Another Development on the Extent of State Medicaid Lien Statutes

August 24, 2011 | Roger McEowen


The first federal antitrust law, the Sherman Act, was enacted in 1890. Additional antitrust legislation was put in place in the early 1900s, including the Clayton Act in 1914.  This early legislation contained a general exemption from antitrust restrictions for agricultural organizations, but the exemption came to be viewed as too limited and not applicable to cooperative marketing activities. As a result, the Capper-Volstead Act was enacted in 1922. That law specifies that “persons engaged in the production of agricultural products as farmers, planters, ranchmen, dairymen, nut or fruit growers, 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.” 

So, agricultural cooperatives that satisfy two requirements are not subject to antitrust restrictions that apply to other businesses. What are those requirements?  First, the organization must be involved in the “processing, preparing for market, handling, or marketing of the agricultural products of its members.”  Second, the organization must be comprised of “members” that are “producers of agricultural products” or cooperatives comprised of such producers. That means an association consisting in part of persons engaged in “production” and in part of persons not so engaged doesn’t get the exemption. That was the issue in this case.

The Eastern Mushroom Marketing Cooperative (EMCC) is the largest mushroom cooperative in the U.S., controlling more than 60 percent of all Agaricus mushrooms grown in the U.S. and about 90 percent of all Agaricus mushrooms grown in the eastern U.S. EMCC is comprised of entities that grow, buy, package and ship mushrooms to retail and food service outlets across the U.S. EMCC sets and regularly publishes the minimum prices at which its members sell their mushrooms to customers in various regions of the U.S. The plaintiff, a group of mushroom growers, packagers, sellers, distributors and other related entities sued, alleging that EMCC schemed to artificially inflate the average prices for mushrooms by setting the price at which mushrooms would be sold in the various geographic regions in violation of the Clayton Act and the Sherman Act.  Then, the plaintiff claimed, EMCC launched a “supply control” campaign by using membership funds to acquire and dismantle non-EMCC mushroom-growing operations.  One method used by the cooperative was to buy-up productive farmland and put deed restrictions on the parcels.   

EMCC moved to have the case dismissed, at least in part, on the basis that their anti-competitive conduct was exempt from antitrust law under the Capper-Volstead Act. The court disagreed, noting that other courts have held that where an agricultural cooperative acts in concert or enters into an agreement with persons or entities not engaged in agricultural production, the Capper-Volstead exemption does not apply. So, if non-producers participate as members in an agricultural cooperative, that cooperative is not entitled to use the Capper-Volstead exemption. Because the plaintiff’s complaint alleged that some of the defendants were members of EMCC, but were not engaged in agricultural production, and that the EMCC entered into multiple agreements with persons or entities not engaged in agricultural production, the court refused to dismiss the case. The court also noted that the plaintiff sufficiently alleged an antitrust injury (via the cooperative’s practice of buying farmland and putting deed restrictions on it), and refused to dismiss the case on the argument that EMCC is a single entity.  The court also determined that the buyer had sufficiently identified a relevant product market and geographic market for Agaricus mushrooms and that they had sufficiently pled concerted action.  However, the court did dismiss a claim related to alleged monopolization and attempted monopolization against individual cooperative members.  In re Mushroom Direct Purchaser Antitrust Litigation, 514 F. Supp. 2d 683 (E.D. Pa. 2007).

Later, the same court, in 2009, ruled on various motions for summary judgment.  The court agreed with the buyers that the cooperative was not entitled to the exemption from antitrust laws under the Capper-Volstead exemption because it was an uncontested fact that one of the cooperative members was a non-farmer processor who had the power to participate in the control and policymaking of the cooperative through voting.  In addition, the court said the exemption wouldn’t apply because the cooperative fixed prices with its affiliated distributors.  In re Direct Purchaser Antitrust Litigation, 621 F. Supp. 2d 274 (E.D. Pa. 2009).

Recently, the most recent development in the case occurred.  The growers appealed an interlocutory order denying their motion and holding that the cooperative was not a proper cooperative under the Capper-Volstead Act because one member was not technically a grower of ag produce. As noted above, the trial court held that the exemption under the Capper-Volstead Act does not extend to protect cooperatives that conspire with non-cooperatives . The court further found “impermissible price fixing with a non-member mushroom distribution company.

On appeal, the sole question was whether an interlocutory (prejudgment) order denying an ag cooperative the protections of the Capper-Volstead Act is immediately appealable under the collateral order doctrine. This doctrine is a narrow exception to what is termed the “final-judgment rule,” which requires parties to legal proceedings to wait for a “final judgment” before appealing any rulings.