Antitrust Law Daily Wrap Up, TOP STORY—D. Vt.: Dairy farmers frustrate final approval of settlement with milk cooperative, (Apr 2, 2015)

By Greg Hammond, J.D.

Final approval of a settlement between dairy farmers and a milk cooperative, over alleged price fixing and monopolization of raw Grade A milk, was denied by the federal district court in Burlington, Vermont. The court determined that the class’ negative reaction to the proposed settlement was the main factor weighing against final approval (Allen v. Dairy Farmers of America, Inc., March 31, 2015, Reiss, C.).

Background. A group of dairy farmers filed a putative class action against Dairy Farmers of America, Inc.—a dairy cooperative that produces, processes, and distributes raw Grade A milk—and its marketing agency, Dairy Marketing Services, LLC. The farmers alleged that the defendants engaged in a conspiracy to fix, stabilize, and artificially depress prices for raw Grade A milk and to allocate markets in the Northeast United States. The defendants and subclass counsel reached a settlement, requiring the defendants to make a payment of $50 million to class members in two installments, authorizing certain injunctive relief, providing for $20,000 incentive awards to subclass representatives, and seeking $16.6 million in attorney fees and over $3.7 million in expenses. The court granted preliminary approval of the proposed settlement in October 2014. The plaintiffs sought final approval.

Objections. The subclass representatives challenged the proposed settlement on procedural and substantive fairness grounds. Specifically, the representatives argued that the proposed settlement was not the product of good faith, arm’s-length negotiations because (1) the representatives were advised of the proposed settlement only after a monetary settlement had been agreed to, impeding their ability to negotiate for the injunctive relief they contend is essential; (2) the representatives were allegedly discouraged from conferring with each other regarding the proposed settlement; and (3) subclass counsel participated in “collusive” conduct.

Further, the subclass representatives argued that, without certain injunctive relief, the estimated financial compensation of roughly $4,000 per dairy farm was “functionally irrelevant,” as it reflected the cost of a “tractor tire,” and the representatives could be exposed to retaliation by the cooperative. The representatives emphasized that they entered into the lawsuit for “fundamental market change.” Lastly, the representatives argued in favor of an expanded definition of the class, and that the proposed release is overbroad, as it requires class members to release all claims that were or could have been asserted in the complaint.

Procedural fairness. Although the court found subclass counsel to be experienced and able antitrust litigators who had the authority to negotiate and enter into proposed settlements, even if class representatives opposed it, the court could not conclude that the instant proposed settlement was procedurally fair. Factual issues between subclass counsel and the remaining subclass representatives concerning the manner in which the proposed settlement was reached remained unresolved and were integral to a procedural fairness analysis.

Substantive fairness. Although most of the Grinnell factors weighed in favor of substantive fairness of the proposed settlement, the strong opposition of the class outweighed the other factors. The court noted three important grounds of opposition: (1) monetary relief was inadequate if there are no significant changes to how the cooperative conducts business; (2) the proposed release was overly broad; and (3) considering the modest per farm relief, subclass counsel would be the primary beneficiaries of the proposed settlement if attorney fees and expenses are approved. Finding that the Grinnell factors weighed against the proposed settlement, primarily due to the reaction of the class, the court was unable to conclude that the proposed settlement is substantively in the class’ best interest. The motion for final approval was therefore denied.

The case number is 5:09-cv-230.

Attorneys: Andrew D. Manitsky (Gravel & Shea PC) for Alice H. Allen. Amber L. McDonald (Baker & Miller PLLC) for Dairy Farmers of America, Inc. and Dairy Marketing Services, LLC.

Companies: Dairy Farmers of America, Inc.; Dairy Marketing Services, LLC

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