In re Beef Industry Antitrust Litigation

• Decision Date: 25 April 1989
• Docket Number: 3-77-0780-G,Civ. A. No. 3-77-1080-G,3-78-0124-G and 3-78-0123-G,M.D.L. No. 248.,3-77-0990-G
• Citation: 713 F. Supp. 971
• Parties: In re BEEF INDUSTRY ANTITRUST LITIGATION. This document relates to the Packer cases: CA 3-77-1080-G (Ludvigson), CA 3-77-0990-G (Cameron), CA 3-77-0780-G (MPIA), CA 3-78-0124-G (Trigg) and CA 3-78-0123-G (Lee).
• Court: U.S. District Court — Northern District of Texas

713 F. Supp. 971

In re BEEF INDUSTRY ANTITRUST LITIGATION This document relates to the Packer cases CA 3-77-1080-G (Ludvigson) CA 3-77-0990-G (Cameron) CA 3-77-0780-G (MPIA), CA 3-78-0124-G (Trigg) and CA 3-78-0123-G (Lee).

Civ. A. Nos. 3-77-1080-G, 3-77-0990-G, 3-77-0780-G, 3-78-0124-G and 3-78-0123-G, M.D.L. No. 248.

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

December 28, 1988.

As Corrected January 4, 1989.

Motion for Reconsideration April 25, 1989.

COPYRIGHT MATERIAL OMITTED

Scott A. Hawkins, Hawkins & Hawkins, Dallas, Tex., Lex Hawkins, Glenn L. Norris, George F. Davison, Jr. and Carla T. Cook, Hawkins & Norris, Des Moines, Iowa, John A. Cochrane and Stewart C. Loper, Cochrane & Bresnahan, P.A., St. Paul, Minn., Donald J. Polden, Des Moines, Iowa, James W. Witherspoon and James E. Elliott, Witherspoon, Aikin & Langley, Hereford, Tex., and Lowell V. Summer-hays, Sandy, Utah, for plaintiffs.

William G. Schopf, Jr. and Patrick J. Heneghan, Schopf & Weiss, Chicago, Ill., for defendant, IBP, Inc.

John C. Dods and James T. Newsom, Shook, Hardy & Bacon, Kansas City, Mo., for defendant, Excel.

Morris Harrell and Marshall M. Searcy, Jr., Rain, Harrell, Emery, Young & Duke, Dallas, Tex., for the Packer defendants.

Timothy M. Gallagher and George T. Frampton, Chicago, Ill., for defendant, Nat. Provisioner.

MEMORANDUM OPINION

KAZEN, District Judge.

Plaintiff cattle feeders bring suit under §§ 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1 and 2, alleging that the Defendant beef packers combined and conspired to artificially depress the price of live cattle, and attempted to and conspired to monopolize the cattle slaughter and beef fabrication industry. Defendant packers are IBP, Inc. (formerly Iowa Beef Processors, Inc.) and Excel Corporation. National Provisioner, Inc., publisher of The Daily Market and News Service ("The Yellow Sheet"), is also named as a conspirator in the § 1 claim. Pending are motions for summary judgment by the Defendants.

Prologue

This multidistrict litigation has been ongoing for more than 12 years. The instant motions represent the "packer" prong of the litigation. The cattle feeders had earlier attempted to establish liability against various retail grocery chains. The feeders had alleged that the retailers conspired to purchase beef from packers at artificially depressed prices. These depressed prices were allegedly reflected in the Yellow Sheet and were "passed on" to the feeders by the packers, who allegedly bought cattle from the feeders using a fixed price formula based on the Yellow Sheet. Judge Patrick E. Higginbotham, then of the United States District Court for the Northern District of Texas, granted the retailers' motions for summary judgment. In re Beef Industry Antitrust Litigation, 542 F.Supp. 1122 (N.D.Tex.1982). His decision was affirmed by the Fifth Circuit. 710 F.2d 216 (5th Cir.1983).

In his lengthy opinion, Judge Higginbotham concluded that "a variety of factors influenced the pricing decisions made by packers: individual needs, competition and negotiation for cattle, estimation of yield and grade of cattle, conditions in the cattle markets, and the fluctuation of the by-product market." 542 F.Supp. at 1131. He also found that "empirical studies presented by retailers demonstrate that the Yellow Sheet is not the index of a reasonably precise pricing formula." Id. at 1135.

Summary Judgment Standard

The pending motions must be evaluated in the light of Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). Similar to this case, plaintiffs in Matsushita invoked §§ 1 and 2 of the Sherman Act, claiming that the defendants had conspired to monopolize the American market in television sets by predatory pricing designed to drive American manufacturers out of business. The Supreme Court held that once defendants have carried their initial burden of demonstrating the absence of a genuine issue of material fact, the plaintiffs, to survive summary judgment, must establish the existence of a genuine issue of material fact as to whether defendants entered into an illegal conspiracy that caused plaintiffs to suffer a cognizable injury. Id., 106 S.Ct. at 1355-56. If Plaintiffs' claim in its factual context "is one that simply makes no economic sense," they must come forward with "more persuasive evidence to support their claim than would otherwise be necessary." Id. at 1356. Conduct as consistent with permissible competition as with illegal conspiracy will not support an inference of antitrust conspiracy. Plaintiffs' evidence must tend to exclude the possibility that the alleged conspirators acted independently. Id. at 1357. "Lack of motive bears on the range of permissible conclusions that might be drawn from ambiguous evidence." Id. at 1361.

Section 1 Claim

The feeders' § 1 claim alleges that the Defendant packers, aided by the National Provisioner, conspired to fix the price of live cattle by the following conduct:

1. Agreeing to quote substantially identical bids for live cattle;

2. Agreeing to tie bidding on live cattle to the Yellow Sheet;

3. Exchanging market information through oral and written communication and by interchanging key employees;

4. Purchasing carcass, primal and subprimal beef from each other for the purpose of fixing the reported price;

5. Manipulating the carcass, primal and subprimal prices of beef reported in the Yellow Sheet; and

6. Boycotting and agreeing to boycott cattlemen in given areas to artificially lower the price of live cattle.

The sixth allegation can be rejected outright. There is no proof, direct or circumstantial, of any such boycott, and the feeders appear to have abandoned this contention. Similarly there is no credible evidence of Defendants' interchanging key employees as part of any scheme to fix prices. The remaining allegations can be distilled into an argument that the Defendant packers, in collusion with the National Provisioner, used the Yellow Sheet to artificially depress the price of live cattle, and that through transactions between themselves, the packers rigged the prices reflected in the Yellow Sheet.

A party suing under section 1 of the Sherman Act must show the existence of a contract, combination or conspiracy. Independent action is not proscribed. Monsanto Co. v. Spray-Rite Service Corp., 465 U.S. 752, 104 S.Ct. 1464, 1469, 79 L.Ed.2d 775 (1984). The evidence must reasonably tend to prove that the Defendants had a conscious commitment to a common scheme designed to achieve an unlawful objective. Id., 104 S.Ct. at 1473. The feeders essentially concede that they have no direct evidence of any agreement to fix prices. They rely upon two theories to show an unlawful agreement. The first is that an information exchange which stabilizes price is evidence of an illegal conspiracy, citing United States v. Container Corp. of America, 393 U.S. 333, 89 S.Ct. 510, 21 L.Ed.2d 526 (1969). However, the instant case is distinguishable. Unlike Container Corp., the Yellow Sheet does not involve the direct exchange of information between competitors. Also, the information published in the Yellow Sheet is a statistical report on past average price to all customers, and the information is public. See, Wilcox v. First Interstate Bank of Oregon, 815 F.2d 522, 526 (9th Cir.1987). An exchange of price information which constitutes reasonable business behavior is not an illegal agreement. Id. at 527.

The second theory is that an agreement is shown by parallel business behavior or "conscious parallelism." A plaintiff relying on a theory of conscious parallelism must show two things: (1) that the defendants engaged in consciously parallel action, and (2) that this parallel action was contrary to their economic self-interest so as not to amount to a good-faith business judgment. Pan-Islamic Trade Corp. v. Exxon Corp., 632 F.2d 539, 559 (5th Cir. 1980). To avoid summary judgment under this theory, Plaintiffs cannot rely on proof of parallel behavior alone. Significant probative evidence of conscious parallelism is required, with some "plus factor" tending to exclude the possibility that the packers' behavior was unilateral. Royal Drug Co. v. Group Life and Health Ins. Co., 737 F.2d 1433, 1437 (5th Cir.1984); Apex Oil Co. v. DiMauro, 822 F.2d 246, 253-54 (2d Cir.1987).

The packers present plausible evidence that their pricing behavior was unilateral. They readily admit that the price of beef reported in the Yellow Sheet was always a key factor in their pricing decisions for live cattle. Russell A. Walker, Vice President-Cattle Procurement for IBP, stated in an affidavit of September 12, 1977, that the Yellow Sheet price was "an important factor ... because it tells me what IBP can get, currently for the carcass of the cattle I buy." Walker Affidavit, para. 5. The affidavits of Walker and Lanny L. Binger, his former counterpart at EXCEL, establish that packers considered many factors when offering a price for live cattle. These factors include those noted by Judge Higginbotham in his decision granting the retailers' motions for summary judgment. 542 F.Supp. at 1131-34. As Judge Higginbotham put it: "Characterizing the use of the Yellow Sheet as a mechanical formula proves nothing. An habitual use of a `rule of thumb' by packers is nonetheless a rule of thumb." Id. at 1139. This conclusion is buttressed by the feeders' inability to establish, after a decade of litigation and extensive discovery, that over any certain period of time, the packers offered the same price for live cattle. At best, the evidence shows that the packers in their independent efforts to purchase beef in the same markets, made similar use of a national publication recognized as a reliable source of market information. Use of this information was not contrary to each packer's economic self-interest. Russell Walker's affidavit indicated that the Yellow Sheet price is important because it tells the...