Antitrust Law Daily Price-fixing case against top pork producers fails for lack of parallel conduct fails for lack of parallel conduct
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Friday, August 9, 2019

Price-fixing case against top pork producers fails for lack of parallel conduct fails for lack of parallel conduct

By Nicole D. Prysby, J.D.

The plaintiffs made strong allegations of plus factors for the pork market, but failed to adequately allege parallel conduct, because they relied on industry-wide data showing production decreases.

The plaintiffs in a consolidated antitrust class action (separated into three putative classes) failed to adequately allege that 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, the federal district court in Minneapolis has ruled. The plaintiffs demonstrated that pork production decreased after 2009, but importantly, failed to show the decrease was a result of parallel conduct by the nation’s leading pork producers. The price-fixing allegations relied on industry-wide data showing production decreases and vague public statements from the pork producers, and assertions that each pork producer engaged in similar parallel conduct simply because together the defendants make up the majority of the industry. They also failed to plead when each producer allegedly made production cuts. The plaintiffs’ theory that the producers exported more pork as part of their parallel conduct failed for similar reasons. The court did note that the plaintiffs made strong allegations of plus factors for the pork market (such as the inelasticity of pork demand) and granted them leave to amend their complaint (In re Pork Antitrust Litigation, August 8, 2019, Tunheim, J.).

Alleged price fixing. The plaintiffs (Direct Purchaser Plaintiffs, Consumer Indirect Purchaser Plaintiffs, and Commercial and Institutional Indirect Purchaser Plaintiffs) alleged that the nation’s leading pork producers conspired to limit the supply of pork in order to fix prices. The complaint alleged that the market concentration, barriers to entry, and unique aspects of the pork market put the pork industry in an ideal position for collusion and that the producers were motivated to collude because pork prices were flat (holding at about $1.40 per pound) between 2000 and 2009.

Specifically, the plaintiffs alleged that the pork producers aimed public statements at each other emphasizing the need to cut production (which also served to signal their continued adherence to the conspiracy) and that they exchanged non-public information about prices, demand, capacity, and sales volume through co-conspirator Agri-Stats, Inc. Agri-Stats is a financial benchmarking company that collects proprietary business data from the pork producers and issues monthly (non-public) reports comparing the producers to one another. The data in the reports are anonymized, but the reports contain sufficient information for each producer to identify the others.

The defendants are: Agri Stats, Inc.; Clemens Food Group, LLC, and The Clemens Family Corporation; Hormel Foods Corporation and Hormel Foods, LLC; Indiana Packers Corporation and Mitsubishi Corporation (Americas); JBS USA Food Company and JBS USA Food Company Holdings; Seaboard Foods LLC and Seaboard Corporation; Smithfield Foods, Inc.; Triumph Foods, LLC; and Tyson Foods, Inc., Tyson Fresh Meats, Inc., and Tyson Prepared Foods, Inc.

Plaintiffs alleged plus factors but not parallel conduct. The court held that the plaintiffs’ Sherman Act Section 1 claim failed, for lack of adequate allegations of parallel conduct, although the plus factors cited by the plaintiffs were strong. Those plus factors were: the collusive and constricted nature of the industry, the inelasticity of pork demand, trade associations attended by the defendants, actions taken by some of the defendants’ against their own self-interests, pricing practices, the fact that some of these defendants engaged in similar practices in the chicken industry, the central role that Agri-Stats played in the alleged conspiracy, and the frequent public statements made by defendants regarding the state of the pork market.

However, the strong plus factors could not overcome the lack of plausible allegations of parallel conduct, according to the court. The plaintiffs alleged two types of actions: that the producers intentionally decreased the production of pork and that they intentionally exported a greater percentage of their pork. To demonstrate parallel conduct through decreased production, the plaintiffs pointed to industry data and public statements made by the producers. But while the plaintiffs’ data showed that production decreased in years after 2009, it did not indicate how each of the individual producers affirmatively acted to reduce the pork supply. Plaintiffs’ allegations that pork production dropped industry-wide and therefore all defendants contributed to the drop because they make up the majority of the industry were insufficient.

The plaintiffs also failed to plead when each producer made production cuts, and therefore failed to allege temporal proximity, the court held. The public statements cited as evidence of the alleged conspiracy were too vague to serve as evidence of parallel conduct. For example, public statements were introduced from Smithfield’s CEO that Smithfield was taking steps to reduce its production and that other companies needed to make cuts as well, and statements from Tyson’s that it expected to see pork production decrease. The statements mainly indicated only that each defendant observed that the pork industry’s production as a whole was declining. While the statements demonstrated that Smithfield made cuts in production, there was no evidence that any other producer did the same. The plaintiffs’ theory that the producers exported more pork as part of their conspiracy failed for the same reasons—the complaint provided no individual examples of producers increasing exports, but merely provided industry-wide data.

The court also dismissed the plaintiffs’ related state-law claims and granted them leave to amend the complaint.

This case is No. 0:18-cv-01776-JRT-HB.

Attorneys: Daniel E. Gustafson (Gustafson Gluek PLLC) for Wanda Duryea. Jennifer A. Fleury (Hogan Lovells US LLP) for Agri Stats, Inc.

Companies: Agri Stats, Inc.

MainStory: TopStory Antitrust MinnesotaNews

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