Efforts by the milk co-op Mid-America Dairymen Inc. (Mid-Am) to silence one of its critics by not only kicking the critic and her family out of the co-op, but also effectively closing the market for their farm's milk, has cost the co-op $356,238.80 plus court costs.
In a blistering decision Judge Patricia T. Hedges of the 22nd Judicial District Court in Washington Parish, Louisiana, ruled June 1 that Mid-America was responsible for the demise of Rinky Dink Dairy, owned and operated by Clayton S. Knight, Carole B. Knight and James Knight, and and that it was also responsible for emotional and mental distress associated with the liquidation of the dairy.
Rinky Dink Dairy marketed its milk through Gulf Dairy Association until March 1, 1994, when that co-op was sold to Mid-America Dairymen, Inc., which was based in Knoxville, Tenn. After subsequent mergers, the successor corporation became known as Dairy Farmers of America, a national co-op based in Kansas City, Mo.
After Mid-Am took control of the cooperative, Carole Knight, a trained and experienced journalist, in August 1995 began a newsletter called Louisiana Lagniappe (the name was changed to Milklines the following month). She continued this monthly newsletter until April 1997, long after she was out of the dairy business.
Mid-Am was continuing its expansionist merger mode, and Knight suspected that profits were being spread out to support the new branches. She said she never received any accounting of operating expenses, or how the price was calculated, despite repeated requests. While she was annoying to management and knew it, her Milklines afforded her an audience for her views, although she was also aware that management would have liked to shut the newsletter down.
Soon she had begun to rally other farmers to her point of view, and 54 fellow co-op members elected her in December 1995 to the Gulf South Division Board of directors. This board was called the "little board," to distinguish it from the Corporate Board, or the "big board" in Knoxville. The Corporate Board exercised control over all the divisions. She was sworn in as a director of the little board in February 1996 and took her duties seriously. She objected to signing the "Loyalty Oath" that pledged "undivided loyalty" to Mid-Am itself, not the members. However, she signed it finally under duress. Only two months later the co-op recommended her expulsion from membership.
Many of the other directors had been farmers all their lives and decried her outspoken and aggressive criticism. They also resented Mrs. Knight's bringing a laptop computer into the meetings to record information. Also, according to court testimony, it was clear that they wanted to get meetings over and get back to work as quickly as possible, so they discouraged discussion of issues. That had been the way they were used to conducting the business of the boards, and the directors clearly did not want Knight asking questions. However, Knight wanted answers to her questions, especially those questions about where the money was going and why the farmers' checks were decreasing.
In her ruling Judge Hedges pointed out, "It seems to this Court that this is exactly the way a good director, or even a good member, of a cooperative should conduct him or herself. The job of the directors is to ask questions in order to inform the membership, which elected them. Mrs. Knight's manner possibly was abrasive, especially after answers were not given to repeated questions, but still should not stop management from answering a member's questions about her own cooperative.
"The cooperative is owned by the farmers. However, management and many of the directors who testified seemed to think they need not tell the farmers anything they wished not to tell. Their testimony was that corporate 'secrets' were for the good of the association. But the association is the members, not the hired management. The members needed to be informed fully of the workings of its management. Instead, it is clear that the members of the coop were deliberately kept ignorant of facts. The farmers were expected to produce milk, accept whatever mailbox price was given them, and not question management. The hostility and resentment shown by the individual defendants on the witness stand toward Mrs. Knight was appalling, especially after three years," Judge Hedges added.
Court testimony revealed that a August 28, 1995, letter, written four months before Knight was elected to the regional board of directors by her fellow dairy farmers, from Wayne Heckert to Buckey Jones, Chairman of Mid-Am, about the "Carole Knight situation" outlines the management plans to terminate the Knights' membership.
At trial all the defendant were closely interrogated on what damage they perceived as resulting from Knight's questions and/or publication of information in Milklines. Not one of the defendants could give an example of damage. None knew of any members lost. None knew of any money lost. None knew of any damage they could specifically illustrate from Knight's actions.
However, the case of how the Knights lost their Rinky Dink Dairy and their ensuing court fight with Mid-America Dairymen Inc. illustrates the stark reality that a goodly number of the nation's dairy farmers face today in their efforts to maintain their farms.
Not only are they faced with a deteriorating price structure for what they produce, but often their sole buyer, their local co-op, is more of a problem for them than a solution to their marketing difficulties.
Clayton Knight had begun the farm with his father and brother. His father retired from the dairy business, and Clayton bought out his brother's interest in the business in 1988. Clayton then co-owned the farm and the cows with his wife Carole and his son James. Carole was a full partner on this farm, performing all bookkeeping and paperwork for the dairy as well as many of the physical tasks. Their son James helped on the farm during the years he lived at home, and he came home from college on many occasions to continue his work on the farm.
On April 25, 1996, the "little board," or Board of the Gulf South Division, voted 19-7 to recommend expulsion of the Knights and their dairy from membership in the Mid-Am Cooperative. An appointed committee of the corporate board (or "big board") met on May 21 and June 4, 1996, to consider this recommendation. At a closed session on June 4, that appointed committee voted to recommend expulsion. The corporate board then acted in open session on June 5, 1996, where it repeated its resolution adopted in executive session and "terminated by expulsion" the membership of the Knights and their dairy from membership in the Mid-Am cooperative.
The reason given was "pursuant to Article 1, Section 4 of the Bylaws which reads that 'Any member may be expelled from membership for cause or action injurious to the Association by a vote of the Board ...'" Since Mid-Am was the only marketing agent for milk in the Knights' area at the time, the termination of membership in the coop effectively terminated the market for milk produced by Rinky Dink Dairy.
The Corporate Board, however, passed a second resolution "that management, to the extent practical, continue to market the milk production of Rinky Dink Dairy until the end of the current term of agreement, January 18, 1997." Testimony from both the Knights and the co-op established that the price of milk offered to the Knights to continue marketing their milk would be the same as that given to cooperative members. The fees and deductions for equity in the cooperative corporation would continue to be subtracted from the Knights' proceeds and kept by the cooperative.
Judge Hedges noted in her ruling that "it is undisputed that Mid-Am is a corporation which operates under the rules of a cooperative. It is an association, which is owned and operated by the producers, the dairy farmers, in order to market their milk to the public. The producers elect directors of the regional 'little' boards throughout the Mid-Am area, and then regional 'little' boards elect officers to the Corporate Board, the ultimate governing body of the corporation.
"Most individual milk producers, therefore, have a very small voice in the organization. The elected officials are ultimately responsible to the milk producers or farmers. It is a democratic form of government, with some boards having more members than others in an attempt for equity. The officers and CEO of the cooperative are hired employees of this corporation. They draw a salary along with other compensation, and the parties agreed that these officers are hired by the Corporate Board. They ultimately work for the producers, just as directors of a corporation work for the stockholders."
Expulsion from a co-op is a very serious action, for unless there is another viable marketing entity in the area, the producer has no way to sell his/her milk. The Knights viewed their expulsion seriously. They realized that with no other marketing agent available at that time in South Louisiana, their milk was a useless commodity and would have to be dumped on the ground.
The wording of the corporate board resolution of June 5, 1995, that to the extent practical Mid-Am would continue the contract for marketing the Knights' milk, was viewed by the Knights as a legal loophole and therefore no contract at all. In addition, the Knights milk was to be taxed for all membership fees and deductions even though the Knight's themselves would no longer benefit from that membership.
When the Knights protested this arrangement, they were informed by letter on June 25, 1996 from Richard Trawick, the manager of Gulf South Division, that unless they agreed to this arrangement, their milk would not be marketed at all. Therefore, the Knights decided to dissolve their dairy farm as soon as possible. The Knights were also rejected by Parish National Bank on July 2, 1996, for a bank loan for cattle feed after the bank received word that the Knights no longer had a market for their milk.
Rinky Dink Dairy went out of business in early 1997.
A.V. Krebs is author of The Corporate Reapers: The Book of Agribusiness (Essential Books: 1992)