In re Processed Egg Prods. Antitrust Litig.

Decision Date26 September 2011
Docket NumberMDL No. 2002.No. 08–md–02002.
Citation821 F.Supp.2d 709
PartiesIn re: PROCESSED EGG PRODUCTS ANTITRUST LITIGATION.This Document Applies to: All Actions.
CourtU.S. District Court — Eastern District of Pennsylvania

OPINION TEXT STARTS HERE

MEMORANDUM
GENE E.K. PRATTER, District Judge.I. Introduction

This multidistrict litigation concerns an alleged conspiracy by egg producers and trade groups to restrict the domestic supply of eggs in violation of Section 1 of the Sherman Act. A half dozen motions to dismiss await resolution.1 The movants seek to dismiss the claimed antitrust violation asserted against them individually in the direct purchaser plaintiffs' Second Consolidated Amended Class Action Complaint (hereinafter, the “SAC”) for not meeting the grade. They argue that the SAC is like a curate's egg: although the pleading arguably may have alleged sufficient facts in support of the antitrust conspiracy claim as to some defendants, the pleading is deficient with respect to each of the movants by failing to allege facts that they specifically were parties to the conspiracy. Cracking each motion ad seriatim, the Court grants the motions of Hillandale Gettysburg L.P., Hillandale Farms Inc., and Hillandale Farms East, Inc. (collectively, the “Hillandale Entities”), and United Egg Association, and denies the remainder of the motions addressed in this Memorandum.2

II. Background

The Plaintiffs are direct purchasers of domestic eggs,3 who brought suit in a number of jurisdictions, charging that defendant egg producers and trade groups engaged in a conspiracy to manipulate the supply of, and thereby fix prices for, domestically-sold eggs. The Judicial Panel on Multidistrict Litigation centralized the actions for coordinated pretrial proceedings before this Court. At the present stage, the SAC is the operative pleading for the direct purchaser plaintiffs, replacing or superceding all of the previously-filed individual and consolidated complaints. The various named Defendants responded to the SAC by answers or motions to dismiss, or, in some specific respects, both. The six motions at bar have been fully briefed and illuminated by oral argument 4 and the parties' submissions of supplemental authorities they wished to bring to the Court's attention. The Court commends all of the attorneys for their stimulating advocacy.

III. Factual Allegations

Given the complexity of, and level of nuanced detail provided in, the SAC concerning the Defendants' alleged conduct, the industry structure and practices, and market implications, the Court limits the discussion to the SAC's core allegations.5

Plaintiffs articulate their legal theory as follows:

Plaintiffs allege herein a conspiracy among Defendants and certain unnamed co-conspirators where they agreed to fix, raise, maintain and/or stabilize the prices at which shell eggs and egg products (collectively, “eggs”) were sold in the United States, including by controlling the aggregate supply of domestic eggs. Each Defendant knew that it could not do this by itself and that supply needed to be “restrained” by collective action. Thus, Defendants entered into an overarching agreement to manage the aggregate supply of eggs in the United States. During the Class Period [from January 1, 2000 to present], Defendants implemented this supply management conspiracy by agreeing to take several coordinated actions.

SAC ¶¶ 1, 481.6

Specifically, Plaintiffs list eight alleged “collective actions” undertaken by Defendants to advance the purported “overarching conspiracy” to manipulate the supply of eggs thereby affecting the price of eggs. See id. ¶¶ 11–18. Those eight actions allegedly enhanced the conspiracy by, in and of themselves, altering the supply and, hence, the price, of eggs.

Plaintiffs claim that the first collective action took place in 1999 and 2000 when Defendants established a “supply adjustment program.” Through this program participants agreed to engage in an immediate five-percent flock molt, a five-percent reduction of flock inventory in the ensuing six to twelve months, and the development of a hatch reduction program. Id. at ¶¶ 11, 187–89.

The second collective action allegedly involved the Defendants agreeing to a five-percent emergency flock reduction in 2001. Id. at ¶¶ 12, 195.

The third action occurred in 2002 when Defendants developed and undertook an early molt and hen disposal plan. Id. at ¶¶ 13, 198–200.

The fourth collective action involved Defendants agreeing to adopt guidelines on cage space densities for hens. These guidelines were part of an “animal husbandry” or “animal welfare” program that became known as the “United Egg Producers Certification Program” (hereinafter, the “UEP Certification Program” or the “Program”). Id. ¶ 14. By complying with the guidelines, producers could sell “UEP-certified eggs” and affix a logo on packages to reflect that the eggs were certified under the Program. Id. ¶¶ 82, 310. The Program figures prominently in the Plaintiffs' claims and is discussed in greater detail below.

The fifth alleged collective action involves the execution of an early molt and flock disposal plan in mid–2004. Id. ¶ 15.

For the sixth collective action, Plaintiffs claim that Defendants held an “Egg Industry Economic Summit” to coordinate an immediate supply reduction scheme via a written commitment to reduce supply. See id. ¶¶ 16, 288–93. The SAC appears to quote without citation the purported language on this “commitment sheet”: “Option # To dispose of hens that are currently scheduled for disposal between January 1 and April 30, 2005 four (4) weeks earlier than previously scheduled;” or “Option # 2 To reduce their December 1, 2004 flock size by 5% between the dates of January 1 through April 30, 2005.” Id. ¶ 290; see also id. ¶ 293.

As part of the seventh collective action, according to Plaintiffs, Defendants required through the UEP Certification Program “that a company must commit to implementing the welfare guidelines on 100% of all production facilities.” Id. ¶ 17. Specifically, the requirement was “that 100% of a producer's egg houses ... be maintained in accordance with the [UEP Certification Program] guidelines in order for a company to sell ‘UEP Certified’ eggs.” Id. ¶ 222.

Finally, the alleged eighth action was an export program. Plaintiffs claim that Defendants allegedly agreed to export eggs at a loss in order to lower supply in the United States, and they agreed to reimburse each other to cover those losses. Id. ¶¶ 18, 329, 333–34.

As described by Plaintiffs, the Defendants' trade groups, United Egg Producers (“UEP”), United Egg Association (“UEA”), and United States Egg Marketers (“USEM”), who are also named Defendants, were central to this conspiracy. Defendant egg producers' memberships and participation in those trade groups allegedly facilitated the Defendants' “collective actions” that advanced the conspiracy.

Under the Plaintiffs' theory, through their “collective actions” Defendants sought to raise the price of eggs by capitalizing on certain market conditions particular to the domestic egg market. In particular, Plaintiffs charge that Defendants' objective was to take advantage of consumers' relatively inelastic demand for eggs, as well as the fact that eggs are commodities and have no market substitutes. Id. at ¶¶ 6, 152–56, 158. Defendants' actions were supposedly prompted by a desire to stabilize the egg market's volatile prices and supply. Prior to Defendants' coordinated actions, supply allegedly was cyclical, depending on the increase or decrease of prices in the egg market. Id. at ¶ 7. Recognizing the market volatility and its impact on the industry and producers, Defendants allegedly pursued the coordinated actions to increase egg prices.

According to Plaintiffs, the Defendants' conduct purportedly achieved the desired outcome by decreasing egg production, thereby decreasing the supply of eggs and leading to increased egg prices. Plaintiffs point to various increases in egg prices from 2003 to 2009 and attribute those increases to reduced supply, claiming such a result is the ill-gotten product of the Defendants' conspiratorial conduct. See, e.g., id. ¶¶ 162–63, 166–70, 367, 369, 375, 377. Defendants, who were both shell egg and egg products producers, supposedly benefited from the overall reduced supply of eggs. Id. ¶ 408. Those Defendants who were egg products producers allegedly benefited by being able to market their egg products at an artificially increased price, even though they purchased shell eggs at inflated prices. Id. ¶ 409.

The Defendants, of course, have an entirely different take on the events recounted in the SAC, so much so that many of the Defendants challenge the sufficiency of the allegations in the SAC even while tacitly acquiescing in the continuation of the core of Plaintiffs' claim at least beyond the Rule 12(b)(6) stage.

IV. Legal StandardsA. Motion to Dismiss Standard

As is well acknowledged, a Rule 12(b)(6) motion tests the sufficiency of a complaint. Conley v. Gibson, 355 U.S. 41, 45–46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957). Rule 8 of the Federal Rules of Civil Procedure requires only “a short and plain statement of the claim showing that the pleader is entitled to relief,” in order to “give the defendant fair notice of what the ... claim is and the grounds upon which it rests.” Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (alteration in original) (quoting Conley, 355 U.S. at 47, 78 S.Ct. 99). Nonetheless, a plaintiff must provide “more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Id. (citation omitted). Specifically, [f]actual allegations must be enough to raise a right to relief above the speculative level.” Id. The question is not whether the claimant will ultimately prevail but whether the complaint is “sufficient to cross the federal court's threshold.” Skinner v. Switzer, ––– U.S. ––––, 131 S.Ct. 1289,...

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