In re Dairy Farmers of Am., Inc. Cheese Antitrust Litig.

• Court: U.S. Court of Appeals — Seventh Circuit
• Writing for the Court: BAUER, Circuit Judge.
• Citation: In re Dairy Farmers of Am., Inc. Cheese Antitrust Litig., 801 F.3d 758 (7th Cir. 2015)
• Decision Date: 01 September 2015
• Docket Number: No. 14–3239.,14–3239.
• Parties: In re DAIRY FARMERS OF AMERICA, INC. CHEESE ANTITRUST LITIGATION.

801 F.3d 758

In re DAIRY FARMERS OF AMERICA, INC. CHEESE ANTITRUST LITIGATION.

No. 14–3239.

United States Court of Appeals, Seventh Circuit.

Argued April 23, 2015.

Decided Sept. 1, 2015.

Christopher Lovell, Attorney, Lovell Stewart Halebian Jacobson LLP, New York, N.Y., for Plaintiff–Appellant.

Nathan P. Eimer, Attorney, Daniel D. Birk, Attorney, Eimer Stahl LLP, Chicago, IL, for Defendant–Appellee.

Before BAUER and SYKES, Circuit Judges, and REAGAN, Chief District Judge.^*

Opinion

BAUER, Circuit Judge.

Plaintiff-appellants, Indriolo Distributors, Inc., Knutson's, Inc., and Valley Gold, LLC (“Appellants”), filed a class action against Dairy Farmers of America (“DFA”), a dairy marketing cooperative, Keller's Creamery, L.P. (“Keller's”), a butter manufacturer, two DFA officers, and two Keller's officers. The case has been ongoing since its consolidation in the Northern District of Illinois in 2009. Since then, all parties named in the initial complaint have reached a settlement (“DFA Settlement”) with Appellants which the district court approved on September 12, 2014.

On March 22, 2012, Appellants filed an amended class action complaint, adding Schreiber Foods, Inc. (“Schreiber”) as a defendant and alleging violations of §§ 1 and 2 of the Sherman Act, the California Cartwright Act, the Commodity Exchange Act, and RICO. On Schreiber's motion, the district court dismissed the § 2 Sherman Act claims, but allowed Appellants to go forward on their claims arising under § 1 of the Sherman Act, the Commodity Exchange Act, and the Cartwright Act, as well as their claims for unjust enrichment and restitution. On December 13, 2013, Schreiber moved for summary judgment on these remaining claims, which the district court granted. For the following reasons, we affirm.

I. BACKGROUND

Appellants contend that between May 24, 2004, and June 23, 2004, Schreiber conspired with DFA to purchase cheese traded on the Chicago Mercantile Exchange (“CME”) in order to help DFA and Keller's manipulate the price of Class III milk futures. They allege that Schreiber and DFA purchased cheese to stabilize prices while DFA and Keller's unwound their milk futures positions at a profit, then Schreiber and DFA stopped buying cheese, causing the cheese price to crash at the end of June. Schreiber argues that its purchasing activity during the relevant time period was neither unusual nor parallel to DFA's activity and can be explained by Schreiber's independent business interest in preventing a large spread between the prices of block cheese and barrel cheese.

Schreiber manufactures and distributes various cheese products, including natural cheese and process cheese. Its products are purchased for use by restaurants and other food service distributors, or produced as store brand products for grocery stores. Schreiber purchases most of its cheese directly from suppliers, but it also purchases a small fraction of its cheese on the CME. The CME hosts the trading of spot commodities, including spot barrel and block cheese, as well as commodity futures such as Class III milk futures. The CME cheese markets serve an informal “price discovery” function and many cheese transactions in the wider market are based on CME cheese prices. The differential between the CME block and barrel closing prices is known as the “spread.” The block and barrel cheese spread is typically three cents, but can fluctuate higher or lower depending on several factors, such as supply and demand.

According to Schreiber, because it purchases upwards of one billion pounds of milk to turn into process cheese every year, a larger spread between block and barrel cheese can be damaging to it as a producer of barrel and process cheese. For example, a large spread in cheese pricing decreases Schreiber's profits on milk turned into and sold as process cheese. Therefore, Schreiber would regularly purchase barrel cheese on the CME in an effort to correct or maintain the three cent spread.

In 2004, Schreiber purchased approximately 350 million pounds of bulk cheese at a cost of approximately $1.2 billion. Schreiber purchased 93 million pounds of that cheese from DFA, a dairy marketing cooperative consisting of more than 18,000 dairy farmers in 48 states, at a cost of about $180 million. The deal is representative of the significance of the relationship between DFA and Schreiber in 2004; although the two were horizontal competitors, Schreiber was also one of DFA's largest customers and DFA was Schreiber's second largest supplier. By comparison, in 2003, Schreiber purchased approximately 602 million pounds of bulk cheese for $841.5 million, with 116 million pounds of that cheese coming from DFA, at a cost of approximately $159 million.

Of the 120 barrels Schreiber purchased in fiscal year 2004 (October 2003 to September 2004), 107 were purchased between April 20, 2004, and June 22, 2004. According to Schreiber, a significant amount of the 2004 activity was directed toward correcting a large spread. In January 2004, the spread was seven cents, rather than Schreiber's preferred three cents. By February, the spread dropped to five cents and held steady around four or five cents through April. But by May 5, the spread grew to 11.5 cents, and by May 20, it had grown to 17 cents. On May 24, the CME barrel cheese price increased 16 cents, closing the spread to three cents. The record shows that at each of these price intervals, Schreiber had acted to close the spread by purchasing cheese on the CME.

DFA was also active on the CME cheese market in 2004. DFA purchased at least 50 loads of CME block cheese in May 2004. DFA testified that it sought to defend the CME block market because of the impact that it had on the prices that its dairy farmers received for milk; if CME cheese prices were higher, DFA achieved higher pricing for its members' milk. From May 24 to June 22, 2004, Schreiber and DFA purchased all of the block and barrel cheese traded on the CME.

Throughout this time, Schreiber and DFA employees engaged in regular communications. The communications included meetings between DFA and Schreiber's top executives; between April and June 2004, executives met five times. In April 2004, Gary Hanman (DFA's President and CEO during the relevant time period) and Larry Ferguson (Schreiber's CEO) met, but the substance of the meeting is unclear. Hanman stated he does not recall what was discussed, while Ferguson stated that they met to discuss a patent infringement lawsuit. The CEOs met again on April 30 and May 1, this time with other executives. Neither recall what was discussed at those meetings. On May 11, Hanman, David Pozniak (the head of Schreiber's CME cheese purchasing), and other dairy executives met at Schreiber's offices in Green Bay, Wisconsin. The agenda for the May 11 meeting included “market conditions & forecasts,” which Hanman testified was typical and involved discussions about production and how to read markets, although “generally [they] would not talk about activities on the CME.” And on May 26, Mark Korsmeyer (President of DFA's American Dairy Brands), Pozniak, and Sam McCroskey (then President of DFA's Dairy Food Products) met; Schreiber contends that the meeting was about a potential joint venture. No additional evidence has been presented about the substance of the meeting.

Based on the discovery of these activities and interactions, Appellants added Schreiber as a defendant on March 22, 2012, alleging antitrust violations.¹

Schreiber moved for summary judgment on December 13, 2013, which the district court granted on August 18, 2014.

II. DISCUSSION

Appellants raise five arguments on appeal. The first three relate to the district court's summary judgment order—Appellants argue that summary judgment on their antitrust conspiracy claims under § 1 of the Sherman Act and California's Cartwright Act, their claim under the CEA, and on their unjust enrichment claim was inappropriate. Appellants' fourth argument alleges that the district court abused its discretion by limiting discovery to only “high-level” employees and prohibiting the depositions of several employees. And fifth, Appellants contend that the district court erred in including Schreiber in the DFA Settlement.

A. Antitrust Conspiracy Claims

The thrust of Appellants' remaining antitrust claim² is that from May 24, 2004 to June 23, 2004, Schreiber conspired with DFA to manipulate the price of Class III milk futures on the CME in violation of § 1 of the Sherman Act and California's Cartwright Act. The district court held that Appellants' evidence did not present a question for a jury on whether Schreiber conspired to manipulate the price of milk futures by purchasing spot cheese. Appellants argue that they have provided sufficient evidence to survive Schreiber's summary judgment motion. We review a grant of summary judgment de novo, construing all facts and drawing all reasonable inferences in favor of the nonmoving party. Sojka v. Bovis Lend Lease, Inc., 686 F.3d 394, 397 (7th Cir.2012). “ ‘[B]ecause the Cartwright Act is patterned after the federal Sherman Act and both have their roots in the common law, federal cases interpreting the Sherman Act are applicable in construing the Cartwright Act.’ ” In re Copper Antitrust Litigation, 436 F.3d 782, 802 (7th Cir.2006) (quoting Oakland–Alameda Cnty. Builders' Exch. v. F.P. Lathrop Constr. Co., 4 Cal.3d 354, 93 Cal.Rptr. 602, 482 P.2d 226, 231 n. 3 (1971) ). Therefore, we will conduct a single analysis for both claims using federal cases interpreting the Sherman Act.

Section 1 of the Sherman Act prohibits “[e]very contract, combination ... or conspiracy, in restraint of trade or commerce,” 15 U.S.C. § 1, “though courts have long restricted its reach to agreements that unreasonably restrain trade,” Omnicare, Inc. v. UnitedHealth Grp., Inc., 629 F.3d 697, 705 (7th Cir.2011). Agreements to fix prices unambiguously fall within the ambit of § 1. Id. To prove a § 1 claim, plaintiffs must prove three things:...