DFA agrees to settlement in ‘Southeast Milk’ lawsuit

By Dave Natzke

The book on the “Southeast Milk” class action antitrust lawsuit may finally be reaching its final chapter.

On Jan. 21, the day before the trial was begin, a $158.6 million settlement agreement was reached between attorneys representing dairy farmer plaintiffs and remaining defendants in the suit – Dairy Farmers of America, Inc. (DFA); Dairy Marketing Services LLC; Mid-Am Capital, LLC, DFA’s finance subsidiary; National Dairy Holdings, LP, which DFA sold to Grupo LaLa in 2009; and Gary Hanman, the former DFA CEO.

The U.S. District Court for the Eastern District of Tennessee approved the proposal on Jan. 22. According to the agreement, DFA will pay $140 million in a one-time cash settlement. An additional $9.3 million/year for two years will be placed in a fund to guarantee stronger Class I (fluid milk) utilization in Appalachian (#5) and Southeast (#7) federal orders.

DFA admitted no wrongdoing in agreeing to the settlement. A DFA spokesperson said Hanman’s liability was released under the settlement.

Court notices and the proposed settlement summary will be mailed to approximately 7,450 potential class members (dairy farmers producing milk for fluid markets in federal orders #5 and #7) within 10 days. Any class member wishing to be eligible for a payment must file a claim no later than 14 days prior to an April 3 “fairness hearing” on the settlement. Dairy farmers can speak to the agreement at that hearing, to be held in the U.S. Courthouse in Greeneville, Tenn.

Rust Consulting, which administered a previous settlement in the case with Dean Foods and Southern Marketing Agency (SMA), will serve as claims administrator.

There are other components of the agreement, according to Julia Walker, AgriVoice Enterprises, who has been following the lawsuit since July 2007.

Also included in the agreement are “remedial” elements regarding DFA reporting, accounting and communication of business information and functions. They include reconfiguring members milk checks to reflect revenues, agency deductions, applicable premiums, deductions, or incentives, mailbox price, and the average federal order blend price for members’ pay zones.

According to Walker, resolutions will be presented at the next DFA annual meeting, March 18-20, in Kansas City, Mo. to disclose compensation and incentives for top five senior executives, along with per diem compensations of board members. There will also be resolution or consideration whether DFA members should be permitted to opt out of DFA’s bloc vote on federal order issues; and a resolution will be proposed for increased transparency and options in the DFA Southeast Area Council.

According to DFA leaders, many of these components are consistent with new policies and procedures DFA management voluntarily developed and implemented previously to emphasize a culture of openness and transparency within the cooperative.

“Our board and management team have worked diligently to put certain old issues behind us,” said Rick Smith, president and CEO. “This outcome positions DFA to fulfill a commitment to our members to resolve pending litigation, to remove a source of distraction for our leadership and to avoid additional legal fees.”

The payment of the settlement will not affect DFA’s day-to-day operations or its ability to market members’ milk or pay them a competitive price for that milk, Smith said. Member milk checks and the member equity program will not be impacted.

“The cooperative remains healthy and poised for a bright future,” Smith said. “We continue to develop new member programs and invest in plants and new products. We also continue to seek out new opportunities and innovative ways to increase value to our dairy farmer owners.”

Total Southeast settlement hits $300 million

The DFA agreement comes two weeks after a plan to distribute another $145 million in settlement funds from Dean Foods And Southeast Marketing Agency was approved by the court. That agreement brings the total settlement to more than $300 million.

Under the previous payment plan being administered by Rust Consulting, about 6,165 claims will be eligible for settlement payments, covering all producers marketing class-eligible milk sold in Federal Orders #5 and #7 beginning in 2001. Settlement funds will be distributed to each class member on a pro rata basis, based on each member’s reported milk production. Total payments from that portion of the settlement were estimated to average $13,000 per claimant when payments are completed, following a 5-year, tiered payment plan. Total payments will range from less than $200 to more than $20,000 per farm, depending on qualified milk marketings.

For more information, visit www.southeastdairyclass.com. The settlement proposal and class notices will be found there in the next few days.