In Re Mushroom Direct Purchaser Antitrust Litig.

Citations: 621 F. Supp. 2d 274; 2009 U.S. Dist. LEXIS 26254; 2009 WL 838490Docket: Master File No. 06-0620. Nos. 06-0638, 06-0657, 06-0677, 06-0861, 06-0932, 06-1464, 06-1854

Court: District Court, E.D. Pennsylvania; March 26, 2009; Federal District Court

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The case, In Re Mushroom Direct Purchaser Antitrust Litigation, involves multiple actions consolidated under Master File No. 06-0620 in the United States District Court for the Eastern District of Pennsylvania, with proceedings dated March 26, 2009. The litigation includes various plaintiffs and defendants, notably involving numerous law firms from different locations representing a wide array of mushroom distributors and retailers. Key defendants encompass entities such as Meyer Distribution, Inc., Publix Super Markets, Inc., and the Eastern Mushroom Marketing Cooperative, Inc. The extensive list of involved parties illustrates the breadth of the antitrust issues at hand, indicating a significant involvement of both small and large businesses in the mushroom supply chain. The document highlights the collaborative legal efforts across multiple law firms aimed at addressing these antitrust claims.

Avra C. Vanderzee and others represent various parties in an antitrust case concerning the Capper-Volstead exemption for agricultural cooperatives. The case involves numerous defendants, including Mushroom Alliance, Kitchen Pride Mushrooms, and M.D. Basciani Sons, as well as consolidated plaintiffs and other parties, all engaged in motions for summary judgment and responses. The court has received extensive exhibits, including witness depositions.

The defendant Eastern Mushroom Marketing Cooperative, Inc. (EMMC), based in Kennett Square, Pennsylvania, operates as a large mushroom cooperative with members involved in various aspects of mushroom production and distribution. From 2001 to 2005, the EMMC implemented minimum pricing policies for mushrooms, which defendants claim were not strictly enforced or followed. Membership dues were calculated based on the quantity sold to the fresh market rather than the amount grown. Notably, M. Cutone Mushroom Co. Inc. joined EMMC in January 2001 and is part of a family-owned operation that includes M. V Enterprises, which exclusively sells its mushrooms to M. Cutone’s other entities. The relationships and ownership structures of the involved parties are complex and contentious, forming a significant background for the litigation.

The EMMC membership agreement lists M. Cutone as a 'Receivers and Commission Merchants Fruits, Vegetables and Flowers' at the Chelsea address, with M. Cutone not involved in mushroom cultivation. EMMC's minimum pricing applied to M. Cutone's sales. Kaolin Mushroom Farms, Inc. and South Mill Mushroom Sales Inc., both owned by John and Michael Pia (50% each), joined the EMMC on January 9, 2001. They jointly operate mushroom distribution centers in several cities, which do not grow mushrooms but sell those from Kaolin, adhering to EMMC pricing. Defendants claim these centers were contractually bound to follow pricing set by Kaolin/South Mill.

LRP-M Mushrooms LLC, also joining the EMMC on January 9, 2001, is co-owned by Dominic Manfredini and his nephew Lucio Pizzini. LRP-M sells all its mushrooms to Manfredini Enterprises, which is owned by Manfredini's wife and does not grow mushrooms. Manfredini Enterprises acquires 20-25% of its mushrooms from LRP-M, with EMMC minimum pricing applicable to its sales.

Plaintiffs accuse defendants of engaging in a 'supply control' campaign using EMMC membership funds to dismantle non-EMMC mushroom operations, thereby raising prices artificially. Specific examples of these practices are cited from 2001 and 2002, including pressure tactics against independent growers to join the EMMC and boycotts against those selling below EMMC prices.

Procedurally, on December 16, 2004, the U.S. Department of Justice filed an antitrust complaint against the EMMC after an 18-month investigation into its practices. A final judgment on September 9, 2005, required the EMMC to nullify deed restrictions on six parcels and refrain from imposing similar restrictions for ten years.

On June 26, 2006, plaintiffs, direct purchasers of mushrooms, initiated a consolidated amended antitrust class action against defendants, including the EMMC and its members, alleging a conspiracy that led to artificially inflated prices for mushrooms from January 2001 to the filing date. This complaint was filed in accordance with a June 5, 2006 Order designed to consolidate multiple actions for judicial efficiency. Plaintiffs sought treble damages and other remedies under the Clayton Act and Sherman Act for alleged anti-competitive behaviors, including monopolization.

On April 25, 2007, the court dismissed the monopolization claims against all defendants except EMMC but upheld other aspects of the complaint. Discovery was ordered in phases, with Phase One focusing on whether all EMMC members were mushroom growers, details of their vertical integration, potential third-party conspiracies, and any coercion related to antitrust violations. The court emphasized that Phase One would touch on the merits of the claims to assess the Capper-Volstead immunity early in the litigation.

The excerpt also outlines the standard for summary judgment under Rule 56(c) of the Federal Rules of Civil Procedure, stating that summary judgment is appropriate when there are no genuine disputes over material facts. The moving party must demonstrate this lack of genuine issues, while the nonmoving party must present facts showing a genuine issue for trial.

Rule 56(e) mandates that an adverse party opposing a properly supported motion for summary judgment must provide specific facts via affidavits or other means to demonstrate a genuine issue for trial, rather than relying solely on allegations or denials. The party must present more than a minimal amount of evidence to counter the motion and cannot depend on unsubstantiated claims or mere conjectures. Courts must resolve all inferences and credibility issues against the moving party. In the context of antitrust cases, while their inherent complexity may present challenges for summary disposition, such motions are still crucial to avoid protracted litigation that could negatively impact competition.

In the current case, defendants seek summary judgment on plaintiffs' claims under Sections 1 and 2 of the Sherman Act, asserting immunity under the Capper-Volstead Act, which provides certain agricultural cooperatives with exemptions from antitrust laws. Defendants bear the burden of proving that EMMC qualifies for this exemption. Conversely, plaintiffs have filed cross motions for summary judgment, aiming to demonstrate that the defendants do not qualify for the exemption and contesting the conspiracy claims. The allegations involve violations of the Sherman Act and the Clayton Act, with the Capper-Volstead Act serving as a focal point for determining defendants' antitrust liability.

The Act allows individuals involved in agricultural production—such as farmers, planters, and ranchers—to form associations for the collective processing, marketing, and handling of their products. These associations can operate without capital stock, share marketing resources, and enter contracts, provided they operate for the mutual benefit of their members (7 U.S.C. 291). The Capper-Volstead Act further clarifies that agricultural cooperatives are exempt from antitrust laws, as outlined in Section 6 of the Clayton Act (15 U.S.C. 17), enabling them to organize and set prices without being deemed illegal conspiracies.

In the case of Maryland, Virginia Milk Producers, the Supreme Court emphasized that the Act allows farmer-producers to organize and conduct business without violating antitrust laws. However, defendants seeking the Capper-Volstead exemption must prove that all members of their cooperative qualify under the Act. The Supreme Court has ruled that even one non-farmer member disqualifies a cooperative from the exemption, as established in National Broiler and Case-Swayne Co. Inc. v. Sunkist Growers, which both ruled that the presence of non-farmer members undermines the cooperative’s immunity.

Furthermore, in Ripplemeyer v. National Grape Co-op Association, the inclusion of a processor as a member of an agricultural cooperative was found to negate Capper-Volstead immunity. In the current case, M. Cutone Chelsea, a non-farmer processor and member of the EMMC, disqualifies the cooperative from claiming the Capper-Volstead exemption, as its presence as a non-producer member nullifies the cooperative's immunity from antitrust litigation.

Defendants acknowledge that EMMC member M. Cutone is a mushroom distributor, not a grower, but argue this constitutes a minor violation that should not revoke the cooperative’s Capper-Volstead immunity. They assert that the complete ownership identity between M. Cutone and M. V, a grower, justifies M. Cutone's membership, despite M. Cutone's registration error. Citing *Alexander v. National Farmers Organization*, they claim that minor record-keeping errors should not negate the exemption for cooperatives benefiting genuine agricultural producers. However, the *Alexander* case is distinguished based on its circumstances, where non-farmer members did not exert control over the cooperative. In contrast, M. Cutone, as a non-grower with voting rights, can influence EMMC’s decisions, undermining the cooperative's immunity. The inclusion of a non-grower member indicates a focus on benefiting distributors rather than growers, violating Capper-Volstead principles.

Furthermore, even if all EMMC members qualified for the Capper-Volstead exemption, it does not protect cooperatives that conspire with non-cooperative entities. The Act does not provide absolute antitrust immunity, and courts have ruled that cooperatives engaging in agreements with non-agricultural producers do not receive the exemption.

Cooperatives are prohibited from conspiring with nonexempt entities to fix prices or control supply, despite such actions being lawful for cooperatives acting independently. They also cannot form agreements with non-agricultural producers to gain monopoly power. To prove a conspiracy under the Sherman Act, plaintiffs must demonstrate concerted action leading to anti-competitive effects, illegal conduct, and resulting injury. Allegations against defendants include price fixing with affiliated distributors, which is considered per se illegal. The per se standard allows courts to presume anti-competitive effects without detailed market analysis. The EMMC implemented minimum pricing policies affecting distributor sales from 2001 to 2005. Whether a conspiracy exists hinges on identifying co-conspirators; unilateral actions do not establish liability. The Supreme Court has ruled that agricultural cooperatives lack the necessary plurality of actors for a conspiracy. Defendants argue no unlawful conspiracy exists between the EMMC, its members, and the affiliated distributors, asserting they operate as a single economic entity due to common ownership and operation.

Defendants assert that if the alleged distributor co-conspirators and their member growers operate as a single economic unit, price fixing with the EMMC at the distribution level is acceptable, as this would negate the plurality of actors needed for a conspiracy under antitrust laws. In Sunkist I, the Supreme Court determined that 12,000 growers organized into three entities functioned as a single organization, thus exempt from conspiracy claims under antitrust laws. However, the current case differs as defendants argue that the alleged co-conspirators act as a single economic unit, making Sunkist I irrelevant. 

The Supreme Court's decision in Copperweld established that a parent company and its wholly-owned subsidiary cannot conspire under Section 1 of the Sherman Act, as they are considered one economic actor. The Court emphasized that divisions within a corporate structure operate for the common interests of the corporation, not as separate entities. This principle was supported by the notion that the control a parent has over its subsidiary reflects a shared purpose, preventing conspiracy. 

Copperweld's rationale has been extended to sibling subsidiaries of the same parent and to franchisors and franchisees, recognizing their shared economic goals as indicative of a single entity. Additionally, the Fifth Circuit has applied Copperweld to separate corporations with common ownership, concluding they cannot conspire due to equal control and interests among the owners.

The Court of Appeals for the Third Circuit has expanded the principles established in Copperweld, permitting a 99.92% ownership deviation from 100% ownership and recognizing that deviations in parental ownership from 80% to 91.9% have been accepted. The court ruled that a corporation, its agents, and two corporations with differing ownership cannot conspire if they share a unity of interest. Specifically, it found that agents of a corporation do not conspire with it when their economic interests are entirely aligned, as agents receive commissions from the corporation and do not compete with it. Similarly, two corporations were deemed a single economic unit incapable of conspiracy when one was contractually obligated to manage the other and shared revenues, creating a direct congruence in economic success.

However, these rulings do not apply to independent actors with diverse economic interests acting jointly. In evaluating the case at hand, ownership structures of Kaolin/South Mill and LRP-M reveal that each was owned 50% by two individuals, with variable control and interests that preclude a finding of de minimis deviation in ownership. The existence of litigation between Kaolin/South Mill and the distribution center further undermines the argument for a unified interest. In the case of LRP-M, despite Dominic Manfredini’s role as president, his 50% stake indicates a lack of equal control across both entities. The overlapping ownership between affiliated distributors and member growers does not indicate common control akin to a wholly-owned subsidiary relationship. Consequently, the differing ownership stakes demonstrate a lack of control by a single decision-maker, confirming that these entities cannot conspire under the definitions outlined in Copperweld and related case law.

Family relationships among partners in a company do not establish common ownership or control, as shared blood or marriage ties do not guarantee uniform agreement on business management. The court references several cases to illustrate that familial connections do not necessitate aligned interests in a business context. It argues that to conclude otherwise would complicate judicial assessments of family ties, obscuring clear legal standards regarding single entities and conspiracy involvement.

In this particular case, the entities involved—growers and distributors—lack a complete unity of interest necessary to be deemed a single enterprise. The economic success of the growers is not dependent on the distributors, as they operate independently in their pricing and sales. The mechanism of price fixing does not align the economic interests of growers with those of the distributors. Furthermore, the fact that dues are based on distributor sales rather than grower output indicates that the growers are not prioritized within the Economic Marketing Cooperative (EMMC).

The Capper-Volstead Act's purpose is to protect growers from the influence of middlemen, and the court concludes that the EMMC's actions—fixing prices with distributors who are not unified with the growers—constitute a conspiracy that undermines the EMMC's exemption under this act. Consequently, the defendants are denied the Capper-Volstead exemption. The court's order on March 26, 2009, reflects this conclusion, denying motions for summary judgment on the exemption and granting the plaintiffs' cross motion for summary judgment regarding Capper-Volstead immunity, while other related motions remain pending.

The motion filed by the EMMC is dismissed as moot. The EMMC's request is for partial summary judgment, specifically excluding claims of monopolization, attempted monopolization, or claims under Section 7 of the Clayton Act. The motion includes several defendants, such as Eastern Mushroom Marketing Cooperative, Inc. and Kaolin Mushroom Farms, Inc., among others. Some defendants, including M.D. Basciani Sons, Inc. and Mushroom Alliance, have joined the EMMC's motion, while others, like Masha. Toto, Inc., have not filed any motions. 

A motion to strike certain portions of the defendants' motions is noted, especially those beyond the Phase One discovery scope. Defendants assert that the EMMC is formed under the Capper-Volstead Act, referencing a DOJ final judgment, but are cautioned that this judgment does not have prima facie effects in subsequent lawsuits. 

Defendants argue for summary judgment on plaintiffs' claims regardless of exemption determinations; however, because Phase One discovery was limited to Capper-Volstead matters, arguments outside this scope are dismissed without prejudice, as further discovery is necessary. Plaintiffs contend that the Capper-Volstead immunity is undermined by several factors, including failure to meet the 50% rule and engaging in non-agricultural agreements. Since proving any one defect suffices to negate the exemption, the court emphasizes the need for defendants to demonstrate the EMMC's validity under the Capper-Volstead criteria, which includes member qualifications and voting rights. Certain defendants' claims about their membership status in the EMMC are deemed irrelevant if they do not satisfy these requirements.

In Ripplemeyer, the court determined that a non-grower processor's membership in an agricultural cooperative compromised Capper-Volstead immunity, as it precluded the parent and subsidiary from being considered separate entities capable of conspiracy. M. Cutone is similarly deemed an improper member of the EMMC, as its association with M. V Enterprises, which is not part of the cooperative, undermines immunity. The Alexander Court recognized the NFO as a legitimate populist farm organization under the Capper-Volstead Act, emphasizing the Act's intent to empower farmers against larger commercial interests. The EMMC aligns with the cooperative model described in Justice Brennan's concurrence in Nat'l Broiler and in United States v. Hinote, as it consists of fully integrated agricultural producers involved in processing. However, the EMMC's structure raises concerns, as it appears to prioritize the interests of mushroom distributors over grower members. Membership dues were based on distributor sales, disadvantaging smaller growers, and price-fixing was applied to distributors rather than directly to growers. The EMMC lacked pure grower members and instead focused on organizing the EMMCGA to support them, indicating that its primary purpose was not to protect true growers. The arrangement, although designed to appear as a producer cooperative, is criticized as being fundamentally flawed and disadvantageous to actual growers.

Defendants contend that the Nat'l Broiler precedent applies solely to processors, not distributors like M. Cutone. However, the Nat'l Broiler case encompasses both processors and distributors as middlemen protected under the Capper-Volstead Act, which was enacted to empower farmers against processors and distributors who could disproportionately capture profits. The intent of the Act was to enable farmers to form cooperatives to enhance their market position and resilience against economic downturns.

The EMMC's exemption under Capper-Volstead was denied due to M. Cutone's non-grower status, making further analysis of other EMMC members unnecessary at this time. Plaintiffs allege that defendants participated in price fixing with distributors Masha and Buona, but the determination of conspiracy remains open due to potential genuine issues of material fact. 

Defendants assert their cooperative status by claiming their structure allows growers to utilize wholly-owned affiliates for packaging and sales, referencing the Sunkist cooperative case. However, distinctions arise because the Sunkist cooperative eliminated non-grower members, transitioning them to licensed packing houses without voting or property rights, unlike the current case where mushroom growers sell to distributors at fixed prices. Additionally, the N. Cal. Supermarkets case does not provide relevant insights regarding ownership structures or conspiracy, as all involved parties were considered "growershippers."

Franchisors aim to reduce competition and ensure consistency among franchises, allowing each to benefit from a collectively enhanced reputation for quality. This relationship continues beyond the initial licensing fee, as franchisors receive ongoing royalties and marketing fees based on a percentage of gross sales from the franchises. The argument regarding Kaolin's contracts with distribution centers at EMMC prices does not alter the fact that these centers were indeed selling at those prices, and the member growers' owners were prioritizing the interests of their distribution centers, which they partly owned, over their growers' interests. While not conclusively determined, classifying these entities as a single unit could enable cooperatives to bypass the 50% rule by only including member growers' mushrooms in calculations, rather than those of affiliated distributors. This could create a loophole counter to the Capper-Volstead exemption's intent of benefiting growers. Despite defendants including affiliated distributor sales in their 50% calculations, treating these entities as a single unit with member growers does not change the legal analysis of their classification.