Antitrust Law Daily Wrap Up, ANTITRUST—C.D. Ill.: Distributor’s claims proceed against milk producer over attempt to restrain price competition for the producer’s milk, (Oct 7, 2013)

By Tobias J. Gillett, J.D., LL.M.

A distributor of dairy products produced by Prairie Farms Dairy, Inc. has sufficiently alleged claims that Prairie Farms conspired with a half-owned distributor and its subdistributors to prevent the distributor and others from competing on price for contracts to supply local schools and nursing homes, the federal district court in Springfield, Illinois, has ruled (P & M Distributors, Inc. v. Prairie Farms Dairy, Inc., October 4, 2013, Mills, R.).

According to the complaint, Prairie Farms and P.F.D. Supply Corp. operate a dairy product production and supply business in Illinois. P & M Distributors, Inc., a subdistributor of Prairie Farms dairy products under distributor Hawthorn Mellody, Inc. from fall 1998 until fall 2007, filed suit against Prairie Farms and P.F.D., as well as one of its distributors, Muller-Pinehurst Dairy, Inc. (50 percent owned by Prairie Farms), and two of the distributor’s subdistributors, Schuring & Schuring, Inc. and Lockwood Enterprises, Inc. P&M alleged that the defendants had conspired to inflate the prices for liquid milk and related products for elementary and high schools in the Illinois counties of Cook, Lake, Will, and DuPage, and for a group of 30 nursing homes receiving management and marketing services from two particular companies and located in the same four counties.

Prairie Farms controlled between 60 and 80 percent of the market for liquid milk and related products for elementary schools and high schools during the relevant time period, according to P & M. Prairie Farms’ president allegedly told P & M that P & M could not bid on contracts in the four-county area because it would drive down the price received by Muller-Pinehurst and Prairie Farms, including a contract for Schaumburg School District No. 54. Moreover, Muller-Pinehurst subdistributor Cary Dairy allegedly submitted an inflated bid on that contract so that Lockwood would be the low bidder, and the president allegedly informed the school district that P & M was not sufficiently experienced to handle the contract. When P & M sought to submit a bid for a Romeoville, Illinois, contract, the president directed P & M to submit a bid higher than that submitted by Lockwood, offering to have Lockwood transfer a contract for a different district to P & M in exchange. P & M complied, and the contract was awarded to Lockwood, but Lockwood did not transfer the other contract to P&M.

During the same period, Prairie Farms allegedly controlled 100 percent of the market for liquid milk and related products for the 30 nursing homes. P & M submitted successful bids on contracts for two of the nursing homes, but Prairie Farms’ president allegedly ordered P & M to pay a two percent commission to the nursing home management company that Muller-Pinehurst and its subdistributors had previously paid. The president then told P & M that it could not submit bids on contracts for any of the other 28 nursing homes that were lower than those submitted by Muller-Pinehurst or its subdistributors. Prairie Farms’ president also supplied lists of minimum prices to P & M, below which P & M was not allowed to sell products to nursing homes.

The court concluded that P & M had adequately alleged concerted action on the part of Prairie Farms, P.F.D. Supply, Muller-Pinehurst, Schuring & Schuring, and Lockwood. Prairie Farms was capable of conspiring with Muller-Pinehurst because Prairies Farms only owned 50 percent of Muller-Pinehurst, and therefore Muller-Pinehurst was not Prairie Farms’ wholly-owned subsidiary. P & M’s allegations that the defendants had kept consumer prices higher in the two markets by prohibiting P & M and other Prairie Farms distributors from submitting lower bids were sufficient to “at least generally” allege concerted action.

Moreover, P & M adequately defined its relevant markets, according to the court, even though the phrase “liquid milk and related products” could “certainly be defined more specifically,” and it was “unclear why other types of schools,” such as middle schools or Catholic schools, were not part of the relevant market. P & M’s allegations that Prairie Farms had market power in the school district and nursing home markets in the four-county area, and that Prairie Farms prohibited P & M from competing on price in those markets, were sufficient to plead its geographic market.

P & M also sufficiently alleged an injury of the type the antitrust laws were designed to prevent, in the court’s view. P & M adequately alleged consumer injury by alleging that consumers were forced to pay higher prices for milk and other dairy products.

Finally, the court declined to find that P & M’s allegations of injury to intrabrand competition alone were insufficient to allege harm. Such allegations were evaluated under the rule of reason, and based on the record before it the court was “unable to determine whether competition was unreasonably restrained.”

The case is No. 11-3145.

Attorneys: Mark D Belongia (Roetzel & Andress LPA) for P & M Distributors, Inc. Louis Boone Park (Alston & Bird LLP) and Stephen R Kaufmann (Hepler Broom LLC) for defendants.

Companies: P & M Distributors, Inc.; Prairie Farms Dairy, Inc.; P.F.D. Supply Corp.; Muller-Pinehurst Dairy, Inc.; Schuring & Schuring, Inc.

Cases: Antitrust IllinoisNews