January 21st, 2011

Something’s Rotten In The State of Vermont: Dean Foods, Monopoly, And A Settlement That Stinks To High Heaven

by Philip Baruth

As you know, VDB takes a dim view of Entergy’s corporate practices. Swearing that your nuclear power plant has no underground piping, when in fact you’re sitting on a vast leaking maze of such piping, will tend to sap consumer confidence. But Louisiana-based Entergy is not the only conglomerate engaged in dicey dealings here in Vermont. Far from it. Let’s talk Dean Foods, out of Dallas.

Dean Foods (”Created by Nature. Delivered by Dean”) is far and away one of the largest food and beverage companies in the nation, specializing in dairy and soy substitutes. They count Land O’ Lakes and Garelick and Silk among their top shelf brands.

And as will happen when corporations reach a certain size and heft, the corporation has lately been a lightening rod for accusations of anti-trust and anti-competitive practices. Last year, to take just one example, the Feds filed an anti-trust suit against Dean for allegedly buying up a smaller producer in Wisconsin, as a means to fix prices.

But our concerns are closer to home.

In 2009, a year before the Federal suit in Wisconsin, a group of farmers filed a suit against Dean, Dairy Farmers of America, and its marketing wing, Dairy Marketing Services. Their claim? That between them, Dean and DFS/DMS had coordinated to produce a drop in dairy prices, injuring a wide swath of Northeast dairy interests.

And now, lo and behold, Dean has settled with the plaintiffs. The problem? The settlement doesn’t pass the smell test.

Dean has agreed to pay $30 million into a fund to settle the class-action claims, which sounds substantial until you subtract $10 million for lawyer’s fees, substantial amounts to advertise and actively administer the settlement, “incentives” to various unspecified parties who keep the settlement chugging down the tracks, etc.

And then of course you divide the remainder of that once-seemingly-substantial settlement by 13,000 settlees. And deduct taxes. What’s left per farmer might buy a trip to the County Fair, if you didn’t stop at Mr. Sausage (which can up the tab considerably).

So the settlement is a particularly bad settlement, even judged against bad settlements. But it gets worse when you look into the details.

The settlement is also designed at least partially to remedy the anti-competitive practices at issue. So in addition to agreeing never to engage in the alleged practices again (which, of course, Dean settles without ever to admitting to practicing) Dean is required to purchase a substantial portion of their Northeast milk from different vendors. As the Free Press puts it, “The settlement also would require Dean to buy up to 60 million pounds of milk per month from sources other than DFA and DMS for a period of 30 months.”

Except that Dean is not so required. Not by a long shot.

No, according to the settlement language, Dean is required only to offer to buy 60 million pounds of milk per month from these other sources, and only at a price judged fair and reasonable solely by Dean Foods itself. If those selling that milk balk at a lowball offer, Dean is under no further obligation.

In other words, the fox agrees to raid the henhouse only to the extent that the fox deems right and fair.

Which leaves VDB with one simmering question: why in God’s name would any team of Washington-based lawyers sign on to such a settlement? Granted, a quick settlement is $10 million for the firm off the top. But they might have made twice that amount without too much trouble, conceivably, and secured a much tighter set of controls on Dean’s purchasing practices in the bargain.

So why didn’t they? And why didn’t the plaintiffs they represented scream to high heaven?

Some of the affected parties in the suit are beginning to make noise now, including DFA/DMS, but the question remains: why would the original injured parties and their counsel agree to what amounts to a slap on the wrist and a pretty-please promise not to sin again?

We intend to follow this story as it plays out, which is where you come in. Send us any information about this strangely mild settlement that you run across, and if you have any contacts in dairy circles who know their milk, loop us in.

Which is to say: Got milk intel?