Ice Cream Liquidation, Inc. v. Land O'Lakes, Inc.

• Decision Date: 23 March 2003
• Docket Number: No. 3:02 CV 377 GLG.,3:02 CV 377 GLG.
• Citation: 253 F.Supp.2d 262
• Court: U.S. District Court — District of Connecticut
• Parties: ICE CREAM LIQUIDATION, INC., formerly known as Fieldbrook Farms, Inc., individually and on behalf of all others similarly situated, Plaintiff, v. LAND O'LAKES, INC., Dairy Farmers of America, Inc., Associated Milk Producers, Inc., Grassland Dairy Products, Inc., Keller's Creamery LLC, and Madison Dairy Produce Company, Defendants.

253 F.Supp.2d 262

ICE CREAM LIQUIDATION, INC., formerly known as Fieldbrook Farms, Inc., individually and on behalf of all others similarly situated, Plaintiff, v. LAND O'LAKES, INC., Dairy Farmers of America, Inc., Associated Milk Producers, Inc., Grassland Dairy Products, Inc., Keller's Creamery LLC, and Madison Dairy Produce Company, Defendants.

No. 3:02 CV 377 GLG.

United States District Court, D. Connecticut.

March 23, 2003.

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Robert A. Izard, Jr., Schatz & Nobel, Hartford, CT, for Plaintiff.

Robert G. Oliver, David J. Crotta, Jr., Carolyn P. Gould, Mulvey, Oliver & Gould, New Haven, CT, Robert L. Keepnews,

Berman & Sable, Hartford, CT, Nathan P. Eimer, Lisa A. Meyer, Adam B. Deutsch, Eimer, Stahl, Klevorn & Solberg, Chicago, IL, for Defendants.

OPINION

GOETTEL, District Judge.

Plaintiff, Ice Cream Liquidation, Inc., has brought this antitrust action on behalf of itself and a putative class¹ of domestic wholesale purchasers of milk, cream or butter, alleging that defendants conspired to fix the prices of milk, cream, and butter in violation of § 1 of the Sherman Antitrust Act, 15 U.S.C. § 1. According to plaintiffs complaint, the minimum milk price is set pursuant to a federally regulated formula, a component of which is the price of butter traded on the Chicago Mercantile Exchange ("CME"). Additionally, "by industry practice," the prices of cream and butter are based upon the CME butter prices. Plaintiff alleges that from November 2, 2000, to September 14, 2001 (the "class period"), defendants, which collectively control a dominant share of the United States butter market, conspired to inflate, and did inflate, the CME butter price in order to increase above competitive levels the wholesale prices of milk, cream, and butter that they charged their customers. As a result, plaintiff claims that it and the other class members were forced to pay artificially inflated prices and were damaged accordingly.

Defendants have moved to dismiss plaintiffs complaint pursuant to Rule 12(b)(6), Fed.R.Civ.P., based upon (1) plaintiffs lack of constitutional and antitrust standing; (2) the filed rate doctrine; (3) implied immunity; and (4) failure to state a claim upon which relief may be granted. For the reasons set forth below, the defendants' motion to dismiss [Doc. # 27] will be denied.

STANDARD OF REVIEW

In ruling on a motion to dismiss under Rule 12(b)(6), Fed.R.Civ.P., the Court is required to accept as true all factual allegations in the complaint and to draw all reasonable inferences in favor of the plaintiff, as the non-moving party. See Krimstock v. Kelly, 306 F.3d 40, 47^8 (2d Cir.2002). "[A] complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of [its] claim which would entitle [it] to relief." Conley v. Gibson, 355 U.S. 41, 45^6, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957)(footnote omitted). A court must not consider whether the claim will ultimately be successful, but should merely "assess the legal feasibility of the complaint." Cooper v. Parsky, 140 F.3d 433, 440 (2d Cir.1998) (citation omitted).

A complaint need not set out the facts in detail. The Federal Rules require only a "short and plain statement of the claim showing that the pleader is entitled to relief." Rule 8(a), Fed.R.Civ.P. "No heightened pleading requirements apply in antitrust cases." Todd v. Exxon Corp., 275 F.3d 191,198 (2d Cir.2001). "[A] short plain statement of a claim for relief which gives notice to the opposing party is all that is necessary in antitrust cases, as in other cases under the Federal Rules." Id. (quoting George C. Frey Ready-Mixed Concrete, Inc. v. Pine Hill Concrete Mix Corp., 554 F.2d 551, 554 (2d Cir.1977)). Further, in antitrust cases, where "the proof is largely in the hands of the alleged conspirators," Poller v. Columbia Broadcasting Sys., Inc., 368 U.S. 464, 473, 82 S.Ct. 486, 7 L.Ed.2d 458 (1962), the Supreme Court has held that "dismissals prior to giving the plaintiff ample opportunity for discovery should be granted very sparingly." Hospital Bldg. Co. v. Trustees of Rex Hosp., 425 U.S. 738, 746, 96 S.Ct. 1848, 48 L.Ed.2d 338 (1976); accord George Haug Co. v. Rolls Royce Motor Cars Inc., 148 F.3d 136, 139 (2d Cir.1998); Subsolutions, Inc. v. Doctor's Associates, Inc., 62 F.Supp.2d 616, 619 (D.Conn.1999); Strobl v. New York Mercantile Exch., 561 F.Supp. 379, 383 (S.D.N.Y.1983). In applying this "concededly rigorous standard," Hospital Bldg. Co., 425 U.S. at 746, 96 S.Ct. 1848, our consideration is limited to the facts stated in the complaint, the documents attached thereto as exhibits or incorporated therein by reference, and matters of which the Court may take judicial notice under Rule 201, Fed.R.Evid. See Kramer v. Time Warner Inc., 937 F.2d 767, 773 (2d Cir.1991).

THE ALLEGATIONS

I. The Parties

Plaintiff Ice Cream Liquidation, Inc., is a manufacturer of ice cream, which purchased milk and cream from defendants and other producers of milk and cream. (Comp.¶ 14.)

Defendant Land O'Lakes, Inc., is a cooperative of dairy farmers that produces 33.4% of the butter produced in the United States and markets milk, cream, and butter throughout the United States. (Comp. ¶ 15.) Defendant Dairy Farmers of America, Inc., is the world's largest cooperative of dairy farmers, and produces butter and more than 25% of the milk produced in the United States. (Comp.¶ 16.) Defendant Associated Milk Producers, Inc., processes and markets the milk and milk products of approximately 4,800 dairy producers, primarily producing and marketing butter. (Comp.¶ 17.) Defendants Grassland Dairy Products, Inc., and Keller's Creamery LLC produce and market butter and cream. (Comp.¶¶ 18, 19.) Defendant Madison Dairy Produce Company produces and markets butter. (Comp.¶ 21.) Plaintiff alleges that the defendants that produce milk as well as butter produce approximately 35% of all milk produced in the contiguous United States. (Comp.¶ 7.)

II. Conspiracy Allegations

As set forth in plaintiffs complaint, the price of milk in the United States has been regulated by the federal government for decades in order to assure dairy farmers a reasonable minimum price for their milk throughout the year, to prevent wild fluctuations in milk prices during periods of heavy and light production, and to ensure consumers an adequate supply of milk. (Comp.¶ 30.) On January 1, 2000, the Federal Milk Marketing Orders ("FMMO") issued by the United States Department of Agriculture² went into effect, which, according to plaintiff, dramatically changed the regulations by which the price of milk is established.³ (Comp.¶ 31.) Plaintiff alleges that since January 1, 2000, the minium price of milk has been fixed by a formula that incorporates and rises or falls with the CME butter or CME cheese price, whichever is higher.⁴ Since the CME butter price has been higher nearly every month, the price of milk has been fixed in relation to the CME butter price since January 1, 2000. (Id.) Similarly, the wholesale prices of cream and butter, by industry practice, are determined by formulas that incorporate the CME butter price. (Comp.¶ 32.) During the class period, plaintiff claims that the CME butter price increased from $1.20 to $2.20, and as a result, the wholesale price of milk increased by $3.25 per hundred pounds, the wholesale price of cream increased by $1.50 per pound of butterfat, and the wholesale price of butter increased from $1.14 to $2.18, without any "rational economic explanation."⁵ (Comp.¶¶ 41, 44(a).)

Plaintiff states that, unlike other commodities, cash or spot trading of butter on the CME is extremely limited. Butter trades only three days a week, and only two minutes per day, for a total trading period of six minutes per week. (Comp. ¶ 33.) Only a small percentage of the butter sold in the United States is actually traded on the CME. (Id.) Therefore, plaintiff alleges, it was possible for defendants, which controlled and manipulated the CME butter market, to increase the wholesale prices of milk, cream, and butter, simply by purchasing small quantities of butter on the CME for relatively little money. (Comp.¶¶ 35, 36.) In fact, plaintiff asserts that the CME butter price could increase even if no actual purchases took place, since approximately 40% of the time the CME butter price was based on unfilled bids and uncovered offers. (Comp. ¶ 36.) On the other hand, if defendants chose to purchase butter on the CME, their only risk was if the CME price declined and they chose to sell. (Id.) "Such unlikely and marginal losses would at most have added up to a few million dollars annualized, an insignificant risk of loss compared to the hundred of millions of dollars in increased annual revenues from the resulting increases in the price of milk." (Id.) "Consequently, a milk producer could, through a purchase of butter at an artificially high price, reap returns many times the cost of that butter through the sale of milk at artificially high prices." (Comp.¶ 37.)

Plaintiff alleges that defendants had the requisite motive and ability to drive up the CME butter price. Defendants collectively have a substantial share of the market in cream and a dominant share of the butter market in the United States and, thus, had a substantial economic motive to inflate artificially the CME butter price to increase the prices of milk and cream and to increase the price of butter in their inventories. (Comp.¶¶ 39, 40.) Plaintiff claims that this unlawful conspiracy is evidenced not only by the lack of a rational economic explanation for the increases that took place, but also by a statement by one defendant's representative to plaintiffs representative at a trade show that the price of butter was rising to levels that were not "moral" and that some "people" were "getting too greedy." (Comp.¶ 44.) Thus,...