Cranberries, Cooperatives, Canadians: Non-U.S. Members

and Capper-Volstead

Michael A. LindsayDORSEY & WHITNEY LLP

Two Questions

• Can a U.S. cooperative include non-U.S. producers and still maintain its status under Capper-Volstead?

• Should a U.S. cooperative have non-U.S. members?

Northland v. Ocean Spray

Northland Cranberries, Inc.

Northland Cranberries, Inc.

• Court describes as “independent seller of cranberry products”

• Describes self as– “grower and handler of cranberries” with

cranberry properties in Wisconsin; also buys cranberries from contract growers in Wisconsin and Oregon

– began business in 1987 as a cranberry grower and member of Ocean Spray cooperative

– left Ocean Spray in 1993, introduced Northland brand fresh cranberries

– introduced Northland 100% juice cranberry blends in October 1995

382 F. Supp.2d at 224; Northland Form 10K for FYE 8.31.03

Ocean Spray Cranberries, Inc.

Ocean Spray Cranberries, Inc.

• Agricultural cooperative• 800 cranberry grower-members• Of these, 75 to 100 grower-

members were located outside the U.S.– They account for 16-20% of Ocean

Spray’s total cranberry production

• 100 grapefruit grower-members382 F. Supp.2d at 224 & n.1

Northland’s Claim

• “Ocean Spray dominates most of the markets in which we compete.”

• Ocean Spray engages in “unlawful monopolization of the cranberry products industry”

• Agreements with members are “unlawful restraints on trade”

• “Ocean Spray does not qualify for certain protections under federal antitrust law”

382 F. Supp.2d at 223; Northland Form 10K for FYE 8.31.03

The Issue

• Capper-Volstead applies only to organizations of “persons” who are engaged in production of agricultural products as farmers, planters, ranchmen, dairymen, nut or fruit growers”

• Statute does not define “person”• Does “person” include non-U.S.

producers?

Ocean Spray’s Position

• “Give me your tired, your poor, your huddled cranberry growers . . .”

© freefoto.com, used with permission

Northland’s Position

The Result

• Statute is “plain and unambiguous in its reference to ‘persons’”

• “No limitation on the ordinary meaning of that word is stated or implied”

• “‘Persons’” refers to foreign farmers as well as American farmers” 382 F. Supp.2d at 225

Result, cont’d

• Principle that exemptions be construed narrowly does not apply

• Accepts interpretations of USDA, as described by Ocean Spray and amicus National Council of Farmer Cooperatives

The Most Important Point

382 F. Supp.2d 221

•Decision was by special master, adopted by district judge

•Decided in June 2004, not formally published until October 2005

•Will be included in Statutes Annotated, ABA’s Antitrust Law Developments

The Aftermath

• Case settles in September 2004• Ocean Spray buys all Northland

Processing Operations and inventory for $28 million with $5 million option to purchase 14 bogs for $42.5 million

• Ocean Spray to process Northland cranberries for 10 years for fixed fee

• Northland to continue to own and market Northland juices and manage contracts with its own growers

Northland Press Release Sept. 24, 2004

Ocean Spray’s Reasons for Non-U.S. Members

• Ocean Spray was formed as an agricultural marketing cooperative in 1930, with U.S. members only

• Began relationship with Canadian growers in 1950s

• Separate pools for U.S. and non-U.S.– Ocean Spray of Canada Ltd. received

and marketed all Canadian member cranberries

Problems with Separate Pools

• Varying returns among the US and Canadian growers

• Due to small/start up nature of Canadian pool, OS Canada financially constrained with respect to advertising and marketing expenses in efforts to expand the Canadian market

Ocean Spray’s Answer to Pool Problem

• In 1970 Ocean Spray combined the two pools – all growers, US and Canadian are members of

Ocean Spray Cranberries, Inc. – same marketing agreements, same treatment

as stockholders of OS, same payment/return on deliveries

• Ocean Spray sought and obtained IRS approval for the combination– IRS concluded that admitting Canadian

Growers will not adversely impact exempt status under Section 521

Other Possible Answers Today

• Joint venture LLC or other pass-through entity

• Non-member marketing agreement