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From Antitrust Law Daily, September 1, 2015

Cheese maker properly cleared from dairy price fixing suit

By Greg Hammond, J.D.

A cheese maker was correctly granted summary judgment over claims it participated in a conspiracy to inflate the price of milk and milk futures by manipulating transactions for cheese and/or milk futures on the Chicago Mercantile Exchange (CME). The U.S. Court of Appeals in Chicago affirmed an order entered by the district court that granted the cheese maker summary judgment on the price fixing conspiracy claims, finding that the alleged conspiratorial communications at issue could be just as easily understood as part of a legitimate business relationship (In re Dairy Farmers of America, Inc. Cheese Antitrust Litigation, September 1, 2015, Bauer, W.).

Indriolo Distributors, Inc., Knutson’s, Inc., and Valley Gold, LLC added Schreiber Foods, Inc.—one of the largest cheese manufacturers and distributors in the world—to a lawsuit against Dairy Farmers of America, Inc. (DFA)—a cooperative group of dairy farmers and producer of dairy products—claiming that the defendants conspired to inflate the price of milk and milk futures by manipulating transactions for cheese and/or milk on the CME. Specifically, the plaintiffs claimed that Schreiber and DFA bought cheese to stabilize prices while DFA and butter manufacturer Keller’s Creamery, L.P. unwound their milk futures positions at a profit. Schreiber and DFA then purportedly stopped purchasing cheese, causing the cheese price to crash. The district court granted summary judgment in favor of Schreiber in December 2013, and Indriolo, Knutson’s, and Valley Gold timely appealed.

Conspiracy claim. The lower court granted summary judgment against the plaintiffs’ conspiracy claim, finding that the evidence did not present a question for a jury on whether Schreiber conspired to manipulate the price of milk futures by purchasing spot cheese. The appellate court agreed, first noting that the core evidence at issue—communications between Schreiber and DFA employees—could be understood as part of a legitimate business relationship as readily as they could be understood as part of a conspiracy. While Schreiber and DFA were competitors, DFA was also one of Schreiber’s main suppliers, and Schreiber was one of DFA’s largest customers, providing a number of legitimate reasons that the two entities would communicate with each other.

The appellants’ additional argument that parallel inflation of public market prices and “unusual” parallel conduct are more consistent with agreement than individual action also failed. The court found that this argument merely reiterated the ambiguity of the plaintiffs’ evidence of agreement and did nothing to diminish the inference of independent action. There was consequently no genuine issue of material fact as to whether Schreiber conspired with DFA.

Remaining claims. Summary judgment was also properly granted with regard to the plaintiffs’ Commodity Exchange Act (CEA) and unjust enrichment claims. The appellate court rejected the plaintiffs’ argument that spot cheese was the commodity underlying the Class III milk futures contracts, because the milk prices—not cheese prices—determined the settlement of the contract. Because there was no evidence in the record that Schreiber was interested in milk futures, the plaintiffs failed to raise a genuine issue of a material fact precluding summary judgment on their manipulation claim under the CEA. Further, because the plaintiffs failed to raise a genuine issue of material fact as to the existence of a conspiracy or intentional price manipulation, they could not demonstrate that Schreiber was unjustly enriched.

Arguments that the lower court erred when limiting discovery to information regarding high-level Schreiber and DFA employees were also rejected. The appellate court found that the passage of ten years since the date of the alleged conspiracy made it unlikely that other individuals would have information relevant to establishing a conspiracy.

Finally, with regard to the plaintiffs’ challenge to Schreiber’s inclusion in the court-approved DFA settlement that the plaintiffs negotiated with all defendants in the initial complaint, the appellate court determined that Schreiber’s inclusion in the settlement class was only entitled to reconsideration by the lower court should its entry of summary judgment be reversed. Consequently, Schreiber’s inclusion in the DFA settlement would stand along with the district court’s grant of summary judgment, the appellate court concluded.

The case number is 14-3239.

Attorneys: Christopher Lovell (Lovell Stewart Halebian Jacobson LLP) for Indriolo Distributors, Inc., Knutson's, Inc., and Valley Gold, LLC. Nathan P. Eimer (Eimer Stahl LLP) for Schreiber Foods, Inc.

Companies: Indriolo Distributors, Inc.; Knutson's, Inc.; Valley Gold, LLC; Schreiber Foods, Inc.

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