Antitrust Law Daily Wrap Up, ANTITRUST—E.D. Pa.: Direct action plaintiffs given more time to opt out of egg price fixing settlement, (Sep 16, 2015)

By Linda O’Brien, J.D., LL.M.

In a class action suit brought against an egg producer for its role in an alleged conspiracy to restrict the supply of domestically produced eggs and egg products, the direct action plaintiffs were granted an extension of time to opt out of a settlement. The federal district court in Philadelphia found that the plaintiffs’ failure to opt out of the settlement before the deadline was a result of excusable neglect (In re Processed Egg Products Antitrust Litigation, September 14, 2015, Pratter, G.).

In September 2008, grocery stores, restaurants, and other food service providers who purchased shell eggs and egg products (direct purchaser plaintiffs or DPPs) filed a series of class action suits against egg producers, including Cal-Maine Foods, and trade association groups for manipulating the supply of eggs and egg products and thereby affecting domestic prices for those goods. In December 2011, commercial food manufacturers Kraft Foods, General Mills, Nestle, and Kellogg (direct action plaintiffs or DAPs) filed a separate direct action lawsuit against Cal-Maine.

The DPPs reached a settlement agreement with Cal-Maine which was preliminary approved in February 2014. The Kraft DAPs received notice of the Cal-Maine settlement in April 2014, but did not submit a formal opt-out letter. In October 2014, the court granted final approval to Cal-Maine settlement. After Cal-Maine notified the Kraft DAPs that their lawsuit against Cal-Maine was barred by the settlement, the DAPs moved to exclude them from the Cal-Maine-DPP settlement or, in the alternative, to extend the time to opt out.

Need to opt out. The court found that the Kraft DAPs were required to file opt out letters after receiving notice of the settlement. The Cal-Maine settlement defined the settlement class as all persons and entities that purchased shell eggs and egg products in the United States directly from any producer from January 1, 2000 through February 28, 2014. It was clear that the Kraft DAPs met the definition and therefore were members of the settlement class, in the court’s view.

The Kraft DAPs’ argument that the notice in the settlement was so ambiguous that they did not know their pending lawsuit would be barred if they did not opt out was rejected. The court noted that the DAPs clearly fell within the scope of the settlement class as defined in the settlement and notice, and the notice expressly stated that plaintiffs taking no action would remain a member of the class. There were also numerous statements that opting out was the only option to remain part of any other lawsuit and that the settlement would release Cal-Maine from all pending claims. Thus, the DAPs had sufficient notice that they could be considered members of the settlement class subject to the terms of the settlement.

The Kraft DAPs’ contention that their post-settlement conduct demonstrated their intent to opt out of the settlement, thereby serving as the equivalent of an opt-out letter, was also rejected. According to the court, none of the Kraft DAPs’ post-settlement actions foreclosed the possibility that they would elect to participate in the Cal-Maine settlement. The DAPs participation in mediation and discovery after the settlement was announced allowed them to see how the separate case developed while retaining the ability to opt out of the settlement up until the deadline. Even though the DAPs engaged in separate efforts to settle with Cal-Maine and vigorously litigated their claims after the Cal-Maine settlement was announced, the Kraft DAPs took no action that reasonably indicated their intent to opt out of the Cal-Maine settlement.

Excusable neglect. However, the court determined that the Kraft DAPs’ failure to opt out was a result of excusable neglect. Although it was prejudicial to Cal-Maine to have the case reopened after it was closed by its opponent’s failure to opt out, it was not substantial in this case. Since the settlement was contingent upon how many eggs were purchased by parties who opted out, and the Kraft DAPs admitted that they purchased no eggs from Cal-Maine, whether or not the DAPs opt out would have no bearing on an essential term of the settlement.

While the cause of the delay was within the control of the DAPs and their counsel, it was not objectively unreasonable for the Kraft DAPs to believe that they were not required to opt out of the Cal-Maine settlement if they wished to maintain their direct action against Cal-Maine. Finally, the Kraft DAPs demonstrated that the mistake in failing to opt out was made in good faith. While the decision was ultimately wrong, it was not unreasonable to believe that no action was necessary upon review of the settlement notice. Moreover, Cal-Maine failed to show bad faith as a result of the DAPs’ mistake, the court concluded.

The case is No. 2:08-md-02002-GP.

Attorneys: Jason Michael Bradford (Jenner & Block) for Kraft Foods Global, Inc., The Kellogg Co., General Mills, Inc. and Nestle USA, Inc. Robin P. Sumner (Pepper Hamilton LLP) for United Egg Producers, Inc. and United States Egg Marketers, Inc. Brian E. Robison (Gibson Dunn & Crutcher LLP) for Cal-Maine Foods, Inc. and Hillandale Foods Inc. Joseph M. Callow (Keating Muething Klekamp) for Ohio Fresh Eggs, LLC.

Companies: Kraft Foods Global, Inc.; The Kellogg Co.; General Mills, Inc.; Nestle USA, Inc.; United Egg Producers, Inc.; United States Egg Marketers, Inc.; Cal-Maine Foods, Inc.; Hillandale Foods Inc.; Ohio Fresh Eggs, LLC

Cases: Antitrust PennsylvaniaNews