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From Antitrust Law Daily, August 15, 2017

Egg producers fail in rebooted attempt to decertify direct purchaser class

By Cynthia L. Hackerott, J.D.

Denying a group of egg producers’ motion to decertify a class of shell egg direct purchasers who asserted antitrust claims, a federal district court in Pennsylvania found most of the defendants’ argument had already been, or could have been, addressed in its initial ruling certifying the class. Unpersuaded by the defendants’ sole new argument—that the court's post-initial certification order cutting off the class period on December 31, 2008, called into question its prior class certification—the court found that the post-2008 data in the plaintiffs’ experts’ model for quantifying damages attributable to the defendants’ alleged anticompetitive behavior, which continued after 2008, did not require decertification (In re Processed Egg Products Antitrust Litigation, August 14, 2017, Pratter, G.).

The complaint in this longstanding litigation alleged that the defendant egg producers violated Sec. 1 of the Sherman Act mainly through their development of and participation in an egg certification program called the United Egg Producers (UEP) Certified Program, which imposed cage space requirements and other production guidelines purportedly aimed at animal welfare. The defendants also allegedly controlled output by exporting eggs at a loss and reducing egg production during times of oversupply through certain coordinated actions, including reducing chick hatch, instituting early molting, and premature slaughtering of hens.

Previous certification of shell egg subclass. Previously, direct purchasers—individuals and entities that bought eggs directly from egg producers— sought certification of a "shell egg" subclass and "egg products" subclass. Shell eggs are eggs produced from caged birds that are sold in the shell for consumption or for breaking and further processing. Egg products include the whole or any part of shell eggs that have been removed from their shells and then processed into dried, frozen, or liquid forms. Granting the direct purchaser’s motion in part, the court certified a class of shell egg direct purchasers, finding that the shell egg subclass, but not the egg products subclass, satisfied the class certification requirements set forth in Rule 23 of the Federal Rules of Civil Procedure Rule.

Predominance. The main area of contention in the previous certification ruling was whether the direct purchasers adequately demonstrated that common issues predominated with regard to antitrust impact to the shell egg class. The court concluded that the plaintiffs presented sufficient common evidence that could demonstrate the defendants engaged in a series of complementary supply-reducing actions as part of a conspiracy to increase the price of eggs.

Class exclusions. In subsequent rulings, the court held that the proper period for the class was from September 24, 2004 through December 31, 2008. Also excluded from the class were purchasers of "specialty" shell eggs (such as "organic," "certified organic," "free range," "cage free", "nutritionally enhanced," or "vegetarian fed") and purchasers of hatching eggs, which are used by poultry breeders to produce breeder stock or growing stock for laying hens or meat.

Only one issue at hand. After the Third Circuit denied the defendants’ petition for permission to appeal the class certification order, the defendants asked the district court to decertify the shell egg class, asserting primarily that "three seminal events" demanded decertification. Disagreeing, the court pointed out that two of these "seminal events" occurred prior to its initial ruling certifying the class. Most of these arguments could, and should, have been raised long before it issued its opinion certifying the class in September 2015, the court admonished. To the extent that the defendants’ motion raised a new issue for the court to decide, the sole issue was whether the court's order cutting off the class period on December 31, 2008, called into question its prior class certification.

Plaintiffs’ expert’s model. The court pointed out that it concluded in its earlier rulings that the plaintiffs had established that the model devised by their expert, Dr. Gordon Rausser, was capable of quantifying damages attributable to defendants' alleged anticompetitive behavior for 2004 through 2008. In its 2013 decision in Comcast Corp. v. Behrend, the U.S. Supreme Court reaffirmed that district courts must undertake a "rigorous analysis" of whether a putative class satisfies the predominance criterion set forth in Rule 23(b)(3). At the certification stage, the court here rejected the defendants’ argument that Comcast required the plaintiffs’ to first measure the decrease in supply and then measure the effect on the price. The court distinguished Rausser's model from the model at issue in Comcast because this case was in a different posture. While the court expressed some reservations about whether Rausser's methodologies were infallible, it nevertheless ultimately concluded that the plaintiffs established that the common evidence was capable of demonstrating that defendants engaged in a series of complementary supply-reducing actions as part of a conspiracy to increase the price of eggs. Rausser’s model measured whether that conspiracy was successful in increasing the price of eggs. Thus, it fit the theory of liability and satisfied Comcast.

Post-2008 data. According to the defendants, due to the December 31, 2008, cut off, post-2008 data should not be included in Rausser’s econometric model. They argued that, when that model is adjusted to reflect the December 2008 damages cutoff (i.e. by removing the Rausser’s overcharge regression that included data affected by state regulatory regime changes post-2008), Rausser’s analysis no longer supported the plaintiffs' theory. Specifically, when the defendants’ expert, Dr. Jonathan Walker, removed this data, he found that the Rausser’s overcharge regression was 3.6 percent lower between September 2000 and December 2008 than the benchmark period. The "disappearance" of the overcharge from September 2000 to December 2008, the defendants argued, demonstrated that the plaintiffs could no longer show that class members suffered antitrust injury or damages using common proof.

Yet, the court agreed with the plaintiffs that removing all post-2008 data from Rausser’s model was unnecessary. When it set the class cutoff date, the court recognized that "the UEP Certification program continued through 2013 and included the same types of instrumentalities as are alleged to have characterized the conspiracy pre-2008." In a subsequent ruling, the court again recognized that it was "undisputed that the defendants continued to operate as members of the UEP Certified Program after the lawsuits were filed [in 2008]. ... [and] the plaintiffs have put forward evidence that allows them to argue that the effects of this conspiracy continued through at least 2012." Put another way, the court found there was evidence for a jury to consider that the same allegedly conspiratorial conduct that occurred pre-2008 occurred after 2008. The basis on which the court cut off the class period in 2008 was simply that Rausser's model could not parse out conduct that was legal in some states from conduct that was illegal in other states after 2008. That is why the court determined that the class period would end on December 31, 2008.

Further, cutting off the class period in 2008 did not automatically invalidate the usefulness of post-2008 data, the court concluded. In Comcast, the High Court’s focus was on the rigidity of the model given the viable theories in the case, not the underlying data itself, the court here explained. The fact that the court here recognized possible rigidity problems (mentioned above) in Rausser's model after 2008 did not mandate that the court strip post-2008 data from the model itself. Rather, the court’s earlier ruling was simply a recognition and application of the model's limit on measuring damages in light of the circumstances.

The case is No. 08-md-2002.

Attorneys: Eugene A. Spector (Spector Roseman & Kodroff, PC) for Direct Purchasers. Carrie Mahan (Weil, Gotshal & Manges LLP) and William L. Greene (Stinson Leonard Stree LLP) for Michael Foods, Inc. Donald M. Barnes (Porter, Wright, Morris & Arthur LLP) for Rose Acre Farms, Inc. Joseph M. Callow, Jr. (Keating Muething & Klekamp PLL) for Ohio Fresh Eggs, LLC.

Companies: Rose Acre Farms, Inc.; Michael Foods, Inc.; Ohio Fresh Eggs, Inc.

MainStory: TopStory Antitrust PennsylvaniaNews

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