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The Law of Cooperative Corporations

The Law of Cooperative Corporations. University of Arkansas LLM Program, Agricultural Law, 2007 Fayetteville, Arkansas April, 2007 James R. Baarda. Antitrust. Antitrust. 1. 2. The problem. 3. Capper-Volstead Act. 4. Scope of behavior. 5. Current issues. Undue price enhancement.

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The Law of Cooperative Corporations

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  1. The Law of Cooperative Corporations University of Arkansas LLM Program, Agricultural Law, 2007 Fayetteville, Arkansas April, 2007 James R. Baarda Antitrust

  2. Antitrust 1. 2. The problem 3. Capper-Volstead Act 4. Scope of behavior 5. Current issues Undue price enhancement

  3. 1. The problem Syllabus: Antitrust, pp. 1 - 10

  4. Basic Antitrust Rules • Sherman Act (1890) • - Section 1 • - Section 2 • Clayton Act (1914) • - Merger • - Cooperative exemption Syllabus: Antitrust, pp. 2 - 5

  5. Basic Antitrust Rules • FTC Act (1914) • Unfair methods of • competition • Robinson-Patman Act (1936) • Price discrimination Syllabus: Antitrust, pp. 4 - 5

  6. Basic Antitrust Rules • Judicial development • - Monopolization • - Restraint of trade • Rule of reason • Per se rules Syllabus: Antitrust, pp. 5 - 10

  7. Basic Antitrust Rules • Marketing • Purchasing • Early cooperative issues Syllabus: Antitrust, pp. 5 - 10

  8. 2. Capper-Volstead Act Syllabus: Antitrust, pp. 5 - 10

  9. Capper-Volstead Act (1922) • Membership • Structure • Actions Syllabus: Antitrust, pp. 10 - 11

  10. Capper-Volstead Act (1922) “Persons engaged in the production of agricultural products as farmers, planters ranchmen, dairymen, nut or fruit growers Syllabus: Antitrust, pp. 10 - 11

  11. Capper-Volstead Act (1922) may act together in associations, corporate or otherwise, with or without capital stock in collectively processing, preparing for market, handling, and marketing in interstate and foreign commerce such products of persons so engaged. Syllabus: Antitrust, pp. 10 - 11

  12. Capper-Volstead Act (1922) Such associations may have marketing agencies in common; and such associations and their members may make the necessary contracts and agreements to effect such purposes: Syllabus: Antitrust, pp. 10 - 11

  13. Capper-Volstead Act (1922) Provided, however, that such associations are operated for the mutual benefit of the members thereof, as such producers, and conform to one or both of the following requirements: Syllabus: Antitrust, pp. 10 - 11

  14. First, that no member of the association is allowed more than one vote because of the amount of stock or membership capital he may own therein, Capper-Volstead Act (1922) Syllabus: Antitrust, pp. 10 - 11

  15. First, that no member of the association is allowed more than one vote because of the amount of stock or membership capital he may own therein, or, Capper-Volstead Act (1922) Syllabus: Antitrust, pp. 10 - 11

  16. Capper-Volstead Act (1922) Second. That the association does not pay dividends on stock or membership capital in excess of 8 per centum per annum. Syllabus: Antitrust, pp. 10 - 11

  17. Capper-Volstead Act (1922) And in any case to the following: Third. That the association shall not deal in the products of nonmembers to an amount greater in value than such as are handled by it for members.” Syllabus: Antitrust, pp. 10 - 11

  18. Control Finance USE Benefit Capper-Volstead Act (1922) Syllabus: Antitrust, pp. 10 - 11

  19. Producer Membership • Case-Swayne (1967) • Packing house membership • No de minimus rules • “Economic consequences” • Focus exclusively on producers Syllabus: Antitrust, pp. 11 - 16

  20. What is a Producer? • NBMA (5th Cir.) (1977) • Poultry integrators • Contract growers • Words of the statute • Rationale for the Act Syllabus: Antitrust, pp. 16 - 28

  21. What is a Producer? • NBMA (S.Ct.) (1978) • No breeder flocks, hatcheries • Rationale for exemption • - Condition of farmers • - Exposure to risks + • - Inability to respond Syllabus: Antitrust, pp. 29 - 47

  22. What is a Producer? • NBMA (S.Ct.) (1978) • Economic role of member • Brennan, concurring • - Relative economic positions • - Conflicts Syllabus: Antitrust, pp. 29 - 47

  23. What is a Producer? • NBMA (S.Ct.) (1978) • White, dissenting • - Changing agriculture • - Economic position • - Risk-bearing Syllabus: Antitrust, pp. 29 - 47

  24. What is a Producer? • Hinote (1993) • Catfish farm production • Processing issue Syllabus: Antitrust, pp. 47 - 54

  25. Foreign Membership • Reasons for foreign members • Ocean Spray (2004) • Plain meaning of the word • No untoward impact Syllabus: Antitrust, pp. 54 - 60

  26. 3. Scope of behavior Syllabus: Antitrust, pp. 60 - 137

  27. Pricing Actions Protected • Entity requirement • Membership entities • Bargaining, pricing Syllabus: Antitrust, pp. 60 - 84

  28. Pricing Actions Protected Treasure Valley (1974) Syllabus: Antitrust, pp. 63 - 65

  29. Pricing Actions Protected Central California (1976) Syllabus: Antitrust, pp. 67 - 78

  30. Pricing Actions Protected In re Central California (1977) Syllabus: Antitrust, pp. 78 - 85

  31. … may acquire, exchange, interpret, and disseminate past, present, and prospective crop, market, statistical, economic, and other similar information by direct exchange between such persons, and/or such associations or federations thereof, and/or by and through a common agent…. Pricing Actions Protected Cooperative Marketing Act of 1926 Syllabus: Antitrust, pp. 85 - 86

  32. Actions Among Cooperatives • Independent cooperatives • “Marketing agencies in common” Syllabus: Antitrust, pp. 86 - 91

  33. Actions Among Cooperatives Cooperative Cooperative Cooperative Cooperative

  34. Actions Among Cooperatives • Maryland Cooperative (1956) Syllabus: Antitrust, p. 86

  35. “Obviously, it must have been contemplated that a common marketing agency would fix the same prices for the products of all its principles and would not discriminate among them.” Actions Among Cooperatives • Maryland Cooperative (1956) Syllabus: Antitrust, p. 86

  36. “[I]t would follow that without such a separate [marketing] agency [in common], the associations may act together in marketing and make the necessary contracts to accomplish their legitimate purposes.” Actions Among Cooperatives • Treasure Valley (1974) Syllabus: Antitrust, p. 86

  37. “In short, that which agricultural producers may combine to accomplish within a single association, they may lawfully combine to achieve by way of multiple organizations.” Actions Among Cooperatives • GVF Cannery (1981) • Sherman section 1 Syllabus: Antitrust, p. 88

  38. “It would be anomalous indeed to hold that a defendant agricultural association’s alleged § 1 combination constituted a legitimate Capper-Volstead purpose, while claims based on the same facts which are brought under § 2 are not similarly protected.” Actions Among Cooperatives • Sherman section 2 Syllabus: Antitrust, pp. 88, 89

  39. “It is not unlawful under the antitrust acts for a Capper-Volstead cooperative … to try to acquire even 100% of the market if it does it exclusively through marketing agreements approved under the Capper-Volstead Act.” Actions Among Cooperatives • Cape Cod Food Products (1954) Syllabus: Antitrust, p. 88

  40. “Because an agricultural cooperative may lawfully achieve 100% of a market, it necessarily follows that two or more such organizations may together hold such monopoly power.” Actions Among Cooperatives • GVF Cannery (1981) • Fairdale Farms (1980) Syllabus: Antitrust, p. 89

  41. “Economic analysis predicts that DFA and Land O’Lakes would find anticompetitive coordination to be profit-maximizing, particularly because both firms … are agricultural cooperatives between whom explicit collusion would be legal and could not be challenged under the antitrust laws.” Actions Among Cooperatives • DOJ equivocation Syllabus: Antitrust, p. 90

  42. Actions Among Cooperatives • Related Entities • Sunkist v. Winckler & Smith (1962) Syllabus: Antitrust, pp. 91 - 93

  43. “[T]he 12,000 growers here involved are in practical effect and in the contemplation of the statutes one “organization” or “association” even though they have formally organized themselves into three separate entities.” Actions Among Cooperatives • Related Entities • Sunkist v. Winckler & Smith (1962) Syllabus: Antitrust, pp. 91 - 93

  44. “To hold otherwise would be to impose grave legal consequences upon organizational distinctions that are of de minimus meanings and effect to these growers who have banded together for processing and marketing purposes within the purview of the Clayton and Capper-Volstead Acts.” Actions Among Cooperatives • Sunkist v. Winckler & Smith (1962) Syllabus: Antitrust, pp. 91 - 93

  45. Unprotected Actions Syllabus: Antitrust, pp. 94 - 96

  46. Unprotected Actions • Borden (1939) Syllabus: Antitrust, pp. 94 - 96

  47. “The right of these agricultural producers to unite in preparing for market and in marketing their products, and to make the contracts which are necessary for that collaboration, cannot be deemed to authorize any combination or conspiracy with other persons in restraint of trade that these producers may see fit to devise.” Unprotected Actions • Borden (1939) Syllabus: Antitrust, pp. 94 - 96

  48. Unprotected Actions • Maryland & Virginia Milk (1960) • Purchase of Embassy Dairy • Associated actions and contracts • “Predatory” practices Syllabus: Antitrust, pp. 97 - 104

  49. “[W]e do not believe that Congress intended to immunize cooperative engaged in competition-stifling practices from prosecution under the antimonopolization provisions of § 2 of the Sherman Act ….” Unprotected Actions • Maryland & Virginia Milk (1960) Syllabus: Antitrust, p. 99

  50. “[T]he general philosophy of [Clayton Act § 6 and the Capper-Volstead Act] both was simply that individual farmers should be given, through agricultural cooperatives acting as entities, the same unified competitive advantage – and responsibility – available to businessmen acting through corporations as entities.” Unprotected Actions • Maryland & Virginia Milk (1960) Syllabus: Antitrust, p. 100

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