A dismissed antitrust lawsuit alleging a “conspiracy not to compete” between Dean Foods, Dairy Farmers of America (DFA) and National Dairy Holdings (NDH) has been reinstated by a US federal appeals court.
Last week, the US Court of Appeals for the Sixth Circuit overturned a decision to completely dismiss a 2007 proposed class action in which Dean Foods was accused of conspiring with NDH, which is part-owned by DFA, to "divide markets and restrict output" of processed milk in Southeast USA
The US District Court in the Eastern District of Tennessee dismissed the case in 2010, ruling that the plaintiffs, retailer Food Lion and businessman Fidel Breto, could not establish proof of their injuries or the relevant geographic antitrust market. But last week, the US Court of Appeals for the Sixth Circuit ruled that the initial decision was made in error.
The case was remanded to District Court for further proceedings.
“Set the stage for the illegal conspiracy”
The lawsuit stems from the 2001 merger between Suiza Foods and Dean Foods.
Prior to the merger, Suiza Foods’ main milk supplier was its subsidiary Suiza Dairy Group, which was part owned by DFA.
During the consolidation period, the merged entity, now known as Dean Foods, agreed to divest assets to avoid any antitrust issues. Suiza purchased DFA’s interest in Suiza Dairy Group in exchange for cash, six dairy processing plants and “two contractual provisions related to DFA’s ability to provide milk to the merging companies’ processing plants.”
The six plants were transferred to National Dairy Holdings, a new partnership owned in part by DFA and former Suiza executives. It was established to compete with Dean Foods, and soon became the second largest milk bottler in the Southeast of the country.
These facts “set the stage for the illegal conspiracy” that the plaintiffs allege, said the court opinion.
“With NDH as Dean Foods’ largest competitor, it would stand to reason that it NDH were weakened, Dean Foods would enjoy a stronger position in the marketplace for selling processed milk,” it said.
“Although DFA’s ownership stake provides an obvious incentive to fully support NDH’s fledgling enterprise, DFA’s raw milk supply agreement with the merged company create fertile soil for the development of a conflict of interest.”
“Reverse and remand”
The original suit, which was filed in 2007, was based on five alleged violations of the Sherman Antitrust Act and the Clayton Act. Dean Foods filed for summary judgment on all five counts, asking the Judge to dismiss them before trial.
Presiding District Judge Ronnie Greer eventually agreed to dismiss all five alleged violations “ruling that Plaintiffs could not provide sufficient proof of injury, nor could they establish the relevant antitrust geographic market.”
In response, Food Lion and Breto appealed the District Judge Greer’s decision on just one count - “conspiracy not to compete.”
Following a review of the original decision, the US Court of Appeals for the Sixth Circuit decided to “reverse and remand” the case.