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Cooperatives Working Together settles ‘herd retirement’ lawsuit for $52 million

Progressive Dairyman Editor Dave Natzke Published on 13 September 2016

Lawyers representing the National Milk Producers Federation (NMPF) and major dairy cooperatives ended five years of litigation surrounding the “herd retirement” component of the Cooperatives Working Together (CWT), agreeing to settle the lawsuit for $52 million.

Without admitting wrongdoing, lawyers representing the plaintiffs and dairy co-ops signed off on the preliminary settlement on Aug. 12. U.S. District Judge Jeffery White granted preliminary approval on Aug. 26, in the U.S. District Court in the Northern District of California.

The lawsuit (Matthew Edwards, et al. v. National Milk Producers Federation, aka Cooperatives Working Together, et al., Case No. 11-cv-04766), initially filed in September 2011, was a consolidation of multiple similar lawsuits filed in several courts. Defendants named in the consolidated lawsuit suit were NMPF, Dairy Farmers of America, Dairylea, Land O’Lakes and Agri-Mark. The case was granted class action status in 2014.

CWT history

CWT was created during a period of growing milk supplies and declining prices, culminating in historically low farmer milk prices in 2009.

During CWT creation, NMPF believed the program fell under provisions of the Capper-Volstead Act, a 1922 law which provides farmers and agricultural producers certain exemptions from antitrust laws when marketing, pricing and selling their products through cooperative means. NMPF contended CWT’s structure was a federation of co-ops and producers working together to achieve stable milk prices.

CWT’s activities were vetted with USDA, and no Capper-Volstead concerns were raised at that time. The U.S. Department of Justice also raised no concerns.

NMPF-member co-ops and individual producers were eligible to participate in CWT, which grew to include about 35 cooperatives. Co-ops joining CWT represented all sizes of dairy farms across the country, and only those farms belonging to member co-ops could participate in the program.

The program was funded by a 10-cent per hundredweight (cwt) assessment on CWT-member milk production.

The original program included three components: a reduced production program to provide incentives for farmers to decrease production; the herd retirement program, and an export assistance program.

Under the herd retirement program, CWT announced invitations for dairy producers to submit bids to sell their dairy herds and cease milk production in an attempt to bring milk supply in closer balance with demand. Once bids were accepted, producers selling their dairy herds received the difference in their bid price and the actual price received for culled dairy cows on the date of sale.

Due to stressful economic conditions, there were times when tearful dairy producers begged to be accepted in the herd retirement program as a means to exit farming.

CWT conducted 10 herd retirements between 2003 and 2010. In 2010, with diminishing interest in herd retirements, CWT switched its focus to building export markets. Herd retirements ended, and CWT-member assessments were reduced to 2 cents per cwt, with funding providing export assistance to co-ops moving dairy products off shore. The export assistance assessment has since been doubled to 4 cents per cwt and extended until 2018.

The allegations

An initial lawsuit was filed by the California-based animal rights organization Compassion Over Killing, upset with CWT’s program to send excess dairy animals to slaughter. The suit expanded with allegations of artificially raising milk prices.

Citing CWT protection under Capper-Volstead, NMPF sought dismissal of the case in late 2012. However, the court denied the request.

Plaintiff lawyers alleged the herd retirement program was not covered under antitrust protection because it controlled pre-production milk supply by removing cows, and not post-production marketing and selling milk and dairy products.

“What it did not allow was the farmers to get together to sell their milk to decide how much they were going to produce,” said Jeff Friedman, a partner at the law firm that filed the suit, Hagens Berman Sobol Shapiro LLP.

They also argued CWT membership included non-producer members, such as United Ag Services Cooperative and the National Farmers Organization, whose membership was open to non-producers. Further, they alleged CWT was administered by an NMPF board, which contained non-producer and non-CWT members.

Plaintiff attorneys used CWT press releases – released to update members and encourage dairy producer and co-op participation in the program – extensively in filing court documents. Citing the program’s success, CWT routinely put out press releases featuring analysis by Scott Brown at the University of Missouri, indicating the effectiveness dairy herd removals had on boosting farmer milk prices.

According to annual CWT reports, 2,802 dairy herds were eventually accepted into the program, removing 506,921 cows and an estimated 9.672 billion pounds of milk over the course of 10 herd retirement programs.

Settlement terms

Under the preliminary settlement agreement, NMPF must make two $26 million payments into an escrow account. How much of that makes it to dairy product consumers is yet to be calculated.

Lawyers representing the plaintiffs have until mid-October to file for legal expenses. In similar lawsuits, lawyers have received approximately one-third of the total settlement.

Additionally, 18 “class representatives” will receive incentive awards of $5,000 each, for a total of $90,000. Up to another $2 million has been allocated for administration costs.

The remainder will be paid to consumers in 15 states (Arizona, California, Kansas, Massachusetts, Michigan, Missouri, Nebraska, Nevada, New Hampshire, Oregon, South Dakota, Tennessee, Vermont, West Virginia and Wisconsin) and the District of Columbia who purchased dairy products between 2003 and the date of the settlement. Those who purchased milk for resale are not eligible, nor are government entities.

Eligible consumers must submit a mail or online claim form by Jan. 31, 2017. Those who submit a claim may opt for cash, with no proof of purchase required.

Initial estimates put the number of eligible claimants at 73 million. Final payments will be determined by the number of consumers filing claims.

Payments will be issued at two levels. Those who purchased normal household amounts of dairy products during the period, and those who purchased volumes above normal amounts. After the initial payouts, any remaining funds will be distributed using grocery loyalty cards in the affected states.

Remaining legal steps

Consumers may file an objection to the settlement by Oct. 28. The objection cannot ask for a larger settlement or change the settlement’s terms.

Those objections will be considered at a settlement approval hearing, set for Dec. 16, 2016, in Oakland, California.

If final settlement approval is granted, class members who have filed valid and timely claims will receive cash payments distributed directly into an online account of their choosing. A court denial of the settlement following the hearing would extend the lawsuit until an approved settlement is reached.

Consumers may exclude themselves from the settlement to retain the right to sue individually at a future time.

NMPF moving on

While admitting no wrongdoing, NMPF and the CWT leadership team agreed to the settlement agreement.

“Our CWT leadership team, with support from the CWT membership, has worked diligently to put this legacy issue behind us,” said Jim Mulhern, NMPF president and chief executive officer. “Settlement of this litigation is the most sensible and responsible course of action to maintain the current CWT Export Assistance program and allow us to focus on the future.

“It is important to note that the court has found no antitrust violation and CWT makes no admission of wrongdoing in this settlement. The activity at issue in this litigation — the herd retirement program — has long since been terminated by CWT.”

Mulhern said CWT would rebound from the financial hit and continue to focus on its ”present mission of providing member cooperatives with export assistance, creating new export market opportunities and continuing to look for innovative ways to increase sales of milk and dairy products for participating cooperatives.” end mark

Dave Natzke
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