In re Beef Industry Antitrust Litigation

• Decision Date: 14 June 1982
• Docket Number: MDL No. 248.
• Citation: 542 F. Supp. 1122
• Parties: In re BEEF INDUSTRY ANTITRUST LITIGATION.
• Court: U.S. District Court — Northern District of Texas

542 F. Supp. 1122

In re BEEF INDUSTRY ANTITRUST LITIGATION.

MDL No. 248.

United States District Court, N. D. Texas, Dallas Division.

June 14, 1982.

COPYRIGHT MATERIAL OMITTED

Ben L. Krage, Kasmir, Willingham & Krage, Dallas, Tex., Lowell V. Summerhays, Robinson, Summerhays, Wells & Barnes, Salt Lake City, Utah, Robert R. Eidsmoe, Gleysteen, Harper, Kunze, Eidsmoe & Heidman, Sioux City, Iowa, Burt A. Braverman, Cole, Raywid & Braverman, Washington, D. C., Lex Hawkins, Hawkins & Norris, Des Moines, Iowa, John A. Cochrane, Cochrane & Bresnahan, St. Paul, Minn., Robert O. Vaughan, Vaughan, Hull, Marfisi & Miller, Elko, Nev., James W. Witherspoon, Witherspoon, Aikin & Langley, Hereford, Tex., Roger J. Allen, Strother, Davis & Levy, Dallas, Tex., Joseph M. Alioto, Law Offices of Joseph M. Alioto, San Francisco, Cal., C. R. Kit Bramblett, El Paso, Tex., Roland D. Saul, Saul, Smith & Davis, P. C., Hereford, Tex., Bill LaFont, LaFont, Tunnell, Formby, LaFont & Hamilton, Plainview, Tex., W. Randolph Elliott, Riddle & Brown, Dallas, Tex., for plaintiffs.

John D. Leech, Calfee, Halter & Griswold, Cleveland, Ohio, for First Nat. Stores, Inc.

David A. Rosen, Stein Rosen & Ohrenstein, New York City, B. Thomas McElroy, White, McElroy, White, Sides & Rector, Dallas, Tex., for Food Fair Stores, Inc.

Bernard Gordon, Finley, Kumble, Wagner, Heine, Underberg & Casey, Washington, D. C., for Giant Food, Inc.

Shepard Goldfein, Skadden, Arps, Slate, Meagher & Flom, New York City, William H. Tinsley, Johnson & Cravens, Dallas, Tex., for the Grand Union Co. Colonial Stores Inc. Thomas F. Curnin, Cahill, Gordon & Reindel, New York City, for the Great Atlantic & Pac. Tea Co., Inc.

Theodore A. Groenke, McDermott, Will & Emery, Chicago, Ill., for Jewel Companies, Inc.

Alexander E. Bennett, Arnold & Porter, Washington, D. C., Wilson W. Herndon, Strasburger & Price, Dallas, Tex., for the Kroger Co.

C. Loring Jetton, Jr., Wilmer, Cutler & Pickering, Washington, D. C., Gregory Huffman, Thompson & Knight, Dallas, Tex., for Lucky Stores, Inc.

James F. Rill, Collier, Shannon, Rill & Scott, Washington, D. C., John L. Hauer, Akin, Gump, Hauer & Feld, Dallas, Tex., for the Nat. Ass'n of Food Chains.

Valerie A. Leopold, Kirkland & Ellis, Chicago, Ill., Lawrence G. Newman, John Shook, Newman, Shook & Newman, Dallas, Tex., for Nat. Provisioner, Inc.

Franklin P. Auwarter, Mayer, Brown & Platt, Chicago, Ill., for Nat. Tea Co.

Harold A. Segall, Gilbert, Segall & Young, New York City, for Pueblo Intern., Inc.

Les J. Weinstein, McKenna & Fitting, Los Angeles, Cal., for Ralphs Grocery Co.

Richard W. Odgers, Pillsbury, Madison & Sutro, San Francisco, Cal., W. B. West, III, Clark, West, Keller, Butler & Ellis, Dallas, Tex., for Safeway Stores, Inc.

Donald B. Holbrook, Jones, Waldo, Holbrook & McDonough, Salt Lake City, Utah, for Skaggs Companies, Inc. Skaggs-Albertson's.

Robert D. Paul, Goodwin, Procter & Hoar, Boston, Mass., Stanley E. Neely, Locke, Purnell, Boren, Laney & Neely, Dallas, Tex., for the Stop & Shop Companies, Inc.

Michael E. Bress, Dorsey, Windhorst, Hannaford, Whitney, & Halladay, Minneapolis, Minn., for Super Valu Stores, Inc.

Jerome G. Shapiro, Hughes Hubbard & Reed, New York City, T. L. Caudle, III, Coke & Coke, Dallas, Tex., for Supermarkets General Corp.

Timothy J. Sargent, Bodkin, McCarthy, Sargent & Smith, Los Angeles, Cal., for Thriftimart, Inc.

Ronald L. Olson, Munger, Tolles & Rickerhauser, Los Angeles, Cal., for Vons Grocery Co.

Kenneth Gordon, Tenzer Greenblatt Fallon & Kaplan, New York City, for Waldbaum Supermarkets, Inc.

Charles P. Pillans, III, Bedell, Bedell, Dittmar & Zehmer, Jacksonville, Fla., John K. DeLay, Jr., Storey, Armstrong, Steger & Martin, Dallas, Tex., for Winn-Dixie Stores, Inc.

Roger E. Podesta, Debevoise, Plimpton, Lyons & Gates, New York City, for Flavorland Industries, Inc.

Edward W. Rothe, Freeman, Rothe, Freeman & Salzman, Don H. Reuben, Carole K. Bellows, Reuben & Proctor, Chicago, Ill., for Iowa Beef Processors, Inc.

John C. Dods, Shook, Hardy & Bacon, Kansas City, Mo., for MBPXL Corp.

Morris Harrell, Marshall M. Searcy, Rain, Harrell, Emery, Young & Doke, Dallas, Tex., for Iowa Beef Processors, Estate of Currier Holman and MBPXL Corp.

Eugene M. Warlich, Doherty, Rumble & Butler, St. Paul, Minn., for Spencer Foods, Inc.

Wilson W. Herndon, Strasburger & Price, Dallas, Tex., for defendants in retail litigation.

Jess B. Hawley, Hawley, Troxell, Ennis & Hawley, Boise, Idaho, for Albertson's Inc.

Benjamin M. Quigg, Jr., Morgan, Lewis & Bockius, Philadelphia, Pa., Dudley Chambers, Jackson, Walker, Winstead, Cantwell & Miller, Dallas, Tex., for American Stores Co. f/k/a Acme Markets, Inc.

Roy Lewis Shults, Mitchell, Silberberg & Knupp, Los Angeles, Cal., for Arden-Mayfair, Inc. Eugene Driker, Barris, Sott, Denn & Driker, Detroit, Mich., for Borman's, Inc.

E. Link Beck, Kemp, Smith, White, Duncan & Hammond, El Paso, Tex., John A. Gilliam, Jenkens & Gilchrist, Dallas, Tex., for the Circle K Corp.

MEMORANDUM

PATRICK E. HIGGINBOTHAM, District Judge.

Introduction

The task of applying the legal doctrine that forbids both offensive and defensive use of pass-on is presented a second time in this litigation. The prohibition was born of a familiar tension between finite proof and convenience and adjusted by the Supreme Court on the side of convenience. In this task, we are reminded that the relationship of antitrust law and economic theory continues to be a sometime thing suffering from both lack of commitment and an inability (or unwillingness) to communicate, each with the other. The choice of immediate over remote purchasers as preferred claimants, despite its purpose of avoiding undue complexity and speculation, thereby presumably aiding the treble damage suit, has produced a counterproductive result in the hands of the lower courts. The result is that remote plaintiffs claim to be ready to prove a pass-on completely confident that their proof can be sufficiently detailed without freeing the bogeyman of econometrics. Yet, ensnared by adherence to procedural regularity still adjusted for the finite, the goal of reducing complexity is frustrated by the effort spent in deciding if the proof would be unduly complex or speculative. In the long view, this short-term frustration may be the price for the clarity necessary to implement the goal. We will see.

I. Background of the Case

Cattle feeders who fatten and sell cattle to meat packers allege that retail grocery chains¹ conspired to purchase beef from the packers at artificially depressed prices in violation of sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2. The feeders claim that such depressions in wholesale beef prices were reflected in the Yellow Sheet, a commercial daily beef price reporting service. They allege that the packers applied a fixed formula based on Yellow Sheet beef price quotations² to compute the actual prices paid for cattle and that the entire alleged depression was "passed on" to the feeders and not suffered at all by the packers³ in a manner that functioned as an equivalent to a cost-plus contract. The pass-on was allegedly aided by the fact that cattle kept in feed lots had to be brought to market within a short period to prevent overfattening. The feeders maintain that this claimed inelastic supply of cattle provides the fixed quantity term of a cost-plus equivalency, see note 7 and accompanying text infra.

Feeders, plaintiffs, do not deal directly with the retailer defendants. Instead, they sell their cattle to packers who slaughter the cattle and convert them into beef and by-products. The packers then sell the beef (i) directly to food retailers, including defendants, or to others at the retail level (e.g., hotels, fast food chains, restaurants, and the government), and (ii) to other middlemen, such as beef jobbers, fabricators and other packers, who may process the beef further and in turn sell it to retailers. Packers do not sell by-products to the retailer defendants. A separate competitive market exists for the by-products.

The chain of distribution is as follows:

That the feeders do not sell directly to the retailers poses a high hurdle to their suit against these "indirect" purchasers, a hurdle constructed by Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392 U.S. 481, 88 S.Ct. 2224, 20 L.Ed.2d 1231 (1968), and Illinois Brick Co. v. Illinois, 431 U.S. 720, 97 S.Ct. 2061, 52 L.Ed.2d 707 (1976). The issue now before this court is whether the feeders can successfully tread the narrow path around this hurdle.

In Hanover Shoe, the Supreme Court decided that an antitrust defendant in a suit by a direct purchaser cannot assert a "passon" defense, claiming that the direct purchaser passed on any injury from illegal overcharges to its customer, the indirect purchaser.⁴ Concerned that the practical utility of private suits as an enforcing mechanism might be diminished by the complexity of proof⁵ and that indirect purchasers with "a tiny stake in the lawsuit" would not have the incentive to sue, the Court rejected the pass-on defense. 392 U.S. at 494, 88 S.Ct. at 2232.

Having rejected the defensive use of passing on with one exception, see page 1128 infra, the Court in Illinois Brick confronted its reciprocal and rejected the offensive use of a pass-on theory by an ultimate consumer against a remote seller.⁶ The Court noted that allowing offensive but not defensive use of pass-on would create a serious risk of multiple liability, 431 U.S. at 730, 97 S.Ct. at 2067, and that the offensive use of pass-on would present even more serious evidentiary complexities and uncertainties than its defensive use. Id. 431 U.S. at 732, 97 S.Ct. at 2067-68.

Both Hanover Shoe and Illinois Brick recognized a narrow exception to the pass-on bar: "when an overcharged buyer has a pre-existing `cost-plus' contract, thus making it easy to prove that he has not been damaged...."⁷ 392 U.S. at 481, 88 S.Ct. at...