In re Mccormick, MDL Docket No. 2665
| Decision Date | 13 June 2017 |
| Docket Number | Misc. No. 15-1825 (ESH),MDL Docket No. 2665 |
| Parties | IN RE: MCCORMICK & COMPANY, INC., PEPPER PRODUCTS MARKETING AND SALES PRACTICES LITIGATION This Document Relates To: ALL CONSUMER CASES |
| Court | U.S. District Court — District of Columbia |
Sealed
Plaintiffs, who are retail purchasers of black pepper supplied by defendant McCormick & Co., allege that McCormick and its retailers deceived plaintiffs about the amount of pepper in containers and conspired to inflate the prices that plaintiffs paid. This Court previously dismissed plaintiffs' claim under Section 1 of the Sherman Act, 15 U.S.C. § 1, but permitted the suit to proceed on the basis of the consumer protection and unjust enrichment claims. See In re: McCormick & Co., Inc., 217 F. Supp. 3d 124 (D.D.C. 2016). The Court subsequently gave plaintiffs leave to re-plead their antitrust claim. (See Mem. Op., March 21, 2017, ECF No. 127.) Defendants have now renewed their motions to dismiss that claim. Because the Court concludes that plaintiffs have not and cannot cure the deficiencies in their complaint, the Court will dismiss the antitrust claim in Count One with prejudice.
After the Judicial Panel on Multi-District Litigation consolidated fourteen separate class actions before this Court, plaintiffs filed their Consolidated Amended Class Action Complaint, ECF No. 34 ("Compl."), asserting antitrust, consumer protection, and unjust enrichment claims. As alleged in the antitrust claim, McCormick and its retailers agreed, in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1, to implement a price increase by decreasing the quantity of pepper in both the branded McCormick containers and the retailers' private-label containers, which were also supplied by McCormick. (Id. at ¶¶ 48-63, 73-80.) Plaintiffs alleged that "[s]ince 2010 the cost of raw black pepper has increased by approximately 500%." (Id. at ¶ 31.) In response, in2015 "McCormick began shipping millions of [its branded] pepper tins and grinders to retail stores containing 25% and 19% less black pepper, respectively" than they had previously. (Id. at ¶ 34.) Although the containers noted the new weight, they were the "exact same size" as before. (Id. at ¶¶ 38-40, 45.) In addition, "McCormick and the Retailers agreed that McCormick would reduce the amount of ground black pepper contained in the McCormick-supplied, store-branded tins, even though the actual size of the store-branded tins has, at all relevant times, remained the same." (Id. at ¶ 50.) Plaintiffs further alleged that "McCormick and the Retailers agreed to, and did, maintain the same retail prices (as if the black pepper tins and grinders were full) for the now slack-filled black pepper containers." (Id. at ¶ 62.) According to plaintiffs, defendants' conduct led to "supra-competitive, artificially inflated prices for pepper," in violation of Section 1 of the Sherman Act. (Id. at ¶¶ 74, 76.)1
The Court dismissed plaintiffs' Sherman Act claim for failure to state a claim. McCormick, 217 F. Supp. 3d at 146. First, plaintiffs had conceded at the motion hearing on October 25, 2016, that McCormick and its retailers did not explicitly agree on retail prices, and the Court also found that the complaint did not plausibly suggest such an agreement. Id. at 131-34. Second, although the Court accepted that plaintiffs had alleged agreements between McCormick and its retailers about the quantity of pepper in containers, the Court held that plaintiffs had not plausibly alleged that such agreements were anticompetitive. Id. at 134-39.
After the Court dismissed the antitrust claim, plaintiffs moved for leave to amend their complaint to re-plead that claim. Their proposed complaint, which is now the Second Amended Consolidated Class Action Complaint, ECF No. 128 (redacted version at ECF No. 129) ("2d Compl."), adds allegations based on documents obtained from defendants during discovery. Again, the Court will provide only a brief summary of the allegations, because readers may refer to the Court's previous description. (See March 21 Mem. Op. at 5-7.) Plaintiffs now allege that McCormick wanted to avoid a price increase, because it was concerned that increases in the price gap between the branded products and less expensive private-label products had hurt the branded products' market share over the past few years. (Id. at ¶¶ 57-58.) However, McCormick also "feared that a unilateral reduction [in quantity of pepper in a tin] might be 'deceptive and could very well back fire on us[,]' since the private label competitors would likely 'advertise '10% more vs [McCormick]" and thus 'point[] this deception out to our loyal branded customer.'" (Id. at ¶ 60.) McCormick informed retailers that it would be reducing the weights in its branded products and explained that they could choose to accept the reduced weights in their private-label products or pay a higher price to keep the old weights. (Id. at ¶¶ 66, 68, 69.) Nineteen retailers agreed to accept the reduced weights in the private-label products, while eight smaller retailerstook a wholesale price increase either because they were not offered a choice to reduce weights or because they elected not to do so. (Id. at ¶ 81.) According to plaintiffs, McCormick's agreements with the nineteen retailers to reduce weight in private-label products were anticompetitive because "competing on fill levels" would have "creat[ed] downward pressure on prices." (Id. at ¶¶ 55, 81, 106.)
In their argument for leave to amend, plaintiffs contended that the new complaint would address the Court's concerns with the original complaint, because it showed that "McCormick and its private label competitors expressly agreed to reduce fill" and that "the agreements had an anticompetitive effect, namely the elimination of competition around fill levels between McCormick and its private label competitors." (Pls. Mot. Reconsideration at 11-12, ECF No. 107 (redacted version at ECF No. 105).) The Court concluded that plaintiffs had again failed to make plausible allegations that the agreements on fill levels were anticompetitive. (March 21 Mem. Op. at 9-14.) Still, the Court granted leave to amend because plaintiffs "seem[ed] to be intimating that their antitrust claim can be based on an alternative theory that defendants agreed to deceive consumers about the reduction in fill," and the Court required further briefing to assess the plausibility of that theory. (Id. at 9-10, 14-16.)
In response to plaintiffs' attempt to re-plead their Sherman Act claim, defendants have renewed their motions to dismiss that claim. (McCormick Mot., ECF No. 132; Wal-Mart Mot., ECF No. 134.)2 Defendants argue that plaintiffs have not alleged an agreement to deceiveconsumers, such an agreement would not be cognizable under Section 1 of the Sherman Act, plaintiffs have failed to allege an anticompetitive effect or antitrust injury, the relevant market allegations are inadequate, and plaintiffs do not have standing to pursue a claim about the wholesale market. (McCormick Mem., ECF No. 132-1; Wal-Mart Mem., ECF No. 142 (redacted version at ECF No. 134-1).) In their opposition, plaintiffs state that they have not alleged an agreement to deceive, but they argue that they have "alleged a plausible agreement among horizontal competitors to fix shelf prices and/or to reduce fill which is a term of sale affecting price—both per se violations of Section 1 of the Sherman Act." (Pls.' Opp. at 12, ECF No. 143 (redacted version at ECF No. 139).) In reply, defendants argue that plaintiffs admit they are not pursuing the theory which was the sole basis for granting leave to amend, and plaintiffs have not plausibly alleged an agreement on retail prices. (McCormick Reply, ECF No. 140; Wal-Mart Reply, ECF No. 141.)
In the Court's two previous opinions addressing whether plaintiffs have stated an antitrust claim, the Court has identified three types of agreement that plaintiffs may be attempting to allege: (1) an agreement on retail prices; (2) an agreement on quantity (fill level); and (3) an agreement to deceive consumers about reduced fill levels. A review of the Court's previous conclusions and an analysis of plaintiffs' current arguments about each of these types of agreement demonstrate that plaintiffs have still failed to make plausible allegations that defendants violated the Sherman Act. Plaintiffs concede that they have not alleged an agreement to deceive consumers. Despite plaintiffs' attempts to bolster their complaint with documents from discovery, they have still failed to make plausible allegations that defendants agreed onretail prices. Finally, plaintiffs remain unable to articulate, either in their complaint or in their briefing, any plausible anticompetitive effect of the alleged agreements on fill level.
To state a claim for violation of Section 1 of the Sherman Act, plaintiffs' allegations "must be placed in a context that raises a suggestion of a preceding agreement, not merely . . . conduct that could just as well be independent action." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 557 (2007). The Supreme Court has explained that there is a "need at the pleading stage for allegations plausibly suggesting (not merely consistent with) agreement." Id. at 557-59. Following Twombly, courts dismiss Section 1 complaints when there is an independent business justification for the observed conduct and no basis for rejecting it as the explanation for the conduct. McCormick, 217 F. Supp. 3d at 132-34.
In addition, plaintiffs cannot survive a motion to dismiss without plausibly alleging that the agreement unreasonably restrains trade. See Nw. Wholesale Stationers, Inc. v. Pacific Stationery & Printing Co., 472 U.S. 284, 289 (1985). The Supreme Court labels categories of restraints as illegal per se when they would always or almost always tend to restrict competition, and therefore, it is not worthwhile to analyze the...
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