Milk Antitrust Claims Revived by 6th Circuit

(CN) - Finding that an alleged conspiracy to drive up milk prices in southeastern states would have "obviously adverse, anticompetitive effects," the 6th Circuit revived antitrust claims against Dean Foods.

Suiza Foods Corp., which had been the largest dairy processor in the United States, had merged with Dean, the second largest, in 2001.

While Dean obtained its raw milk from independent farmers prior to the merger, Dairy Farmers of America (DFA) was Suiza's primary supplier and business partner, owning almost 34 percent of the subsidiary Suiza Dairy Group.

The merged company known as Dean Foods divested some of its assets to form a competitor, National Dairy Holdings (NDH), 50 percent of which belonged to the national dairy farmer cooperative DFA.

Food Lion and another retailer of processed milk ultimately alleged that DFA was the architect of an antitrust conspiracy between Dean and NDH.

A three-judge panel of the 6th Circuit quickly summed up the processors' position.

"Although DFA's ownership stake provides an obvious incentive to fully support NDH's fledgling enterprise, DFA's raw milk supply agreements with the merged company create fertile soil for the development of a conflict of interest," the summary states.

The retailers claim that DFA knowingly let NDH's plants suffer, and eventually shuttered some of them, giving Dean a commanding lead in the dairy market.

In return, DFA negotiated deals with Dean to allow it to replace the independent farmers who used to supply Dean with raw milk.

A federal judge in Greenville, Tenn., granted the defendants summary judgment, however, finding that the exclusion of testimony made it impossible for the plaintiffs to sufficiently show injury.

In reversing Friday, the Cincinnati-based federal appeals court concluded that "the plaintiffs have met their burden of raising a genuine issue of material fact as to whether Dean Foods violated the antitrust laws even without establishing the relevant geographic market."

"When construing the facts and record evidence in plaintiffs' favor, the alleged unlawful conduct has obviously adverse, anticompetitive effects; and for purposes of summary judgment, the district court should have at least considered the fact that a more detailed market analysis may not have been required under these circumstances," wrote U.S. District Judge Gregory Van Tatenhove, sitting on the appellate panel by designation from Kentucky.

Dean Foods should bear the burden of showing how its conduct has benefited competition, the 28-page opinion states.

The plaintiffs also should have been allowed to rely on expert testimony regarding the effects that the anticompetitive conspiracy allegedly had on the specific geographic region of the Southeast.

"The requirement that an expert base his findings on facts in the record is a proper legal proposition, but it was misapplied," Van Tatenhove wrote.

While an expert must use valid facts for his opinion to be reliable, the available data may be of poor quality, or contradictory.

"Including some facts while omitting others goes to the 'accuracy of the conclusions, not to the reliability of the testimony,'" the opinion states.

Here, the trial court's cited reason for excluding the testimony altogether was unsupported.

Dean Foods and DFA have been similarly accused of milk price-fixing in other areas of the United States, including the Northeast and Puerto Rico.

Dean Foods previously paid $140 million to settle a separate antitrust case over raw milk in the Southeast brought by a group of dairy farmers.

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