In re Processed Egg Prods. Antitrust Litig. T.K. Ribbings Family Rest., LLC

• Decision Date: 22 June 2020
• Docket Number: No. 19-1188,No. 19-1088,19-1088
• Citation: 962 F.3d 719
• Parties: IN RE: PROCESSED EGG PRODUCTS ANTITRUST LITIGATION T.K. Ribbings Family Restaurant, LLC ; John A. Lisciandro, DBA Lisciandro's Restaurant Eby-Brown Company LLC; Karetas Foods Inc., Appellants In re: Processed Egg Products Antitrust Litigation Rose Acre Farms, Inc, Appellant
• Court: U.S. Court of Appeals — Third Circuit

962 F.3d 719

IN RE: PROCESSED EGG PRODUCTS ANTITRUST LITIGATION T.K. Ribbings Family Restaurant, LLC ; John A. Lisciandro, DBA Lisciandro's Restaurant Eby-Brown Company LLC; Karetas Foods Inc., Appellants In re: Processed Egg Products Antitrust Litigation Rose Acre Farms, Inc, Appellant

No. 19-1088

No. 19-1188

United States Court of Appeals, Third Circuit.

Argued March 25, 2020

Filed: June 22, 2020

Ronald J. Aranoff, Esq., Wollmuth Maher & Deutsch, 500 Fifth Avenue, 12th Floor, New York, NY 10110, Stanley D. Bernstein, Esq., Bernstein Liebhard, 10 East 40th Street, 22nd Floor, New York, NY 1001, Michael D. Hausfeld, Esq., Hausfeld, 1700 K Street, N.W., Suite 650, Washington, DC 20006, Stephen R. Neuwirth, Esq., Kathleen M. Sullivan, Esq. [ARGUED], Quinn Emanuel Urquhart & Sullivan, 51 Madison Avenue, 22nd Floor, New York, NY 10010, Mindee J. Reuben, Esq., Lite DePalma Greenberg, 1835 Market Street, Suite 2700, Philadelphia, PA 19103, Stephen D. Susman, Esq., Susman Godfrey, 1301 Avenue of the Americas, 32nd Floor, New York, NY 10019, Counsel for Appellants T.K. Ribbings Family Restaurant, LLC; John A. Lisciandro, DBA Lisciandro's Restaurant; Eby-Brown Company LLC; Karetas Foods Inc.

Donald M. Barnes, Esq., Jay L. Levine, Esq. [ARGUED], Porter Wright Morris & Arthur, 2020 K Street, N.W., Suite 600, Washington, DC 20006, James A. King, Esq., Porter Wright Morris & Arthur, 41 South High Street, Suite 2900, Columbus, OH 43215, Leah A. Mintz, Esq., Robert M. Palumbos, Esq., Duane Morris, 30 South 17th Street, United Plaza, Philadelphia, PA 19103, Counsel for Appellee Rose Acre Farms, Inc.

Michael A. Lindsay, Dorsey & Whitney, 50 South Sixth Street – Ste. 1500, Minneapolis, MN 55402, Counsel for Amicus National Council of Farmer Cooperatives

Before: JORDAN, RESTREPO, and FUENTES, Circuit Judges.

OPINION OF THE COURT

JORDAN, Circuit Judge.

In this antitrust class action brought by egg purchasers,¹ the plaintiffs claim that egg producers conspired to inflate prices through three stratagems: (1) early slaughtering of hens and similar supply-reducing steps; (2) creation of an animal-welfare program that was actually designed to reduce the egg supply; and (3) coordinated exports of eggs. Before the District Court, the plaintiffs argued that all three of those contrivances were part of a single overarching conspiracy that was anticompetitive per se and therefore unlawful under the Sherman Act, 15 U.S.C. § 1 et seq. The defendants countered that the District Court should look at each alleged stratagem of the conspiracy separately and determine whether to apply the per se standard for antitrust liability or, instead, the more commonly applied rule of reason. In summary judgment briefing, the parties focused on one of the three alleged stratagems, and the District Court decided to evaluate it under the rule of reason. The case then proceeded to trial with all three stratagems being evaluated under that standard. Following the jury's verdict, the District Court entered judgment for the defendants.

The plaintiffs’ primary argument on appeal is that, contrary to the District Court's approach, the alleged conspiracy should have been evaluated under the standard of per se illegality rather than the rule of reason. We conclude that the District Court was right and, accordingly, will affirm.

I. BACKGROUND

The plaintiffs represent a class of "[a]ll individuals and entities that purchased shell eggs produced from caged birds in the United States directly from Defendants during the Class Period from September 24, 2004 through December 31, 2008."² (J.A. 125.) Defendant Rose Acre Farms, Inc. ("Rose Acre"), the only defendant left in the case,³ sells shell eggs and egg products for the food service industry. Rose Acre is a member of both the United Egg Producers ("UEP") and the United States Egg Marketers ("USEM"), which are trade groups representing egg producers.

As noted, the plaintiffs allege that Rose Acre participated in a conspiracy to reduce the supply of eggs by a variety of means. First, they say that, during the class period, UEP told its members to follow short-term supply-reducing recommendations, including slaughtering hens earlier than had previously been done, causing hens to molt early,⁴ and reducing the hatching of chickens. The plaintiffs argue that those recommendations were explicit production restrictions, the purpose of which was to reduce the supply of eggs. Rose Acre does not explain why UEP made those recommendations but does emphasize that they were nothing more than recommendations. And, according to Rose Acre, it is unclear whether the suggested practices actually did reduce the supply of eggs. For example, Rose Acre contends that early molting of a hen would temporarily halt the hen's egg production for a few weeks but should thereafter have increased egg production and the life span of the hen.

Second, the plaintiffs allege that a UEP certification program ("the Certification Program" or "the Program") that was promoted as a set of measures for animal welfare was actually intended to reduce the supply of eggs. The Program required egg producers to put fewer chickens in each cage to give the chickens more space. It also prohibited producers from backfilling, that is, replacing caged hens that had died. Under the Program, eggs would be labeled as "UEP Certified" only if 100% of a producer's eggs were produced in compliance with the Program's rules. In response to the charge that the Certification Program was designed to drive down supply and so drive up prices, Rose Acre says that the Program was developed by animal welfare scientists for humane purposes and that it did not limit the production of eggs. Rose Acre emphasizes that the Program's guidelines did not limit the number of hens a producer could own, the number of hen houses a producer could use, or the number of eggs a producer could sell. Additionally, Rose Acre asserts that the prohibition on backfilling did not necessarily reduce the supply of eggs because it tends to prevent disease, social competition, and stress within a flock – all of which lead to increased mortality and decreased egg production.

Third, the plaintiffs contend that UEP conspired with its members, through USEM, to collectively export eggs at below-market prices in order to inflate domestic egg prices. Rose Acre responds that the eggs it exported were surplus eggs not ordered by regular customers, and that any price effects were transitory because the exports represented such a small proportion of the eggs produced.

The plaintiffs’ appeal centers on the standard for evaluating the lawfulness of actions taken by Rose Acre and its co-defendants. As more fully described herein, restraints on trade are typically judged under what is called the "rule of reason," which basically asks whether, in light of all the circumstances in a case, the restraint in question is an unreasonable burden on competition. See infra pp. 725–26. Some restraints, however, are so manifestly anticompetitive that they do not require extensive analysis and are treated as illegal per se . Whether to apply the rule of reason or the per se standard has been one of the hotly-contested issues throughout this case.

It first arose, though, in companion cases when certain defendants filed a motion for summary judgment. A separate set of plaintiffs – the so-called Direct Action Plaintiffs or "DAPs" – had decided to file their own antitrust suits rather than participate in this class action. Their cases were then consolidated with this one for pre-trial proceedings. In litigating a summary judgment motion in the DAP cases, the defendants attacked the allegations related to the Certification Program, contending that the Program could not possibly constitute a per se violation of the Sherman Act. They argued that "[t]he Program and its components are not a naked restriction on supply, they produce at least plausible procompetitive benefits, and they make up a quality standard, which itself provides procompetitive benefits to consumers and producers." (J.A. 2172-73.) Although that motion for summary judgment was filed in the DAP cases, not this one, the District Court permitted the representative plaintiffs here to file briefing to argue that the per se rule should apply, since the same issue was in play in this case. In their brief, the plaintiffs said that the per se rule ought to apply because the defendants engaged in a horizontal conspiracy to reduce the supply of eggs in order to raise prices. The plaintiffs also argued that the alleged conspiracy had to be looked at as a whole, so it was inappropriate to consider the different contrivances of the conspiracy separately.

The District Court decided that each individual component of the alleged conspiracy could be considered separately and that the rule of reason should apply to the Certification Program, the only component on which the Court was asked to rule. The Court emphasized that the rule of reason is the usual standard for judging allegedly anticompetitive actions, and it explained that "[a]llowing the plaintiffs’ characterization of the defendant's conduct as comprising a single conspiracy as dispositive for purposes of application of per se or rule of reason analysis would completely subsume the rule of reason in most, if not all circumstances." In re Processed Egg Prods. Antitrust Litig. , 206 F. Supp. 3d 1033, 1040 (E.D. Pa. 2016) (" Processed Egg Prods. II ").

In rejecting the per se standard, the Court said that the "UEP Certifi[cation] Program does not involve an express agreement among competitors to restrain supply and ... the record contains evidence indicating that the certifi[cation] program provided certain procompetitive benefits." Id. at 1045. The Court indicated that the plaintiffs, despite their allegations, had not provided any evidence that the Program was an effort to hike prices by restricting the supply of eggs. Accepting several defense arguments, ...