Antitrust Law Daily Wrap Up, TOP STORY—NDIll: Cheese Producer Not Entitled to Dismissal of Price Fixing Claims, (Jan 21, 2013)

By Jeffrey May, J.D.

In an action against Dairy Farmers of America, Inc. (DFA), a cooperative group of dairy farmers, and others for conspiring to inflate the price of milk and milk futures by manipulating transactions for cheese and/or milk futures on the Chicago Mercantile Exchange (CME), the federal district court in Chicago has denied a motion to dismiss antitrust conspiracy claims against Schreiber Cheese, Inc., which were added by a second amended class action complaint. Schreiber's statute of limitations argument, raised as an alternate ground for rejection of the price fixing claims, was determined to be premature (In re: Dairy Farmers of America, Inc. Cheese Antitrust Litigation, January 18, 2013, Dow, R.).

According to the complaint, in 2004, the DFA and Keller’s Creamery—a producer of dairy products—engaged in a conspiracy to inflate the price of milk (for the benefit of DFA’s members) and the price of Class III milk futures on the CME. As part of the alleged scheme, DFA purchased large quantities of block cheddar cheese delivery contracts on the CME to inflate and support the price of spot block and barrel cheddar cheese (two forms of cheddar commodities). CME cheese prices influenced the market price of cheese, which in turn influenced the price of milk and the settlement price of milk futures.

It was alleged that DFA and Schreiber simultaneously purchased CME spot cheese contracts at inflated levels, thereby driving up the price of cheese and milk in general and, indirectly, the price of milk futures. Eventually, DFA and Keller’s “unwound” their long positions in milk futures at a large profit, and DFA and Schreiber stopped buying spot cheese simultaneously, and the price of blocks and barrels dropped, it was alleged. Later, the DFA and Schreiber allegedly negotiated a sale of 5 million pounds of cheese to Schreiber.

In 2008, the DFA and Keller’s entered into consent decrees with the Commodity and Futures Trading Commission (CFTC) for violations of the Commodity Exchange Act based on their alleged manipulation of milk futures and spot cheese contracts. They did not admit liability, but they agreed to pay fines to settle the CFTC’s charges.

Schreiber contended that the plaintiffs failed to adequately allege that it joined the antitrust conspiracy conceived by DFA and Keller’s in 2004 to inflate the price of milk and milk futures by purchasing excessive loads of “spot” cheese on the CME. Schreiber incorrectly argued that the plaintiffs were required to not only plead facts from which the court could draw the inference of an agreement, but that the inference of an agreement had to be stronger than other competing inferences. Schreiber conceded that the plaintiffs pleaded communications among the defendants followed by parallel conduct. However, Schreiber argued that the plaintiffs failed to provide enough additional facts to plausibly suggest that the parallel conduct was the result of some agreement between the defendants. The court disagreed.

“The complaint alleges complex and unusual pricing practices by Defendants, which are not explained by forces of supply and demand,” the court pointed out. While Schreiber might have a reason for deciding to buy unprecedentedly high volumes of CME cheese at a price higher than it had to pay, the plaintiffs’ “allegations plausibly suggest[ed] an agreement to manipulate prices.”

Therefore, Schreiber's motion to dismiss price fixing claims under Sec. 1 of the Sherman Act and under California’s Cartwright Act was denied.

Statute of Limitations

In addition, the court refused to dismiss the price fixing claims on the ground that the plaintiffs did not file their complaint against Schreiber until almost eight years after the alleged conduct took place and more than three years after the CFTC issued its orders against DFA and Keller’s. Schreiber argued that the plaintiffs failed to allege that they diligently pursued their claims, that anyone concealed Schreiber’s alleged role in the conspiracy, or that anything prevented the plaintiffs from learning of the basis of their claims against Schreiber. However, the plaintiffs were not obligated to plead around a potential statute of limitations defense, according to the court.

The case is MDL No. 2031.

Attorneys: Joel Gerald Chefitz (McDermott Will & Emery LLP) for Defendant Dairy Farmers of America, Inc. Anne Kristin Fornecker (Milberg LLP) for Plaintiff Adam Properties, Inc.

Companies: Dairy Farmers of America, Inc.; Keller’s Creamery, LP; Schreiber Cheese, Inc.

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