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From Antitrust Law Daily, September 21, 2015

Egg purchasers’ certification attempt crushed in price fixing suit

By Greg Hammond, J.D.

Indirect purchasers of eggs were denied class certification in an action alleging that major egg producers engaged in a price fixing conspiracy by controlling and limiting the supply of eggs in the United States. The federal district court in Philadelphia concluded that the indirect purchasers failed to demonstrate that the proposed classes were clearly defined and ascertainable; that common issues predominated; and that their proposed class action was manageable (In re Processed Egg Products Antitrust Litigation, September 18, 2015, Pratter, G.).

Indirect purchasers, or individuals or entities that bought eggs at retail and not directly from egg producers, claimed that the defendants conspired to increase the prices of eggs by: (1) participating in a number of explicit, short-term production-restriction programs, including the slaughtering of hens prematurely; (2) taking part in a pre-textual animal-welfare program; and (3) engaging in a calculated series of exporting eggs at below-market prices. The class sought damages under the antitrust, consumer protection, and unjust enrichment laws of various states, as well as an injunction under the Clayton Act. The indirect purchasers moved for class certification.

Ascertainability. The court first determined that the indirect purchasers met the numerosity, commonality, typicality, and adequacy factors of Federal Rule of Civil Procedure 23(a). The plaintiffs, however, failed to demonstrate that the classes were ascertainable. Instead, the court found that the purported method for ascertaining class membership—through affidavits swearing potential class members fall within the class definition, and the possibility of having claimants provide receipts—was not reliable and administratively feasible. There was no evidence demonstrating the method would be successful, and the methods would not allow the defendants to identify and challenge false claims.

Predominance. Rule 23(b)(3)’s predominance requirement was also not met in this case, the court concluded. First, the proposed classes were found overbroad because they included individuals who purchased eggs produced by non-conspirators. Further, because the indirect purchasers failed to set forth any method to distinguish eggs sold by defendants from those sold by non-conspirators, the court would be required to undertake an individualized inquiry into each purchase in order to decipher whether the overcharge would be recoverable. Individual issues would therefore predominate over common issues.

Next, the plaintiffs failed to demonstrate that common issues predominated with regard to antitrust impact. First, the court noted that the plaintiffs provided evidence of widespread price increases that some within the industry attributed to the defendants’ conduct and that egg prices across different types of eggs and regions of the country moved together. This evidence, according to the court, was probative of a common antitrust impact, but it was not dispositive. Rather, the plaintiffs’ evidence of common impact suffered a number of flaws, including a failure to: (1) isolate the effects of the alleged conspiracy; (2) account for cost-plus contracts, and the inclusion of non-commodity eggs and eggs produced by non-conspirators; and (3) demonstrate that common evidence can prove antitrust impact at the level of retail customers and other indirect purchasers.

Finally, the court concluded that the plaintiffs failed to set forth any reliable methodology for calculating the damages of the class as a whole. The proposed damages model measured the drop in supply of all egg layers, including specialty egg layers and non-conspiring producers’ egg layers, without an analysis of how this could bias the model. In addition, the failure to account for cost-plus contracts and commitment contracts also made the model less reliable, as the court would be required to speculate that the existence of cost-plus contracts had no effect on the ultimate damages calculation.

Superiority. The plaintiffs also failed to meet the superiority requirement of Rule 23(b)(3), because they could not demonstrate that the putative class action would be manageable as proposed. The court noted that there were 21 damages classes, and differences existed among the various state law claims at issue. Although the plaintiffs argued that their evidence would be so overwhelming that any differences in the state laws will pale in the process, the court concluded that it could not adopt such an assumption. Rather, because of the significant variability in the state laws at issue, a more detailed plan for managing the proposed “all-in-one” litigation would be necessary to meet the burden of showing the class action is manageable.

Injunctive relief class. Lastly, the court denied certification of the injunctive class, finding that the plaintiffs failed to adequately address the legal issues presented in their complaint, such that the court could not conduct its Rule 23 analysis. In addition, the indirect purchasers did not adequately demonstrate the cohesiveness of their proposed class or provide the court with sufficient evidence to be able to meet the requirements of 23(c)(1)(B), which requires an order that certifies a class action to define the class, as well as the class claims, issues, or defenses.

The case number is 08-md-2002.

Attorneys: Paul F. Novak (Milberg LLP), Timothy D. Battin (Straus & Boies, LLP) and Krishna B. Narine (Meredith & Narine) for Indirect Purchaser Plaintiffs. Veronica Smith Lewis (Gibson, Dunn & Crutcher LLP) for Cal-Maine Foods, Inc. Nathan P. Eimer (Eimer Stahl LLP) for Moark, LLC and Norco Ranch, Inc. Carrie Mahan Anderson (Weil, Gotshal & Manges 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. Jan P. Levine (Pepper Hamilton LLP) for United Egg Producers, Inc. and United States Egg Marketers, Inc. Joseph A. Tate (Dechert LLP) for R.W. Sauder, Inc.

Companies: Cal-Maine Foods, Inc.; Moark, LLC; Norco Ranch, Inc.; Michael Foods, Inc.; Rose Acre Farms, Inc.; Ohio Fresh Eggs, LLC; United Egg Producers, Inc.; United States Egg Marketers, Inc.; R.W. Sauder, Inc.

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