DFA Agrees to Pay $140 Million in Milk-Price Fixing Lawsuit

January 22, 2013 01:38 PM
DFA Agrees to Pay $140 Million in Milk-Price Fixing Lawsuit

Nation’s largest dairy co-op makes no admission of wrongdoing in southeast U.S. case.

Nearly eight years after it was named in a class-action lawsuit for alleged milk-price fixing in the Southeast U.S., Dairy Farmers of America (DFA) today announced it will pay $140 million to settle those claims.

"We make no admission of wrongdoing," DFA president Rick Smith said today in a conference call with members of the news media.

The milk checks of DFA’s 14,000 members won’t be affected, and the co-op remains healthy, Smith said. The payment of the settlement will not affect the cooperative’s day-to-day operations or its ability to market members’ milk or pay them a competitive price for that milk. DFA’s member equity program will not be impacted.

DFA has the cash on hand to pay the settlement, Smith added.

Under the terms of the settlement, filed yesterday with the U.S. District Court for the Eastern District of Tennessee, DFA will pay $140 million to the plaintiff class. The amount includes $70 million for DFA, $50 million for defendant and former DFA subsidiary National Dairy Holdings, and $20 million for defendant and DFA finance subsidiary Mid-Am Capital. An additional, refundable $9.3 million per year for two years will be placed in a fund to incentivize stronger Class I utilization rates in Federal Orders 5 and 7, areas which cover several southeastern states.

Smith, who became president in 2006, said he did not know how many farmers would receive settlement payments but guessed it could amount to thousands since some of the allegations go back as far as 15 years.

Also included in the agreement are remedial elements regarding reporting, accounting and communication of certain business information and functions. Smith said many of these components are consistent with new policies and procedures DFA management voluntarily developed and implemented previously to emphasize a culture of openness and transparency within the cooperative.

The 2007 lawsuit, filed on behalf of dairy producers in the Southeast U.S., claimed DFA, Dean Foods and others violated federal antitrust laws in the purchases, sale and marketing of raw Grade A milk in Federal Milk Marketing Orders 5 and 7. The lawsuit also claimed that DFA failed to operate for the benefit and advantage of its members as farmers. That resulted, according to the lawsuit, in lower prices than producers in those federal areas otherwise would have received.

Trial for the suit was scheduled to begin this month. Despite DFA’s willingness to "vigorously defend" itself in the case, Smith said there are always risks in going to trial. "Our board felt that members’ interests were better served with a business decision to put [the lawsuit] behind us," he said.

Last week, Dean Foods distributed its $140 million settlement, while Southern Marketing Agency and James Baird paid out a $5 million settlement plus agreed to certain structural changes. Former DFA CEO Gary Hanman was also one of the lawsuit's defendants. He has been released from legal liability in the case, Smith said, and how the issue has been resolved between DFA and Hanman remains confidential.

"Our board and management team have worked diligently to put certain old issues behind us," Smith said. "This outcome positions DFA to fulfill a commitment to our members to resolve pending litigation, to remove a source of distraction for our leadership and to avoid additional legal fees."

"The cooperative remains healthy and poised for a bright future," Smith said. "We continue to develop new member programs and invest in plants and new products. We also continue to seek out new opportunities and innovative ways to increase value to our dairy farmer owners."

Federal Orders 5 and 7 cover Alabama, Arkansas, Georgia, Mississippi, Louisiana, North Carolina, South Carolina and Tennessee. The two orders also include parts of Florida, Kentucky, Indiana, Missouri, Virginia and West Virginia.

More on the lawsuit can be found here

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