In re Dairy Farmers of Am. Inc. Cheese Antitrust Litig..This Document Relates To: All Direct Purchaser Actions.

• Citation: 767 F.Supp.2d 880
• Decision Date: 04 February 2011
• Docket Number: Master File No. 09 C 3690.MDL No. 2031.
• Parties: In re DAIRY FARMERS OF AMERICA, INC. CHEESE ANTITRUST LITIGATION.This Document Relates to: All Direct Purchaser Actions.
• Court: U.S. District Court — Northern District of Illinois

767 F.Supp.2d 880

In re DAIRY FARMERS OF AMERICA, INC. CHEESE ANTITRUST LITIGATION.This Document Relates to: All Direct Purchaser Actions.

Master File No. 09 C 3690.MDL No. 2031.

United States District Court, N.D. Illinois, Eastern Division.

Feb. 4, 2011.

Anne Kristin Fornecker, Peggy J. Wedgworth, Milberg LLP, Christopher Lovell, Lovell Stewart Halebian, LLP, Stephen A. Weiss, Seeger Weiss LLP, New York, NY, Edward Anthony Wallace, Wexler Wallace LLP, Mary Jane Fait, Fred T. Isquith, Michael D. Yanovsky, Theodore Beloyeannis Bell, Wolf, Haldenstein, Adler, Freeman & Herz LLC, Matthew E. Van Tine, Miller Law LLC, Chicago, IL, Ralph B. Kalfayan, Krause Kalfayan Benink & Slavens, LLP, San Diego, CA, for Plaintiffs.Marvin Alan Miller, Miller Law LLC, Chicago, IL, for Plaintiffs/Defendants.William M. Hannay, Jacob L. Kahn, Walter C. Greenough, Schiff Hardin LLP, Joel Gerald Chefitz, Bryan Matthew Webster, Christopher MacNeil Murphy, Jennifer A. Smulin Diver, McDermott Will & Emery, Ellen M. Wheeler, Rebecca R. Hanson, Foley & Lardner, Michelle S. Taylon, Steven M. Kowal, K & L Gates LLP, Ilan Chorowsky, Progressive Law Group LLC, Jeffrey A. Leon, Freed & Weiss LLC, Chicago, IL, Glenn R. Reichardt, K & L Gates LLP, Washington, DC, Matthew Samuel Wild, Wild Law Group PLLC, Larchmont, NY, Paul F. Novak, Milberg LLP, Detroit, MI, Paul W. Rebein, Rebein Law Firm PLLC, Tampa, FL, for Defendants.

MEMORANDUM OPINION AND ORDER

WILLIAM J. HIBBLER, District Judge.

This multi-district litigation is a consolidation of suits by multiple Plaintiffs that claim, among other things, various antitrust violations by Defendants. One purported class of Plaintiffs, hereinafter referred to as the “Direct Purchaser Plaintiffs,” has filed a Corrected Consolidated Class Action Complaint that makes claims of: (1) a contract, combination, or conspiracy in restraint of trade in violation of the Sherman Act, 15 U.S.C. § 1; (2) monopolization in violation of the Sherman Act, id. at § 2; (3) attempted monopolization in violation of the Sherman Act, id.; (4) manipulation in violation of the Commodity Exchange Act (CEA), 7 U.S.C. § 1 et seq. ; (5) unjust enrichment and restitution under common law; and (6) violations of the Racketeering Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1961 et seq. Defendants now move to dismiss the complaint. They have filed five different motions to dismiss, each addressing different aspects of the complaint, and have joined in each other's motions. More specifically, Defendants Gary Hanman and Gerald Bos move to dismiss Counts 1–3 of the complaint as against all of the Individual Defendants (Hanman, Bos, Frank Otis, and Glenn Millar). Defendants Otis and Millar move to dismiss Count 6. Defendants Dairy Farmers of America (DFA) and Keller's Creamery LP move to dismiss each of the six counts, in whole or in part. Finally, the various Keller's Creamery entities, which include Keller's Creamery LLC, Keller's Creamery LP, and Keller's Creamery Management LLC, have filed two motions to dismiss the entire complaint as against those entities. All of the motions are made, at least in part, for failure to state a claim, pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. However, the Keller's entities' motions also include requests for relief for lack of personal jurisdiction, insufficient process, and insufficient service of process pursuant to Rules 12(b)(2), 12(b)(4), and 12(b)(5), respectively. For the following reasons, the Court: grants the motion to dismiss Count 6 filed by Defendants Otis and Millar; grants Keller's Creamery LLC's motion to dismiss pursuant to Rule 12(b)(5); grants Keller's Creamery Management LLC's motion to dismiss, but denies it as to Keller's Creamery LP; and grants the remaining motions in part and denies them in part.

I. Factual background

Direct Purchaser Plaintiffs allege the following facts, which the Court must accept as true for purposes of the Rule 12(b)(6) motions. Disability Rights Wisc., Inc. v. Walworth County Bd. of Supervisors, 522 F.3d 796, 799 (7th Cir.2008).

To put Plaintiffs' allegations simply, they claim the Defendants' conspired to, and did in fact, buy up all of the available long positions in three months' worth of Class III milk futures contracts on the Chicago Mercantile Exchange (CME) in an effort to gain control of those markets and sell their positions at an unreasonably high price. In order to successfully pull off their scheme, Defendants also purchased large quantities of cheese at inflated prices on the CME spot cheese market, thereby creating the false impression that Class III milk prices were rising. By creating that impression, they could justify charging the inflated prices for their futures positions and maintain those prices long enough to sell off all of their positions at a profit. Plaintiffs allege that they were injured by Defendants' actions when they purchased CME Class III milk futures, CME spot cheese, and other related products at artificially inflated prices. Finally, they allege that the Defendants compounded the effects of their actions by conspiring to conceal their scheme for years after they had sold off all of their futures positions.

A. The parties

The named plaintiffs in this case are various businesses that purchased or traded either milk futures on the CME, or commodities that were priced on the basis of CME and government minimum milk prices, during the relevant time period. They define the class they purport to represent as follows:

All persons who, between April 1, 2004 through December 31, 2006 purchased (1) a CME Class III milk futures contracts [sic][,] (2) a CME spot cheese contract, (3) cheese or milk within a contract the price of which was based on the CME price or a government minimum price formula or (4) wholesale cheese or raw milk.

Plaintiffs name both organizational and individual defendants. Defendant Dairy Farmers of America (DFA) is a purported dairy marketing cooperative owned by more than 18,000 dairy farmers in 48 states. Defendant Hanman was the President and Chief Executive Officer of DFA from January 1, 1998 until December 31, 2005. Defendant Bos was Chief Financial Officer of DFA during the same period.

Plaintiffs name three separate entities called Keller's Creamery: Keller's Creamery LLC, Keller's Creamery LP, and Keller's Creamery Management LLC. Each of these entities at some point allegedly engaged in the manufacture of butter. Defendants Otis and Millar were officers in each. In 2005, these organizations, in whatever form they survived at the time, were merged into DFA. However, the specifics of the relationships between the various Keller's entities and their business structures are not relevant to the resolution of most of the motions addressed herein. In fact, they are only relevant to the two motions filed exclusively by the Keller's entities contesting their capacity to be sued.¹ Thus, outside of its analysis of those two motions, the Court will refer to the Keller's entities collectively as “Keller's” for the sake of convenience.

B. The Chicago Mercantile Exchange, milk futures, & spot cheese

The CME is the world's largest commodity futures exchange. It serves as a market for trading a number of commodities and futures contracts. Futures contracts are a type of “derivative,” meaning they derive their value from the value of the underlying commodity. In this case, Plaintiffs' allegations concern Class III milk futures contracts, which derive their value from the value of Class III milk.²

Generally speaking, the parties to a futures contract agree to the sale of the underlying commodity on some future date certain at a price determined on the date of the agreement. In other words, the seller promises to deliver a predetermined amount of the commodity to the buyer on the date certain, and the buyer promises to pay the agreed-upon price. Thus, if prices for the commodity go up in the meantime, the buyer benefits because he or she has the right to purchase the commodity for less than the market value. If, on the other hand, prices go down, the seller benefits because he or she has the right to sell the commodity for more than the market value. The buyer's stake in the commodity's rising price is known as the “long position,” and the buyer is colloquially referred to as the “long.” By contrast, the seller takes the “short position,” and is known as the “short.”

As futures markets have developed, however, the links between futures and underlying commodities has become more attenuated. This is due, in large part, to the fact that many people who engage in futures trading are speculators who are not actually interested in the underlying commodity itself. Some traders are simply interested in the profits they may realize through successful speculative trading. Others who do have an interest in the underlying commodity or a related market may use futures trading to “hedge” against rising or falling prices. For instance, Plaintiffs claim that DFA, as a marketer of raw milk, has an inherent interest in the price of raw milk rising. Thus, in order to hedge against the possibility of an unexpected drop in milk prices, they might take some short positions in Class III milk futures contracts so that they would cover their losses at least in part.

The most notable change in the operation of futures markets as a result of this change in traders' interests, at least for purposes of this case, is that the parties to many types of futures contracts do not ever exchange the underlying commodity. Instead, many futures, such as CME Class III milk futures, “cash settle.” In other words, the parties pay each other based on the fluctuation of the price of Class III milk.

This process is facilitated through the use of the CME as a clearinghouse for standardized futures contracts. CME participants can trade in Class III milk futures contracts for every month of the year. At any...