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From Antitrust Law Daily, November 27, 2017

Putative antitrust class action over chicken prices survives motion to dismiss

By Gregory Kane, J.D., M.B.A.

A putative class action against U.S. producers of chicken meat survived a motion to dismiss as it plausibly alleged a conspiracy among the producers to decrease production, allow prices to rise, and temporarily increase production in order to capture those price increases, according to the federal district court in Chicago. Motions to dismiss the claims under the Sherman Act were denied, as were motions to dismiss various state law claims except for claims under Arkansas and Wisconsin law. None of the defendants were dismissed from the case entirely (In re Broiler Chicken Antitrust Litigation, November 20, 2017, Durkin, T.).

Plaintiffs are three putative classes consisting of (1) direct purchasers such as wholesalers and retailers, (2) commercial and institutional indirect purchasers who resell chicken such as retailers and restaurants and (3) indirect purchasers who cook or eat the chicken such as restaurants and individuals. Defendants are industrial producers of broiler chicken meat which constitutes 98% of all chicken meat sold in the U.S. They controlled 88.8% of the U.S. broiler market as of 2015 and own or controlled all aspects of broiler production. It is a mature industry with known costs, high barriers to entry and common technology and processes amongst producers.

The complaint alleged that Defendants used an entity called Agri Stats for communications related to their conspiracy. Agri Stats is a subsidiary of Eli Lilly & Co. that produces subscription reports about the broiler industry exclusively to those broiler producers that supply it with data for its reports. Defendants have publicly stated they use the Agri Stats reports to identify competitor’s production plans and plan their own production.

Defendants failed to increase broiler production in 2008 for the first time in decades. Following an industry event in 2008, multiple defendants made public statements declaring they would cut production and production was in fact cut back by those defendants as well as other defendants and producers. Following a brief production increase in 2010 that captured prior price increases, seven defendants and two other producers cut production, closed facilities or delayed planned construction of new facilities which resulted in new price increases.

Given the commodity nature of broilers, Plaintiffs argue that a cut in production by one provider should have resulted in another producer filling that gap to gain market share in the absence of an agreement between the defendants. Plaintiffs also contend to have private communications among Defendants indicating a conspiracy to cut production with the intent to inflate prices. Plaintiffs also allege additional factors indicative of a conspiracy including a shift from fixed to variable price contracts, slaughter or export of breeder flocks, used of inter-company sale agreements and an increase in exports. Plaintiffs also allege that some defendants tampered with the Georgia Department of Agriculture’s broiler price index, known as the Georgia Dock, which, unlike other broiler indexes, does not independently verify its listed broiler pricing against invoices or purchaser reports and is controlled by seven of the defendants through a previously undisclosed advisory committee. Plaintiffs allege violation of Section 1 of the Sherman Act as well as various state law claims. Defendants moved to dismiss the suit for failure to state a claim.

Conspiracy. Plaintiffs plausibly allege parallel conduct that demonstrated conspiracy amongst the defendants, according to the court. Defendants conduct was unusual in comparison to the industry’s history of regular production increases and there is no indication that the increase in market prices offset the potential loss of market share. The facts alleged were sufficient to plausibly infer formation and communication of a conspiracy without additional details that would not be available without discovery. In addition to the unusual extent of information sharing through Agri Stats and opportunities for communications at trade association meetings, defendants’ public statements of intent to cut production were indicative of an agreement considering the commodity nature of broilers. Defendants’ business strategies during the relevant time period were also indicative of a conspiracy as they sought to control production numbers, increased exports, moved from fixed to variable price contracts and decreased the number of breeder flocks by unprecedented numbers. As such, defendant’s motion to dismiss was denied.

Indirect purchasers. Defendants unsuccessfully argued that indirect purchasers did not suffer an injury in fact as required under Article III, but plaintiffs plausibly alleged an injury in fact by alleging they paid inflated prices which can be fairly traced to defendants’ price-fixing scheme and can be redressed by a favorable judicial decision which suffices at the pleadings stage to establish standing, according to the court.

Claims related to indirect purchasers are subject to state laws passed in response to the Illinois Brick case, providing for damages to indirect purchasers under state antitrust laws. The Arkansas state antitrust law claims related to indirect purchasers failed to state a claim and were dismissed. Claims under Rhode Island state antitrust laws related to indirect purchasers fail to state a claim for events prior to July 15, 2013 when Rhode Island passed legislation to address the Illinois Brick decision.

Under the more recent ACG case, indirect purchasers have standing to seek injunctive relief under the Sherman Act due to the directness and causation of the alleged injury. The application of ACG to state law antitrust claims seeking damages must be resolved on a state by state basis. The claims under Wisconsin state law were dismissed regarding indirect purchasers but the plaintiffs were granted leave to amend to cure any cited deficiencies in their claims.

State law claims. State law claims under consumer protection or unjust enrichment statutes are analyzed on a state-by-state basis. Claims under Arkansas’ consumer protection statute were dismissed by the court, while claims under state consumer protection statutes for Florida, Hawaii, Montana, Missouri, South Carolina and Vermont were allowed to proceed.

The case is No. 16 C 8637.

Attorneys: Brian D. Clark (Lockridge Grindal Nauen PLLP), Daniel Warshaw (Pearson, Simon & Warshaw, LLP) and Dennis Allen Lienhardt, Jr. (The Miller Law Firm, PC) for Maplevale Farms, Inc. Stephen Novack (Novack and Macey LLP) for Koch Foods, Inc., JCG Foods of Alabama, LLC and Koch Meats Co., Inc. David H. Suggs (White & Case LLP) for Tyson Foods, Inc.

Companies: Maplevale Farms, Inc.; Koch Foods, Inc.; JCG Foods of Alabama, LLC; Koch Meats Co., Inc.; Tyson Foods, Inc.

MainStory: TopStory Antitrust IllinoisNews

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