Progressive Dairyman: Final Settlement Agreement Approved in DairyAmerica Lawsuit

May 17, 2019

Progressive Dairyman

By Dave Natzke

About 26,000 U.S. dairy farmers will split approximately $26 million in a settlement agreement reached in a decade-long lawsuit over misreporting of nonfat dry milk prices that negatively affected the milk prices they received.

On May 8, 2019, the U.S. District Court Eastern District of California approved a $40 million settlement agreement regarding the lawsuit, Carlin, et al. v. DairyAmerica Inc., et al, case number 1:09-cv-00430-AWI-EPG. The lawsuit was originally filed in 2009 and, prior to the settlement, faced the potential of several more years of hearings, according to court documents.

Of the total $40 million settlement, the court awarded 33 percent ($13.33 million) in attorney fees and reimbursed law firms approximately $825,000 in litigation costs. The claims administrator will receive about $418,000.

To compensate for their time and efforts in leading the case, four dairy farmer plaintiffs (Paul Rozwadowski, Gerald Carlin, John Rahm and Diana Wolfe) were awarded $45,000 each and four former dairy farmer plaintiffs (James Rehberg, Ronald Hayek, Michael K. Schugg and Timothy L. Rawlings) were awarded $5,000 each.

Progressive Dairyman inquiries into the timing of payments were not returned.

While the claims on the remaining funds average about $1,000 per dairy, the actual payment to each individual dairy will be distributed on a pro rata basis. Payments are calculated based on the producers’ Grade A milk marketings that were pooled on Federal Milk Marketing Orders (FMMO) during the period Jan. 1, 2002, to April 30, 2007, divided by the total FMMO milk volume pooled during the same period.

Following the preliminary settlement agreement approval in September 2018, the claims administrator, Rust Consulting, mailed claim forms to almost 84,000 potential class members who sold milk under the FMMO system during the affected period. The claim forms included estimated milk volumes for each individual dairy, including those who marketed milk in multiple FMMOs or through multiple co-ops.

Approximately 25,707 dairy farmers returned claim forms by the January 2019 deadline. Eighty farmers requested exclusion from the settlement, leaving options open for other legal action.

Some history

At the center of the lawsuit were nonfat dry milk (NFDM) prices reported to USDA’s National Ag Statistics Service (NASS) by DairyAmerica Inc., a federated marketing cooperative and the largest U.S. marketer of NFDM, from April 2006 to April 2007. (Read: The long and winding road of the DairyAmerica lawsuit.)

After discrepancies between NASS and USDA Ag Marketing Service (AMS) prices for NFDM were detected, a USDA audit revealed sales reported to NASS by DairyAmerica included prices from long-term contracts, a practice prohibited by law. Because the price reports were designed to determine the current value of milk, contracted volumes and prices included in the reports were limited to 30 days prior to a sales transaction.

Based on the audit, prices reported to NASS were, in some cases, as much as $1 per pound under comparable prices reported by AMS. Because the NASS prices were used to establish FMMO prices for milk in Class II, Class IV and, in some instances, Class I milk, the reporting of lower NFDM prices directly resulted in lower minimum milk prices paid to farmers. The USDA calculated revised prices and, in June 2007, concluded the reporting errors reduced dairy farmer income by about $50 million.

Plaintiffs in the case calculated the damages at about $83 million. They charged the underreporting of prices was systematic, and further alleged DairyAmerica and its members profited by depressing the price of NDFM. It also alleged that California Dairies Inc. (CDI), as a shareholder in DairyAmerica, was liable for the misreporting.

In the settlement agreement, DairyAmerica and CDI acknowledged the erroneous reporting, but admitted no intentional wrongdoing. The USDA had immunity in the lawsuit.

Even though the court case was held in California, the state’s dairy farmers won’t likely see any money from a settlement. That’s because California was not part of the FMMO system during the time period, and the state order’s minimum milk pricing formulas did not include NASS pricing data.

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