Ewald Bros., Inc. v. Mid-America Dairymen, Inc.

• Decision Date: 21 June 1989
• Docket Number: No. 88-5288,MID-AMERICA,88-5288
• Citation: 877 F.2d 1384
• Parties: 1989-1 Trade Cases 68,629 EWALD BROS., INC., a Minnesota corporation, Appellant, v.DAIRYMEN, INC., a Kansas corporation, Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1384

877 F.2d 1384

1989-1 Trade Cases 68,629

EWALD BROS., INC., a Minnesota corporation, Appellant, v. MID-AMERICA DAIRYMEN, INC., a Kansas corporation, Appellee.

No. 88-5288.

United States Court of Appeals Eighth Circuit.

Submitted March 13, 1989.

Decided June 21, 1989.

Stanford Robins, Minneapolis, Minn., for appellant.

Wayne H. Hoecker, Kansas City, Mo., for appellee.

Before WOLLMAN and MAGILL, Circuit Judges, and LARSON, ^* Senior District Judge.

LARSON, Senior District Judge.

Plaintiff Ewald Bros., Inc., a fluid milk bottler, appeals from the district court's grant of summary judgment in favor of defendant Mid-America Dairymen, Inc., a dairy cooperative. From 1968 through 1972, Ewald purchased a large portion of its unprocessed fluid milk requirements from Mid-America Dairymen and an association of cooperatives called Twin City Milk Producers Association, which merged with Mid-America Dairymen in 1970. Milk Producers participated in the "M-W Association," an association of dairy cooperatives from Minnesota and Wisconsin which met approximately once a month to set prices to be charged by members to processors such as Ewald. Milk Producers also participated in a standby pooling program, under which each member paid an assessment into a central fund, which was then used to purchase option contracts on unregulated milk, to allow members to obtain additional supplies of milk as needed to meet consumer demand.

Ewald originally brought suit in 1972, alleging defendant's activities violated both federal and state antitrust laws. In February, 1983, the Judicial Panel on Multidistrict Litigation transferred the case to the United States District Court for the Western District of Missouri for consolidated pretrial proceedings. Four years later, with discovery substantially completed, the case was remanded to the District of Minnesota. Upon remand, the parties filed an extensive stipulation of uncontroverted statements of fact, and defendant moved for summary judgment on the ground that its participation in both the M-W Association and the standby pool was protected by section 1 et seq. of the Capper-Volstead Act, 7 U.S.C. Sec. 291 et seq., section 6 of the Clayton Act, 15 U.S.C. Sec. 17, and Minnesota Statutes, Sec. 325D.55(1). Plaintiff filed a cross-motion for summary judgment, claiming defendant's activities were not exempt but rather as a matter of law violated sections 1 et seq. and 2 of the Sherman Act, 15 U.S.C. Secs. 1 et seq. and 2.

The district court ¹ granted summary judgment in favor of defendant under sections 1 and 2 of the Sherman Act and dismissed plaintiff's pendent state law claims without prejudice. On appeal, plaintiff challenges the court's ruling that the standby pool is exempt from antitrust liability arguing that the participation of proprietary dairies in the pool precludes Capper-Volstead protection. Plaintiff further contends the standby pool was not operated for the legitimate purpose of assuring adequate reserve supplies of fluid milk, but rather was a tool for maintaining monopoly prices. Plaintiff urges this Court to reverse the district court's grant of Capper-Volstead immunity, and hold as a matter of law that defendant's activities constituted both a per se violation of section 1 of the Sherman Act ² and a conspiracy to monopolize in violation of section 2. ³

I.

Section 6 of the Clayton Act, originally enacted in 1914, provides that the antitrust laws shall not be construed "to forbid the existence and operation of labor, agricultural, or horticultural organizations, instituted for the purposes of mutual help, and not having capital stock or conducted for profit." 15 U.S.C. Sec. 17. The effect of section 6 is that a group of farmers acting together in a single association cannot be restrained "from lawfully carrying out the legitimate objects" of their association, i.e., the collective marketing of farm products so as to improve economic conditions for individual farmers. Id. See, e.g., Maryland & Virginia Milk Producers Ass'n v. United States, 362 U.S. 458, 465, 80 S.Ct. 847-52, 4 L.Ed.2d 880 (1960); Alexander v. National Farmers Organization, 687 F.2d 1173, 1182 (8th Cir.1982).

The Capper-Volstead Act of 1922 extended section 6 to capital stock agricultural cooperatives and specified that the "legitimate objects" of such cooperatives included the collective processing, preparing for market, handling, and marketing of products through marketing associations and through the making of "necessary contracts and agreements," provided that the association dealt primarily in products of its members. 7 U.S.C. Sec. 291. See Milk Producers Ass'n, 362 U.S. at 466, 80 S.Ct. at 853; Fairdale Farms, Inc. v. Yankee Milk, Inc., 635 F.2d 1037, 1042 (2d Cir.1980), cert. denied, 454 U.S. 818, 102 S.Ct. 98, 70 L.Ed.2d 88 (1981). See generally National Broiler Marketing Ass'n v. United States, 436 U.S. 816, 822-26, 98 S.Ct. 2122, 2127-29, 56 L.Ed.2d 728 (1978).

Consistent with the legislative history of the 1922 Act, the Supreme Court has limited application of the Capper-Volstead exemption to farmers, and has refused to exempt organizations whose members included processors and packers as well as farmers. In Case-Swayne Co. v. Sunkist Growers, Inc., 389 U.S. 384, 88 S.Ct. 528, 19 L.Ed.2d 621 (1967), the Court held Sunkist Growers, Inc., an organization of orange growers and fruit packing houses, could not claim Capper-Volstead immunity when approximately 15% of the membership was composed of private, for-profit fruit packing houses. Id. at 386-87, 88 S.Ct. at 529-31. Noting the "agency associations" formed by the for-profit packing houses participated in the control and policy making of Sunkist, the Court determined that "Congress did not intend to allow an organization with such nonproducer interests to avail itself of the Capper-Volstead exemption." Id. at 395-96, 88 S.Ct. at 534-35.

The Court again rejected the argument that the Act was intended to protect processors and packers or those "that must bear the costs and risks of a fluctuating market" in National Broiler Marketing Ass'n v. United States, 436 U.S. 816, 826, 98 S.Ct. 2122, 2129, 56 L.Ed.2d 728 (1978). The National Broiler Court stated that Capper-Volstead would not apply to an association of poultry producers which included "even one" non-farmer processor as a member. Id. at 826-29, 98 S.Ct. at 2129-31.

Nonetheless, the Court has also ruled the exemption is not precluded by organizational distinctions that are of de minimis meaning and effect where the organization in reality is operated by farmers for the benefit of farmers. Sunkist Growers, Inc. v. Winckler & Smith Citrus Products Co., 370 U.S. 19, 28-29, 82 S.Ct. 1130, 1135-36, 8 L.Ed.2d 305 (1962). See Alexander v. National Farmers Organization, 687 F.2d 1173, 1185 (8th Cir.1982) (NFO ). Thus, in NFO, we held the $25 "dues" contributions of a handful of non-farmers did not prohibit the National Farmer's Organization from claiming Capper-Volstead immunity where the organization's bylaws specifically prohibited any non-farmer from asserting a membership interest and the organization was conducted exclusively for the benefit of true dairy farmers. Id. at 1186-87. ⁴

We held in NFO, however, that even true cooperatives can lose Capper-Volstead protection if they engage in anticompetitive, predatory activities which are outside the "legitimate objects" of a cooperative. Id. at 1182-83. See Maryland & Virginia Milk Producers Ass'n v. United States, 362 U.S. 458, 468, 80 S.Ct. 847, 854, 4 L.Ed.2d 880 (1960); United States v. Borden Co., 308 U.S. 188, 204-05, 60 S.Ct. 182, 191, 84 L.Ed. 181 (1939). We imposed liability in NFO where three major cooperatives, including the defendant herein, were shown to have conspired to eliminate a competing cooperative, the National Farmer's Organization, through a pattern of predatory, anticompetitive, and unlawful tactics. NFO, 687 F.2d at 1193-1208.

These tactics included discriminatory pricing, coercive supply disruptions and threats of similar conduct, bad faith harassment and threats of litigation against independent buyers of NFO milk, and refusals to acknowledge or honor termination notices from members; conduct which was accompanied by the deliberate suppression and destruction of documents by one of the cooperatives, Associated Milk Producers, Inc. Id. Viewing this conduct in its entirety, we held the cooperatives conspired with unlawful intent to eliminate competition through predatory and anticompetitive means, and hence lost their Capper-Volstead immunity. Id. at 1182-83, 1193.

In considering charges by the National Farmer's Organization that the milk pooling practices challenged by plaintiff herein were unlawful, however, the NFO Court affirmed the district court's judgment that the operation of the standby pool "served legitimate business purposes" and was important, at least in principle, to the stable supply of milk. Id. at 1206-07. See In re Midwest Milk Monopolization Litigation, 510 F.Supp. 381, 449-52 (W.D.Mo.1981) (district court findings of fact).

Ewald argues that while the NFO Court relieved the standby pool of antitrust liability because there was no evidence that members of the pool acted with the intent to eliminate competition or were otherwise linked to the anticompetitive conduct found to violate the antitrust laws, id. at 1193, 1207, the Court in NFO did not expressly consider the effect of the participation of the proprietary dairies in the pool. See In re Midwest Milk, 510 F.Supp. at 435, 502 & n. 29 (district court expressly declines to reach Capper-Volstead exemption claim by standby pool). Cf. Case-Swayne Co. v. Sunkist Growers, Inc., 389 U.S. 384, 390 n. 6, 88 S.Ct. 528, 532 n. 6, 19 L.Ed.2d 621 (1967). To this issue we now turn.

II.

To understand the structure and purpose of the standby pool, we draw upon the undisputed facts in this case and the facts relating to milk marketing in...