DFA, DMS Challenge Dean Foods Settlement--Updated

January 19, 2011 05:41 AM
 
 
Dairy Farmers of America (DFA) and Dairy Marketing Services (DMS) are challenging the fairness of a $30 million settlement reached by Dean Foods and dairy farmers across the Northeast.
 
In essence, DFA and DMS allege the settlement will allow plaintiffs’ attorneys to pick “winners and losers” among dairy farmers, and in the end, the agreement could end up costing some farmers more than the settlement itself.
 
The agreement allows Dean to set the competitive milk price for 60 million lb. of milk per month for 30 months. DFA and DMS say the 60 million lb. is essentially serviced by three plants. Without a full supply contract to those plants, DFA and DMS will likely be expected to provide all balancing and service functions but not be able to recoup costs. Competitors could also ask for lower prices.
 
While Federal Order minimum prices will still have to be paid by Dean Foods, over order premiums and negotiated service payments are at risk. While the $30 million settlement ($10 million of which goes to plaintiff’s attorneys), the average dairy farmers will receive approximately $1,500. But a reduction in pay price of as little as 5¢/cwt for a producer milking 300 cows could result in $3,400 in lost revenues per year, say DFA and DMS officials.
 

In response to a recent U.S. District Court filing by Dairy Farmers of American and Dairy Marketing Services in opposition to the recent settlement by Dean Foods in the Alice H. Allen et al vs. Dairy Farmers of America anti-trust case, Kit A. Pierson, of Cohen Milstein Sellers & Toll, PLLC, which represents the plaintiffs, stated:  “We will take a careful look at the papers that have been filed, but the fact is that the settlement with Dean is an important step forward for all dairy farmers in the Northeast. It is not a surprise that the remaining defendants will try to prevent a co-defendant from settling. The fact is that anticompetitive practices in the Northeast hurt all dairy farmers. We have a strong case against the remaining defendants, Dairy Farmers of America and Dairy Marketing Services, and we are confident that we will prevail.”


The full DFA/DMS release follows:
 
DFA, DMS Join Local Farmers in Filing Objection to Dean Foods Settlement

Dairy farmers who say attorneys representing them are not looking out for their best interests have filed opposition to the proposed settlement submitted in the class action antitrust lawsuit in the U.S. District Court in Burlington, Vt. Acting on behalf of its dairy farmer owners, Dairy Farmers of America, Inc. (DFA), together with Dairy Marketing Services, LLC (DMS), also has filed objections to this settlement.
 
DFA and DMS’ filing on January 18 joins at least 24 dairy farmers — representing diverse cooperative members and independent producers — who submitted their own affidavits challenging the fairness of the settlement.
 
“We objected on behalf of our members because the attorneys for the entire class of dairy farmer plaintiffs have favored one segment of the class while it penalizes another segment,” said Brad Keating, chief operating officer for DFA’s Northeast Area. “As the milk marketing entity representing many of the members of this class, we have a responsibility to ensure their interests are fully considered.”
 
In its filing, DFA and DMS cite concerns that the settlement creates both winners and losers in the class of dairy farmers represented by a single law firm by taking market access from one group of dairy farmers at the expense of another within the same class. The filing also describes how, if the settlement is approved, dairy farmers stand to incur financial damages by receiving a lower pay price for their milk.
 
A provision in Dean Foods’ proposed settlement would allow the dairy processor to determine, in its sole discretion, the competitive market price at which it will purchase up to 60 million pounds of milk per month from non-DFA and non-DMS sources for a period of 30 months.
 
DFA’s filing recognizes the business rationale for Dean Foods to manage its ingredient costs. However, if approved, this settlement is likely to create a downward ripple effect on current pricing for milk purchases from DFA, DMS and other milk suppliers in the Northeast. In turn, other customers will make demands for price equality.
 
The result is price erosion for all dairy farmers.“This provision seems to undercut the very reasons why we at St. Albans decided to join DMS in the first place — to work together with other co-ops to make sure that we were able to serve an increasingly consolidating marketplace, and to do so in a way that will protect prices and premiums for dairy farmers,” said Ralph McNall, president of the board for St. Albans Cooperative Creamery and a dairy farmer who independently filed opposition to the settlement.
 
An additional component of the proposed settlement calls for a payment of $30 million in damages (less $10 million in attorney fees) to be paid to dairy farmers who produced raw Grade A milk in Federal Order 1 and pooled raw Grade A milk in Federal Order 1 from January 1, 2002, through December 9, 2010.
 
“This $30 million settlement has been touted as a real win for dairy farmers,” said Greg Wickham, DMS general manager. “We believe the per-farmer award has been highly exaggerated, but more importantly, we believe the benefit of a small one-time cash payment is far over-shadowed by the long-term negative impact on farmers’ wallets.”
 
After the money is divided among the approximately 13,000 dairy farmers who pooled milk in Order 1 (based on the most current Market Administrator’s Annual Statistical Bulletin, as of 2009), the average farmer stands to receive approximately $1,500.
 
If the market is disrupted such that there is even a meager reduction in milk price, the impact to farmers’ milk checks would be swift and substantial, Wickham said. For example, a 5-cent-per-hundredweight reduction in pay price would cost a farmer milking 300 cows as much as $3,400 in lost revenues in a single year.
 
“The proposed settlement that these class representatives and their lawyers have negotiated takes sales away from dairy farmers, turns those sales over to someone else, threatens to help undercut our organization, and pits dairy farmer against dairy farmer with the end result that prices are bound to fall,” McNall said
 
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