Antitrust Law Daily Wrap Up, ANTITRUST—N.D. Ill.: No cracks in $53 million jury verdict finding conspiracy to restrict egg supply, (Oct 1, 2024)

By Martin A. Steinberg, J.D.

The federal district court concluded that the jury heard enough evidence to support its verdict, though the evidence was not overwhelming.

Motions for judgment as a matter of law brought by defending egg producers after a jury concluded that Defendants had engaged in a conspiracy to restrict the supply of eggs were denied. The jury found that the conspiracy between the Defendants, United Egg Producers, Inc., United States Egg Marketers, Inc., Cal-Maine Foods, Inc., and Rose Acre Farms, Inc., consisted of all three prongs alleged by Plaintiffs Kraft Foods Global, Inc., The Kellogg Co., General Mills, Inc., and Nestle USA, Inc. The jury also found that two non-defendant producers (Moark and Wabash Valley) participated in the conspiracy, but that another egg producer, Michael Foods, did not participate. According to the court, the jury reasonably found that Plaintiffs suffered an injury from October 2004 to December 2008, and its damages awards of approximately $17.8 million in damages, trebled to more than $53 million, were supported by sufficient evidence (Kraft Foods Global, Inc. v. United Egg Producers, Inc., No. 1:11-cv-08808 (N.D. Ill. Sept. 30, 2024)).

Background. Plaintiffs buy egg products to use as ingredients in food, such as mayonnaise, pasta, ice cream, cookie dough, and waffles. Egg products are eggs that have been removed from their shells and are then processed into dried, frozen, or liquid forms. Defendants Cal-Maine Foods and Rose Acre Farms are egg producers, in that they make and sell eggs. Cal-Maine did not sell eggs or egg products to any of the Plaintiffs because it mainly sold to grocery chains. Rose Acre sold egg products to all four Plaintiffs. Defendants United Egg Producers (UEP) and United States Egg Marketers (USEM) are industry associations. UEP is an egg industry trade association while USEM is an organization run by UEP management and was primarily involved in egg exports.

Plaintiffs alleged that Defendants conspired to limit egg production through a conspiracy to reduce the supply of eggs raised the price of egg products from at least 1999 to 2008, in violation of the Sherman Act, 15 U.S.C. § 1. Plaintiffs alleged a so-called “hub-and-spoke” conspiracy with UEP and USEM serving as the “hub” of the conspiracy.

Plaintiffs filed suit in December 2011, claiming that Defendants conspired to limit the supply of eggs and increase egg prices from at least 1999 through 2008. Plaintiffs alleged that Defendants agreed to limit egg supply through three anticompetitive practices. First, Defendants allegedly agreed to adopt animal-welfare guidelines (the UEP Certified Program) that increased the size of the enclosures housing egg-laying hens, which allegedly was a ruse to reduce the total space available to house egg-laying hens. Second, Defendants allegedly agreed to increase egg exports, leaving fewer eggs for the domestic market. The exported eggs were sold at prices lower than the then-current prices in the U.S. Third, Defendants allegedly agreed to use short-term measures to control supply and artificially maintain and increase the price of eggs.

Soon after Plaintiffs filed their complaint, the case was transferred to the Eastern District of Pennsylvania by the Judicial Panel on Multidistrict Litigation. While the case was part of the MDL proceedings, the parties completed discovery and filed dispositive pretrial motions. After the MDL court denied Defendants’ second motion for summary judgment, the case was transferred back to the Northern District of Illinois for trial.

In August 2023, the court bifurcated the trial, with the first stage covering liability, including antitrust injury, and the second stage addressed the amount of damages, if necessary. Plaintiffs alleged that the conspiracy ended in 2008, but they sought damages through December 2012.

Agreement to conspire. Only one of the four Defendants, Rose Acre, argued that the evidence was insufficient to support a finding that it participated in a conspiracy. The other three Defendants did not raise this argument.

A hub-and-spoke conspiracy required Plaintiffs to allege that there was a central coordinating party (the “hub”), and that each participant (along the “rim”) recognized that it was part of the greater arrangement, and it coordinated or otherwise carried out its duties as part of the broader group. The court thought that a better analogy was the bullhorn theory – with a central spokesperson, delivering a message to all, like a mob boss and a mob. Another possible analogy is a coach and a team with a coach barking out orders to the team, giving direction and telling people what to do. And then, the squad takes in the message and works together to achieve the common objective. Everyone is on the same team, but there is a central authority calling the shots and running the show.

After reviewing the record as a whole, and drawing all reasonable inferences in favor of Plaintiffs, the court found that the record included enough evidence to support a finding that Rose Acre (1) joined the UEP Certified Program to restrict supply; (2) knew that the UEP was coordinating a conspiracy to reduce supply; and (3) knew this reality both before joining and while it was part of the UEP. Nonetheless Rose Acre chose to join and stay with the UEP and the UEP Certified Program.

Regarding nondefendant Wabash Valley, the court concluded that based on the record, a reasonable jury could have concluded that Wabash Valley was a knowing co-conspirator, not simply an attendee at trade association meetings. While the evidence was not overwhelming, it was just enough. Wabash Valley’s CEO served key roles in both UEP and USEM and was chairman of USEM and on its board of directors. As USEM chairman, he decided whether to take an export to USEM’s committee for a vote.

Relevant market. The court noted that the jury heard enough evidence to find that shell eggs and egg products were in the same market. Plaintiffs presented sufficient evidence for a jury to find that the prices of shell eggs were linked to the prices of egg products. Plaintiffs also presented evidence that at least some egg producers had the capability to shift production in response to a change in prices. To prove an antitrust violation, a plaintiff must show an unreasonable restraint of trade in a relevant market. “A ‘relevant market’ under the Sherman Act is comprised of the ‘commodities reasonably interchangeable by consumers for the same purposes.’” Sharif Pharmacy, Inc. v. Prime Therapeutics, LLC, 950 F.3d 911, 916 (7th Cir. 2020). The key concept is substitutability, meaning the ability to switch from one product to another, either by the buyer or the seller.

In the end, the jury necessarily found that shell eggs and egg products are in the same product market. The jury found that Defendants conspired to restrict the supply of eggs. The jury also found that the conspiracy unreasonably restrained trade “in a relevant market,” and that the conspiracy caused Plaintiffs to suffer an injury.

From the demand side, egg products and shell eggs seemed like separate product markets. If a buyer needed liquid egg yolks, and only liquid egg yolks, then getting a delivery of shell eggs probably would not be helpful. Conversely on the supply side, Plaintiffs offered evidence suggesting that shell eggs and egg products were in a single product market from the supply side because producers could switch from selling eggs to selling egg products and vice versa. Some producers, such as Rose Acre, produced both shell eggs and egg products at the same facilities. Thus, those producers could shift from producing shell eggs to egg products (or vice versa) in response to market changes.

Market power. A reasonable jury could have found sufficient market power for a Sherman Act Section 1 violation because it could have looked at the percentage of domestic egg supply committed to the UEP Certified Program – up to 95% – rather than solely at the combined market share of the egg producer co-conspirators, the court reasoned. The jury heard sufficient evidence that the UEP Certified Program was designed to reduce the supply of eggs, even if each individual participant in the program did not intend to reduce supply and did not participate in the conspiracy. Based on that record, the conspirators were responsible for the unwitting participation of non-conspirators. In a rule of reason case, plaintiffs must show “anticompetitive effects,” either directly or indirectly.

The court concluded that the jury could have looked at the market share of all of the members of the UEP Certified Program to determine whether the co-conspirators had market power. The jury concluded that four egg producers were co-conspirators: Cal-Maine, Rose Acre, Wabash Valley, and Moark, which collectively held only 15.5% market share. However, in antitrust cases involving trade associations, courts often look at the market share of the members as a whole to determine whether the association had market power. The rationale is that, in most of the antitrust cases involving associations, the association imposes a binding rule on all of its members in restraint of trade.

If looking only to the individual co-conspirators, the 15.5% market share of the producers was not enough to satisfy the market power requirement in a section 1 case. Conversely, the argument for market power was more powerful considering the market share of all participants in the UEP Certified Program, or at the market share of all members of UEP. Under either metric, the market share was 70% or above – falling comfortably within the market-share percentage that courts consider sufficient to prove market power.

For instance, Plaintiffs introduced evidence about how Defendants lobbied the Food Marketing Institute – a grocery store trade organization – to adopt the UEP guidelines. Defendants lobbied individual grocery chains like Kroger, too. If a grocery store adopted the UEP guidelines, then that grocery store would buy only UEP Certified eggs, meaning eggs produced at facilities that complied with the UEP Certified Program.

Based on the record, a reasonable jury could have found that Defendants targeted the grocery industry with the hope of reducing egg supply and boosting egg prices. In other words, a reasonable jury could find that Defendants roped in egg producers’ customers – under the guise of animal welfare – to force egg producers to get on board with the Program. After reaching that conclusion, a jury could find that the proper measure for market power was the percentage of producers who participated in the Certified Program.

Defendants could be held liable for the intended effects of the UEP Certified Program, the court held. The jury found that Defendants developed the UEP Certified Program with the aim of restricting domestic egg supply. Defendants wanted to raise prices in the U.S. – and the jury found that the Program worked. Defendants can be held responsible for the intended effects of their illegal scheme, even if they needed unwitting participants to achieve their goals.

For these reasons, a reasonable jury could have found sufficient market power for a section 1 violation. Thus, a reasonable jury could have looked at the percentage of domestic egg supply committed to the UEP Certified Program – up to 95% – rather than solely at the combined market share of the egg producer co-conspirators.

Exports & short-term measures. Plaintiffs introduced sufficient evidence for a reasonable jury to find anticompetitive effects from the exports and short-term measures. During the damages phase of the trial, Plaintiffs only asked the jury to award nominal damages for the exports and short-term measures. Accordingly, the jury gave each Plaintiff $1 for each of the two prongs, for a total of $8. The court noted that “the jury heard a lot of testimony for a whopping $8, roughly the price of an omelet.” Under the law of the Seventh Circuit, a monopoly can violate antitrust laws even if the anticompetitive effects did not last very long. See Peto v. Howell, 101 F.2d 353, 356 (7th Cir. 1938).

Defendants did not merely engage in exports or short-term measures on a one-off basis. The jury heard evidence indicating that (1) the UEP recommended early molts and early slaughters on multiple occasions over a years-long period; and (2) USEM members voted for exports on multiple occasions over several years. Accordingly, the jury heard evidence that the exports and short-term measures took place over an extended period of time, even if they were on-again, off-again and that these measures had an impact on egg prices.

Lack of enforcement mechanisms. Based on the record, the jury heard enough to reach the conclusion that Defendants conspired, even if the enforcement regime left something to be desired, the court ruled. The jury heard about soft measures used by Defendants to enforce the conspiracy. Typically, conspirators have a stick in their back pockets to punish cheaters. The absence of a punishment mechanism cuts against the inference of a conspiracy.

The jury could have concluded either way. The jury could have found that there was no conspiracy because there was little or no enforcement mechanism. But there was also evidence on the other side of the ledger. Plaintiffs offered evidence of “soft” enforcement measures. For example, UEP published a list of companies that agreed to the short-term recommendations. UEP also expected its members to let it know when they had followed through with the short-term measures. The court noted that while that was not a lot, it was something. Naming and shaming can coax people to engage in certain behavior, even if it isn’t the world’s biggest stick.

UEP used stricter enforcement measures for the Certified Program by conducting audits of producers that participated in the Program. A producer who failed an audit more than a few times could get booted from the UEP Certified Program. Then the producer could not sell eggs with the UEP certification.

USEM had a soft enforcement mechanism, as well. All USEM members had to participate in an export if the majority of members voted to take the export. Once an export was approved, USEM supplied the price and quantity of eggs that members had to provide. If a member did not have excess eggs on hand, the member would have to purchase eggs from competitors to fulfill its obligation even if it meant taking a loss on the export.

Antitrust injury before August 2005. The jury expressly found that Plaintiffs suffered an injury from October 2004 to December 2008 but found no injury from 2009 to 2012. A reasonable jury could have found that Plaintiffs suffered antitrust injury for the period before August 2005. Even if a reasonable jury could not have reached this finding, Plaintiffs’ damages award would have been unchanged. While a reasonable jury could have found that Plaintiffs suffered an unquantified antitrust injury for the period between September 2004 to August 2005, it could not have awarded Plaintiffs damages for that period because the jury heard no evidence quantifying the injury for that period. Thus, Plaintiffs’ damages calculations began in August 2005.

The Case is No. 1:11-cv-08808.

Judge: Seeger, S.

Attorneys: Brandon D. Fox (Jenner & Block LLP) for Kraft Foods Global, Inc., General Mills, Inc. and Nestle USA, Inc. Jan Paula Levine (Troutman Pepper Hamilton Sanders LLP) for United Egg Producers, Inc. Livia McCammon Kiser (King and Spalding LLP) for Cal-Maine Foods, Inc. Carrie C. Mahan (Sidley Austin) for Michael Foods Inc.

Companies: Kraft Foods Global, Inc.; General Mills, Inc.; Nestle USA, Inc.; United Egg Producers, Inc.; Cal-Maine Foods, Inc.; Michael Foods Inc.

MainStory: TopStory Antitrust IllinoisNews