Antitrust Law Daily Wrap Up, ANTITRUST—EDPa: Egg Buyers’ Price Fixing Suit Tolled by Class Action, But Not Fraudulent Concealment, (Dec 27, 2012)

By E. Darius Sturmer, J.D.

Direct purchasers of domestically produced eggs—including five grocery chains and food products manufacturer Kraft Foods Global, Inc.—were not barred outright by the statute of limitations from pursuing claims that egg producers and industry trade groups violated Sec. 1 of the Sherman Act by conspiring to restrict the supply of, and thereby fix the prices for, the eggs, the federal district court in Philadelphia has ruled (In re: Processed Egg Products Antitrust Litigation, December 20, 2012, Pratter, G.).

The complaining purchasers, who were pursuing non-class relief, failed to establish that the doctrine of fraudulent concealment entitled any of them to tolling of their claims all the way to the beginning of the alleged conspiracy period, which runs from 2000 to the present. However, they could rely on class action tolling to recover damages accruing on or after September 24, 2004, the date four years before the filing of the first direct purchaser class complaint consolidated in the multidistrict proceedings. A motion to dismiss the claims was therefore granted in part and denied in part.

Fraudulent Concealment

The Kroger, Supervalu, and Publix Plaintiffs’ pleading that they “did not have knowledge of [the d]efendants’ antitrust violations,” or of “any facts that might have led them to discover [the] violations” did not suffice to establish fraudulent concealment, the court found. Such pleadings were “essentially conclusory.” The very allegations in those complaints, including assertions about the defendants’ false attribution of egg price increases to free-market conditions, undercut the plaintiffs’ claim that there were not any facts or information that might have alerted a reasonable person to investigate the defendants’ actions. Read in the context of the complaint, such statements amounted to what were “essentially suspiciously specific anticipatory denials of wrongdoing” that gave the plaintiffs inquiry notice of the defendants’ alleged conspiracy.

In responding to the motion to dismiss, these plaintiffs argued that the alleged misstatements regarding cage size guidelines did not provide them with inquiry notice because their complaint also alleged that they were predisposed to believe that those guidelines were motivated by animal husbandry concerns. However, the plaintiffs made no such arguments regarding the alleged misstatements about “free market conditions.”

Likewise, because the Winn-Dixie plaintiffs effectively claimed that the defendants proffered suspicious excuses for rising egg prices, but then failed to allege that they gave credence to those excuses, they too insufficiently pled that they lacked inquiry notice of their claims, according to the court.

Giant Eagle’s contention that the egg producers’ repeated public statements that their cage size guidelines were “for animal husbandry purposes” did not put it on inquiry notice was also found by the court to be implausible. Giant Eagle alleged that it believed the defendants’ justification “because they openly admitted that their practices were raising egg prices, but stated that this impact was unintended,” the court noted. However, such allegations presented a situation in which the grocery chain “intimate[d] that [it was] not ignorant of facts supporting [its] claim against [the d]efendants, and instead … had actual knowledge … of such a claim, and [did] not investigate[] it, merely because the supposed bad actors disclaimed bad acts.” A plaintiff cannot plead that it lacked inquiry notice of its claim by merely alleging that a defendant denied wrongdoing or liability for that claim, the court observed.

While the Kraft plaintiffs’ alleged own concern for animal welfare relaxed their inquiry regarding the defendants’ cage-size guidelines, their utter failure to allege any specific actions undertaken in due diligence foreclosed them from invoking the fraudulent concealment doctrine as well. Given their expressed knowledge that the defendants were cooperating to increase cage sizes, “the Kraft plaintiffs should have undertaken some sort of inquiry—even if only a nominal one—regarding the defendants’ concerted activity,” the court explained.

Class Action Tolling

The court rejected an argument proffered by the defendants that the plaintiffs could not claim class action tolling because they had filed independent actions before a decision on class certification had issued. Acknowledging that the Third Circuit Court of Appeals had not yet addressed the permissibility of such tolling, the court chose to apply the analysis of the Second, Ninth, and Tenth Circuits—all of which allow it—over that of the Sixth Circuit, which does not. The court found persuasive the Second Circuit’s reasoning in In re Worldcom Securities Litigation, 496 F.3d 245 (2d Cir. 2007), that “it would not undermine the purposes of statutes of limitations to give the benefit of tolling” to putative class members who opt out before certification, because “the initiation of a class action puts the defendants on notice of the claims against them.” The court cited the observation in Worldcom that “the Supreme Court has repeatedly stated that the commencement of a class action suspends the applicable statute of limitations as to all asserted members of the class who would have been parties had the suit been permitted to continue as a class action.”

Whereas allowing class action tolling under the present circumstances comported with both Supreme Court precedent and the underlying purpose of the statutes of limitations, the court remarked, adoption of the Sixth Circuit’s contrary rule—which was aimed at reducing the judicial burden created by a multiplicity of opt-out actions—would not fit the purpose of the Supreme Court’s decision in American Pipe & Construction Co. v. Utah, 414 U.S. 538 (1974).

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

Steven A. Asher (Weinstein Kitchenoff & Asher LLC) for plaintiffs.

Cases: Antitrust PennsylvaniaNews