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Potato Price-Fixing Case Survives Motion to Dismiss Holds That Pre-Production Agricultural Output Restrictions Are Not Exempt Under Capper-Volstead

Posted in Agriculture

by Gregory E. Heltzer and Nicole Castle

On December 2, 2011, a federal judge overseeing multidistrict litigation involving an alleged potato price-fixing conspiracy denied a motion to dismiss the antitrust conspiracy claims despite the potato grower cooperatives asserting that the concerted action was permissible under the Capper-Volstead Act.  In Re: Fresh and Process Potatoes Antitrust Litigation, No. 10-2186 (D. Idaho).

In particular, the plaintiffs alleged that defendants increased the price of potatoes through reduction of potato planting acreages and by paying farmers to destroy existing stocks.  Not only did the court deny the motion to dismiss on several grounds, but took the “extraordinary step” of providing an “advisory opinion” regarding an area of law with scant precedent.  The court was willing to offer its opinion at this stage because there were no disputed facts on this legal issue, the parties had fully briefed and argued the matter, and in the court’s view providing this holding at this juncture was consistent with the “command of Rule 1” of the Federal Rules of Civil Procedure – the opinion would help secure the just, speedy and inexpensive determination of the proceeding.

The court’s “advisory opinion” held that pre-production agricultural output limitations among growers are not defensible agreements under the Capper-Volstead Act.  The court explained that the plain language of the Capper-Volstead Act protects concerted action after production, that is, growers can collectively process, prepare for market, handle and market its products.  According to the court, coordinating and reducing acreage for planting are not defensible because these actions come before production.

The court later opined that the distinction between pre-production output limitation agreements and post-production marketing decisions to withhold product from markets comports with underlying antitrust theory because if prices rise, “farmers will produce more and consumers will not be overcharged.”  The court explained that this is a “safety-valve against private abuse that ameliorates the adverse consumer impact of the Capper-Volstead exemption” and that this safeguard is not in play if cooperatives can enforce pre-production limitations.

This decision offers new law and should lead cooperatives to revisit any production curtailment agreements and consider whether any such programs comport with this court’s interpretation of the Capper Volstead Act.