LEGAL CORNER
Capper-Volstead protects
co-ops with foreign members
By Donald A. Frederick
Program Leader for Law, Policy & Governance
USDA Rural Development
e-mail: donald.frederick@usda.gov
ooperatives have won an important victory in
the battle to remain competitive in the globalized
agricultural markets of the 21st Century. A
federal district court in Massachusetts has held
that foreign members do not jeopardize a cooperative’s
antitrust protection under the Capper-Volstead Act.
Capper-Volstead provides agricultural producers with a
limited exemption from the antitrust laws that allows them
to market their production on a cooperative basis. Private
parties, as well as antitrust enforcement agencies, can sue
cooperatives for relief from anti-competitive conduct they
believe is outside the scope of protection provided by
Capper-Volstead.
An ongoing case in this area was initiated by Northland
Cranberries, a non-cooperative competitor of Ocean Spray, a
cranberry marketing cooperative, claiming the cooperative
engaged in conduct illegal under the antitrust laws. The cooperative
answered that its actions were protected by Capper-
Volstead. The competitor then asserted that the cooperative is
not entitled to Capper-Volstead protection because a number
of its producer-members are foreign producers.
Both parties agreed on the facts relevant to this issue:
Northland admitted that the members in question were "producers,"
Ocean Spray that they were Canadian and therefore
"foreign." So the trial court judge used a special procedure
(cross-motions for summary judgment) to let the parties
argue the issue and have it determined before trial.
The judge referred the issue to another court official,
called a Special Master, to sift through the arguments of the
parties and prepare a recommended decision. The Special
Master recommended the court reject all of the competitor’s
arguments and decide that the inclusion of foreign members
in an agricultural cooperative does not deprive that cooperative
of its Capper-Volstead protections. The court agreed
and adopted the Special Master’s recommended opinion as
presented (Northland Cranberries v. Ocean Spray Cranberries,
Civil No. 03-CV-10734-JLT (D. Mass. June 10, 2004) (order
adopting Special Master’s Recommendation)).
Background facts
This case has an interesting origin. Northland Cranberries
was formed in 1987 through the merger of five partnerships
growing cranberries in Wisconsin. Northland purchased several
more cranberry farms and quickly became the largest grower
member of Ocean Spray. In the early 1990s, cranberry growers
and marketers enjoyed several successful years. Northland’s
owners apparently determined that they could earn higher
returns as an independent firm, so, in 1993, Northland
resigned from Ocean Spray. It constructed duplicate processing
facilities and became a competitor of Ocean Spray.
As frequently happens in agriculture, the good years
attracted new production, from both established cranberry
growers and new producers. Beginning with the 1997 crop,
cranberry supply began to exceed demand on an annual basis
and the market price of cranberries fell precipitously.
Northland began to suffer significant losses. In late 2001,
faced with impending bankruptcy, Northland’s owners sold
most of the company to Sun Capital Partners, a leveraged
buyout firm headquartered in Boca Raton, Fla.
Shortly after acquiring Northland, Sun Capital made two
moves. First, it filed this lawsuit alleging a variety of
antitrust violations by Ocean Spray. Shortly thereafter, it
made an unsolicited takeover bid for Ocean Spray’s juice
business and brand name.
Ocean Spray promptly rejected the takeover bid. So this
case involves a leveraged buyout firm that owns a competitor
of a cooperative, pursuing a lawsuit against that cooperative
that, if successful, would likely cripple the cooperative. At
the same time, the firm is trying to buy the cooperative’s
assets, including a highly respected brand name, for the lowest
possible price.
The court’s reasoning
The Capper-Volstead Act never mentions the word "cooperative."
Rather, it extends limited antitrust protection to
"persons engaged in the production of agricultural products...."
(emphasis added). The term "persons" is not defined
in the act. So the issue before the court
was whether the word "persons," as
used in this statute, means only United
States producers, or if it also includes
producers in other countries.
First, the court made general observations
about the term "persons" in the
context of the Capper-Volstead Act:
- When interpreting a statute, the
plain and unambiguous meaning
of a word prevails in the absence
of clearly expressed legislative
intent to the contrary. No limitation
on the ordinary meaning of
"persons" is stated or implied in
the Capper-Volstead Act. As people
in other countries are considered
"persons," the term should
be read to refer to foreign farmers
as well as American farmers.
- The conclusion that "persons"
includes foreign producers is confirmed
by Congress’ purpose in
passing the Capper-Volstead Act.
In 1922, Congress adopted
Capper-Volstead to provide agricultural
cooperatives having capital
stock the same status under
antitrust laws that Congress
granted to non-stock cooperatives
in 1914, under Section 6 of the
Clayton Act. The Clayton Act
defines "persons" as including
"corporations and associations
existing under or authorized by
the laws of either the United
States, the laws of any of its territories,
the laws of any state, or the
laws of any foreign country."15
U.S.C. Sec. 12 (emphasis added).
Our primary antitrust law, the
Sherman Act, defines "persons"
the same way. 15 U.S.C. Sec. 7.
The court continued that a basic
rule of interpreting statutes is that
where Congress uses the same term in
the same way in two statutes with
closely related goals, the presumption
is that it intended the term to have the
same meaning in both contexts. A
review of the Clayton Act as a whole
demonstrates that the exemption in
Sec. 6 applies to cooperatives with foreign
members. So likewise, the
Capper-Volstead Act applies to cooperatives
with foreign members.
The court then addressed and
rejected Northland’s key contentions:
- Northland argued that segments
in the legislative debate over
Capper-Volstead demonstrate that
Congress intended to exclude foreign
farmers from the definition
of "persons." The court found
these statements did not support
Northland’s position. At most,
they show that certain legislators
argued that foreign competition
was likely to prevent protected
cooperatives from achieving a
monopoly position.
- Northland asserted that exemptions
from antitrust laws must be
narrowly construed. The court
responded that this rule neither
requires nor permits a court to
disregard the plain language of
the statute when interpreting an
exemption.
- Northland said the court should
conclude "persons" under Capper-
Volstead does not include foreign
persons, because in another similar
statute, the Fisherman’s
Collective Marketing Act,
Congress included a territorial
limitation in the definition of
"aquatic products." 15 U.S.C. Sec.
521. The court turned that argument
around, finding that if
Congress intended to impose a
similar limitation on agricultural
producers in Capper-Volstead, it
would have done so.
- Northland claimed the court
should adopt a presumption
against extraterritorial application
of United States law. The
court held that United States
antitrust laws apply to conduct
outside our borders that affects
competition within the United
States, and Northland itself
alleges that the conduct at issue
has had a substantial effect within
the United States. Furthermore,
the presumption applies where a
United States law imposes standards
of conduct on persons in
other countries, not where the
statute at issue is an exemption
from U.S. law.
- Northland charged that interpreting
"persons" to include foreign
farmers would permit producers
around the world to join together
to cartelize any agricultural product
to the detriment of U.S. consumers.
The court determined
this argument was also specious.
It noted that in spite of urging
from USDA to cooperatives to
consider including foreign members,
few have done so and none
approaches a monopoly position.
The court also cited the authority
in Sec. 2 of Capper-Volstead for
the Secretary of Agriculture to
bring proceedings against any
farmer cooperative that "monopolizes
or restrains trade in interstate
or foreign commerce to such an
extent that the price of any agricultural
product is unduly
enhanced...." 7 U.S.C. Sec. 292
(emphasis added).
Conclusion
While this lawsuit continues over
other issues, the court has clearly stated
that foreign memberships in farmer
cooperatives are permissible under the
Capper-Volstead Act. In the economic
environment of the 21st Century, it
appears that globalization and concentration
among processors, distributors
and retailers is the norm rather than
the exception.
To bolster their market strength
today, producers must have the ability
to do more than negotiate with the
local canner or grocery store. They
must deal effectively with international
conglomerates that can purchase agricultural
products from any country
where a product can be grown.
This gives buyers the power to play
producers in one country against those
of another, if effect creating a reverse
auction wherein the price received by
producers is driven steadily downward.
U.S. producers may well need the
option to develop international memberships
to deal with buyers with this
degree of market power.
