Antitrust Law Daily Wrap Up, ANTITRUST—E.D. Pa.: Statute of limitations barred some claims in multidistrict egg products case, (Aug 26, 2013)

By Peter Reap, J.D., LL.M.

In a multidistrict action alleging that certain egg producers violated federal antitrust law by conspiring to restrict the supply of domestically produced eggs, certain claims brought by the direct purchaser plaintiffs (DPPs) as a putative class action against various defendant producers and other claims the direct action plaintiffs (DAPs) were pursuing as non-class relief against the Defendants were barred by the applicable statute of limitations, the federal district court in Philadelphia has decided (In re: Processed Egg Products Antitrust Litigation, August 23, 2013, Pratter, G.). Specifically, the Defendants’ motion to partially dismiss the DPPs' and DAPs' claims for damages to the extent that those claims accrued at a time that makes them now barred by the applicable statute of limitations was denied with respect to an argument made by Defendant Sparboe Farms, Inc. that class action tolling ceased to apply because the DPPs amended their complaint. The court granted the remainder of the instant motion with prejudice.

Background. On November 30, 2011, after considering the parties' briefing and holding oral argument, the Court partially dismissed the DPPs' claims without prejudice based on the Clayton Act's four-year statute of limitations. On December 20, 2012, following its consideration of additional briefing, the Court reached the same decision with respect to the claims brought by the DAPs.

Subsequently, both the DPPs and DAPs filed third amended complaints. Before the court was an omnibus motion of the Defendants to partially dismiss the claims of the DPPs and the DAPs.

Judicial estoppel. Initially, the court was required to decide if judicial estoppel binds the plaintiffs to prior allegations regarding Capper-Volstead immunity. For instance, in their Second Amended Complaint the DPPs alleged that the "Defendants and their co-conspirators ... falsely claimed that their activities were cloaked under the protections of the Capper-Volstead Act." However, in their current complaint the DPPs alleged that the United Egg Producers did not represent that the UEP Certified Program was subject to antitrust immunity under the Capper-Volstead Act. The Defendants claimed that such allegations are sufficiently inconsistent to trigger judicial estoppel.

The court declined to exercise its discretion to apply judicial estoppel against the plaintiffs. The Third Circuit Court of Appeals would not apply judicial estoppel merely because an amended complaint included factual allegations that were inconsistent with a prior complaint. Given a plaintiff’s ability to plead inconsistently in a single pleading, as well as the factual uncertainty that inherently exists at the pleadings stage of litigation, making inconsistent factual averments in separate complaints did not justify the application of judicial estoppel, the court ruled.

Fraudulent Concealment

The fraudulent concealment doctrine tolled the running of the statute of limitations when the accrual date of a claim passed but the plaintiffs’ cause of action was obscured by the defendant's conduct, the court noted. Invoking the doctrine of fraudulent concealment required a plaintiff to allege particularized facts sufficient to suggest (1) that the defendant actively misled the plaintiff; (2) which prevented the plaintiff from recognizing the validity of her claim within the limitations period; and (3) where the plaintiff’s ignorance is not attributable to her lack of reasonable due diligence in attempting to uncover the relevant facts. Because the court found that the due diligence element of fraudulent concealment was dispositive with respect to the issues at hand, it focused on whether the plaintiffs adequately pled such diligence.

DPPs’ third amended complaint. In their third amended complaint, the DPPs alleged that they were "appropriately and reasonably diligent about their business operations and economic interests" and that they "took reasonable steps to be informed about issues and actions that affected their businesses and to attempt to ensure that they were receiving competitive prices for their purchasing needs." However, the DPPs presented no allegations regarding what their due diligence specifically entailed. The court previously held that, as a general matter, such vague allegations inadequately pled due diligence under Rule 9(b).

In their briefing, the DPPs argued that "[b]ecause there were no red flags or storm warnings to put Plaintiffs on inquiry notice of the price-fixing conspiracy, Plaintiffs were not required to allege any affirmative efforts to discover the existence of the conspiracy." However, upon reviewing the third amended complaint, the pleading itself failed to plausibly suggest that no storm warnings existed regarding the alleged conspiracy. Thus, the DPPs failed to allege any specific acts of diligence they undertook to uncover their claims, and their complaint did not adequately plead the due diligence element of fraudulent concealment.

Amended complaints of the Kroger Plaintiffs, Winn-Dixie Plaintiffs, and Kraft Plaintiffs. In their amended complaints, the Kroger Plaintiffs and Winn-Dixie Plaintiffs simply averred that they exercised due diligence, without pleading what their diligence specifically entailed. The Kraft Plaintiffs failed to even make conclusory allegations regarding their due diligence. Such allegations (or lack thereof) were insufficient, given that none of these complaints plausibly suggested that no storm warnings existed that would have prompted the plaintiffs to investigate their claims, according to the court.

Although the Kraft, Winn-Dixie, and Kroger Plaintiffs alleged that their knowledge of these storm warnings accrued through credible misrepresentations, these plaintiffs nonetheless should have undertaken some sort of inquiry given what they allegedly knew about egg price increases and the UEP Certified Program. Their failure to do so necessitated the dismissal of their time-barred claims.

Amended complaints of Giant Eagle, Publix, and Supervalu. In their most recent complaints, Giant Eagle, Publix, and Supervalu all alleged that they knew that the Defendants were cooperating to phase-in the UEP Certified Program and that egg prices were rising as the program was being implemented. For the reasons stated above, such allegations required the plaintiffs to allege that they acted with reasonable diligence. However, unlike the other direct action plaintiffs, Giant Eagle, Publix, and Supervalu pled (with varying degrees of specificity) how they exercised due diligence.

Although these due diligence allegations differed with respect to their particularity, they were inadequate as a matter of law, the court held. Here, Giant Eagle, Publix, and Supervalu alleged that they knew egg prices were increasing as the Defendants implemented their UEP Certified Program, yet the only diligence these plaintiffs allegedly exercised in the face of this knowledge was to ask the Defendants why such price increases were occurring. Such superficial allegations, taken as true, did not constitute reasonable diligence by commercial enterprises of the plaintiffs' stature.

Additionally, the due diligence allegations of Publix and Supervalu were inadequate because they failed to satisfy the strictures of Rule 9(b). Instead of pleading diligence with particularity, Publix and Supervalu failed to specify who made inquiries of the Defendants, the persons to whom such inquiries were directed, or when such inquiries occurred. Such vague allegations of due diligence are insufficient.

Class Tolling with Respect to Sparboe and Weaver Bros.

In Eggs II, the Court held that the statute of limitations only barred the DAPs' claims for damages accruing prior to September 24, 2004, because the DAPs could claim tolling based on the filing of the first direct purchaser class action complaint consolidated in this matter. Although the Court partially resolved the issue of class tolling in Eggs II, the parties somewhat resuscitated the matter in their latest round of briefing as to Defendants Sparboe Farms, Inc. and Weaver Bros., Inc.

In their motion, the Defendants noted that the DPPs did not name Weaver Bros. as a defendant in any of their class action complaints. Instead, only Giant Eagle brought a claim against Weaver Bros., and it did not do so until December 17, 2010. Therefore, the Defendants argued that Giant Eagle's claims against Weaver Bros. which accrued prior to December 17, 2006 should be dismissed. Additionally, Sparboe noted that the DPPs did not name it as a defendant until January 30, 2009, and thus argued for the dismissal of claims accruing prior to January 30, 2005.

In Wyser-Pratte Management Co. v. Telxon Corp., 413 F.3d 553 (6th Cir. 2005), the Sixth Circuit Court of Appeals held that class action tolling did not apply to unnamed defendants such as Sparboe and Weaver Bros. See id. at 568. The court reasoned that such defendants lacked adequate notice of the claims they face when they are not named as defendants in an earlier-filed class action.

Sparboe and Weaver Bros. were not included as parties in the direct purchaser complaint filed on September 24, 2008, and they lacked adequate notice of the claims against them until they were actually named as defendants in subsequent complaints, the court determined. Therefore, the court dismissed the DAPs' claims against Sparboe that predated January 30, 2005, as well as Giant Eagle's claims against Weaver Bros. that accrued before December 17, 2006.

Giant Eagle’s Claims Under the Ohio Valentine Act

The Defendants argued that Giant Eagle's claim under the Ohio Valentine Act, Ohio Rev. Code § 1331.01 et seq., should be partially dismissed because Ohio follows federal law with respect to fraudulent concealment. In its response, Giant Eagle did not contest this argument. Additionally, the parties appeared to agree that class tolling applied to Giant Eagle's Ohio-law claims against most of the Defendants. Finally, with respect to Sparboe and Weaver Bros., in Ohio the statute of limitations continues to run as to a potential defendant who is not named as a defendant in the class suit because a nondefendant lacks notice of the assertion of claims against him, the court noted.

Given the foregoing concessions and case law, the court dismissed Giant Eagle's claims under the Valentine Act such that Giant Eagle cannot recover damages against Weaver Bros. that accrued prior to December 17, 2006, damages against Sparboe that accrued prior to January 30, 2005, and damages against the remaining defendants that accrued prior to September 24, 2004.

Leave to Amend

The plaintiffs would not be permitted to file another series of amended complaints given their prior opportunities to adequately plead fraudulent concealment, the court explained. They had ample opportunities to cure their pleading deficiencies by amendments previously allowed, the court observed.

The case is MDL No. 2002 08-md-2002.

Attorneys: Sandra A. Jeskie, Special Master (Duane, Morris LLP).

Companies: Kroger; Winn-Dixie; Kraft; Giant Eagle; Sparboe; Weaver Bros.; Publix

Cases: Antitrust PennsylvaniaNews