1. Monopolies and Restraints of Trade--market centers subsidizing tobacco
warehouses--anti-trust laws
The trial court did not err in an action for injunctive relief claiming defendant nonprofit
marketing association was engaged in unlawful actions in restraint of trade by denying plaintiff
tobacco warehouses' motion for summary judgment and by granting summary judgment in favor
of defendant even though plaintiffs contend defendant's creation of market centers subsidizing
tobacco warehouse operations is not exempt under North Carolina's anti-trust laws, because: (1)
the agreement to waive fees and commissions normally associated with tobacco warehouses was
solely between defendant and its members and fell within the exemption under N.C.G.S. § 54-
141 for agreements between the association and its members; (2) N.C.G.S. § 54-151(1) provides
that defendant is authorized to engage in any activity, including financing, related to the
marketing, selling, storing, and handling of any agricultural product produced or delivered to it
by its members; (3) N.C.G.S. § 54-151(6) provides that defendant is empowered to hold such
ownership rights in real property as may be necessary or convenient for the conducting and
operation of any of the business of the association; and (4) N.C.G.S. § 54-152 grants defendantthe power to require its members to sell their products exclusively at board-created warehouses,
and therefore, defendant can create commission-free market centers at which its members have
the option of selling their products.
2. Constitutional Law_-North Carolina--law of the land clause--monopolies
The trial court did not err in an action for injunctive relief claiming defendant nonprofit
marketing association was engaged in unlawful actions in restraint of trade by denying plaintiff
tobacco warehouses' motion for summary judgment and by granting summary judgment in favor
of defendant even though plaintiffs contend defendant's actions violate Article I, Sections 19
(law of the land clause), 32 (exclusive emoluments), and 34 (monopolies) of the North Carolina
Constitution, because: (1) the trial court did not address Section 32 in its order and opinion, and
there is nothing in the record indicating this particular constitutional issue was raised below; and
(2) the claims under Sections 19 and 34 fail since the prohibition against deprivation of property
does not extend to actions against private individuals but must instead concern state actors, and
defendant is not a state actor.
Allen and Pinnix, P.A., by Michael L. Weisel and M. Jackson
Nichols; and Penry Riemann PLLC, by J. Anthony Penry, for
plaintiff appellants.
Smith, Anderson, Blount, Dorsett, Mitchell & Jernigan, L.L.P.,
by C. Ernest Simons, Jr., Donald H. Tucker, Jr., and Jackson
W. Moore, for defendant appellees.
BRYANT, Judge.
Malcolm L. Bailey, individually and doing business as Virginia
Carolina Tobacco Warehouse, Inc., and several other tobacco
warehouses (collectively plaintiffs) appeal an order and opinion
dated 10 April 2002 denying their motion for summary judgment and
request for a permanent injunction and granting summary judgment in
favor of Flue-Cured Tobacco Cooperative Stabilization Corporation
(Stabilization).
(See footnote 1)
Plaintiffs brought an action for injunctive relief claiming
Stabilization was engaged in unlawful actions in restraint of
trade. The facts as presented in the trial court's April 10 order
are undisputed:
{6} [Stabilization] is a not-for-profit
organization that is owned by and serves the
flue-cured tobacco farmers of Florida,
Alabama, Georgia, South Carolina, North
Carolina and Virginia. Stabilization is
organized as a “marketing association” under
North Carolina General Statutes, Chapter 54,
Article 19. Its mandate under this enabling
statute . . . is broad . . . .
{7} Since its inception in 1946,
Stabilization's primary function has been to
administer the price component of the federal
tobacco program under contractual agreement
with the United States Department of
Agriculture's (USDA) Commodity Credit
Corporation (CCC). The program was
established under the Agricultural Adjustment
Act of 1938 as a means to raise and stabilize
tobacco prices and income. . . .
{8} Under the agreement with the CCC and
auction warehouses, Stabilization makes loans
to eligible flue-cured tobacco growers whose
tobacco has been grown within the allotted
quota and does not bring the minimum price
established for that grade at the auction
market. Funds to advance loans to farmers are
borrowed from the CCC. The farmers' tobacco
that is consigned to Stabilization is pledged
as collateral to CCC for the money borrowed.
{9} In order to administer the price support
program, the USDA requires that all tobacco
that Stabilization acquires through the
program be graded at auction. . . . Without
the grade, a price level cannot be determined,
and farmers therefore are not able to take
advantage of the program.
{10} The price supports made possible by the
federal tobacco program provide a “safety net”
for growers . . . . By ensuring farmers a
minimum price for their crop every year,
farmers can plan, borrow and invest in their
farms, thus permitting thousands of individualfarmers to pursue their livelihoods with a
degree of security that would otherwise not be
available.
{11} For most of the past century, the primary
method tobacco farmers used to sell their
crops was through one of many auction
warehouses located throughout the region.
Recently, however, the auction warehouse
system has been facing a severe challenge.
Rather than designating their crop for sale at
auction, many farmers are choosing to sell
their crop under contract directly to buyers,
such as large tobacco companies. The reason
is straightforward: Over the past two years,
the price that Stabilization's cooperative
members have received for tobacco sold through
the auction warehouse system is approximately
nine to ten cents per pound less than they
would have received if they sold the same
tobacco under contract outside the auction
system. This price differential subsumes two
components: First, the average price per
pound of tobacco is approximately five cents
per pound higher than that received on the
auction floor. Second, the farmers must pay
the warehouse operators fees and commissions
that reduce the net price the farmers receive
at auction by approximately five cents per
pound.
{12} These higher prices available to farmers
who are willing to contract directly with the
buyers has impacted the traditional auction
system dramatically. From 2000 to 2001[,] the
percentage of tobacco production sold under
contract to the tobacco companies increased
from 10 percent to over 80 percent. . . .
Over the same period, the total number of
independent warehouses in Stabilization's
geographic area decreased from 147 to
67. . . .
{13} Overall, if these grower selling patterns
continue to favor direct contract sales rather
than auction sales, the existence of the
auction system may be threatened, and,
accordingly, the continuation of the federal
tobacco program price supports would also be
jeopardized.
{14} Throughout most of its existence,
Stabilization has had little or no involvement
with the operation of tobacco warehouses. In2001, however, Stabilization established a
pilot program involving two warehouses,
located in Wilson, North Carolina, and
Statesboro, Georgia, that it would operate.
According to Stabilization, the purpose of
this program was to see whether Stabilization
could encourage a sufficient number of its
members to stay with the auction system if
Stabilization took the auction “in house” for
the benefit of its members. For the 2002
season, Stabilization's board of directors
considered and approved a program to open
fourteen new “marketing centers” in
Stabilization's territory. In an effort to
make these centers an economically viable
option for growers who felt financial pressure
to sell their crop directly under contract,
Stabilization's board agreed to waive the fees
and commissions normally charged by warehouse
operators. In effect[,] the Stabilization
Board decided to use its cash reserve to
subsidize the operation of the market centers.
That subsidy directly benefit[t]ed its
members, who did not have to pay fees and
commissions if they used the market centers.
{15} Warehouses chosen as marketing centers
would be leased for five months out of the
year and would not be purchased by
Stabilization. The lease agreements give the
lessors no rights with respect to the
operation of the marketing centers.
Additionally, the lessors have no involvement
in the decision to charge or waive fees, and
they do not participate in the profits or
losses of the marketing centers.
Stabilization has no obligation to renew the
lease beyond the current marketing season.
{16} In accordance with its agreement with the
CCC, Stabilization submitted its plan for the
marketing centers to the CCC. The USDA's
Office of General Counsel reviewed and
approved the plan.
In addressing the question whether Stabilization's activity
violated North Carolina's antitrust laws, the trial court reviewed
N.C. Gen. Stat. §§ 54-141, -151, and -152(a) and concluded that the
creation of no-fee market centers for the benefit of
Stabilization's members was exempt from the antitrust laws. Thetrial court further concluded that Stabilization's actions did not
violate Article I, Sections 19 and 34 of the North Carolina
Constitution. Finally, the trial court noted that:
[Plaintiffs] believe that the tobacco farmers
have only two choices. They can sell on
contract directly to the manufacturers or, if
they wish to protect themselves from the
tobacco manufacturers, they can sell at
auction in public warehouses where they must
pay commissions and fees. The [trial] court
believes that they have a third option of
using their own funds to provide auction
services to themselves for free. The goals of
the market center program are to insure the
survival of the auction market and the federal
price support system upon which so many small
farmers depend. The Stabilization Board may
contract with third parties to accomplish
those goals.
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