Antitrust Law Daily Wrap Up, TOP STORY—D. Mass.: Cranberry growers adequately allege monopoly claims against cooperative, (May 6, 2014)

By Jeffrey May, J.D.

Agricultural cooperative Ocean Spray Cranberries, Inc. was not entitled to dismissal of monopoly claims raised by complaining cranberry growers, the federal district court in Boston has decided. The court concluded that the complaining growers adequately alleged monopoly claims under the Sherman Act and Massachusetts General Laws Chapter 93A. However, the court dismissed conspiracy claims, as well as claims based on violations of the Capper-Volstead Act and a 1957 U.S. antitrust consent decree (Growers 1-7 V. Ocean Spray Cranberries Inc., May 2, 2014, Zobel, R.).

The action was brought against Ocean Spray Cranberries (OS) and its and wholly-owned subsidiary Ocean Spray Brands, L.L.C. (OSB). OS has more than 700 grower-members. These members are divided into two groups: (1) “A Pool” members who are paid based on the sales and profitability of OS-branded products and (2) “B Pool” members who are paid based on the price of cranberries sold to industrial buyers. While there is no difference in the quality of the cranberries “A Pool” and “B Pool” members produce, based on the differing business models, “A Pool” growers want the price of cranberries to be low to take advantage of higher profit margins, and “B Pool” members want the price of cranberries to be high. “B Pool” members get the commodity price for their cranberries. The plaintiffs are a group so-called “B Pool” growers and independent cranberry growers who sell their fruit to OS and its competitors.

The complaining growers alleged that OS and OSB unlawfully fixed the price of cranberry juice concentrate to (1) increase the revenues of the OS agricultural cooperative’s favored “A Pool” members to the detriment of its disfavored “B Pool” members; (2) prevent OS members from leaving the cooperative to find a better price for the cranberries they grow; and (3) force independent growers to join the cooperative or exit the market. According to the plaintiffs, OS sells “B Pool” fruit as cranberry juice concentrate in a “phony” online auction in violation of a 1957 U.S. consent decree (1957 Trade Cases ¶68,850), the Capper-Volstead Act (CVA), Secs. 1 and 2 of the Sherman Act, and the Massachusetts consumer protection statute.

Monopoly claims. The plaintiffs adequately alleged monopolization, monopsonization, and attempted monopolization and monopsonization claims based on predatory pricing. The court rejected the defendants' contentions that the complaining growers failed to allege either “exclusionary conduct” or an “antitrust injury” to support these Sherman Act, Sec. 2 claims.

The complaining growers alleged that OS's auction for “B Pool” fruit was phony because OS pre-determined the price at which it sold the concentrate. They contended that OS set the price below market value. The court explained that a sale price that is below a defendant's “variable” or “incremental” cost—the cost of producing each additional unit—raises a red flag because the pricing is economically irrational. Although the growers did not identify the defendants’ variable cost, they did show that once the defendants began holding auctions, the average amount per barrel OS paid to “B Pool” and independent growers in various states dropped sharply, but remained stable for “A Pool” members. While the allegations were not conclusive, exclusionary conduct could plausibly be inferred based on the drop in prices for cranberry juice concentrate as well as the structure of the challenged auctions, in the court's view.

The complaining growers alleged facts from which antitrust injury could be inferred, the court also ruled. They claimed that the predatory pricing led growers to either join OS or exit the market. In addition, they alleged an injury to consumers arising from decreased output due to departures from the market. This was enough to survive a Rule 12(b)(6) motion to dismiss, according to the court.

For purposes of an attempted monopolization claim, specific intent to monopolize might be inferred from a finding that the defendants acted in bad faith by structuring the auctions as they did. Thus, the attempted monopolization claim was permitted to proceed.

Moreover, the attempted and actual monopolization and monopsonization could constitute an unfair or deceptive business practice under Massachusetts General Laws Chapter 93A. The defendants' motion to dismiss the 93A claims based on the alleged Sherman Act, Sec. 2 violations was denied.

“Anticompetitive conduct is cognizable under 93A,” the court explained. “A plaintiff may bring a 93A claim even if it is unable to bring a statutory antitrust claim.”

Conspiracy claims. Claims that OS and OSB conspired had to be dismissed, the court ruled. The plaintiffs claimed that OS and OSB conspired “to depress, fix and stabilize the price of fresh and processed cranberries” in violation of Secs. 1 and 2 of the Sherman Act. OS and OSB were incapable of conspiring. OSB was a wholly owned subsidiary of OS. Moreover, given their overlapping ownership, personnel, and economic interests, OSB was not a separate entity from OS, according to the court.

Capper-Volstead Act claims. Because the CVA did not create a cause of action, the growers' claims based on violations of the Act failed. The CVA allows producers of agricultural products to form cooperatives to collectively process and market their products without incurring liability under the antitrust laws as long as certain statutory conditions are met.

“The CVA’s text is permissive,” the court explained. “Plaintiffs cannot sue defendants for failing to do something the law does not obligate them to do.”

Consent decree violation. Lastly, the growers lacked standing to pursue claims based on the defendants' violations of a 1957 consent decree between National Cranberry Association (NCA), OS’s predecessor corporation, and the United States, in a suit alleging NCA monopolized interstate trade and commerce in cranberry products in violation of Secs. 1 and 2 of the Sherman Antitrust Act. The growers unsuccessfully contended that the consent decree's language showed an intent to give OS members the right to enforce it. A consent decree is not enforceable directly or in collateral proceedings by those who are not parties to it even though they were intended to benefit from it, the court noted.

The defendants had moved for sanctions against the plaintiffs. The court denied the motion without elaboration.

This is Case 1:12-cv-12016-RWZ.

Attorneys: Manuel C. Hernandez (Hernandez and Associates, LLC) for John Doe Growers 1-7. Margaret M. Zwisler and Alfred C. Pfeiffer (Latham & Watkins LLP) for Ocean Spray Cranberries, Inc. and Ocean Spray Brands, LLC.

Companies: Ocean Spray Cranberries, Inc.

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