Summary of a Recent
Judicial Development in
Cooperatives

Manufacturer Allowed to Pursue Antitrust
Lawsuit Against Dairy Cooperatives

Ross H. Pifer
National AgLaw Center Graduate Assistant

Summary of Decision

In Ice Cream Liquidation, Inc., v. Land O'Lakes, Inc., 253 F.Supp.2d 262 (D. Conn. 2003), the United States District Court for the District of Connecticut ruled that an ice cream manufacturer had standing to pursue claims against dairy cooperatives for inflating the wholesale prices of dairy products in violation of the Sherman Antitrust Act, 15 U.S.C. § 1.

Background

Plaintiff Ice Cream Liquidation, Inc. was "a manufacturer of ice cream, which purchased milk and ice cream from defendants." Id. at 267. The defendants were several companies, including two cooperatives composed of dairy farmers, that produced and marketed dairy products throughout the United States. See id. at 267-68. Collectively, defendants produced "approximately 35% of all milk produced in the contiguous United States." Id. at 268.

The prices of milk, butter, and cream are determined by formulae that considered the market price of butter as traded on the Chicago Mercantile Exchange (hereinafter referred to as "CME"). The plaintiff asserted the defendants were able to successfully inflate the market price of butter on the CME because there was limited trading of butter on the CME and the defendants held a large market share of butter. See id. The plaintiff filed suit, claiming that it "was required to pay prices for milk, cream, and butter substantially above the competitive level" as a result of defendants' anticompetitive behavior. Id. at 270. The defendants filed a motion "to dismiss plaintiff's complaint pursuant to Rule 12(b)(6), Fed.R.Civ.P." Id. at 266.

Arguments

In support of their motion to dismiss, the defendants argued that the plaintiff lacked "both constitutional standing and antitrust standing to bring this action." Id. at 270. According to the defendants' argument, the plaintiff "could not have been damaged by the alleged price-fixing conspiracy" as it had failed to allege that it had purchased butter on the CME. Id. The plaintiff argued that although it had not purchased butter on the CME, it was nevertheless "directly impacted by defendants' price-fixing" due to the relationship between the CME butter price and the wholesale price of dairy products. Id.

Analysis and Holding

On the basis of the allegations contained in the plaintiff's complaint, the court ruled that it had sufficiently established constitutional standing as well as antitrust standing. Id. at 270-74. To establish constitutional standing, the court stated that "[a] plaintiff must allege personal injury fairly traceable to the defendant's allegedly unlawful conduct and likely to be redressed by the requested relief." Id. at 270 (citation omitted). The court determined that the plaintiff had satisfied this burden by alleging that it had been required to pay increased prices for milk and cream as a result of the defendants' alleged conspiracy to inflate the price of butter on the CME. See id. at 270-71.

In analyzing whether the plaintiff had established antitrust standing, the court first examined whether the plaintiff had alleged an "antitrust injury." See id. at 272. The court found that the plaintiff's allegation that it had been damaged by paying prices "not set by free market competition, but rather by defendants' price-fixing scheme" established an "antitrust injury." Id. The court reasoned that the injury alleged by the plaintiff was the type of injury that the Sherman Act sought to prevent. See id. Having determined that the plaintiff had sufficiently alleged an "antitrust injury," the court then continued its analysis of whether the plaintiff had established antitrust standing by considering five factors:

(1) the causal connection between the antitrust violation and the harm to the plaintiff, and whether the harm was intended;
(2) the nature of the injury, including whether the plaintiff is a consumer or competitor in the relevant market;
(3) the directness of the injury, and whether the damages are too speculative;
(4) the potential for duplicative recovery, and whether the apportionment of damages would be too complex; and
(5) the existence of more direct victims.

Id. (citation omitted). After a consideration of these five factors, the court concluded that the plaintiff had sufficiently alleged antitrust standing. See id. at 273-74.

In its analysis, the court gave special attention to the third factor requiring directness of injury. See id. Because this matter was before the court in the context of a motion to dismiss, the court accepted the plaintiff's allegations as true. See id. at 274. As such, the court accepted the plaintiff's allegation that there was a connection between the CME butter price and the wholesale dairy prices that it was forced to pay. See id. The court, however, noted that "[w]e make no findings at this point on the causal connection between the CME butter price and the wholesale prices of milk, cream, and butter," and further noted that "this is a matter that may be revisited after discovery." Id.

The case was decided on March 23, 2003; this summary was posted Jan. 13, 2005.