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In re Pork Antitrust Litigation

United States District Court, D. Minnesota

August 8, 2019

IN RE PORK ANTITRUST LITIGATION This Document Relates To All Actions.

          Brian D. Clark and W. Joseph Bruckner, LOCKRIDGE GRINDAL NAUEN PLLP, Bruce L. Simon, PEARSON SIMON & WARSHAW LLP, Bobby Pouya and Michael H. Pearson, PEARSON SIMON & WARSHAW LLP, Sherman Oaks, Melissa S. Weiner and Joseph C. Bourne, PEARSON SIMON & WARSHAW LLP, for the Direct Purchaser Plaintiffs.

          Daniel E. Gustafson, Daniel C. Hedlund, and Brittany N. Resch, GUSTAFSON GLUEK PLLC, Shana E. Scarlett, HAGENS BERMAN SOBOL SHAPIRO LLP, David M. Cialkowski, ZIMMERMAN REED, PLLP, Breanna Van Engelen, HAGENS BERMAN SOBOL SHAPIRO LLP, for the Consumer Indirect Purchaser Plaintiffs.

          Alec Blain Finley and Jonathan Watson Cuneo, CUNEO GILBERT & LADUCA, LLP, Shawn M. Raiter, LARSON KING, LLP, for the Commercial Indirect Purchaser Plaintiffs.

          Megan A. Scheiderer, HUSCH BLACKWELL, LLP, for Defendant Triumph Foods, LLC.

          Donald G. Heeman and Jessica J. Nelson, SPENCER FANE, Stephen R Neuwirth and Sami H Rashid, QUINN EMANUEL URQUHART & SULLIVAN, LLP, for Defendant JBS USA.

          John A Cotter and John Anders Kvinge, LARKIN HOFFMAN DALY & LINDGREN, LTD, Richard G. Parker, GIBSON, DUNN & CRUTCHER, Brian Edward Robison, GIBSON, DUNN & CRUTCHER, LLP, for Defendant Smithfield Foods, Inc.

          Tiffany Rider Rohrbaugh and Rachel Johanna Adcox, AXINN, VELTROP & HARKRIDER LLP, for Defendant Tyson Foods.

          Christa C. Cottrell, KIRKLAND & ELLIS LLP, for Defendant Clemens Food Group, LLC.

          Richard A Duncan, FAEGRE BAKER DANIELS LLP, for Defendant Hormel Foods.

          Jaime Stilson, DORSEY & WHITNEY LLP, Britt M. Miller, MAYER BROWN LLP, William Stallings, MAYER BROWN LLP, for Defendant Indiana Packers and Mitsubishi Corporation of America.

          AMENDED MEMORANDUM OPINION AND ORDER GRANTING DEFENDANTS' MOTIONS TO DISMISS PLAINTIFFS' COMPLAINTS

          JOHN R. TUNHEIM CHIEF JUDGE

         Plaintiffs (separated into three putative classes) allege that Defendants, some of the nation's leading pork producers and integrators, conspired to limit the supply of pork in order to fix prices in violation of state and federal antitrust laws. Defendants now move to dismiss the claims against them. Because Plaintiffs have not adequately pleaded parallel conduct sufficient to support an inference of conspiracy, the Court will grant Defendants' Motions and dismiss Plaintiffs' Complaints without prejudice. The Court will, however, grant Plaintiffs leave to amend their Complaints.

         BACKGROUND

         This class action embodies the consolidation of thirteen separately filed actions. The Plaintiffs are grouped into three different classes of pork purchasers: Direct Purchaser Plaintiffs ("DPPs"), Consumer Indirect Purchaser Plaintiffs ("IPPs"), and Commercial and Institutional Indirect Purchaser Plaintiffs (CIPs"). Each group consists of individuals or companies who have either directly or indirectly purchased pork products from one of the Defendants.[1]Each class has filed a separate, consolidated complaint, alleging that the Defendants conspired with one another to increase the price of pork products.[2] Because the factual allegations in each of the three complaints are nearly identical, the Court will consider them interchangeably.

         I. FACTUAL BACKGROUND

         A. Ability and Motivation to Collude

         The pork industry is "horizontally concentrated (only a few companies buy, slaughter, and process the majority of hogs) and vertically integrated." (Civ. No. 18-1803, DPP Compl. ¶ 76, Aug. 17, 2018, Docket No. 83.) The top four participants-Defendants Smithfield, Tyson, JBS USA, and Hormel-control an almost 70 percent market share. (Id. ¶ 77.) Smithfield and JBS USA each control over 20 percent of the market, and Tyson controls 18 percent. (Id. ¶ 80.) Taken together, the top eight participants, all of whom are Defendants in this case, control over 80 percent of the market. (Civ. No. 18-1776, IPP Compl. ¶ 113, Aug. 17, 2018, Docket No. 74.) The top eight participants have maintained their dominant position in the market for most of the last twenty years. (Id. ¶ 118.)

         The sustained market concentration inherent in the pork industry is due in part to the significant barriers to entry placed on new competitors. For example, building a new facility can cost hundreds of millions of dollars. (DPP Compl. ¶ 84.) Accruing such capital can be difficult, which works to dissuade potential competitors. (IPP Compl. ¶ 122.) Another barrier to competitor entry is the unique nature of the industry itself. Most of the largest pork integrators do not produce their own pigs but instead enter into contracts with independent farmers who raise the pigs until they are ready to be slaughtered. (DPP Compl. ¶ 70.) Because "[m]ost of the hogs produced in the U.S. are sold under a multi-year contract," it is difficult for any potential competitor to find pigs to purchase. (Id. ¶ 85.)

         Plaintiffs allege that this market concentration put the pork industry in "an ideal zone for collusion," as Defendants-through market domination and contractual arrangements-were in a position to "manipulate price through an agreement among the relatively few dominant players." (Id. ¶ 82).

         In addition to being highly concentrated, the pork industry is also relatively unique because pork is considered a "commodity product." (Id. ¶ 133.) This means that the pork products produced by the various industry participants are largely indistinguishable from one another. (Id.) Thus, price is the only means by which most consumers distinguish the companies. (IPP Compl. ¶ 124.) Defendants are therefore discouraged from raising their prices individually, because each of their products are largely interchangeable. Pork is also subject to a "highly inelastic" demand, meaning that demand does not typically decrease when pork prices increase. (Id. ¶ 123.)

         Accordingly, Plaintiffs allege that not only were Defendants in a position to collude, but also that this unique industry set-up, wherein one company suffers if it unilaterally raises its prices but no companies suffer if they all raise their prices, made such an agreement possible-and necessary-if Defendants wanted to increase prices.

         Finally, Plaintiffs allege that Defendants were motivated to enter into such an agreement, because pork product prices were flat between 2000 and 2009, holding at less than $1.40 per pound. (DPP Compl. ¶ 131.) Therefore, Plaintiffs claim that Defendants had the ability to collude, the need to collude, and the motivation to collude.

         B. The Conspiracy

         Plaintiffs allege that, starting in 2009, Defendants began to discretely conspire with one another to decrease pork production and/or to limit production increases in an effort to raise the price of pork. (Id. ¶ 2.) According to Plaintiffs, Defendants carried out this alleged conspiracy in two synchronized ways. First, Defendants aimed public statements at one another emphasizing the need to cut production, which also served to signal each Defendants' continued adherence to the overall conspiracy. (Civ. No. 18-1891, CIP Compl. ¶ 5, Aug. 17, 2018, Docket No. 63.) Second, as a means of enforcement and oversight, "Defendants exchanged detailed, competitively sensitive, and closely guarded non-public information about prices, capacity, sales volume, and demand through their co-conspirator, Defendant Agri Stats." (Id. ¶ 2.)

         1. Public Statements

         Beginning in 2009, several of the Defendants openly acknowledged that price-stagnation inherent in the pork industry was an issue that required an industry wide solution-i.e. a reduction in production. For example, Smithfield's CEO noted that "overproduction and the oversuppl[y] of hogs . . . [were] driving our hog market down." (DPP Compl. ¶ 112.) He acknowledged that Smithfield, in response to that overproduction, had started cutting back on its pig operation, but noted that its production cuts were not enough to "fix" the hog industry and stressed that "somebody else has got to do something." (Id. ¶ 114.) He also stated that Smithfield "had done its 'fair share'" to cut supply, that it had taken a leadership role in doing so, and that further cuts "would probably be needed to 'put this industry back in balance, '" specifically calling for cuts in the Midwest. (Id. ¶ 118.)

         Smithfield's CEO also acknowledged that, by September 2009, it had already "had conversations with several sizable, more than sizable large producers, in fact very large producers" and that he was aware that they would be "doing some liquidation." (Id. ¶ 117.) This statement was corroborated by several industry participants within the following year, as many Defendants made similar public acknowledgments. Hormel stated that it was looking at cutting pork supply and that it had noticed a contraction in the market, (id. ¶ 111, 113), Tyson acknowledged that it "expected to see . . . pork production decrease into 2010 and beyond to improve producer profitability," (id. ¶ 115), and JBS confirmed that it expected to see some shortage in the industry, (id. ¶ 116).

         Statements of this nature continued into the following years. In 2010 Smithfield once again publicly acknowledged that it would continue cutting production. (Id. ¶ 119.) Hormel stated that it believed industry production would not increase. (Id. ¶ 122.) In 2012, Smithfield argued that no one would be "real excited about adding capacity," (id. ¶ 125), and JBS stated that it was running on a sold-out position, (id. ¶ 126), and that "restrictions in supply" contributed to "good margins," (id. ¶ 128). In 2013, Smithfield noted that it had a limited ability to move prices up on its own through supply and demand but that "the consumer tends to be willing to pay proportionately higher values for their pork meat when small increments of supply are withdrawn from the marketplace." (Id. ¶ 127.)

         Through these public statements, Plaintiffs allege, Defendants were able to "communicate their planned supply restrictions to their competitors in furtherance of the conspiracy" throughout ...


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