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From Antitrust Law Daily, February 5, 2018

Egg purchasers had standing to pursue antitrust litigation against producers

By Matt Pavich, J.D.

In a case of first impression, the Third Circuit Court of Appeals has ruled that direct purchasers of egg-based products had standing to pursue antitrust litigation against egg producers, even though a significant amount of the egg products were made with eggs bought from non-conspirators. In reversing the district court’s grant of summary judgment for the producers, the appellate court ruled that the purchasers were pursuing claims against suppliers with whom they had a direct relationship (In re: Processed Egg Products Antitrust Litigation, January 22, 2018, Stark, L.).

Background. The purchasers were food manufacturers who purchased "egg products" for use in other products such as frozen waffles or salad dressing that use eggs as ingredients. They brought a series of individual and class actions accusing certain egg suppliers of price-fixing, contending that they conspired to reduce the egg-laying hen population, which caused a reduced egg supply and supracompetitive prices. The purchasers contended that the conspiracy to inflate the price of eggs also inflated the price of egg products, although they acknowledged that they bought a portion of the egg products from non-conspirator egg producers. The purchasers did not draw a distinction between overcharges for egg-products bought from the conspirators and those bought from non-conspirators. The producers moved for summary judgment, arguing that the inclusion in the damage calculations of egg products made from non-conspirator eggs violated the prohibition on umbrella damages. The district court granted the motion, finding that the purchasers lacked standing because they impermissibly linked the non-conspirator egg prices with those of the defendant producers. The purchasers appealed.

Standing precedents As an initial matter, the appellate court noted that parties who claim antitrust standing must show a causal connection between the alleged violations and the harm to the party and must prove that the injury is of the type for which antitrust laws provide redress. The court further noted that in order to determine the matter of standing, it needed to analyze pertinent antitrust precedents.

In Illinois Brick Co. v. Illinois, 431 US 720 (1977), the US Supreme Court found that a state and local governments who were indirect purchasers of concrete block lacked standing to bring suit against concrete block manufacturers’ over alleged anticompetitive conduct, because to allow such distant parties could result in an unacceptably large number of disparate, indirect claims. Liability, the court ruled, could only arise from direct transactions.

The Third Circuit applied that rationale in In re: Sugar Industry Antitrust Litigation, 579 F.2d 13 (3rd Cir. 1978.) The appellate court found in that case that a candy wholesaler had standing to sue sugar refiners over alleged price-fixing because it directly purchased candy made with the affected sugar from one of the alleged perpetrators. Even though the candy incorporated more ingredients than just sugar, the court found that the wholesaler did purchase directly from the alleged violator.

The Third Circuit also applied Illinois Brick in Mid-West Paper Products Co. v. Continental Group, Inc., 596 F.2d 573 (3rd Cir. 1979.) In that case, the court found that a grocery store that bought consumer bags from competitors of the price-fixing defendants did not have standing to pursue claims against those defendants because there was only a tenuous causation between the price-fixing and the prices paid by the grocery and because the defendants did not secure an illegal benefit at the grocery’s expense.

Direct relationship. The court found that in granting the egg producers’ motion for summary judgment, the district court relied too heavily on the fact that the purchasers also bought eggs from non-conspirator producers. Because of that factor, the district court found that the claims were impermissible as a combination of umbrella damages forbidden under Mid-West Paper and the pass-on damages prohibited under Illinois Brick.

The appellate court disagreed, finding that the result instant case was compelled by neither decision because the case presented a novel issue, namely whether a direct purchaser of a product that includes a price-fixed input can bring a claim against the seller, even if the product includes some amount furnished by a non-conspirator. The court found that unlike the Mid-West Paper plaintiff, who had not purchased anything from the price-fixing defendants, the purchasers in this case had directly purchased products from the egg producers. Essentially, they were suing the parties from whom they bought the price-fixed product and their injury was, therefore, directly linked to the egg producers. The direct relationship between the parties, the court ruled, rendered the purchasers in the group whom the antitrust laws are intended to protect. Furthermore, unlike Illinois Brick, the court found no risk that a ruling that the purchasers had standing would give rise to a large number of suits. The court ruled that the producers could only be sued by direct purchasers.

The court noted that the purchasers alleged a causal connection between the violations and the alleged harm, that the harm was of the kind intended to be addressed by antitrust laws, and that the potential recovery and damages did not argue against a finding of standing. The court thus found that the purchasers had standing to pursue their claims and remanded the case to determine whether, given the purchasers’ standing, the case should proceed to trial.

The case is No. 16-3795.

Attorneys: Michael T. Brody (Jenner & Block) for Kraft Foods Global, Kellogg Co., RP and General Mills Inc. Donald M. Barnes (Porter Wright Morris & Arthur) for Rose Acre Farms Inc. Joseph M. Callow, Jr. (Keating Muething & Klekamp) for Ohio Fresh Eggs LLC. Jennings F. Durand (Dechert LLP) for R. W. Sauder Inc. Carrie M. Anderson (Weil Gotshal & Manges LLP) for Michael Foods, Inc.

Companies: Kraft Foods Global; Kellogg Co., RP; General Mills Inc.; Rose Acre Farms Inc.; Ohio Fresh Eggs LLC; R. W. Sauder Inc.; Michael Foods, Inc.

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