In re McCormick & Co., Inc., Pepper Prods. Mktg. & Sales Practices Litig.

• Decision Date: 21 March 2017
• Docket Number: MDL Docket No. 2665,Misc. No. 15–1825 (ESH)
• Parties: IN RE: MCCORMICK & COMPANY, INC., PEPPER PRODUCTS MARKETING AND SALES PRACTICES LITIGATION This Document Relates to: All Consumer Cases
• Court: U.S. District Court — District of Columbia

275 F.Supp.3d 218

IN RE: MCCORMICK & COMPANY, INC., PEPPER PRODUCTS MARKETING AND SALES PRACTICES LITIGATION This Document Relates to: All Consumer Cases

MDL Docket No. 2665

Misc. No. 15–1825 (ESH)

United States District Court, District of Columbia.

Signed March 21, 2017

MEMORANDUM OPINION

ELLEN SEGAL HUVELLE, United States District Judge

Consumer plaintiffs claim that defendant McCormick & Co. conspired with its retailers, including defendant Wal–Mart, to reduce the amount of black pepper in containers, deceive consumers about the reduction, and inflate the prices that consumers paid. In a prior opinion, this Court dismissed plaintiffs' antitrust claim with prejudice but did not dismiss their consumer protection or unjust enrichment claims. See In re: McCormick & Co., Inc., Pepper Prods. Mktg. & Sales Practices Litig. , 217 F.Supp.3d 124 (D.D.C. 2016). Plaintiffs now move the Court to amend its dismissal order to a dismissal without prejudice and to permit plaintiffs to file their proposed second amended complaint. The Court will grant plaintiffs' motion.

BACKGROUND

I. Plaintiffs' Consolidated Amended Class Action Complaint

Plaintiffs originally filed fourteen separate class actions in federal courts in several states, but the Judicial Panel on Multi–District Litigation consolidated them before this Court. Only one of these actions included an antitrust claim. See Compl. at 16–17, Vladimirsky v. McCormick & Co. , No. 15–cv–2215 (N.D. Ill. Sept. 15, 2015). After consolidation, plaintiffs filed a consolidated amended complaint. (See Consol. Am. Class Action Compl., ECF No. 34 ("Compl.").) The complaint asserted antitrust, consumer protection, and unjust enrichment claims. As alleged in the antitrust claim, McCormick and its retailers agreed, in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1, to implement a price increase by decreasing the quantity of pepper in both the branded McCormick containers and the retailers' private-label containers, which were also supplied by McCormick. (Id. at ¶¶ 48–63, 73–80.)

To support their antitrust claim, plaintiffs alleged that "McCormick controls as much as 70% of the black pepper retail market." (Compl. at ¶ 58.) McCormick is the "clear market leader in the sale of spices (including black pepper)." (Id. at ¶ 1.) In addition to supplying retailers with black pepper under the McCormick brand, it "supplies about half of the store-brand spices sold annually in the United States," including Wal–Mart's Great Value brand. (Id. at ¶¶ 3, 48.) For decades prior to 2015, McCormick sold ground black pepper in "non-transparent metal tins" whose "sizes have become the industry norm." (Id. at ¶ 35.) Wal–Mart's Great Value tins were "of a similar size and shape" as McCormick's and contained the same quantities of pepper that the McCormick-branded tins did. (Id. at ¶¶ 48, 51–52.)

Plaintiffs alleged that "[s]ince 2010 the cost of raw black pepper has increased by approximately 500%," with a particularly steep increase in 2014. (Id. at ¶ 31.) "In 2015, unable to meet its cost savings targets without a substantial reduction in costs or increase in prices, McCormick began shipping millions of pepper tins and grinders to retail stores containing 25% and 19% less black pepper, respectively, than the containers were designed to hold." (Id. at ¶ 34.) The containers "note the [new] weight in small print" on the front, but they are the "exact same size" as before. (Id. at ¶¶ 38–40, 45.) In addition, "McCormick and the Retailers agreed that McCormick would reduce the amount of ground black pepper contained in the McCormick-supplied, store-branded tins, even though the actual size of the store-branded tins has, at all relevant times, remained the same." (Id. at ¶ 50.) According to plaintiffs, the non-transparent tins "falsely appear[ed] to contain the same amount of ground black pepper" as they had before. (Id. at ¶¶ 38–40.)

Plaintiffs further alleged that "McCormick and the Retailers agreed to, and did, maintain the same retail prices (as if the black pepper tins and grinders were full) for the now slack-filled black pepper containers." (Id. at ¶ 62.) There were no allegations about specific communications or documents evidencing such an agreement, but plaintiffs alleged that "McCormick and each of the Retailers had regular opportunities to meet, exchange information, and agree with one another as to the fill of the pepper containers." (Id. at ¶ 59.) Furthermore, "McCormick and the Retailers had a motive to maintain their profit margins" and "McCormick was in a position to act as the ‘hub’ in a ‘hub-and-spoke’ conspiracy." (Id. at ¶ 61.) As a result of this "conspiracy in restraint of trade to artificially fix, raise, maintain, and stabilize prices for pepper," plaintiffs claimed that they paid "supra-competitive, artificially inflated prices for pepper" in violation of Section 1 of the Sherman Act, 15 U.S.C § 1. (Id. at ¶¶ 74, 76.)

This Court dismissed plaintiffs' antitrust claim. McCormick , 217 F.Supp.3d at 146. First, noting that plaintiffs had conceded at the motion hearing that there was no explicit agreement on price, the Court held that plaintiffs' complaint did not plausibly suggest that McCormick and its retailers agreed on retail prices. Id. at 132-35 ; see Mot. Hr'g Tr. at 69, 93, Oct. 25, 2016. The Court explained that "there is an obvious lawful explanation for the observed prices, no allegations of specific communications that suggest agreement, no allegations that defendants were acting against their independent economic self-interest, and no alleged motivations for defendants to make an agreement on price." Id. at 135. Second, with regard to McCormick's alleged agreements with retailers to supply private-label products that had the same quantity of pepper as McCormick's branded products, the Court held that plaintiffs had not plausibly alleged that such agreements unreasonably restrained trade. Id. at 135-39. The agreements did not warrant antitrust scrutiny because they were "ordinary sales contract[s]," which had to specify the product to be sold. Id. at 135. But, even assuming the application of antitrust scrutiny, the Court explained that plaintiffs failed to state a claim because their complaint did not plausibly allege that an agreement on the amount of pepper in containers would have an anticompetitive effect, id. at 135-39, for plaintiffs "have been unable to offer ... any satisfactory explanation for how an agreement on quantity would harm competition," id. at 137-38.

In response to plaintiffs' claim that the agreement was an output restriction, the Court explained that "McCormick's agreement with retailers to fill individual containers with less pepper did not restrict the total supply of pepper." Id. Plaintiffs also argued that the agreement to reduce the amount of pepper in containers was effectively an agreement to increase the price per ounce, but the Court noted that "if there is no agreement on retail price, decreasing the amount of pepper in the can does not automatically increase the price per ounce. Retailers are free to choose their prices." Id. Plaintiffs also argued that the agreements prevented retailers from choosing whether to pass on their cost increases to consumers, but again "plaintiffs ignore[d] the fact that an agreement on quantity does not restrict what retailers can charge consumers." Id. at 139. Finally, the Court held that because plaintiffs had not plausibly alleged that the increase in price-per-ounce that accompanied the quantity reductions was the result of anticompetitive conduct, as opposed to the increased cost of raw pepper, they had not adequately alleged an antitrust injury. Id. at 140. The Court therefore dismissed plaintiffs' Sherman Act claim with prejudice. Id. at 146.

II. Plaintiffs' Motion for Reconsideration

Plaintiffs have moved for reconsideration of the Court's dismissal order, arguing that "dismissal of Count I with prejudice was in error" because their proposed second amended complaint contains allegations that can cure the deficiencies in the previous complaint. (Pls.' Mot. Reconsideration at 11–12, ECF No. 107 (redacted version at ECF No. 105); see Prop. 2d Am. Compl. at ¶ 57, ECF No. 107–1 (redacted version at ECF No. 105–1).) They ask for leave to file this proposed second amended complaint. (Pls.' Mot. at 11–12.) They argue that it addresses the Court's concerns because it shows that "McCormick and its private label competitors expressly agreed to reduce fill" and that "the agreements had an anticompetitive effect, namely the elimination of competition around fill levels between McCormick and its private label competitors." (Id. )

Plaintiffs' proposed complaint adds a number of more detailed allegations based on documents obtained from defendants during discovery. It alleges that McCormick decided to reduce fill in its branded products " ‘to accommodate commodity cost increases.’ " (Prop. 2d Am. Compl. at ¶ 56.) McCormick wanted to avoid a price increase, because it was concerned that increases in the price gap between the branded products and less expensive private-label products had hurt the branded products' market share over the past few years. (Id. at ¶¶ 57–58.) However, McCormick also "feared that a unilateral reduction [in quantity of pepper in a tin] might be ‘deceptive and could very well back fire on us[,]’ since the private label competitors would likely ‘advertise ‘10% more vs [McCormick]’ ’ and thus ‘point[ ] this deception out to our loyal branded customer.’ " (Id. at ¶ 60.)

The proposed amended complaint also provides details about how McCormick approached retailers to propose fill reductions. In July, McCormick contacted Wal–Mart "to ‘float’ the slack fill proposal." (Id. at ¶ 65.) In October, McCormick informed retailers by letter that it would be reducing the weights in its branded products and the private-label products that it supplied to retailers. (Id. at ¶ 66.) Next, it explained in individual phone...