Kinnett Dairies, Inc. v. Dairymen, Inc., Civ. A. No. 1701.

• Decision Date: 10 March 1981
• Docket Number: Civ. A. No. 1701.
• Citation: 512 F. Supp. 608
• Parties: KINNETT DAIRIES, INC., Plaintiff, v. DAIRYMEN, INC., Defendant.
• Court: U.S. District Court — Middle District of Georgia

512 F. Supp. 608

KINNETT DAIRIES, INC., Plaintiff, v. DAIRYMEN, INC., Defendant.

Civ. A. No. 1701.

United States District Court, M. D. Georgia, Columbus Division.

March 10, 1981.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Maxwell M. Blecher, Consuelo S. Woodhead, Blecher, Collins & Hoecker, Los Angeles, Cal., Albert W. Stubbs, Hatcher, Stubbs, Land, Hollis & Rothschild, Columbus, Ga., for plaintiff.

William A. Carey, John Sherlock, Barnett, Alagia & Carey, Washington, D. C., W. M. Page, Page, Scranton, Harris, McGlamry & Chapman, Columbus, Ga., for defendant.

I

GENERAL BACKGROUND

BOOTLE, Senior District Judge:

This is a civil antitrust action for treble damages and injunctive relief under the antitrust laws. The plaintiff, a dairy processor, is a Georgia corporation with its principal place of business in Columbus, Georgia. The defendant is a milk marketing association with its principal place of business in Louisville, Kentucky. This court has jurisdiction over the subject-matter and parties, and venue is properly laid in the Middle District of Georgia.

This action was commenced in August 1973 and was tried to the court without a jury in May and June of 1980. The trial itself lasted three weeks and resulted in a transcript in excess of 2,800 pages, plus uncounted pages of exhibits and depositions and transcript of testimony from trials of other cases. Originally, the plaintiff alleged violations of Sections 1 and 2 of the Sherman Act (15 U.S.C. §§ 1 and 2 (Supp. 1980)), Sections 2 and 3 of the Clayton Act (15 U.S.C. §§ 13 and 14 (1973)), Section 4 of the Agricultural Fair Practices Act of 1967 (7 U.S.C. § 2303 (1973)), and breach of contract. By time of trial, however, the scope of the complaint had narrowed considerably, the plaintiff charging only violations of Sections 1 and 2 of the Sherman Act.¹ The plaintiff charges that the defendant, acting alone and in concert with other milk producers, and other milk marketing associations, attempted to and did successfully restrain trade and commerce in and monopolize the supply of raw Grade A milk. The plaintiff complains that the defendant entered into a series of anticompetitive arrangements with other cooperatives with the purpose and effect of obtaining or maintaining monopoly power, and undertook specific predatory acts against dairy processors, including the plaintiff. The defendant's response to these charges is twofold. The defendant first contends that its conduct amounted to legitimate marketing behavior which did not violate the proscriptions of the Sherman Act. The defendant also contends that even if its behavior might ordinarily be in violation of Sections 1 and/or 2, nevertheless, as an agricultural cooperative, it is entitled to the benefit of the antitrust exemptions provided by Section 6 of the Clayton Act (15 U.S.C. § 17 (1973))² and the Capper-Volstead Act (7 U.S.C. § 291 (1980))³ (hereafter referred to collectively as the Capper-Volstead Act or the C-V Act).

The facts involved here do not lend themselves to a simple recitation. The case bristles with a multitude of intertwined issues. Because of this, it is extremely difficult to "compress them into an opinion that will not be of fatiguing prolixity."⁴ To resolve the issues involved, it is necessary to have a knowledge of the parties to this action and to analyze each activity of the defendant which serves as the basis of the plaintiff's charges. Accordingly, this memorandum opinion is intended to suffice as findings of fact and conclusions of law under Rule 52, Federal Rules of Civil Procedure,^4a and its form is as follows:

                                             I
                                     GENERAL BACKGROUND
                                             II
                                        THE PARTIES
                                                                            p
                A. The Plaintiff                                           613
                B. The Defendant                                           613
                        (1) Formation and Structure                        613
                        (2) Functions                                      613
                

                                             III
                                   ACTIVITIES OF DEFENDANT                 614
                A. Joint Activities                                        614
                         (1) The Georgia Super Pool                        614
                         (2) Great Lakes-Southern Milk, Inc.               615
                         (3) The Standby Pool                              615
                B. Unilateral Activities                                   617
                         (1) Premium Pricing Policy                        618
                         (2) Disputes with Handlers                        618
                     (a) Sealtest-Nashville                                618
                     (b) Sealtest-Atlanta                                  619
                     (c) Sealtest-Chattanooga                              619
                     (d) Broughton Co.                                     619
                     (e) Pet-Jackson                                       619
                     (f) Mayfield Dairy Farms                              619
                         (3) Written Supply Contracts Note                 620
                         (4) Supply Cut-offs                               621
                     (a) Kinnett                                           621
                     (b) Borden                                            622
                         (5) Hauling Cut-off                               622
                                             IV
                              FACTUAL BACKGROUND AS TO SHERMAN
                                    ACT SECTION 2 CHARGE                   623
                A. Facts Relating to Product Market                        623
                B. Facts Relating to Geographic Market                     624
                         (1) The Area in Which Seller Operates             624
                         (2) The Area to which Buyer Can Practicably
                             Turn                                          624
                         (3) Down Allocation, Compensatory Payments
                             and Base Plan                                 625
                         (4) The "Submarket" Contention                    627
                C. Facts Relating to Market Power                          628
                         (1) Defendant's Share of the FMO-7
                                 Area                                          628
                         (2) Defendant's Share in Each of its
                                 Four Proposed Alternative Markets             629
                         (3) Defendant's Share in Plaintiff's Proposed
                                 Nine-Federal Order "Submarket"                629
                                             V
                                     CONCLUSIONS OF LAW                    630
                                            AND
                             APPLICATION OF THE FACTS TO THE LAW
                

II

THE PARTIES

A. The Plaintiff.

The plaintiff, Kinnett Dairies, Inc. (Kinnett) is a closely held Georgia corporation with its principal place of business in Columbus, Georgia. Kinnett is primarily engaged in the processing of Grade A milk for fluid consumption. To a lesser extent, it is also in the business of manufacturing ice cream.

B. The Defendant.

(1) Formation and Structure

Dairymen, Incorporated (D.I.) is a non-profit agricultural milk marketing association organized and existing under the laws of the state of Kentucky and qualifying as a Capper-Volstead marketing association. D.I. was formed in 1968 as a combination of and successor in interest to eight cooperatives located throughout the southeastern United States. Today, D.I. has ten separate divisions serving this area. These geographically distinct operating divisions are responsible for the day-to-day marketing operations carried on by the cooperative, including quality control, hauling arrangements with proprietary handler customers assigned to the division, and resolution of handler and/or producer complaints.

The membership of D.I. consists solely of dairy farmers ("producers") who produce raw milk to be marketed for commercial use in dairy products. Each D.I. member signs a Membership Marketing Agreement which gives D.I. authority, inter alia, to market the member's milk. Since its formation, D.I. has had a board of directors elected under a delegate system from among its members. This board sets the policies and has final authority over all major decisions which may affect the cooperative as a whole.

(2) Functions

Some of the reasons the defendant offers for its existence are:

(a) to give producers more representation in the marketplace;

(b) to ensure that producers obtain a fair, secure, and guaranteed market for their product (c) to provide its members some countervailing power with which to bargain with processors for prices above the federal order minimum price and more reflective of market conditions;

(d) to provide members with improved and more efficient assembly and distribution of milk; and

(e) to accomplish more easily by consolidated effort the intermarket alignment of raw milk prices.

Perhaps the best "nutshell" statement of the function of D.I., and of marketing cooperatives in general, is that they exist to provide their members with the best return possible for their product. Raw milk can be utilized in one of two ways. It can be used for fluid consumption (Class I utilization) or it can be used for making certain "manufactured products" like butter, cheese, or ice cream (Class II and III utilization). A dairy farmer can get more money for his milk if the processor uses it for "fluid" purposes. Consequently, these farmer producers desire that as much of their milk as possible obtain a Class I utilization. Cooperatives like D.I. exist to help the producers obtain this goal. Of course, the producer would also like to avoid having to dump his surplus milk (milk in excess of the fluid milk needs of processors) down the drain. The cooperative aids the producer in this respect by finding Class II and Class III markets for the surplus milk.

III

ACTIVITIES OF DEFENDANT

The plaintiff contends that the defendant engaged in a course of conduct designed to obtain and maintain the power to control prices and exclude competition in the supply of raw milk in the Georgia marketing area, and that this conduct exceeded...