Antitrust Law Daily Wrap Up, RICO—E.D. Cal.: Claims against dairy cooperative for misreporting milk pricing data will proceed, (May 3, 2016)

By Linda O’Brien, J.D., LL.M.

A group of dairy farmers adequately pleaded claims that a dairy cooperative conspired to facilitate a racketeering scheme to lower milk prices by misreporting certain price data to government regulators, the federal district court in Fresno, California has decided (Carlin v. DairyAmerica, Inc., May 2, 2016, Ishii, A.).

DairyAmerica, Inc. is a dairy product marketing association comprised of milk processing cooperatives, including California Dairies, Inc. (CDI). A group of dairy farmers filed suit against DairyAmerica and CDI, seeking damages for lower milk prices resulting from the alleged misreporting of pricing data to the U.S. Department of Agriculture (USDA). Specifically, the dairy farmers alleged that the misrepresentations regarding nonfat dry milk (NFDM) sales by DairyAmerica and others to the USDA resulted in inappropriately low prices paid to the farmers for certain milk products. The plaintiffs’ amended complaint alleged claims under the Racketeer Influenced and Corrupt Organizations Act (RICO). The defendants moved to dismiss the amended complaint.

CDI. The plaintiffs adequately pleaded a claim for conspiracy to violate RICO against CDI, the court found. The plaintiffs alleged that CDI was aware of the essential nature and scope of the enterprise and intended to participate in it. Although there were no allegations that CDI actually transmitted the false NFDM sales data, the cooperative did agree to further or facilitate the scheme of submitting false data to frustrate the USDA’s purpose of limiting the risk of rising raw milk prices on milk handlers. Therefore, CDI’s motion to dismiss was denied.

DairyAmerica. However, the court determined that DairyAmerica did not have a separate existence as an "association-in-fact" that could be held liable for conspiracy under RICO. To constitute a RICO enterprise, the associates must participate, directly or indirectly, in the conduct of the enterprise through a pattern of racketeering activity. The plaintiffs’ argument—that a formal association, such as DairyAmerica, has one existence when it carries out its legitimate functions and a separate existence through which its individual members advance their unlawful conspiracy—was rejected. According to the court, when several separate conspirators come together to form a "whole" through which the conspiracy is advanced, the individual conspirators can be held liable under RICO, whether the "whole" is a formal or informal entity. However, the "whole" cannot be held to be conspirator, since it is the "enterprise" through which the conspiracy is advanced. Thus, the plaintiffs’ RICO claim against DairyAmerica was dismissed since DairyAmerica was not distinct from the alleged enterprise.

The case is No. 1:09-cv-00430-AWI-EPG.

Attorneys: Aidan Chowning Poppler (Berman DeValerio) and Benjamin Doyle Brown (Cohen Milstein Sellers & Toll PLLC) for Gerald Carlin. Charles M. English (Davis Wright Tremaine LLP) and Joseph Michael Marchini (Baker Manock & Jensen, PC) for DairyAmerica, Inc.

Companies: DairyAmerica, Inc.; California Dairies, Inc.

Cases: RICO CaliforniaNews