A new lawsuit filed against 75 members of the Dairy Farmers of America's leadership claims that the co-op has been operating "a milk cartel which has shattered our nation's crucial dairy industry."
A Dean Foods shareholder, 17 farmers and a supply business argue in the complaint that the U.S. dairy industry was already facing a collapse with a record amount of farms drowning in red ink and rural communities suffering before the pandemic hit. Now, the plaintiffs claim DFA is unfairly expanding its reach even further with its recent acquisition of the majority of Dean Foods' assets.
"During the height of the pandemic, this collapse spread from Main Street, Rural America to Wall Street, New York City as Defendants extorted substantially all assets from publicly-traded Dean Foods Company after forcing its Bankruptcy," the lawsuit said. "Defendants’ solution to the failed U.S. milk system presents the ultimate extortion: either the federal government subsidizes the production and sale of the cartel’s product, or the cartel oversees the collapse of the centralized U.S. consumer dairy supply chain."
Attorney Joshua Haar filed the complaint under the Racketeer Influenced and Corrupt Organizations Act seeking divestiture and dissolution with all available damages. It was filed last week on behalf of 19 plaintiffs, including dairy supply business New York Animal and Farm, in the U.S. District Court for the Northern District of New York.
Monica Massey, executive vice president and chief of staff at Dairy Farmers of America, told Food Dive in a statement that the complaint is "ridiculous and without merit." Massey said DFA is proud of its staff and will vigorously defend them.
"It is yet another frivolous filing and allegation the plaintiffs' attorney, Joshua Haar, has made in relation to DFA and the dairy industry, as he searches for others to support his personal agenda," Massey said. "It is unfortunate that farmer time and money must now be spent defending claims made by someone with an agenda to try to dismantle the Cooperative."
Dean Foods filed for bankruptcy in November, and announced then that it was in advanced talks to sell to Dairy Farmers of America. About five months later, DFA bought the majority of Dean’s assets for $433 million in a bankruptcy sale.
"With DFA's takeover of the Dean plants, their ability to continue the extortion, which they've already been up to as detailed in the complaint in new ways and more extensively, is tremendous," Haar told Food Dive.
Concerns continue to mount
Antitrust concerns have clouded DFA's purchase of Dean Foods since before the sale was approved. Despite the issues raised and DFA losing its position as lead bidder in the auction after complaints, the Justice Department approved the deal, and only required the co-op to divest three Dean plants.
DFA has about 14,000 members, which is nearly half of all U.S. dairy producers, that produce more than 30% of U.S. milk. Farmers have sued DFA and Dean before for monopolizing the milk market, including Haar, who is the son of dairy farmers Jonathan and Claudia Haar.
The complaint says that DFA's sales personnel used "predatory pricing to eliminate competition from smaller cooperatives and secure control of milk plants in Midwestern states," which gave them the funds to buy Dean.
"DFA was financially able to undertake this purchase due to income and assets obtained through extortion of milk income from dairy farmers including Plaintiff Dairy Farmers," the complaint said.
The suit claims that since Dean gave up most of its assets to DFA, its bankruptcy estate was nearing insolvency and its shareholders, bondholders and unsecured creditors were left with hundreds of millions in losses.
The complaint is seeking divestiture of all processing operations owned by DFA, damages and costs for all fees accrued by the defendants and for DFA to be dissolved with any equity returned to its member farmers.
Dean Foods shareholder Susan Poole, who is a plaintiff on the complaint, previously told Food Dive the Dean sale would create a "monopoly on milk prices." Poole said that she and other shareholders believe DFA and Dean pre-planned the bankruptcy. Poole said the filing was not necessary because the company had liquidity and stockholders' equity.
"Dairy Farmers of America, basically, I think they were in collusion to have this bankruptcy and it wasn't warranted," she said before the deal was approved.
Chapter 11 bankruptcy protection is usually a voluntary filing intended to help struggling businesses restructure financially. According to the company's most updated quarterly report before the sale, Dean had more than $1.1 billion in long-term debt. Many in the milk space are struggling, Borden Dairy filed for bankruptcy just two months after Dean.
This isn’t the first suit filed after the sale closed. An antitrust lawsuit was filed against DFA in federal court last month challenging its acquisition of the majority of Dean’s assets. Food Lion and the Maryland and Virginia Milk Producers Cooperative Association filed the suit in North Carolina. In June, DFA urged the court to toss the suit, arguing it was too speculative.
"With capability to wield market power at two levels of the supply chain, DFA now has both the ability and the incentive to wipe out any remaining pockets of competition," the suit filed in North Carolina said.