Antitrust Law Daily Wrap Up, ANTITRUST—E.D. Cal.: Settlement squeezes $6.4 million from tomato products producers, (Aug 15, 2014)

By Jeffrey May, J.D.

The federal district court in Sacramento has approved two settlement agreements on behalf of food products manufacturers that were allegedly overcharged for the processed tomato products they purchased directly from SK Foods, L.P., Ingomar Packing Company, Los Gatos Tomato Products, and related individuals from around 2005 through December 2008. The settlements, totaling $6.4 million, resolve the purchasers' claims that the defendants conspired to fix the prices of tomato paste, tomato sauce, and diced tomatoes (Four in One Co. v. SK Foods, L.P., August 14, 2014, Mueller, K.).

Under the proposed settlements, Ingomar has agreed to pay $3.5 million, and Los Gatos has agreed to pay $2.9 million for release of all class members’ antitrust claims against the companies and their employees. The settling defendants also agreed not to violate Sec. 1 of the Sherman Act for a period of five years. SK Foods, which had declared bankruptcy, was not part of the settlement agreements before the court.

The court granted final approval to the settlement, even though the settlement amount was not “extraordinary.” Class counsel secured a settlement of approximately one percent of the settling defendants’ total sales of tomato products during the class period. The settlement amount represented a small fraction of the estimated damages, the court noted. However, this did not automatically render the settlement “inadequate or unfair.”

In addition to the amount of the settlement, the court also considered, in approving the settlement, the extent of discovery of stage of the proceedings in the case, the experience and views of counsel, and the relatively favorable response of the class, especially the biggest purchasers, to the settlement. These factors also weighed in favor of approving the settlement.

Earlier preliminary approval. In January 2014, the court granted preliminary approval of the settlements and certified the class for settlement purposes. At that time, the court, however, raised several concerns for the parties to address prior to final approval. Documents later provided to the court for in camera review satisfied the concerns. These documents included plaintiffs’ preliminary damages estimate, copies of the parties’ mediation statements, e-mails between the parties related to settlement negotiations, a related settlement agreement, and a summary of Ingomar’s and Los Gatos’ total sales.

Attorney fees, costs. The court also approved attorney fees in the amount of $1.6 million and costs totaling $267,926. These amounts were to be paid from the settlement fund.

The fee award, representing 25 percent of the settlement amount, was reasonable. The court used the lodestar method to cross-check the award. The plaintiffs’ attorneys claimed a lodestar of approximately $5,136,097, which represented 11,754.70 hours billed by 162 attorneys and professional support staff at various billing rates from 18 separate law firms, with the average billing rate of approximately $436 per hour. The estimate, although a “rough calculation,” confirmed the award, in the court’s view.

The requested award of $267,926 for costs and expenses also was approved by the court. Among other things, the court found reasonable: $46,810 for professional services; $46,806 for data extraction; $30,000 for class administrative services; and mediation fees in the amount of $8,287.

Related criminal proceedings. The private suits proceeded at the same time as related criminal actions. The Department of Justice conducted an investigation into the domestic tomato processing industry. Frederick Scott Salyer, a defendant in the private suit and the former owner and CEO of SK Foods, pleaded guilty to racketeering and price fixing in 2012. Salyer also admitted to ordering employees to falsify tomato paste grading factors. Jeffrey Sherman Beasley, another SK Foods executive, pleaded guilty to conspiring to commit honest services mail fraud and misbranding in 2014. Ingomar and its president, Greg Pruett, received leniency under the Justice Department's antitrust leniency program for their cooperation in the investigation.

This is Case 2:08-cv-03017-KJM-EFB.

Attorneys: Arthur N. Bailey (Hausfeld LLP) and Steig Olson (Quinn Emanuel Urquhart and Sullivan LLP) for plaintiffs. George A. Nicoud and Steve Zovickian (Gibson, Dunn & Crutcher, LLP) defendants.

Companies: Four in One Co., Inc.; Cliffstar Corp.; SK Foods, LP; Ingomar Packing Co.; Los Gatos Tomato Products; Intramark USA, Inc.

Cases: Antitrust CaliforniaNews