Videos Detail Southeast Dairy Antitrust Case Allegations
by Pete Hardin
The following excerpts come from videotaped depositions, presented
on January 20, 2011 at the Southeast dairy antitrust litigation cases in U.S.
District Court for the Eastern District of Tennessee (Greeneville Division).
The power point clips were sourced from depositions conducted by plaintiffs’ attorneys in the case. These items were played during the January 20,
2011 presentation before federal Judge Ronnie Greer by Robert Abrams –
lead attorney for the dairy farmer plaintiffs. Selected, long portions of
Abrams’ powerful presentation were transcripted in the May 2011 issue of
The Milkweed (pages 8-9).
These excerpted transcriptions have been prepared with the greatest
attention to accuracy by The Milkweed’s editor, but are NOT OFFICIAL
courtroom transcripts. These materials were made public by Judge Greer
following requests by The New York Times and National Public Radio.
Defendants’ attorneys fought against making this information available.
What do the videotapes show?
No documented “cost/benefit analyses” In depositions of many
senior officials of defendants – Dean Foods, Dairy Farmers of America
(DFA), Dairy Marketing Services (DMS), and National Dairy Holdings
(NDH) – that no documented cost/benefit analyses were conducted by any
party, prior to the January 1, 2003 shift of milk marketing for hundreds of
Southeast independent dairy farmers. DFA/DMS actually paid Dean
Foods millions of dollars to take over full marketing for Southeast “independent” producers.
DFA controlled DMS and set independent producers milk prices “...
as low as possible.” Essentially, DFA (through DMS) gained full raw milk
supply contracts with the two biggest fluid milk processors in the Southeast:
Dean Foods and DMS. Plaintiffs allege that defendants conspired to limit producers’ access to fluid milk markets in the Southeast, as well as underpay
Southeast dairy producers for their milk. DFA set DMS’ raw milk prices in
the Southeast. NEVER, according to deposition statements from Ronnie
Rider, a Tennessean who headed DMS’ operations in the Southeast, did DMS
indicate to Southeast dairy farmers that DFA completely controlled DMS’s
milk marketing and milk pricing. A deposition statement by Steve Harrison,
a Tennessee dairy farmer and plaintiff, repeats information he was told by
Ronnie Rider that DFA DMS producers milk prices” as low as possible.”
Most shocking? Regional “super-pool” prices commonly set by
back-and-forth conversations involving dairy cooperative and milk
processor personnel. Regional dairy cooperative “super pools” serve a
common function of setting terms for sale of farm milk over a geographic region. “Super pools” are “marketing agencies in common” ... socalled “cooperatives of cooperatives” ... established by the federal Capper-Volstead Act.
————————————————————————
Ronnie Rider
Area Manager, DMS
May 27, 2009
Question: Do you as
DMS, do you consider
DFA to be a competitor?
Rider: Yes.
Question: And do
you compete with them on
the basis of price? Rider:
We’re competitive. We aim
to have a competitive pay price. Yes.
Question: In 2003, that’s when independent producers were assigned to Dairy
Marketing Services, right? Rider: Yes sir.
Question: And as such, did you tell independent producers that nothing
would change and it would be business as usual? Rider: Yes, sir.
Company operating agreement, effective as of January 1, 2003. Correct? Geisler:
Yes, sir.
Question: And again, you are the president of DMS? Right? Geisler: I am
currently the president, yes sir.
Question: If you go to page 14, under paragraph 3.3C, there’s the term
“authority.” Are you with me? Geisler: Yes sir.
Question: And under authority, it says, the manager DFA ... and you understand manager DFA it means DFA, right? Geisler: Yes.
Question: “... shall preside over the general and active operational managers
of the business of the company. That’s DMS, right? Geisler: Correct.
Question: So DFA is presiding over the general and active operational managers of the business of DMS and over all the aspects of the terms and conditions,
including sale price, operating expenses and bad debts for the marketing, sale
and distribution of DFA milk and producer milk. Do you see that language?
Geisler: Yes.
Question: And producer milk is independent producers, correct? Geisler:
Correct.
Questioner: I’d like you please to turn to page 25, it’s Article 7. It’s titled,
‘payments, allocations, distributions, elections and reports.’ And if you would turn
to the next page, subparagraph C, “Payments to producers.” And it says each producer shall be paid by the manager DFA for its producer milk marketed by DMS
at the price determined by DFA and/or pursuant to the applicable marketing
agreement between DMS and the producer, less milk hauling expenses, operating
expenses, bad debts applicable to the producer as determined by DFA. Do you see
that language? Geisler: Yes sir.
Question: So the price for the milk that’s being marketed by DFA for the
independent producers is determined by DFA, correct? Geisler: On behalf of DMS.
That is correct.
Question: Toward the end of that paragraph on this page, it says, ‘This rebate
recognizes that DMS is able, due to its scale and milk marketing services performed for Dean Foods throughout the United States, under this agreement, to
achieve efficiencies and cost savings in its raw milk collection, assembly and delivery activities, and that DMS is willing to pass through certain of these efficiencies
and cost savings to Dean Foods.’ Do you see that language? Geisler: I do.
Question: Have you ever seen a study or analysis computing these savings?
Geisler: I don’t know that I have seen a study or analysis.
Question: When you’re president, I’ll just focus on that, when you’re president in 2007, when seven or six million dollars is paid to Dean, right? Geisler:
That’s my understanding. Yes, sir.
Question: You never saw the support for that before, I think we went
through that before, correct? Geisler: I recall talking about a study, if that’s what
you’re referencing.
Question: I’m referencing the study which I believe you never saw. Geisler: I
do not recall seeing it. Yes, sir.
Question: Do you know why the amount changed from $3.750 million dollars
to $6 million? Geisler: I do not.
Question: But you’re the one writing to Dean saying that, ‘we’re going to pay
you money,’ and you’re the president of DMS, right? Geisler: Correct. I am presi ...
Question: And yet you don’t have any idea why the amount jumped from
three million seven hundred fifty thousand dollars to six million dollars, correct?
Geisler: That is correct.
Question: Were there any analyses done in advance of the execution of the
outsourcing agreement between DMS and Dean Foods that was effective January
1, 2003? Geisler: Yes sir.
Question: In preparing for this deposition, did you locate any of those analyses? Geisler: I was unable to.
Question: Did you look? Geisler: Yes sir.
————————————————————————
Richard Smith
Pres. & CEO, DFA
10/29/09
Question: Did you ask in your letter for authorization by independent producers to market their milk? Rider: No.
Question: So please
tell me, how I should ask
Mr. Cuney (?) to produce
this
document
that
reflects efficiencies of nine
million dollars? Can you
tell me? Smith: I’m sorry?
Question: Did you send any subsequent mailings to your independent producers that informed them that DFA would be making pricing decisions? Rider:
No sir.
Question: Can you
tell me? Smith: Tell you
what?
Question: Did you in your letter ask independent producers to authorize
DFA to make pricing decisions on their behalf? Rider: No.
Forgive me, Father, for I have sinned …
Question: What document I should ask for to
see this purported nine million dollars of efficiencies? Smith: My belief is that you
have the documents, but I will tell you in the first year the nine million dollars was a
negotiated number, there won’t be a calculation that shows nine million dollars.
Question: Did you tell independent producers in this letter you sent them that
the pricing decisions would be made by DFA executives? Rider: No.
Question: Did you tell independent producers in the letter you wrote to them
that DFA would be responsible for the day to day management of DMS? Rider: No.
————————————————————————
David Geisler Sr.
VP Legal and
Administration,DFA;
Pres., DMS
6/17/09
Question: I have
handed you, Mr. Geisler,
Exhibit 686, which is
Dairy Marketing Services
restated Limited Liability
8 — April 2012
Question: Mr. Smith, I want to ask you some questions regarding milk pricing. First, when you were deposed by the Department of Justice on August 31,
2006, you testified that, “it’s pretty basic, ... whether it be NDH, Kroger, and certainly Dean, would have to agree.” Is that truthful testimony? Smith: Yes.
Question: And you went on to say, the way it tends to work, is you need everyone to agree and anyone not agreeing can defeat a price change. Is that truthful
testimony? Smith: Yes.
Continued on page 9
————————————————————————
Ernie Yates
Former Dir. Dairy
Procurement &
VP Industry
Relations, Dean
Oct. 30, 2009
Question: Did you
also have discussions with
DMS about what were
going to be prices paid to
direct farmers? Yates:
Yes.
Question: And what discussion did you have with Mr. Rider concerning the
amount you would be paying for the direct pays? Yates: I would ask Ronnie if our
price were competitive. We had conversations and I’m sure that we exchanged that
information
————————————————————————
Jay Bryant
CEO MD & VA
04/17/2009
Question: Now with
respect to the Coburg
Dairies, the Mayfield
Dairies, and the Barber
Dairies, did you receive
any written complaints
from Dean Foods or from
Coburg Dairy concerning
the Maryland and Virginia supply? Bryant: Not
that I can recall.
Question: And by some of these cooperatives, do you include DFA? Wright:
Yes. Definitely DFA. They weren’t alone, but they were the chief culprit.
Question: So you include SMA? Wright: Yes, I do.
Question: And do you believe that part of the reason, one of the acts DFA has
engaged in that has lowered the producer price is execution of the full supply agreement? Wright: Well, DFA’s holding the full supply agreements, but not necessarily full
supply agreements by themselves.
Question: And what distinction do you draw between those full supply agreements themselves and the fact that DFA holds both full supply agreements?
Wright: Well, I don’t know if there is anything inherently wrong with full supply agreements, but when DFA is allowed to amass the access to market that it’s been allowed to
amass, there’s simply no choice … for the producer, DFA pays them whatever DFA feels
like paying them.
————————————————————————
Steve Harrison
Tennessee
Dairy Farmer
10/13/2009
Question: And you
have had access to Mayfield directly since spring
2007. Is that correct?
Harrison: Yes. But I would
also like to say that was a
decision made by the combination of Dean Foods,
DFA and DMS. And for
some reason, during that period of time, it became politically correct for them to do that.
And I don’t know. That’s just my opinion there.
Question: Did you believe that Maryland and Virginia was capable of supplying high quality milk to these Dean Foods plants and Coburg Dairy? Bryant:
Yes.
Question: What do you mean it was a decision made by a combination of
Dean Foods, DFA and DMS? Harrison: I was told, when I was a DMS producer, and
I was quizzing Ronnie Rider – he was a DMS employee at that time, and I asked him
who his boss was. And I asked him who his boss was, and he said Ernie Yates. And
Ernie Yates was a Dean’s employee. But he was paid by DMS, which was run by DFA.
Quizzing him on how our price was set, especially that over-order premium, how they
decided on that, he said Ernie ... Yates, allocated a certain amount of money to pay that
premium. That he and Ernie would try to get that premium as high as he could get it.
DFA management would try to get it as low as possible. So the three of them would
decide our price. And I thought that was a very unappropriate relationship, that DFA
should have anything to do with my price.
Question: Were you given any notification that the reason for the termination
was in any way related to the quality of milk supplied by Maryland and Virginia?
Bryant: No.
—DFA CEO/Board President “Tricky Rick” Smith Sez:
Question: Did you believe that Maryland and Virginia supplied high quality
milk to the Dean Foods plants and the Coburg Dairy? Bryant: Yes.
Question: Were you given any notification that these three termination letters
were based upon Maryland and Virginia’s failure to adequately supply any of these
plants? Bryant: No.
Question: Following these letters, did you have any discussions with Mr.
Devine concerning whether Maryland and Virginia continuing to supply either the
Mayfield plant and Barber Dairy plant? Directly. Bryant: Yes.
Question: And what were those discussions? Bryant: Mr. Devine told me that
we had done a good job supplying those plants, that we had local milk to those plants,
and that they would like to continue to receive our milk at those plants. But that because
of their national supply agreement with DFA we would need to work through DFA to
put milk into those plants.
Question: Were you told by Dean Foods executives that in order to gain
access to Dean plants, you had to go through DFA? Bryant: Yes.
Question: And who is the Dean executive that said that? Bryant: Marty
Devine.
Question: When was the conversation with Mr. Devine? Bryant: In the spring
of 2002.
Question: Did you ... Maryland and Virginia also join SMA in order to gain
access to Class I plants? Bryant: Yes.
Question: Why did you anticipate losing access to Dean plants? Bryant: We
anticipated that upon completion of that merger, there would be some sort of a national
supply relationship between DFA and Dean Foods. I had been told that by Dean Foods
representatives, that would preclude us from having direct access to those plants.
————————————————————————
Joseph Wright
President, SMI
12/03/2009
Question: And then
I’d like you to turn to the
next page at the top the
first full sentence says,
“Our observation has
been that where DFA has
succeeded in obtaining
monopoly control, producer pay prices are
lower than areas where
there is competition from
other independent cooperatives. Why? It is clear that when DFA is, quote, “the
only game in town, close quote its members have no options. Did you say that?
Wright: Yes I did.
Question: And did you believe that to be a truthful statement? Wright:
Absolutely. The most important thing that’s been said all day.
Question: And, sir why is that the most important thing that’s been said all
day? Wright: Because at the end of the day, all these lawyers and all this stuff people
seem to forget that there is a dairy farmer at the other end. And dairy producers in the
Southeast have been driven out of business, I believe deliberately, because of practices
of some of these cooperatives.
Antitrust Lawsuits in Southeast, Northeast “Ridiculous”
A savvy lawyer would wisely refrain from public comments about ongoing legal matters in which he was involved. Maybe the friction in the “big
office” at Dairy Farmers of America (DFA) is getting too warm for CEO/Board
President Rick (aka “Tricky Rick”) Smith.
At DFA’s recent (March 21-22) annual meeting, Smith was quoted as
labeling the bases for two major regional antitrust lawsuits brought against his
cooperative as “ridiculous.” To hear “Trick Rick” tell it, plaintiffs’ lawyers are
way off base. Curiously, before “Tricky Rick” wormed his way to the top of
DFA’s you-know-what pile, he was in charge of Dairy Marketing Services
(DMS) – the DFA subsidiary at the heart of many of the anti-competitive
actions in both the Southeast and Northeast.
Emotionalism, such as terming the antitrust claims “ridiculous,” may play
well before DFA’s directors and delegates in Kansas City. But such analysis doesn’t go very far in the real world of litigation, where Smith and DFA are stuck.
For years, DFA’s annual financial statement has contained language discounting the impact of potential adverse resolutions to a variety of legal matters
in which the co-op is enmeshed. But this year ... with fellow plaintiff Dean Foods
settling claims in both regions (Southeast – $140 million; and Northeast – a paltry $30 million), disclaimers by Smith and DFA’s accountants ring hollow.
Here’s The Milkweed’s summary of what really happened in the Southeast:
* Dating back to 1997-1998, senior management of DFA’s and Dean
Foods predecessor firms agreed to exclusive raw milk supply arrangements that
would sell the processor lower-cost milk (compared to prices paid by competitors) and a scheme to force independent producers shipping milk to (what was
then) Suiza Foods to join the co-op.
* Dean Foods kicked out other raw milk suppliers (such as Maryland &
Virginia Milk Producers Cooperative Assn.) to honor “full supply” raw milk
contracts with DFA/DMS.
* DFA’s then CEO/Board President Gary Hanman was paid financial
bonuses, based upon how much milk he could force into DFA’s extended marketing system, whether that milk was actual co-op members or non-members.
* In early 2003, DFA and Dean Foods conspired to force a couple thousand independent producers – who’d been selling their milk directly to Dean
Foods – into a marketing arrangement with DMS. Those producers were never
told that DFA – a hated entity – would control marketing their milk and payments for that milk.
* Excess costs and inefficiencies attributed to DFA caused massive losses
in the marketing of farm milk in the Southeast. Those losses were passed on to
dairy co-op members in the Southeast.
Facing private legal actions against such blatant, anti-competitive actions
engineered by DFA, “Tricky Rick” may find comfort using such words as
“ridiculous” to describe DFA’s legal pickle at the co-op’s annual meeting. But
those cheap phrases won’t go far in the court room. Smith – a career lawyer –
ought to know better. “Tricky Rick” is very nervous.
The Milkweed • April 2012 — 9