Capper-Volstead, revisited

Rural Cooperatives, July-August, 2009 by Stephanie M. Smith

In today's uncertain times, the Capper-Volstead Act is not without reach of legislative change. Capper-Volstead was enacted to address economic issues that faced agricultural producers. It gives agricultural producers a limited antitrust exemption to market their production on a cooperative basis, which legally permits reduction of competition among agricultural producers when they join and act in the marketplace, in effect, as one farmer. Summarized below are highlights of possible legislative and judicial responses to Capper-Volstead.

In 2002, Congress created the Antitrust Modernization Commission (AMC) to examine whether the antitrust laws should be modernized and to submit its findings to Congress and the President. The AMC is a 12-member, bipartisan commission consisting primarily of antitrust lawyers with large law firms and major corporations. The commissioners originally planned to complete a draft report by the summer of 2006 and to submit a final report in the spring of 2007. At this time, a final report is still being drafted for recommendation by commissioners appointed to several working groups to decide on antitrust immunity legislation, such as Capper-Volstead. Information about the AMC, its commissioners and the initial reports of all working groups are available at: http://www.amc.gov.

In December 2004, the Department of Justice ("Justice") simultaneously filed an antitrust lawsuit against the Eastern Mushroom Marketing Cooperative (EMMC) of Kennett Square, Pa., while also entering into a consent decree settling the case. EMMC, in an attempt to limit mushroom production by non-members of the cooperative, purchased and leased land capable of producing mushrooms and placed deed restrictions on the titles to the land. The deed restrictions barred mushroom farming on the land, in perpetuity.

At this time, justice did not challenge the Capper-Volstead status of EA/IMC. Rather, Justice asserted in its complaint that the Capper-Volstead Act does not protect members of a cooperative who conspire to prevent independent, nonmember farms from competing with the cooperative or its members.

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Under the terms of the consent decree, EMMC agreed to remove all restrictions on producing mushrooms from the deeds and to restrain from similar activity in the future. No fine or other additional punishment was levied against the association or its producer-members.

Thus, EMMC members may continue to agree on prices and otherwise market their mushrooms through their cooperative. A consent decree does not set a judicial precedent in the same way a court decision can. However, this case should put marketing associations on notice that the Justice Department may intervene when it believes a cooperative's actions artificially reduce the acreage and facilities available to non-members to grow and market the same product as the cooperative's members, thereby depriving consumers of the benefits of competition.

And the beat goes on ...

On March 26, 2009, All American Mushroom Inc., Robert Altman and Associate Grocers Inc., filed an action against EMMC related to the same issues brought by justice. In this case, however, the court ruled against the cooperative, saying that it is not entitled to the Capper-Volstead antitrust immunity. The court found, on cross-motions, for summary judgment that the cooperative's admission of a non-farmer member with voting rights destroyed its antitrust immunity.

The cooperative and its members have filed a notice of appeal in the Third Circuit and the plaintiffs have filed their opposition to the appeal. If the appeal is denied, the case will be remanded back to the District Court for further review of antitrust violations and other issues.

Producer-owned marketing cooperatives will want to keep abreast of legislative and judicial actions and be ready to defend their antitrust protections if necessary.

By Stephanie M. Smith, Senior Legal Adviser

Cooperative Programs, USDA Rural Development