Grocer sues K.C.-based Dairy Farmers of America

Thursday, January 1, 2009 | 5:07 p.m. CST

HARTFORD, Conn. — Grocer Stew Leonard's Inc. is suing Kansas City-based Dairy Farmers of America Inc., accusing the dairy marketing association of buying large amounts of cheese to distort the market in an attempt to manipulate and raise the price of raw milk and processed dairy products.

Stew Leonard's, which operates stores in Connecticut and suburban New York, said in a lawsuit filed Monday in the U.S. District Court for the Northern District of Illinois that Dairy Farmers of America and four defendants tried to monopolize raw milk markets. The defendants include two former executives of Dairy Farmers of America and two who were executives of a subsidiary.

The grocery chain said the nation's largest dairy cooperative intentionally and unlawfully intervened in the Chicago Mercantile Exchange to purchase "inordinate amounts" of cheese for the purpose of "cornering the market."

Monica Massey, a spokeswoman for Dairy Farmers of America, said the cooperative is aware of the lawsuit, but will not comment because it is pending.

On Dec. 16, Dairy Farmers of America said it will pay $12 million and amend its trading practices to settle a federal investigation into a possible price manipulation scheme. The Commodities Futures Trading Commission accused Dairy Farmers of America of violating federal regulations in 2004 with speculative trades in cheese futures on the Chicago Mercantile Exchange.

The price of cheese futures can have an impact on milk prices. The U.S. Department of Agriculture sets a minimum price of milk that is based in part on a survey of cheese prices that includes futures prices.

The cooperative, which represents more than 18,000 dairy farmers in 48 states, did not admit or deny wrongdoing in the settlement. However, it agreed to not engage in speculative trading in milk futures contracts for two years and to hire a monitor to review its trading activities on the Chicago Mercantile Exchange for the two years.

Stew Leonard's seeks class action status for purchasers of raw milk from the Dairy Farmers of America from April 2004 to the present. It also seeks unspecified damages.

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