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Dairy Farmers of America announces settlement in class action lawsuit

Jan. 31, 2013 | 0 comments

Last week the Dairy Farmers of America board and management announced that the cooperative had reached a settlement in a class action lawsuit in the southeastern United States. The case had accused them of being part of a plan to control the raw milk market, eliminate competition in that region and fix the price paid to farmers.

The fact that a settlement was reached means DFA will avoid a trial that was scheduled to begin this month in Tennessee.

Under the terms of the settlement, which must be approved by the U.S. District Court for the Eastern District of Tennessee, DFA will pay $140 million to the plaintiffs.

The co-op also agreed to an additional, refundable $9.3 million per year for two years, which will be placed in a fund to "incentivize stronger Class 1 utilization rates in Federal Orders 5 and 7."

That brings the total of the settlement to $158.6 million.

Avoiding a trial meant that certain sealed documents would not become public. There was also the possibility that the price tag could have been tripled in case a jury found for the plaintiffs.

In its statement announcing the settlement, DFA said it makes "no admission of wrongdoing in the case," which was brought by plaintiffs - a group of farmers who are members and another group of non-members of DFA - who said the country's largest dairy cooperative had colluded to fix prices for milk in the southeastern region of the United States.

Plaintiffs filed the suit in 2007, accusing DFA and others of taking actions to control the price of raw milk.

Among the claims: that DFA had signed exclusive, secret supply contracts with Dean Foods, selling milk to Dean cheaper. The plaintiffs alleged that those deals prevented competition from other cooperatives, dairy farmers and other milk suppliers in the 14-state region of the Southeast.

According to Julia Walker, a reporter in Tennessee who has covered the litigation, total payments to farmers who were party to the suit are estimated to average $13,000 per claimant when payments are completed, following a five-year tiered payment plan.

She said payments will range from less than $200 to more than $20,000 per farm, depending on the qualified milk pounds belonging to each producer; an approximate net of 10-12 cents per eligible hundredweight.

Almost 73 billion pounds of milk was affected by the price schemes included in the lawsuit during the first five months of 2001 - the period covered by this court action.

The DFA settlement was the third and final part of litigation brought by a group of dairy farmers. Dean Foods settled for $140 million in July 2011 and the Southern Marketing Agency and one of its managers settled for $5 million.

Other settling defendants in the most recent agreement included National Dairy Holdings LP; Dairy Marketing Services LLC; and Mid-Am Capital LLC. Gary Hanman, the former CEO of the Dairy Farmers of America, was also part of the settlement.

Under terms of the settlement, DFA also agreed to some changes in business practices regarding reporting, accounting and communication of certain information and operations.

In its statement, co-op officials said many of these components are consistent with new policies they had voluntarily developed and implemented to "emphasize a culture of openness and transparency within the cooperative."

"Our board and management team have worked diligently to put certain old issues behind us," said Rick Smith, DFA president and chief executive officer. "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."

Smith said the payment of the settlement will not affect DFA's day-to-day operations or its ability to market member milk or pay them a competitive price for that milk. Member milk checks and the member equity program will not be impacted, he said.

"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."

Pete Hardin, editor and publisher of "The Milkweed" a dairy industry publication, said dairy farmers in Wisconsin should recognize that it is the competition for their milk that keeps the state's marketplace honest.

"Competition is the best thing Wisconsin dairy farmers have," he said, adding that in other parts of the country things like price fixing can occur because there is no competition.

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