How Will Dairy Farmers of America Settlement Impact Maryland Dairy Farmers?
Updated: Jul 10, 2020
By Paul Goeringer and Ashley Ellixson
This post is not legal advice.
On June 7, a federal district judge approved a settlement in a class action involving numerous dairy farmers in the Northeast, including many Maryland producers. Dairy Farmers of America (DFA), a national dairy cooperative, has agreed to pay a $50 million settlement to northeastern dairy farmers. This settlement is on top of a $30 million dollar settlement which Dean Foods paid in late 2011. Besides monetary awards, the settlement with DFA also includes safeguards for northeastern dairy producers.
The class action was filed in early 2010 against DFA, Dairy Marketing Services (DMS), Dean Food Company, and HP Hood LLC. The suit alleged that DFA and DMS colluded with Dean Food, Hood, and others to restrict competition for Grade A milk produced, marketed, and processed in the Northeast in violation of the Sherman Antitrust Act. This class action lawsuit comes up against a similar class action suit against DFA in the Southeast.
The settlement with DFA involves not only $50 million but provisions to prevent DFA from restricting competition in the Grade A milk market in the Northeast going forward. First, it is important to note that dairy farmers who do not want to be a part of the settlement can opt out of the agreement and take their claims to trial. At the same time, DFA and DMS agree not to retaliate against any dairy farmer who participated in the class action lawsuit. These provisions are typical in many class action lawsuit settlements.
As a part of the settlement, DFA has agreed to create a Farmer Ombudsperson to hear complaints between farmers and DFA or DMS. The Farmer Ombudsperson will exist for 5 years and investigate, mediate, and have access to records to help promote fairness within DFA and DMS. The ombudsperson office is typically appointed to address and mediate issues between parties, in this case DFA, DMS, and its constituents, although decisions made by this individual are not binding.
DFA will also create a 4-year Advisory Council Member position which will be a non-voting member of the DFA Northeast Area Council. The Advisory Council Member can also request a one-time third-party review of DFA’s and DMS’s financial statements over the course of the member’s 4 years.
According to the terms of the settlement agreement, DFA and DMS may not acquire a controlling interest in DairyOne, the milk testing company both companies use, for 10 years, or until 2026. At the same time, DFA cooperative members may not hold a majority of the seats on the DairyOne board.
Also at the same time, the settlement allows dairy farmers to challenge test results by DairyOne to promote fairness and transparency. Till 2021, producers with an Order 1 whose milk is tested by DairyOne can dispute the accuracy of the test results, at no cost, three times per year. The Farmer Ombudsperson will get an annual report identifying discrepancies in tests between milk tested by DairyOne and other labs.
Because the class action involved claims that DFA restricted competition, the settlement agreement requires DFA to restrain from entering into new supply contracts for Grade A raw milk or renewing supply contracts till 2020 unless certain conditions are met. The DFA board or DMS Board of Directors must review and approve the new contract or renewal. Dairy farmers who supply either DFA or DMS may also request the disclosure of terms of any new contract or renewal contract with DFA or DMS.
To increase competition in the Northeast Grade A milk market, dairy farmers who supply DFA or DMS can be approached by any cooperative to offer more favorable prices, services, or terms. Unlike many of the other provisions of the settlement agreement, this provision has no time limit.
Other provisions of the settlement agreement include provisions allowing DFA members to vote individually and not as a block when DFA decides to have block votes. DFA’s Northeast Area Council will work with the Farmer Ombudsperson to review milk checks and determine what changes need to be made to improve transparency. Finally, DFA will set up a 7-member audit committee plus 2 independent advisors with expertise in accounting, financial reporting, and auditing to monitor compliance with the settlement agreement, and the Federal District Court of Vermont will retain jurisdiction to enforce the settlement.
As we move forward, more details will be available on how the $50 million dollar settlement fund will pay out claims to dairy farmers. Many dairy farmers who are members of this class action suit are aware a dedicated website exists at northeastdairyclass.com. Keep checking that site for additional information as it becomes available.