Antitrust Law Daily Puerto Rico allowed to join chicken price fixing squabble as a direct purchaser
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Friday, July 17, 2020

Puerto Rico allowed to join chicken price fixing squabble as a direct purchaser

By Robert B. Barnett Jr., J.D.

Territory was, however, foreclosed from seeking remedies as an indirect purchaser under Illinois Brick.

The Commonwealth of Puerto Rico was permitted to pursue price fixing litigation against chicken producers as a direct purchaser, because the territory did not need to allege more than the simple fact that it made direct purchases in order to make its claims plausible. However, the chicken producers were entitled to dismissal of Puerto Rico’s Sherman Act and Puerto Rico Antitrust Act (PRAA) claims involving indirect purchases because the Illinois Brick doctrine precluded indirect purchaser standing, and there was no Illinois Brick repealer for the PRAA. Parens patriae claims on behalf of citizens, who were presumed to be indirect purchasers of chicken products, also were dismissed by the federal district court in Chicago (In re Broiler Chicken Antitrust Litigation, July 15, 2020, Durkin, T.).

A group of plaintiffs consisting of three classes—direct purchasers, indirect purchasers, and end-user consumers—filed suit against a collection of industrial chicken meat producers (plus Eli Lilly & Co, which produces subscription reports about the industry), alleging that they conspired to fix prices between 2008 and 2016 in violation of §1 of the Sherman Act. The court denied the motion to dismiss and allowed those claims to move forward. Since the action was filed, several new plaintiffs have emerged, including the Commonwealth of Puerto Rico. The chicken producers filed a motion to dismiss Puerto Rico’s claims for antitrust violations, unjust enrichment, and parens patriae.

Direct purchaser complaints. Puerto Rico’s antitrust allegations mostly mirrored the allegations previously allowed to move forward, except that Puerto Rico caused some trouble for itself by mixing the direct and indirect purchaser allegations, which are treated differently under federal antitrust law. In a couple of areas of its complaint, Puerto Rico referred to itself as a direct purchaser, while in others it referred to itself as an indirect purchaser. The chicken producers, who wanted Puerto Rico to be classified as an indirect purchaser, tried to argue that the court should treat Puerto Rico as an indirect purchaser because the indirect purchaser allegations were more detailed than the direct purchaser allegations. But the court disagreed, noting that Puerto Rico at times was probably both a direct and an indirect purchaser, and the court chose to address the direct and indirect claims separately.

The chicken purchasers then tried to argue that the direct purchaser allegations should be thrown out because they were conclusory and lacking factual support. While Puerto Rico was required to provide specifics about why it was alleging that the chicken producers engaged in a price-fixing conspiracy, it was not required to be specific about its own direct purchases. In fact, to satisfy the pleading requirements as a direct purchaser, it need only state the simple fact that it made direct purchases from the chicken producers. Because Puerto Rico did so, the motion to dismiss the direct purchaser allegations was denied.

Indirect purchaser complaints. In Illinois Brick v. Illinois, 431 U.S. 720 (1977), the Supreme Court ruled that antitrust standing under federal law was restricted to plaintiffs who were directly harmed by the defendant’s conduct. To make an end-run around Illinois Brick, Puerto Rico argued that the decision had been "repealed" in Puerto Rico by Pressure Vessels v. Empire Gas, 137 DPR 497 (P.R. 1994)). The court, however, would have none of it. Pressure Vessels did not mention Illinois Brick at all, and it did not even involve a price-fixing scheme or indirect purchasers. In any event, the court said, Pressure Vessels’ analysis of antitrust law was "flawed." As a result, the court concluded that the Puerto Rico Antitrust Act, the law upon which Puerto Rico’s antitrust claims rested, does not permit claims by indirect purchasers.

Unjust enrichment. Puerto Rico had also sought a claim for unjust enrichment. It argued that it should be allowed to pursue its unjust enrichment claim because it was denied the right to pursue an antitrust claim as an indirect purchaser. But if the court allowed such a claim, indirect purchaser plaintiffs would be able to end-run the bar created by the Illinois Brick decision via unjust enrichment. As a result, this court joined the "great majority of courts" in holding that unjust enrichment claims based on indirect purchases were also barred by Illinois Brick.

Parens Patriae. Puerto Rico had sought a claim on behalf of its citizens parens patriae. The citizens of Puerto Rico, however, are presumed to be indirect purchasers of chicken products. As a result, this claim was dismissed for the same reason that the other indirect purchaser claims were dismissed.

The court, therefore, denied the motion to dismiss to the extent that Puerto Rico’s claims were based on direct purchases, and it granted the motion to dismiss to the extent that Puerto Rico’s claims were based on indirect purchases.

The case is No. 1:16-cv-08637.

Attorneys: Brian D. Clark (Lockridge Grindal Nauen P.L.L.P.) for Maplevale Farms, Inc. Adam J. Trott (Cotchett, Pitre & McCarthy, LLP) for Fargo Stopping Center LLC. Devon Charles Holstad (Novack and Macey LLP) for Koch Foods, Inc., JCG Foods of Alabama, LLC. John M. Tanski (Axinn, Veltrop & Harkrider LLP) for Tyson Foods, Inc.

Companies: Maplevale Farms, Inc.; Fargo Stopping Center LLC; Koch Foods, Inc.; JCG Foods of Alabama, LLC; Tyson Foods, Inc.

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