[Federal Register: November 6, 2006 (Volume 71, Number 214)]
[Notices]
[Page 64984-65000]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr06no06-49]
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DEPARTMENT OF JUSTICE
Antitrust Division
United States v. Dairy Farmers of America, Inc.; Proposed Final
Judgement and Competitive Impact Statement
Notice is hereby given pursuant to the Antitrust Procedures and
Penalties Act, 15 U.S.C. 16(b) through (h), that a proposed Final
Judgement, Stipulation, and Competitive Impact Statement have been
filed with the United States District Court for the Eastern District of
Kentucky in United States of America and Commonwealth of Kentucky v.
Dairy Farmers of America, Inc. and Southern Belle Dairy Co., LLC, No.
6:03-cv-206. On April 24, 2003, the United States and Commonwealth of
Kentucky filed a Complaint alleging that the acquisition by DFA of an
ownership interest in Southern Belle Dairy Co., LLC (``Southern
Belle''), violated Section 7 of the Clayton Act, 15 U.S.C. 18. An
Amended Complaint was filed on May 6, 2004. The proposed Final
Judgment, filed on October 2, 2006, requires DFA to divest its interest
in Southern Belle and use its best efforts to cause its partner, the
Allen Family Limited Partnership, to divest its interest in Southern
Belle as well. Copies of the Amended Complaint, proposed Final
Judgment, and Competitive Impact Statement are available for inspection
at the Department of Justice in Washington, DC in Room 215, 325 Seventh
Street, NW., and at the Office of the Clerk of the United States
District Court for the Eastern District of Kentucky, London, Kentucky.
Public comment is invited within 60 days of the date of this
notice. Such comments, and responses thereto, will be published in the
Federal Register and filed with the Court. Comments should be directed
to Mark J. Botti, Chief, Litigation I Section, Antitrust Division, U.S.
Department of Justice,
[[Page 64985]]
1401 H St., NW., Suite 4000, Washington, DC 20530 (202-307-0001).
J. Robert Kramer II,
Director of Operations, Antitrust Division.
United States District Court, Eastern District of Kentucky, London
Division
United States of America, and Commonwealth of Kentucky, Plaintiffs, v.
Dairy Farmers of America, Inc., and Southern Belle Dairy Co., LLC,
Defendants
Civil Action No.: 03-206-KSF
Filed:
Amended Complaint
The United States of America, acting under the direction of the
Attorney General of the United States, and the Commonwealth of
Kentucky, by and through its Attorney General, bring this civil action
to obtain equitable relief against defendants, including compelling the
Dairy Farmers of America, Inc. (``DFA'') to divest its interest in the
Southern Belle dairy located in Somerset, Kentucky, and allege as
follows:
I. Nature of the Action
1. Up until February 2002, DFA, through its subsidiaries, operated
the Flav-O-Rich dairy in London, Kentucky (``Flav-O-Rich'') and
competed vigorously against the Southern Belle dairy, located thirty
miles away in Somerset, Kentucky (``Southern Bell''), to supply milk to
school districts located in Kentucky and Tennessee. That competition
resulted in lower prices and better service for school districts that
provide milk to students.
2. In February 2002, DFA, through another subsidiary, acquired
control of Southern Belle, eliminating that important competition. When
it made that acquisition, DFA understood that the Department of Justice
had in September 1998 successfully challenged a merger involving the
very same dairies, under different ownership, because it would have
substantially lessened competition in violation of Section 7 of the
Clayton Act.
3. Southern Belle and Flav-O-Rich are the only two dairies or two
of only a few dairies that bid to supply school milk in many parts of
Kentucky and Tennessee. In 45 school districts, the acquisition has
created a monopoly. In 55 other districts, the number of bidders has
effectively declined from three to two, reducing competition
substantially.
4. History in this region has demonstrated that less competition
results in higher prices. Many school districts in this area previously
had to pay higher prices as victims of a criminal bid-rigging
conspiracy involving school milk. The former owners of Southern Belle
and Flav-O-Rich engaged in that conspiracy and pled guilty to
conspiring with each other for more than a decade to rig school milk
bids.
5. Because many of the affected school districts are small or rural
districts, often in the mountains, it is unlikely that other dairies
will enter or expand into these markets to eliminate the
anticompetitive effects of the acquisition. Indeed, Southern Belle's
former owner, in the course of debarment proceedings following the
criminal conviction, explained that entry was unlikely in many of these
very districts, and that the elimination of Southern Belle as a
competitor would reduce competition and cause prices to rise.
II. Defendants
6. Defendant Dairy Farmers of America, Inc. (``DFA'') is a Kansas
corporation with its headquarters and principal place of business in
Kansas City, Missouri. DFA is the largest dairy farmer cooperative in
the world. In 2001, it had approximately 25,500 members in 48 states,
and sold approximately 45.6 billion pounds of raw milk. DFA had over
$7.9 billion in revenues in 2001.
7. DFA owns a 50% common equity interest and approximately 92%
preferred equity interest (around $500,000,000) in National Dairy
Holdings, L.P. (``NDH''). It also has a 50% interest in Dairy
Management LLC, which is the managing arm of NDH. Based on its
financial interests in NDH, DFA has the rights to between 50% and 75%
or more of NDH's profits. In forming NDH, DFA and its partners in NDH
agreed, among other that DFA must approve any decision to commit NDH to
any contracts or expenditures exceeding $50,000, to appoint new NDH
officers, or change the compensation (e.g., increase the salary) of
NDH's officers.
8. DFA is the sole supplier of raw milk and is the contractually
preferred supplier of raw milk to Flav-O-Rich and other NDH dairies.
DFA also sells more raw, unprocessed milk to dairies in Kentucky and
Tennessee than does any other entity.
9. In addition to its controlling interests in Flav-O-Rich, DFA
also owns financial interests in several other dairies that sell school
milk in parts of Kentucky and Tennessee, including five additional NDH
dairies, three Turner Holdings dairies, and one Ideal American dairy.
Until February 2002, when the instant acquisition was consummated,
Southern Belle competed with a number of these dairies in addition to
NDH dairies such as Flav-O-Rich.
10. In December 2001, DFA, through NDH, acquired control and
influence over all significant business decisions of Flav-O-Rich and
other NDH dairies. Flav-O-Rich processes approximately 30 million
gallons of fluid milk per year and had annual revenues of approximately
$70 million in 2001. Flav-O-Rich distributes and sells school milk
primarily in the eastern two-thirds of Kentucky and Tennessee.
11. In February 2002, DFA, through its partially owned subsidiary,
Southern Belle Dairy Co., LLC, (``Southern Bell subsidiary''), acquired
control and influence over all significant business decisions of
Southern Belle. DFA and subsidiaries controlled in who or in part by
DFA contributed approximately $18 million of the $19 million purchase
price for Southern Belle. The Allen Family Limited Partnership
(``AFLP'') contributed the remaining $1 million, which DFA guaranteed
AFLP could recover any time after February 26, 2005. DFA and its
subsidiaries own a 50% common equity interest and almost 100% preferred
equity interest (around $4,000,000), and 100% credit interest (around
$13,000,000) in Southern Belle.
12. DFA formed its Southern Belle subsidiary to acquire the
Southern Belle dairy after it became clear that its NDH subsidiary
could not acquire the dairy based on the Department of Justice's
September 1998 challenge.
13. In planning how DFA would control the Southern Belle subsidiary
after they formed it, DFA and AFLP agreed, among other things, that DFA
must approve any decision to commit Southern Belle to any contracts or
expenditures exceeding $150,000, as well as hiring and compensation
decisions for Southern Belle's officers. DFA also gained the right to
control the supply of raw milk to the dairy and, based on its debt and
equity holdings, the rights to between 50% and 75% of the dairy's
profits.
14. Defendant Southern Belle Dairy Co., LLC, is a Delaware limited
liability company with its headquarters and principal place of business
in Somerset, Kentucky, where it owns and operates the Southern Belle
dairy. Southern Belle processes approximately 25 million gallons of
fluid milk per year and had annual revenues of approximately $65
million in 2001. Southern Belle distributes and sells school milk
primarily in the eastern two-thirds of Kentucky and Tennessee.
[[Page 64986]]
III. Jurisdiction and Venue
15. This Complaint is filed under Section 15 of the Clayton Act, as
amended, 15 U.S.C. 25, and by the Commonwealth of Kentucky under 15
U.S.C. 26, to prevent and restrain defendants from continuing to
violate Section 7 of the Clayton Act, as amended, 15 U.S.C. 18, and
under the provisions of K.R.S. Sec. 367.110 et seq.
16. Defendants, on their own or through their subsidiaries,
transport and sell school and other milk in the flow of interstate
commerce in Kentucky and Tennessee and are engaged in interstate
commerce and in activities substantially affecting interstate commerce.
Defendant DFA also buys and sells raw milk in interstate commerce. This
Court has jurisdiction over the subject matter of this action and the
parties pursuant to Section 12 of the Clayton Act, 15 U.S.C. 22, and 28
U.S.C. 1331, 1337(a) and 1345.
17. Both of the defendants transact business and are found in the
Eastern District of Kentucky. Defendant Southern Belle's principal
place of business is in this district. Venue is proper in this judicial
district pursuant to 15 U.S.C. 22 and 28 U.S.C. 1391.
IV. History of Collusion on School Milk Sales in the Relevant Markets
18. In late 1993, Southern Belle and Flav-O-Rich pled guilty to the
felony of conspiring to raise the price of school milk by agreeing on
which dairy would submit the lowest bid for which school district. The
conspiracy existed from at least the late 1970s through July 1989, and
resulted in substantial harm to over thirty school districts. Southern
Belle paid a $375,000 criminal fine; Flav-O-Rich paid $1,000,000. No
others were charged with participating in this conspiracy. The current
acquisition recreates the effect of this conspiracy in many of those
same school districts harmed by the conspiracy for over a decade. See
United States v. Southern Belle Dairy Co., [1998-1996 Transfer Binder]
Trade Reg. Rep. (CCH) ] 45,092, at 44,599 (E.D. Ky. Nov. 13, 19920;
United States v. Flav-O-Rich, Inc., [1998-1996 Transfer Binder] Trade
Reg. Rep. (CCH) ] 45,092, at 44,605 (N.D. Ga. Dec. 22, 1992).
V. The Manufacture, Distribution, and Sale of School Milk Is a Relevant
Product Market
19. Dairies purchase raw milk from dairy farmers and agricultural
cooperatives, pasteurize and package the milk, and distribute and sell
the processed product. Fluid milk (``fluid milk''P is raw milk that has
been processed for human consumption, may be unflavored or flavored
with chocolate or fruit flavorings, and does not include extended shelf
life (ESL) milk or ultra high temperature (UHT) milk, which are
produced by different manufacturing processes, generally cost
significantly more than fluid milk, and have numerous significant
physical differences compared with fluid milk, such as shelf stability,
and a significantly different taste, among other attributes.
20. School milk is fluid milk that is processed, distributed, and
sold to school districts, usually in half pint containers, pursuant to
contracts with school districts. While these contracts may also include
other products, school milk accounts for the vast majority of the
dollar value of these contracts.
21. The U.S. Department of Agriculture (``USDA'') sponsors several
programs to reimburse schools for meals and snacks served to students
from lower income families. To qualify, schools must offer mild to
every student, regardless of the income of that student's family. If
schools want to receive the federal reimbursements, they cannot
substitute other products for school milk, regardless of the milk's
cost.
22. Individual school districts generally solicit bids from dairies
to supply them with school milk. Sometimes, groups of school districts
solicit bids to supply school milk to some or all of the school
districts in the group, but each individual school district usually
chooses (even if it solicited bids as part of a group) the dairy to
which it will award its business.
23. Schools require many important services in connection with the
supply of school milk. These services often include frequent delivery
(usually every day or every other day because schools generally cannot
store more than a limited amount of milk); delivery to all or almost
all schools in a district; reordering of milk; stocking milk in the
coolers; rotating products; retrieving spoiled and damaged products;
providing quick emergency shipments (to guarantee a school has enough
milk on hand so it will not lose school meal reimbursements); the
return of milk before holidays; specific times of delivery (e.g., early
morning so as not to conflict with times when students are present);
specific access requirements (e.g., providing keys to drivers);
allotting credit for retrieved products; cleaning and maintaining
coolers; and other requirements.
24. School districts would not switch to alternative products or
delivery methods in the event of a small but significant increase in
the price of school milk.
25. The manufacture, distribution, and sale of school milk
constitutes a relevant product market or line of commerce within the
meaning of Section 7 of the Clayton Act.
VI. The Relevant Geographic Markets
26. Individual school districts generally solicit bids for school
milk, although sometimes groups of school districts solicit bids for
school milk for some or all of the school districts in the group.
School districts usually decide which dairy to award with a school milk
contract on an individual basis (regardless of whether they solicit
bids individually or as part of a group). Several school districts
belong to a group of school districts that (1) requires its members to
solicit bids for school milk only through that group, and (2) requires
bidders to submit a uniform bid for all of the districts in the group.
Each school district typically requires its school milk supplies to
deliver to each school within the school district. School districts
vary with respect to how many schools must be served, the distance
between the schools, the size of the schools in the school district,
and other attributes. Each school district has its own requirements
with respect to the frequency of deliveries (typically every day or
every other day, because schools generally cannot store more than a
limited amount of milk), the time of deliveries, the quantity of
deliveries, products included, cooler requirements, and specific or
individual service requirements.
27. Due to the high level of service requirements of schools, the
high frequency of delivery required, the small volume delivered at each
stop, the seasonal nature of the business, and other factors, the
viable suppliers of school milk are generally limited to those dairies
that already have significant local distribution in the area. Dairies
that do not currently have nearby routes are generally not viable
suppliers of school milk to such school districts. These factors limit
school districts' choice of suppliers.
28. Dairies charge different prices to different school districts
or groups of school districts (``price discriminate''), based on, among
other things, the number of competing dairies in the area, the strength
of competition in these localized school milk markets, and the unique
service and other requirements of schools.
29. Accordingly, each school district, or group of school districts
that requires its members to use the school milk
[[Page 64987]]
supplier who submits a winning bid that is uniform for that entire
group, constitutes a relevant geographic market or section of the
country within the meaning of Section 7 of the Clayton Act. School
districts harmed by the acquisition include those, among others, listed
in Attachment A (``Merger-to-Monopoly Markets'') and Attachment B
(``Merger-to-Duopoly Markets'').
VII. Harm to Consumers
30. Competition between Southern Belle and Flav-O-Rich (or other
dairies in which DFA has financial interests) resulted in lower prices
and better service for many school milk customers in Kentucky and
Tennessee. Southern Belle's competitive presence forced these other
dairies to lower their respective bid prices for school milk contracts.
31. Before DFA's acquisition of Southern Belle, school milk markets
in Kentucky and Tennessee had very few competitors and thus were
already highly concentrated. These markets have become much more
concentrated as a result of the acquisition.
32. In many of these markets, Southern Belle and Flav-O-Rich (or
other dairies in which DFA has financial interests) are clearly the two
dairies able to supply school milk most economically, and would benefit
(at the expense of consumers) by acting together at DFA's direction to
raise one or both of their bids. Because it shares each dairy's
profits, DFA has a financial incentive to encourage, facilitate, or
enforce such cooperation. And, with DFA's control or influence over
critical business decisions of the dairies, the dairies are likely to
cooperate. Reducing the number of independent bidders from two to one
in these markets makes it very likely that prices will rise or the
level of service will decrease for these districts.
33. In a number of other school districts, Southern Belle and Flav-
O-Rich (or other dairies in which DFA has financial interests) are two
of only three likely bidders. Reducing the number of independent
bidders from three to two in these markets makes it very likely that
prices will rise or the level of service will decrease for these
districts.
34. The effect of DFA's acquisition of control and influence over
Southern Belle is to substantially lessen competition, or to tend to
create a monopoly in violation of Section 7 of the Clayton Act.
VIII. Entry Is Difficult
35. To maintain its ability to sell school milk, the former owner
of Southern Belle told the USDA during debarment proceedings in 1998
that competition would decrease and prices would rise if it could not
bid. It said that Southern Belle was an ``important supplier to very
small school districts in Kentucky and Tennessee,'' especially in the
``rural districts in the mountains of eastern Kentucky.'' (Letter from
Joseph L. Ruby, Wiley Rein & Fielding, to Yvette Jackson, Acting
Administrator, Food and Consumer Service, USDA, Jan. 23, 1998, at 2,
copy provided in Attachment C.) It also said that those school
districts would be unlikely to find any new school milk entrants to
replace the lost competition if it could not bid.
36. Entry by new competitors or expansion by existing dairies in
the manufacture, distribution, and sale of school milk will not be
timely, likely, or sufficient to defeat any increase in prices or
decrease in the level of service in the affected school milk markets. A
dairy is unlikely to enter a school milk market, even after a small but
significant price increase, unless it already services a substantial
number of existing commercial fluid milk customers from its route
trucks in the school district. This is true because school milk
business is usually used to ``fill out'' a dairy's existing commercial
fluid milk route truck business, as schools require the regular (e.g.,
every day or every other day) delivery of school milk along with a
number of important labor-intensive and time-consuming services, which
would not be economical but for the existing fluid milk customer
accounts. Thus, only dairies with existing straight truck delivery
routes in an area can compete efficiently for school milk business in
that area. Entry or expansion into the school milk business also
requires substantial investment in specialized manufacturing assets and
infrastructure, including the high cost of installing a dedicated half
pint filler.
37. Neither entry nor expansion prevented Southern Belle and Flav-
O-Rich from successfully carrying a decade-long criminal bid rigging
conspiracy against many of these same school milk districts. Such long-
lasting collusion would not have been possible if higher prices easily
attracted new competitors.
IX. Violations Alleged
38. DFA's acquisition of Southern Belle through its partially owner
Southern Belle subsidiary will likely have the following effects, among
others:
a. Competition generally in the manufacture, distribution, and sale
of school milk in the relevant geographic markets will be substantially
lessened;
b. Actual and potential competition between Southern Belle and
Flav-O-Rich (or other dairies in which DFA has financial interests) in
the manufacture, distribution, and sale of school milk in the relevant
geographic markets will be substantially lessened; and
c. Prices for school milk in the relevant geographic markets will
likely increase.
39. DFA's partial acquisition of Southern Belle violates Section 7
of the Clayton Act, as amended, 15 U.S.C. 18, and K.R.S. Sec. 367.110
et seq.
X. Relief Requested
40. Plaintiffs request that this Court:
a. Adjudge the acquisition of Southern Belle by defendant DFA to
violate Section 7 of the Clayton Act, as amended, 15 U.S.C. 18, and
K.R.S. Sec. 367.110 et seq.
b. Compel DFA to divest all of its interests (including common
equity, preferred equity, credit interests, raw milk procurement
authority, etc.) in Southern Belle, and take any further actions needed
to place Southern Belle in the same or comparable competitive position
as existed prior to the acquisition;
c. Permanently enjoin and restrain DFA, including any of its
subsidiaries or joint ventures, and all persons acting on behalf of any
of these entities, from acquiring or maintaining, in whole or part, any
simultaneous legal or beneficial interests (including common equity,
preferred equity, credit interests, or raw milk procurement authority)
in both Southern Belle and Flaw-O-Rich;
d. Compel DFA, including any of its subsidiaries or joint ventures,
and all persons acting on behalf of any of these entities, to provide
plaintiff United States of America with notification at least 30
calendar days prior to any acquisition, in whole or in part, of any
legal or beneficial interests (including common equity, preferred
equity, credit interests, or raw milk procurement authority) in any
fluid milk processing operation;
e. Allow any school district or school purchasing cooperative to
terminate or rescind any contract to supply school milk entered into
with defendants on or after February 20, 2002, including but not
limited to eliminating any restrictions on or disincentives to
terminating or rescinding such contracts and otherwise refunding or
returning consideration paid in advance pursuant to such contracts
(i.e., making such contracts voidable in the sole discretion of the
school districts or purchasing cooperatives);
[[Page 64988]]
f. Award plaintiffs the costs of this action; and
g. Award plaintiffs such other and further relief as is proper.
Respectfully submitted,
For Plaintiff United States of America:
R. Hewitt Pate,
Assistant Attorney General.
J. Bruce McDonald,
Deputy Assistant Attorney General.
Mark J. Botti,
Chief, Litigation I Section.
Dated: March 30, 2004.
For Plaintiff Commonwealth of Kentucky:
David R. Vandeventer,
Assistant Attorney General, Kentucky Bar No. 72790, Office of the
Attorney General of Kentucky, 1024 Capital Center Drive, Frankfort,
KY 40601, 502-696-5385.
Dated: March 30, 2004.
John R. Read,
Assistant Chief, Litigation I Section.
J.D. Donaldson, Jody A. Boudreault, N. Christopher Hardee,
Richard S. Martin, Richard D. Cooke, Ihan Kim,
U.S. Department of Justice, Antitrust Division, 1401 H Street, NW.,
Suite 4000, Washington, DC 20530, 202-307-0001.
ATTACHMENT A--Merger-to-Monopoly Markets
Adair County, KY
Ashland Independent, KY
Bell County, KY
Berea Independent, KY
Boyd County, KY
Boyle County, KY
Breathitt County, KY
Campbellsville Independent, KY
Casey County, KY
Clay County, KY
Clinton County, KY
Cumberland County, KY
East Bernstadt Independent, KY
Estill County, KY
Fairview Independent, KY
Garrard County, KY
Harlan Independent, KY
Harrodsburg Independent, KY
Hazard Independent, KY
Jackson County, KY
Jenkins Independent, KY
Jessamine County, KY
Laurel County, KY
Lee County, KY
Leslie County, KY
Letcher County, KY
Lincoln County, KY
Madison County, KY
McCreary County, KY
Mercer County, KY
Montgomery County, KY
Oneida Baptist, KY
Owsley County, KY
Perry County, KY
Pineville Independent, KY
Pulaski County, KY
Rockcastle County, KY
Russell County, KY
Science Hill Independent, KY
Somerset Independent, KY
Wayne County, KY
Whitley County, KY
Williamsburg Independent, KY
Wolfe County, KY
Clay County, TN
ATTACHMENT B--Merger-to-Duopoly Markets
Allen County, KY
Barbourville Independent, KY
Barren County, KY
Bath County, KY
Butler County, KY
Carter County, KY
Caverna Independent, KY
Corbin Independent, KY
Fayette County (Lexington), KY
Franklin County, KY
Glasgow Independent, KY
Green County, KY
Greenup County, KY
Hart County, KY
Knox County, KY
Larue County, KY
Lawrence County, KY
Logan County, KY
Menifee County, KY
Metcalfe County, KY
Middlesboro Independent, KY
Monticello Independent, KY
Morgan County, KY
Ohio County, KY
Owensboro Independent, KY
Rowan County, KY
Russell Independent, KY
Russellville Independent, KY
Simpson County, KY
Taylor County, KY
Alcoa City, TN
Anderson County, TN
Blount County, TN
Bristol City, TN
Campbell County, TN
Carter County, TN
Clinton City, TN
Cocke County, TN
Elizabethon Independent, TN
Green County, TN
Greenville City, TN
Hawkins County, TN
Hamblen County, TN
Johnson City, TN
Johnson County, TN
Knox County, TN
Macon County, TN
Maryville City, TN
Metro Davidson (Nashville), TN
Rogersville City, TN
Sevier County, TN
Sullivan County, TN
Unicoi County, TN
Union County, TN
Washington County, TN
ATTACHMENT C
WILEY, REIN & FIELDING
January 23, 1998
By Messenger
Ms. Yvette Jackson,
Acting Administrator, Food and Consumer Service, U.S. Department of
Agriculture, 3101 Park Center Drive, Room 1008, Alexandria, VA
22302.
Re: Southern Belle Dairy Company, Notice of Suspension and Debarment
Dear Ms. Jackson: On behalf of the Southern Belle Dairy division
of Broughton Foods, Inc. (``Southern Belle''), we would like to
supplement the administrative record made at the meeting of January
15, 1998, in connection with certain issues raised at the hearing,
and also to propose certain actions to assure that a repeat of the
alleged reporting violations will not occur in the future.
Southern Belle desires to supplement the record with the
following documentation, which is attached:
The Termination of Mr. Christian
At our meeting, Mr. Hallberg expressed interest in reviewing
documentation relating to Mr. Christian's probation as of May 1997,
leading to his termination for performance reasons. The following
documentation is enclosed:
Exh. 1. A May 15, 1997 ``agenda'' for a meeting with Mr.
Christian.
Exh. 2. A May 15, 1997 memo by Mr. Christian's superior, Mike
Chandler, summarizing a meeting with Mr. Christian at which he was
informed of his need to improve performance or face termination,
with a review to take place in two months.
Southern Belle's Contracts Under $100,000
At our meeting, Ms. Landos sought information concerning the
number of school milk contracts under $100,000 that were serviced by
Southern Belle. Attached hereto as Exh. 3 are two lists, showing
actual 1996-97 and projected 1997-98 sales by school districts.
The lists show that, for 1996-97, Southern Belle serviced 46
districts. Of those, 33 districts had sales under $100,000. Of the
33 districts, 16 had sales under $50,000.
Projected sales for 1997-98 show that Southern Belle is
currently servicing 55 districts. Of these, 39 districts are
projected to have sales under $100,000. Of the 39 districts, 20 are
projected to have sales under $50,000.
These figures reveal that Southern Belle is an important
supplier to very small school districts in Kentucky and Tennessee.
As the maps we provided show, many of these are rural districts in
the mountains of eastern Kentucky. These districts would likely find
it difficult to attract alternative suppliers from more distant
locations.
It is of equal interest that for two years in a row, Southern
Belle has been the low bidder in the Fayatte County district (that
is, Lexington, Ky.), which has sales of over $600,000, and attracts
multiple bids from competing dairies.
As mentioned above, in addition to supplementing the record with
this additional documentation, Southern Belle would like to suggest
that it undertake certain changes in its current procedures, which
it hopes will prevent the recurrence of any reporting difficulties
in the future.
As a preface to doing so, we note that Southern Belle, having
been on the verge of bankruptcy and liquidation, is now a strong
competitor and often the low bidder for school milk and other
government contracts. Southern Belle has been able to continue in
business and to attract a merger partner in Broughton Foods, whose
purchase of Southern Belle means the continuing presence of a
competitive dairy in the
[[Page 64989]]
southeastern Kentucky region. The proposed debarment for reporting
violations would undermine much of the progress that Southern Belle
has made, with FCS's assistance and under its compliance program,
over the past few years. It would also unavoidably require the
consolidation of routes and the layoffs of many Southern Belle
employees. Debarment would therefore hurt the local Somerset,
Kentucky economy and would reduce competition for government dairy
contracts in the region.
Going forward, to insure that timely and accurate reporting is
carried out under the Compliance Agreement, all Southern Belle
management will be informed that they are to report actual or
suspected misconduct to an Ethics Committee member within 24 hours.
Furthermore, the Ethics Committee (which now has two new members
from Broughton Foods) will implement new procedures whereby, when a
violation is reported, it will convene quickly using telephone and
fax, conduct an investigation, and make a timely report.
Finally, it appeared that there was a concern that the minutes
of the September 26, 1997 Ethics Committee may not have captured the
discussion at that meeting with complete accuracy. It has been the
practice to have the minutes of each meeting kept by one member, and
not reviewed as a matter of course until the next meeting. To
eliminate accuracy concerns in the future, Southern Belle will
undertake to have the minutes typed and distributed to all members
by the business day following the meeting, so that any omissions can
be corrected immediately.
In closing, Southern Belle would like to point out that there
are a number of Kentucky state government contracts which are
traditionally bid in February, including contracts for parks,
universities, state hospitals, and vocational schools. Southern
Belle would appreciate the ability to bid on these contracts, and
submits that it is in the government's interest to permit Southern
Belle to compete for them. We therefore request that, if at all
possible, this matter be resolved promptly so that Southern Belle
may participate in the bidding for at least some of these contracts.
Very truly yours,
/s/ Joseph L. Ruby
Joseph L. Ruby
cc: Philip Cline, Martin Shearer, Steven Diamond, Esquire.
Exhibit 1
Agenda
Meeting with Steve Christian
May 15, 1997
Items to be discussed:
Company expectations in the following areas,
1. Call on new business:
This should be done on a consistent basis and should be
scheduled so that we are not wasting time.
2. Call on existing business:
We need to continue to see existing business but not spend all
our time on this effort.
3. Respond to call sheets by routemen:
This need to be followed-up on and results put in writing to the
routemen with a copy to Zone Sales Manager.
4. Fill out a customer call sheet daily and send to the Zone
Sales Manager.
5. Oversee and have responsibility for Branch operations, this
does not mean to stay in the office. Steve can get a daily report
from Larry when he is in the office from 3:00-5:00 p.m.
6. Will also be responsible for other duties assigned by the
Zone Sales Manager, such as school bids, etc.
Hours of work:
8:00 a.m. to 3:00 p.m.--Mon. through Thurs.--In market
3:00 p.m. to 5:00 p.m.--Mon. through Thurs.--Office
8:00 a.m. to 12:00 p.m.--Friday--In market
12:00 p.m. to 5:00 p.m.--Friday--Office
Exhibit 2
May 15, 1997
Harold Soper and I met with Steve Christian at the Louisville
Branch. We reviewed his job description and asked him if there was
anything that he could not do, or was unwilling to do. Steve said
that he did not want to make sales calls or call on existing
business. We stressed that all Branch Managers did this and that it
was an important part of his job.
After reviewing the Job Description, we provided Steve with some
basic forms to document sales calls and to be filled out by the
routemen when they have prospect or need price information.
We discussed with Steve the need to create a better work
environment for the routemen as several had complained that they had
been mistreated in some way. One routeperson reported that he was
not receiving mail communication from Somerset, another said he was
being used around the Branch for jobs that were not related to his
route.
We stressed to Steve that these matters, as well as others, must
be improved. And that if he did not make some improvement during the
next two months, he would be fired. I asked Steve if he understood
what he was being asked to do, and he said he did.
We made an agreement to meet within two months to review his
progress.
/s/ Mike Chandler
Exhibit 3
Projected From Actual 8/97-12/97
------------------------------------------------------------------------
School system Contract No. 1997-98 Sales
------------------------------------------------------------------------
Adair County Schools.............. 21627 95,893.38
Barbourville City Schools......... 22238 17,608.30
Bath County Schools............... 29192 84,831.85
Berea Community Schools........... 21352 26,750.62
Bowling Green City Schools........ 27981 122,667.00
Boyle County Schools.............. 26130 37,890.91
Breathitt County Schools.......... 33238 143,257.60
Bristol City (TN) Schools......... 34728 81,402.62
Burgin City Schools............... 26097 14,299.24
Campbell County Schools........... 29969 250,504.95
Clarksville Community (IN)........ 34815 30,299.82
Corbin City Schools............... 24627 72,999.58
Cumberland County Schools......... 30004 41,371.73
Danville City Schools............. 25979 56,280.46
East Bernstadt School............. 21157 17,540.36
Estill County Schools............. 25799 89,665.39
Fayette County Schools............ 21100 608,675.03
Green County Schools.............. 26795 42,321.70
Greeneville City Schools.......... 30007 44,520.96
Harrodsburg City Schools.......... 33160 31,790.80
Hart County Schools............... 28389 66,226.97
Hazard Independent Schools........ 34848 27,636.88
Jackson Independent Schools....... 34847 14,163.46
Knox County Schools (KY).......... 21278 183,628.12
Larue County Schools.............. 29988 74,432.16
Lee County Schools................ 24621 56,578.79
Lexington Private Schools......... 15121 35,552.81
[[Page 64990]]
Lincoln County Schools............ 24191 164,317.71
Macon County Schools.............. 23173 88,989.91
Madison County Schools............ 25545 229,139.64
McCreary County Schools........... 24237 140,930.13
Meade County Schools.............. 28454 153,510.34
Menifee County Schools............ 24919 32,323.89
Mercer County Schools............. 21763 52,000.58
Metcalfe County Schools........... 28395 59,048.89
Monroe County Schools............. 26543 77,986.33
Monticello City Schools........... 21575 25,423.20
Montgomery County Schools......... 24157 132,973.99
Morgan County Schools............. 29503 103,785.66
Nashville Metro Schools........... 23505 335,067.84
Pickett County Schools............ 26661 28,096.62
Pulaski County Schools............ 19140 294,978.80
Putnam County Schools............. 27240 221,463.07
Rockcastle County Schools......... 21088 87,306.99
Rowan County Schools.............. 28846 82,248.66
Russell County Schools............ 26382 101,533.70
Science Hill School............... 29991 13,520.93
Simpson County Schools............ 33154 70,436.38
Somerset City Schools............. 13449 45,378.31
Taylor County Schools............. 26781 74,838.52
Van Buren County Schools.......... 27118 26,809.74
Wayne County Schools.............. 26404 89,391.06
West Clark Community (IN)......... 32001 60,298.90
Whitley County Schools............ 32580 202,722.31
Williamsburg City Schools......... 20425 27,033.50
-------------------------------------
Total......................... ................. 5,390,347.09
------------------------------------------------------------------------
------------------------------------------------------------------------
Actual 1996-97
School system Contract No. sales
------------------------------------------------------------------------
Adair County Schools.............. 21627 95,893.38
Bath County Schools............... 29192 84,831.85
Berea Community Schools........... 21352 26,750.62
Bourbon County Schools............ 23293 95,217.02
Boyle County Schools.............. 26130 37,890.91
Burgin City Schools............... 26097 14,299.24
Campbell County Schools........... 29969 250,504.95
Caverna Independent Schools....... 28461 35,597.42
Clinton City Schools.............. 23381 30,363.58
Clinton County Schools............ 26260 57,222.29
Cumberland County Schools......... 30004 41,371.73
Danville City Schools............. 25979 56,280.46
East Bernstadt School............. 21157 17,540.36
Estill County Schools............. 25799 89,665.39
Fayette County Schools............ 21100 608,675.03
Garrard County Schools............ 24200 78,654.92
Greeneville City Schools.......... 30007 44,520.96
Hardin County Schools............. 33249 367,140.54
Harrodsburg City Schools.......... 33160 31,790.80
Hart County Schools............... 28389 66,226.97
Knox County Schools (KY).......... 21278 183,628.12
Lee County Schools................ 24621 56,578.79
Lexington Private Schools......... 15121 35,552.81
Lincoln County Schools............ 24191 164,317.71
Macon County Schools.............. 23173 88,989.91
Madison County Schools............ 25545 229,139.64
McCreary County Schools........... 24237 140,930.13
Menifee County Schools............ 24919 32,323.89
Mercer County Schools............. 21763 52,000.58
Metcalfe County Schools........... 28395 59,048.89
Monroe County Schools............. 26543 77,986.33
Monticello City Schools........... 21575 25,423.20
Montgomery County Schools......... 24157 132,973.99
Morgan County Schools............. 29503 103,785.66
Pickett County Schools............ 26661 28,096.62
Powell County Schools............. 31815 91,315.15
Pulaski County Schools............ 19140 294,978.80
[[Page 64991]]
Putnam County Schools............. 27240 221,463.07
Rockcastle County Schools......... 21088 87,306.99
Russell County Schools............ 26382 101,533.70
Science Hill School............... 29992 13,520.93
Simpson County Schools............ 33154 70,436.38
Somerset City Schools............. 13449 45,378.31
Van Buren County Schools.......... 27118 26,809.74
Wayne County Schools.............. 26404 89,391.06
Whitley County Schools............ 32580 202,722.31
¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤¤
Total......................... ................. 4,786,071.13
------------------------------------------------------------------------
United States District Court, Eastern District of Kentucky, London
Division
United States of America, et al., Plaintiffs, v. Dairy Farmers of
America, Inc., Defendant
Civil Action No.: 6:03-206-KSF
Final Judgment
Whereas, plaintiffs, the United States of America and the
Commonwealth of Kentucky, and defendant Dairy Farmers of America, Inc.
(``DFA''), by their respective attorneys, have consented to the entry
of this Final Judgment without this Final Judgment constituting any
evidence against or admission by any party regarding any issue of fact
or law;
And whereas, the United States of American and the Commonwealth of
Kentucky have concluded, after due investigation and careful
consideration of the relevant circumstances, including the claims
asserted in the Amended Complaint, and the legal and factual defenses
thereto, that the public interest is served by entering into a
Stipulation, to avoid the uncertainties of litigation and to assure
that the benefits of this Final Judgment are obtained;
And whereas, DFA agrees that venue and jurisdiction are proper in
this Court;
And whereas, DFA agrees to be bound by the provisions of this Final
Judgment pending its approval by the Court;
And whereas, the essence of this Final Judgment is the prompt and
certain divestiture of the Divestiture Assets by DFA;
And whereas, DFA, despite its belief that it has good defenses to
the claims asserted against it in the Amended Complaint, has
nevertheless agreed to enter into this Final Judgment to avoid further
expense, inconvenience, the uncertainties of litigation, and the
distraction of burdensome and protracted litigation, and thereby to put
to rest this controversy with respect to the United States of America
and the Commonwealth of Kentucky;
And whereas, DFA, the United States of America, and the
Commonwealth of Kentucky desire to resolve disputes between them
concerning DFA's acquisition of a partial interest in Southern Belle
Dairy Co., LLC, without further Court proceedings except as set out
below;
And whereas, DFA has entered into a written agreement with AFLP to
facilitate the resolution of this matter;
And whereas, DFA has represented to the United States that the
divestitures required below can and will be made and that DFA will
later raise no claim of hardship or difficulty as grounds for asking
the Court to modify any of the divestiture provisions contained below;
Now therefore, before any testimony is taken, without trail or
adjudication of any issue of fact or law, and upon consent of the
parties, it is ordered, adjudged and decreed:
I. Jurisdiction
This Court has jurisdiction over the subject matter of and each of
the parties to this action. The Complaint states a claim upon which
relief may be granted against DFA under Section 7 of the Clayton Act,
as amended (15 U.S.C. Sec. 18), and under the provisions of
K.R.S.Sec. 367.110 et seq., but, by virtue of this Final Judgment, DFA
has not and does not admit either the allegations set forth in the
Complaint or any liability or wrongdoing.
II. Definitions
As used in this Final Judgment:
A. ``Acquirer'' means the entity or entities to whom DFA or the
trustee divest the Divestiture Assets.
B. ``AFLP'' means the Allen Family Limited Partnership, managed by
Robert Allen.
C. ``DFA'' means Dairy Farmers of America, Inc., a Kansas
corporation with its headquarters in Kansas City, Missouri, its
successors and assigns, its subsidiaries and divisions, and their
directors, officers, managers, agents, and employees.
D. ``Divestiture Assets'' means any and all of DFA's interests in
the Southern Belle Dairy including DFA's Series A Preferred Capital
Interest and Series B Preferred Capital Interest, and any and all lines
of credit or other loans that Mid-Am has extended to the Southern Belle
Dairy, and any interest in the Southern Belle Dairy acquired from AFLP.
E. ``Mid-Am'' means Mid-Am Capital LLC, a subsidiary of DFA and a
Delaware limited liability company with its headquarters in Kansas
City, Missouri, its successors and assigns, its subsidiaries and
divisions, and their directors, officers, managers, agents, and
employees.
F. ``Southern Belle Dairy'' means the Southern Belle Dairy Co.,
LLC, a Delaware limited liability company that owns and operates a milk
processing plant located in Pulaski County, Kentucky, and all related
assets, including all rights and interests in it, including all
property and contract rights, all existing inventory, accounts
receivable, pertinent correspondence and files, customer lists, all
related customer information, advertising materials, contracts or other
relationships with suppliers, customers and distributors, any rights,
contracts and licenses involving intellectual property, trademarks,
tradenames or brands, computers and other physical assets and equipment
used for production at, distribution from, or associated with, that
plant or any of its distribution branches and locations.
G. ``Stipulation'' means the Stipulation signed by the United
States, the Commonwealth of Kentucky, and DFA in this matter.
III. Applicability
A. This Final Judgment applies to DFA, as defined above, and to all
other persons in active concert or participation with any of them who
receive actual notice of this Final Judgment by personal service or
otherwise.
B. DFA shall require, as a condition of the sale or other
disposition of all or substantially all of DFA's assets or of lesser
business units that include the Divestiture Assets, that the purchaser
[[Page 64992]]
agrees to be bound by the provisions of this Final Judgment. DFA need
not, however, obtain such an agreement from the Acquirer of the
Divestiture Assets.
IV. Divestitures
A. DFA is ordered and directed within five days after notice of the
entry of this Final Judgment by the Court, to divest the Divestiture
Assess in a manner consistent with this Final Judgment to an Acquirer
acceptable to the United States in its sole discretion, after
consultation with the Commonwealth of Kentucky. The United States, in
its sole discretion, after consultation with the Commonwealth of
Kentucky, may agree to an extension of this time period for any
divestiture of up to thirty additional calendar days. DFA agrees to use
its best efforts to divest the Divestiture Assets as expeditiously as
possible.
B. DFA shall also use commercially reasonable efforts to cause AFLP
to divest its interests in the Southern Belle Dairy to an acquirer
acceptable to the United States in its sole discretion, after
consultation with the Commonwealth of Kentucky.
C. In accomplishing the divestitures ordered by this Final
Judgment, DFA promptly shall make known to one or more potential
purchasers the availability of the Divestiture Assets. DFA shall inform
any potentially qualified purchaser making inquiry regarding a possible
purchase of the Divestiture Assets that such assets are being offered
for sale.
D. DFA shall use commercially reasonable efforts to cause to be
furnished to all prospective Acquirers, subject to the customary
confidentiality assurances, all information and documents relating to
the Divestiture Assets and the Southern Belle Dairy customarily
provided in a due diligence process except such information or
documents subject to the attorney-client privilege or attorney work-
product doctrine. DFA shall make available such information to the
United States and the Commonwealth of Kentucky at the same time that
such information is made available to any other person.
E. DFA shall use commercially reasonable efforts to obtain
permission for prospective Acquirers of the Divestiture Assets to have
reasonable access to personnel and to make inspections of the physical
facilities of the Southern Belle Dairy; access to any and all
environmental, zoning, and other permit documents and information; and
access to any and all financial, operational, or other documents and
information customarily provided as part of a due diligence process.
F. DFA shall use commercially reasonable efforts to cause to be
provided to the Acquirer and the United States information relating to
the personnel involved in the operation of the Southern Belle Dairy to
enable the Acquirer to make offers of employment. DFA shall not
interfere with any negotiations by the Acquirer to employ any employee
whose primary responsibility is the production, sale, marketing, or
distribution of products from the Southern Belle Dairy.
G. DFA shall not take any action that will impede in any way the
operation of the Southern Belle Dairy of the divestiture of the
Divestiture Assets.
H. Unless the United States, in its sole discretion, after
consultation with the Commonwealth of Kentucky, otherwise consents in
writing, the divestiture pursuant to the Section IV, or by trustee
appointed pursuant to Section V, of this Final Judgment, shall include
the entire Divestiture Assets and shall be accomplished in such a way
as to satisfy the United States, in its sole discretion, after
consultation with the Commonwealth of Kentucky, that the Southern Belle
Dairy will be a viable, ongoing dairy. The divestiture, whether
pursuant to Section IV or Section V of this Final Judgment.
(1) Shall be made to an Acquirer that, in the United States' sole
judgment, after consultation with the Commonwealth of Kentucky, has the
intent and capability (including the necessary managerial, operational,
technical and financial capability) of competing effectively in school
and fluid milk markets in Kentucky and Tennessee; and
(2) Shall be accomplished so as to satisfy the United States, in
its sole discretion, after consultation with the Commonwealth of
Kentucky, that none of the terms of any agreement between an Acquirer
and DFA give DFA the ability unreasonably to raise the Acquirer's
costs, to lower the Acquirer's efficiency, or otherwise to interfere in
the ability of the Acquirer to compete effectively.
V. Appointment of Trustee
A. If DFA has not divested the Divestiture Assets within the time
period specified in Section IV(A), DFA shall notify the United States
of that fact in writing. Upon application of the United States, the
Court shall appoint a trustee selected by the United States and
approved by the Court to effect the divestiture of the Divestiture
Assets.
B. After the appointment of a trustee becomes effective, only the
trustee shall have the right to sell the Divestiture Assets. The
trustee shall have the power and authority to accomplish the
divestiture to an Acquirer acceptable to the United States (after
consultation with the Commonwealth of Kentucky) at such price and on
such terms as are then obtainable upon reasonable effort by the
trustee, subject to the provisions of Sections IV, V, and VI of this
Final Judgment, and shall have such other powers as this Court deems
appropriate. Subject to Section V(D) of this Final Judgment, the
trustee may hire at the cost and expense of DFA any investment bankers,
attorneys, or other agents, who shall be solely accountable to the
trustee, reasonably necessary in the trustee's judgment to assist in
the divestiture.
C. DFA shall not object to a sale by the trustee on any ground
other than the trustee's malfeasance. Any such objections by DFA must
be conveyed in writing to the United States and the trustee within ten
calendar days after the trustee has provided the notice required under
Section VI.
D. The trustee shall serve at the cost and expense of DFA, on such
terms and conditions as the United States approves, after consultation
with the Commonwealth of Kentucky, and shall account for all monies
derived from the sale of the assets sold by the trustee and all costs
and expenses so incurred. After approval by the Court of the trustee's
accounting, including fees for its services and those of any
professionals and agents retained by the trustee, all remaining money
shall be paid to DFA and the trust shall then be terminated. The
compensation of the trustee and any professionals and agents retained
by the trustee shall be reasonable in light of the value of the
Divestiture Assets and based on a fee arrangement providing the trustee
with an incentive based on the price and terms of the divestiture and
the speed with which it is accomplished, but timeliness is paramount.
E. DFA shall use its best efforts to assist the trustee in
accomplishing the required divestiture. While the trustee shall have
the right to sell the Divestiture Assets, DFA shall use commercially
reasonable efforts to cause AFLP to divest its interests in the
Southern Belle Dairy to an acquirer acceptable to the United States in
its sole discretion, after consultation with the commonwealth of
Kentucky. The trustee and any consultants, accountants, attorneys, and
other persons retained by the trustee shall have full and complete
access to the personnel, books, records, and facilities of the business
to be divested, and DFA shall develop financial and other information
relevant to such business as the trustee may reasonably request,
subject to reasonable protection for
[[Page 64993]]
trade secret or other confidential research, development, or commercial
information. DFA shall take no action to interfere with or to impede
the trustee's accomplishment of the divestiture.
F. After its appointment, the trustee shall file monthly reports
with the United States, the Commonwealth of Kentucky, DFA, and the
court setting forth the trustee's efforts to accomplish the divestiture
ordered under this final Judgment. To the extent such reports contain
information that the trustee deems confidential, such reports shall not
be filed in the public docket of the Court and DFA's copy of the
reports shall have such confidential information redacted. Such reports
shall include the name, address, and telephone number of each person
who, during the preceding month, made an offer to acquire, expressed an
interest in acquiring, entered into negotiations to acquire, or was
contacted or made an inquiry about acquiring, any interest in the
Divestiture Assets, and shall describe in detail each contact with any
such person. The trustee shall maintain full records of all efforts
made to divest the Divestiture Assets.
G. If the trustee has not accomplished such divestiture within six
months after its appointment, the trustee shall promptly file with the
Court a report setting forth (1) the trustee's efforts to accomplish
the required divestiture, (2) the reasons, in the trustee's judgment,
why the required divestiture has not been accomplished, and (3) the
trustee's recommendations. To the extent such reports contain
information that the trustee deems confidential, such reports shall not
be filed in the public docket of the Court. The trustee shall at the
same time furnish such report to the United States and the Commonwealth
of Kentucky who shall have the right to make additional recommendations
consistent with the purpose of the trust. The trustee shall at the same
time furnish the report to DFA, but with all confidential information
redacted. The Court thereafter shall enter such orders as it shall deem
appropriate to carry out the purpose of the Final Judgment, which may,
if necessary, include extending the trust and the term of the trustee's
appointment by a period required by the United States.
H. If necessary in the trustee's judgment to divest the Divestiture
Assets, DFA shall use its best efforts to assist the trustee in
dissolving the Southern Belle Dairy under Delaware Statute 6 Del. C.
Sec. 18-802, or such other applicable statutes and laws.
VI. Notice of Proposed Divestitures
A. Within two business days following execution of definitive
divestiture agreement, DFA or the trustee, whichever is then
responsible for effecting the divestiture required herein, shall notify
the United States and the Commonwealth of Kentucky of the proposed
divestiture required by Sections IV or V of this Final Judgment. If the
trustee is responsible, it shall similarly notify DFA. The notice shall
set forth the details of the proposed divestiture and list the name,
address, and telephone number of each person not previously identified
who offered or expressed an interest in or desire to acquire any
ownership interest in the Divestiture Assets, together with full
details of the same.
B. Within fifteen calendar days of receipt by the United States of
such notice, the United States may request from DFA, the proposed
Acquirer, any other third party, or the trustee if applicable
additional information concerning the proposed divestiture, the
proposed Acquirer, and any other potential Acquirer. DFA and the
trustee shall furnish any additional information requested within
fifteen calendar days of the receipt of the request, unless the parties
shall otherwise agree.
C. Within thirty calendar days after receipt of the notice or
within twenty calendar days after the United States has been provided
the additional information requested from DFA, the proposed Acquirer,
and third party, and the trustee, whichever is later, the United States
shall provide written notice to DFA and the trustee is one, stating
whether or not it objects to the proposed divestiture. If the United
States provides written notice that it does not object, the divestiture
may be consummated, subject only to DFA's limited right to object to
the sale under Section V(C) of this Final Judgment. Absent written
notice that the United States does not object to the proposed Acquirer
or upon objection by the United States, the divestiture proposed under
Sections IV or Section V shall not be consummated. Upon objection by
DFA under Section V(C), the divestiture proposed under Section V shall
not be consummated unless approved by the Court.
VII. Financing
DFA shall not finance all or any part of any purchase made pursuant
to Section IV or V or this Final Judgment.
VIII. Supply Contracts
DFA shall not require the Acquirer to enter into a supply contract
for raw milk with DFA as a condition for the sale of the Divestiture
Assets.
IX. Affidavits
A. Within twenty calendar days of DFA's signing the Stipulation,
and every thirty calendar days thereafter until the divestiture has
been completed under Sections IV or V, DFA shall deliver to the United
States an affidavit as to the fact and manner of its compliance with
Section IV or V of this Final Judgment. Each such affidavit shall
include the name, address, and telephone number of each person who,
during the preceding thirty calendar days, made an offer to acquire,
expressed an interest in acquiring, entered into negotiations to
acquire, or was contacted or made an inquiry about acquiring, any
interest in the Divestiture Assets, and shall describe in detail each
contact with any such person during that period. Each such affidavit
shall also include a description of the efforts DFA has taken to
solicit buyers for the Divestiture Assets, and to provide required
information to prospective purchasers, including the limitations, if
any, on such information. Assuming the information set forth in the
affidavit is true and complete, any objection by the United States to
information provided by DFA, including limitation on information, shall
be made within fourteen calendar days of receipt of such affidavit.
B. Within twenty calendar days of DFA's signing the Stipulation,
DFA shall deliver to the United States an affidavit that describes in
reasonable detail all actions DFA has taken and all steps DFA has
implemented on an ongoing basis to comply with the Stipulation. DFA
shall deliver to the United States an affidavit describing any changes
to the efforts and actions outlined in DFA's earlier affidavits filed
pursuant to this section within fifteen calendar days after the change
is implemented.
C. DFA shall keep all records of all efforts made to preserve and
divest the Divestiture Assets until one year after such divestiture has
been completed.
X. Compliance Inspection
A. For the purposes of determining or securing compliance with this
Final Judgment, or of determining whether the Final Judgment should be
modified or vacated, and subject to any legally recognized privilege,
from time to time duly authorized representatives of the Untied States
Department of Justice or the Commonwealth of Kentucky, including
consultants and other persons retained by either of them, shall, upon
written request of a duly authorized
[[Page 64994]]
representative of the Assistant Attorney General in charge of the
Antitrust Division or the Attorney General for Kentucky, and on
reasonable notice to DFA, be permitted:
Access during DFA's office hours to inspect and copy, or at
plaintiffs' option, to require DFA provide copies of, all books,
ledgers, accounts, records and documents in the possession, custody,
or control of DFA, relating to any matters contained in this Final
Judgment; and
To interview, either informally or on the record, DFA's
officers, employees, or agents, who may have their individual
counsel present, regarding such matters. The interviews shall be
subject to the reasonable convenience of the interviewee and without
restraint or interference by DFA.
B. Upon the written request of a duly authorized representative of
the Assistant Attorney General in charge of the Antitrust Division or
the Attorney General for Kentucky, DFA shall submit written reports and
interrogatory responses, under oath if requested, relating to any of
the matters contained in this Final Judgment as may be requested.
C. No information or documents obtained by the means provided in
this section shall be divulged by the United States or the Commonwealth
of Kentucky to any person other than an authorized representative of
the executive branch of the United States or the Commonwealth of
Kentucky, except in the course of legal proceedings to which at least
one of the plaintiffs is a party (including grand jury proceedings), or
for the purpose of securing compliance with this Final Judgment, or as
otherwise required by law.
D. If at the time information or documents are furnished by DFA to
the plaintiffs, DFA represents and identifies in writing the material
in any such information or documents to which a claim of protection may
be asserted under Rule 26(c)(7) of the Federal Rules of Civil
Procedure, and DFA marks each pertinent page of such material,
``Subject to claim of protection under Rule 26(c)(7) of the Federal
Rules of Civil Procedure,'' then the plaintiffs shall give DFA ten
calendar days notice prior to divulging such material in any legal
proceeding (other than a grand jury proceeding).
XI. Reacquisition of the Divestiture Assets
Other than acquiring AFLP's interests in the Southern Belle Dairy
for resale to the Acquirer, DFA may not directly or indirectly
reacquire in whole or in part the Divestiture Assets or any interest in
the Southern Belle Dairy during the term of this Final Judgment without
the prior written approval of the United States. Unless the United
States otherwise agrees in writing, DFA will urge any partnership,
joint venture, limited liability company, or other firm in which it has
an equity interest, not to acquire the Divestiture Assets or any
interest in Southern Belle Dairy during the term of this Final
Judgment; such urging shall include, among other things, voting its
interest, if applicable, against such an acquisition.
XII. Retention of Jurisdiction
This Court retains jurisdiction to enable any party to this Final
Judgment to apply to this Court at any time for further orders and
directions as may be necessary or appropriate to carry out or construe
this Final Judgment, to modify any of its provisions, to enforce
compliance, and to punish violations of its provisions.
XIII. Expiration of Final Judgment
Unless this Court grants an extension, this Final Judgment shall
expire ten years from the date of its entry.
XIV. Public Interest Determination
Entry of this Final Judgment is in the public interest.
Dated:-----------------------------------------------------------------
Court approval subject to procedures of Antitrust Procedures and
Penalties Act, 15 U.S.C. 16.
[fxsp0]----------------------------------------------------------------
United States District Judge
FILED ELECTRONICALLY
United States District Court, Eastern District of Kentucky, London
Division
United States of America, et al. Plaintiffs, v. Dairy Farmers of
America, Inc., et al., Defendants
Civil Action No.: 6:03-206-KSF
Competitive Impact Statement
Pursuant to Section 2(b) of the Antitrust Procedures and Penalties
Act (``APPA'' or ``Tunney Act''), 15 U.S.C. 16(b)-(h), plaintiff United
States of America files this Competitive Impact Statement relating to
the proposed Final Judgment submitted for entry in this civil antitrust
proceeding.
I. Nature and Purpose of This Proceeding
The United States and the Commonwealth of Kentucky (collectively,
the ``government'') filed a civil antitrust Complaint under Section 15
of the Clayton Act, 15 U.S.C. 25, on April 24, 2003, alleging that the
acquisition by Dairy Farmers of America, Inc. (``DFA'') of its interest
in Southern Belle Dairy Co., LLC (``Southern Belle'') violated Section
7 of the Clayton Act (``Section 7''), 15 U.S.C. 18.\1\ An Amended
Complaint was filed on May 6, 2004.
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\1\ The Commonwealth of Kentucky joined this lawsuit under 15
U.S.C. 26, and also sought relief pursuant to the provisions of
K.R.S. Sec. 367.110, et seq.
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The Amended Complaint alleged that the acquisition may
substantially lessen competition for the sale of milk sold to schools
in one hundred school districts in eastern Kentucky and Tennessee. On
August 31, 2004, the District Court granted summary judgment to DFA and
Southern Belle. The government appealed, and on October 25, 2005, the
Court of Appeals reversed the grant of summary judgment as to DFA and
remanded the case for trial. The Court of Appeals affirmed the
dismissal of Southern Belle, leaving DFA as the only defendant. See
United States v. Dairy Farmers of America, 426 F.3d 850 (6th Cir.
2005).
On October 2, 2006, the United States filed a proposed Final
Judgment that requires DFA to divest its interest in Southern Belle and
use its best efforts to require its partner, the Allen Family Limited
Partnership (``AFLP''), to also divest its interest in Southern Belle.
DFA has proposed divesting its interest and AFLP's interest in Southern
Belle to Prairie Farms Dairy, Inc. (``Prairie Farms''), and the
government has approved Prairie Farms as a suitable buyer of DFA's and
AFLP's interest in Southern Belle. The proposed Final Judgement is
designed to eliminate the anticompetitive effects of the acquisition
alleged in the Amended Complaint.
The government and DFA have stipulated that the proposed Final
Judgment may be entered after compliance with the APPA. Entry of the
proposed Final Judgment would terminate this action, except that the
Court would retain jurisdiction to construe, modify, or enforce the
provisions of the proposed Final Judgment and to punish violations
thereof.
II. The Alleged Violations
A. The Defendants
Dairy Farmers of America (``DFA'') is a Kansas milk marketing
cooperative with its headquarters and principal place of business in
Kansas City, Missouri. DFA is the largest dairy cooperative in the
world. DFA sells raw milk in interstate commerce. In 2005, DFA had
20,000 members in 49 states, marketed 59.7 billion pounds of raw
[[Page 64995]]
milk in the United States, and had over $8.9 billion in revenues.
Southern Belle Dairy Co., LLC (``Southern Belle'') owns the
Southern Belle dairy processing plant. Southern Belle is a Delaware
limited liability company with its headquarters and principal place of
business in Somerset, Kentucky. Southern Belle processed approximately
25 million gallons of raw milk in 2001 and had annual revenues of
approximately $65 million that year. Southern Belle sells fluid milk in
interstate commerce, including milk to school districts in Kentucky and
Tennessee.
B. The Acquisition
Southern Belle was formed by DFA on February 20, 2002. It acquired
the assets of the Southern Belle dairy plant on February 25, 2002. On
February 26, 2002, DFA's joint venture partner AFLP acquired 50 percent
of Southern Belle. The purchase price of the Southern Belle dairy plant
was approximately $18.7 million: $2 million in common equity; $4
million in preferred equity; and the rest paid through of a line of
credit. DFA and AFLP each contributed $1 million in exchange for each
receiving 50 percent of the common interests in Southern Belle. A
subsidiary of DFA contributed $4 million in exchange for preferred
equity interests and extended to Southern Belle the line of credit used
to finance the remaining $12.7 million of the purchase price.
C. Anticompetitive Effects of the Acquisition
The Amended Complaint alleged that the manufacture, distribution,
and sale of school milk constitutes a relevant product market. Milk is
a product that has special nutritional characteristics and no practical
substitutes. Dairies sell milk to schools with special services,
including storage coolers, daily or every-other-day delivery to each
school, constant rotation of old milk, and replacement of expired milk.
Moreover, school districts must provide milk in order to receive
substantial funds under Federal school meal subsidy programs. There are
no other products that school districts would substitute for school
milk in the event of a small but significant price increase.
The Amended Complaint alleged that the relevant geographic markets
in which to assess the competitive effects of the acquisition are the
school districts in eastern Kentucky and Tennessee identified in
Attachments A and B of the Amended Complaint, either as individual
districts or, where applicable, as groups of districts that solicit
school milk bids together.\2\ As a practical matter, these school
districts are unable to turn to additional school milk suppliers, who
would not bid for their school milk contracts even if the price of
school milk were to increase by a small but significant amount.
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\2\ These groups of school districts require bidders to charge
the same price to the entire group, require successful bidders to
serve all of group's districts at the same price, and require the
group's members to accept the group bid.
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The Amended Complaint alleged that DFA's acquisition of its
interest in Southern Belle would lessen competition substantially in
the sale of school milk in each of the school districts identified in
the Amended complaint. These districts receive school milk bids from
Southern Belle and dairies operated by National Dairy Holdings, LP
(``NDH''), a dairy holding company also 50 percent-owned by DFA. Some
affected districts and groups of districts also receive bids from a
third supplier. One of the NDH-operated dairies that serves the
affected school districts is the Flav-O-Rich dairy, located in London,
Kentucky, only 30 miles from the Southern Belle plant in Somerset,
Kentucky. The transaction lessened competition for school districts
receiving milk contract bids from both Southern Belle and NDH because,
as a result of the transaction, both Southern Belle and NDH were 50
percent-owned by DFA. Since any contracts won by Southern Belle from
NDH, or vice versa, through aggressive bidding would likely reduce
DFA's profits, reduced competition between Southern Belle and NDH is in
DFA's interest.
In 45 of the school districts listed in the Amended Complaint, the
effect of the acquisition has been to establish a monopoly, with only
Southern Belle and Flav-O-Rich (or another NDH dairy) as possible milk
suppliers. In these districts, the acquisition would give DFA the
incentive and ability to encourage, facilitate, or enforce cooperation
between Southern Belle and NDH to raise prices or decrease the level or
quality of service provided to these school districts. In 55 school
districts listed in the Amended Complaint, the acquisition has reduced
the number of independent competitors from three to two, making it
likely that the remaining bidders will bid less aggressively against
each other.
The Amended complaint also alleged that entry into the affected
markets by other dairies or distributors would not be timely, likely,
or sufficient to deter the anticompetitive effects caused by the
acquisition. Dairies or distributors not currently competing in the
affected markets would be unlikely to start bidding as a result of a
small but significant increase in school milk prices. This is supported
by the lack of new entry into these markets when competition between
Southern Belle and Flav-O-Rich has been reduced. First, in the 1980s,
these two dairies rigged bids for school milk contracts for many of the
school districts affected by the acquisition. Despite an increase in
school milk prices, new entry did not occur in these markets to
undermine the bid-rigging conspiracy, which lasted for over ten years.
Second, competition between Southern Belle and Flav-O-Rich was
eliminated in some districts when Southern Belle was suspended from
bidding on certain school milk contracts from 1998 to 2000 by the U.S.
Department of Agriculture for violating provisions of an antitrust
compliance program. Again, for those districts affected by the loss of
Southern Belle as a bidder for school milk contracts, relative prices
for school milk rose and new entry did not occur to return prices to a
competitive level.
For all of these reasons, the government concluded that the
transaction would substantially lessen competition in the sale of
school milk in the school districts in Kentucky and Tennessee
identified in the Amended Complaint, by increasing prices and/or
reducing quality, all in violation of Section 7 of the Clayton Act.
Indeed, the government found evidence that, after the transaction, bids
to districts where Southern Belle and Flav-O-Rich were the only bidders
were higher than bids received by other districts with only two
bidders, though this was not true before the transaction.
III. Explanation of the Proposed Final Judgment
The divestiture requirement of the proposed Final Judgment will
eliminate the anticompetitive effects identified in the Amended
Complaint by requiring DFA to divest its interest in Southern Belle. In
addition, the proposed Final Judgment requires DFA to use commercially
reasonable efforts to cause AFLP to divest its interest in Southern
Belle. The proposed Final Judgment requires the United States, in
consultation with the Commonwealth of Kentucky, to approve any buyer of
DFA's and AFLP's interests in Southern Belle. The divestitures must be
accomplished in such a way as to satisfy the United States, in its sole
discretion, after consultation with the Commonwealth of Kentucky, that
Southern Belle will be a viable, ongoing dairy business capable to
competing effectively in the sale of school and fluid milk in Kentucky
and Tennessee.
[[Page 64996]]
The effect of these divestitures would be to restore competition
between Southern Belle and NDH, with the divestiture of AFLP's interest
allowing a buyer of Southern Belle to acquire the entire dairy as a
going concern, rather than as a 50 percent owner in conjunction with
AFLP. During the divestiture process, DFA is prohibited from taking any
steps to degrade the operations of Southern Belle, and the entire
Southern Belle dairy business is to be sold through the divestiture,
instead of piecemeal, so it can and will be operated by the purchaser
as a viable, ongoing business that can compete effectively in the
relevant markets. In addition, DFA is not permitted to finance any part
of a purchaser's acquisition of the Southern Belle dairy and is
prohibited from requiring the purchaser to enter into a raw milk supply
contract with DFA as a condition of the divestiture.
The government and DFA reached agreement on the terms of the
proposed Final Judgment and signed the Stipulation on May 15, 2006.
That same day, DFA and AFLP executed an option agreement giving DFA the
ability to purchase AFLP's ownership interest in Southern Belle. This
option agreement allows DFA to sell the dairy in its entirety rather
than just DFA's partial ownership interest in the dairy. Not only would
a complete transfer of Southern Belle to a new owner eliminate the
government's concerns about DFA's ownership interests in both Southern
Belle and Flav-O-Rich, the divestitures also eliminate the possibility
of anticompetitive effects as a result of DFA's ability to influence
AFLP, its long-time business partner.
In exchange for DFA's agreement to divest its interest in Southern
Belle and use its best efforts to have AFLP do the same, and so that
DFA could find a buyer for the dairy, the government agreed in a letter
agreement with DFA dated May 15, 2006, not to file the Stipulation and
proposed Final Judgment until the earlier of 120 days after signing the
Stipulation, or DFA gave notice that it executed an agreement with a
buyer. A copy of this letter agreement is provided as Exhibit A to this
Competitive Impact Statement. If DFA was not able to find a buyer for
Southern Belle after 120 days had elapsed, DFA agreed that the
government could file the Stipulation and proposed Final Judgment.
If a buyer for Southern Belle were not found by five days after DFA
receives notice of the entry of the proposed Final Judgment, the Final
Judgment provides that the Court will appoint a trustee selected by the
United States to effect the divestiture. The proposed Final Judgment
allows the United States to delay the appointment of the trustee for
thirty days. If a trustee is appointed, the proposed Final Judgment
provides that DFA will pay all costs and expenses of the trustee. The
trustee's commission will be structured so as to provide an incentive
for the trustee based on the price obtained and the speed with which
the divestiture is accomplished. After his or her appointment becomes
effective, the trustee will file monthly reports with the Court and the
United States setting forth his or her efforts to accomplish the
divestiture. At the end of six months, if the divestiture has not been
accomplished, the trustee and the United States will make
recommendations to the Court, which shall enter such orders as
appropriate, in order to carry out the purpose of the trust, including
extending the trust or the term of the trustee's appointment.
The divestitures required by the proposed Final Judgment eliminate
the harm to competition identified in the Amended Complaint by making
Southern Belle completely independent from DFA and NDH, including the
Flav-O-Rich dairy. Prairie Farms' purchase of Southern Belle
accomplishes this goal of the proposed Final Judgment. Prairie Farms
will be purchasing Southern Belle as a complete going concern,
including the plant in Somerset, Kentucky, distribution facilities,
equipment, and trademarks. The government believes that Prairie Farms
can capably operate and manage Southern Belle, as it already owns and
operates several dairy processing plants. The government believes that
Southern Belle will continue to bid on school milk contracts under
Prairie Farms' ownership, including against Flav-O-Rich and other NDH
dairies. The divestiture of DFA's and AFLP's interests in Southern
Belle to Prairie Farms has allowed the government to secure relief more
quickly than if the matter had gone to trial. In addition, this relief
is equal to, and probably exceeds, the relief that the government could
have obtained after a victory at trial.
IV. Remedies Available to Potential Private Litigants
Section 4 of the Clayton Act (15 U.S.C. 15) provides that any
person who has been injured as a result of conduct prohibited by the
antitrust laws may bring suit in Federal court to recover three times
the damages the person has suffered as well as costs and reasonable
attorneys' fees. Entry of the proposed Final Judgment will neither
impair nor assist the bringing of any private antitrust damage action.
Under the provisions of Section 5(a) of the Clayton Act (15 U.S.C.
Sec. 16(a)), the proposed Final Judgment has no prima facie effect in
any subsequent private lawsuit that may be brought against DFA or
Southern Belle.
V. Procedures Available for Modification of the Proposed Final Judgment
The parties have stipulated that the proposed Final Judgment may be
entered by the Court after compliance with the provisions of the APPA,
provided that the United States has not withdrawn its consent. The APPA
conditions entry upon the Court's determination that the proposed Final
Judgment is in the public interest.
The APPA provides a period of at least sixty (60) days preceding
the effective date of the proposed Final Judgment within which any
person may submit to the United States written comments regarding the
proposed Final Judgment. Any person who wishes to comment should do so
within sixty (60) days of the date of publication of this Competitive
Impact Statement is published in the Federal Register, or the last date
of publication in a newspaper of the summary of this Competitive Impact
Statement, whichever is later. All comments received during this period
will be considered by the Department of Justice, which remains free to
withdraw its consent to the proposed Final Judgment at any time prior
to the Court's entry of judgment. The comments and the response of the
United States will be filed with the Court and published in the Federal
Register.
Written comments should be submitted to: Mark J. Botti, Chief,
Litigation I Section, Antitrust Division, U.S. Department of Justice,
1401 H St. NW., Suite 4000, Washington, DC 20530.
The proposed Final Judgment provides that the Court retains
jurisdiction over this action, and the parties may apply to the Court
for any order necessary or appropriate for the modification,
interpretation, or enforcement of the Final Judgment.
VI. Alternatives to the Proposed Final Judgment
The government considered, as an alternative to the proposed Final
Judgment, a full trial on the merits of the Amended Complaint against
DFA, continuing the litigation and seeking the divestiture of DFA's
interest in Southern Belle and other injunctive relief requested in the
Amended Complaint. The government is satisfied, however, that the
divestitures and other relief
[[Page 64997]]
contained in the proposed Final Judgment will preserve competition in
the relevant markets alleged in the Amended Complaint. The government
believes that by requiring DFA to divest its interest in Southern
Belle, as well as using its best efforts to have AFLP simultaneously
divest its interest in the remaining 50 percent of the dairy, the
relief obtained in the proposed Final Judgment has allowed the
government to secure relief more quickly than if the matter had gone to
trial. In addition, the relief is equal to, and probably exceeds, the
relief that the government could have obtained after a victory at
trial.
VII. Standard of Review Under the APPA for Proposed Final Judgment
The APPA requires that proposed consent judgments in antitrust
cases brought by the United States be subject to a sixty (60)-day
comment period, after which the Court shall determine whether entry of
the proposed Final Judgment ``is in the public interest.'' 15 U.S.C.
16(e)(1). In making that determination, the Court shall consider:
(A) The competitive impact of such judgment, including
termination of alleged violations, provisions for enforcement and
modification, duration of relief sought, anticipated effects of
alternative remedies actually considered, whether its terms are
ambiguous, and any other competitive considerations bearing upon the
adequacy of such judgment that the court deems necessary to a
determination of whether the consent judgement is in the public
interest; and
(B) The impact of entry of such judgment upon competition in the
relevant market or markets, upon the public generally and
individuals alleging specific injury from the violations set forth
in the complaint including consideration of the public benefit, if
any, to be derived from a determination of the issues at trial.
15 U.S.C. 16(e)(1)(A) and (B) \3\ As the United States Court of Appeals
for the District of Columbia Circuit has held, under the APPA a court
considers, among other things, the relationship between the remedy
secured and the specific allegations set forth in the government's
complaint, whether the decree is sufficiently clear, whether
enforcement mechanisms are sufficient, and whether the decree may
positively harm third parties. See United States v. Microsoft Corp., 56
F.3d 1448, 1458-62 (D.C. Cir. 1995).
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\3\ In 2004, Congress amended the APPA to ensure that courts
take into account the above-quoted list of relevant factors when
making a public interest determination. Compare 15 U.S.C. 16(e)
(2004) with 15 U.S.C. 16(e)(1) (2006) (substituting ``shall'' for
``may'' in directing relevant factors for court to consider and
amending list of factors to focus on competitive considerations and
to address potentially ambiguous judgment terms). On the points
discussed herein, the 2004 amendments did not alter the substance of
the Tunney Act, and the pre-2004 precedents cited below remain
applicable.
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With respect to the adequacy of the relief secured by the decree, a
court may not ``engage in an unrestricted evaluation of what relief
would best serve the public.'' United States v. BNS, Inc., 858 F.2d
456, 462 (9th Cir. 1988) (citing United States v. Bechtel Corp., 648
F.2d 660, 666 (9th Cir. 1981)); see also Microsoft, 56 F.3d at 1460-62.
Courts have held that:
[t]he balancing of competing social and political interests
affected by a proposed antitrust consent decree must be left, in the
first instance, to the discretion of the Attorney General. The
court's role in protecting the public interest is one of insuring
that the government has not breached its duty to the public in
consenting to the decree. The court is required to determine not
whether a particular decree is the one that will best serve society,
but whether the settlement is ``within the reaches of the public
interest.'' More elaborate requirements might undermine the
effectiveness of antitrust enforcement by consent decree.
Bechtel, 648 F.2d at 666 (emphasis added) (citations omitted).\4\ In
making its public interest determination, a district court must accord
due respect to the government's prediction as to the effect of proposed
remedies, its perception of the market structure, and its views of the
nature of the case. United States v. Archer-Daniels-Midland Co., 272 F.
Supp. 2d 1, 6 (D.D.C. 2003).
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\4\ Cf. BNS, 858 F.2d at 464 (holding that the court's
``ultimate authority under the [APPA] is limited to approving or
disapproving the consent decree''); United States v. Gillette Co.,
406 F. Supp. 713, 716 (d. Mass. 1975) (noting that, in this way, the
court is constrained to ``look at the overall picture not
hypercritically, nor with a microscope, but with an artist's
reducing glass''); see generally Microsoft, 56 F.3d at 1461
(discussing whether ``the remedies [obtained in the decree are] so
inconsonant with the allegations charged as to fall outside of the
`reaches of the public interest' '').
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Court approval of a final judgment requires a standard more
flexible and less strict than the standard required for a finding of
liability. ``[A] proposed decree must be approved even if it falls
short of the remedy the court would impose on its own, as long as it
falls within the range of acceptability or is `within the reaches of
public interest' '' United States v. Am. Tel. & Tel. Co., 552 F. Supp.
131, 151 (D.D.C. 1982) (citations omitted) (quoting United States v.
Gillette Co., 406 F. Supp. 713, 716 (D. Mass. 1985)), aff'd sub nom.
Maryland v. United States, 460 U.S. 1001 (1983); see also United States
v. Alcan Aluminum Ltd., 605 F. Supp. 619, 622 (W.D. Ky. 1985)
(approving the consent decree even though the court would have imposed
a greater remedy).
Moreover, the Court's role under the APPA is limited to reviewing
the remedy in relationship to the violations that the United States has
alleged in its Amended Complaint, and does not authorize the Court to
``construct [its] own hypothetical case and then evaluate the decree
against that case.'' Microsoft, 56 F.3d at 1459. Because the ``court's
authority to review the decree depends entirely on the government's
exercising its prosecutorial discretion by bringing a case in the first
place,'' it follows that ``the court is only authorized to review the
decree itself,'' and not to ``effectively redraft the complaint'' to
inquire into other matters that the United States did not pursue. Id.
at 1459-60.
In its 2004 amendments to the Tunney Act, Congress made clear its
intent to preserve the practical benefits of utilizing consent decrees
in antitrust enforcement, adding the unambiguous instruction
``[n]othing in this section shall be construed to require the court to
conduct an evidentiary hearing or to require the court to permit anyone
to intervene.'' 15 U.S.C. 16(e)(2). This language codified the intent
of the original 1974 statute, expressed by Senator Tunney in the
legislative history: ``[t]he court is nowhere compelled to go to trial
or to engage in extended proceedings which might have the effect of
vitiating the benefits of prompt and less costly settlement through the
consent decree process.'' 119 Cong. Rec. 24,598 (1973) (statement of
Senator Tunney). Rather:
[a]bsent a showing of corrupt failure of the government to
discharge its duty, the Court, in making its public interest
finding, should * * * carefully consider the explanations of the
government in the competitive impact statement and its responses to
comments in order to determine whether those explanations are
reasonable under the circumstances.
United States v. Mid-American Dairymen, Inc., 1977-1 Trade Cas. (CCH) ]
61,508, at 71,980 (W.D. Mo. 1977).
VIII. Determinative Documents
In formulating the proposed Final Judgment, the United States
considered DFA's agreement with AFLP, dated May 15, 2006, giving DFA
the option to purchase AFLP's interest in Southern Belle. This
agreement, a determinative document as described in Section 2(b) of the
APPA, 15 U.S.C. 16(b), is available for public inspection at the office
of the Department of Justice in Washington, DC, Room 200, 325 Seventh
Street, NW., and at the office of
[[Page 64998]]
the Clerk of the United States District Court for the Eastern District
of Kentucky, London, Kentucky, as Exhibit B to this Competitive Impact
Statement.
Dated: October 2, 2006.
Respectfully Submitted,
Jon B. Jacobs, Richard Martin, N. Christopher Hardee, Richard D.
Cooke, Ihan Kim,
Attorneys, Litigation I Section, Antitrust Division, United States
Department of Justice, City Center Building, 1401 H. Street NW.,
Suite 4000, Washington, DC 20530. Telephone: 202-307-0001.
Facsimile: 202-307-5802. E-mail: ihan.kim@usdoj.gov.
Certificate of Service
This certifies that I caused a true and correct copy of the
foregoing Competitive Impact Statement to be served on October 2,
2006, in the manner indicated:
David A. Owen, Esq., Greenebaum Doll & McDonald, PLLC, 300 West
Vine Street--Suite 1100, Lexington, KY 40507, Counsel for Dairy
Farmers of America, Inc. (via e-mail and first-class mail).
W. Todd Miller, Esq., Baker & Miller, PLLC, 2401 Pennsylvania
Ave., Suite 300, Washington, DC 20037, Counsel for Dairy Farmers of
America, Inc. (via e-mail and first-class mail).
John M. Famularo, Esq., Stites & Harbison PLLC, 250 West Main
Street, Suite 2300, Lexington, Kentucky 40507, Counsel for Dean
Foods Company (via e-mail and first-class mail).
John L. Fleischaker, Esq., R. Kenyon Meyer, Esq., Jeremy S.
Rogers, Esq., Dinsmore & Shohl LLP, 1400 PNC Plaza, 500 West
Jefferson Street, Louisville, Kentucky 40202, Counsel for Chicago
Tribune Company (via e-mail and first-class mail).
Charles E. Shivel, Jr., Esq., Stoll Keenon Ogden PLLC, 300 West
Vine Street--Suite 2100, Lexington, KY 40507, Counsel for Southern
Belle Dairy Co., LLC (via e-mail and first-class mail).
J. Jackson Eaton, III, Esq., Gross, McGinley, LaBarre & Eaton,
LLP, P.O. Box 4600--33 South Seventh Street, Allentown, PA 18105,
Counsel for Southern Belle Dairy Co., LLC (via e-mail and first-
class mail).
Maryellen B. Mynear, Esq., Office of the Kentucky Attorney
General, 1024 Capital Center Drive, Suite 200, Frankfort, KY 40601,
Counsel for Commonwealth of Kentucky (via e-mail and first-class
mail).
/s/ Ihan Kim,
Attorney for Plaintiff, United States of America.
Exhibit A--Letter Agreement Between the United States, Commonwealth of
Kentucky, and Dairy Farmers of America, Inc.
U.S. Department of Justice
Antitrust Division
May 15, 2006
Via Hand Delivery
W. Todd Miller, Esq.,
Baker & Miller, PLLC, 2401 Pennsylvania Avenue, NW., Suite 300,
Washington, DC 2005
Re: United States of America, et al. v. Dairy Farmers of America, et
al.
Dear Todd: This letter sets forth the agreement among the
Department of Justice (``the Department''), the Commonwealth of
Kentucky (``the Commonwealth''), and Diary Farmers of America, Inc.
(``DFA'') regarding the Stipulation and proposed Final Judgment in
this matter. Except as discussed below, the Department and the
Commonwealth agree not to file the Stipulation and proposed Final
Judgment with the Court until the earlier of (1) 120 calendar days
after DFA's signing of the Stipulation or (2) the day after DFA
gives notice to the United States and the Commonwealth pursuant to
Section VI.A of the proposed Final Judgment that DFA has executed a
divestiture agreement with a proposed Acquirer of the Divestiture
Assets. During this period, however, the Department and the
Commonwealth reserve the right to file the Stipulation and proposed
Final Judgment with the Court under seal should they, in their sole
discretion, determine after giving 15 days written notice of its
reasons to DFA that DFA is not complying with the terms of the
Stipulation and proposed Final Judgment. The Department will
exercise its sole discretion under this letter agreement and the
Final Judgment in good faith in light of the relevant facts, law,
and public policy.
Beginning immediately with DFA's signing of the Stipulation, DFA
must comply with all obligations and prohibitions set forth in the
Stipulation and proposed Final Judgment including keeping the
Department and the Commonwealth informed as to DFA's actions seeking
an Acquirer.
If this accurately sets forth the agreement among the
Department, the Commonwealth and DFA, please execute a copy of this
letter on behalf of DFA and return the copy to me.
Sincerely,
Mark J. Botti,
For the United States Department of Justice.
Maryellen B. Mynear,
For the Commonwealth of Kentucky.
Agreed:
W. Todd Miller,
Counsel for Dairy Farmers of America, Inc.
Date: May 15, 2006
cc. David A. Owen.
Exhibit B--Determinative Document Pursuant to 15 U.S.C. 16(b): Option
Agreement Between Dairy Farmers of America, Inc. and Allen Family
Limited Partnership
Redacted
Public Version
Option Agreement
This OPTION AGREEMENT is dated and made effective as of the 15th
day of May, 2006, among DAIRY FARMERS OF AMERICA, INC., a Kansas
cooperative marketing association (``DFA''), and ALLEN FAMILY
LIMITED PARTNERSHIP, a Pennsylvania limited partnership (``AFLP'').
Recitals
WHEREAS, AFLP is the owner of one hundred percent (100%) of the
common member interest (``AFLP Interests'') of Southern Belle Dairy
Co., LLC, a Delaware limited liability company (``Southern Belle'');
and
WHEREAS, DFA is or will become the owner of the [REDACTED] of
Series A Preferred Capital Interest and the [REDACTED] of Series B
Preferred Capital Interest in Southern Belle, plus all lines of
credit or other loans from Mid-Am Capital, L.L.C., (``DFA
Interests''); and
WHEREAS, DFA is a defendant in an action filed by the United
States of America through its Department of Justice (``DOJ'') and by
the Commonwealth of Kentucky and pending in the United States
District Court for the Eastern District of Kentucky originally
titled United States of America and the Commonwealth of Kentucky v.
Dairy Farmers of America, Inc. and Southern Belle Dairy Co., LLC,
Civil Action No. 6:03-cv-206-KSF (the ``DOJ Litigation'');
WHEREAS, DFA and AFLP have been in discussions regarding the
possibility of entering into a purchase agreement (``Purchase
Agreement'') relating to all of the AFLP Interests, subject to and
conditioned on (i) full and final settlement of the DOJ Litigation
and (ii) DFA's ability and the DOJ's acceptance and/or acquiescence
to DFA concurrently entering into a definitive purchase agreement
relating to the sale of the DFA and AFLP Interests and/or the sale
of all or substantially all of the operational assets of Southern
Belle Dairy (``Assets'') with a third-party purchaser
(``Acquirer''), pursuant to which an Acquirer would purchase both
the DFA and the AFLP Interests and/or the Assets from DFA (the
``Acquisition Agreement''); and
WHEREAS, in furtherance of the discussions and as a condition
precedent to the DFA's obligation to purchase the AFLP Interests
from AFLP, and for the additional consideration set forth herein,
the AFLP desires to grant, and herein does grant, to DFA an option
to purchase the AFLP interests according to the terms and subject to
the conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the premises herein and the
representations, warranties, covenants and agreements contained
herein, the receipt and legal sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Grant of Option. AFLP hereby grants to DFA an unconditional,
irrevocable option (the ``Option'') to purchase, subject to the
terms and conditions hereof, the AFLP Interests for the total sum of
[REDACTED] (``Purchase Price'') payable in cash at the time of
closing. The Option shall terminate upon the earliest to occur of:
(i) the written mutual agreement of DFA and AFLP to terminate the
Option; or (ii) the delivery of at least ten (10) days prior written
notice from DFA to AFLP that DFA has decided to terminate the
Option. The Option may only be exercised during the period from the
date hereof through the first date to occur of clause (i) or (ii) of
the immediately preceding sentence (the ``Option Period'').
2. Option Grant Payment. Upon the execution of this Option
Agreement by the parties hereto, DFA shall remit to AFLP the amount
of One Thousand Dollars ($1,000) and other good and valuable
consideration,
[[Page 64999]]
the receipt of which is hereby acknowledged by AFLP for the grant of
the Option by AFLP pursuant to this Agreement.
3. Exercise of Option by DFA.
(a) DFA shall exercise the Option for the AFLP Interests, but
only upon (i) full and final settlement of the DOJ Litigation and
(ii) DFA's ability and DOJ's acceptance and/or acquiescence to DFA
concurrently entering into a definitive Acquisition Agreement
relating to the sale of the AFLP and DFA Interests and/or the sale
of all or substantially all of the Assets with an Acquirer during
the Option Period. The Option may not be exercised in part, but may
only be exercised for all of the AFLP Interests subject to this
Agreement and as set forth in the Purchase Agreement.
(b) At the closing (``Closing''), DFA shall pay to AFLP the
Purchase Price by wire transfer of immediately available funds to an
account designated by such AFLP or by delivery of a certified check
to the AFLP address listed on the signature page to this Agreement.
At the Closing, and upon confirmation of the satisfaction of the
conditions set forth in Section 3(a)(i) and (ii) above,
simultaneously with the payment of the Purchase Price as provided
for hereinabove, (i) DFA will execute the Acquisition Agreement
pursuant to terms and conditions mutually agreed between DFA and
such Acquirer.
4. Conditions Precedent to Closing by DFA. AFLP, as manager of
Southern Belle Dairy, LLC, hereby represents and warrants to DFA as
follows:
(a) AFLP shall offer to furnish to all prospective Acquirers
from DFA, subject to customary confidentiality assurances, all
information and documents relating to the AFLP Interests or Assets
of the Southern Belle Dairy provided in a due diligence process
except such information or documents subject to the attorney-client
privilege or attorney work-product doctrine. AFLP shall make
available such information to the United States and the Commonwealth
of Kentucky at the same time that such information is made available
to any such prospective Acquirer.
(b) AFLP shall permit prospective Acquirers from DFA of the AFLP
Interests and/or the Assets to have reasonable access to personnel
and make inspections of the physical facilities of the Southern
Belle Dairy; access to any and all environmental, zoning and other
permit documents and information; and access to any and all
financial, operational or other documents and information
customarily provided as part of a due diligence process.
(c) AFLP shall provide the Acquirer from DFA and the United
States information relating to the personnel involved in the
operation of the Southern Belle Dairy to enable the Acquirer to make
offers of employment. AFLP shall not interfere with any negotiations
by the Acquirer to employ any employee whose primary responsibility
is the production, sale, marketing or distribution of products from
the Southern Belle Dairy.
(d) AFLP shall not take any action that will impede in any way
the operation of the Southern Belle Dairy or the divestiture of the
AFLP and DFA Interests and/or the Assets by DFA.
(e) AFLP shall not change the authorized or issued AFLP or DFA
Interests or grant any option or right to purchase such Interests
other than as set forth herein.
(f) AFLP shall not amend the organizational document of Southern
Belle.
(g) AFLP shall not damage or cause the loss of any material
customer, asset or property of Southern Belle Dairy.
(h) AFLP shall not incur any indebtedness or borrow money in
excess of Three Hundred Thousand Dollars ($300,000).
(i) AFLP shall not cause a material change in the accounting
methods used by Southern Belle Dairy.
(j) AFLP shall not enter into a sale or transfer of any of the
assets of Southern Belle Dairy except in the ordinary course of
business.
(k) AFLP shall not enter into any contract or agreement to do
any of the foregoing.
5. Representations, Warranties and Covenants of AFLP.
(a) AFLP hereby represents and warrants to DFA the following:
(i) AFLP has sole and exclusive record title to and ownership of the
AFLP Interests that are the subject of this Agreement; (ii) the AFLP
Interests are free and clear of any liens, restrictions, claims,
charges, options, rights of first refusal or encumbrances, with no
defects of title whatsover, except as provided in the Second Amended
and Restated Limited Liability Company Agreement of Southern Belle
Dairy Co., LLC; (iii) with respect to any AFLP Interests which were
acquired by gift or inheritance, all federal and state estate or
gift tax returns, as the case may be, required to be filed were duly
and timely filed, and all taxes payable with respect thereto were
paid; (iv) AFLP has the requisite power and authority to execute and
deliver this Agreement and to consummate the transactions
contemplated hereby; (v) the execution and delivery of this
Agreement and the consummation of the transactions contemplated
hereby have been duly and validly authorized by AFLP and authorized
by the required governing body prior to the date hereof and no other
proceedings on the part of AFLP or consents from or filings with any
person or entity or regulatory body are necessary to authorize this
Agreement, for AFLP to perform its obligations hereunder or to
consummate the transactions contemplated hereby, except as provided
in the Second Amended and Restated Limited Liability Company
Agreement of Southern Belle Dairy Co., LLC; (vi) this Agreement has
been duly and validly executed and delivered by AFLP; and (vii) this
Agreement constitutes a legal, valid and binding obligation of AFLP,
enforceable against AFLP in accordance with its terms.
(b) AFLP hereby covenants that, during the period described in
the following sentence, it will maintain ownership interest in and
to all of the AFLP Interests, and will not, directly or indirectly,
offer for sale, sell, distribute, grant any option, right to
purchase, suffer any lien or encumbrance upon, pledge, hypothecate
or otherwise dispose of any of the AFLP Interests. The restrictions
in the foregoing sentence shall apply from the date of this
Agreement until the earlier to occur of (i) the purchase of all of
the AFLP Interests pursuant to the exercise of the Option or (ii)
the termination of the Option Period.
(c) AFLP hereby represents and warrants to DFA and covenants for
the benefit of DFA that at Closing, AFLP shall deliver such executed
instruments of assignment, as applicable, evidencing the sale and
transfer of the AFLP Interests to DFA or a bill of sale and any
other documents, instruments or certificates necessary to evidence
the transfer of any of the Assets.
6. Representations, Warranties and Covenants of DFA. DFA hereby
represents and warrants to AFLP as follows: (i) DFA has the
requisite corporate power and authority to execute and deliver this
Agreement and to perform its obligations hereunder; (ii) contingent
on and subject to full and final settlement of the DOJ Litigation
and the simultaneous execution of an Acquisition Agreement with an
Acquirer as described herein and subject to the conditions set forth
herein, the execution and delivery of the Agreement by DFA and the
performance of its obligations hereunder, have been duly and validly
authorized by the Board of Directors of DFA and no other corporate
proceedings on the part of the DFA or consents from for filings with
any person or entity or regulatory body, other than the provisions
of the Revised and Restated Limited Liability Company Agreement of
Southern Belle, are necessary to authorize this Agreement, for DFA
to perform its obligations hereunder; (iii) this Agreement has been
duly and validly executed and delivered by DFA; and (iv) this
Agreement constitutes a legal, valid and binding obligation of the
DFA enforceable against DFA in accordance with its terms, subject to
full and final settlement of the DOJ Litigation and ability of DFA
to simultaneously execute of an Acquisition Agreement with an
Acquirer of the Assets and/or the DFA and AFLP Interests from DFA,
and subject to the conditions set forth herein.
7. Amendments: Entire Agreement. This Agreement may not be
modified except by written instrument executed by the parties
hereto. This Agreement contains the entire agreement among the
parties hereto with respect to the transactions contemplated hereby
and supersedes all prior understandings, representations,
warranties, promises and undertakings between the parties hereto
with respect to the transactions contemplated hereby.
8. Assignment. Neither of the parties hereto may assign any of
its rights or obligations under this Agreement or the Option created
hereunder to any other person without the express written consent of
the other party.
9. Validity. If any term, provision, covenant or restriction
contained in this Agreement is held by a court or a federal or state
regulatory agency of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions and covenants
and restrictions contained in this Agreement shall remain in full
force and effect, and shall in no way be affected, impaired or
invalidated; provided that each party is able to receive
substantially all of the rights and substantially all of the
benefits it is to have
[[Page 65000]]
had/or receive, as applicable, under this Agreement.
10. Notices. All notices, requests, claims, demands and other
communications hereunder shall be deemed to have been duly given
when delivered in person, by fax, telecopy, or by registered or
certified mail (postage prepaid, return receipt requested) at the
address set forth on the signature page hereto.
11. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware
applicable to contracts made and to be performed entirely in that
State and without regard to any of its conflicts of law principles
which could result in the application of the laws of another
jurisdiction.
12. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed to be an original, but
all of which shall constitute one and the same agreement. This
Agreement may be executed by facsimile signature, which shall
constitute a legal and valid signature for all purposes hereof. This
Agreement shall not be effective until counterparts executed by AFLP
and DFA have been delivered to each of them.
13. Costs. Except as otherwise expressly provided for herein,
each of the parties hereto shall bear and pay all costs and expenses
incurred by it or on its behalf in connection with the transactions
contemplated hereunder, including fees and expenses of its
accountants and counsel.
14. Additional Documents. In the event of the exercise of the
Option by DFA, DFA and AFLP agree to execute and deliver all other
documents and instruments and take all other action that may be
reasonably requested in writing by the other party hereto in order
to consummate the transactions provided for by such exercise and to
effectuate the intents of this Agreement, but not including any
indemnities, warranties, representations or similar covenants other
than with respect to good title to the AFLP interests to be assigned
and transferred.
In Witness Whereof, each of the parties has caused this
Agreement to be executed individually or on its behalf by its
officers thereunto duly authorized, all as of the date first above
written.
ALLEN FAMILY LIMITED PARTNERSHIP
By: /s/ Robert W. Allen.
Name: Robert W. Allen.
Title: General Partner, 2400 Ballybunion Road, Center Valley,
Pennsylvania 18034.
DAIRY FARMERS OF AMERICA, INC.
By: /s/ David A. Geisler.
Name: David A. Geisler.
Title: Senior Vice-President/Legal, 10220 North Ambassador
Drive, Kansas City, Missouri 64153.
Acknowledgement and Consent
The undersigned specifically acknowledges and consents to the
transactions as set forth in the Agreement and will cooperate to
effectuate the consummation of said transactions insofar as legally
necessary and reasonably appropriate.
MID-AM CAPITAL, L.L.C.
By: Dairy Farmers of America, Inc., as sole manager.
By: /s/ David G. Meyer.
Name: David G. Meyer.
Title: Senior Vice President/Finance.
[FR Doc. 06-8795 Filed 11-3-06; 8:45 am]
BILLING CODE 4410-11-M