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

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83-749

IN THE

Supreme Court of the Unit

October Term, 1983

FAIRDALE FARMS, INC.,

Vs.

YANKEE MILK, INC.,

and

Petitioner,

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

AND WOOL

P.O. Drawer 351

Middlebury, Vermont 05753

(802) 388-6356

KEITH I. CLEARWATERS, ESQ.

Suite 1200

1000 Connecticut Avenue

Washington, D.C. 20036

(202) 785-0048

Counsel for Petitioner

Batavia Times Pubtisting Co

Batavia. N Y (716) 344-2000

Questions Presented for Review

1. Do the Capper-Volstead and Clayton Acts

immunize agricultural cooperatives from the full

application of the two-part monopolization test set forth

in United States v. Grinnell Corp., 384 U.S. 563, 570-71

(1966): (1) the possession of monopoly power in the

relevant market and (2) willful acquisition or

maintenance of that power as distinguished from growth

or development as a consequence of a superior product,

business acumen, or historic accident?

2. Is an alleged “marketing agency in common”,

formed by agricultural cooperatives, federations of

cooperatives, and marketing agencies in common, that

does nothing more than fix the amount of a premium to

be added to the price its members charge, exempted by the

Capper-Volstead and Clayton Acts from the prohibitions

of Section 1 of the Sherman Act?

3. Assuming arguendo that Defendants’ monopoly

and their price fixing activities are legal, did they violate

the antitrust laws by setting an excessively high

premium on the price of raw milk, possible only because

they had monopoly power, by imposing a premium in

some geographic markets and not in others, by giving

some handlers exemptions from the premiums and

refusing to grant exemptions to others, by using the

threat of cut-off of all their producers to enforce

collection of a premium imposed on only some of their

producers’ milk, and by threatening withdrawal of

supply without notice to try to force payment of the

premium?

TABLE OF CONTENTS.

Page

Questions Presented for Review.................. i

LE OD Set ae Vv

es ee Ce. Se ew ewmeae be eae 2

ka a SS ey 2

i OCOD... ca cbccccccccnseccoss 2

sect bv ccc cebees 3

rr Co es piece cebcce sep dys 6

NEE 7

ES EAE I 10

nC. ss aie Gebis eves Ub ec peecccosed 14

I. These Questions Are Important Issues of

Federal Law Which Have Not Been, But Should

Be, Decided By This Court.................. 14

A. The Monopolization Question......... 16

B. The Price-Fixing Question............ 18

C. The Predatory Practices Issue........ 21

II. The Court of Appeals’ Decisions Conflict

With Prior Analysis of the Exemption By This

SS EON aL a pdb oes 6 bn-o-0 6 uemee 23

SIL oo way Wede dos 06's 0 wes 60.0 000 25

CD ip sevecctccccesccsccveneces 26

SRUPMUO GE UNWID . 5 nsec cer cciccncecccces 27

Appendix—First Opinion and Order of the United

States District Court for the District of Vermont. la

Appendix--First Opinion of the United States Court

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

Appendix—Second Opinion of the United States

District Court for the District of Vermont....... 57a

Appendix—Second Opinion of the United States

Court of Appeals for the Second Circuit......... 64a

Page

TABLE OF AUTHORITIES.

Cases:

Alexander v. National Farmers Organization, 687

op Seer FN RR) Re eer 18

Banana Distributors, Inc. v. United Fruit Co., 163

Pa, De CRE e i ROO 6 occ s hbabinseviases 21

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

EES REDS os bo 4 a a6 deo 4 cid 6 a ee ee 21

Carnation Co. v. Pacific Westbound Conference, 388

See ng 3k a c-cd wee o's 6.0 oath aietie = Wwe 24

Case-Swayne Co. v. Sunkist Growers, Inc.,

369 F.2d 449 (9th Cir. 1966), rev'd. on other

grounds, 389 U.S. 384 (1967), reh. denied, 390

Sa SEED ss clk kin &a'¥ ¢ © bibs bbe whee haem 18,24

Federal Maritime Commission v. Seatrain Lines,

iy MEERA CREEEE eb o.bgts cecceccasgeawe 23

Kinnett Dairies, Inc. v. Dairymen, Inc., F.2d

_ (11th Cir. 1983), No. 81-7308 ............ 18

Lorain Journal Co. v. United States, 342 U.S.

Se 58 lad kn Wsme de uh 0c cok ooiewle 21

Maryland and Virginia Milk Producers Association

v. United States, 362 U.S. 458 (1960)........ 16,17,24

National Broiler Marketing Association v. United

States, 436 U.S. 816, reh. denied, 390 US.

DNs Gb ocx sb bersbs cahnkhe.odr pene 19,24

Northern California Supermarkets, Inc. v. California

Lettuce Producers Cooperative, 413 F.Supp. 984

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

(9th Cir. 1978), cert. denied, 439 U.S. 1090 (1979). 20

Page

Sanitary Milk Producers v. Bergjans Farm Dairy,

Inc., 368 F.2d 679 (8th Cir. 1966), affirming

Bergjans Farm Dairy Co. v. Sanitary Milk

Producers, 241 F.Supp. 476 (E.D. Mo. 1965). . .17,18,21

Sunkist Growers, Inc. v. Winckler & Smith Citrus

Products Co., 370 U.S. 8, reh. denied, 370 U.S. 965

N.S WEEN 56 dc etek ieee eas Ree eewemies 20

Times-Picayune Publishing Co. ». United States, 345

IGS 6 edie te Wed dwes dhee spre eras 21

Treasure Valley Potato Bargaining Association v.

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

1974), cert. denied, 419 U.S. 99 (1974) .......... 17,20

United States v. Borden, 308 U.S. 188 (1939) . . . 19,23,24

United States v. Container Corporation of America,

a RED itn: 5-6-3 04. ay's's bee Reoh beter 20

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

aa aalidiid:s wed die'ge'es a's Chr ee es i,6,11,17,18,24

United States v. Philadelphia National Bank, 374

I RED en Once tbaeees ote ctecensaewe 23

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

UT a's ixiin's.c. te 0 bios 6Mn, dca bog etan een 20

Page

Statutes:

Capper-Volstead Act of 1921,

UE ee en aS Oe 4,11

Clayton Act:

rt O08 oo asi ces de adoken an 4,11,16

a RE See ere erie et 3,11

Cooperative Marketing Act of 1926,

eG ta oe ec, Cee an 5,11

Sherman Act:

ERIE A a'a's dae» dee bw ep eee i,3,10,11,12,19,20

I cin n de pa ose ebre wae 3,10,11,12,16,17,23

ee Dg ee 2,13

Ny CN Sn osc dee eube kG ehe paredee 12

NE UMD ooo. icky Rinku es uaa 10

Page

Miscellaneous:

1 Areeda and Turner, Antitrust Law, 180.......... 18

3 eR RS. eee ers oa 17

Farmer Cooperation Service, U.S. Department of

Agriculture, ‘‘Cooperative Growth: Trends,

Comparisons, Strategy’’ (F.C.S. Information 87,

PRUE ad ve so tkG s valdadacd vs bbus othawrsbewee 15

Farmer Cooperatives, 14 (July 1979).............. 15

Hafstedler, ‘‘A Prediction: The Exemption Favoring

Agricultural Cooperatives Will Be Reaffirmed’’, 22

Ad.L.Rev. 455 (1969-1970) ........... cece eeees 21

Hearings on S.4344, before the Senate Committee

on the Judiciary, 66th Cong., 2d Sess........... 19

Mahaffie, ‘Cooperative Exemptions Under the

Antitrust Laws: A Prosecutor’s View’, 22

Ad.L.Rev. 435 (1969-1970) ......... cc cee eeeees 21

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

of Justice to the Task Group on Antitrust

Do Pee PET ee ee 21

Note, “Agricultural Cooperatives and the Antitrust

Laws: Clayton, Capper-Volstead and Common

Sense”, 44 Va.L.Rev. 63 (1958) ................ 17

Note, “The Agricultural Cooperative Antitrust

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

Inc.”’, 67 Cornell L. Rev. 396 (1982) ............ 16,17

U.S.D.A., Agricultura Statistics, 1981............ 22

IN THE

Supreme Court of the United States

October Term, 1983

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

Appeals for the Second Circvit entered in the above

entitled case on August 8, 1983.

Parties

The parties are Plaintiff Fairda'e Farms, Inc.'

(“‘Fairdale’) and Defendants Yankee Milk, Inc.

(““Yankee’’) and the Regional Cooperative Marketing

Agency (““RCMA”). Amicus Curiae briefs were filed in

the first appeal to the Second Circuit Court of Appeals

by the United States Department of Justice and the

National Council of Farmer Cooperatives.

Reported Opinions

The initial District Court Order and Opinion was not

officially reported. It was printed in relevant part at

1980-1 CCH Trade Cases, pp. 63,029 (D. Vt. 1979). The

first Opinion of the Court of Appeals was reported at 635

F.2d 1037 (2d Cir. 1980), cert. denied, 454 U.S. 818

(1981). The second District Court Order and Opinion was

not reported. The second opinion of the Court of Appeals

has not yet been reported. All opinions are fully set forth

in the Appendix submitted with this petition.

Grounds for Jurisdiction

The Judgment sought to be reviewed was entered by

the United States Court of Appeals for the Second

Circuit on August 8, 1983, in an appeal from the United

States District Court for the District of Vermont.

This Court has jurisdiction to review the judgment by

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

' Fairdale Farms, Inc. has no parent company, no subsidiaries, and no

affiliates.

Statutes

Sherman Act (15 U.S.C. §1, §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, §7 (15 U.S.C. §18)

$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

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

the use of such stock by the voting or granting of

proxies or otherwise, may be substantially to lessen

competition, or to tend to create a monopoly.

Clayton Act, §6 (15 U.S.C. §17)

Antitrust laws not applicable to labor

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

commodity or article of commerce. Nothing

contained in the antitrust laws shall be construed to

forbid the existence and operation of labor,

agricultural, or horticultural organizations,

instituted for the purposes of mutual help, and not

having capital stock or conducted for profit, or to

legitimate objects thereof; nor shall such

organizations, or the members thereof, be held or

construed to be illegal combinations or conspiracies

in restraint or trade, under the antitrust laws.

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

$291. Authorization of associations; powers

Persons engaged in the production of agricultural

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

information 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 to review two decisions of the

United States Court of Appeals for the Second Circuit in

appeals from the United States District Court for the

District of Vermont. These decisions resulted in Final

Judgment being entered against the Plaintiff-Petitioner

in this matter on August 8, 1983.

In its first decision on December 9, 1980, in an

interlocutory appeal, the Court of Appeals vacated in

part the opinion of the District Court on motions for

summary judgment in this antitrust case. The Court held

it improper for the District Court to apply to agricultural

cooperatives the monopolization standard of United

States v. Grinnell Corp., 384 U.S. 563, 570-71 (1966),

applicable to ordinary business corporations, holding

instead that such cooperatives are immune under the

Capper-Volstead Act from Sherman Act liability absent

evidence of predatory behavior. The Court of Appeals

further held, affirming the District Court, that price

fixing by a group of agricultural cooperatives is also

exempt from antitrust liability, even though the group

engages in no inter-cooperative activities other than

setting the vrice at which the members sell their product.

The case was remanded to the District Court to

determine whether Fairdale had raised a genuine issue of

material fact as to predatory practices by the

Defendants.

On remand, the District Court ruled that Fairdale had

not raised any genuine issues of material fact on the

issue of predatory practices, and entered summary

judgment against the Plaintiff. The Court of Appeals, in

its August 8, 1983 opinion, held that the conduct

complained of by the Plaintiff was not predatory and

entered final judgment against Fairdale.

Facts of the Case

This matter came before the courts on motions for

summary judgment. The facts stated herein are those

presented in swurn discovery responses and depositions.

Plaintiff Fairdale Farms, Inc., is an employee-owned

corporation iocated in Bennington, Vermont, that

processes raw milk and sells its fluid milk and milk

products to supermarkets and other outlets in Vermont,

Massachusetts and eastern New York. Fairdale obtains

raw milk for processing from its own dairy herd and

from individual producers located in the surrounding

three county areas of Bennington County, Vermont,

Berkshire County, Massachusetts, and Rennselaer

County, New York.

Defendant Yankee Milk, Inc.,’? is an agricultural

cooperative composed of dairy farmer members that

purchases raw 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 and 450 employees. It operates in 7 states,

and in 1974 and 1975 its members. produced

approximately 3 billion pounds of milk per year.’ During

the fiscal year ending June 20, 1974, Yankee’s operations

resulted in sales of over a quarter billion dollars.

Yankee was formed in 1972 by the merger of the three

largest New England dairy farmer cooperatives, for the

stated purpose of obtaining market strength.

* The facts are stated herein as they were during the pertinent times

covered by this litigation. There have been dramatic changes in

Defendant Yankee Milk, Inc., which, through additional :aergers and

purchases, has now become Agri-Mark, Inc.

*A comparison of the relative size of the parties can be made by

comparing this figure with the 22 million pounds of milk processed by

Fairdale in 1977.

Immediately after the merger, Yankee controlled the

following market shares:

Massachusetts -71% of milk produced

Vermont 39%

Maine 70%

New Hampshire 79%

Rhode Island 87%

Connecticut 77%

New York 5%

Shortly thereafter, another large cooperative (Dairylea,

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

England dairy farmers.

Defendant Regional Cooperative Marketing Agency

(“RCMA”) is an organization of dairy farmer

cooperatives (including Yankee), two federations of dairy

farmer cooperatives (one having 50 cooperatives as

members), and a common marketing agency representing

two of RCMA’s member cooperatives. It was formed in

1973 in order to raise milk prices after the federal

government concluded that price increases were not

warranted. 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 raw

milk for three federal regulatory markets and two state

regulatory markets. All RCMA member cooperatives are

also engaged in processing dairy products and/or fluid

milk. RCMA’s attorney conceded in oral agrument before

the Court of Appeals that RCMA is a “monopolist’’,

_ albeit an allegedly ‘‘legal’’ one.

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

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

sell their milk in certain New England and New York

markets. It did not itself engage in any of the collective

functions its member cooperatives performed on behalf

of their members, such as marketing, billing, handling or

processing. Rather, RCMA members met monthly to

decide on the amount of a “premium’”’ (or “over-order

price’) the members would charge milk processors such

as Fairdale on raw milk. The individual members billed

and collected the premium, which was in addition to the

usual cooperative service charges and was billed

separately. During the three years in which the premium

was charged, RCMA members coliected over twenty

million dollars in premiums. During 1974, the premium

was at a level which Fairdale’s economic expert

characterized as predatory.

Yankee and RCMA acquired enough market power not

only to raise RCMA members’ prices, but also to affect

prices so substantially within Vermont and Maine that

the state regulatory agencies raised their prices to

prevent disorder within the market. Also, other small

cooperatives that were not RCMA members were able to

ride on its coattails and collect over-order prices for their

producers. RCMA and Yankee did not charge the

premium in the large New York-New Jersey federal order

market where it did not have monopoly power.

At the time this dispute arose, Yankee controlled more

than 57 to 67 percent and RCMA controlled more than

86 percent of raw milk in the three county area from

which Fairdale procured its milk. Some 40 percent of

Fairdale’s milk supply came from producers who were

members of an RCMA member cooperative and virtually

the only non-RCMA farmers in Fairdale’s procurement

area were Fairdale’s own dairy and the “independents”’

from whom it was already purchasing raw milk.

The dispute between the parties arose in the fall of

1974, when Fairdale refused to pay Yankee the RCMA

premium. Yankee responded that it was “pulling’”’

(stopping shipment of) all its producers’ milk that went

to Fairdale (including those in Vermont and New York),

even though the disputed premium was imposed on only

the Massachusetts producers’ milk. Although, upon

Fairdale’s request, Yankee agreed to discuss the matter,

it at one point instructed its producers to withhold

immediately their milk from Fairdale. Experts for

Fairdale and Yankee agreed that a pull order without

notice was unheard of in the milk industry because daily

raw milk supply is absolutely essential to a milk

processor who must meet daily supply commitments to

its customers. Thus, although the ‘“‘pull-order’’ was

rescinded, Fairdale knew it to be a clear threat that

Yankee would use its dominant market position to force

Fairdale to accept the premium. With this cut-off threat

hanging over Fairdale, negotiations to find an acceptable

basis for continued shipment failed, and business

relations were terminated as of January 1, 1975.

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 the ongoing

costs involved in purchasing milk from new producers

located outside its usual procurement area. In addition,

Fairdale lost a major supermarket account because, with

the unreasonably high price it was paying for its milk, it

was unable to maintain its price at competitive levels.

Prior Proceedings

Fairdale filed an Amended Complaint in this action‘ on

June 4, 1976, alleging that RCMA and Yankee violated

Sections 1 and 2 of the Sherman Act (15 U.S.C. $1 and

‘ Jurisdiction was founded on 28 U.S.C. §1337(a).

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

price-fixing, attempting to monopolize, monopolization,

and anticompetitive mergers. RCMA and Yankee rely on

Section 6 of the Clayton Act, 15 U.S.C. §17, the Capper-

Volstead Act, 17 U.S.C. §291, and Section 5 of the

Cooperative Marketing Act, 7 U.S.C. §455, as defenses

to their acts.

The case came before the District Court on motions for

summary judgment. All parties moved for summary

judgment on Count I (the price fixing count) and Yankee

and RCMA moved for summary judgment on Count II

(the monopolization count).

In their motion on the monopolization count,

Defendants argued that the Capper-Volstead Act

immunized them from Sherman Act Section 2 liability

unless Fairdale could show that they engaged in

predatory practices. The District Court, however, denied

the motion for summary judgment on the monopoly

charge, holding that a cooperative or group of

cooperatives were entitled to no greater protection than

were ordinary business corporations which, under the

definition of monopolization set forth in U.S. v. Grinnell

Corp., 384 U.S. 563 (1966), could be liable for a violation

of Section 2 without a specific showing of predatory

conduct. Under Grinnell, two elements were required for

proof of monopolization: (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 acumen, or

historic accident.’ Jd. at 570-71. Refusing 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,’’ the District Court

stated that ‘a plaintiff claiming an agricultural

cooperative has violated section 2 has no greater burden

than if he sued a corporation.’’

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

combination formed solely for the purpose of price fixing

was a per se violation of Sherman Act Section 1.

Although the District Court agreed that RCMA did

nothing more than fix prices, it held that the Capper-

Volstead Act immunized such activity from attack under

Section 1 of the Sherman Act, and granted Defendants’

summary judgment motion on the price fixing count.

Pursuant to certification by the District Court and

permission by the Court of Appeals for the Second

Circuit, the parties took interlocutory cross-appeals on

these questions in accordance with 28 U.S.C. §1292(b).

The Court of Appeals affirmed the District Court on the

_price fixing count, holding that such activity was

immunized by the Capper-Volstead and Clayton Acts.

The Court reversed and vacated the District Court's

opinion on the monopolization count, ruling that

agricultural cooperatives are immune from antitrust

liability absent evidence of predatory behavior. The

Court stated:

By exempting farmers from Sherman Act

limitations on the ability to combine into

cooperatives, Capper-Volstead gives farmers the

right to combine into cooperative monopolies. . . .

Thus, while the formation, growth and operation of a

powerful cooperative is obviously a ‘willful

acquisition or maintenance of such power,” and will

rarely result from ‘a superior product, business

acumen, or historic accident,’’ Jd., 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 attempts to achieve unity of effort and

the voluntary elimination of competition among

themselves.

635 F.2d at 1040, 1045. In this way the Court resolved

what it perceived to be the conflict between the Capper-

Volstead exemption and the Sherman Act principles in

favor of cooperatives, finding them to be a ‘favorite

child of Congressional policy.” 635 F.2d at 1043. The

Court remanded the case to the District Court to

determine whether Fairdale had alleged sufficient

predatory acts to survive the summary judgment

motions.

Fairdale petitioned this Court for Certiorari pursuant

to 28 U.S.C. §1254(1) and, after requesting a position

from the Department of Justice, the Court denied

certiorari on the interlocutory appeal. 454 U.S. 818

(1981).

On remand Fairdale complained that the following

conduct by the Defendants was illegal activity in

furtherance of their monopoly:

1. Yankee’s decision to pull not only the

producers on whose milk the premium was disputed

but also those whose milk was not part of the

dispute.

2. Yankee’s refusal to give assurances of a

reasonable rotice of cancellation.

3. Because of Defendants’ monopoly, the high

level of the premium constituted predation on

buyers.

4. The premium was charged in some geographic

areas and not in others and to some processors and

not to others.

The District Court held that Fairdale had not raised a

genuine issue as to any fact material to the question of

whether Defendants engaged in predatory conduct.

Plaintiff appealed this determination to the United

States Court of Appeals for the Second Circuit. The

Court of Appeals affirmed the District Court's decision.

ARGUMENT

I. These Questions Are Important Issues of Federal

Law Which Have Not Been, But Should Be, Decidec By

This Court.

We respectfully submit that this Court should grant a

Writ of Certiorari to determine whether the Court of

Appeals correctly extended the Capper-Volstead and

Clayton Act exemptions to immunize conduct by

agricultural cooperatives which would have subjected

ordinary business corporations to lability under the

antitrust 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 absolute

economic dominance in the.” product markets.’ In

addition, we submit that the Federal Courts.of Appeals

have rendered inconsistent decisions regarding the

monopolization question, and the need for a uniform and

conclusive ruling is manifest. Finally, Petitioner suggests

that the Court of Appeals abandoned a fundamental rule

of construction enunciated by this Court requiring that

courts construe narrowly legislatively-granted antitrust

immunities when they conflict with the Sherman Act.

The import of the Fairdale decisions is that an

agricultural cooperative may now deliberately seek and

attain monopoly power and band together with other

cooperatives to set uniform prices at high levels. What is

clearly not allowed for ‘‘widgets” is allowed for the vital

commodity of food. Thus, the issues raised are not only

significant legally, since they involve basic issues of the

limits the Capper-Volstead Act places on the Sherman

Act, but they are also significant in terms of public

policy because abundant and reasonably priced food

products is a public necessity.

A definitive ruling on this issue would benefit the

lower courts and future litigants. These are issues which

involve considerable analysis and briefing. This. case is

now over 8 years old and was stymied for years because

of a lack of a definitive answer to very basic questions of

interpretation of the Capper-Volstead Act. If certiorari is

granted, courts and litigants will have clear guidance on

* Seven cooperatives were listed in the Fortune 500 in 1978. Farmer

Cooperatives 14 (July 1979). Regional cooperatives accounted for

between 71% and 100% of sales in the following commodities in 1973:

sugar (100%), tobacco (100%), nuts (96%), livestock and products

(88%), cotton and products (76%), dairy products (75%), rice (74%),

poultry products (73%), end beans and peas (71%). Farmer

Cooperation Service, U.S. Depi. of Agriculture, ‘Cooperative Growth:

Trends, Comparisons, Strategy” 25 (F.C.S. Information 87, 1973).

these issues rather than years of uncertainty over

difficult and taxing questions.

A “nutshell” review of the state of the law on the

three questions demonstrates the significance of the

issues raised in this case.

A. The Monopolization Question

Fairdale argued below that nothing in the text of

Section 2 or the Capper-Volstead Act suggests that

predatory practices are an essential element of a Section

2 claim. The Sherman Act 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, merély permits farmers,

including dairy farmers, to join together in cooperative

associations for the purpose of processing, handling, or

marketing their product. The legislative history of the

Capper-Volstead Act demonstrates that Congress did not

intend to give agricultural cooperatives special status as

compared to other business entities. Capper-Volstead

was enacted only to clarify the exemption from the

antitrust laws granted to agricultural cooperatives by

the Clayton Act, and to ensure that farmers would be

able to compete with corporations.’ Thus, Fairdale

argued the Act’s purpose was simply to give

cooperatives the same privileges enjoyed by

corporations.’

* For a helpful review of the Capper-Volstead Act's legislative history,

see, Maryland and Virginia Milk Producers Association v. United

States, 362 U.S. 458, 465-67 (1960); see also, Note, “The Agricultural

Cooperative Antitrust Exemption—Fairdale Farms, Inc. v. Yankee

Milk, Inc."’, 67 Cornell L. Rev. 396, 407-410 (1982).

"See Maryland and Virginia Milk Producers Association v. United

States, 362 U.S. 458, 466-67 (1960) (‘We believe it is 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

The leading case before this Court dealing with the

extent of the cooperative immunity from Section 2 of the

Sherman Act involved unquestionably predatory

practices, which this Court held to be unprotected.

Maryland and Virginia Milk Producers Association v.

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

stated that “the [Capper-Volstead] Act did not leave

cooperatives free to engage in practices against other

persons in order to monopolize trade, or restrain and

suppress competition with the cooperative.’’ 362 U.S.

458, 467. Maryland and Virginia has been followed by a

series of cases in the lower federal courts, cited by the

Court of Appeals in this case, which also involve

patently predatory practices. These cases do not directly

reach the issue presented here.

Although no previous cases have addressed squarely

the issue of whether the Grinnell standard is applicable

to agricultural cooperatives,’ decisions in the Ninth and

Eighth Circuit Courts of Appeals indicate that the

Grinnell test does, in fact, apply to agricultural

cooperatives. See Treasure Valley Potato Bargaining

Association v. Ore-Ida Foods, Inc., 497 F.2d 203, 209

(9th Cir. 1974) (directly citing and applying Grinnell);

Sanitary Milk Producers v. Bergjans Farm Dairy, Inc.,

individual farmers should be given, through agricultural cooperatives

acting as entities, the same unified competitive advantage—and

responsibility—available to businessmen acting through corporations

as entities."’) See also 62 Cong. Rec. 2057 (1922) (remarks of Senator

Capper: The purpose of the Act is “to give the farmer the same right

to bargain collectively that is already enjoyed by corporations."’).

"Commentators have urged the application of the Grinnell test to

agricultural cooperatives. See Note, ‘Agricultural Cooperatives and

the Antitrust Laws: Clayton, Capper-Volstead and Common Sense”,

44 Va. L. Rev. 63, 69 (1958); Note, “The Agricultural Cooperative

Antitrust Exemption—Fairdale Farms Inc. v. Yankee Milk, Inc."’, 67

Cornell L. Rev. 396, 413-14 (1982).

368 F.2d 679 (8th Cir. 1966), affirming Bergjans Farm

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

485 (E.D. Mo. 1965) (undertaking willful acquisition

analysis); Case-Swayne Co. v. Sunkist Growers, Inc., 369

F.2d 449 (9th Cir. 1966), rev'd on other grounds, 389 U.S.

386 (1967), reh. denied, 390 U.S. 930 (1968) (citing and

applying Grinnell). These cases conflict with the decision

of the Court of Appeals.

Commentators have lamented the lack of definitive

rulings on the question of the permissible extent of

cooperative market power. Areeda and Turner in their

treatise note ‘the criticel question, on which there is

surprisingly little authority, of whether the antitrust

laws limit a cooperative'’s market power.’”

Thus, the Court of Appeals decision is a highly

significant authorization of monopolistic behavior by the

Defendants and other agricultural cooperatives. Not only

does this ruling adversely affect processors, consumers,

and unaffiliated farmers, but it has already been cited as

authoritative by other courts. See, e.g., Kinnett Dairies,

Inc. v. Dairymen, Inc., ___. F.2d ___ (11th Cir. 1983), No.

81-7308, Slip Op. at 2; Alexander v. National Farmers

Organization, 687 F.2d 1173, 1182-83 (8th Cir. 1982).

B. The Price Fixing Question

This case is the first 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

collective marketing activity. RCMA did not engage in

any collective marketing activity such as negotiating or

dealing with the handlers to whom its member

* Areeda and Turner, Antitrust Law, 180.

cooperatives sold milk. Its members were, with few

exceptions, entirely separate cooperative entities which

carried on all their functions separately. RCMA'’s

activities, then, had none of the advantages, such as cost

savings and economies of scale, inherent in true joint

processing and marketing activity. Fairdale argued below

that price fixing is permissible only where it is inherent

in other collective marketing activity. Yankee and

RCMA argued that the Capper-Volstead Act immunizes

price fixing activity from the reach of the Sherman Act.

This issue raises serious policy concerns which require

harmonizing the Capper-Volstead Act with the antitrust

laws.

A resolution of the issue turns on_ statutory

interpretation. Fairdale argued that nothing in the

language of the Capper-Volstead Act, which refers oniy

to “collective processing, preparing for market, handling

and marketing’ and ‘marketing agencies in common”,

specifically authorizes bald price fixing. The legislative

history also suggests that price fixing was not

authorized by the Act.'®

This Court has previously dealt with two aspects of

liability under the Sherman Act Section 1 for Capper-

Volstead entities—combination with a non-Capper-

Volstead entity, which is not exempt,'' and “conspiracy”

'* In reporting the bill to the Judiciary Committee, Senator Walsh of

Montana stated: “[The Capper-Volstead bill] does not reach to

agreement between individuals for the purpose of fixing prices, nor

does it apparently reach to agreements between independent

associations for the purpose of fixing prices. It simply refers to

associations themselves." Hearings on S. 4344, before the Senate

Committee on the Judiciary, 66th Cong., 2d Sess., at 43.

'' U.S. v. Borden, 308 U.S. 190 (1939); National Broiler Marketing

Association v. United States, 436 U.S. 816, reh. denied, 390 U.S. 930

(1978).

by Capper-Volstead entities which were found to be, for

practical purposes, the same organization, 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

cooperatives it markets for) entirely separate entities

having separate members, who came together solely for

the purpose of price fixing.'’

Defendants and the Court of Appeals relied on two

Ninth Circuit Court of Appeals cases in which the Court

approved certain price fixing behavior by Capper-

Volstead entities. These cases involved fact situations

which fall short of the instant case. In Treasure Valley

Potato Bargaining Association v. Ore-Ida Foods, Inc.,

497 F.2d 203 (9th Cir.), cert. denied, 419 U.S. 99 (1974),

the bargaining cooperatives, in their negotiations with

the buyers, were, as a practical matter and with each

other’s consent, actually also bargaining for the other;

thus the price fixing was incidental to the joint

bargaining activity. In Northern’ California

Supermarkets, Inc. v. California Lettuce Producers

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

curiam, 580 F.2d 369 (9th Cir. 1978), cert. denied, 439

U.S. 1090 (1979), the cooperative was an organization of

individual producers, not cooperatives, and actually

engaged in promotional and numerous other activities on

behalf of its members. Thus, the actual holding of these

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

U.S. 8 at 29, reh. denied, 370 U.S. 965 (1962).

'* If the cooperatives were treated as individual business corporations,

this sort of collective price fixing clearly would constitute a per se

violation of Section 1. United States v. Container Corporation of

America, 393 U.S. 333 (1969); United States v. Socony-Vacuum Oil

Co., 310 U.S. 150, 223 (1940).

cases was that the coordinated activity falls within the

ambit of protection afforded by Capper-Volstead. The

instant case, in contrast, involves an organization of

cooperatives which has no joint activity except price

fixing.

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

issue. One commentator, complaining that the law

concerning the exception is ‘‘extraordinarily

undeveloped"’, pointed particularly to the lack of

authority on the question of agreements between

cooperatives.'* Another notes the lack of “court

comment” on the power of producers and associations of

producers to have marketing agencies in common.'* The

Department of Justice’s 1977 study on milk marketing

also noted that the law on marketing agencies in

common needed to be clarified.'*

C. The Predatory Practices Issue

There is very little case law on what conduct lawful

monopolists may engage in.'’ Discussion of this issue in

cases heretofore has been limited to attempts by

monopolists to use their monopoly over one product to

establish a monopoly over another product or in another

geographical area.'* This case on the other hand involves

'* 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 Agricultura!

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).

Fairdale assumes, arguendo, for this question that Defendants’

_ monopoly and price fixing activities are legal.

'* See Lorain Journal Co. v. United States, 342 U.S. 143, 155 (1951);

Times-Picayune Publishing Co. v. United States, 345 U.S. 594 (1953);

Banana Distributors, Inc. v. United Fruit Co, 163 F.Supp. 32

(S.D.N.Y. 1958); Berkey Photo Inc. v. Eastman Kodak Co., 603 F.2d

263, 275 (2d Cir. 1979); Bergjans Farm Dairy Co. v. Sanitary Milk

Age nay 241 F.Supp. 476 (E.D. Mo. 1965), aff'd. 368 F.2d 679 (8th

. 1966).

monopolists taking full advantage of their monopoly

position to set and extort excessive prices from their

customers. The Court of Appeals’ focus on whether the

conduct was strictly anticompetitive in the sense of

injuring Defendants’ competitors missed the point, since

by definition a monopolist has no effective competition.

Most legal monopolists in this country, such as power

companies and telephone companies, are regulated in the

uses of their power, e.g., by rate setting authorities.

Federal and state regulation of raw milk, however, sets

only minimum prices. If the Capper-Volstead Act and the

Sherman Act do permit monopolies of agricultural

cooperatives, do they impose limitations on the conduct

of those monopolies? This question can be answered

either within the definition of ‘predatory practices’’ or

“anticompetitive conduct’’ or by defining a new

standard.

This issue is especially significant because it applies

not only to cooperatives such as those here which

deliberately set out to acquire monopoly power in order

to obtain higher prices, but also to those which may

acquire their power through superior product, business

acumen, or historic accident. It is also especially

important to milk processors, whose numbers are

declining at a much higher rate than dairy farmers,'* and

who, like Fairdale, suffer severe economic hardship when

the monopolist refuses to deal with them on a reasonable

commercial basis.

"* U.S.D.A., Agricultural Statistics, 1981, p. 371.

Il. The Court of Appeals’ Decisions Conflict With

Prior Analysis of the Exemption by This Court

The decisions of the Court of Appeals abandon rules of

construction enunciated by this Court concerning

antitrust exemptions, including the Capper-Volstead Act.

In its first Capper-Volstead case, United States v.

Borden, 308 U.S. 188, 198 (1939), involving price fixing

agreements between cooperatives and other entities not

covered by Capper-Volstead, 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. Other decisions of this

Court have emphasized that repeals of the antitrust laws

by implication from a regulatory statute are strongly

disfavored, that statutory exemptions from antitrust

laws are to be construed narrowly, and that immunity

from these laws is not lightly implied. See, e.g., Federal

Maritime Commission v. Seatrain Lines, Inc., 411 U.S.

726, 733 (1973); United States v. Philadelphia National

Bank, 374 U.S. 321, 348 (1963).

In the instant case, however, rather than narrowly

construing the exemption or reconciling it with the

Sherman Act, the Court of Appeals found that “there is

an inherent conflict between this provision (Sherman Act

$2) and those of Capper-Volstead.” 635 F.2d at 1040. The

Court resolved this conflict in favor of broadly

construing the exemption, on the theory that agricultural

cooperatives are ‘‘a favorite child of Congressional

policy.”” 635 F.2d at 1043. The Court of Appeals thus

disregarded numerous pronouncements by this Court to

the effect that the “antitrust laws represent a

fundamental national economic policy”, and courts

should ‘“‘not lightly assume that the enactment of a

special regulatory scheme for particular aspects of an

industry was intended to render the more general

provisions of the antitrust laws wholly inapplicable to

that industry.’ Carnation Co. v. Pacific Westbound

Conference, 388 U.S. 213, 218 (1966). More specifically,

the Court of Appeals ignored statements by this Court

that the agricultural cooperative antitrust exemptions

are limited in nature. See, e.g. National Broiler

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

828-29 (1978); Case-Swayne Company v. Sunkist

Growers, Inc., 389 U.S. 384 (1967), reh. denied, 390 U.S.

930 (1968); Maryland and Virginia Milk Producers

Association v. United States, 362 U.S. 458 (1960); United

States v. Borden, 308 U.S. 188, 193 (1939).

The Court of Appeals also abandoned the reasoning of

this Court in Maryland and Virginia Milk Producers

Association v. United States, 362 U.S. 458 (1960),

wherein it 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

entities, the same unified competitive

advantage—and _ responsibility—available to

businessmen acting through corporations as entities.

362 U.S. at 466.

Ignoring this interpretation of the extent of the

exemption, the Court of Appeals chastised the District

Court for subscribing to the corporate monopolization

test of Grinnell and “disregarding the fundamental

differences between a cooperative and a corporation.”

635 F.2d 1040.

In sum, the above pronouncements of this Court

limiting the scope of statutory antitrust exemptions

generally-and of the Capper-Volstead Act in particular

indicate that the Court of Appeals should have been

more circumspect in its delineation of the extent of the

Capper-Volstead exemption in the factual situation

presented by this case.

Conclusion

For the foregoing reasons, Petitioner respectfully

requests that its Petition for a Writ of Certiorari be

granted.

Respectfully submitted,

FAIRDALE FARMS, INC.

By: FRED I. PARKER, ESQ.

SUSAN F. EATON, ESQ.

LANGROCK SPERRY PARKER and WOOL

P.O. Drawer 351

Middlebury, Vermont 05753

802-388-6356

By: KEITH I. CLEARWATERS, ESQ.

Suite 1200

1000 Connecticut Avenue

Washington, D.C. 20036

202-785-0048

Notice of Appearance.

IN THE

Supreme Court of the United States

October Term, 1983

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 Wool, and Keith I. Clearwaters, Esq., and appear for

the Petitioner, Fairdale Farms, Inc., in the above

captioned matter.

DATED this 4th day of November, 1983.

LANGROCK SPERRY PARKER and WOOL

By: FRED I. PARKER, ESQ.

SUSAN F. EATON, ESQ.

P.O. Drawer 351

Middlebury, Vermont 05753

(802) 388-6356

KEITH I. CLEARWATERS, ESQ.

Suite 1200

1000 Connecticut Avenue

Washington, D.C. 20036

Certificate of Service

I, Fred I. Parker, Esq., member of the firm of

Langrock Sperry Parker and Wool, P.O. Drawer 351,

Middlebury, Vermont 05753, attorney for the Petitioner

in the above entitled cause, and member of the Supreme

Court of the United States, hereby certify that on the

4th day of November, 1983, I 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 record for said

Respondents, Thomas D. Clifford, Esq., Shipman &

Goodwin, 799 Main Street, Hartford, Connecticut 06103

and David P. O'Hara, Esq., Bond, Schoeneck and King,

One Lincoln Center, Syracuse, New York 13202, and

three copies to the following: Donald E. Graham, Counsel

of Farmer Cooperative, 1800 Massachusetts Avenue,

N.W., Washington, D.C. 20036 and Barry Grossman,

Department of Justice, Washington, D.C. 20530.

FRED I. PARKER, ESQ.

LANGROCK SPERRY PARKER and WOOL

P.O. Drawer 351

Middlebury, Vermont 05753

(802) 388-3656

APPENDIX

First 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—First Opinion and Order of the United States

District Court for the District of Vermont.

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— First Opinion and Order of the United States

District Court for the District of Vermont.

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. $1, by fixing the price of raw milk. Since price fix-

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 cleim 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—First Opinion and Order of the United States

District Court for the District of Vermont.

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 receive

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—First Opinion and Order of the United States

District Court for the District of Vermont.

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. Jd. Congress

hoped that allowing farmers to act collectively as

cooperatives would enhance their bargaining power

against lerge corporate middlemen and perhaps enable

Appendix—First Opinion and Order of the United States

District Court for the District of Vermont.

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) $21,337 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)

€21,337 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—First Opinion and Order of the United States

District Court for the District of Vermont.

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. v. 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- First Opinion and Order of the United States

District Court for the District of Vermont.

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—First Opinion and Order of the United States

District Court for the District of Vermont.

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 principai 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."’ Jd.

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, 40 (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—First Opinion and Order of the United States

District Court for the District of Vermont.

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.’ Jd. 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)

421,337 at 21,236 (F.T.C.). Its examination of judicial in-

terpretations of the statute began with Treasure Valley

lla

Appendix—First Opinion and Order of the United States

District Court for the District of Vermont.

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.’ Jd. 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 cooperative’s level of addi-

tional activity below which this conduct becomes il-

legitimate.” Jd. 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 requirements 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—First Opinion and Order of the United States

District Court for the District of Vermont.

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.”’ /d.

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

fromm 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

when 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—First Opinion and Order of the United States

District Court for the District of Vermont.

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

s.andard elements of a monopoly claim as well as at least

one predatory act by one of defendants. The strongest

l4a

Appendix—First Opinion and Order of the United States

District Court for the District of Vermont.

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:

[njothing 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.” Jd. 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—First Opinion and Order of the United States

District Court for the District of Vermont.

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

l6a

Appendix—First Opinion and Order of the United States

District Court for the District of Vermont.

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., 1st 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—First Opinion and Order of the United States

District Court for the District of Vermont.

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—First Opinion and Order of the United States

District Court for the District of Vermont.

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 defeicant 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—First Opinion and Order of the United States

District Court for the District of Vermont.

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.’ Jd. 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—First Opinion and Order of the United States

District Court for the District of Vermont.

visions of the Sherman Act §2,"° 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 arranged 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—First Opinion and Order of the United States

District Court for the District of Vermont.

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 states:

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—First Opinion and Order of the United States

District Court for the District of Vermont.

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—First Opinion and Order of the United States

District Court for the District of Vermont.

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 rivalry 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—First Opinion and Order of the United States

District Court for the District of Vermont.

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 §1 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

— a”

25a

Appendix—First Opinion and Order of the United States

District Court for the District of Vermont.

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 Tilinois

Brick Co. v. dilinois, 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—First Opinion and Order of the United States

District Court for the District of Vermont.

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 damages 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—First Opinion and Order of the United States

District Court for the District of Vermont.

damages caused by defendants’ alleged termination of

plaintiff's milk supply. We find no merit to this part 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 .s

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 perinit 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—First Opinion and Order of the United States

District Court for the District of Vermont.

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. §2302(d).

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 Yarikee 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—First Opinion and Order of the United States

District Court for the District of Vermont.

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.” Jd. 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 AFPA 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’"’ (cita-

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

30a

Appendix—First Opinion and Order of the United States

District Court for the District of Vermont.

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.

[O}n 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-

phylactic 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—First Opinion and Order of the United States

District Court for the District of Vermont.

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. §2303"’ 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 Yankee’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—First Opinion and Order of the United States

District Court for the District of Vermont.

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 Yankee'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—First Opinion and Order of the United States

District Court for the District of Vermont.

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. §2303. 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—First Opinion and Order of the United Stutes

District Court for the District of Vermont.

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

fully 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—First Opinion and Order of the United States

District Court for the District of Vermont.

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—First Opinion and Order of the United States

District Court for the District of Vermont.

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—First Opinion and Order of the United States

District Court for the District of Vermont.

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

First Opinion of the United States Court of

Appeals for the Second Circuit

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

—

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,

_—yV—

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

* Of the Eastern District of New York. sitting by designation.

6629

39a

Appendix—First 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.

Davip 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-

ney, Department of Justice, Washington,

D.C., Sanford M. Litvack, Assistant

America as amicus curiae.

Freperick U. Conard, JR., Hartford, Ct.

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

Martyn Owen, Theodore M. Space,

6630

40a

Appendix—First 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

ings 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

4la

Appendix —First 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. {owever, 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.S. 253, 260 (1963).

The Capper-Volstead Act provides, however, that

42a

Appendix—First 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

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

aaperyrheen-+ec bape prenatal. epnye conto

7 U.S.C. § 291.

Capper-Volstead was an enlargement 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 profit, or to forbid or restrain

individual members of such organizations from lawfully carrying

out the legitimate objects thereof; nor shall such i

the members thereof, be held or construed to be i

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

6633

43a

Appendix—First 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 pre .cated 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) § 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—First 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—First 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

US. 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 §§ 4.8,

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

46a

Appendix— First 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—First 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. Jd. at 29.

Proponents of Capper-Volstead, the prototype of which

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

Cong., 1st 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. . . .” Jd. at 23. The Conference’s Committee on

the Marketing of Farm Products recommended “the

48a

Appendix— First 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. Jd. at 803.

The declared policy of the Agricultural Marketing Act

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

§§ 1141-1141)j), 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

49a

Appendix—First 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. Jd. 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. /d. 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

merchandisin’ f 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-

3 The first chairman of the Farm Board promptly declared that “{t}he

farmers

pis

Lae. as

50a

Appendix—First Opinion of the United States

Court of Appeals for the Second Circuit.

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., °°6 F. Supp. 227, 235 (N.D. Ohio 1974).*

It » 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’

+ See also

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

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

empowered the Secretary of iculture 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, § 16(b1), 49 Stat.

of accord

producer-controlled cooperatives as would be in harmony with

the toward such tives already set by Congress,

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

533, 562-64 (1939);

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

ee eee 15 U.S.C. §§ 13, 13a, 13b, 21a),

which permitted cooperatives to return net earnings and sur-

plus to their members, and consumers in proportion

to their purchases or

d) the Motor Carrier Act, 1935, § 203(b), 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(12\A), 53 Stat. 33-34

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

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

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

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).

6641

5la

Appendix—First Opinion of the United States

Court of Appeals for the Second Circuit.

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

sors and handlers has not abated.” National Broiler

Marketing Assn. v. 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., 1st 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 contept

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 1 Areeda & Turner, Antitrust Law 4 228d (1978), 1 Callman,

The Law of Unfair Competition Trade Marks and Monopolies

6642

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Appendix—First Opinion of the United States

Court of Appeals for the Second Circvit.

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 “[tJhe 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

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

Reaffirmed. 22 hd L. Rev. 45% 455, 460 (1969-1970).

6 The district court actually charged that “[t}he defendant Sunkist is

pace vor Myron Bag, Lriebtamanen

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

1960), rev'd, 370 US. 19 (1962).

6643

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Appendix—First Opinion of the United States

Court of Appeals for the Second Circuit.

Growers, Inc. v. FT.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. United

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-

6644

dda

Appendix—First Opinion of the United States

Court of Appeals for the Second Circuit.

ginia Milk Producers Association v. United States, su-

pra, 362 US. at 463.

“[Mjany 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 U.S. 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

6645

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Appendix—First Opinion of the United States

Court of Appeals for the Second Circuit.

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-

56a

Appendix—First Opinion of the United States

Court of Appeals for the Second Circuit.

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

tion of defendants’ summary judgment application.’

mp r

(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.

6647 ¥

4 aa

57a

Second Opinion of the United States District

Court for the District of Vermont.

UNITED STATES DISTRICT COURT

FOR THE

DISTRICT OF VERMONT

Civil Action File No. 75-140

FAIRDALE FARMS, INC.,

YANKEE MILK, INC. and REGIONAL

COOPERATIVE MARKETING AGENCY, INC.

OPINION AND ORDER

Plaintiff Fairdale Farms, Inc. (Fairdale) is a dairy

products producer and handler. Defendant Yankee Milk,

Inc. (Yankee) is a diary farmer cooperative with member

producers throughout New England and eastern New

Regional Cooperative Marketing Agency, Inc. (RCMA),

In an Opinion and Order dated November 1, 1979, this

court granted defendants’ motions for summary

*- judgment as to count one of plaintiff's amended

58a

Appendix—Second Opinion of the United States

District Court for the District of Vermont.

complaint (alleging violation of section 1 of the Sherman

Act, 15 U.S.C. §1), and denied defendants’ motions for

summary judgement as to count two (alleging violation

of section 2 of the Sherman Act, 15 U.S.C. §2). In

refusing to dismiss the section 2 claim, the court applied

the monopoly test enunciated in United States v.

Grinnell Corp., 384 U.S. 563 (1965):

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 or development as a

consequence of a superior product, business acumen,

or historic accident.

Id. at 570-71. We held that the Capper-Volstead Act, 7

U.S.C. §§291, 292, did not require plaintiff to show that

defendants have engaged in predatory practices.

The court certified an appeal under 28 U.S.C. §1292(b),

and each party sought review by the Second Circuit

Court of Appeals. The Court of Appeals affirmed this

court’s disposition of count one and vacated this court’s

denial of defendants’ motions for summary judgment on

count two. Fairdale Farms, Inc. v. Yankee Milk, Inc., 635

F.2d 1037 (2d Cir. 1980), cert. denied, 102 S. Ct. 98

(1981). The Court of Appeals rejected this court's

application of Grinnell. Persuaded that the Capper-

Volstead Act “prevent{s] the full application” of the

second element of the Grinnell test to AER 2

- cooperatives, the Court of Appeals concluded:

Grinnell does not apply to monopoly power that

results from such acts as the formation, growth and

59a

Appendix—Second Opinion of the United States

District Court for the District of Vermont.

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

attempts to achieve unity of effort and the

voluntary elimination of competition among

themselves.

635 F.2d at 1045. The Court of Appeals remanded the

matter to this court for reconsideration of plaintiff's

section 2 claim consistent with the principles set forth in

its opinion.

Congress enacted the Capper-Volstead Act with ‘a

purpose 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 corporation without

thereby violating the antitrust laws’ Maryland and

Virginia Milk Producers Association, Inc. v. United

States, 362 U.S. 458, 466 (1960). The Act permits an

agricultural cooperative—in order to benefit from the

same unified competitive advantage available to

businessmen acting through corporations—to attain a

monopoly position through voluntary and natural

growth. However, as stated by the Court of Appeals, ‘a

cooperative may neither acquire nor exercise monopoly

power in a predatory fashion by the use of such tactics

as picketing and harrassment, .. . boycotts, .. . coerced

membership,...and discriminating pricing... Neither

may it use its legitimately acquired monopoly power in

such a manner as to stifle or smother competition.” 635

F.2d at 1044.

—- =<

60a

Appendix—Second Opinion of the United States

District Court for the District of Vermont.

The issue before the court is whether plaintiff has

alleged sufficiently anticompetitive conduct to warrant

proceeding to trial on its section 2 claim.

Before examining plaintiff's specific allegations of

misconduct, we must address plaintiff's assertion that,

under a recent Sixth Circuit case, it need not show that

defendanis have engaged in “hard-core predatory

activities.’’ In United States v. Dairymen, Inc., 660 F.2d

192 (6th Cir. 1981), the Sixth Circuit held that the

district court “set too high a burden” on the plaintiff

when it required the plaintiff to show that the

agricultural cooperatives’ anticompetitive conduct ‘‘rose

to the level of predatory practices, i.e. anticompetitive

practices without any business justification.’’ Jd. at 194.

The court centered inquiry on whether the cooperatives’

conduct was intended to stifle competition or was an

effort to advance the legitimate business purposes

recognized by section 1 of the Capper-Volstead Act, 7

U.S.C. $291. The court articulated the following test:

“The offense of attempt to monopolize requires only that

the defendant has engaged in anticompetitive conduct

with a specific intent to monopolize and that there was a

dangerous probability that the attempt would be

successful.’” Id.

We do not read Dairymen as diluting the plaintiff's

pleading burden in a section 2 claim against an

agricultural cooperative. The Dairymen court emphasized

that the Capper-Volstead Act does not immunize

measures taken to achieve an unlawful goal from

illegality under the antitrust laws merely because they

may have a rational business justification. Thus, the case

6la

Appendix—Second Opinion of the United States

District Court for the District of Vermont.

accords with the principle expounded by the Second

Circuit Court of Appeals that a plaintiff charging an

agricultural cooperative with monopolization must allege

predatory conduct designed to achieve ends not

legitimized by the Capper-Volstead Act. See 635 F.2d at

1045.

Plaintiff asserts that a factual issue exists as to

whether defendants engaged in conduct directed at

smothering competition. Specifically, it argues that three

practices allegedly followed by defendants indicate

predation: boycotts and threatened boycotts, acquisitions

“‘among”’ cooperatives to achieve market dominance, and

discriminatory pricing.

As” evidence of a boycott or threatened boycott,

plaintiff traces the chain of events leading up to

plaintiff's announcement on December 24, 1974, that it

would cease purchasing milk from Yankee members as of

January 1, 1975. Before discontinuing its relationship

with Yankee, plaintiff purchased approximately forty

percent of its milk supply from Yankee members.

Because of a _ severe cost-price squeeze on _ its

Massachusetts supermarket business, in June 1974,

plaintiff sought an exception to the premium set by

RCMA and charged to all handlers. Yankee granted an

exception for September 1974 but refused to extend it to

subsequent months. When Plaintiff did not make RCMA

payments demanded by Yankee, Yankee threatened to

pull the milk of its members who were shipping to .

Fairdale. Yankee informed Fairdale it would not

implement the pull order pending to resolve the

controversy. On December 13, 1974, some Yankee

members were apparently instructed to withhold their |

62a

Appendix—Second Opinion of the United States

District Court for the District of Vermont.

milk from shipment to Fairdale, but Yankee rescinded

the orders, assuring Fairdale that the orders had been

given in error. On December 24, 1974, representatives of

Yankee and Fairdale met to discuss the situation.

Fairdale requested assurances that it would receive 45

days notice of any termination of its milk supply by

Yankee. Yankee refused to give these assurances.

Fairdale replied that it could not tolerate day-to-day

uncertainty in forty percent of its milk supply, and

announced that it would terminate relations with

Yankee.

In rejecting plaintiff's claim under section 1, this court

determined that RCMA legally fixed the prices at which

Yankee members would sell their milk. Yankee’s refusal

to sell milk to plaintiff at less than a lawful price is not a

““boycott;” it is a proper means to effectuate a purpose of

the Capper-Volstead Act. See GVF Cannery, Inc. v.

California Tomato Growers Association, Inc., 511

F.Supp. 711, 716 n.1 (N.D. Cal. 1981).

The second allegedly predatory practice is Yankee’s

effort to amalgamate cooperatives in order to acquire

greater control over the New England milk market. Such

an attempt to monopolize has long been held to be

immunized by the Capper-Volstead Act: “It is not

unlawful under the antitrust acts for a Capper-Volstead

cooperative ...to try to acquire even 100 percent of the

market if it does it exclusively through marketing

agreements approved under the Capper-Volstead

Act...."" Cape Cod Food Products, Inc. v. National

Cranberry Association, 119 F.Supp. 900, 907 (D. Mass.

1954). Mere assertion of monopoly power is not a

predatory practice.

63a

Appendix—Second Opinion of the United States

District Court for the District of Vermont.

Finally, plaintiff contends that, having attained

monopoly power, defendants used this power to obtain

unreasonably high prices in the form of over-order

premiums. Plaintiff asserts that defendants’ over-order

pricing was predatory because the price was too high.

Ordinarily, a lawful monopolist may charge as high a

price for its product as the market will accept. Berkey

Photo, Inc. v. Eastman Kodak Co., 603 F.2d 263, 274

n.12 (2d Cir. 1979), cert. denied, 444 U.S. 1093 (1980).

The Capper-Volstead Act enables farmers to market their

- products through cooperatives in order to obtain a price

higher than the market might otherwise bear. Milk

Producers Association, 362 U.S. at 466. Since

defendants’ pricing policy promotes a proper Capper-

Volstead purpose, it is immune from challenge under the

antitrust laws.

Because plaintiff raises no genuine issue as to any fact

material to the question of whether defendants engaged

in predatory conduct, we hold that defendants are

entitled to judgment as a matter of law on plaintiff's

section 2 claim.

Dated at Burlington in the District of Vermont, this

7th day of April, 1982.

/s) ALBERT W. COFFRIN

District Judge

64a

Second Opinion of the United States Court of

Appeals for the Second Circuit

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

Cal. No.: 813—August Term, 1982

(Argued January 24, 1983 Decided August 8, 1983)

Docket No. 82-7698

FAIRDALE FARMS, INC.,

Plaintiff-Appellant,

—vV —

YANKEE MILK, INC. and

REGIONAL COOPERATIVE MARKETING AGENCY, INC.,

Defendants-Appellees.

Before:

LUMBARD, VAN GRAAFEILAND and PIERCE,

Circuit Judges.

aol

Appeal from a summary judgment of the United States

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

dismissing appellant’s antitrust complaint. Affirmed.

5573

65a

Appendix—Second Opinion of the United States

Court of Appeais for the Second Circuit.

SUSAN F. EATON, Middlebury, Vt. (Langrock

Sperry Parker & Wool, Middlebury, Vt.,

and Chapman & Clearwaters, Washing-

ton, D.C., Fred I. Parker and Keith I.

Clearwaters, of Counsel), for Plaintiff-

Appellant Fairdale Farms, Inc.

JOHN M. FREYER, Syracuse, N.Y., (Bond,

Schoeneck & King, Ronald C. Berger and

Ronald G. Hull, Syracuse, N.Y., of

Counsel), for Defendant-Appellee Re-

gional Cooperative Marketing Agency,

Inc.

FREDERICK U. CONARD, Jr., Hartford, Ct.,

(Shipman & Goodwin and Theodore M.

Space, Hartford, Ct., of Counsel), for

Defendant-Appellee Yankee Milk, Inc.

VAN GRAAFEILAND, Circuit Judge:

Fairdale Farms, Inc. appeals from a summary judg-

ment of the United States District Court for the District

of Vermont (Albert W. Coffrin, J.) dismissing its antitrust

complaint against appellees, Yankee Milk, Inc. and Re-

gional Cooperative Marketing Agency, Inc. We affirm.

Appellant is a dairy products producer and processor

located in Bennington, Vermont, which purchases raw

milk from other producers in Bennington County, Berk-

shire County, Massachusetts, and Rensselaer County,

New York. Appellee, Yankee Milk, is a dairy farmer

cooperative with members in New England and eastern

New York. Yankee and six other cooperatives in the New

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Court of Appeals for the Second Circuit.

England-New York area are associated in the Regional

Cooperative Marketing Agency, Inc. (RCMA). Since

1973, RCMA has acted as a common marketing agency

for its members.

In 1975, Fairdale began this action against Yankee,

alleging that Yankee and RCMA had conspired to fix the

price of raw milk and had monopolized and attempted to

monopolize the raw milk trade in the three county area in

which Fairdale procures its milk, all in violation of

sections | and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2

(1976). Yankee joined RCMA as a necessary party. In

1979, the district court granted defendants’ motions for

summary judgment on the section | price-fixing claim but

denied their motions on the section 2 monopolization

claim. The court certified the case for interlocutory ap-

peal. 28 U.S.C. § 1292(b). This Court affirmed the dis-

trict court’s dismissal of the price-fixing claim, but

vacated and remanded on the monopolization claim.

Fairdale Farms, Inc. v. Yankee Milk, Inc., 635 F.2d 1037

(2d Cir. 1980), cert. denied, 454 U.S. 818 (1981).

The district court had ruled that the latter claim was to

be tested by the usual monopolization standards of

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

That case held that a claim under section 2 was made out

if the plaintiff established “(1) the possession of monop-

oly 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 acumen, or historical acci-

dent.” Jd. at 570-71. We held that the effect of the

Capper-Volstead Act, 7 U.S.C. §§ 291-92, “is to prevent

the full application of the second element of this test to

agricultural cooperatives,” so that the acquisition, main-

tenance, or exercise of monopoly power by “predatory

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Court of Appeals for the Second Circuit.

means” only was proscribed. 635 F.2d at 1045. Because

we could not determine “whether the district court denied

defendants’ 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,” id., the order of denial was

vacated and remanded for reconsideration. Upon remand

and defendants’ renewal of their motions for summary

judgment, the district court dismissed the complaint,

holding that plaintiff had raised no material questions of

fact as to whether defendants had engaged in predatory

conduct.

RCMA Pricing Policies

Appellant contends that RCMA set its over-order pre-

mium so high as to constitute a predatory policy. The

over-order premium was the amount by which RCMA

prices exceeded the market order minimum prices set by

the United States Department of Agriculture and State

regulatory agencies. Relying in part upon our decision in

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

294 (2d Cir. 1979), cert. denied, 444 U.S. 1093 (1980), the

district court properly rejected that argument. As we

stated in Berkey, “there is probably no better way for [a

monopolist] to guarantee that its dominance will be

challenged than by greedily extracting the highest price it

can.” Id. It may be, as appellant contends, that market

forces will not correct over-pricing in the cooperative milk

trade as rapidly as they might in others. Congress wisely

has protected against this possibility, however, by author-

izing the Secretary of Agriculture to issue a cease and

desist order against any monopolization by a cooperative

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Court of Appeals for the Second Circuit.

which has “unduly enhanced” the price of any agri-

cultural product. 7 U.S.C. § 292.

In enacting the Sherman Act, Congress recognized that

the “reasonableness of prices has no constancy.” United

States v. Socony-Vacuum Oil Co., 310 U.S. 150, 221

(1940). “The reasonable price fixed today may through

economic and business changes become the unreasonable

price of tomorrow,” United States vy. Trenton Potteries

Co., 273 U.S. 392, 397 (1927), and courts are poorly

equipped to undertake the “heavy, continuous, and un-

guided burden” of determining reasonableness, III

Areeda and Turner, Antitrust Law 4710, at 149 (1978);

see Sulli

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