In re Chocolate Confectionary Antitrust Litig.

• Decision Date: 15 September 2015
• Docket Number: Nos. 14–2790,14–2793,14–2792,14–2791,14–2794,14–2795.,s. 14–2790
• Citation: 801 F.3d 383
• Parties: In re CHOCOLATE CONFECTIONARY ANTITRUST LITIGATION. The Kroger Co., Safeway, Inc., Walgreen Co., Hy–Vee, Inc., Albertsons LLC, The Great Atlantic and Pacific Tea Company, Inc., and HEB Grocery Company L.P., Appellants in 14–2790. Giant Eagle, Inc., Appellant in 14–2791. United Supermarkets, LLC, Appellant in 14–2792. Meijer, Inc., Meijer Distribution, Inc., Publix Super Markets, Inc., Super Valu Inc., and Affiliated Foods, Inc., Appellants in 14–2793. Card & Party Mart II Ltd., Jones Wholesale Grocery, Inc.*, PITCO Foods, and The Lorain Novelty Co., Inc., as representatives of the Direct Purchaser Class, Appellants in 14–2794. * Pursuant to Clerk Order of July 3, 2014 CVS Pharmacy, Longs Drug Store s California, Inc., Rite Aid Corporation, Rite Aid Hdqtrs., Corp., and the Golub Corporation, Appellants in 14–2795.
• Court: U.S. Court of Appeals — Third Circuit

801 F.3d 383

In re CHOCOLATE CONFECTIONARY ANTITRUST LITIGATION. The Kroger Co., Safeway, Inc., Walgreen Co., Hy–Vee, Inc., Albertsons LLC, The Great Atlantic and Pacific Tea Company, Inc., and HEB Grocery Company L.P., Appellants in 14–2790. Giant Eagle, Inc., Appellant in 14–2791. United Supermarkets, LLC, Appellant in 14–2792. Meijer, Inc., Meijer Distribution, Inc., Publix Super Markets, Inc., Super Valu Inc., and Affiliated Foods, Inc., Appellants in 14–2793. Card & Party Mart II Ltd., Jones Wholesale Grocery, Inc.*, PITCO Foods, and The Lorain Novelty Co., Inc., as representatives of the Direct Purchaser Class, Appellants in 14–2794. * Pursuant to Clerk Order of July 3, 2014 CVS Pharmacy, Longs Drug Store s California, Inc., Rite Aid Corporation, Rite Aid Hdqtrs., Corp., and the Golub Corporation, Appellants in 14–2795.

Nos. 14–2790

14–2791

14–2792

14–2793

14–2794

14–2795.

United States Court of Appeals, Third Circuit.

Argued April 30, 2015.

Filed: Sept. 15, 2015.

Scott E. Perwin, Esq., Kenny Nachwalter, Miami, FL, Steve D. Shadowen, Esq., ARGUED, Hilliard & Shadowen, Mechanicsburg, PA, for Appellants in 14–2790.

Moira E. Cain–Mannix, Esq., Brian C. Hill, Esq., Scott D. Livingston, Esq., Bernard D. Marcus, Esq., Marcus & Shapira, Pittsburgh, PA, Joseph T. Lukens, Esq., Faruqi & Faruqi, Jenkintown, PA, for Appellants in 14–2791.

Daniel H. Gold, Esq., Haynes & Boone, Dallas, TX, for Appellant in 14–2792.

Richard L. Coffman, Esq., The Coffman Law Firm, Beaumont, TX, David P. Germaine, Esq., Alberto Rodriguez, Esq., Joseph M. Vanek, Esq., Vanek Vickers & Masini, Chicago, IL, Steve D. Shadowen, Esq., Argued, Hilliard & Shadowen, Mechanicsburg, PA, for Appellants in 14–2793.

Ruthanne Gordon, Esq., Michael J. Kane, Esq., H. Laddie Montague, Jr., Esq., Argued, Berger & Montague, Roberta D. Liebenberg, Esq., Adam Pessin, Esq., Fine Kaplan & Black, Philadelphia, PA, Hilary K. Scherrer, Esq., Hausfeld, Washington, DC, for Appellants in 14–2794.

Eric L. Bloom, Esq., Hangley Aronchick Segal Pudlin & Schiller, Harrisburg, PA, for Appellant in 14–2795.

William F. Cavanaugh, Jr., Esq., Argued, Stephanie M. Gyetvan, Esq., Adeel A. Mangi, Esq., Patterson, Belknap, Webb & Tyler, New York, N.Y., for Appellees Hersey Co. & Hersey Canada Inc.

Nicole L. Castle, Esq., McDermott, Will & Emery, New York, N.Y., David Marx, Esq., Argued, McDermott, Will & Emery, Chicago, IL, Stefan M. Meisner, Esq., McDermott Will & Emery, Washington, DC, for Appellees Mars Inc. & Mars Snackfood United States LLC.

Peter E. Moll, Esq., Argued, Daniel J. Howley, Esq., Cadwalader Wickersham & Taft, Adam L. Hudes, Esq., Stephen M. Medlock, Esq., Carmine R. Zarlenga, III, Esq., Mayer Brown, Washington, DC, for Appellee Nestle USA Inc.

Before: FISHER, HARDIMAN and ROTH, Circuit Judges.

OPINION OF THE COURT

FISHER, Circuit Judge.

In these consolidated antitrust conspiracy cases, two groups of plaintiffs, one a certified class of direct purchasers of chocolate products (“the Direct Purchaser Class”), and the other a group of individual plaintiffs (“the Individual Plaintiffs”) (collectively, “the Plaintiffs”), appeal the District Court's summary judgment in favor of defendants The Hershey Company (“Hershey”); Hershey Canada, Inc.; Nestlé USA, Inc.; and Mars, Inc. and Mars Snackfood U.S., LLC (collectively, “Mars”) (all appellees are collectively referred to as “the Chocolate Manufacturers”).

According to the Plaintiffs, the Chocolate Manufacturers conspired to raise prices on chocolate candy products in the United States three times between 2002 and 2007. The Plaintiffs assert numerous errors on appeal, but at its core, this case is about how courts should view evidence of a contemporaneous antitrust conspiracy in a foreign market when that evidence is offered to prove the existence of an antitrust conspiracy in the U.S. market. Here the foreign conspiracy involved the Chocolate Manufacturers' Canadian brethren: Hershey Canada,¹ Mars Canada, Inc., and Nestlé Canada (collectively, “the Canadian Chocolate Manufacturers”), as well as others.

We agree with the District Court that the Canadian conspiracy evidence is ambiguous and does not support an inference of a U.S. conspiracy for two simple reasons. First, the people involved in and the circumstances surrounding the Canadian conspiracy are different from those involved in and surrounding the purported U.S. conspiracy, and second, the evidence that the Chocolate Manufacturers in the United States knew of the unlawful Canadian conspiracy is weak and, in any event, relates only to Hershey. Because we also conclude that the Plaintiffs' other traditional conspiracy evidence is insufficient to create a reasonable inference of a U.S. price-fixing conspiracy, we will affirm.²

I.

A. The U.S. Chocolate Industry

The U.S. chocolate confectionary market is dominated by three companies: Hershey, Mars, and Nestlé USA. Hershey is a publicly traded company based in Hershey, Pennsylvania, and sells such famous brands as Hershey's Milk Chocolate Bar and Reese's Peanut Butter Cups. Mars is a privately held company headquartered in Virginia and is the parent company of Mars Snackfood U.S. Among Mars's most notable brands are M & Ms and Milky Way. Nestlé USA is a U.S.-based company wholly owned by Switzerland-based Nestlé S.A. Nestlé USA sells such popular brands as Nestlé Crunch and Butterfinger. Besides offering a variety of chocolate candy brands, the Chocolate Manufacturers offer a variety of sizes. Some sizes, such as single- and king-size bars (“singles” and “kings”), are for immediate consumption, while others, including bags containing miniature or bite-size candies, are for future consumption. This case focuses on immediate consumption candy sizes.

The U.S. chocolate market is highly concentrated. During the relevant period, these three companies controlled more than 75% of the U.S. market, with Hershey controlling approximately 42%, Mars controlling approximately 28%, and Nestlé USA controlling roughly 8%.

The primary raw materials for the various chocolate products at issue are generally the same: cocoa, sugar, dairy products, peanuts, almonds, fats, and oils. Naturally, the costs of these ingredients affect the prices of the chocolate products.

To hedge against cost increases for these ingredients, the Chocolate Manufacturers take advantage of futures exchanges. For example, in a 2002 internal report, Hershey understood that through futures contracts, its coverage on cocoa costs “through mid–2004” was “favorable versus [its] principal competitors.” J.A. 4620. Still, between 2002 and 2007, it is undisputed that cocoa prices increased. See J.A. 6273–74 (acknowledging that Hershey's actual cocoa costs increased from 2002 to 2006).

Parallel price increases—in which one company raises prices and its rivals follow—are not uncommon in this industry. Although the price increases have not followed a consistent playbook—some have involved changes in candy weight while others have involved delays between the initial and subsequent pricing actions—the Chocolate Manufacturers raised prices together in 1979, 1981, 1984, 1986, 1991, and 1995.

B. The Purported U.S. Conspiracy

According to the Plaintiffs, the Chocolate Manufacturers conspired to raise U.S. list prices on chocolate candy products three times between 2002 and 2007. On December 7, 2002, following a seven-year period of stagnant prices, Mars announced list price increases on singles and six packs by 3.5 cents per bar effective December 9, 2002. On December 9, Hershey announced an identical price increase on singles and a slightly lesser price increase on six packs; in addition, Hershey announced price increases on kings and ten packs (all effective January 2003). On December 11, Nestlé USA's prices moved too, effectively matching Mars and Hershey's price increases on singles, Hershey's price increase on kings, and Mars's greater price increase on six packs. Days later, Mars matched Hershey's increase on kings and exceeded Hershey's increase on ten packs.

Next, in November 2004, Mars initiated another price increase, this time on future consumption products. Nearly one month later, Hershey followed Mars's price increase on future consumption products and also raised prices on singles, kings, and six packs. Soon after, Mars matched Hershey's increases. Nestlé USA followed with nearly identical increases several days later. Finally, on March 23, 2007, Mars initiated the final increase during the alleged conspiracy period when it increased prices on singles and kings. Hershey matched the increases on April 4, and Nestlé USA followed the next day.

The conspiracy was furthered, the Plaintiffs argue, by the Chocolate Manufacturers exchanging information on each other's planned price increases before publicly announcing those increases. For example, an internal Hershey document shows that Hershey had information as early as September 2002 that Mars was “considering a price increase due to rising cocoa costs,” J.A. 5300, and in announcing the 2002 Mars price increase to the Hershey board of directors, Hershey's CEO, Rick Lenny, characterized the Mars increase as “roughly in line with expectations,” J.A. 4620.

In addition, the Plaintiffs highlight various opportunities the Chocolate Manufacturers had to conspire. For example, in 2002, at a time when the U.S. chocolate market was not thriving, the Hershey Trust, Hershey's controlling shareholder, put Hershey up for sale. Hershey's rivals, including Nestlé and Cadbury, were among the interested buyers. Through the proposed sale process, Nestlé and Cadbury obtained information about Hershey's business, but the record is unclear to what extent Hershey's most sensitive information, such as commodities cost coverage, changed hands and who received it. The Hershey Trust terminated the sale process in September 2002, shortly before the first price increase in the purported conspiracy.

The Plaintiffs also point north to Canada, where the Canadian chocolate market was...