Judge hears final arguments for Dean Foods settlement with dairy farmers

Jersey cows heading up the lane. VTD/Josh Larkin

RUTLAND – The two dairy farmers who fought Dean Foods in federal court and won a preliminary $30 million class action settlement with the nation’s largest dairy processor are disappointed with the non-monetary results of the agreement. The plaintiffs from Vermont and New York state sought injunctive relief, or a stop to Dean’s alleged collusive business practices. They also hoped, in the course of litigation, to expose the history of the company’s dealings to public purview.

Neither of these objectives was achieved by the preliminary settlement agreement, according to the plaintiffs’ lawyer, Kit Pierson. The Vermont Attorney General’s office, which issued an opinion on the settlement, largely aligned with the plaintiffs’ stance.

An attorney for Dean Foods said the company had done nothing wrong.

The plaintiffs and the defendants were in U.S. District Court in Rutland on Monday to make their arguments at a “fairness” hearing before Judge Christine Reiss, who approved the initial settlement between Dean and the farmers in May.

Reiss said she hopes to make a final decision on the terms of the agreement within 30 days.

The monetary award, which is to be divided among 9,000 farmers in New England and New York state, now seems small in light of another recent Dean Foods settlement: The corporation settled a similar case with farmers in Tennessee for $140 million last week.

Paul Friedman, the attorney for Dean Foods said the plaintiffs received a “substantial recovery,” particularly in light of the plaintiff’s “fundamental theory,” which was that Dean Foods “hatched a conspiracy” to artificially deflate the price it paid to farmers for milk. “We don’t think they can prove it,” Friedman said.

In both the Vermont and Tennessee cases, court records have remained sealed, as neither lawsuit has gone to trial. Because Reiss decided to bifurcate the Vermont lawsuit, it is possible the second part of the complaint, which is directed at Dairy Farmers of America and Direct Marketing Services, could go to trial if Reiss certifies the class. (Hood, a regional processor, was originally named in the lawsuit; Reiss threw out the complaints against that company.) DFA and DMS have not agreed to a settlement with the plaintiffs. The question of class certification was supposed to be taken up at the hearing, but because one of the attorneys for DFA and DMS wasn’t present, the decision was delayed.

Read VTDigger.org’s story about the preliminary settlement.

The original Vermont complaint alleges that Dean, Dairy Farmers of America and Direct Marketing Services conspired to create a closed market that kept milk prices artificially low. Lawyers for the plaintiffs have said the three entities created an unfair system where farmers had no choice but to go through a middleman to sell to the biggest milk buyer in the region. Dean owns Garelick Farms, Borden and Horizon Organic.

Download a copy of the complaint. Dean lawsuit

Attorneys for Dean Foods argue the corporation has done nothing wrong and the settlements reached in Vermont and Tennessee in are not admissions of guilt.

The court asked the Vermont Attorney General’s office to evaluate the settlement in light of the Tennessee case. Elliot Burg, an assistant attorney general, wrote that he was concerned that the plaintiffs in Allen v. Dean Foods are receiving substantially less compensation. “Plaintiffs in the Southeast litigation will receive approximately 9 times the amount of money based on volume of milk produced, or 11.5 times more money based on the number of farmers,” according to a statement from Wendy Morgan, chief of the Public Protection Division of the Vermont Attorney General’s office.

Vermont Attorney General’s July 15 letter to Hon Christine Reiss

Vermont Attorney General’s letter to Hon Reiss _ Allen v Dairy Farmers of America Inc

Burg noted that the plaintiffs in the Northeast settled within a year of litigating, and “prior to any discovery being taken from Dean.” In the Tennessee case, the settlement was made on the eve of a trial, after four years of litigation.

If the Vermont case isn’t settled soon, it’s possible Dean Foods could fail, “in which case no dairy farmers will recover anything,” according to Burg. That’s because the company’s stock prices have continued to fall. Since 2006, the value of Dean’s shares have dropped by more than half. The website Daily Finance reports that Dean is “crippled by debt. It put the Dallas-based company on its list of “10 American Companies That Will Disappear in 2011.”

Alice Allen, a dairy farmer in Wells River, and Ralph and Garrett Sitts, farmers in Franklin, N.Y., expressed their dissatisfaction with the results of the legal contest through their attorney in U.S. District Court in Rutland on Monday.

They are not, their attorney Kit Pierson said, disgruntled about the money. Allen and the Sitts’ sought redress and injunctive relief. The redress, which sugars off to about $3,300 per class action claimant (minus the proposed attorneys’ fees it’s about $2,200), is “barely enough to pay the light bill” for a few months, as one farmer in the audience put it. And injunctive relief, or a stop to the alleged collusionary practices of Dean Foods, Dairy Farmers of America and Dairy Marketing Services, was ruled out as part of the monetary settlement.

“The clients were never in this for the money,” Kit Pierson, attorney for the plaintiffs, told the court. “They stepped up out of real concern about practices that they and we regard as illegal. They want to see changes in the industry to improve the situation for everyone and help farmers get a fair deal, which we’re pursuing in terms of injunctive relief from Dairy Farmers of America.

“One of their goals is to shed light on what is happening in the Northeast and a frustration they’ve had is it’s been hard to get things out in the light,” Pierson said. “In our view, the overwhelming majority of facts in the case should be a matter of public record. There is a lot of talk about farmers against farmers (in this case). Let people see the real facts, then you’ll see a lot less division.”

About 10 farmers filed into the ornate courtroom in Rutland on Monday. The majority sat on the defendants’ side of the room. One of the farmers seated behind the half dozen attorneys for Dean, Dairy Farmers of America and Dairy Marketing Services defended Dean in a speech to the judge.

John Gorton, a farmer from Fairfield, argued that the settlement is potentially detrimental to his business relationship with Dean Foods. He blamed periodically depressed milk prices on the federal milk pricing system and farmers’ tendency to “produce too much milk.”

“My problem with this lawsuit is it does nothing to help me solve the real issue in my industry,” Gorton said.

Paul Friedman, the attorney for Dean Foods, bolstered this argument in his comments to the court. He characterized the milk pricing system as “a creature of the federal government,” a national metrics system that doesn’t “bear any relationship to the costs or market prices for milk.” Friedman accused the plaintiffs of using the courts to change government policy.

“Litigation is a blunt instrument when used to address policy issues,” Friedman said. “It’s important to underscore the issue before the court, which is whether this case is fair and reasonable.”

Gorton strenuously objected to the 33.3 percent fee the plaintiffs’ lawyers had requested. The attorneys for the plaintiffs, who took the case on a contingency basis, are asking for about $10 million in compensation.

Attorney Kit Pierson, who represents the plaintiffs, spent much of the hearing justifying the percentage fee, which he said was based on the time his firm spent preparing for a trial. Though he said the office had reviewed millions of pages of documents from the Tennessee case, it had not begun taking depositions of defendants when the case was settled. Pierson argued that members of the firm had spent dozens of hours in negotiations with Dean and he said they had worked diligently to keep the case from dragging on and becoming, as Judge Reiss put it, “the most expensive case in Vermont history.”

“By the time we sat down, we had done an extraordinary amount of work,” Pierson said. “A good lawyer is prepared to go to trial and a good lawyer is also prepared to settle.”

Reiss replied that most anti-trust cases settle instead of going to trial. Typically, she said, plaintiffs can expect to pay less for cases that are settled well in advance of trial.