The Law of The Law of Cooperative Cooperative Corporations Corporations University of Arkansas University of Arkansas LLM Program, Agricultural Law, 2007 LLM Program, Agricultural Law, 2007 Fayetteville, Arkansas Fayetteville, Arkansas April, 2007 April, 2007 James R. Baarda James R. Baarda Antitrust Antitrust
The Law of Cooperative Corporations. University of Arkansas LLM Program, Agricultural Law, 2007 Fayetteville, Arkansas April, 2007 James R. Baarda. Antitrust. Antitrust. 1. 2. The problem. 3. Capper-Volstead Act. 4. Scope of behavior. 5. Current issues. Undue price enhancement. - PowerPoint PPT Presentation
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The Law of Cooperative The Law of Cooperative CorporationsCorporations
Producer MembershipProducer Membership • Case-Swayne (1967)Case-Swayne (1967)• Packing house membershipPacking house membership• No de minimus rulesNo de minimus rules• “ “Economic consequences”Economic consequences”• Focus exclusively on producersFocus exclusively on producers
Syllabus: Antitrust, pp. 11 - 16
What is a Producer?What is a Producer?
• NBMA (5NBMA (5thth Cir.) (1977) Cir.) (1977)• Poultry integratorsPoultry integrators• Contract growersContract growers• Words of the statuteWords of the statute• Rationale for the ActRationale for the Act
Syllabus: Antitrust, pp. 16 - 28
• NBMA (S.Ct.) (1978)NBMA (S.Ct.) (1978)• No breeder flocks, hatcheriesNo breeder flocks, hatcheries• Rationale for exemptionRationale for exemption
- Condition of farmers- Condition of farmers- Exposure to risks +- Exposure to risks +- Inability to respond- Inability to respond
Syllabus: Antitrust, pp. 29 - 47
What is a Producer?What is a Producer?
• NBMA (S.Ct.) (1978)NBMA (S.Ct.) (1978)• Economic role of memberEconomic role of member• Brennan, concurringBrennan, concurring
• Reasons for foreign membersReasons for foreign members• Ocean Spray (2004)Ocean Spray (2004)• Plain meaning of the wordPlain meaning of the word• No untoward impactNo untoward impact
Cooperative Marketing Act of 1926Cooperative Marketing Act of 1926
Syllabus: Antitrust, pp. 85 - 86
… may acquire, exchange, interpret, and disseminate past, present, and prospective crop, market, statistical, economic, and other similar information by direct exchange between such persons, and/or such associations or federations thereof, and/or by and through a common agent….
“Obviously, it must have been contemplated that a common marketing agency would fix the same prices for the products of all its principles and would not discriminate among them.”
Actions Among CooperativesActions Among Cooperatives
• Treasure Valley (1974)Treasure Valley (1974)
Syllabus: Antitrust, p. 86
“[I]t would follow that without such a separate [marketing] agency [in common], the associations may act together in marketing and make the necessary contracts to accomplish their legitimate purposes.”
Actions Among CooperativesActions Among Cooperatives
“In short, that which agricultural producers may combine to accomplish within a single association, they may lawfully combine to achieve by way of multiple organizations.”
Actions Among CooperativesActions Among Cooperatives
• Sherman section 2Sherman section 2
Syllabus: Antitrust, pp. 88, 89
“It would be anomalous indeed to hold that a defendant agricultural association’s alleged § 1 combination constituted a legitimate Capper-Volstead purpose, while claims based on the same facts which are brought under § 2 are not similarly protected.”
Actions Among CooperativesActions Among Cooperatives
“It is not unlawful under the antitrust acts for a Capper-Volstead cooperative … to try to acquire even 100% of the market if it does it exclusively through marketing agreements approved under the Capper-Volstead Act.”
Actions Among CooperativesActions Among Cooperatives
• GVF Cannery (1981)GVF Cannery (1981)
Syllabus: Antitrust, p. 89
“Because an agricultural cooperative may lawfully achieve 100% of a market, it necessarily follows that two or more such organizations may together hold such monopoly power.”
• Fairdale Farms (1980)Fairdale Farms (1980)
Actions Among CooperativesActions Among Cooperatives
• DOJ equivocationDOJ equivocation
Syllabus: Antitrust, p. 90
“Economic analysis predicts that DFA and Land O’Lakes would find anticompetitive coordination to be profit-maximizing, particularly because both firms … are agricultural cooperatives between whom explicit collusion would be legal and could not be challenged under the antitrust laws.”
Actions Among CooperativesActions Among Cooperatives
• Related EntitiesRelated Entities• Sunkist v. Winckler & Smith (1962)Sunkist v. Winckler & Smith (1962)
Syllabus: Antitrust, pp. 91 - 93
Actions Among CooperativesActions Among Cooperatives
• Related EntitiesRelated Entities• Sunkist v. Winckler & Smith (1962)Sunkist v. Winckler & Smith (1962)
Syllabus: Antitrust, pp. 91 - 93
“[T]he 12,000 growers here involved are in practical effect and in the contemplation of the statutes one “organization” or “association” even though they have formally organized themselves into three separate entities.”
Actions Among CooperativesActions Among Cooperatives
• Sunkist v. Winckler & Smith (1962)Sunkist v. Winckler & Smith (1962)
Syllabus: Antitrust, pp. 91 - 93
“To hold otherwise would be to impose grave legal consequences upon organizational distinctions that are of de minimus meanings and effect to these growers who have banded together for processing and marketing purposes within the purview of the Clayton and Capper-Volstead Acts.”
Actions Among CooperativesActions Among Cooperatives
Unprotected ActionsUnprotected Actions
Syllabus: Antitrust, pp. 94 - 96
• Borden (1939)Borden (1939)
Syllabus: Antitrust, pp. 94 - 96
Unprotected ActionsUnprotected Actions
• Borden (1939)Borden (1939)
Syllabus: Antitrust, pp. 94 - 96
“The right of these agricultural producers to unite in preparing for market and in marketing their products, and to make the contracts which are necessary for that collaboration, cannot be deemed to authorize any combination or conspiracy with other persons in restraint of trade that these producers may see fit to devise.”
Unprotected ActionsUnprotected Actions
• Maryland & Virginia Milk (1960)Maryland & Virginia Milk (1960)• Purchase of Embassy DairyPurchase of Embassy Dairy• Associated actions and contractsAssociated actions and contracts• “ “Predatory” practicesPredatory” practices
Syllabus: Antitrust, pp. 97 - 104
Unprotected ActionsUnprotected Actions
• Maryland & Virginia Milk (1960)Maryland & Virginia Milk (1960)
Syllabus: Antitrust, p. 99
“[W]e do not believe that Congress intended to immunize cooperative engaged in competition-stifling practices from prosecution under the antimonopolization provisions of § 2 of the Sherman Act ….”
Unprotected ActionsUnprotected Actions
• Maryland & Virginia Milk (1960)Maryland & Virginia Milk (1960)
Syllabus: Antitrust, p. 100
“[T]he general philosophy of [Clayton Act § 6 and the Capper-Volstead Act] both was simply that individual farmers should be given, through agricultural cooperatives acting as entities, the same unified competitive advantage – and responsibility – available to businessmen acting through corporations as entities.”
“Whether or not [exemption applies] … , defendants cannot continue their boycott in violation of their existing contracts, .. Assemble … to dissuade or interfere with [others], nor … persuade or attempt to persuade others not to perform their contracts or … refuse normal business relations … .”
Unprotected ActionsUnprotected Actions
Treatment of MembersTreatment of Members
• Power in the marketplacePower in the marketplace• Supply/purchasing Supply/purchasing organizationsorganizations• Non-Capper-VolsteadNon-Capper-Volstead• Non-agricultureNon-agriculture
Syllabus: Antitrust, pp. 109 - 112
• Northwest Wholesale (1985)Northwest Wholesale (1985)• Non-member patronsNon-member patrons• ExpulsionExpulsion• Group boycotts – Group boycotts – per seper se violationviolation
“Although a concerted refusal to deal need not necessarily possess all of these traits to merit per se treatment, not every cooperative activity involving a restraint or exclusion will share with the per se forbidden boycotts the likelihood of predominantly anticompetitive consequences.”
“Wholesale purchasing cooperatives … are not a form of concerted activity characteristically likely to result in predominantly anticompetitive effects. Rather, such arrangements would seem to be ‘designed to increase economic efficiency and render markets more, rather than less, competitive.’”
“Unless the cooperative possesses market power or exclusive access to an element essential to effective competition, the conclusion that expulsion is virtually always likely to have an anticompetitive effect is not warranted.”
Treatment of MembersTreatment of Members
MergersMergers• Logic of cooperative mergerLogic of cooperative merger• Maryland & Virginia (1960)Maryland & Virginia (1960)• DFA (2000)DFA (2000)
Legislative history and Legislative history and sizesize
Syllabus: Antitrust, pp. 124 - 134
• Fairdale Farms (1980)Fairdale Farms (1980)
Syllabus: Antitrust, p. 130
“[W]hen Congress enacted the Capper-Volstead Act, it did not intend to prohibit the voluntary and natural growth that agricultural cooperatives needed to accomplish their assigned purpose of effective farmer representation.”
Monopoly PowerMonopoly Power
• Fairdale Farms (1980)Fairdale Farms (1980)
Syllabus: Antitrust, p. 130
“That farmers’ legitimate desires for unity of effort would incorporate of necessity a concept of corporate aggrandizement did not per se make this method of cooperative growth illegal.”
Monopoly PowerMonopoly Power
Syllabus: Antitrust, p. 134 - 139
• Production controlProduction control- - PotatoesPotatoes- Milk- Milk- Mushrooms- Mushrooms
Monopoly PowerMonopoly Power
Current Issues - ICurrent Issues - I• Justification and challengesJustification and challenges• National CommissionNational Commission
- Keith Collins testimony- Keith Collins testimony- National Council testimony- National Council testimony- Other- Other
Syllabus: Antitrust, p. 134 - 139
Current Issues - IICurrent Issues - II• Local market powerLocal market power• Market concentrationMarket concentration• Competitive market powerCompetitive market power• Food pricesFood prices• Dairy Farmers of AmericaDairy Farmers of America• Strategic alliances, subsidiariesStrategic alliances, subsidiaries
Current Issues - IIICurrent Issues - III• What is a producer?What is a producer?• Mutual benefit of membersMutual benefit of members• New cooperative statutesNew cooperative statutes• “ “Outside” investorsOutside” investors• What is a cooperative?What is a cooperative?
• Not exclusive remedyNot exclusive remedy• No price controlNo price control• Remedy directed only to Remedy directed only to “monopolization or “monopolization or restraint restraint of trade”of trade”