Class Action Lawsuit Against DairyAmerica Alleges Rigged Pricing

Steve Taylor
Correspondent

A class action complaint filed in a U.S. District Court last week claims dairy farmers across the United States were deprived of rightful income over a five-year period because of misrepresentation of dairy product pricing data by a California entity that markets nonfat dry milk (NFDM) to over 40 countries worldwide.

The suit alleges that DairyAmerica from 2002 until 2007 misreported dairy product prices to the USDA-National Agricultural Statistics Service (NASS), resulting in lower payments for the sale of raw milk to producers.

Under the federal Dairy Market Enhancement Act of 2000, NASS collects specific information about price trends in the marketplace. The USDA-Agricultural Marketing Service (AMS) then uses the data to establish the minimum values of milk under the Federal Milk Marketing Order (FMMO) program.

Plaintiffs in the case, which is now pending in the U.S. District Court in Fresno, Calif., are four dairy farmers from Pennsylvania, Ohio and Wisconsin who are asking for class status for themselves and tens of thousands of other dairy farmers who are similarly impacted by the Federal Order system.

DairyAmerica is owned by nine dairy cooperatives, led by California Dairies, Inc., which is a co-defendant in the class action suit. DairyAmerica markets and sells approximately 75 percent of all the NFDM produced in the United States, with both domestic and overseas customers, and acts as marketing agent for all nine of its owners.

The suit contends that DairyAmerica improperly included price data for transactions that are specifically excluded by NASS rules when it submitted weekly reports to NASS statisticians. That had the effect of understating the value of NFDM products entering the market, in turn resulting in lower price calculations for Federal Order prices paid to dairy farmers.

It further argues that DairyAmerica officials had to know the rules of the data gathering process, so chose to understate the true value of its NFDM sales in order to lower Federal Order prices paid to farmers, accruing unjust benefit to the entity's cooperative owners.

"DairyAmerica knew that the prices it reported to NASS were intended to be, and would be, used in FMMO formulas to set the prices paid to plaintiffs and the other class members for raw milk," the suit states.

"As a direct and proximate result of DairyAmerica's negligent conduct and statements, plaintiffs and the other class members have suffered and are entitled to compensatory and consequential damages, in an amount to be proven at trial."

Improper reporting of NFDM prices was first described in a March 2007 investigative article in The Milkweed, a Wisconsin dairy marketing newspaper.

That triggered an investigation by the USDA Inspector General, who concluded that inaccurate price data had been submitted as far back as 2002.

Nine U.S. senators in August 2007 called for an investigation of the situation, saying in a letter to the secretary of agriculture that there "seems to have been a financial motive to misreport" low NFDM prices in order to lower raw milk costs for the manufacturers.

Attorneys for the plaintiffs are the Washington firm of Cohen Millstein Sellers & Toll. A spokesperson for DairyAmerica at its Fresno headquarters didn't return a call seeking comment on the pending lawsuit.