Antitrust Law Daily Wrap Up, ANTITRUST—E.D. Pa.: Direct purchasers of “shell eggs” certified as subclass, (Sep 22, 2015)

By Greg Hammond, J.D.

In multidistrict litigation concerning an alleged conspiracy to fix the price of eggs, a subclass of individuals and entities that purchased “shell eggs” directly from producers has been certified by the federal district court in Philadelphia. The court denied certification, however, with regard to a subclass of individuals and entities that purchased “egg products” directly from producers, finding that common issues did not predominate as to antitrust injury (In re Processed Egg Products Antitrust Litigation, September 21, 2015, Pratter, G.).

Direct purchasers—individuals and entities that bought eggs directly from egg producers—have claimed that the defendants conspired to increase the price of eggs by: (1) participating in a number of explicit, short-term production-restriction programs, including the slaughtering of hens prematurely; (2) taking part in a pre-textual animal-welfare program; and (3) engaging in a calculated series of exporting eggs at below-market prices. The direct purchasers sought certification of a “shell egg” subclass and “egg products” subclass. Shell eggs are eggs produced from caged birds that are sold in the shell for consumption or for breaking and further processing. Egg products include the whole or any part of shell eggs that have been removed from their shells and then processed into dried, frozen, or liquid forms.

The court first determined that the direct purchasers met the numerosity, commonality, typicality, adequacy, and ascertainability requirements of Federal Rule of Civil Procedure 23(a) for both subclasses. The predominance requirement, however, was met only by the shell egg subclass.

Shell egg subclass. The main area of contention, according to the court, was whether the direct purchasers adequately demonstrated that common issues predominated with regard to antitrust impact to the shell egg subclass. Specifically, the court determined that the purchasers adequately demonstrated that the defendants made efforts to reduce the supply of eggs, thus raising the price of eggs; that the egg market was structured so that the alleged conspiracy to restrict the supply of eggs, if successful, would have caused all or virtually all direct purchasers to pay higher prices than they would have absent the conspiracy; and that the conspiracy was successful in raising prices.

In reaching its conclusion that common issues predominated as to the shell egg subclass, the court was required to make two inferences. The first inferential step—that because the market was structured in such a way that any price increase would have affected the entire market so that all classes were affected—was deemed permissible and has been used in other antitrust class actions, the court concluded. Specifically, the inference was found reasonable because, even though the use of a single average overcharge to show the impact of the conspiracy across the class could be problematic, the direct purchasers laid a sufficient foundation for the inferential finding that the impact reflected in the single average overcharge was shared by virtually every class member. Further, the defendants largely did not contest the results of the pricing structure analysis set forth by the plaintiffs’ expert, which concluded that class members would not have been able to escape the effects of the conspiracy, as the egg industry is an integrated, nationwide commodity with significant demand-and supply-side substitutability. The court also noted that the defendants failed to identify any significant subset of class members who might have been uninjured by the conspiracy.

The second inferential step—that because every significant supply and demand factor has been controlled for, the observed increase in the price of eggs can be attributed to the effects of the conspiracy—was also deemed permissible and reasonable. The court found that the defendants failed to identify any missing variables from the plaintiff’s expert’s model that could preclude his ability to isolate the effects of the conspiracy. In addition, the court concluded that the inference is in line with the economic theory behind treating supply-reduction conspiracies as price fixing conspiracies.

Egg products subclass. Noting that the direct purchasers failed to set forth the same kind of extensive industry analysis as they did for their shell egg subclass, the court concluded that common issues did not predominate as to the antitrust impact to the egg products subclass. In particular, the court determined that the plaintiffs failed to demonstrate that the egg products market was a highly consolidated, integrated, and commoditized industry. Antitrust impact was therefore not capable of common proof with regard to this subclass, which would therefore result in individualized questions predominating.

The case number is 08-md-2002.

Attorneys: Robert S. Kitchenoff (Weinstein Kitchenoff & Asher LLC) for Direct Purchaser Plaintiffs. Veronica Smith Lewis (Gibson, Dunn & Crutcher LLP) for Cal-Maine Foods, Inc. Nathan P. Eimer (Eimer Stahl LLP) for Moark, LLC and Norco Ranch, Inc. Carrie Mahan Anderson (Weil, Gotshal & Manges LLP) for Michael Foods, Inc. Donald M. Barnes (Porter, Wright, Morris & Arthur, LLP) for Rose Acre Farms, Inc. Joseph M. Callow, Jr. (Keating Muething & Klekamp PLL) for Ohio Fresh Eggs, LLC. Jan P. Levine (Pepper Hamilton LLP) for United Egg Producers, Inc. and United States Egg Marketers, Inc. Joseph A. Tate (Dechert LLP) for R.W. Sauder, Inc.

Companies: Cal-Maine Foods, Inc.; Moark, LLC; Norco Ranch, Inc.; Michael Foods, Inc.; Rose Acre Farms, Inc.; Ohio Fresh Eggs, LLC; United Egg Producers, Inc.; United States Egg Marketers, Inc.; R.W. Sauder, Inc.

Cases: Antitrust PennsylvaniaNews