at the Class I price for its producer members in the supermarkets in St. Louis so long as Adams Dairy met every price that Sanitary charged. Sanitary could continue to sell at a lower price in St. Louis and St. Louis County than it was charging many of its customers on the east side and throughout other areas of Illinois, yet the advantage of a price differential in St. Louis and St. Louis County could not be attained so long as Adams met every price and the other major dairies and the smaller dairies had to meet Adams' price.

Defendant Sanitary was, at the same time, exerting pressure on Adams Dairy. Defendant Sanitary wanted Adams to stop buying milk from outside the St. Louis market area. Defendant Sanitary had control of over 55% to 60% of raw milk in the area. As a processor it could use the economic power gained from this monopolistic position in raw milk to cut the price of processed milk and to destroy profits on the sale of processed milk by any competing processor. This two-way pressure as both competitor and supplier caused Adams Dairy after...