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OTTO MILK CO. v. UNITED DAIRY FARMERS COOP. ASSN.

UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF PENNSYLVANIA


November 10, 1966

Otto Milk Company, Plaintiff,
v.
United Dairy Farmers Cooperative Association, United Dairy Farmers, Ernest Hayes, J. D. Smouse, Joseph M. Piper, Stanley Yagla and Adam Babiarz, Defendant

Miller, D.J.

The opinion of the court was delivered by: MILLER

MILLER, D.J.:

Plaintiff, Otto Milk Company (Otto), filed a complaint alleging violations of Sections 1 and 2 of the Sherman Antitrust Act, 15 U.S.C. §§ 1 and 2, *fn1" by defendants and asking that defendants be enjoined from further violations of said Act and that plaintiff be paid treble damages because of such violations. Testimony was taken and oral argument held by the Court. At the oral argument, plaintiff waived its claim for damages and the Court now has before it only plaintiff's petition for an injunction.

 Plaintiff, a Pennsylvania corporation with its principal office and plant in Pittsburgh, is engaged in the purchasing of raw milk which it processes and bottles, and in the manufacture of general dairy products, including bottled milk, which it sells to numerous retail stores in Pennsylvania, Ohio and West Virginia. While the raw milk purchased by plaintiff is produced on farms in Western Pennsylvania, it purchases materials for milk containers, dairy products containers, milk cases and ingredients for its processed dairy products from other states, spending more than one million dollars annually for such out-of-state purchases.

 The defendants are United Dairy Farmers Cooperative Association, an incorporated association whose members operate dairy farms in Pennsylvania; United Dairy Farmers, an unincorporated association of dairy farm operators; and Ernest Hayes, J.D. Smouse, Joseph M. Piper, Stanley Yagla and Adam Babiarz, all of whom are officers of the United Dairy Farmers Cooperative Association (Association) and the United Dairy Farmers (UDF).

 The complaint alleges that defendants conspired among themselves and with others to boycott and to induce others to boycott the products of plaintiff, to raise, fix and affect the price of raw milk and to eliminate competition between the Association and UDF and their competitor, Dairymen's Cooperative Sales Association (DCSA), the milk marketing organization through which Otto purchases raw milk. It is also alleged that defendants have conspired and attempted to monopolize the sale of raw milk in Western Pennsylvania, and that defendants' conduct constituted an intentional interference with long-standing business relationships between Otto and its customers.

 There is ample evidence in the record to establish that on or about May 26, 1966, members of the defendants, Association and UDF, began marching in front of retail stores which sell Otto products in various communities in Armstrong, Butler, Fayette, Washington and Westmoreland Counties. They were carrying signs bearing various statements, such as "Otto Milk refuses to pay farmers fair prices for milk," "Otto Milk Company refuses to pay fair prices to farmers," and "Otto Milk is unfair to the farmer." *fn2" These members of defendant organizations told the managers of the stores in front of which they marched that they would leave if the store stopped selling Otto's products. In some instances they also asked the store managers to substitute Beverly Farms' products for Otto's. When store managers acquiesced by discontinuing purchases of Otto's products, the pickets were removed. While picketing in front of these stores, defendant organizations' members also distributed handbills signed by United Dairy Farmers Cooperative association and urging the consumers to purchase Beverly Farms milk.

 We are satisfied from the evidence that these pickets have been associated with and their activities authorized by defendants. The signs used by them either referred to the UDF or were similar to a sign exhibited in Court which bore the name of the UDF. Furthermore, several of the pickets identified themselves as members of UDF or were found to be connected with members of UDF.

 Defendants contend that this Court lacks jurisdiction of this action under the Sherman Antitrust Act because their alleged actions are purely intrastate activities. The Sherman Act, however, is not to be construed so narrowly. It "extends not only to transactions in the stream of interstate commerce, but also to intrastate transactions which substantially affect interstate commerce." Las Vegas Merchant Plumbers Association v. United States, 210 F.2d 732, 739 (9 Cir. 1954). The source and application of the restraint upon trade may be intrastate, as defendants' activities are here, but that does not matter if it is interstate commerce that is affected. As Justice Jackson stated in United States v. Women's Sportswear Manufacturers Association, 336 U.S. 460, 464, 93 L. Ed. 805, 69 S. Ct. 714 (1949), "If it is interstate commerce that feels the pinch, it does not matter how local the operation which applies the squeeze."

 We believe that plaintiff has demonstrated that defendants' activities would have an effect on interstate commerce. We need not be concerned with the exact dollars and cents effect, so long as the volume of trade involved is "not insubstantial." Northern Pacific Railway Co. v. United States, 356 U.S. 1, 2 L. Ed. 2d 545, 78 S. Ct. 514 (1958); Evening News Publishing Co. v. Allied Newspaper Carriers of New Jersey, 263 F.2d 715 (3 Cir. 1959), cert. den. 360 U.S. 929, 3 L. Ed. 2d 1544, 79 S. Ct. 1449 (1959). Defendants' activities resulted in a loss of business to plaintiff amounting to approximately $3,600.00 per week. Otto sells products in states other than Pennsylvania, the volume of these sales at times exceeding $200,000.00 annually. Otto also purchases from other states materials which it uses in its business. The volume of these purchases is well over one million dollars per year. It is obvious that a decline in Otto's business would have an effect on interstate commerce that is "not insubstantial."

 Defendants also contend that they are exempted from the provisions of the Sherman Antitrust Act by virtue of Section 6 of the Clayton Act, 15 U.S.C. § 17 *fn3" and the Capper-Volstead Act, 7 U.S.C. § 291. *fn4" The Clayton Act, however, extends its exemption to agricultural organizations only for the purpose of "lawfully carrying out the legitimate objects thereof," and the Capper-Volstead Act permits dairymen to act in associations in "collectively processing, preparing for market, handling and marketing in interstate and foreign commerce" their products.

 It was the purpose of Congress in passing these Acts to provide that farmers or dairymen might act together in cooperative associations without the associations as such being construed to be illegal combinations or conspiracies in restraint of trade as they otherwise might have been. Maryland and Virginia Milk Producers Association v. United States, 362 U.S. 458, 4 L. Ed. 2d 880, 80 S. Ct. 847 (1960); North Texas Producers Association v. Metzger Dairies, Inc., 348 F.2d 189 (5 Cir. 1965). It was never intended, however, that agricultural cooperatives be given a blanket exemption from the antitrust laws that would allow them to engage in predatory practices or conspire with others to monopolize or otherwise restrain trade in violation of the antitrust laws. Maryland and Virginia Milk Producers Association v. United States, supra; North Texas Producers Association v. Metzger Dairies, Inc., supra.

 Defendants, by picketing retail grocery dealers and by asking them to remove Otto's products from their stores and to substitute Beverly Farms' products therefor, have engaged in an operation amounting to a boycott of Otto and DCSA. These activities were designed ultimately to exclude DCSA from competition in the milk market in this area and to corner that market for the Association and UDF. The Supreme Court has declared such group boycotts to be unlawful in and of themselves. Northern Pacific Railway Co. v. United States, supra; Klor's Inc. v. Broadway-Hale Stores, 359 U.S. 207, 3 L. Ed. 2d 741, 79 S. Ct. 705 (1959); Evening News Publishing Co. v. Allied Newspaper Carriers of New Jersey, supra; Silver v. New York Stock Exchange, 373 U.S. 341, 10 L. Ed. 2d 389, 83 S. Ct. 1246 (1963).

 This attempt to monopolize local business by restraining interstate commerce through the means of a boycott is a direct violation of Section 2 of the Sherman Act. Mandeville Island Farms v. American Crystal Sugar Co., 334 U.S. 219, 92 L. Ed. 1328, 68 S. Ct. 996 (1948). When one suppresses competition, he necessarily restrains trade. Wm. Goldman Theatres v. Loew's, Inc., 150 F.2d 738 (3 Cir. 1945). The fact that a monopolization of the market has not yet been achieved does not excuse defendants' conduct. It is sufficient that there is a tendency toward monopoly or that there is a reasonable likelihood of a substantial lessening of competition. United States v. Penn-Olin Co., 378 U.S. 158, 12 L. Ed. 2d 775, 84 S. Ct. 1710 (1964). It is practices which tend to create a monopoly which are forbidden; the law need not await the accomplishment of the objective. International Salt Co. v. United States, 332 U.S. 392, 92 L. Ed. 20, 68 S. Ct. 12 (1947). If allowed to continue and if successful, defendants could eventually exclude DCSA from the milk market in southwestern Pennsylvania.

 Likewise defendants' activities constitute a conspiracy in restraint of trade in violation of Section 1 of the Sherman Act. There was, in effect, a conspiracy between defendants and the owners of the retail stores which they picketed to boycott Otto and thus restrain competition between UDF and DCSA. The fact that the agreement of the storekeepers was obtained by coercion does not detract from the existence of a conspiracy. Simultaneous or express agreement between parties is not necessary to the formation of a conspiracy. Interstate Circuit v. United States, 306 U.S. 208, 83 L. Ed. 610, 59 S. Ct. 467 (1939). It is sufficient if there is acquiescence in an illegal scheme. United States v. Paramount Pictures, Inc., 334 U.S. 131, 92 L. Ed. 1260, 68 S. Ct. 915 (1948). Indeed, even if one is coerced by economic threats or pressure to participate in an illegal scheme, that does not make him any less a co-conspirator. Flintkote Co. v. Lysfjord, 246 F.2d 368 (9 Cir. 1957).

 The case at bar is quite similar to the case of Giboney v. Empire Storage Co., 336 U.S. 490, 93 L. Ed. 834, 69 S. Ct. 684 (1949). In that case the Supreme Court upheld a state court judgment enjoining officers and members of a union of ice peddlers from picketing an ice company's place of business because it found that the sole purpose of the picketing was to induce the ice company to agree not to sell ice to non-union peddlers. Here the sole purpose of defendants' picketing has been to induce or force certain retail store operators to agree not to purchase dairy products from Otto because Otto buys milk through DCSA rather than UDF. Just as the picketing in the Giboney case was a violation of the state anti-trade-restraint law, the picketing here is a violation of the Sherman Antitrust Act.

 The case at bar is also similar to the case of Milk Producers Association v. United States, supra, wherein the Supreme Court held that an agricultural marketing association composed of dairy farmers had violated the Sherman Antitrust Act in attempting to get dealers to purchase milk from the association. The dairymen employed a boycott and exerted other economic pressure on dealers to attain their goal. This activity the Court held to be outside the legitimate objects of a cooperative and to constitute a violation of the Sherman Act.

 As a violation of that Act, it matters not that the means employed were those of peaceful persuasion. Paramount Pictures v. United Motion Picture Theatre Owners, 93 F.2d 714 (3 Cir. 1937). Merely because defendants' picketing involved the use of speech or was viewed by them as "telling their story" to the public, their activities are not necessarily entitled to the protection of the First Amendment. Picketing is more than speech; it is speech mixed with particular conduct. Building Service Employees International Union Local 262 v. Gazzam, 339 U.S. 532, 94 L. Ed. 1045, 70 S. Ct. 784 (1950); Cox v. Louisiana, 379 U.S. 559, 13 L. Ed. 2d 487, 85 S. Ct. 476 (1965). A picket line has potential for inducing action beyond the message the pickets convey. The very purpose of picketing is to exert influences and produce results different from the usual means of communication. Hughes v. Superior Court, 339 U.S. 460, 94 L. Ed. 985, 70 S. Ct. 718 (1950).

 Indeed, the purpose of the picketing here was to induce the retail store operators to agree to stop handling Otto's products and in many instances it was successful. The pickets wanted not only to tell their story to the public, they wanted also to stop the customers from shopping at the stores and in turn stop the stores from dealing with Otto. To put it another way, the objective of the picketing was to achieve a result contrary to the provisions of the Sherman Act. The Supreme Court has made it clear that picketing employed as an integral part of conduct in violation of a valid statute is not entitled to the immunity granted other forms of expression. Giboney v. Empire Storage Co., supra. The enjoining of picketing, the sole purpose of which is in conflict with a valid statute, is not inconsistent with Constitutional guarantees of freedom of speech. Local Union No. 10, United Association of Journeymen Plumbers and Steamfitters v. Graham, 345 U.S. 192, 73 S. Ct. 585, 97 L. Ed. 946 (1953); International Brotherhood of Teamsters v. Vogt, Inc., 354 U.S. 284, 1 L. Ed. 2d 1347, 77 S. Ct. 1166 (1957).

 Plaintiff has satisfactorily established that defendants were engaged in activities which constitute a boycott designed to restrain and monopolize interstate commerce in violation of the Sherman Antitrust law. For this reason, plaintiff's prayer for a permanent injunction of these activities by defendants must be granted. Therefore, counsel for plaintiff is directed to file suggested findings of fact and conclusions of law and a form of decree in accordance with this Opinion.

 Findings of Fact, Conclusions of Law and Decree

 Findings of Fact

 1. Plaintiff, Otto Milk Company ("Otto"), a Pennsylvania corporation with its principal office and plant in Pittsburgh, Pennsylvania, is engaged in the purchasing of raw milk which it processes and bottles, and in the manufacturing of dairy products, including bottled milk, which it sells to numerous retail stores in Pennsylvania, Ohio and West Virginia.

 2. Defendants are the United Dairy Farmers Cooperative Association ("Association"), an incorporated association, whose members operate dairy farms in Pennsylvania; United Dairy Farmers ("UDF"), an unincorporated association of dairy farm operators; and Ernest Hayes, J.D. Smouse, Joseph M. Piper, Stanley Yagla and Adam Babiarz, all of whom are officers of the United Dairy Farmers Cooperative Association and the United Dairy Farmers.

 3. Otto purchases raw milk requirements through the Dairymen's Cooperative Sales Association ("DCSA"), a milk marketing organization, which is in competition with the Association and UDF. In such purchases Otto pays for milk the full prices required by the Pennsylvania Milk Control Commission.

 4. While raw milk purchased by plaintiff is produced on farms in Western Pennsylvania, it purchases material for milk containers, dairy products containers, milk cases, and ingredients for its processed dairy products from other states, spending more than one million dollars annually for such out of state purchases.

 5. Plaintiff sells products in states other than Pennsylvania, the volume of these sales at times exceeding $200,000.00 annually.

 6.Beginning on or about May 26, 1966, members of the defendants, Association and UDF, marched in front of retail stores which sell Otto products in various communities in Armstrong, Butler, Fayette, Washington and Westmoreland Counties. They carried signs bearing various statements, such as "Otto Milk refuses to pay fair prices for milk"; "Otto Milk Company refuses to pay fair prices to farmers"; and "Otto Milk is unfair to the farmer".

 7. These members of defendant organizations told the managers of the stores in front of which they marched that they would leave, if the stores stopped selling Otto's products. In some instances, they also asked store managers to substitute Beverly Farms' (a competitor of Otto) products for Otto's. When store managers acquiesced by discontinuing purchases of Otto's products, the pickets were removed.

 8. While picketing in front of these stores, defendant organizations' members also distributed handbills signed by United Dairy Farmers Cooperative Association, and urging the consumers to purchase Beverly Farms milk.

 9. The evidence establishes that these pickets were associated with, and their activities were authorized by, defendants.

 10. The foregoing activities of defendants adversely affected plaintiff's good will, and resulted in a loss of business to plaintiff amounting to approximately $3600.00 per week, which losses would continue and mount if defendants' conduct were not enjoined by this Court.

 11. If the said conduct of defendants continued, it would further result in the reduction of purchases by Otto of materials from other states.

 12. Plaintiff has suffered and, if defendants are not enjoined, will continue to suffer, irreparable injury, for which there is no adequate remedy of law.

 13. The purchases and sales of the retail food stores against which defendants' activities were directed are in interstate commerce and the activities of defendants reduced the sale of all items in the stores, in addition to sales of Otto's products.

 14. The activities of defendants were designed ultimately to exclude DCSA from competition in the milk market in the area involved, and to corner that market for the Association and UDF.

 15. In addition to Pennsylvania farmers, many Ohio and West Virginia farmers market their milk through DCSA.

 16. Defendants' activities, if continued, would have an effect on interstate commerce which would not be insubstantial.

 17. Defendants, by picketing retail grocery dealers and by asking them to remove Otto's products from their stores, have engaged in an operation amounting to a boycott of Otto and DCSA, designed to restrain and monopolize interstate commerce.

 18. Such action constitutes an attempt by defendants to monopolize the sale of raw milk in the southwestern Pennsylvania market area, which constitutes a separate and distinct geographic market for such milk. There is a reasonable likelihood that this attempt, if allowed to continue, will substantially lessen competition.

 19. If defendants were permitted to continue the activities complained of and were successful, they could eventually exclude DCSA from the milk market in southwestern Pennsylvania.

 20. Defendants' activities constitute a conspiracy between them and the owners of the retail stores which they picketed to boycott Otto and thus restrain competition between UDF and DCSA, even though the agreement of the storekeepers was obtained by coercion.

 21. The purpose of defendants' activities was to induce the retail store operators to agree to stop handling Otto's products and, in many instances, it was successful. The pickets wanted not only to tell their story to the public, but they also wanted to stop customers from shopping at the stores and, in turn, stop the stores from dealing with Otto.

 22. The activities of defendants interfered with, and if not enjoined would continue to interfere with, the advantageous business relationship between Otto and its customers.

 23. Plaintiff has waived its claim for damages, including treble damages, and for counsel fees, and plaintiff and defendants have stipulated that the hearings held on plaintiff's motion for a preliminary injunction shall be considered as the final hearings in this case for the purpose of determining whether a permanent injunction shall issue.

 Conclusions of Law

 1. This Court has jurisdiction of the matters complained of in Counts I and II of the complaint in this action under Sections 1 and 2 of the Sherman Act (15 U.S.C. §§ 1 and 2).

 2. This Court has pendent jurisdiction of the matters complained of in Count III of the complaint in this action.

 3. The activities of defendants, and others coerced by them, constitute an unlawful conspiracy in restraint of trade in violation of Section 1 of the Sherman Act (15 U.S.C. § 1).

 4. The activities of defendants constitute an attempt to monopolize in violation of Section 2 of the Sherman Act (15 U.S.C. § 2).

 5. The activities of defendants constitute a tortious interference with plaintiff's advantageous business relationship with its customers.

 6. The activities of defendants are not exempted from the provisions of the Sherman Act by virtue of either Section 6 of the Clayton Act (15 U.S.C. § 17), or the provisions of the Capper-Volstead Act (7 U.S.C. § 291).

 7. Plaintiff is entitled to relief in the form of a permanent injunction against the actions of defendants complained of.

 Decree

 Based upon the evidence, the opinion of the Court heretofore filed, and the foregoing Findings of Fact and Conclusions of Law, it is hereby Ordered and Decreed that defendants, United Dairy Farmers Cooperative Association, United Dairy Farmers, Ernest Hayes, J.D. Smouse, Joseph M. Piper, Stanley Yagla and Adam Babiarz, and each of them, and any person or persons acting on their behalf, under their direction, or in concert or participation with them, are hereby permanently enjoined and restrained from inducing or attempting to induce, directly or indirectly, any present or potential customer of plaintiff to refuse to purchase products from plaintiff and, in connection therewith, from picketing or demonstrating, or threatening to picket or demonstrate, before or about any retail store in and around Western Pennsylvania, or in any other place which is, or may become, a purchaser of the bottled milk or dairy products of plaintiff.

 Costs to be paid by defendants.


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