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

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Office-Supreme

FIL E b *

80-1523

IN THE

Supreme Court of the United States

October Term, 1980

FAIRDALE FARMS, INC.,

Petitioner,

vs.

YANKEE MILK, INC.,

and

REGIONAL COOPERATIVE MARKETING AGENCY,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR

THE SECOND CIRCUIT

FRED I. PARKER, ESQ.

SUSAN F. EATON, ESQ.

LANGROCK SPERRY PARKER

& STAHL

P.O. Drawer 351

Middlebury, Vermont 05753

(802) 388-6356

KEITH I. CLEARWATERS, ESQ.

DUDLEY CHAPMAN, ESQ.

CHAPMAN & CLEARWATERS

1700 K Street, N.W.

Washington, DC 20006

(202) 223-4201

Counsel for Petitioner

Batavia Times Publishing Co.

Batavia, N.Y. (716) 344-2000

Questions Presented for Review

1. Do the Capper-Volstead and Clayton Acts im-

munize agricultural cooperatives from Section 2 of the

Sherman Act so that they may, unlike other business

corporations, engage in willful acquisition and

maintenance of monopoly power, so long as they do not

engage in predatory conduct?

2. Is a “marketing agency in common”, formed by

eight separate cooperatives to do nothing more than fix

prices, exempted by the Capper-Volstead and Clayton

Acts from the prohibitions of Section 1 of the Sherman

Act?

II.

TABLE OF CONTENTS.

Page

Questions Presented for Reviẽ . i

r sa ae a ie capa ee ee 6 ne eee s iii

ees as e ps 0s a O09 ¢ 008 2

Reported Opinions 2

Grounds for Jurisdictio nn 2

, ̃ ͤ f , re 3

r 6

ö ͥBů!lddn · ˙ꝛäꝛ 6

„% „„%„%„%„b„b„„„b„b„„b„b„b„b„b„„„ 10

— 6 „%%„%„ „„ „„ „„ „„ „„ „„ „ „„ „ „6 6 6 6 13

I. These Questions Are Important Issues of

Federal Law Which Have Not Been, But Should

Be, Decided by This Court. 14

A. The Monopolization Charge.......... 14

B. The Price-Fixing Count.............. 17

II. The Court of Appeals Decision Conflicts

With Prior Analysis of the Exemption by This

J 21

r ˙ͤDĩĩJA . n 24

Nee Of re 25

r » e 27

Appendix Opinion and Order of the United States

District Court for the District of Vermont la

Appendix—Opinion of the United States Court of

Appeals for the Second Circuit ................ 38a

III.

Page

TABLE OF CITATIONS.

Case Swayne Co. v. Sunkist Growers, 389 U.S. 384,

19 L.Ed.2d 621, 88 S.Ct. 528 (1967)............. 23

Maryland and Virginia Milk Producers Associa-

tion v. United States, 362 U.S. 458 (1960)....... 22,23

National Broiler Marketing Association v. United

States, 436 U.S. 816, 56 L.Ed.2d 728, 88

S.Ct. 528, reh. den. 390 U.S. 930, 19

L.Ed.2d 995, 88 S.Ct. 846 (1978) . 17,23

Northern California Supermarkets, Inc. v. Central

California Lettuce Producers Cooperative,

413 F.Supp. 984 (N.D. Cal. 1976), aff'd

per curiam, 580 F.2d 369 (9th Cir. 1978),

cert. den. 439 U.S. 1090 (1979 99. 12,13,19

Standard Oil of New Jersey v. United States, 221

(/ 15

Sunkist Growers Inc. v. Winckler & Smith Citrus

Products Co., 370 U.S. 8, 8 L. Ed. 2d 305, 82 S. Ct.

1130, reh. den. 370 U.S. 965 (1962) ............. 17

Treasure Valley Potato Bargaining Asso-

ciation v. Ore-Ida Foods, Inc., 497 F.2d 203

(9th Cir.), cert. den. 419 U.S. 999 (1974)......... 18,19

U.S. v. Borden, 308 U.S. 190, 84 L.Ed. 186,

,,, ovsekeeecesss 17,21

United States v. Grinnell Corporation, 348 U.S.

% sp o¥aus sednewi awakes 6,11,15,16,22

IV.

Page

STATUTES.

Capper-Volstead Act of 1921,

, ̃ ˙ wünIL... 000804 4

Clayton Act:

r 4.10

„„ ee Vice heese ican 3,10

Cooperative Marketing Act of 1926,

// te Samet De eee 5,10

Sherman Act:

r we nee ce saan tie 3,10,12,15,17,18,21

r ( 3,10,11,14,15,16,22

/ ̃ ˙ůàAA.... ⁰˙—èꝛ'.˙˙ꝛi¹ö ˙ hak si 6.11

RULE

%]]... eed ON 0 mae 6 bose 10

MISCELLANEOUS.

1 Areeda and Turner, Antitrust Law. 180.......... 16

Hafstedler, A Prediction: The Exemption Favoring

Agricultural Cooperatives Will Be Reaffirmed, 22

„„ NO” PRTC AMIE IE EOS 20

Mahaffie, Cooperative Exemptions Under the An-

titrust Laws: A Prosecutor's View, 22 Ad. L. Rev.

. 20

Milk Marketing, A Report of the U.S. Department

of Justice to the Task Group on Antitrust Im-

munities 583-85 (Jan. 19777777777ʒ eee 20

(1977) Trade Reg. Rep. (CCH) para. 21,337 at 21,234

T ͤ r ĩͤ bea eaeruaaeees 13

IN THE

Supreme Court of the United States

No.

October Term, 1980

FAIRDALE FARMS, INC.,

Petitioner,

vs.

YANKEE MILK, INC.,

and

REGIONAL COOPERATIVE MARKETING AGENCY,

Respondents.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR

THE SECOND CIRCUIT

Petitioner prays that a Writ of Certiorari issue to

review the judgment of the United States Court of Ap-

peals for the Second Circuit entered in the above entitled

case on December 9, 1980.

Parties

The parties are Plaintiff Fairdale Farms, Inc.

(sometimes hereinafter referred to as Fairdale) and

Defendants Yankee Milk, Inc. (sometimes referred to

hereinafter as Vankee') and the Regional Cooperative

Marketing Agency (sometimes referred to hereinafter as

*RCMA"). Amicus Curiae briefs were filed at the ap-

pellate level by the United States Department of Justice

and the National Council of Farmer Cooperatives.

Reported Opinions

The District Court’s Order and Opinion has not been

officially reported. It is printed in relevant part at 1980-1

CCH Trade Cases, pp. 63,029 (D.C.Vt. 1979). The Opin-

ion of the Court of Appeals is reported at — F. 2d

(2nd Cir. 1980). Both opinions are fully set forth in the

Appendix submitted with this petition.

Grounds for Jurisdiction

The Order sought to be reviewed is a decision of the

United States Court of Appeals for the Second Circuit,

issued on December 9, 1980, in an interlocutory appeal

and cross-appeal by permission of the Court under 28

U.S.C. $1292(b).

This Court has jurisdiction to review the decision by a

Writ of Certiorari under 28 U.S.C. §1254(1).

Statutes

Sherman Act (15 U.S.C. I. §2)

§1. Trusts, etc. in restraint of trade illegal;

exception of resale price agreements; penalty

Every contract, combination in the form of trust or

otherwise, or conspiracy, in restraint of trade or

commerce among the several States, or with foreign

nations, is declared to be illegal

§2. Monopolizing trade a felony; penalty

Every person who shall monopolize, or attempt to

monopolize, or combine or conspire with any other

person or persons, to monopolize any part of the

trade or commerce among the several States, or with

foreign nations, shall be deemed guilty of a felony

Clayton Act, 57 (15 U.S.C. 518

$18. Acquisition by one corporation of stock

of another

No corporation engaged in commerce shall acquire,

directly or indirectly, the whole or any part of the

stock or other share capital and no corporation sub-

ject to the jurisdiction of the Federal Trade Commis-

sion shall acquire the whole or any part of the assets

of another corporation engaged also in commerce,

where in any line of commerce in any section of the

country, the effect of such acquisition may be sub-

stantially to lessen competition, or to tend to create

a monopoly.

No corporation shall acquire, directly or indirectly,

the whole or any part of the stock or other share

capital and no corporation subject to the jurisdiction

of the Federal Trade Commission shall acquire the

whole or any part of the assets of one or more cor-

porations engaged in commerce, where in any line of

commerce in any section of the country, the effect of

such acquisition, of such stocks or assets, or of the

use of such stock by the voting or granting of prox-

ies or otherwise, may be substantially to lessen com-

petition, or to tend to create a monopoly.

Clayton Act, §6 (15 U.S.C. $17)

The

Antitrust laws not applicable to labor

organizations. — The labor of a human being is not a

commodity or article of commerce. Nothing contain-

ed in the antitrust laws shall be construed to forbid

the existence and operation of labor, agricultural, or

horticultural organizations, instituted for the pur-

poses of mutual help, and not having capital stock

or conducted for profit, or to forbid or restrain in-

dividual members of such organizations from law-

fully carrying out the legitimate objects thereof; nor

shall such organizations, or the members thereof, be

held or construed to be illegal combinations or con-

— in restraint or trade, under the antitrust

aws.

Capper-Volstead Act of 1921, §1 (7 U.S.C. §291)

§291. Authorization of associations; powers

Persons engaged in the production of agricultural

products as farmers, planters, ranchmen, dairymen,

nut or fruit growers may act together in as-

sociations, corporate or otherwise, with or without

capital stock, in collectively processing, preparing

for market, handling, and marketing in interstate

and foreign commerce, such products of persons so

engaged. Such associations may have marketing

agencies in common; and such associations and their

members may make the necessary contracts and

agreements to effect such purposes. Provided,

however, that such associations are operated for the

mutual benefit of the members thereof, as such pro-

ducers, and conform to one or both of the following

requirements:

The

First. That no member of the association is allowed

more than one vote because of the amount of stock

or membership capital he may own therein, or,

Second. That the association does not pay

dividends on stock or membership capital in excess

of 8 per centum per annum.

And in any case to the following:

Third: That the association shall not deal in the

products of nonmembers to an amount greater in

value than such as are handled by it for members.

Cooperative Marketing Act of 1926 (7 U.S.C. §455)

Exchange of crop information by associations of

agricultural producers.—Persons engaged, as

original producers of agricultural products, such as

farmers, planters, ranchmen, dairymen, nut or fruit

growers, acting together in associations, corporate

or otherwise, in collectively processing, preparing for

market, handling, and marketing in interstate and/or

foreign commerce such products of persons so

engaged, may acquire, exchange, interpret, and

disseminate past, present, and prospective crop,

market, statistical, economic, and other similar infor-

mation by direct exchange between such persons,

and/or such associations or federations thereof,

and/or by and through a common agent created or

selected by them.

Statement of the Case

This Writ is sought in an antitrust action to review the

December 9, 1980, decision of the United States Court of

Appeals for the Second Circuit in an interlocutory appeal

by permission under 28 U.S.C. §1292(b). The decision af-

firmed in part and vacated and remanded in part an

Order of the United States District Court for the District

of Vermont, the Honorable Albert W. Coffrin, presiding.

Reversing the District Court, the Court of Appeals re-

fused to apply the monopolization standard of United

States v. Grinnell Corporation, 348 U.S. 563, 570-1

(1966), applicable to ordinary business corporations, to

agricultural cooperatives, holding that ‘‘predatory’’ prac-

tices must be shown. The Court of Appeals remanded the

case to the District Court for a determination as to

whether the Plaintiff has shown sufficient predatory acts

to escape Defendants’ summary judgment motions.

Affirming the District Court’s grant of summary judg-

ment for the Defendants, the Court of Appeals held that

RCMA, a group of eight separate dairy farmer co-

operatives, and its members were immune under the

Capper-Volstead Act from liability for price-fixing under

the Sherman Act, even though they engaged in no

inter-cooperative activity other than setting the price at

which members would sell their product.

Facts Oi The Case

The undisputed facts presented by the parties in sup-

port of their summary judgment motions may be sum-

marized as follows. Plaintiff Fairdale Farms, Inc., is an

employee-owned corporation located in Bennington, Ver-

mont, which processes raw milk and sells its fluid milk

and milk products to supermarkets and other outlets in

Vermont, Massachusetts and eastern New York. Fairdale

produces milk in its own dairy herd, and purchases milk

from farmers in the surrounding three county area com-

posed of Bennington County, Vermont; Berkshire Coun-

ty, Massachusetts; and Rennselaer County, New York.

Defendant Yankee Milk, Inc., is an agricultural

cooperative, composed of dairy farmer members, which

purchases milk from its members under contract and

sells this milk to processors, such as Fairdale. Yankee

has had up to approximately 6,000 producer members

and between 350 to 450 employees. It operates in 7

states, and in 1974 and 1975 its members produced ap-

proximately 3 billion pounds of milk per year.' During

the fiscal year ending June 20, 1974, this resulted in

sales of over a quarter billion dollars.

Yankee was formed in June of 1972 by the union of the

three largest New England dairy farmer cooperatives.

Immediately after the merger, Yankee controlled the

following market shares:

Massachusetts 71% of milk produced

Vermont - 39%

Maine - 10%

New Hampshire - 79%

Rhode Island - 87%

Connecticut -717%

New York - 5%

Shortly thereafter, another large cooperative (Dairylea,

Inc.) pledged to Yankee control of 1,600 of its New

England dairy farmers.

A comparison of the relative size of the parties can be made by com-

paring this figure witii the 22 million pounds processed by Fairdale in

1977.

Defendant Regional Cooperative Marketing Agency

(*“RCMA”) is an organization of dairy farmer co-

operatives (including Yankee), two federations cf dairy

farmer cooperatives (one having 50 cooperatives as

members) and a common marketing agency representing

two of RCMA’s member cooperatives. RCMA has had up

to eight members who represent some 26,000 dairy

farmers in a nine state region. These farmers produce a

major portion of the total milk supplies for three federal

regulatory markets and two state regulatory markets.

All RCMA member cooperatives are also engaged in pro-

cessing dairy products and/or fluid milk. These coops

have now or in the past have had the capacity to process

a substantial portion of the milk their members produce.

RCMA’s sole function, and the purpose for which it

was formed, is to fix the price at which its members sell

their milk in certain New England and New York

regulatory markets. It does not itself engage in any of

the collective functions its member cooperatives perform

on behalf of their members, such as marketing, billing,

handling and processing. Rather, RCMA members meet

monthly to decide on a price they will charge milk pro-

cessors, such as Fairdale, on fluid milk. When the

members feel a price higher than the regulatory price is

justified, the members bill and collect a premium (that

portion of the price which exceeds the applicable

regulatory price). The premium is in addition to the usual

cooperative service charges. The member cooperatives

remit the preinium to their producers in a check separate

from their ordinary milk check’’. Over the three years in

which the pr aium was charged, RCMA members

collected over twenty million dollars in premiums.

Yankee and RCMA had acquired enough market power

not only to raise RCMA members’ prices, but also to af-

fect prices so substantially within Vermont and Main

that the state regulatory agencies raised their prices to

prevent disorder within the market. Also, other smaller

cooperatives which were not RCMA members were able

to ride along on its coattails and collect over-order prices

for their producers.

At the time this dispute erose, Yankee controlled at

least 57 to 67 percent and RCMA controlled at least 86

percent of the volume of milk in the three county area

from which Fairdale procured its milk.? Some 40 percent

of Fairdale’s milk supply came from producers who

where members of an RCMA member cooperative.’

The dispute between the parties arose in the fall of

1974, when Fairdale refused to pay the RCMA premium

to Yankee. Yankee responded that it was “pulling” (stop-

ping shipment of) all its producers’ milk that went to

Fairdale, even though the premium was imposed on only

some of these producers’ milk. Although, upon Fairdale’s

request, Yankee agreed to discuss the matter, it at one

point instructed its producers to immediately withhold

their milk from Fairdale. With this threat of cut-off of its

necessary daily milk supply hanging over Fairdale,

negotiations to find an acceptable basis for continued

shipment failed, and relations were terminated as of

January 1, 1975.

? Yankee’s former general manager testified that a 65 percent share of

the market is required to impose the premium.

* Fairdale had relationships with most of the Yankee producers that

predated their cooperative affiliation. Thus, Fairdale dealt directly

with the producers, picking up their milk and paying them directly,

etc.

As a result of these actions, Fairdale incurred damages

such as the extra cost of purchasing milk at spot milk

prices from distant sources to cover its needs until it was

able to develop other producer sources, and its ongoing

costs in purchasing milk from new producers located out-

side its usual procurement area. In addition, Fairdale lost

a major supermarket account because, with the abnor-

mally high price it was paying, it was unable to maintain

its price at competitive levels. Fairdale also seeks

damages for the excess amount it has paid under the

Vermont state order whose price was raised as a direct

impact of inflated RCMA prices.

Prior Proceedings

The Amended Complaint in this action was filed on

June 4, 1976, and alleged that Defendants violated Sec-

tions 1 and 2 of the Sherman Act (15 U.S.C. §1 and §2)

and Section 7 of the Clayton Act (15 U.S.C. §18), by

price-fixing, attempting to monopolize, monopolization,

and anticompetitive mergers.‘ Defendants rely on Section

6 of the Clayton Act, the Capper-Volstead Act, and Sec-

tion 5 of the Cooperative Marketing Act as defenses to

their acts.

The case came before the District Court on motions for

summary judgment. Plaintiff and both Defendants mov-

ed for summary judgment on Count I (the price-fixing

count) and Defendants moved for summary judgment on

Count II (the monopolization count). The District Court

granted the Defendants’ motion for summary judgment

on the price-fixing count and denied Defendants’ motion

for summary judgment on the monopolization charge.

The original complaint was directed against Yankee Milk, Inc., only.

Upon motion of Yankee, RCMA was added as a necessary party

under F.R.C.P. 19, and an Amended Complaint was filed.

Pursuant to certification by the District Court and per-

mission by the Second Circuit Court of Appeals, cross-

appeals on these questions were taken pursuant to 28

U.S.C. §1292(b).

In their motion on the monopolization count, Defen-

dants argued that without a showing of predatory prac-

tices (they claimed there were none), they were immune

from Sherman Act Section 2 liability for willful acquisi-

tion and exercise of monopoly power by virtue of the

Capper-Volstead Act. However, the District Court denied

the motion for summary judgment on the monopoly

charge, holding that a cooperative or group of co-

operatives were entitled to no greater protection than an

ordinary business corporation and, under the definition

of monopolization set forth in U.S. uv. Grinnell Corp., 384

U.S. 563, 570-71 (1966), could be liable for a violation of

Section 2 without a specific showing of predatory con-

duct. Under Grinnell, two elements were required for

proof of monopolization:

(1) the possession of monopoly power in the rele-

vant market, and (2) the willful acquisition of

maintenance of that power as distinguished from

growth or development as a consequence of a

superior product, business acument, or historic acci-

dent. United States v. Grinnell Corp., 384 U.S. 563,

570-71 (1966).

The District Court held that the precise test of Grin-

nell applied in this case, and refused to agree “with

Defendants’ assertion that the Capper-Volstead Act adds

to the elements of a monopoly claim when it is brought

against a qualified cooperative“, stating that a plaintiff

claiming an agricultural cooperative has violated section

2 has no greater burden than if he sued a corporation

The Court of Appeals for the Second Circuit reversed

and vacated the District Court’s opinion on this Count.

The Court of Appeals stated:

By exempting farmers from Sherman Act limita-

tions on the ability to combine into cooperatives,

Capper-Volstead gives farmers the right to combine

into cooperative monopolies.

The Court then went on to hold:

We conclude that Grinneii does not apply to

monopoly power that results from such acts as the

formation, growth and combination of agricultural

cooperatives, but applies only to the acquisition of

such power by other, predatory means. It is not a

violation of an agricultural cooperative to carry out

the legitimate objectives of their association which

follow naturally from their attempts to achieve unity

of effort and the voluntary elimination of competi-

tion among themselves.

In this way the Court resolved what it perceived to be

the conflict between the Capper-Volstead exemption and

the Sherman Act principles.

Under the cross-motions for summary judgment on the

price-fixing count, Fairdale argued that RCMA, whose

sole function was to fix the price at which its members

would sell their milk, was not engaged in marketing or

any other collective activity specified in the Capper-

Volstead Act, and thus this inter-cooperative combina-

tion solely for the purpose of price-fixing was a per se

violation of Sherman Act Section 1. However, the

District Court adopted the reasoning of Judge Orrick in

Northern California Supermarkets, Inc. v. Central Califor

nia Lettuce Producers Cooperative,’ and of the Federal

413 F.Supp. 984, 987 (N. D. Cal. 1976), aff'd per curiam, 580 F.2d 369

(9th Cir. 1978), cert. den. 439 U.S. 1090 (1979).

Trade Commission in Central California Lettuce Pro-

ducers Cooperative.* The District Court fcllowed Judge

Orrick’s dicta:

Moreover, I am of the opinion that even if Central

engaged in no other collective marketing activities,

mere price-fixing is clearly within the ambit of the

statutory protection. It would be ironic and

anomalous to expose producers, who meet in a

cooperative to set prices, to antitrust liability, know-

ing full well that if the same producers engage in

even more anticompetitive practices, such as collec-

tive marketing or bargaining, they would clearly be

entitled to an exemption.

The Court of Appeals affirmed this portion of the

District Court’s opinion using the same reasoning.

ARGUMENT

We respectfully submit that this Court should grant a

Writ of Certiorari to determine whether the Court of Ap-

peals correctly extended the Capper-Volstead and

Clayton Act exemptions to immunize conduct by

agricultural cooperatives which would have subjected or-

dinary business corporations to liability under the anti-

trust laws. This is an important question of federal law,

which is especially pressing given the recent growth of

some agricultural cooperatives, particularly associations

of milk producers, to positions of economic dominance in

their product markets. In addition, we submit that the

Court of Appeals has abandoned a fundamental rule of

construction laid down by this Court, requiring that anti-

trust immunity conferred by act of Congress be narrowly

construed in any resolution of conflict with the Sherman

Act.

*(1977) Trade Reg. Rep. (CCH) para. 21,337 at 21,234 F. T. C..

I. These Questions Are Important Issues of Federal

Law Which Have Not Been, But Should Be, Decided by

This Court.

The importance of the delimitation of the Capper-

Volstead exemption to the agricultural sector of our

economy and in the national enforcement of antitrust

laws is obvious. A brief review of the few Capper-

Volstead cases bearing on these issues and the

parameters of the arguments presented in this case

demonstrate that these issues of first impression are ripe

for review by this Court.

A. The Monopolization Charge

Count II of the Amended Complaint alleges that

Yankee and RCMA have violated Section 2 of the Sher-

man Act, 15 U.S.C. §2, by monopolizing or attempting to

monopolize the raw milk market from which Fairdale ob-

tains its supply. RMCA and Yankee argued below that

the pleadings and record failed to show that they had

engaged in any predatory practices and that absent such

claims the Capper-Volstead Act gives them, as

agricultural organizations which qualify under that Act,

an exemption from the prohibitions of Section 2 of the

Sherman Act. Defendants have taken the position that

willful acquisition and exercise of monopoly power are

permissible as long as the cooperative does not combine

with non-exempt entities in unreasonable restraint of

trade or engage in competition-stifling, predatory prac-

tices. The Court of Appeals adopted this argument.

The District Court had rejected Defendants’

arguments, and ruled that the Capper-Volstead Act does

not add a requirement to Section 2 of the Sherman Act

compelling a plaintiff to allege and prove predatory acts

in order to prevail against an agricultural cooperative or

association of cooperatives. On that basis, the District

Court denied Defendants’ motion fur summary judg-

ment.

Fairdale maintains, as the District Court did, that

United States v. Grinnell Corp., 384 U.S. 563 (1966), pro-

hibits the willful acquisition and exercise of monopoly

power for agricultural cooperatives, as it does for or-

dinary business corporations.’ The Court of Appeals,

finding that the willful acquisition and maintenance of

monopoly power is inherent in the formation, growth,

and operation of a powerful cooperative, held Grinnell

did not apply.

Neither the text of the Sherman Act, Section 2, nor the

Capper-Volstead Act suggest that predatory practices

are an essential element of a Section 2 case. The Sher-

man Act itself makes it illegal for persons to monopolize,

attempt to monopolize, or combine with others to

monopolize trade or commerce. The Capper-Volstead Act,

on the other hand, permits farmers, including dairy

farmers, to join together in cooperative associations for

the purpose of processing, handling, or marketing their

product. Nothing in the language of the Capper-Volstead

Act suggest a repealer of Section 2 of the Sherman Act

Standard Oil of New Jersey v. United States, 221 U.S. 1 (1911), also

made it clear that it is the conscious purpose to gain monopoly power

that is the essence of the offense, and this does not depend on proof

of predatory practices. The Standard Oil Company was notorious for

its predatory practices but most of these occurred before the Sher-

man Act was enacted in 1890 and the Court noted that liability could

not be based on such acts. The primary fact that was held to be a

violation of both Sections 1 and 2 was the combining of most of the

refining industry under a single holding company—not unlike the

assembly through RCMA of most of the cooperatives in the market

area.

or an addition of elements such as predatory practices to

the Sherman Act.

Very few federal cases even approach the issue. The

Court of Appeals referred to a series of cases in which

courts have found agricultural cooperatives guilty of

violating Section 2 of the Sherman Act. Since all of these

cases involve farmer organizations that had engaged in

blatantly predatory practices, the Defendants have

argued that Plaintiffs who sue qualified entities must

show at least one act of this character in addition to prov-

ing the elements of monopolization as set out in the

Grinnell case. None of these cases contain a holding to

that effect.

No previous cases have reached the issue of whether

the Grinnell standard is applicable to agricultural cooper-

atives. Commentators have lamented the lack of

definitive rulings on the question of the permissible ex-

tent of cooperative market power. Areeda and Turner

note “the critical questions, on which there is sur-

prisingly little authority, of whether the antitrust laws

limit a cooperative’s market power.

Thus, the Court of Appeals decision is a highly signifi-

cant authorization of monopolistic behavior by the

Defendants and other agricultural cooperatives. Not only

will this ruling adversely affect processors, consumers,

and unaffiliated farmers, but may also have the unfor-

tunate effect of leading cooperatives “down the garden

path”’ to conduct which may later be determined to be il-

legal. The case has been fully briefed and argued below

and is ripe for decision of this Court.

"1 Areeda and Turner. Antitrust Law. 180.

B. The Price-Fixing Count

This case is the first in any jurisdiction to present the

clear issue of whether a group of cooperatives may

establish a meeting ground solely to raise prices if they

perform no other services and thus offer no efficiencies

benefitting the individual cooperatives, their purchasers,

or the consumer. The issue raises serious policy concerns,

which require harmonizing the Capper-Volstead Act with

the antitrust laws.

One aspect of the price-fixing issue in this case is

whether Capper-Volstead entities are immunized from

liability under Sherman 51 for inter-cooperative activity.

This Court has held that Capper-Volstead cooperatives

may be liable under Section 1 of the Sherman Act for

combinations with non-Capper-Volstead entities.* And, it

has held that qualified Capper-Volstead cooperatives,

made up of the same three members and for all practical

purposes one organization, were one entity and thus

could not be conspirators under Section 1.“ These cases,

however, provide the two extremes—combination with a

non-Capper-Volstead entity, which is not exempt, and

“conspiracy” by a Capper-Volstead entity with itself,

which is exempt.

This case presents a different situation—a combination

of several Capper-Volstead entities which are all (with

the exception of the marketing agency and the two

* U.S. v. Borden, 308 U.S. 190, 84 L.Ed. 186, 60 S.Ct. 182 (1939); Na-

tional Broiler Marketing Association v. United States, 436 U.S. 816,

56 L.Ed.2d 728, 88 S.Ct. 528, reh. den. 390 U.S. 930, 19 L.Ed.2d 995,

88 S.Ct. 846 (1978).

% Sunkist Growers Inc. v. Winckler & Smith Citrus Products Co., 370

U.S. 8, at 29, 8 L.Ed.2d 305, 82 S.Ct. 1130, reh. den. 370 U.S. 965

(1962).

cooperatives it markets for) entirely separate entities

having separate members, who come together solely for

the purpose of price-fixing.

The other aspect of the issue under Section 1 of the

Sherman Act is whether RCMA is a bona fide

marketing agency in common”, when its sole activity is

price-fixing. Fairdale maintains that, because Capper-

Volstead only authorizes certain collective activity, (i.e.

processing, preparing for market, handling, and market-

ing), price-fixing is permissible only to the extent that it

is incidental to a collective marketing program, or other

collective activity specified in the Act.“ There is nothing

in the Capper-Volstead Act that specifically provides for

naked price-fixing as the sole activity of a group of co-

operatives.

Defendants have relied on two Ninth Circuit Court of

Appeals cases in which the Court approved certain price

fixing behavior by Capper-Volstead entities. The first

case, Treasure Valley Potato Bargaining Association v.

Ore-Ida Foods, Inc., 497 F.2d 203 (9th Cir.), cert. den.

419 U.S. 999 (1974), approved activities of two bargain-

ing cooperatives, each composed of individual potato

farmers, which bargained with buyers for the best price

on behalf of their members. The two coops agreed on the

prices and terms of contracts before setting out to

''The Court of Appeals stated in its opinion that Fairdale argued

that Capper-Volstead gives only single cooperatives, rather than

associations of cooperatives, the right to price fix. This is a misunder-

standing of Fairdale’s unitary position, which is that whatever

RCMA is called under the Capper-Volstead Act, it only has a right

to price fix if such activity is inherent in other collective activity it

performs. Because RCMA engages in no other collective activity it

cannot fix prices. As a practical matter, however, the Court does not

have to address the question of whether an association or producers

may price-fix, since RCMA claims to be a “common marketing agen-

ey and is comprised of associations, not producers.

bargain with the potato buyers. As a practical matter,

once one coop had settled on terms with the buyer, the

other coop received the same terms. The Court reasoned

that if the coops could have marketing agents in com-

mon, they could ect together in marketing their pro-

ducts, on the theory that what an agent could legally do,

so too could the principal. 497 F.2d at 214.

In Northern California Supermarkets Inc. v. Central

California Lettuce Producers Cooperative, et al., 413

F.Supp. 984 (N.D. Cal. 1976), aff'd per curiam 580 F. 2d

369 (9th Cir. 1978), cert. den. 439 U.S. 1090 (1979), the

District Court, which was affirmed without further opi-

nion by the Court of Appeals, found Treasure Valley,

supra, to be controlling. The District Court, Judge Orrick

presiding, approved a cooperative of lettuce growers

whose most significant function was to decide price

brackets for its members to charge. The Court held that

the coop’s activities fell within the term marketing as

broadly construed in Treasure Valley. 413 F.Supp. at

992. From this case comes the dicta relied on here that

since the coop could have engaged in the much more

anticompetitive conduct of collectively marketing and

bargaining, it would be anomalous to hold it responsible

for merely price fixing. 413 F.Supp. at 992.

Both these cases involve fact situations which fall

short of the instant case. In Treasure Valley, the

bargaining coops, in their negotiations with the buyers,

were, as a practical matter and with each other’s con-

sent, actually also bargaining for the other; thus the

price-fixing was incidental to the joint bargaining activi-

ty. In Central Lettuce, the coop was an organization of

individual producers, not cooperatives, and actually

engaged in promotional and other activities on behalf of

. 20

its members. The instant case, in contrast, involves an

organization of cooperatives which has no joint activity

except price-fixing.

Fairdale maintains that to hold that bald price-fixing is

marketing does violence to the intent and wording of

the Capper-Volstead Act, and cannot find legalization in

any way other than by falling within the express terms

of the statute. There are good reasons for allowing collec-

tive activities, such as marketing and processing, since

they may result in cost savings through economies of

scale. Price-fixing is anticompetitive activity which has

no such benefits. Further, Fairdale contends that the

Court's rationale, that because farmers and their coops

could combine into entities that could be even more anti-

competitive they should be allowed to engage in price-

fixing, is a novel theory that is not applied to other

business entities, and therefore not authorized by

Capper-Volstead.

Again, there is a lack of authority on this very crucial

issue. One commentator, complaining that the law con-

cerning the exception is “extraordinarily undeveloped”’,

pointed particularly to the lack of authority on the ques-

tion of mergers of cooperatives and agreements between

cooperatives. Another notes the lack of court com-

ment on the power of producers and associations of pro-

ducers to merge and to have marketing agencies in com-

mon.“ The Department of Justice's 1977 Study on Milk

Marketing also noted that the law on marketing agen-

cies in common needed to be clarified."

'? Mahaffie, Cooperative Exemptions Under the Antitrust Laws: A

Prosecutor's View, 22 Ad. L. Rev. 435, 441-442 (1969-1970).

'? Hafstedler, A Prediction: The Exemption Favoring Agricultural

Cooperatives Will Be Reaffirmed, 22 Ad.L.Rev. 455 at 463-465.

„Milk Marketing, A Report of the U.S. Department of Justice to the

Task Group on Antitrust Immunities 583-85 (Jan. 1977).

Again, in the vacuum of case law on these topics, the

Second Circuit’s decision in this case has enormous im-

pact. The decision, approving both price-fixing and

market control, puts an extremely powerful tool into the

hands of cooperatives with which to attain market con-

trol and demand higher prices.

II. The Court of Appeals Decision Conflicts With

Prior Analysis of the Exemption by This Court.

The decision of the Court of Appeals in many ways ig-

nores this Court’s decisions interpreting the Capper-

Volstead exemption.

In its first Capper-Volstead case, U.S. v. Borden, 308

U.S. 188 (1939), this Court stated:

It is a cardinal principle of statutory construction

that repeals by implication are not favored. When

there are two acts upon the same subject, the rule is

to give effect to both if possible. 308 U.S. at 198.

Borden, of course, involved price-fixing agreements by an

agricultural cooperative with other entities not covered

by the Capper-Volstead or Clayton Acts. These

agreements were challenged under Sherman Act 51. The

Court found:

The right of these agricultural producers thus to

unite in preparing for market and in marketing their

products and to make the contracts which are

necessary for the collaboration, cannot be deemed to

authorize any combination or conspiracy, or con-

spiracies, with other persons in restraint of trade

2 producers may see fit to devise. 308 U.S.

at .

In the instant case, however, rather than reconciling the

exemption with the Sherman Act, the Court of Appeals

found that there is an inherent conflict between this

provision (Sherman Act §2) and those of the Capper-

Volstead ... ."’ The Court then went on to resolve this

conflict in favor of broadly construing the exemption, on

the theory that agricultural cooperatives were a favorite

child of Congressional policy

The Court of Appeals thus disregarded numerous pro-

nouncements by this Court on the congressional policy

favoring competition as the basis of the nation’s

economic framework and barring repeals of the antitrust

laws by implication”.

In Maryland and Virginia Milk Producers Association

v. United States, 362 U.S. 458 (1960), this Court held

that the allegations against a cooperative under Section

2 of the Sherman Act, alleging anticompetitive activities

“so far outside the legitimate objects of a cooperative

that if proven would constitute clear violations of Section

2 were not immunized by the Capper-Volstead or Clayton

Acts. 362 U.S. at 468. In its unanimous opinion, the

Court stated:

We believe it was reasonably clear from the very

language of the Capper-Volstead Act, as it was in §6

of the Clayton Act, that the general philosophy of

both was simply that individual farmers should be

given through agricultural cooperatives acting as en-

tities, the same unified competitive advantage—and

responsibility—available to businessmen acting

through corporations as entities. 362 U.S. at 466.

Abandoning this clear interpretation of the extent of

the exemption, the Court of Appeals chastised the

District Court for “disregarding the fundamental dif-

ferences between a cooperative and a corporation” by

subscribing to the corporate monopolization test of Grin-

nell.

And, in Case Swayne Co. v. Sunkist Growers, 389 U.S.

384, 19 L.Ed.2d 621, 88 S.Ct. 528 (1967), this Court

again noted that Capper-Volstead was a special exemp-

tion to a general legislative plan’’ and therefore the

Court would not be justified in expanding its coverage.

389 U.S. at 393. The Court held that Sunkist lost its

Capper-Volstead exemption when its members included

those not engaged in the actual growing of agricultural

products. A similar conclusion was reached by the Court

in National Broiler Marketing Ass'n v. U.S., 436 U.S.

816, 56 L.Ed.2d 728, 88 S.Ct. 528, reh. den. 390 U.S. 930,

19 L.Ed.2d 995, 88 S.Ct. 846 (1978). This Court referred

with approval to Justice Black’s summarization of the

legislative history in Maryland and Virginia, supra. The

Court held that members of the Broiler Marketing

Association who did not own a breeder flock or a grow-

out facility for chickens were not farmers under the

Act, and thus were not entitled to the limited protec-

tion of the Capper-Volstead Act . 436 U.S. at 828-829.

These cases, following closely the language of the

Capper-Volstead Act and limiting the scope of the ex-

emption, indicate that the Court of Appeals should have

been more circumspect in its delineation of the extent of

the Capper-Volstead exemption.

Conclusion

For the foregoing reasons, Petitioner respectfully re-

quests that its Petition for a Writ of Certiorari be

granted.

Respectfully submitted,

LANGROCK SPERRY PARKER

& STAHL

By: FRED I. PARKER, ESQ.

SUSAN F. EATON, ESQ.

Members of the Firm

P.O. Drawer 351

Middlebury, Vermont 05753

(802) 388-6356

CHAPMAN & CLEARWATERS

By: KEITH I. CLEARWATERS, ESQ.

DUDLEY CHAPMAN, ESQ.

1700 K Street, N.W.

Washington, D.C. 20006

(202) 223-4201

Counsel for Petitioner

Notice of Appearance

IN THE

SUPREME COURT OF THE UNITED STATES

October Term, 1980

No.

FAIRDALE FARMS, INC.,

Petitioner,

vs.

YANKEE MILK, INC.,

and

REGIONAL COOPERATIVE MARKETING AGENCY,

Respondents.

NOW COME, Fred I. Parker, Esq. and Susan F.

Eaton, Esq. of the law firm of Langrock Sperry Parker

and Stahl, and Keith I. Clearwaters, Esq. of the law firm

of Chapman & Clearwaters, and appear for the Peti-

tioner, Fairdale Farms, Inc., in the above captioned mat-

ter.

DATED this ___ day of March, 1981.

LANGROCK SPERRY PARKER

& STAHL

By: FRED I. PARKER, ESQ.

SUSAN F. EATON, ESQ.

P.O. Drawer 351

Middlebury, Vermont 05753

(802) 388-6356

CHAPMAN & CLEARWATERS

By: KEITH I. CLEARWATERS, ESQ.

DUDLEY CHAPMAN, ESQ.

1700 K Street, N.W.

Washington, D.C. 20006

(202) 223-4201

Certificate of Service

WE, Fred I. Parker, Esq. and Susan F. Eaton, Esq.,

members of the firm of Langrock Sperry Parker and

Stahl, P.O. Drawer 351, Middlebury, Vermont 05753, and

Keith I. Clearwaters, Esq., of the firm of Chapman &

Clearwaters, 1700 K Street, N.W., Washington, D.C.

20006, attorneys for the Petitioner in the above entitled

cause, and members of the Bar of the Supreme Court of

the United States, hereby certify that on the day of

March, 1981, we served copies of the foregoing Petition

for a Writ of Certiorari and all appendices attached

thereto and our Notice of Appearance on Yankee Milk,

Inc. and Regional Cooperative Marketing Agency, by

mailing three copies thereof, in duly addressed envelopes

with first class postage pre-paid, to the attorneys of rec-

ord for said Respondents, Thomas D. Clifford, Esq.,

Shipman & Goodwin, 799 Main Street, Hartford, Connec-

ticut 06103 and David P. O’Hara, Esq., Bond, Schoeneck

& King, One Lincoln Center, Syracuse, New York 13202.

FRED I. PARKER, ESQ.

SUSAN F. EATON, ESQ.

LANGROCK SPERRY PARKER

& STAHL

P.O. Drawer 351

Middlebury, Vermont 05753

(802) 388-6356

KEITH I. CLEARWATERS, ESQ.

DUDLEY CHAPMAN, ESQ.

CHAPMAN & CLEARWATERS

1700 K Street, N.W.

Washington, D.C. 20006

(202) 223-4201

APPENDIX

Opinion and Order of the United States District

Court for the District of Vermont.

UNITED STATES DISTRICT COURT

For the District of Vermont

FAIRDALE FARMS, INC.,

YANKEE MILK, INC., and

REGIONAL COOPERATIVE MARKETING

AGENCY, INC.

YANKEE MILK, INC.,

FAIRDALE FARMS, INC.

Civil Action File No. 75-140

The Capper-Volstead Act, 7 U.S.C. §291, allows

farmers to organize cooperatives to strengthen their

bargaining power in the markets where they sell their

produce. This case raises questions about the scope of

the protection this statute affords dairy cooperatives

from suit under the federal antitrust laws. Plaintiff Fair-

dale Farms, Inc. (Fairdale) charges in its two count

Amended Complaint that the defendant cooperatives,

Yankee Milk, Inc. (Yankee) and Regional Cooperative

Marketing Agency, Inc. (RCMA), have fixed prices and

Appendix— Opinion and Order.

monopolized the market in which Fairdale buys its raw

milk. Defendants have moved for summary judgment on

both counts; plaintiff seeks summary judgment on Count

I, its price-fixing claim. We grant defendants’ motions on

Count I and deny plaintiff's; we decline to give judgment

on the monopoly claim and therefore deny (illegible).

Facts

Fairdale is what is known in the dairy industry as a

handler which produces some of its own milk but

primarily buys milk from local farmers, processes it and

distributes it to retailers. Yankee is a cooperative incor-

porated in Connecticut and composed of several thou-

sand dairy farmers, or producers, from all over New

England. Before this suit, many of Yankee’s members

sold their milk to Fairdale. The Secretary of Agriculture

has determined and the parties do not dispute that

Yankee qualifies for the protection afforded by the

Capper-Volstead Act. RCMA is an entity created in

June, 1973, by seven northeastern dairy cooperatives, in-

cluding Yankee, to fix the prices at which the

cooperatives would sell their milk and to distribute

among the cooperatives the additional income resulting

from that price fixing. Membership in RCMA is limited

to cooperatives that meet the requirements of the

Capper-Volstead Act.

In the northeast, both the Secretary of Agriculture and

state agencies regulate the price of raw milk by imposing

floors under the price handlers must pay producers.

Nevertheless, in 1973 and 1974 producers faced rapidly

increasing production costs that were not being met by

rises in the regulatory floors. To protect their members

Appendix—Opinion and Order.

from this cost-price squeeze, seven cooperatives formed

RCMA which in September, 1973, set a price for its

members’ milk above the federal floor (the production in-

centive differential). Fairdale balked at paying this price

and eventually stopped purchasing milk from Yankee

members, because it feared that Yankee would interrupt

its supply from the member-producers without adequate

notice. This suit followed the breakdown in the Fairdale-

Yankee relationship.

Discussion

1. Count I: Price Fixing.

Count I of the Amended Complaint alleges that defen-

dants have violated section 1 of the Sherman Act, 15

U.S.C. 51. by fixing the price of raw milk. Since price ſix-

ing is a per se violation of section 1 of the Sherman Act,

see United States v. Socony-Vacuum Oil Co., 310 U.S.

150, 223 (1940), and defendants have conceded that

RCMA was organized to facilitate agreement on price

among the member cooperatives and has fixed prices;

plaintiff asserts that it is entitled to judgment on Count

I. Defendants argue that both Yankee and RCMA

qualify for the protection of the Capper-Volstead Act

which they claim permits agricultural cooperatives to fix

prices notwithstanding the federal antitrust laws; they

also seek judgment as a matter of law.“ Plaintiff does not

contest that Yankee may fix the price its own members

charge, but Fairdale does object to the claim that the

Capper-Volstead Act also protects RCMA’s activity.

Thus the resolution of the cross-motions for summary

judgment on Count I turns on the application of the

Capper-Volstead Act to RCMA and the functions it per-

forms.

Appendix—Opinion and Order.

The court is satisfied that Congress intended this Act

to protect organizations like RCMA, which are composed

of qualified cooperatives, to the same extent as the

cooperatives themselves; RCMA is either an associa-

tion or a marketing agen[t] in common.” 7 U.S.C.

§291. See Sunkist Growers, Inc. v. Winckler & Smith

Citrus Products Co., 370 U.S. 19, 29 (1962) (refusal ‘‘to

impose grave legal consequences upon organizational

distinctions that are of de minimis meaning and effect):

Treasure Valley Potato Bargaining Association v. Ore-

Ida Foods, Inc., 497 F.2d 203, 213-17 (9th Cir.), cert.

denied, 419 U.S. 999 (1974) (cooperation between two

cooperatives in negotiating contracts with buyers pro-

tected); Case-Swayne Co. v. Sunkist Growers, Inc., 355 F.

Supp. 408, 415 (C.D. Cal. 1971) (cooperative of growers

and smaller cooperatives protected); United Egg Pro-

ducers v. Bauer International Corp., 312 F. Supp. 319,

320 (S.D.N.Y. 1970) (Capper-Volstead Act bars claim

that qualified cooperatives conspired in violation of Sher-

man Act section 1). This conclusion does not, however,

dispose of plaintiff's principal argument—that the

Capper-Volstead Act does not immunize from antitrust

attack an organization that does nothing but fix prices.

We recognize RCMA’s assertion that it performs more

functions for its members than simply providing a vehi-

cle for fixing prices, however, we decline to give any

weight to this claim. Although it is apparent from the

record that RCMA pools the funds its members eceive

from the production incentive differential and distributes

them fairly among the member cooperatives, we cannot

regard this as a separate service. Rather, it is little more

than a component of RCMA's price fixing. Similarly, the

Appendix—Opinion and Order.

other activities RCMA points to, see Response of RCMA

to Plaintiff’s Interrogatories (As Amended)—Third Set at

25-43 (filed Oct. 25, 1977), are necessary, or at least an-

cillary, to RCMA’s satisfactory performance of its price-

fixing function. Moreover, whether RCMA does anything

other than fix prices is immaterial in light of our rejec-

tion of plaintiff's principal argument.

We now turn to the principal issue the Count I mo-

tions raise—whether the Capper-Volstead Act immunizes

from attack under section 1 of the Sherman Act an

agricultural organization that does nothing but coor-

dinate the price-fixing activities of its member

cooperatives. We hold that it does.

Since the legislative history of the Capper-Volstead

Act is somewhat ambiguous and lacking in examples, it

gives little assistance to deciding what specific functions

a qualified entity can safely perform. See FTC Bureau of

Competition, A Report on Agricultural Cooperatives at

28-40 (1975) [hereinafter cited as FTC Staff Study]. It is

clear, however, that Congress intended the bill to put

farmers organizations on an equal footing with business

corporations in antitrust cases. Maryland and Virginia

Milk Producers Association v. United States, 362 U.S.

458, 466 (1960). Thus a cooperative may fix the prices its

members charge just as a corporation fixes the prices of

its goods; it need not fear that a court will view each

farmer as an individual who, by joining the cooperative

and agreeing to the price, conspired to restrain trade in

violation of section 1 of the Sherman Act. Id. Congress

hoped that allowing farmers to act collectively as

cooperatives would enhance their bargaining power

against large corporate middlemen and perhaps enable

Appendix—Opinion and Order.

the farmers to integrate vertically and take over the mid-

dlemen’s functions. See, e.g., National Broiler Marketing

Association v. United States, 436 U.S. 816, 824-28

(1978); Central California Lettuce Producers Cooperative,

[1977] Trade Reg. Rep. (CCH) 421,337 at 21,235 (F. T. C.).

But, since no ordinary business corporation exists simply

to fix prices, this evidence of congressional intent pro-

vides no answer to whether the Act protects a

cooperative that just fixes prices. “In summary,

although price-setting was clearly a contemplated activi-

ty, the legislative history does not address the question

whether or what kind of additional activity is required to

qualify for the exemption.” [1977] Trade Reg. Rep. (CCH)

121.337 at 21,236.

We have found only two decisions which address this

question. Both the Federal Trade Commission (FTC) and

the Northern District of California, in an opinion affirm-

ed by the Ninth Circuit, have ruled that a combination

which only fixes prices does not exceed the boundaries of

the Capper-Volstead exemption. Both cases involved

similar facts, because both arose from proceedings

against the same entity, the Central California Lettuce

Producers Cooperative (Central). Like RCMA, each of

Central’s twenty-two individual and corporate members

held a seat on the board of directors and on the

cooperative’s executive committee. The committee met at

least weekly to determine price policy which each

member agreed to follow. Although Central advertised

its own existence and at times of low sales engaged in

some promotion of lettuce, generally each member handl-

ed its own lettuce and conducted its own sales program.

Central also provided a conduit for the exchange of infor-

Appendix—Opinion and Order.

mation on lettuce production and on non-paying or com-

plaining customers; however, “the primary activity of

Central [was] to set prices or price ranges to which mem-

bers [were] required to adhere in the sale of their lettuce.”

Northern California Supermarkets, Inc. u. Central Califor

nia Lettuce Producers Cooperative, 413 F. Supp. 984, 987

N. D. Cal. 1976), aff'd, 580 F.2d 369 (9th Cir. 1978), cert.

denied, 99 S. Ct. 873 (1979). The FTC found that it was

“clear that the activities of Central and its members

violate[d] Sec. 1 of the Sherman Act. Central California

Lettuce Producers Cooperative, [1977] Trade Reg. Rep.

(CCH) 421,337 at 21,234 (F. T. C.).

In both cases the question was whether Central

qualified for the protections of the Capper-Volstead Act

and section 6 of the Clayton Act even though its

marketing! activities appeared to be limited to price

fixing alone. Both the FTC and Judge Orrick acknowl-

edged that neither the legislature histories of the statues

nor earlier cases had addressed this specific question;

nevertheless, both ruled in favor of the cooperative.

Judge Orrick found support for his decision in

Maryland and Virginia Milk Producers Association v.

United States, 362 U.S. 458 (1960), in which Justice

Black concluded from the legislative history that Con-

gress intended the exemptions to make it possible for

farmer-producers to organize together, set association

policy, fix prices at which their cooperative will sell their

produce, and otherwise carry on like a business corpora-

tion without thereby violating the antitrust laws.” Jd. at

466. Since Justice Black stated that the activities set

forth in section one of the Capper-Volstead Act were

“among ‘the legitimate objects’ of farmer organizations,”

Appendix—Opinion and Order.

id., Judge Orrick concluded that it is not necessary for

a farmer association to engage in all of the enumerated

activities to qualify for the exemption. 413 F. Supp. at

991.

The Ninth Circuit’s opinion in Treasure Valley Potato

Bargaining Association v. Ore-Ida Foods, Inc., 497 F.2d

203 (9th Cir.), cert. denied, 419 U.S. 999 (1974), also

pointed Judge Orrick to his conclusion. The two plaintiff

cooperatives in Treasure Valley bargained in behalf of

their members for standard contracts with potato pro-

cessors. Each cooperative would negotiate with one of

the two processors to which its members sold potatoes.

The cooperatives agreed that each would then seek the

same terms in its negotiations with the second processor.

Although this activity appears far more substantial than

what Central did for its members, Judge Orrick ruled

that the Ninth Circuit’s decision that the Capper-

Volstead exemption protected the cooperatives from

defendants’ price-fixing counterclaim was controlling

in Central's case. He looked primarily at the broad defini-

tion of marketing which the Ninth Circuit adopted:

The aggregate of functions involved in transferring

title and in moving goods from producer to consumer, in-

cluding among others buying, selling, storing, trans-

porting, standarizing, financing, risk bearing, and sup-

plying market information. 497 F.2d at 215 (quoting

Webster's New Collegiate Dictionary, 1953 Edition) (em-

phasis added in Ninth Circuit opinion). Judge Orrick

found:

The aggregate of activities of Central constitute

“collective marketing within the meaning of the

phrase as defined in Treasure Valley. Here, as in

Appendix—Opinion and Order.

Treasure Valley, Central was “supplying market in-

formation and performing other acts. . involved in

the transferring of title of the produce. But, even

in Treasure Valley, the principal function of the

cooperative was to set prices.

413 F. Supp. at 992 (emphasis in original) (citations omit-

ted). He called the collective bargaining done by the

Treasure Valley cooperatives but not by Central “a

distinction without a difference. Id.

RCMA neither bargains collectively for its members

nor supplies them with market information. And, we

have stated above that RCMA’s ancillary activities are

of no consequence to our decision. We note, however,

that RCMA acts as a clearinghouse for the equitable

distribution of production incentive differential income

among the seven members. Moreover, the members ap-

parently exchange market information informally at their

monthly price-setting meetings. See Affidavit of Arthur

D. Little at 11, 440 (filed Sept. 5, 1978). These activities,

together with RCMA’s price-fixing seem comparable to

what Judge Orrick found adequate to entitle Central to

protection.

More significant than any comparison of activities,

however, is Judge Orrick’s dicta:

Moreover, I am of the opinion that even if Central

engaged in no other collective marketing activities,

mere price-fixing is clearly within the ambit of the

statutory protection. It would be ironic and

anomalous to expose producers, who meet in a

cooperative to set prices, to antitrust liability, know-

10a

Appendix—Opinion and Order.

ing full well that if the same producers engage in

even more anticompetitive practices, such as collec-

tive marketing or bargaining, they would clearly be

entitled to an exemption.

Id. He based this opinion on the legislative history, but

also felt that: “Protection for price-fixing follows from

the effect of Section 6 fof the Clayton Act] and Capper-

Volstead in equating an agricultural cooperative and its

members with an individual business entity since a

single business enterprise may set for itself even wholly

unreasonable prices without violating Section 1. Id. at

993 (citing April v. National Cranberry Association, 168

F. Supp. 919, 921-22 (D. Mass. 1958)). This reasoning

and language give strong support to defendants’ claims

to summary judgment on Count I.

The FTC also found Central entitled to the Capper-

Volstead exemption. It first ruled that a cooperative

need not engage in all the activities specified in the

statute, rather Congress had simply listed functions an

agricultural cooperative may perform. The Commission

then faced the question presented to Judge Orrick:

Whether Central was engaged in collective marketing.”

The Commission found in the legislative history the

congressional intent to allow farmers to organize into en-

tities that would put them on a par with corporations

but uncovered nothing to assist with the determination

of whether Capper-Volstead protected an organization

that did nothing but fix prices. Central California Lettuce

Producers Cooperative, [1977] Trade Reg. Rep. (CCH)

121.337 at 21,236 (F. T. C.). Its examination of judicial in-

terpretations of the statute began with Treasure Valley

lla

Appendix—Opinion and Order.

and Judge Orrick’s decision in Northern California Super-

markets. The Commission’s opinion acknowledged that

latter’s view that price fixing alone was protected by the

statute, but concluded simply: “Whatever ‘marketing’

activity excludes, it would surely seem to include

establishing an asking price as an essential element of

negotiations looking toward a sale.“ Id. at 21,237. It

then turned to complaint counsel’s argument that the

statute protects only agricultural organizations that

resemble corporations, but the Commission found that,

“the principal cases relied on by complaint counsel readi-

ly accept intra-cooperative pricing agreements as a

necessary incident of collective marketing. They do not

establish a threshold for the cooprrative’s level of addi-

tional activity below which this conduct becomes il-

legitimate. Id. at 21,238.

The Commission’s final conclusion rested on what it

surmised Congress intended. It observed that Congress

passed Capper-Volstead to confer on producer organiza-

tions the same advantages enjoyed by corporations, but

that when it acted Congress believed that farmer incor-

poration was impossible. The Commissioner acknowl-

edged that the explicit requirement: of the statute

should be strictly applied, nevertheless, it rejected the

notion that farmers could obtain Capper-Volstead protec-

tion only by creating entities that_resembled and peform-

ed many of the same functions as a corporation. Thus an

organization that meets the explicit statutory require-

ments and puts farmers in a position to bargain effec-

tively with large buyers should be protected. How the

farmers secure that position should, in the Commission's

view, be largely irrelevant. “If, as in Treasure Valley, it

12a

Appendix—Opinion and Order.

is sufficient merely for the cooperative to unite producers

in ‘collectively negotiating’ over price, legal consequences

should not attach if the cooperative presents the results

of its decisions through each member rather than

through a single agent representing each member. Id.

at 21,239. Like Judge Orrick, the Commission found the

statute applied to the lettuce growers’ cooperative.

The reasoning of these cases is highly persuasive; we

hold that section 1 of the Capper-Volstead Act exempts

from the constraints of section 1 of the Sherman Act a

qualified agricultural organization that does nothing but

fix prices.

2. Count 2: Monopoly

Count II of the Amended Complaint alleges that defen-

dants have violated section 2 of the Sherman Act, 15

U.S.C. §2, by monopolizing or attempting to monopolize

the raw milk market from which plaintiff obtains its sup-

ply. Defendants contend that the Capper-Volstead Act

protects them from a monopoly claim like Count II

unless either of them has engaged in predatory practices.

Since neither the Amended Complaint nor the discovery

documents reveal actions which can be characterized as

predatory, they argue they are entitled to judgment. We

disagree with defendants’ assertion that the Capper-

Volstead Act adds to the elements of a monopoly claim

Wien it is brought against a qualified cooperative; we

deny their motions for summary judgment on Count II.

“The offense of monopoly under §2 of the Sherman Act

has two elements: (1) the possession of monopoly power

in the relevant market and (2) the willful acquisition or

maintenance of that power as distinguished from growth

13a

Appendix—Opinion and Order.

or development as a consequence of a superior product,

business acumen, or historic accident.’’ United States v.

Grinnell Corp., 384 U.S. 563, 570-71 (1966). The Supreme

Court has defined monopoly power as ‘the power to con-

trol prices or exclude competition.’ The existence of such

power ordinarily may be inferred from the predominant

share of the market. Jd. at 571 (quoting United States

v. E. I. du Pont de Nemours & Co., 351 U.S. 377, 391

(1956)). The Sherman Act prohibition against attempts to

monopolize is similar to the criminal law of attempt.

Where acts are not sufficient in themselves to pro-

duce a result which the law seeks to prevent—for in-

stance, the monopoly—but require further acts in

addition to the mere forces of nature to bring that

result to pass, an intent to bring it to pass is

necessary in order to produce a dangerous probabili-

ty that it will happen. But when that intent and the

consequent dangerous probability exist, this statute,

like many others and like the common law in some

cases, directs itself against the dangerous probabili-

ty as well as against the completed result.

Swift and Co. v. United States, 196 U.S. 375, 396 (1905)

(citation omitted).

Defendants argue that the Capper-Volstead Act per-

mits qualified cooperatives to acquire monopoly power

by legal means unless they engage in predatory prac-

tices. They contend that the legislative history of, and

the cases interpreting, the Capper-Volstead Act in the

context of monopoly claims, require plaintiff to show the

standard elements of a monopoly claim as well as at least

one predatory act by one of defendants. The strongest

14a

Appendix - Opinion and Order.

support in the legislative history for this assertion is the

rejection by Congress of an amendment offered during

consideration of the Capper-Volstead Act. When it

reported the bill to the full Senate, the Senate Judiciary

Committee proposed to strike the present section 2 and

substitute:

lnlothing herein contained shall be deemed to

authorize the creation of, or attempt to create, a

monopoly, or to exempt any association organized

hereunder from any proceedings instituted under

{the Federal Trade Commission Act].

As quoted in FTC Staff Study at 37. The Senate rejected

the proposal.’

But, in the words of the FTC staff, “it would not be

fair to conclude from the vote that the Senate wanted

agricultural cooperatives to have monopoly power.

Neither side in the debate relished the thought of

agricultural cooperatives holding monopoly power and in-

flating consumer prices. The real issue was how monop-

oly cooperative associations should be controlled. FTC

Staff Study at 38. After reviewing the entire legislative

history, the FTC Staff concluded: A fair distillation of

Congressional sentiment as to cooperative size might

then be: Cooperatives are free to attain the size

necessary for efficient marketing and reduction of costs,

but must not be allowed to inflate consumer—prices

through monopoly power.” Id. at 40. In light of the

general belief in Congress when the act was passed that

the accumulation of monopoly power by agricultural

cooperatives was highly unlikely, id, we cannot agree

with defendants claim that Congress intended Capper-

15a

Appendix - Opinion and Order.

Volstead to give farmers greater freedom from the con-

straints of section 2 of the Sherman Act than corpora-

tions enjoy.

Defendants also rely on a series of cases in which

courts have found agricultural cooperatives guilty of

violating section 2 of the Sherman Act. Since all of these

cases involved farmer organizations that had engaged in

predatory practices, defendants argue that plaintiffs who

sue qualified entities must show at least one act of this

character in addition to proving the Grinnel elements.

We have found no decision, however, in which plaintiff's

case lacked evidence of predatory practices and suffered

dismissal. We do not doubt that proof of predatory prac-

tices adds substantial weight to a plaintiff's monopoly

claim, but we refuse to hold that it is a necessary ele-

ment.

The case that begins the line defendants rely on is

Maryland and Virginia Milk Producers Association v.

United States, 362 U.S. 458 (1960). The defendant dairy

association supplied about eighty-six per cent of the milk

in the relevant market. In addition to showing this

market power, the government alleged that the defen-

dant had engaged in predatory practices to exclude,

eliminate or attempt to eliminate competition from other

individual producers or cooperatives.

Supporting this charge the statement of particulars

listed a number of instances in which the Associa-

tion attempted to interfere with truck shipments of

nonmembers’ milk, and an attempt during 1939-1942

to induce a Washington dairy to switch its non-

Association producers to the Baltimore market. The

16a

Appendix— Opinion and Order.

statement of particulars also included charges that

the Association engaged in a boycott of a feed and

farm supply store to compel its owner, who also

owned an Alexandria dairy, to purchase milk from

the Association, and that it compelled a dairy to

buy its milk by using the leverage of that dairy’s in-

debtedness to the Association.

Id. at 468. The Court ruled that the Capper-Volstead Act

did not bar this Sherman Act section 2 claim. After

acknowledging that Congress intended the Capper-

Volstead Act to allow agricultural cooperatives to do

things that corporations were already permitted, the

Court stated that this purpose, does not suggest a con-

gressional desire to vest cooperatives with unrestricted

power to restrain trade or to achieve monopoly by prey-

ing on independent producers, processors or dealers in-

tent on carrying on their own businesses in their own

legitimate way. Id. at 466-67. Moreover, the Court

quoted parts of the legislative history including: In the

event that associations authorized by this bill shall do

anything forbidden by the Sherman Antitrust Act, they

will be subject to the penalties imposed by that law. Jd.

at 467 (quoting H. R. Rep. No. 24, 67th Cong., Ist Sess.

3) (emphasis added). And:

The Solicitor of the Department of Argiculture

testified that it was his “opinion that if the farmers

want to create monopolies or want to engage in un-

fair practices in commerce, this bill certainly would

not give them the right to do it, and they would

have to get another bill.

17a

Appendix—Opinion and Order.

Id. at 467 n.16 (quoting Hearings before a Subcommittee

of the Senate Judiciary Committee on H. R. 2373, 67th

Cong., 1st Sess. 203) (emphasis added). The facts did not

require the Court to distinguish between a simple

monopolization that violated section 2 and a monopoliza-

tion promoted by predatory practices. The Court's

language and the basis of its decision—that the Capper-

Volstead Act provides agricultural cooperatives no

greater freedom from the antitrust laws than corpora-

tions enjoy—support the inference that the Court would

deny summary judgment to defendants here.

Subsequent lower court cases have also involved

monopolies promoted or maintained by predatory prac-

tices. In North Texas Producers Association v. Metzger

Dairies, Inc., 348 F.2d 189 (5th Cir. 1965), cert. denied,

382 U.S. 977 (1966), the court affirmed a jury verdict

that the defendant milk cooperative had violated section

2 of the Sherman Act.

The complaint charged the Association with

monopolizing and attempting to monopolize the

marketing of raw milk in the Dallas-Fort Worth area

by (a) control of the supply, (b) control of trans-

portation, (c) refusal to transport milk for non-

members of the Association, (d) boycott and coer-

cion against Metzger, (e covert attempt to purchase

Metzger, (f) refusal to sell raw milk to Metzger

unless Metzger stopped purchasing from Associa-

tion’s competitors, (g) purchase of other milk plants.

Id. at 191. The court’s survey of the record showed there

was evidence to support these allegations as well as the

verdict. In dicta the court acknowledged that Capper-

18a

Appendix—Opinion and Order.

Volstead allowed farmers to act together without con-

travening the antitrust laws, but that otherwise, the

association acts as an entity with the same responsibility

under section 2 of the Sherman Act as if it were a

private business corporation. Jd. at 194. This language

recognizes that a plaintiff claiming an agricultural

cooperative has violated section 2 has no greater burden

than if he sued a corporation.

The defendant milk cooperative in Bergjans Farm

Dairy Co. v. Sanitary Milk Producers, 241 F. Supp. 476

(E.D. No. 1965), aff'd, 368 F.2d 679 (8th Cir. 1966), ac-

quired the assets of a processor, engaged in predatory

pricing and paid retail sellers secret rebates. In consider-

ing whether the cooperative violated section 2, the court

pointed out that Capper-Volstead was intended to in-

crease farmers’ bargaining power, but the court applied

the general rules of monopoly cases announced by Judge

Learned Hand in United States v. Aluminum Co. of

America, 148 F.2d 416 (2d Cir. 1945).

The exemption from the antitrust laws is designed

to enable farmers, who had previously suffered from

a lack of bargaining in the sale of their products, to

form cooperatives in order to get better terms and

prices for their produce. Therefore, defendant

Sanitary’s 55 to 60% control of raw milk in the St.

Louis area was lawfully obtained. However, a

lawfully-obtained power cannot be unlawfully used.

Any use of monopoly power causes economic injury

that the antitrust laws are designed to prevent.

However, when a monopoly power, whether gained

lawfully under the Capper-Volstead Act, under the

patent laws, or by virtue of a natural monopoly, is

19a

Appendix—Opinion and Order.

used unlawfully, it gives rise to a violation of section

2 of the Sherman Act and amounts to unlawful

monopolization, or attempt to monopolize.

241 F. Supp. at 483 (citation omitted). Concerning defen-

dant’s secret rebates, the court noted: it is a predatory

act which shows evidence of intent to monopolize under

section 2 of the Sherman Act and constitutes part of a

pattern of action aimed at monopolizing. Id. at 484 (em-

phasis added). The court recognized that the mere

possession of monopoly power did not violate the an-

titrust laws, particularly in the case before it where the

cooperative controlled only fifty-five to sixty per cent of

the relevant market. But because the plaintiff had shown

that defendant had specific intent to monopolize, it had

established a section 2, attempt-to-monopolize violation.

There is language in the opinion which one might con-

strue to mean that Capper-Volstead protects a

cooperative that holds monopoly power and avoids

predatory practices, but we think the better interpreta-

tion of the opinion as a whole is simply that a plaintiff

can, with evidence of predatory practices, discharge its

burden of showing intent to monopolize.

Defendants also rely on Pacific Coast Agricultural Ex-

port Association v. Sunkist Growers, Inc., 526 F.2d 1196

(9th Cir. 1975), cert. denied, 425 U.S. 959 (1976). and Ot-

to Milk Co. v. United Dairy Farmers Cooperative

Association, 388 F.2d 789 (3d Cir. 1967). Neither case

supports their position. The Ninth Circuit in dicta did

point out that the Capper-Volstead Act does not “im-

munize cooperatives engaged in competition-stifling prac-

tices from actions under the antimonopolization pro-

20a

Appendix—Opinion and Order.

visions of the Sherman Act 52,“ 526 F.2d at 1202, but

this hardly means that predatory practices are a

necessary element to plaintiff's claim here. Moreover, the

court recited the standard elements of a monopoly claim

announced in United States v. Grinnell Corp., 384 U.S.

563, 570-71 (1966), when approving the trial court’s jury

instructions on that question. Even though the case in-

volved monopolization of the distribution of fruit in Asia

through an agreement with a non-exempt entity, not

monopolization of production as in most agricultural co-

operative cases, the court’s application of Grinnell to an

agricultural cooperative supports plaintiff's position

here.

The only Sherman Act section 2 question before the

Otto Milk court was whether plaintiffs had stated a suffi-

ciently substantial claim under section 2 to support

jurisdiction over a pendent state claim. The record show-

ed that the cooperative had arrar od picketing of

grocery stores that sold plaintiff's milk, because the

plaintiff purchased its raw milk from non-member pro-

ducers. The court found substantial plaintiff's claim that

the cooperative had attempted to monopolize based on

a deliberate, organized, determined maneuver to obtain

a milk products monopoly in the particular market. 388

F.2d at 798. There is little in this case to comfort either

party here.

The strongest statement supporting defendants’ posi-

tion appears in Judge Wyzanski's charge to the jury in

Cape Cod Food Prooucts, Inc. v. National Cranberry

Association, 119 F. Supp. 900 (D. Mass. 1954). Defen-

dants make much of the statement that it is not a viola-

tion of the Sherman Act or any other anti-trust act for a

21a

Appendix - Opinion and Order.

Capper - Volstead cooperative to acquire a large, even a

100 per cent, position in a market if it does it solely

through those steps which involve cooperative purchas-

ing and cooperative selling. Jd. at 907. But the context

in which this assertion ‘appears reveals that Judge

Wyzanski meant only to point out that monopoly power

alone was insufficient to show a violation of section 2. In

fact, in the next paragraph he siates:

On the other hand, it would be a violation of the

law, and it would be a prohibited monopolization for

a person or group of persons to seek to secure a

dominant share of the market through a restraint of

trade which was prohibited, or through a predatory

practice, or through the bad faith use of otherwise

legitimate devices.

In Shoenberg Farms, Inc. v. Denver Milk Producers,

Inc., 231 F. Supp. 266 (D. Colo. 1964), the court made

very clear that all Capper-Volstead does and all Judge

Wyzanski intended was to shift the focus of antitrust

analysis away from the individual members and onto the

collective body as a single entity. In ruling that the

cooperative alone could not be guilty of conspiracy that

violated section 1 of the Sherman Act, the court stated:

So far as the constituent producer-members of a

Capper-Volstead cooperative are concerned, however,

it appears probable, in the present state of the law,

that the cooperative may lawfully acquire and exert

significant market power—possibly even power con-

ferred by monopoly status—so long as that power is

acquired only by means of voluntary affiliation of

producers with the cooperative. It is the

cooperative, not its constituent members, which is

the relevant entity.

22a

Appendix—Opinion and Order.

Id. at 268. But, after an extended quote from Judge

Wyzanski's charge, the court ruled that the cooperative

alone could violate section 2.

In the case of the §2 allegations made in the com-

plaint the provisions of §2 must be dealt with

separately. Section 2 embodies, first of all, a sub-

stantive prohibition, a prohibition which can be

violated by a single business entity or any person

acting on behalf of a business entity. .. .

Id. at 269.

Defendants have argued vigorously that the language

of these cases indicates that courts should require plain-

tiffs to show that qualified cooperatives have engaged in

predatory practices. Moreover, they assert that Congress

intended Capper-Volstead to afford farmers the power to

bargain effectively in the markets where they sell their

produce; this statutory purpose would be frustrated,

they claim, if courts imposed monopoly liability in the

absence of predatory practices, because cooperatives

fearing antitrust lawsuits would be reluctant to recruit a

sufficient number of members to acquire the market

power Congress intended them to have.

This fear may be real, but it does not justify affording

cooperatives different treatment than corporations under

section 2 of the Sherman Act. The legislative history of

the Capper-Volstead Act as well as the cases that

discuss it repeatedly demonstrate that Congress intend-

ed the Act to put farmers on an equal footing with the

corporations they faced in the marketplace, not to give

them an unfair advantage. Section 2 of the Sherman Act

23a

Appendix—Opinion and Order.

- was intended to prevent concentration of economic power

and to promote competition. Judge Learned Hand has

explained the importance of these ends:

Many people believe that possession of unchallenged

economic power deadens initiative, discourages

thrift and depresses energy; that immunity from

competition is a narcotic, and rivairy is a stimulant,

to industrial progress; that the spur of constant

stress is necessary to counteract an inevitable

disposition to let well enough alone. Such people

believe that competitors, versed in the craft as no

consumer can be, will be quick to detect oppor-

tunities for saving and new shifts in production, and

be eager to profit by them.

United States v. Aluminum Co. of America, 148 F.2d

416, 427 (2d Cir. 1945). These considerations apply to

agriculture and cooperatives no less than to industry and

corporations; we decline to immunize agricultural

cooperatives from competition. We hold that the Capper-

Volstead Act does not require plaintiff to show that

defendants have engaged in predatory practices; the

elements of the claims plaintiff raises in Count II of its

Amended Complaint are not changed because the defen-

dants happen to be agricultural cooperatives.

3. Defendants Supplemental Motions for

Summary Judgment.

Defendants have filed supplemental motions for sum-

mary judgment which address plaintiff's claim for

damages. To the extent that these motions are addressed

to the price-fixing claim alleged in Count I of the Amend -

ed Complaint, we deny them as moot.

24a

Appendix—Opinion and Order.

The sole indication that these motions are addressed to

Count II appears in a footnote in defendant's memoran-

dum which asserts:

Fairdale’s standing to claim monopolization in

violation of Sherman Act §2 also is based upon

Clayton Act $4, and the economic considerations of

tenuous causation which apply to a claim of damage

from purchases from competitors of a price-fixer in

violation of Sherman 51 apply equally to a claim of

damage from purchases from competitors of a

monopolist in violation of Sherman §2. This is so

because an analysis of proximate cause of a plain-

tiff's damage for violation of Sherman §1 or Sher-

man §2 each necessarily involves a determination of

whether the defendants had sufficient market power

to cause a competitor to raise its price following the

lead of the price-fixers or monopolists. Con-

sequently, the reasoning set forth in section I

hereof, based upon the holding of the Mid-West

Paper case, applies to exclude the damages in ques-

tion whether the underlying alleged violation is

grounded in section 1 or section 2 of the Sherman

Act.

Memorandum of the Defendant Yankee Milk, Inc. in

Support of Its Supplemental Motion for Summary Judg-

ment Addressed to Plaintiff's Alleged Damages at 16

n.12 (filed July 11, 1979).

Defendants’ reliance on Mid-West Paper Products Co.

v. Continental Group, Inc., 596 F.2d 573 (3d Cir. 1979),

to support its claim to summary judgment on Count II

is misplaced. In Mid-West Paper the Third Circuit ruled

25a

Appendix—Opinion and Order.

that a plaintiff who purchased bags from the competitors

of alleged price fixers could not recover damages from

the price fixers. The court relied primarily on Illinois

Brick Co. v. Illinois, 431 U.S. 720 (1977), in which the

Supreme Court held that indirect purchasers had no

standing to sue price fixers. The Third Circuit pointed

out that:

Illinois Brick represents in effect the proposition

that when defendants have fixed prices above the

competitive market price, where the benefit derived

by them is readily ascertainable, the objectives of

the treble damage action are fulfilled when the

defendants are required to pay the direct purchasers

three times the overcharge. As explained in Illinois

Brick, such an award not only deprives the violators

of all the fruits of their illegality’’ and deters fur-

ther wrongdoing, it also compensates those victims

who are most likely to assume the mantle of private

attorneys general for the injuries they suffered.

Mid-West Paper, 596 F.2d at 585 (footnote omitted).

Thus in price-fixing cases, the source and amount of

defendants’ wrongful benefits are significant factors in

determining who may sue and how much they may

recover. The court recognized, however:

A different problem is presented where prices are

fixed below the competitive market price or where

defendants engage in other forms of anti-competitive

conduct, such as group boycotts, vertical restric-

tions, or monopolization, since defendants’ benefits

in those instances are not so readily ascertainable,

26a

Appendix—Opinion and Order.

and may not be sufficient to compensate those in-

dividuals whose protection is the primary purpose of

the antitrust laws. In such circumstances courts

have awarded damages based upon the amount of

injury suffered by the plaintiff rather than the

benefits derived by the defendants.

Id. at 585 n. 47. We think this difficulty in identifying

the benefits of a monopoly is sufficient to distinguish

price-fixing from monopoly claims in the context

presented by defendants’ motions.

Moreover, the elements plaintiff must show to

establish a Sherman Act section two claim obviate at

least part of the problem of complexity of the trial which

troubled the Mid-West Paper court. “Apart from its

speculative nature, any attempt to determine the effect

of defendants’ overcharges upon their competitors’ prices

would transform this antitrust litigation into the sort of

complex economic proceeding that the Illinois Brick

Court was desirous of avoiding if at all possible. Jd. at

585. At the trial in this case, plaintiff must show defen-

dants have monopoly power in the relevant market. This

evidence would be the first step in showing that defen-

dants’ conduct caused prices to rise throughout the rele-

vant market and damaged plaintiff. We do not mean to

minimize the difficulty plaintiff faces in establishing the

~causal_link between defendants’ alleged monopoly and

the darmages the supplemental motions address, however,

we do not find this difficulty will result in sufficient com-

plexity to justify summary judgment.

Defendants also contend that we should limit to forty-

five days the time period for which plaintiff can recover

27a

Appendix—Opinion and Order.

damages caused by defendants alleged termination of

plaintiff's milk supply. We find no merit to this par! of

defendants’ supplemental motion. Lee-Moore Oil Co. v.

Union Oil Co., 599 F.2d 1299, 1302 (4th Cir. 1979).

We deny defendants’ supplemental motions for sum-

mary judgment.

4. Plaintiff's Motion for Summary Judgment on

Defendant Yankee Milk’s First Counterclaim.

Defendant Yankee Milk’s first counterclaim seeks to

recover damages from the plaintiff for alleged violations

of the Agricultural Fair Practices Act of 1967 (AFPA), 7

U.S.C. §§2301-2306. Plaintiff has moved for summary

judgment on the counterclaim on the ground that there

is no genuine issue as to any material fact and that it is

entitled to judgment as a matter of law. Fed. R. Civ. P.

56. In the memorandum in support of its motion, Fair-

dale first attacks the standing of Yankee to assert a

claim under the AFPA and second, asserts that if

Yankee does have standing, Yankee has not alleged facts

that would support an AFPA cause of action.

A. Standing

The AFPA makes it unlawful for any handler knowing-

ly to engage or permit any employee or agent to engage

—_—_____—in—certain__prohibited—practices—enumerated—therein.* —____

Plaintiff is a handler by definition under the act. 7

U.S.C. §2302(a). The AFPA provides that any person

injured in his business or property by reason of any

violation, or combination or conspiracy to violate the pro-

visions of the act by engaging in the forbidden practices

may sue and recover damages therefor in an appropriate

28a

Appendix—Opinion and Order.

district court without respect to the amount in con-

troversy. 7 U.S.C. §2305(c). The term “‘person’’ includes

individuals, partnerships, corporations and associations.

7 U.S.C. 5230 2ʃd).

Despite the rather clear language of the statute which

seemingly permits Yankee to maintain its counterclaim

plaintiff contends that defendant lacks the necessary

standing to do so. The standing of a party to prosecute

an action is determined by means of a two-part test as

found in Sierra Club v. Morton, 405 U.S. 727 (1972) and

Association of Data Processing Service Organizations,

Inc. v. Camp, 397 U.S. 150 (1970). That test provides

that a plaintiff must suffer an injury in fact and that

such injury must be “ ‘arguably within the zone of in-

terests to be protected or regulated’ by the statutes

that are claimed to be violated. Sierra Club, 405 U.S. at

773. Plaintiff argues that Yankee meets neither part of

the test and Yankee asserts the contrary.

Plaintiff relies on the legislative history of the AFPA

to support its claim that the act was only intended to

provide a remedy for individual producers against

handlers who violate the act and not to provide a collec-

tive remedy for a cooperative association of dairy

farmers such as Yankee. In view of its interpretation of

the intent of the act, Fairdale asserts that Yankee is

without-standing to pursue its first counterclaim. Fair-

dale points to various remarks of Congressmen at the

time the act was being considered for passage’ as well as

Butz v. Lawson Milk Co., 386 F. Supp. 227 (N.D. Ohio

1974) in which the Ohio district court stated after a

29a

Appendix—Opinion and Order.

review of the legislative history that the overriding pur-

pose of Congress in enacting the Agricultural Fair Prac-

tices Act of 1967 was to protect the individual producer

of milk in his right.. , in effect, to unionize. Id. at 235.

Yankee states that it enjoys no existence separate

from its members for the purpose of determining injury

and that an allegation of injury to Yankee necessarily

sets forth injury to its individual members. It finds sup-

port for this argument in the statement in Sierra Club

that an “organization whose members are injured may

represent those members in a proceeding for judicial

review. 405 U.S. at 739, whereas an association which

alleges injury to an abstract public interest may not.

We hold that Yankee has standing to maintain its

counterclaim. We agree with Butz that the principal pur-

pose of the AF PA was to permit producers to unionize

by forming or joining cooperatives free from coercion, in-

timidation and other impermissible practices by handlers.

We see no reason why the cooperative may not bring an

action under the AFPA on behalf of its members alleged

to have been collectively injured by activities prohibited

by the act. The language of the act specifically includes

among those who may sue for a violation of its pro-

visions association as well as individuals and other

business entities. We are satisfied that the words of the

statute should be given their plain meaning, United

States v. Cooper, 580 F.2d 259, 261 (7th Cir. 1978)

(‘when words are free from doubt they must be taken

as the final expression of the legislative intent’ (eita-

tion omitted)); Sheehan v. Scott, 520 F.2d 825, 829 (7th

30a

Appendix—Opinion and Order.

Cir. 1975) (‘‘[wjords in statutes must be given their com-

mon ordinary meanings.’’) See Yates v. United States,

354 U.S. 298, 305 (1957); Gemsco, Inc. v. Walling, 324

U.S. 244, 260 (1945); United States v. Goldenberg, 168

U.S. 95, 103 (1897). Yankee possesses the standing

necessary to pursue its counterclaim.

B. Genuine Issue of Material Fact

We still must determine whether there is a genuine

issue of material fact precluding judgment for Fairdale

on the counterclaim as a matter of law.

[On a motion for summary judgment the court can-

not try issues of fact; it can only determine whether

there are issues to be tried [citations omitted].

Moreover, when the court considers a motion for

summary judgment, it must resolve all ambiguities

and draw all reasonable inferences in favor of the

party against whom summary judgment is sought,

United States v. Diebold, Inc., 369 U.S. 654, 655, 82

S. Ct. 993, 8 L. Ed.2d 176 (1962), with the burden on

the moving party to demonstrate the absence of any

material factual issue genuinely in dispute, Adickes

v. Kress & Co., 398 U.S. 144, 157, 90 S. Ct. 1598, 26

L. Ed.2d 142 (1970). This rule is clearly appropriate,

given the nature of summary judgment. This pro-

cedural weapon is a drastic device since its pro-

phyilactic function, when exercised, cuts off a party's

right to present his case to the jury. Donnelly v.

Guion, 467 F.2d 290, 291 (2d Cir. 1972).

3la

Appendix—Opinion and Order.

Heyman v. Commerce and Industry Insurance Co., 524

F.2d 1317, 1319-20 (2d Cir. 1975). See First National

Bank of Cincinnati v. Pepper, 454 F.2d 626, 629 (2d Cir.

1972).

To determine whether Fairdale is entitled to judgment

in its favor in light of the foregoing requirements, we ex-

amined the depositions and other documents filed in this

cause and counsel's interpretations thereof as well as the

other arguments that the parties have urged upon us.

The counterclaim itself merely states that Yankee “has

reasonable grounds to believe that plaintiff did engage or

permit its employees to engage in practices prohibited by

$4 of the above-mentioned [Agricultural Fair Practices]

Act, 7 U.S.C. 52303“ followed by a verbatim recitation of

the prohibited practices as stated in section 2303. Plain-

tiff contends that these vague allegations are insufficient

to state a claim for violation of the AFPA. Yankee

counters that its allegations are made sufficiently

definite by its Answers to Certain Interrogatories of

Fairdale, most notably number 57 of Plaintiff's Inter-

rogatories addressed to the Defendant Yankee Milk,

Inc.—Second Set, as well as Response 15 of Plaintiff's

Response to Yankee’s First Set of Interrogatories, cer-

tain deposition testimony referred to in Vankee's

Memorandum in Opposition to Plaintiff's Motion for Par-

tial Summary Judgment (filed October 2, 1978) and letter

of Yankee’s counsel to the court dated September 28,

1979 (filed October 2, 1979). Fairdale in a letter from its

counsel to the court dated October 10, 1979 (filed Oc-

tober 22, 1979) in response to Yankee’s letter states that

Yankee has still presented no issue in fact for the

32a

Appendix—Opinion and Order.

court’s determination. It buttresses this assertion by cer-

tain exhibits attached to its letter including a newly filed

affidavit of Robert T. Holden, president of plaintiff,

dated October 10, 1979.

The gist of Vankee's counterclaim centers upon the ac-

tivities of Fairdale immediately preceding and following

the severance of its relationship with Yankee in late

1974. But Yankee is able to point to only one specific in-

stance of Fairdale’s alleged improper conduct. Such con-

duct involves a meeting arranged by Fairdale on

December 19, 1974, with various producers, including

certain Yankee members, at which Fairdale distributed a

comparative price list which purported to set forth the

prices for all alternative markets to which the producers

attending could ship their milk. This list omitted the

Connecticut price which was also available to the pro-

ducers and which was higher than the price Fairdale was

then paying. Fairdale acknowledges that the Connecticut

price was not on the list given out at the meeting but

refers to deposition testimony of Fairdale officials that

the omission was unintentional because they were

unaware that there were producers in their market area

who were receiving the Connecticut price.

Eventually three of eleven Yankee producers’ returned

to Fairdale but only after they were free to do so. Two of

these producers returned only after their contracts with

Yankee were properly terminated according to their

terms. This was after they attended another meeting

with Fairdale in January, 1975, at which Fairdale handed

out a price comparison that included the Connecticut

33a

Appendix—Opinion and Order.

price. Fairdale also started to pay the Connecticut price

to all of its producers prior to the time the Yankee pro-

ducers returned to it.

Regardless of whether the omission of the Connecticut

price on the December 19, 1974, handout was inadver-

tent or intentional, Fairdale asserts it did not violate any

provisions of the AFPA. Based on the analysis contained

in the October 10, 1979, letter from Fairdale’s counsel, p.

2, we agree. Whether or not plaintiff's failure to inform

can be considered a significant act of deception it simply

does not rise to the level of “‘coercion’’ or “refusal to

deal“, 7 U.S.C. $2303(a), “discrimination”, id. §2303(b),

or “intimidation”, id. §2303(c), against which the AFPA

is designed to guard. Nor does it fit within the proscrip-

tion of the remaining provisions of 7 U.S.C. 52303. Such

conduct does not offer an inducement or reward to a pro-

ducer for ceasing to belong to an association of pro-

ducers, id. §$2303(d), nor is it the making of a false report

about the finances, management or activities of associa-

tions of producers or handlers, id. §2303(f).

In their letter of September 28, 1979, counsel for

Yankee described four events between December 12,

1974, and January 15, 1975, which Yankee contends

“creates a strong inference that Fairdale’s acts, including

the intentional omission [of the Connecticut federal order

price], were calculated to induce the Yankee members

supplying Fairdale to terminate the memberships with

Yankee and continue as Fairdale suppliers.” There is

nothing improper, however, in a handler’s dealing direct-

ly with a producer even though the producer is a member

of an association, Butz, 386 F. Supp. at 237, provided

34a

Appendix—Opinion and Order.

the handler does not act in a manner prohibited by the

AFPA. The cumulative effect of the additional meetings

and the fact that Yankee was not invited to participate

simply does not bring Fairdale’s conduct within the am-

bit of activities prohibited by the AFPA. We also do not

believe that Yankee’s conclusory and general answers to

number 57 of plaintiff's second set of interrogatories ade-

quately present a genuine issue of material fact respec-

ting a violation of the AFPA. This is particularly so in

light of the October 10, 1979, affidavit of Fairdale’s

president, Robert T. Holden, which expressly refutes

Yankee’s claim of impermissible conduct by Fairdale in

those areas described by Yankee’s answer to inter-

rogatory number 57.

Yankee argues that its effort to explore further factual

bases for its counterclaim has been impeded by Fair-

dale’s failure to comply fully with discovery requests and

that such failure deprives Fairdale of the right to sum-

mary judgment. Fairdale replies that it has fully re-

sponded to Yankee’s discovery requests and Yankee’s

“failure to come up with facts evidencing a violation is

solely because such facts do not exist, not because plain-

tiff has failed to respond to discovery requests.

Whether or not Fairdale has responded to Yankee’s

various interrogatories and requests for production as

H ullx- as Yankee would like. we are persuaded that Fair-

dale has responded adequately and we cannot accept

Yankee’s argument that its inability to be more definite

with respect to the underlying factual basis for its

counterclaim results from Fairdale’s inadequate re-

sponses.

35a

Appendix—Opinion and Order.

Nothing in the documents that have been called to our

attention demonstrates a factual question concerning a

violation of the AFPA by Fairdale and Fairdale has suf-

ficiently demonstrated that there is none. We are

satisfied that Fairdale has met its burden of persuasion

on the summary judgment motion. We recognize that

Yankee, as the non-moving party has no burden to

establish that there is such an issue for resolution on

trial and, of course, all ambiguities must be resolved and

reasonable inferences must be drawn in its favor. Never-

theless, the parties have engaged in extensive and inten-

sive discovery proceedings since the outset of this mat-

ter and there has been ample time and effort expended

by each for Yankee to have developed at least some

evidentiary support for its first counterclaim if there

were any.

We do not deem it sufficient for Yankee to simply rely

on a claimed failure of Fairdale to respond to discovery.

It has some obligation to point out to the court with at

least a minimal degree of specificity those facts in

dispute that would make summary judgment inap-

propriate. For instance, there are sources other than

Fairdale, such as the producers involved in the trans-

action, whether they left or stayed with Yankee, who

would presumably be cognizant of AFPA violations if

they were any. We can, without shifting the burden of

proof, consider Yankee’s failure to refer to sources other

than Fairdale as having a bearing on the issue before us,

especially given the length of time the action has been

pending and the extensive discovery efforts in which the

parties have engaged over a four year period.

36a

Appendix—Opinion and Order.

Since we consider Fairdale has met its burden and we

can ascertain no factual issues to be resolved at trial and

none have been called to our attention with respect to

Fairdale’s alleged violation of the AFPA, we grant plain-

tiff's summary judgment motion to Yankee’s first

counterclaim.

28 U.S.C. §1292(b)

We find that our decisions on both counts of plaintiff's

Amended Complaint and Yankee’s first counterclaim in-

volve controlling questions of law as to which there are

substantial ground for difference of opinion. Since rever-

sal of our decision on Count I would render meaningless

the four to six week trial which counsel anticipate, and

since reversal of our denial of summary judgment on

Count II would preclude such a trial, an immediate ap-

peal from the order would materially advance the

ultimate termination of the litigation. We note that this

case is the kind of “ ‘protracted and expensive litigation,

as in antitrust and similar protracted cases.

Medomsley Steam Shipping Co. v. Elizabeth River Ter-

minals, Inc., 317 F.2d 741, 743 (4th Cir. 1963) (quoting

1958) U.S. Code Cong. & Ad. News at 5260-61), which

Congress intended the 28 U.S.C. §1292(b) procedure to

expedite if either or both of the parties elect to take ad-

vantage of it.

37a

Appendix—Opinion and Order.

Conclusion

We deny plaintiff's motion for summary judgment on

Count I of its complaint and grant its motion for sum-

mary judgment on defendant Yankee’s first counter-

claim. We grant defendants’ motions for summary judg-

ment on Count I and deny their motions on Count II; we

also deny defendants’ supplemental motions for sum-

mary judgment.

Dated at Burlington in the District of Vermont, this

lst day of November, 1979.

ALBERT W. COFFRIN

District Judge

38a

Opinio: f the United States Court of Appeals

for the Second Circuit.

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

* f

Nos. 1128, 1412, 1413—September Term, 1979

(Argued June 16, 1980 Decided December 9, 1980)

Docket Nos. 80-7028, 7034, 7036

FAIRDALE FARMS, INC.,

Plaintiff-Appellant-

Cross-Appellee,

—vVv.—

YANKEE MILK, INC. and REGIONAL

COOPERATIVE MARKETING AGENCY, INC.,

Defendants-Appellees-

Cross-Appellants.

Before:

VAN GRAAFEILAND and KEARSE, Circuit Judges,

and NICKERSON, District Judge. *

>—-

Appeal from an order of the United States District

Court for the District of Vermont, Coffrin, J., granting

Ot the Eastern District of New Vork. sitting by designation.

6629

39a

Appendix—Opinion of the United States Court

of Appeals for the Second Circuit.

summary judgment to defendants on plaintiff’s cause of

action under section 1 of the Sherman Act, 15 U.S.C.

§ 1, and denying summary judgment to the defendant

on plaintiff’s cause of action under section 2 of the Act,

15 U.S.C. § 2. That part of the order granting summary

judgment is affirmed. That part of the order denying

summary judgment is vacated, and the matter is re-

manded to the district court for further consideration.

FRED I. PARKER, Middlebury, Vt. (Langrock,

Sperry, Parker & Stahl, Middlebury, Vt.,

Susan Humphrey, and Chapman &

Clearwaters, Washington, D.C., Keith I.

Clearwaters and Dudley H. Chapman, on

the brief), for Plaintiff-Appellant-Cross-

Appellee.

Davio P O'HARA, Syracuse, N.Y. (Bond,

Schoeneck & King, Syracuse, N.Y., John

M. Freyer and David R. Sheridan, on the

brief), for Defendant-Appellee-Cross-

Appellant Regional Cooperative Market-

ing Agency, Inc.

ANDREA LIMMER, Washington, D.C. (Attor-

——— 5 ney, Department of Justice, Washington,

D.C., Sanford M. Litvack, Assistant

Attorney General, and Barry Grossman,

on the brief), for United States of

America as amicus curiae.

FREDERICK U. CONARD, IR., Hartford, Ct.

(Shipman & Goodwin, Hartford, Ct., H.

Martyn Owen, Theodore M. Space,

6630

40a

Appendix-—Opinion of the United States Court

of Appeals for the Second Circuit.

Thomas D. Clifford and Peter W. Ben-

ner, on the brief), for Defendant-Appel-

lee-Cross-Appellant Yankee Milk, Inc.

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. Plain-

tiff 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 judg-

ment motions to dismiss plaintiff’s claim that defen-

dants 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-proces-

sor of milk. It is located near Bennington, Vermont and

buys and sells in the Vermont, New York, and Massachu-

setts area. Yankee is a milk producers cooperative with a

membership of approximately 6,000 New England

farmers. In 1973 minimum dairy prices for the north-

eastern 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

6631

4la

Appendix—Opinion of the United States Court

of Appeals for the Second Circuit.

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 func-

tion 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 ob-

jected to paying the over-order price and, when negotia-

tions 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. Defen-

dants 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 com-

plained.' 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.. 253, 260 (1963).

The Capper-Volstead Act provides, however, that

farmers may act together in associations in collectively

marketing their goods, and the associations may make

1 Defendants also asserted a counterclaim against Fairdale for al-

leged violation of the Agricultural Fair Practices Act of 1967, 7

U.S.C. §§ 2301-2306. The district court's dismissal of this counter-

claim is not being considered on this appeal.

6632

42a

Appendix—Opinion of the United States Court

of Appeals for the Second Circuit.

the necessary contracts to effect this purpose.’ 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 Pro-

ducers Association v. United States, 362 U.S. 458

(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 coopera-

tive will sell their produce.” Jd. at 466.

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 coopera-

tives, 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

2 The pertinent provisions of the Capper-Volstead Act read:

Persons engaged in the production of agricultural products .

may act together in associations, corporate or otherwise, with or

without capital stock, in collectively processing, preparing for

market, handling, and marketing in interstate and foreign com-

merce, such products of persons so engaged. Such associations may

have marketing agencies in common; and such associations and

their members may make the caer seed contracts and agreements

to effect such purposes.

7 USC. § 291.

Capper-Volstead was an cnlerqement of section 6 of the Clayton

Act, 15 U.S.C. § 17, which provided:

Nothing contained in the antitrust laws shall be construed to

forbid the existence and operation of. . . agricultural. . . organi-

zations, instituted for the purposes of mutual help, and not having

capital stock or conducted for profit, or to forbid or restrain

individual members of such organizations from lawfully carrying

out the legitimate objects thereof; nor shall such organizations, or

the members thereof, be held or construed to be illegal combina-

tions or conspiracies in restraint of trade, under the antitrust laws.

6633

43a

Appendix—Opinion of the United States Court

of Appeals for the Second Circuit.

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 conse-

quences” 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 (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 (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 hy-

per-technical reading of the statute. Capper-Volstead

provides that farmers may act together in associations

in collectively “processing, preparing for market, han-

dling, 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. Cen-

tral 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, 99 S. Ct, 873

(1979); Central California Lettuce Producers Coopera-

tive, [1977] Trade Reg. Rep. (CCH) J 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

6634

44a

Appendix—Opinion of the United States Court

of Appeals for the Second Circuit.

Capper-Volstead would not. Northern California Super-

markets, 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 exempt-

ing farmers from Sherman Act limitations on the ability

to combine into cooperatives, Capper-Volstead gives

farmers the right to combine into cooperative monopo-

lies. 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 mo-

nopolies 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 coopera-

tive to cease and desist if it monopolizes or restrains

trade “to such an extent that the price of any agri-

cultural product is unduly enhanced by reason

thereof. . . .” (emphasis added).

6635

45a

Appendix—Opinion of the United States Court

of Appeals for the Second Circuit.

The district judge “[disagreed] with defendants’ asser-

tion 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 claim-

ing 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 sub-

scribed to the corporate monopolization test of United

States v. Grinnell Corp., 384 U.S. 563, 570-71 (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. See generally Note, Trust Busting Down on

the Farm: Narrowing the Scope of Antitrust Exemp-

tions for Agricultural Cooperatives, 61 Va. L. Rev. 341

(1975). When the Sherman Act was under consideration

in 1890, an amendment was proposed that would have

exempted agricultural cooperatives from the proscrip-

tions of the Act. Although Senator Sherman did not

believe that his bill applied to farmers’ associations, he

apparently was willing to accept the amendment. How-

ever, without explanation, it was deleted from the bill as

enacted. See 1 Kintner, Federal Antitrust Law 58 4.8,

4.9, 4.12 (1980). Whatever the reason for deletion, the

6636

46a

Appendix—Opinion of the United States Court

of Appeals for the Second Circuit.

Sherman Act, as interpreted by the Supreme Court, see

Loewe v. Lawlor, 208 U.S. 274, 301 (1908), was a strong

deterrent to the development of large agricultural

cooperatives.

The tremendous growth of the California fruit in-

dustry brought about a drastic change in the merchan-

dising of farm commodities. When California growers

discovered the advantages of collectively processing and

marketing their perishable fruit, large-scale, single com-

modity cooperatives quickly assumed a dominant role in

the industry. See, e.g., Sunkist Growers, Inc. v. Winck-

ler & Smith Citrus Products Co., supra, 370 U.S. at 28-

29. Shortly after World War I, the concept of large-scale,

cooperative commodity marketing began to spread to

other parts of the country. Wheat, cotton, and tobacco

growers, in particular, became involved in the regional

commodity cooperative movement. Knapp, The Advance

of American Cooperative Enterprise 7-12 (1973). See

Liberty Warehouse Co. v. Burley Tobacco Growers’ Co-

Operative Marketing Association, 276 U.S. 71 (1928).

Legislatures in many states enacted enabling statutes

excepting organizations of this type from the coverage

of state antitrust laws. Tigner v. Texas, 310 U.S. 141,

145-47 (1940). The American Cotton Association was

organized in 1919, and in 1920 a plan for the organiza-

tion of state marketing cooperatives was adopted. An

essential element of this plan, and one of the “‘8’

commandments of ‘commodity cooperative marketing’ ”,

was that each cooperative should “control a sufficient

proportion of the entire crop to be a dominant factor in

the market. Knapp, supra, at 9.

Congress was not unaware of what was taking place.

Senator Walsh, the most vociferous opponent of Capper-

Volstead’s anti-Sherman features, directed the attention

6637

47a

Appendix—Opinion of the United States Court

of Appeals for the Second Circuit.

of his colleagues specifically to the fact that 93 per cent

of California’s raisin growers were members of the Sun

Maid Raisin Growers Association. See 62 Cong. Rec.

2164 (1922). Senator Capper pointed to the 1,100 mem-

ber California Fruit Growers Exchange as the “type of

cooperative that would find ‘definite legalization’” un-

der Capper-Volstead. Sunkist Growers, Inc. v. Winckler

& Smith Citrus Products Co., supra, 370 U.S. at 28.

Clearly, cooperatives “of such size and general activities”

were contemplated by the proposed Act. Id. at 29.

Proponents of Capper-Volstead, the prototype of which

was introduced in 1919, see H.R. 7783 and S. 845, 66th

Cong., Ist Sess. (1919), were convinced that farmers

needed congressional help and, if there was any doubt

on this score, it was dispelled by the severe agricultural

depression of 1920.

In the presidential election of 1920, both party plat-

forms stressed the need for legislative protection of the

cooperative movement. In 1921, Congress organized a

Joint Commission of Agricultural Inquiry to investi-

gate, among other things, the causes of the agricultural

depression and the reason for the difference between the

prices paid farmers and costs to consumers. Among the

Commission’s recommendations was the enactment of

legislation to strengthen the legal position of coopera-

tives. Knapp, supra, at 21.

A national Agricultural Conference was convened by

the Secretary of Agriculture in January 1922, at which

President Harding spoke. He assured the conferees that

they would be afforded “ample provision of law under

which they [might] carry on in cooperative fashion those

business operations which lend themselves to that

method. Id. at 23. The Conference’s Committee on

the Marketing of Farm Products recommended “the

6638

48a

Appendix—Opinion of the United States Court

of Appeals for the Second Circuit.

formation of strongly organized cooperative associations

of farmers, preferably on a commodity basis.” Jd. at 24.

It is little wonder, then, that Capper-Volstead and the

major pieces of farm legislation that followed it strongly

supported the cooperative movement. In Capper-Vol-

stead, Congress did not simply broaden the scope of

section 6 of the Clayton Act, 15 U.S.C. § 17, so as to

bring cooperatives issuing capital stock within that

section’s antitrust exemptions. Where section 6 spoke

only in terms of cooperative purposes, i.e., “mutual

help”, Capper-Volstead spelled out the broad range of

activities in which the cooperative might engage, i.e.,

“processing, preparing for market, handling, and

marketing.” See National Broiler Marketing Assn. v.

United States, 436 U.S. 816, 824-25 (1978).

In the Cooperative Marketing Act of 1926, 44 Stat.

802 (1926) (current version at 7 U.S.C. §§ 451-457),

Congress authorized the Secretary of Agriculture to

establish a division of cooperative marketing. 44 Stat.

802. That division was to render services to agricultural

cooperatives, to confer and advise with producers desir-

ous of forming cooperatives, and to promote the knowl-

edge of cooperative principles. Jd. at 802. Cooperative

associations were also authorized to exchange and dis-

seminate market and economic information among

themselves. Id. at 803. —

The declared policy of the Agricultural Marketing Act

of 1929, 46 Stat. 11 (1929) (current version at 12 U.S.C.

§§ 1141-1141j), was to promote the effective merchan-

dising of agricultural commodities “so that the industry

of agriculture [would] be placed on a basis of economic

equality with other industries. 46 Stat. 11. This

would be accomplished in part “by encouraging the

organization of producers into effective associations or

6639

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49a

Appendix—Opinion of the United States Court

of Appeals for the Second Circuit.

corporations under their own control for greater unity

of effort in marketing and by promoting the establish-

ment and financing of a farm marketing system of

producer-owned and producer-controlled cooperative as-

sociations and other agencies.” Jd. The Federal Farm

Board, created by the Act, was authorized to make loans

to cooperatives to assist them in “extending” their mem-

bership by educating producers in the advantages of

cooperative marketing. Id. at 14. If, in the judgment of

the Board, the producers of any commodity were “not

organized into cooperative associations representative of

the commodity”, the Board was authorized to make the

benefits of the Act available to other cooperatives deal-

ing in the same commodity. Id. at 18.“

The Farm Credit Act of 1933, 48 Stat. 257 (1933),

authorized the creation of twelve “Banks for Coopera-

tives”, which were authorized to make loans to coopera-

tive associations for most of the purposes set forth in

the Agricultural Marketing Act. 48 Stat. 257. Specifi-

cally included within these purposes was the “effective

merchandising of agricultural commodities.” Jd. at 265.

As late as 1968, with the enactment of the Agri-

cultural Fair Practices Act, Pub. L. No. 90-288, 82 Stat.

93 (1968) (current version at 7 U.S.C. §§ 2301-2306),

Congress continued to recognize the need for stronger

and more effective marketing and bargaining associa-

tions of farmers. See [1968] U. S. Code Cong. & Ad.

News 1869. Congress declared that the “marketing and

bargaining position of individual farmers will be ad-

The first chairman of the Farm Board promptly declared that “(t]he

Board believes that it can be of great assistance to American farmers

by encouraging the development of large-scale, central cooperative

organizations.” Knapp, supra, at 123.

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versely affected unless they are free to join together

voluntarily in cooperative organizations as authorized

by law”, 82 Stat. 93, and forbade any coercive practices

by handlers which would interfere with the farmers’

exercise of this right. Jd. at 94. See Butz v. Lawson Milk

Co., 386 F. Supp. 227, 235 (N.D. Ohio 1974).‘

It is apparent from these statutes that agricultural

cooperatives were “a favorite child of Congressional

policy.” 5 Toulmin, Antitrust Laws § 6.1, at 334 (1950);

Stark v. Brannan, 82 F. Supp. 614, 617 (D.D.C. 1949).

“Moreover, there is persuasive evidence that Congress’

4 See also

a) the Agricultural Adjustment Act of 1933, § 8(2), 48 Stat. 34

(1933) (current version at 7 U.S.C. §§ 601-604, 607-623), which

empowered the Secretary of Agriculture to enter into market-

ing agreements with associations of producers, such agreements

not to be held in violation of the antitrust laws;

b) the Agricultural Adjustment Act of 1935, § i6(bX1), 49 Stat.

767 (1935), requiring the Secretary of Agriculture to accord

such recognition encouragement to producer-owned and

producer-controlled cooperatives as would be in harmony with

the policy toward such ratives already set by Congress,

see United States v. Rock Royal Co-Operative, Inc., 307 U.S.

533, 562-64 (1939);

e) the Robinson-Patman Anti- Discrimination Act, § 4, 49 Stat.

1528 (1936) (current version at 15 U.S.C. §§ 13, 13a, 13b, 21a),

which permitted cooperatives to return net earnings and sur-

plus to their members, ucers and consumers in proportion

to their purchases or :

d) the Motor Cartier Act. 189. F 203), 49 Stat. 545 (1935),

which exempted motor vehicles controlled and operated by

cooperative associations from most of the Act's provisions;

e) the 1939 Internal Revenue Code, § 101(12XA), 53 Stat. 33-34

(1939) (current version at 26 U.S.C. § 521), which exempted

certain farmers cooperatives from taxation;

f) the Investment Company Amendments Act of 1970, § 27(c), 84

Stat. 1435 (1970), which exempted certain farmers coopera-

tives from the registration requirements of the Act;

g) the National Agricultural Marketing and Bargaining Act of

1971.9 Harv. J. Leg. 498 (1972) (proposed but not enacted).

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concern for protecting contract growers vis-a-vis proces-

sors and handlers has not abated.” National Broiler

Marketing Assn. b. United States, supra, 436 U.S. at

837. (Brennan, J., concurring). The consistent tenor of

the enactments shows that Congress wanted and ex-

pected farmers to be represented by strong and effective

cooperatives, so extensively organized as to be repre-

sentative of individual commodities. Unity of effort was

encouraged in order to give farmers the same “unified

competitive advantage” available to businessmen acting

through corporations. Maryland and Virginia Milk Pro-

ducers Association v. United States, supra, 362 U.S. at

466. As Senator Capper himself expressed it, when he

successfully opposed Senator Walsh’s proposed amend-

ment to Capper-Volstead that would have prohibited the

creation of cooperative monopolies, see S. Rep. No. 236,

67th Cong., Ist Sess. (1921), “no association can effi-

ciently operate that does not control and handle a

substantial part of a given commodity in the locality

where it operates.” 62 Cong. Rec. 2058 (1922).

In short, when Congress enacted the Capper-Volstead

Act, it did not intend to prohibit the voluntary and

natural growth that agricultural cooperatives needed to

accomplish their assigned purpose of effective farmer

representation. That farmers’ legitimate desires for

unity of effort would incorporate of necessity a concept

of corporate aggrandizement did not per se make this

method of cooperative growth illegal. See United States

v. Rock Royal Co-op, Inc., supra, 307 U.S. at 560.

This is the interpretation that has been placed upon

Capper-Volstead by practically every scholar in the anti-

trust field.“ This is how those courts which have directly

5 See ] Areeda & Turner, Antitrust Law J 228d (1978), 1 Corman,

The Law of Unfair Competition Trade Marks and Monopolies

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addressed the issue have construed the Act. In Sunkist

Growers, Inc. v. Winckler & Smith Citrus Products Co.,

supra, 370 U.S. at 24, the Court noted with apparent

approval that portion of the district court's charge

which stated that cooperatives could lawfully have a

monopoly of the fruit and products in which they dealt.“

In Maryland and Virginia Milk Producers Association v.

United States, supra, 362 U.S. at 465, the Court said

that farmers might act together in cooperative associa-

tions without the associations as such being illegal

under the antitrust laws “as they otherwise might have

been.” Justice White expressed the same thought when

he said that “(t]he assistance offered farmers by the

Capper-Volstead Act was to allow combination in a way

that would otherwise violate the antitrust laws,” and

concluded that the end result was a “bilateral monopoly”

that benefited both the producer and the consumer.

National Broiler Marketing Assn. v. United States, su-

pra, 436 U.S. at 842, (White, J., dissenting). See also

Treasure Valley Potato Bargaining Association v. Ore-

Ida Foods, Inc., supra, 497 F.2d at 216 n.11; Sunkist

15.2(a) (1967 & Cum. Supp. 1979); 2 Kintner, Federal Antitrust

w § 17.5, at 517-18 (1980), Mueller, The National Antitrust Com-

mission: Implications for Cooperatives, No. 37 (Dept. of Agricultural

Economics, University of Wisconsin-Madison, September 1979), 5

Toulmin, Antitrust Laws § 6.13 (1950); 7 Von Kalinowski, Antitrust

Laws and Trade Regulations § 51.08{3b} (1980), Hufstedler, A Pre-

diction: The Exemption Favoring Agricultural Cooperatives Will Be

Reaffirmed, 22 Ad. L. Rev. 455, 460 (1969-1970).

6 The district court actually charged that Itſhe defendant Sunkist is

permitted under the law to acquire a legal monopoly over product

Valencia oranges that are available for processing into citrus juice

products, including single-strength Valencia juice.” Sunkist Growers,

Inc. v. Winckler & Smith Citrus Products Co., 284 F.2d 1, 19 (9th Cir.

1960), rev'd, 370 U.S. 19 (1962).

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Growers, Inc. v. ET. C., 464 F. Supp. 302, 309 (C.D. Cal.

1979); Shoenberg Farms, Inc. v. Denver Milk Producers,

Inc., 231 F. Supp. 266, 268 (D. Colo. 1964); Cape Cod

Food Products, Inc. v. National Cranberry Ass n, 119 F.

Supp. 900, 907 (D. Mass. 1954); United States v. Dairy

Co-Op Ass n, 49 F. Supp. 475 (D. Ore. 1943); United

States v. King, 250 F. 908, 910 (D. Mass. 1916).

Even the Federal Trade Commission, ever in the van-

guard of the attack on monopolization, has stated that if

an agricultural cooperative attains a monopoly position

(even 100 percent) “without resort to predatory or anti-

competitive practices, but through natural growth or

the voluntary affiliation with or attraction of new mem-

bers, no illegality would attach.” See Hearings on Anti-

trust Aspects of Food Price Increases Before the Sub-

Comm. on Monopolies and Commercial Law of the

House Comm. on the Judiciary, 93rd Cong., 1st Sess.

715 (1973).

Of course, a cooperative may neither acquire nor

exercise monopoly power in a predatory fashion by the

use of such tactics as picketing and harassment, Otto

Milk Co. v. United Dairy Farmers Cooperative Associa-

tion, 338 F.2d 789, 797 (3d Cir. 1967), boycotts, North

Texas Producers Association v. Metzger Dairies, Inc.,

348 F.2d 189, 195-96 (5th Cir. 1965), cert. denied, 382

U.S. 977 (1966), coerced membership, see Gulf Coast

Shrimpers and Oystermans Association v. Urited

States, 236 F.2d 658, 665 (5th Cir.), cert. denied, 352

U.S. 927 (1956), and discriminatory pricing, Knuth v.

Erie-Crawford Dairy Cooperative Association, 395 F.2d

420, 423-24 (2d Cir. 1968). Neither may it use its

legitimately acquired monopoly power in such a manner

as to stifle or smother competition. Maryland and Vir.

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ginia Milk Producers Association v. United States, su-

pra, 362 U.S. at 463.

Mlany anticompetitive actions are possible or ef-

fective only if taken by a firm that dominates its

smaller rivals. A classic illustration is an insistence

that those who wish to secure a firm’s services cease

dealing with its competitors. Such conduct is illegal

when taken by a monopolist because it tends to

destroy competition, although in the hands of a

smaller market participant it might be considered

harmless, or even ‘honestly industrial“ Berkey

Photo, Inc. v. Eastman Kodak Co., 603 F.2d 263,

274 (2d Cir. 1979), cert. denied, 100 S. Ct. 1061

(1980) (citations omitted).

In refusing to dismiss the section 2 claims, the district

court relied on Grinnell v. United States, supra, which

stated the following requirements for a monopolization

claim:

The offense of monopoly under § 2 of the Sher-

man Act has two elements: (1) the possession of

monopoly power in the relevant market and (2) the

willful acquisition or maintenance of that power as

distinguished from growth or development as a

consequence of a superior product, business acu-

men, or historic accident.

384 US. at 570-71. Our review of the above authorities

persuades us that the effect of Capper-Volstead is to

prevent the full application of the second element of this

test to agricultural cooperatives. Capper-Volstead per-

mits the formation of such cooperatives and places no

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limitation on their size. As the cooperative grows, so,

normally, does its power over the market. Thus, while

the formation, growth and operation of a powerful

cooperative is obviously a “willful acquisition or main-

tenance of such power,” and will rarely result from “a

superior product, business acumen, or historic accident,”

id., it is exactly what Capper-Volstead permits.

We conclude that Grinnell does not apply to monopoly

power that results from such acts as the formation,

growth and combination of agricultural cooperatives,

but applies only to the acquisition of such power by

other, predatory means. It is not a violation of the

Sherman Act for the members of an agricultural

cooperative to carry out the legitimate objectives of

their association which follow naturally from their at-

tempts to achieve unity of effort and the voluntary

elimination of competition among themselves. Maryland

and Virginia Milk Producers Association v. United

States, supra, 362 U.S. at 465. See Connell Construction

Co. v. Plumbers & Steamfitters Local 100, 421 U.S. 616,

635 (1975).

That part of the district court’s order which granted

defendants summary judgment on plaintiff's claim of a

section 1 Sherman Act violation is affirmed. Because it

is not clear whether the district court denied defen-

dants’ motion for summary judgment dismissing the

section 2 count on the premise that the mere accretion

of power from formation of a cooperative is sufficient to

violate that section or on the ground that predatory acts

had been sufficiently shown, that part of the order is

vacated, and the matter is remanded to the district

court for reconsideration consistent with the principles

set forth in this opinion. We express no opinion concern-

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ing the district court’s ultimate resolution of this por-

tion of defendants’ summary judgment application.’

There are those who contend that the economics of farming have

changed so drastically in recent years through farm and

mechanization that the Ca Volstead Act is no longer needed to

equalize bargaining power. Toulmin, supra note 5, at 334; Note,

Trust Busting Down on the Farm: Narrowing the Scope of Antitrust

Exemptions for Agricultural Cooperatives, 61 Va. L. Rev. 341, 381-89

(1975). It is for Congress, not the courts, to determine whether there

is sufficient merit in this argument to warrant a redesign of the

statute.

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This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.