US v. Hinote, Crim. A. No. J92-00107(L)(C).

• Citation: 823 F. Supp. 1350
• Decision Date: 07 May 1993
• Docket Number: Crim. A. No. J92-00107(L)(C).
• Parties: UNITED STATES of America, Plaintiff, v. Samuel HINOTE, Defendant.
• Court: U.S. District Court — Southern District of Mississippi

823 F. Supp. 1350

UNITED STATES of America, Plaintiff, v. Samuel HINOTE, Defendant.

Crim. A. No. J92-00107(L)(C).

United States District Court, S.D. Mississippi, Jackson Division.

May 7, 1993.

Laura Heiser and John J. Hughes, U.S. Dept. of Justice, Antitrust Div., Middle Atlantic Office, Philadelphia, PA, for plaintiff.

Thomas A. Bergstrom, Philadelphia, PA, P.J. Townsend, Jr., Townsend, McWilliams & Holladay, Drew, MS, for defendant.

MEMORANDUM OPINION AND ORDER

TOM S. LEE, District Judge.

This cause is before the court on the motion of defendant Samuel Hinote to dismiss the indictment against him. The government has responded to the defendant's motion. The court, having considered the memoranda of authorities submitted by the parties, as well as evidence presented at a hearing on this matter, concludes that, for the reasons that follow, defendant's motion is not well taken and should be denied.

BACKGROUND

The defendant in this case is charged with violating the Sherman Act, 15 U.S.C. § 1, by conspiring to fix the prices of catfish products sold in interstate commerce between 1981 and 1990. During the period covered by the indictment, the defendant was the President and Chief Executive Officer of Delta Pride Catfish, Inc. (Delta Pride), a catfish processor incorporated in the State of Mississippi and with its principal place of business in Indianola, Mississippi.¹ The entities which allegedly conspired with the defendant to fix prices are also catfish processors located primarily in the State of Mississippi.²

The defendant seeks dismissal of the indictment on the ground that any conspiratorial price-fixing activity engaged in by him and the alleged co-conspirators was exempt from antitrust liability under § 1 of the Capper-Volstead Act, 7 U.S.C. § 291, and/or the Fisherman's Collective Marketing Act (Fisherman's Act), 15 U.S.C. § 521.³ Essentially, the defendant's position is that, in addition to being catfish processors, Delta Pride and each of the alleged co-conspirators were also engaged in catfish farming and/or fishing at the time alleged in the indictment. And, as such, according to the defendant, these entities should be considered "farmers" and/or "fishermen" as defined in the two Acts, thus rendering the alleged antitrust violations for which the defendant has been charged lawful.

The government, on the other hand, maintains that the defendant and his co-conspirators should be viewed not as catfish "farmers" and/or "fisherman" within the meaning of Capper-Volstead or the Fisherman's Act, but rather, as catfish processors seeking protection of the exemption not to permit collectivized processing but simply as a shield for the price-fixing of finished catfish products. This conspiratorial conduct engaged in by the defendant and his co-conspirators, the government contends, is not protected from antitrust liability under either of the asserted Acts.

In determining whether or not an exemption applies in this case, the court must, of course, decide whether the defendant and his alleged co-conspirators qualify as "farmers" under the Capper-Volstead Act and/or "fisherman" under the Fisherman's Act.⁴ To resolve this question, the court must look not only to the catfish-producing activities in which these entities were involved, but also to the catfish industry itself.

The production of catfish involves a number of distinct stages: production of fingerling fish through current stocks of mature fish; placement of fingerlings in ponds; aerating and maintenance of the ponds; production of feed for the fingerlings; feeding and raising of the fingerlings to market size; seining and live-hauling of the fish to processing facilities; operation of facilities to process and prepare the fish for market; and marketing of the fish for sale to consumers. As is apparent, the catfish industry has become highly specialized and departmentalized. Testimony given during the hearing evidences the fact that some stages which in the past might have been performed by different persons or enterprises are now often combined and controlled by a single entity.

Two of the entities with which the defendant allegedly conspired, Country Skillet Catfish Company (Country Skillet) and Farm Fresh Catfish Company (Farm Fresh),⁵ are subsidiaries of large food conglomerates.⁶ Both Country Skillet and Farm Fresh are "integrated," that is, they are involved in more than one of these stages of production. As noted, Country Skillet and Farm Fresh each own and operate a processing plant where catfish are prepared for market. To sustain a supply of catfish for processing, Country Skillet and Farm Fresh utilize three different methods for obtaining fish. One method is through the use of what are called "feed grower contracts." Under these contracts, which are entered into with independent farmers, the processors place catfish fingerlings in ponds owned by the independent farmers, provide the farmers with feed and technical support, and then harvest the fish once they reach market size. Although the farmers are responsible for managing the ponds, the processors retain title to the fish while they are in the care of the independent farmers.

The two other methods through which Country Skillet and Farm Fresh obtain catfish for processing are by either leasing ponds from a landowner and then raising the catfish on the leased acreage without any assistance from the landowner, or purchasing from independent farmers on the open market. During the period covered by the indictment, Country Skillet received about 50% of its fish from either leased ponds or through feed grower contracts, while the other 50% was purchased from independent farmers on the open market. Farm Fresh received about 35% of its fish from leased ponds and 40% by way of feed grower contracts, and purchased 25% on the open market.

LEGAL ANALYSIS

As the leading Supreme Court case discussing the Capper-Volstead Act makes clear,⁷ in order for the defendant to be exempt from antitrust liability under the Act, he must establish not only that Delta Pride was entitled to the Act's protection, but also, that all those entities with which he allegedly conspired were likewise qualified under the Act. See National Broiler Marketing Ass'n v. United States, 436 U.S. 816, 822-23, 98 S.Ct. 2122, 2127, 56 L.Ed.2d 728 (1978).⁸ According to the Court:

The Capper-Volstead Act removed from the prescription of the antitrust laws cooperatives formed by certain agricultural producers that otherwise would be directly competing with each other in efforts to bring their goods to market. But if the cooperative includes among its members those not so privileged under the statute to act collectively, it is not entitled to the protection of the Act. Case-Swayne Co. v. Sunkist Growers, Inc., 389 U.S. 384, 88 S.Ct. 528, 19 L.Ed.2d 621 (1967). Thus, in order for a cooperative to enjoy the limited exemption of the Capper-Volstead Act, and, as a consequence, to avoid liability under the antitrust laws for its collective activity, all its members must be qualified to act collectively. It is not enough that a typical member qualify, or even that most of the cooperative's members qualify.

Id.

The National Broiler case involved a civil action brought by the United States against a nonprofit cooperative association of integrated producers of broiler chickens, the National Broiler Marketing Association (NBMA), alleging a conspiracy in violation of § 1 of the Sherman Act. The district court held that the NBMA's activities were exempt from the antitrust laws under the Capper-Volstead Act. Id. 436 U.S. at 819, 98 S.Ct. at 2125-26. The Fifth Circuit reversed, finding that certain NBMA members were more like middlemen and processors than they were like farmers in the ordinary meaning of the word. Id. (citing United States v. National Broiler Marketing Ass'n, 550 F.2d 1380, 1386 (5th Cir.1977)).

The Supreme Court, after reviewing extensively the legislative history of the Capper-Volstead Act, affirmed the Fifth Circuit. The Court concluded that "any member of NBMA that owned neither a breeder flock nor a hatchery, and that maintained no grow-out facility at which the flocks to which it held title were raised, was not among those Congress intended to protect by the Capper-Volstead Act." Id. 436 U.S. at 827, 98 S.Ct. at 2130. The court reasoned that, because of their lack of involvement in actually raising broiler chicks, such members were not "farmers" within the meaning of the Act. As stated by the Court:

The economic role of such a member in the production of broiler chickens was indistinguishable from the processor that enters into a preplanting contract with its supplier, or from that of a packer that assists its supplier in the financing of his crops. Their participation involved only the kind of investment that Congress clearly did not intend to protect.

Id. at 827-28, 98 S.Ct. at 2130. Accordingly, "a cooperative organization that includes such members—or even one of them—as members is not entitled to the limited protection of the Capper-Volstead Act." Id. at 828-29, 98 S.Ct. at 2130.

In reaching its decision, the National Broiler Court expressly declined to consider either "the status under the Act of the fully integrated producer that not only maintains its own breeder flock, hatchery, and grow-out facility, but also runs its own processing plant," or "the status of the less fully integrated producer that, although maintaining a grow-out facility, also contracts with independent growers for a large portion of the broilers processed at its facility." Id. at 828 n. 21, 98 S.Ct. at 2130 n. 21. It is these issues which now confront this court in the context of this case, the only difference being that this case involves the catfish industry whereas the National Broiler case concerned the chicken industry. Indeed, as is readily apparent from the above discussion of Country Skillet's and Farm Fresh's...