To read about how the DOJ and USDA have been cracking down on anti-competitive behavior in the agricultural arena, click here.

The Capper-Volstead Act of 1922, known to famers as the Magna Carta of cooperatives, authorizes farmers to collectively process and distribute their own crops and products, including everything from cottonseed to beef. It also protects co-ops such as the Dairy Farmers of America from antitrust investigations by the Department of Justice (DOJ) and the Federal Trade Commission. Instead, the U.S. Department of Agriculture is given primary authority to examine and handle any potentially monopolistic activity spearheaded by the co-op.

But recently Northeastern mushroom producers realized the limits of Capper-Volstead during a suit that alleged violations of the Sherman Act, the primary anti-competitive law in the U.S.

Eastern Mushroom Marketing Co-op (EMMC) fought back in In Re Mushroom Direct Purchaser Antitrust Litigation by claiming immunity under Capper-Volstead. In March 2009, however, the U.S. District Court for the Eastern District of Pennsylvania found EMMC failed to satisfy the four corners of Capper-Volstead–most notably it gave a non-farmer voting rights within the co-op. The case is now in mediation.

The court found that because EMMC wasn’t completely farmer owned, there couldn’t be a unity of interest between the growers and distributors. Any price-fixing that occurred, therefore, would not necessarily be in the best interest of the farmers, the people Capper-Volstead was designed to protect.

In Re Mushroom Direct provides some pretty clear guidelines for avoiding antitrust litigation, says Troy Hutchinson, a partner at Stoel Rives. First, he says having just one non-farmer co-op member is enough to destroy Capper-Volstead’s protection. Second, even if a co-op satisfies all of Capper-Volstead’s requirements, the antitrust exemption does not protect co-ops that enter into partnerships with non-co-ops, including trade organizations that act on behalf of the co-op’s membership. Dairy Farmers of America opened itself up to antitrust scrutiny from the DOJ because of its relationship with Dean Foods, for example.

“Any time a producer is entering into any kind of agreement with its competitors, those producers really need to take a hard look at those agreements and that anything being done jointly truly falls within the Capper-Volstead exemption,” Hutchinson says.

Adds Ron McFall, also with Stoel Rives, “The problem is if you have an activity that might be permissible under Capper-Volstead, but you do it while working with a non-producer organization, you increase the risk you’ll fall outside the scope of the protection.”