Capper-Volstead Act under fire after 90 years

09/07/2012 09:14:00 AM
Christopher Ondeck and Elisa Kantor

Christopher Ondeck, Crowell & Moring LLPChristopher Ondeck, Crowell & Moring LLPThe Capper-Volstead Act, which has protected agricultural cooperatives from antitrust scrutiny since 1922, is under an unprecedented wave of attack that threatens to topple the modern cooperative model.

Perhaps more than any other time in the history of the act, the government and private litigants have taken aggressive aim at cooperatives in an apparent attempt to bring down a law that has empowered growers by permitting them to cooperate with each other for the past 90 years.

The Capper-Volstead Act has sheltered agricultural cooperatives for nearly a century, and cooperatives have flourished as a result.

There are now about 3,000 cooperatives of different shapes and sizes living under its protection. And though there have been legal challenges to the act during those years, it has been a relatively stable law with accepted business practices for the cooperative model.

In recent years, that has all changed.

The government began turning a skeptical eye toward the act in the mid-2000s. It began with a tidal wave of government investigations and civil lawsuits against cooperatives and their members that has now engulfed four industries — mushrooms, dairy, eggs and potatoes — with nationwide antitrust class action lawsuits.

Elisa Kantor, Crowell & Moring LLPElisa Kantor, Crowell & Moring LLPThe outcome of these lawsuits could determine the cooperative model in agriculture for the next 90 years.

Industry experts fear that more agricultural cooperatives will be targeted in this ongoing assault.

But cooperatives are not the only ones at risk; their members are also under attack. The ongoing civil lawsuits have named members as alleged conspirators in addition to cooperatives.

The plaintiffs in these suits claim these members are liable for millions of dollars in damages.

Provisions

Congress enacted the Capper-Volstead Act in 1922 in recognition of the bargaining and production problems faced by individual growers.

The act permits producers, through cooperatives, to agree on prices and terms of sale, engage in joint marketing activity, agree on common marketing practices with other cooperatives, engage in other combined activities, and thereby often achieve considerable market share and influence.

The act also has permitted cooperatives and their members to plan the supply of the products they will produce, just as a single corporation does, to achieve the most efficient results.

The act is the foundation on which most modern agricultural cooperatives are based.

By allowing agricultural cooperatives to form, the act helps level the playing field between individual growers and the purchasers of their products, who tend, then and now, to be large corporate entities wielding heavy bargaining power.

It also allows growers to band together and handle more of their own processing and marketing, so that growers can capture the profits from processing that would otherwise go to non-growers.

Without cooperatives, some growers would be unable to bring their products to market because they cannot process, market or sell products on their own.

Further, they may be unable to bargain for a fair price, as growers can be at a unique disadvantage because of the vagaries of weather, other acts of nature, and market conditions beyond their control.

Cooperatives help solve many of these problems by enabling growers to band together, pool their capital, and operate as a single entity with the strength of numbers.

The new and uncertain legal landscape of government investigations and civil lawsuits against cooperatives and their members raises questions long thought to be settled.

Who exactly is protected under the Capper-Volstead Act?

What activities does the act permit a cooperative to engage in?

Can a cooperative’s members jeopardize that cooperative’s antitrust immunity and incur liability for other members?

What are the legal risks that individual members face in being part of a cooperative?

The current reality of growers and their cooperatives is troubling. Now they worry whether the statutory foundation upon which they have based their business models will be uprooted.

Agricultural cooperatives wonder whether this heightened scrutiny will reduce the competitiveness of U.S. growers who operate using the cooperative model, both domestically and abroad.

Industry advocates, including national associations for cooperatives and growers, are engaged in vigorous defense of the Capper-Volstead Act.

The outcome of their efforts, and of the government investigations and private lawsuits, will determine whether the act will continue to empower a vibrant cooperative sector in U.S. agriculture for another 90 years.

Christopher Ondeck is a partner in the Washington, D.C., office of Crowell & Moring LLP and serves as vice chairman of the firm’s Antitrust Group. Elisa Kantor is an associate in the group and also works in the Washington, D.C., office.

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