Antitrust Law Daily Wrap Up, RICO—E.D. Mo.: Ingredient broker’s racketeering claims fail in pet food mislabeling suit, (Apr 20, 2016)

By Linda O’Brien, J.D., LL.M.

In an action by Nestlé Purina PetCare Co. for false and deceptive advertising concerning the nutritional claims and ingredients contained within competitor Blue Buffalo’s pet food, Blue Buffalo’s ingredient broker failed to adequately allege racketeering cross-claims against an ingredient supplier and another ingredient broker, the federal district court in St. Louis, Missouri has decided (Nestle Purina Petcare Company v. The Blue Buffalo Company Ltd., April 19, 2016, Sippel, R.).

Pet food and nutrition company Nestlé Purina PetCare Co. initially filed suit against Blue Buffalo in May 2014, alleging a pattern of false and deceptive advertising concerning the nutritional claims and ingredients contained within Blue Buffalo’s pet food. Blue Buffalo also filed suit against Purina, alleging that Purina engaged in false advertising and defamed Blue Buffalo through various public statements. The actions were consolidated in June 2014. Blue Buffalo then brought third-party claims for indemnity and contribution against its ingredient supplier Wilbur-Ellis Company and ingredient broker Diversified Ingredients.

After being named as a third-party defendant, Diversified brought cross-claims under the Racketeer Influenced and Corrupt Organizations Act (RICO) against Wilbur-Ellis and Custom Ag, another ingredient broker. Specifically, Diversified alleged that Wilbur-Ellis and Custom Ag formed an illegal association-in-fact enterprise to manufacture, market, mislabel, and sell adulterated ingredients. Before the court were motions to dismiss the cross-claims by Wilbur-Ellis and Custom Ag.

The court found that Diversified failed to adequately allege that Wilbur-Ellis and Custom Ag participated in the conduct of a RICO enterprise. Diversified contended that Wilbur-Ellis purchased, blended, and mislabeled poultry byproduct meal and coordinated with Custom Ag to present the adulterated and mislabeled poultry meal as genuine meal through false certifications, bills of lading, and invoices to Diversified and Blue Buffalo.

According to the court, even taking the allegations as true, Diversified merely alleged the existence of a commercial partnership that would benefit each defendant’s own self-interests. There were no allegations that Custom Ag was involved in Wilbur-Ellis’ manufacturing process or that Wilbur-Ellis was involved in creating Custom Ag’s bills of lading. Moreover, the complaint did not allege that Custom Ag certified compliance with Blue Buffalo’s ingredient specifications.

Diversified also failed to sufficiently allege continuity of structure and personnel, the court noted. Diversified’s allegations that the defendants: (1) coordinated inflated prices by knowingly selling byproduct purchased at a below-market price as though it were genuine poultry meal and (2) could not have accomplished the scheme without each other were conclusory. Any cooperation by the defendants to execute the alleged scheme would have been cooperation that was already required by their ordinary business relationship as ingredient suppliers and brokers, the court concluded.

The case is No. 4:14-cv-00859-RWS.

Attorneys: Carmine R. Zarlenga, III (Mayer Brown LLP) and David A. Roodman (Bryan Cave LLP) for Nestlé Purina PetCare Co. Adeel A. Mangi (Patterson and Belknap), David H. Luce (Blitz and Bardgett) and Gerard T. Carmody (Carmody Macdonald PC) for The Blue Buffalo Company Ltd.

Companies: Nestlé Purina PetCare Co.; The Blue Buffalo Company Ltd.; Wilbur-Ellis Company; Diversified Ingredients

Cases: Advertising RICO MissouriNews