Pennsylvania District Court certifies five year ruling for interlocutory appeal, that mushroom cooperative is not immune from antitrust claims based upon “advice of counsel” argument. In Re Mushroom Direct Purchaser Antitrust Litigation, Case No. 2:06-cv-00620, (E.D. Pa. October 17, 2014.)

The multidistrict litigation over alleged price fixing in the mushroom market is one of many antitrust class actions pending against cooperatives in various agricultural industries throughout the United States.  These include In Re Fresh & Processed Potatoes Antitrust Litigation, (MDL No. 2186 D. Idaho) and In Re Processed Egg Products Antitrust Litigation, MDL No. 2002 (E.D. Pa.)  These cases involve the scope of immunity for agricultural cooperatives pursuant to the Capper-Volstead Act of 1922, 7 U.S.C. §291-292.  The Capper-Volstead Act provides agricultural coops with a limited scope of immunity to agree to fix sales prices through “collectively processing, preparing for market, handling, and marketing.”

In the years following the enactment of the Capper-Volstead Act, the United States Supreme Court has held that the Act provides only limited immunity within its statutory terms.  Thus, immunity is forfeited where the cooperative’s membership includes “non-producers”.  Whether a firm is a producer or non-producer, however, is a fact-specific issue, particularly where members may be vertically-integrated into various levels within a distribution system.  The Act also has been interpreted to deny immunity where the cooperative, or its members, engage in “predatory” acts directed at third parties.  “Predatory” acts may include inducing non-member suppliers and carriers to refuse to deal with rivals.

An issue common to the current wave of agricultural cooperative antitrust litigation is whether Capper-Volstead immunity extends beyond the setting of sales prices through “collectively processing, preparing for market, handling, and marketing” to efforts to augment and enhance sales prices through agreements to restrict output.  A good argument can be made that it would be economically nonsensical to immunize collective price fixing by a cooperative, unless it were also permissible to control the cooperatives’ output, which in a homogeneous commodity industry, may have an immediate and substantial impact on transactional pricing.  The argument is that because Capper-Volstead immunity allows cooperatives to fix prices, they must also be allowed to restrict production, because economics and logic suggest that output and price are at least complementary functions, if not a single integrated economic concept.

In the over 90 years of the existence of Capper-Volstead, the issue whether immunity must extend to the setting of price-determative output has never been definitively resolved.  It has been generally assumed that Capper-Volstead immunity does not protect efforts by coop members to limit output through concerted action.  Motions to dismiss the pending complaints in the current actions which are directed, in whole or in part, to concerted agreements of producers to reduce cooperative output, have been denied.  See, e.g., Don T. Hibner, Jr., “Allegations of Conspiracy to Limit Crop Production: Ripe for Analysis Under Capper-Volstead”.

In the mushroom litigation currently pending in the Eastern District of Pennsylvania, a seemingly subordinate, ancillary argument has resurfaced.  The district court has recently ruled that claims of “good faith reliance on counsel” were not sufficient to maintain a Capper-Volstead affirmative defense to allegations that immunity had been forfeited by the inclusion of non-producer members.  While this argument was presented and denied as early as 2007, it has been reasserted that Capper-Volstead antitrust immunity should attach where producer members were relying in good faith upon advice of counsel that the cooperative was organized and operating in compatibility with the Act.  In other words, the defendants are once again asserting that “ignorance of the law is an excuse”.

In its 2009 ruling, the district court determined that the Eastern Mushroom Marketing Cooperative (“EMMC”) was not Capper-Volstead immune because of the inclusion of a non-grower mushroom distributor.  The court held that this was sufficient to deny Capper-Volstead immunity.  However, the court also held that even if all EMMC members had satisfied the “producer” requirements to qualify the cooperative for Capper-Volstead immunity, the exemption did not extend to protect cooperatives that had conspired with entities not engaged in agricultural production.  The court noted that while it had previously denied certification of an interlocutory appeal to the Third Circuit, and that notwithstanding that the Third Circuit had refused to hear the matter in 2011, it would again deny exemption on the advice of counsel argument, but nevertheless, now certify the issue for interlocutory appeal.  This is because the court now finds that “it involves controlling questions of law as to which there is substantial ground for difference of opinion and because an immediate appeal from this order may materially advance the ultimate termination of the litigation.”

Not discussed are the further allegations of the complaint that the defendants also launched a “supply control” campaign by using membership funds to buy and subsequently dismantle non-EMMC mushroom growing operations, in order to reduce output and thereby maintain or increase prices.  This, of course, would be an independent and sufficient reason to find that any claimed immunity had been forfeited.  It is alleged that EMMC purchased mushroom farms and parcels of farmland and then sold or exchanged them at a loss, by attaching a deed restriction to the land prohibiting the growing of mushrooms on the property, thus removing its potential production from augmenting supply and thereby decreasing prices.  In addition, the defendants allegedly interfered with non-EMMC growers that wanted to price below the prices set by the cooperative, and pressured the independent growers to join the EMMC cooperatives.

Each of the above grounds would be sufficient to deny immunity.  It is note-worthy however that other courts have taken a more sanguine view towards the “advice of counsel” defense.  See In Re Fresh & Processed Potatoes Antitrust Litigation, MDL, No. 2186 (D. Idaho) and In Re Processed Egg Products Antitrust Litigation, MDL No. 2002 (Ed. Pa).  In both of these cases, courts have allowed discovery regarding the advice of counsel defense to go forward.  While no court has definitively ruled whether “ignorantia juris non excusat” is a viable defense, this would be but one in a line of unresolved and perhaps eventually inapplicable defenses.  The litigation continues.