Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—E.D. Cal.: California unfair competition claims fail against dairy cooperative over milk price reporting, (Oct 17, 2013)

By Tobias J. Gillett, J.D., LL.M.

A dairy cooperative was not liable under California’s Unfair Competition Law (UCL) for alleged misreporting of milk prices because no deception of or harm to the public had been alleged, and because no violation of other laws could serve as a basis for liability, the federal district court in Fresno has ruled (Carlin v. DairyAmerica, Inc., October 11, 2013, Ishii, A.).

Under the Agricultural Marketing Agreement Act of 1937 (AMAA), milk prices paid to producers are regulated by Federal Milk Marketing Orders (FMMOs). Milk handlers pay producers for various classes of milk subject to minimum prices set by the FMMOs. Following enactment of the Dairy Market Enhancement Act of 2000 (DMEA), wholesale prices inputs were collected by the National Agricultural Statistical Service through survey data from handlers who produced more than one million pounds of manufactured product per year. According to the milk producers in the present action, the dairy cooperative DairyAmerica, Inc. had misreported certain data regarding nonfat dry milk prices from 2002 until discovery of the reporting error in 2007.

The producers alleged claims for violation of the UCL, negligent misrepresentation, negligent interference with prospective economic advantage, and unjust enrichment. The district court previously dismissed the producers’ claims as barred by the filed rate doctrine, but the Ninth Circuit reversed that decision (705 F3d. 856; 2012-2 Trade Cases ¶78,004), and the U.S. Supreme Court denied the defendants’ petition for certiorari. In the present decision, the district court addressed the defendants’ other arguments for dismissal of the producers’ claims.

Unfair Competition Law. The court concluded that the producers failed to state a claim under the UCL. The court explained that, to state a claim under the “fraudulent” prong of the UCL, a plaintiff had “to show deception to some members of the public, or harm to the public interest, and not merely to the direct competitor or other non-consumer party to a contract.” Here, although the producers sufficiently alleged a claim for negligent misrepresentation, “the public was not privy to the misrepresentation and the public suffered no alleged direct harm,” according to the court. The court noted that, although the misrepresentation allegedly resulted in a distortion of the distribution of funds between producers and handlers, the producers did not allege that the distortion had resulted in an increase in price to consumers.

The producers also failed to state a claim under the UCL’s “unlawful” prong, according to the court. Negligent misrepresentation could not serve as a basis for liability because the alleged fraud did not involve the public, and the producers had failed to state a claim for negligent interference with prospective economic advantage. Moreover, the court found that the producers’ sole remaining claim—negligent misrepresentation—was not dependent on the DMEA, and was not an attempt to state a claim for violation of the DMEA in the guise of a common law tort claim. Since the negligent misrepresentation claim did not allege a violation of the DMEA, the DMEA could not serve as a basis for liability under the UCL, in the court’s view.

Preemption. The court concluded that the DMEA did not preempt the state law causes of action because, among other reasons, the DMEA “did not have the force of law during the time relevant to this action.”

Liability of California Dairies. The court dismissed the producers’ claims against California Dairies, Inc., allegedly the “major shareholder in and majority owner of” the DairyAmerica cooperative. The court found that California Dairies had no more control over the day-to-day operations of DairyAmerica than any other member of the cooperative, and therefore that California Dairies should not be “burdened any more or less than their proportional responsibility.” Moreover, the California legislature had allowed for the creation of nonprofit agricultural cooperatives, and therefore California Diaries could not be held liable on the theory that DairyAmerica was a “joint venture” between California Diaries and other members.

Indispensable party. Finally, the court found the U.S. Department of Agriculture was not an indispensable party because the court had adequate means of protecting the USDA’s interest in maintaining the confidentiality of proprietary information supplied by DairyAmerica and other handlers.

The cases are Nos. 1:09-cv-0430 AWI DLB; 1:09-cv-0556 AWI DLB; 1:09-cv-0558 AWI DLB; 1:09-cv-0607 AWI DLB.

Attorneys: Anthony David Phillips (Berman DeValerio) for Gerald Carlin. Charles M. English, (Davis Wright Tremaine LLP), E. John Steren (Ober Kaler), and Joseph Michael Marchini (Baker, Manock & Jensen) for DairyAmerica, Inc. Lawrence Michael Cirelli (Hanson Bridgett) for California Dairies, Inc.

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

Cases: StateUnfairTradePractices CaliforniaNews