Business Judgment Rule Does Not Shield Cooperative.

A dairy cooperative instituted production quotas for its members and reduced payments for milk deliveries in excess of the quotas. One co-op member brought an action for breach of contract claiming his quota was too low. The contract required the co-op to accept all of the milk from its members “subject to the right of the Board, in its discretion . . . to allocate equitably among its members on a uniform basis . . . the quantity . . . of milk to be received by the Association.” The dairy claimed it was shielded by the business judgment rule. The trial judge found the quota system was not equitable or uniform and therefore breached the contract. On appeal, the co-op contended the trial court failed to apply the business judgment rule and give deference to its board of directors. The appellate court affirmed, stating:  “We conclude that the quota system adopted by the board was not equitable and uniform and, therefore, was outside the scope of discretionary authority granted by the contract.”  Scheenstra v. California Dairies, Inc. (Cal. App. Fifth Dist.; January 30, 2013) 213 Cal.App.4th 370.