RUTLAND — A federal judge has denied approval of a $50 million proposed settlement between Dairy Farmers of America (DFA) and the farmers who filed an anti-trust suit on behalf of all dairy formers in the northeast.

U.S. District Court Judge Christina Reiss denied approval of the agreement last week because of opposition from the farmers named to represent all farmers in the northeast who are not members of DFA, including Vermont farmers Alice and Laurance Allen.

In her decision, Reiss said that without knowing the basis of the class representatives’ objections, she was reluctant to grant preliminary approval to the settlement.

In a class action suit such as this, once preliminary approval is granted, members of the class are notified of the settlement. They are then given an opportunity to express and concerns or objections at a fairness hearing. Following the fairness hearing, the judge will then issue final approval to a settlement.

Reiss also objected to several elements of the notification to class members, finding the proposed notice did not clearly explain the extent to which members would be surrendering their rights to further litigation, including against unnamed partners of DFA and Dairy Marketing Services (DMS).

She instructed plaintiff’s attorneys to provide more information to the court about the reasons for the class representatives’ objections.

DFA represents 18,000 farmers nationwide, including the St. Albans Cooperative Creamery, which is a co-op member of DFA.

The suit alleged that DFA conspired with DFA to reduce prices paid to farmers and bar farmers who were not members of DFA from selling their milk to bottling facilities.

The settlement

The monetary portion of the settlement was expected to result in a payment of around $4,000 to each dairy farmer, depending on how much milk they had shipped in the northeast since Jan. 1, 2002. Officers and directors of numerous dairy organizations and companies would be excluded from the settlement, including directors of the St. Albans Cooperative Creamery and Agri-Mark, Inc.

The plaintiff’s 13 attorneys would also be paid $16.6 million out of the settlement.

The proposed settlement barred DFA from entering into agreements with dairy processors in which DFA would be the sole supplier of milk for 30 months.

It also contained provisions requiring greater transparency in the operations of DFA, with annual outside audits and information about contracts between DFA and milk purchasers such as Dean Foods made available to members by request.

DFA will also identify all directors and committee members and reveal the per diem payments they receive for serving on those committees.

The agreement would allow both cooperative members of DFA and individual members to depart DFA within the next 30 months without penalty.

In addition, the agreement bars cooperatives in the northeast from attempting to restrict the movement of farmers from one cooperative to another. Early in the litigation, the plaintiffs produced evidence of cooperatives working together to keep farmers in their current cooperative. For example, depositions revealed that officers of Agri-Mark would contact their counterparts at the St. Albans Cooperative Creamery when a St. Albans member expressed an interest in joining Agri-Mark and vice versa. The settlement prohibits such behavior but only for 30 months.

Shortly after that information was made public, DFA persuaded the court to seal documents in the case. Since then, nearly all filings and supporting evidence have been closed to the public. The settlement agreement would make much of that information available.

In arguing for the settlement, plaintiff’s attorneys said previous rulings made by Reiss had weakened their trial position, including a decision reducing calculations of the alleged harm done to farmers by the defendants from $0.69 per hundredweight to $0.41 per hundredweight, or $341 million.

The complaint

The suit asserted that DFA conspired with Dean Foods, the largest bottler of milk in the U.S., to reduce prices paid to farmers.

According to experts, Dean Foods bottles at least 70 percent of the milk sold in the northeast. Dean agreed with DFA to require all farmers wishing to sell their milk to Dean to go through DMS, a marketing service created by DFA and Dairylea, a New York-based dairy cooperative which recently announced a merger with DFA.

This requirement allowed DFA to know the prices being paid to other farmers by Dean Foods. It also allowed for a reduction in premiums paid to farmers for their milk, the plaintiffs alleged.

Because DFA also processes milk, it had an interest in keeping the prices paid to farmers low, the plaintiffs argued in their complaint.

The USDA does not require distribution of the profits from the processing operations to DFA’s farmer members, and “members of DFA are not informed, and cannot obtain information regarding, how profits from DFA’s joint ventures and processor investments are distributed,” according to the complaint.

As proof of their allegations regarding profiteering by DFA management and a handful of insiders, the plaintiffs cited several instances of millions of dollars being diverted to DFA management or the management of affiliated companies.

Plaintiffs also alleged DFA and Dean worked together to gain control of milk processing facilities in the northeast, purchasing and closing numerous facilities.

Dean Foods settled with the plaintiffs 2011 for $30 million. The settlement was divided among 9,000 to 10,000 farmers as well as the attorneys in the case, which amounted to an estimated average payment to farmers of between $2,500 and $5,700, the plaintiff’s attorney said.

Last year, DFA settled a similar suit in the southeast for $130 million.