Antitrust Law Daily Wrap Up, ANTITRUST—E.D. Tenn.: Full rule of reason applies in milk supply conspiracy suit, (Mar 31, 2016)

By Greg Hammond, J.D.

The full rule of reason, as opposed to the “abbreviated” or “quick look rule of reason analysis,” applies in an action in which a milk bottler, raw milk supplier, and milk processor are accused of participating in a conspiracy to restrict the supply of raw milk, in violation of Section 1 of the Sherman Act. The federal district court granted the defendants’ motion to apply a full rule of reason analysis, finding that: (1) the challenged conduct is not obviously facially anticompetitive; (2) the challenged conduct can plausibly be argued to have net procompetitive effects; (3) the contours of the relevant market are not clearly defined and are highly disputed; and (4) the alleged agreement in this case is of a complex nature (Food Lion, LLC v. Dean Foods Co., March 30, 2016, Greer, R.).

Food Lion, LLC—a processed milk retailer—claims that National Dairy Holdings, LP (NDF) knowingly accepted “second best” plants, operated those plants at losses, and eventually shuttered some of those plants in an unlawful agreement with its competitor Dean Foods Co. In return, NDH’s parent company, Dairy Farmers of America, Inc., allegedly received a commitment from Dean to allow it to supply raw milk to each Dean bottling plant, including the Dean plants previously supplied by independent dairy farmers.

The action was on remand from the U.S. Court of Appeals in Cincinnati, which determined that the alleged restraint on trade in this action should be evaluated for reasonableness by applying the rule of reason instead of the per se rule. The defendants—Dean Foods Co., Dairy Farmers of America, Inc., and National Dairy Holdings, LP—moved the court to apply the full rule of reason analysis.

The court agreed with the defendants that the full rule of reason was applicable in this suit. First, the court noted the Sixth Circuit’s finding that the defendants have come forth with plausible evidence of procompetitive effects of the challenged conduct—including evidence that plant closures reduced costs and rationalized assets and that full supply agreements may be of economic advantage to buyers and sellers, and thus indirectly to the consuming public. Second, the court could not say that the shuttering of some plants that were previously operated at a loss or full supply agreements between a buyer and a seller are “obviously or facially anticompetitive.”

Third, the contours of the proposed relevant market—which includes Federal Milk Marketing Orders 5 and 7, consisting of Alabama, Arkansas, Georgia, Mississippi, Louisiana, North Carolina, South Carolina and Tennessee, and portions of Florida, Kentucky, Indiana, Missouri, Virginia, and West Virginia—were not sufficiently defined in this case to allow the court to determine, without appropriate market analysis, that the challenged conduct indeed impairs competition, the court found. Lastly, the court determined that the alleged conspiracy was in fact complex, involving multiple parties and the highly contested allegation that National Dairy was indeed a false competitor controlled completely by Dairy Farmers of America. Quick-look analysis would therefore be inappropriate in this action, the court concluded.

The case is No. 2:07-CV-188.

Attorneys: Michael L. Converse (Hunton & Williams, LLP) for Food Lion, LLC. Carolyn M. Hazard (Dechert LLP), Lea C. Owen (Baker, Donelson, Bearman, Caldwell & Berkowitz), and Paul S. Davidson (Waller, Lansden, Dortch & Davis, LLP) for Dean Foods Co. Jerry L. Beane (Andrews Kurth, LLP) and Steven E. Kramer (Kramer, Rayson LLP) for National Dairy Holdings, LP. H. Buckley Cole (Hall, Booth, Smith PC) and Thomas J. Garland, Jr. (Milligan & Coleman) for Dairy Farmers of America, Inc.

Companies: Food Lion, LLC; Dean Foods Co.; Dairy Farmers of America, Inc.; National Dairy Holdings, LP

Cases: Antitrust TennesseeNews