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Agriculture

S.D.N.Y. Dismisses Cotton Traders’ § 1 Claims Under Copperweld

by McDermott Will & Emery | Oct 17, 2014 | Agriculture, Monopolization/Abuse of Dominance, Private Litigation

On September 30, 2014, the Southern District of New York reconsidered the Commodities Exchange Act (CEA) and Sherman Act claims brought against Louis Dreyfus Commodities B.V. and its affiliates in In re Term Commodities Cotton Futures Litigation, 12 Civ. 5126 (ALC)(KNF) (S.D.N.Y. Sept. 30, 2014). The plaintiffs, cotton futures traders, alleged that the defendants manipulated the price of cotton futures by “unreasonably and uneconomically demanding delivery of certificated cotton in fulfillment of futures contracts,” among other allegations of manipulative behavior. In December 2013, the court denied defendants’ motion to dismiss, and defendants subsequently moved for reconsideration. On reconsideration, the court dismissed plaintiffs’ § 1 claim under the intra-enterprise conspiracy doctrine set forth in Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752 (1984), but declined to dismiss the CEA or § 2 claims.

The court began its analysis by emphasizing the narrow holding of Copperweld. It noted that Copperweld’s holding was limited to the relationship between “a parent and its wholly owned subsidiary”; where the relationship between two conspirators is anything less than complete ownership, lower courts “must draw from the analysis in Copperweld without the benefit of a bright line rule.” Cotton, 12 Civ. 5126 at 6-7. While the court rejected an interpretation of the intra-enterprise conspiracy doctrine that “Section One claims are not viable where the only named coconspirators are a parent corporation and its subsidiaries” as an overstatement of the law, it did not go so far as to hold that the doctrine only applies to parents and their wholly owned subsidiaries.

The five defendants in Cotton were all related through a web of parent-subsidiary relationships. The plaintiffs did not specify whether each subsidiary was wholly owned, or clearly plead the nature of the defendants’ relationships. The court held that, viewing the allegations in the light most favorable to the plaintiffs, it could not conclude that the allegations supported “a reasonable inference that Defendants ha[d] ‘separate corporate consciousnesses.’” Cotton, 12 Civ. 5126 at 10. For the defendants that were not wholly owned by other defendants, “the allegations portray[ed] the other Defendants as having ‘ownership’ and ‘control over’ them and giving ‘directions to’ them. Nothing in the [complaint] demonstrate[d] a rational possibility that Defendants were ‘previously separate and competing entities [that combined] to act as one for their common benefit.’” Id.

Regarding the § 2 claim, defendants argued that the court should apply the pleading standards for predatory pricing claims established by the Supreme Court in Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., Inc., 549 U.S. 312 (2007). The court disagreed and concluded that Weyerhaeuser was inapplicable to these facts because the case did not present a classic predatory bidding scheme. Due to the procedural posture of the case, the court did not discuss any additional issues related to defendants’ alleged monopolization. Though it did not dismiss the § 2 claim, the court noted “the delicate factual balance in which Plaintiffs’ remaining claims hang” and granted defendants leave to move for summary judgment before the plaintiffs could [...]

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Fifth Circuit Reverses $25 Million Damages Award Against Pilgrim’s Pride

by McDermott Will & Emery | Sep 3, 2013 | Agriculture

On August 27, 2013, the Court of Appeals for the Fifth Circuit reversed a district court damages award of more than $25 million against Pilgrim’s Pride Corporation, a large producer of processed chicken. A group of chicken growers with whom Pilgrim’s Pride contracted filed suit against the company alleging that the company violated the Packers and Stockyards Act (PSA) by engaging in a course of business for the purpose of “manipulating or controlling prices.” The Eastern District of Texas held that Pilgrim’s Pride’s conduct of idling or selling its chicken processing plant reduced output to increase prices, and awarded damages over $25 million to plaintiffs.

On appeal, Pilgrim’s Pride argued that the PSA section (7 U.S.C. § 192) that prohibits manipulation or control of prices is, in actuality, an antitrust statute. Therefore, the PSA section “is only violated by attempts to affect market prices which are anti-competitive, or ‘injurious to competition.’” Pilgrim’s Pride argued that because its output reductions were not anti-competitive, it did not violate the PSA. The plaintiffs argued that the PSA should be applied more broadly, not only to conduct that is anticompetitive.

The Fifth Circuit relied on a prior en banc decision addressing the same PSA provision, Wheeler v. Pilgrim’s Pride Corp., 591 F.3d 355 (5th Cir. 2009) (en banc) to hold that there was little question that PSA § 192 “proscribes only anti-competitive conduct.” The court also reasoned that the use of the terms “manipulation” and “control” meant that Congress intended to prohibit “deceptive, illegitimate, or unnatural—i.e., anti-competitive—attempts to influence prices.”

After establishing that PSA § 192 prohibited only anticompetitive manipulation of prices, the court analyzed Pilgrim’s Pride’s conduct of idling or closing plants under the rule of reason. Quoting Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 458 (1993), the court stated that the “purpose of [antitrust law] is not to protect businesses from the working of the market; it is to protect the public from the failure of the market. . . “ The court also stated that a company’s unilateral attempt to raise prices, standing alone, is not inherently anticompetitive. The court reasoned that Pilgrim’s Pride had, on its own, produced more chicken than the market demanded and was causing damage to its own business. As a result, the company decided to stop flooding the market. The court found no evidence that the company’s conduct was anything but a legitimate, rational response to market conditions. Therefore, the court concluded Pilgrim’s Pride conduct was not anticompetitive, even though the conduct may have affected the price for chicken.

In a well-reasoned opinion, the Fifth Circuit relied on one of the fundamental tenants of antitrust law: that its purpose is to protect competition, not competitors. However, clients that wish to make price moves, or take other actions that would affect price, should consider whether those contemplated actions could be perceived as anticompetitive by customers or other market participants, and should take steps to document the legitimate business justification behind such moves. That applies even to regulated [...]

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Egg Producer Agrees to Pay $28 Million to Settle Price-Fixing Claims

by Emily Townsend | Jul 26, 2013 | Agriculture, Private Litigation

by Nicole Castle

On July 23, 2013, Cal-Maine Foods Inc., the largest producer of fresh shell eggs in the U.S., announced that it had agreed to pay $28 million to settlement the direct purchaser claims brought by plaintiffs in In re Processed Egg Products Antitrust Litigation, 08-cv-2002 (E.D. Pa.). The direct purchaser plaintiffs alleged that Cal-Maine Foods and the other defendants engaged in a long-running scheme to limit egg supply in an effort to raise prices.

Cal-Maine Foods will be the third defendant to settle with the direct purchasers in this case. Defendants Sparboe Farms Inc. and Moark LLC previously settled the direct purchaser claims.

Cal-Maine Chairman, President, and CEO Dolph Baker said in a statement on Tuesday:

We remain confident that our conduct has at all times been lawful, appropriate and fair to our customers. The largest retailers and egg buyers in the country, including many of our customers, in fact, were fully aware of, and explicitly supported, the industry-wide animal welfare guidelines challenged in this litigation. And, the USDA was fully aware of, and explicitly supported, these animal welfare guidelines as well as all the other conduct the plaintiffs challenged. We were able to negotiate a settlement which would eliminate most of our exposure in the antitrust litigation against the Company for an amount that we believe is in the best interest of the shareholders, employees, customers and consumers. It significantly reduces the distraction, expense, exposure and inconvenience of protracted litigation and potentially multiple appeals, and allows us to focus on executing the long-term strategy of our business.

The terms of the settlement are subject to approval by the court following notice to all class members. The parties expect to file for preliminary approval of the settlement next week. The settlement does not affect the class actions filed on behalf of the indirect purchasers. Cal-Maine has stated that it intends to continue to defend the remaining cases and believes that it has strong defenses.

Patent Exhaustion Rejected: Patented Seed Purchaser Has No Right to Make Copies

by Emily Townsend | May 16, 2013 | Agriculture, IP Antitrust

by Paul Devinsky, Cynthia Chen and Lincoln Mayer

The Supreme Court in Bowman v. Monsanto Co. ruled unanimously that a farmer’s replanting of harvested seeds constituted making new infringing articles. While the case is important for agricultural industries, the Supreme Court cautioned that its decision is limited to the facts of the Bowman case and is not a pronouncement regarding all self-replicating products.

To read the full article, click here.

Potato Price-Fixing Case Survives Motion to Dismiss Holds That Pre-Production Agricultural Output Restrictions Are Not Exempt Under Capper-Volstead

by Emily Townsend | Dec 8, 2011 | Agriculture

by Gregory E. Heltzer and Nicole Castle

On December 2, 2011, a federal judge overseeing multidistrict litigation involving an alleged potato price-fixing conspiracy denied a motion to dismiss the antitrust conspiracy claims despite the potato grower cooperatives asserting that the concerted action was permissible under the Capper-Volstead Act. In Re: Fresh and Process Potatoes Antitrust Litigation, No. 10-2186 (D. Idaho).

In particular, the plaintiffs alleged that defendants increased the price of potatoes through reduction of potato planting acreages and by paying farmers to destroy existing stocks. Not only did the court deny the motion to dismiss on several grounds, but took the “extraordinary step” of providing an “advisory opinion” regarding an area of law with scant precedent. The court was willing to offer its opinion at this stage because there were no disputed facts on this legal issue, the parties had fully briefed and argued the matter, and in the court’s view providing this holding at this juncture was consistent with the “command of Rule 1” of the Federal Rules of Civil Procedure – the opinion would help secure the just, speedy and inexpensive determination of the proceeding.

The court’s “advisory opinion” held that pre-production agricultural output limitations among growers are not defensible agreements under the Capper-Volstead Act. The court explained that the plain language of the Capper-Volstead Act protects concerted action after production, that is, growers can collectively process, prepare for market, handle and market its products. According to the court, coordinating and reducing acreage for planting are not defensible because these actions come before production.

The court later opined that the distinction between pre-production output limitation agreements and post-production marketing decisions to withhold product from markets comports with underlying antitrust theory because if prices rise, “farmers will produce more and consumers will not be overcharged.” The court explained that this is a “safety-valve against private abuse that ameliorates the adverse consumer impact of the Capper-Volstead exemption” and that this safeguard is not in play if cooperatives can enforce pre-production limitations.

This decision offers new law and should lead cooperatives to revisit any production curtailment agreements and consider whether any such programs comport with this court’s interpretation of the Capper Volstead Act.

Antitrust Agriculture Update: Mushroom Grower Direct Purchaser Litigation

by Emily Townsend | Aug 26, 2011 | Agriculture

by Lincoln Mayer and Gregory E. Heltzer

On August 23, the Third Circuit denied interlocutory review of an order from the Eastern District of Pennsylvania, which held that defendant mushroom growers were "not a proper agricultural cooperative under the Capper-Volstead Act because one of its members was not technically a grower of agricultural produce." In re: Mushroom Direct Purchaser Antitrust Litigation, Nos. 09-2257, 09-2258, slip op. at 13 (3d Cir. Aug. 23, 2011).

The Third Circuit agreed with the growers that "whether the arguably inadvertent inclusion of an ineligible member strips an agricultural cooperative of Capper-Volstead protection, is both serious and unsettled." Id. at 16 n.4. However, the court considered and rejected the growers’ argument that Capper-Volstead provides not merely a defense to liability, but immunity from suit: "Neither the language of the Capper-Volstead Act nor Supreme Court cases interpreting it indicate that the Act entitles an agricultural cooperative to avoid entirely the burden of litigation. Because the Act does not provide an immunity from suit, a district court order denying a defendant its protections is not effectively unreviewable after final judgment . . . ." Id. at 24; see id. at 18-24.

While the holding that the Capper-Volstead Act does not confer immunity from suit is unsurprising, multiple courts have accepted that de minimis accidental inclusion of non-growers in a cooperative does not defeat Capper-Volstead protection. This decision, however, heightens the antitrust risk associated with such a scenario, and reinforces the importance for Capper-Volstead cooperatives of vigilantly policing their membership roles. Even just one ineligible member risks exposing the cooperative to unwanted and potentially protracted litigation.

Poultry Merger Challenge

by Emily Townsend | May 13, 2011 | Agriculture, DOJ Developments, Mergers & Acquisitions

by Gregory E. Heltzer and Carrie G. Amezcua

On May 10, the U.S. Department of Justice (DOJ) filed a civil lawsuit against George’s Inc. to block its $3M acquisition of Tyson Foods Inc.’s, Harrisonburg, Virginia chicken processing plant, showing that deals of all sizes face scrutiny. This case also continues the trend of challenges to non-reportable transactions by both the DOJ and FTC, as well as the DOJ’s current focus on the agriculture sector. It is also notable because the DOJ is alleging that the merger leads to monopsony power, a relatively rare allegation, but one that is increasingly used in challenging deals in the agriculture business.

The DOJ began investigating the acquisition when it was announced in mid-March, and issued Civil Investigative Demands to the parties on April 18, 2011. Despite their awareness of the DOJ’s concerns and ongoing data and document productions, the parties consummated the deal.

George’s and Tyson are two of only three chicken processors in the Shenandoah Valley. Chicken processors process and distribute "broilers," which are chickens raised for meat products. The processors compete for contracts with growers, who care for and raise chicks from the time they are hatched until the time they are ready for slaughter.

In its complaint, the DOJ alleges that the relevant product market is the "purchase of broiler grower services from chicken farmers." The DOJ then asserts that, following the proposed merger, chicken farmers would have only a single processor to sell their growing services to – in part because the only other processor in the 50-75 mile range, Pilgrim’s Pride, is at capacity. The DOJ alleges that the consolidation would not only harm grower’s contract prices but also lead to inferior contract terms on other, non-price factors. The DOJ argues that the relevant geographic market is limited to the Shenandoah Valley because of transportation costs for feed and live birds.

The full complaint can be found on the DOJ website: https://www.justice.gov/atr/cases/f270900/270983.pdf.

Proposed GIPSA Rule

by Emily Townsend | Jan 26, 2011 | Agriculture, DOJ Developments

by Carrie G. Amezcua

Earlier this week, The Tribune (Greely, Colorado) published the article below discussing proposed changes to livestock marketing rules. The article discusses the pros and cons of the Grain Inspection, Packers and Stockyards Administration proposed rule – commonly referred to as the GIPSA rule.

"New rules were mandated by the 2008 Farm Bill, which required the U.S. Department of Agriculture to conduct rulemaking that ‘improves fairness in the marketing of livestock and poultry.’"

The rule aims to promote fairness and transparency, and would make it easier for a plaintiff to bring a case under the Packers & Stockyards Act by no longer requiring that the plaintiff first show harm to competition in a complaint alleging certain unfair trade practices. However, critics say that the changes will promote unnecessary litigation and would result in anywhere from 22,800 to 104,000 jobs lost.

Comments on the new rule were due November 22, 2010 and are currently being reviewed. However, on January 21, 2011, the USDA published one change to their regulations requiring testing of scales twice per year, at defined 6 month intervals.

More information on GIPSA and the 2008 Farm Bill can be found here: https://www.gipsa.usda.gov/GIPSA/webapp?area=home&subject=landing&topic=landing

Proposed changes in livestock marketing rules prompt fears, confusion
Link to article: https://www.greeleytribune.com/article/20110123/NEWS/701229893/1002&parentprofile=1

Antitrust and Agriculture: Summary of DOJ/USDA Workshops and New Article on Capper-Volstead

by Emily Townsend | Jan 14, 2011 | Agriculture, DOJ Developments

by Greg E. Heltzer, Carrie G. Amezcua and Jennifer L. Westbrook

The DOJ and USDA just completed a series of five workshops on competition in the agriculture industry. The two agencies have a renewed their focus on competition in this industry and have promised more activity in this area. The highlights from each of the workshops is described below.

An overview of all five workshops:
Issues of Concern to Farmers, March 12, 2010, Iowa

Opening statements and roundtable remarks by Attorney General Eric Holder, Assistant Attorney General Christine Varney and Secretary of Agriculture Tom Vilsack.
There was discussion about concentration in the seed industry and lack of choice among seed trait companies. Also, farmers voiced concern about patents that nearing expiration where there are no generics yet in the pipeline. (Subsequent to this workshop Monsanto announced it would pay for all regulatory approvals of Round Up Ready soybean patent through 2021 even though the patent expires in 2014).
The discussion from pork and livestock farmers centered on fairness, transparency and increased enforcement of existing laws such as the Packers and Stockyards Act.

Poultry Industry, May 21, 2010, Alabama

Opening statements and roundtable remarks by Attorney General Eric Holder, Assistant Attorney General Christine Varney and Secretary of Agriculture Tom Vilsack.
Mr. Holder announced the launch of the Agriculture Competition Joint Task Force, which is comprised of individuals from the DOJ and USDA.
There was discussion about the fairness of poultry contracts and transparency in the industry.
There were also comments on the lack of concentration of poultry processing companies, which reduces the choice farmers have.

Dairy Industry, June 25, 2010, Wisconsin

Opening statements and roundtable remarks by Assistant Attorney General Christine Varney and Secretary of Agriculture Tom Vilsack. (AG Eric Holder did not attend).
There was discussion about the gap between the prices consumers pay (relatively high) and prices that dairy farmers are paid by processors (relatively low). The farmers are getting squeezed and having to sell below cost.
Consolidation in grocery retailing and the price pressure exerted by large retailers on dairy coops, as well as consolidation in dairy processors, were cited as a cause of low prices to farmers.

Livestock Industry, August 27, 2010, Colorado

Opening statements and roundtable remarks by Attorney General Eric Holder, Assistant Attorney General Christine Varney and Secretary of Agriculture Tom Vilsack.
The workshop focused on issues regarding the ability of cattle and hog producers to earn sustainable returns.
There was discussion about whether reducing the market power of the packers and increasing bid competition for cattlemen’s animals would raise prices that cattlemen could obtain.
There was also discussion about how concentration of packers and concentration among retail grocers negatively affects prices producers can get for their livestock.

Margins, December 8, 2010, Washington, D.C.

Opening statements and roundtable remarks by Attorney General Eric Holder, Assistant Attorney General Christine Varney and Secretary of Agriculture Tom Vilsack.
The workshop focused on margins at each [...]

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