April 20, 2009

Capper-Volstead Antitrust Exemption: Mushroom Growers and Distributors Don't Mix

In a long-running mushroom price fixing case, a Pennsylvania federal court issued in March an important opinion concerning the requirements agricultural coops must meet to be shielded from antitrust liability under the Capper-Volstead Act. The opinion also addresses the degree of common ownership and control that must exist between two firms before they can benefit from Copperweld immunity to liability for antitrust conspiracy under Section 1 of the Sherman Act. In re Mushroom Direct Purchaser Antitrust Litig., Master File No. 06-0620 (E.D. Pa. Mar. 26, 2009).

The case involves allegations that the Eastern Mushroom Marketing Cooperative (EMMC) imposed minimum pricing policies for mushrooms sold into the fresh market and undertook various schemes to restrict mushroom supply. Plaintiffs alleged that EMMC and its members—which include at least some non-grower producers and distributors—conspired with non-members to fix prices. The court's order resolved cross-motions of the parties on Capper-Volstead immunity and Copperweld immunity.

Non-grower Members Disqualified EMMC From Antitrust Exemption

The Capper-Volstead Act, 7 U.S.C. § 291, provides agricultural cooperatives a limited exemption from the antitrust laws for otherwise independent growers who are members of a coop to collectively market their products. The act's legislative history indicates a concern that individual growers faced disproportionate economic power from processors and distributors of agricultural products.

Because of the limited nature of any antitrust exemption, and the act's focus on grower welfare, the Supreme Court in the 1977 National Broiler Marketing Association case held that even one non-farmer member in a coop disqualifies the coop from claiming the Capper-Volstead exemption. Therefore, the fact that at least one EMMC member was a mushroom processor and distributor rather than a grower was fatal to the claim of exemption.

The court brushed aside any contention that opening coop membership to non-farmers could be a "de minimis" error, insufficient to void the antitrust exemption. In so holding, the court found it "troubling that the EMMC appears to have been organized for the benefit of mushroom distributors," rather than growers, in light of the Capper-Volstead Act's legislative history.

Conspiracy Also Voided Exemption

The court went on to find that evidence of conspiracy between EMMC members and non-member corporations also voided the antitrust exemption. Copperweld came into play because the defendants claimed that non-members who participated in the alleged minimum pricing scheme were simply separate distributors under common ownership and control with a grower member.

While the court recognized that other lower courts have extended Copperweld beyond its origins of shielding a corporation only from allegations of conspiracy with its wholly owned subsidiaries, it was unwilling to extend the doctrine to the facts of this case, in which the grower members had a 50 percent ownership interest in the separate distribution company, with a third party owning the other 50 percent. In addition, there was "no indication that [the grower members] would have control independent of their co-owners" in the distribution companies. Finally, the court noted that the fact that a third party owner might be related by blood to a grower member was insufficient to invoke Copperweld as a shield to a conspiracy claim.

Decision Underscores Requirements for Antitrust Law Immunity

The court denied the defendants' motions for summary judgment and granted the plaintiffs' cross-motions. The decision in the Mushroom Direct Purchaser action is an important reiteration of the limits of the Capper-Volstead antitrust exemption, in particular the need for coops to closely limit their membership to growers if they wish to engage in joint marketing and sales activities otherwise prohibited by the antitrust laws. In this regard, it is of a piece with National Broiler and other relatively restrictive interpretations given to the antitrust exemption over the past 30 years.

The case is also a useful reminder of the limits of the Copperweld doctrine. Most antitrust lawyers would counsel a client that a joint venture or other third party corporation owned 50-50 by two parent companies would not be immune to charges of conspiracy with one of the parents. The Mushroom case, however, gives an explicit judicial example of the need for caution when entering such relationships, or any relationship in which ownership and control do not clearly reside with one party, if antitrust immunity is a desired goal.

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