Food Lion, LLC, et al v. Dean Foods Company et al
Filing
787
MEMORANDUM OPINION AND ORDER denying 201 MOTION to Certify Class filed by Food Lion, LLC, Fidel Breto. See Order for details. Signed by District Judge J Ronnie Greer on 1/25/2016. (LMC)
UNITED STATES DISTRICT COURT FOR THE
EASTERN DISTRICT OF TENNESSEE
AT GREENEVILLE
FOOD LION, LLC, FIDEL BRETO, d/b/a
FAMILY FOODS, ON BEHALF OF
THEMSELVES AND THE CLASS OF ALL
OTHERS SIMILARLY SITUATED ,
)
)
)
)
)
Plaintiffs,
)
)
v.
)
)
DEAN FOODS COMPANY, DAIRY FARMERS )
OF AMERICA, INC., and NATIONAL DAIRY
)
HOLDINGS, LP,
)
)
Defendants.
)
No. 2:07-CV-188
MEMORANDUM OPINION AND ORDER
This matter is before the Court on the motion of plaintiffs for class certification, [Docs.
201, 202]. The defendants have responded in opposition, [Doc. 228], and plaintiffs have replied,
[Doc. 295]. Plaintiffs filed a supplemental memorandum in support of the motion for class
certification, [Doc. 669], and defendants responded to the supplemental filing, [Doc. 719]. The
Court heard expert testimony on June 23- 24, 2015, [see Docs. 739, 740], and heard oral
argument on September 17, 2015, [see Doc. 771]. The motion is ripe for disposition and, for the
reasons set forth below, will be DENIED.
I.
Background
Plaintiffs are retail sellers of processed milk who purchase directly from Dean Foods
Company (“Dean”) and/or Dairy Farmers of America, Inc. (“DFA”), a dairy cooperative which
owns, or owns an interest in, milk processing plants. Plaintiffs bring this putative class action
complaint under §§ 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1-2, and § 3 of the Clayton Act, 15
1
U.S.C. § 14. Plaintiffs’ complaint originally included counts alleging an agreement not to
compete (Count 1), conspiracy to restrain trade (Count 2), monopolization and attempted
monopolization (Counts 3 and 4), and conspiracy to monopolize (Count 5). Counts 2 through 5
have been dismissed, [Docs. 537, 667]1 , and those claims have now been abandoned by
plaintiffs. Count 1 alleges that Dean, DFA and National Dairy Holdings, L.P. (“NDH”), agreed,
in violation of the Sherman Act, “to lessen competition for sales of processed milk in the
Southeast” (defined by plaintiffs as Federal Milk Marketing Orders (FMMO) 5 and 7). Here is how
plaintiffs describe the alleged conspiracy:
A. Dean and Suiza’s Rapid Consolidation of the Milk Bottling Business
In the years before the 2001 Dean/Suiza merger, the milk
bottling business was highly fragmented. In the late 1990’s, two
competitors—Dean and Suiza—employed “arms race” acquisition
strategies, substantially increasing the number of plants they
owned and significantly consolidating milk bottling.
Simultaneously, the suppliers to milk bottlers—dairy cooperatives
(“co-ops”)—also were consolidating, and in 1998, four dairy
cooperatives merged to form Defendant DFA. DFA supplied
Suiza’s bottling plants pursuant to full-supply agreements, while
Dean’s bottling plants were supplied largely by independent dairy
farmers.
Suiza, Dean, and DFA were each controlled by a small
group of executives. At that time, Suiza was run by CEO Gregg
Engles, Vice Chairman Tex Beshears, and CFO and Vice-President
of Corporate Development, Tracy Noll, while Dean was run by
CEO Howard Dean. DFA’s co-op operations were run by CEO
Gary Hanman and CFO Gerry Bos. DFA’s business interests also
included ownership in milk bottlers, the most significant of which
were managed and partially owned by Pete Schenkel and Allen
Meyer.
The enormous sums of money these executives received
over a short period of time make the professional and financial
interrelationships between the DFA, NDH and Suiza executives
highly relevant the Retailer Plaintiffs’ claims. For example, in
1999, DFA acquired one-third of Suiza’s Dairy Group in exchange
1
Count 1 of the complaint was also dismissed by the Court. That decision, however, was reversed by the Sixth
Circuit Court of Appeals. See Food Lion, et al v. Dean Foods Company, et al., 739 F.3d 262 (6th Cir. 2014) and
“remanded for further proceedings consistent with the opinion.” Id. at 286.
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for selling certain of DFA’s joint-venture interests to the Suiza
Dairy Group. As part of that transaction, Pete Schenkel netted
$100 million personally and became the President of Suiza Dairy.
DFA also acquired the milk supply rights to the remaining Suiza
plants in that transaction. Earlier in 1998, DFA had gained supply
rights to Suiza plants in three states within the Southeast with the
sale of DFA’s Land-O-Sun joint venture plants to Suiza. The DFASuiza Land-O-Sun transaction netted Allen Meyer $70 million.
From 1998 to 2004, Tracy Noll was paid over $34 million related
to his milk industry positions and relationships. During that same
time, Tex Beshears was paid well over $100 million. Finally,
Dean’s CEO, Gregg Engles, one of the highest paid food industry
executives, has received $103 million since 2003. Thus,
collectively these five executives alone made in excess of $400
million in the past 10 years or so in milk related transactions.
These handpicked loyalists were well-placed to effectuate the
market-wide plan described below.
B. Suiza, DFA, and Dean Engineer the Dean/Suiza Merger
By 2000-2001, Dean and Suiza operated milk bottling
plants throughout the Southeast, in overlapping geographic areas.
Suiza was the largest milk bottler in the United States, operating 67
dairy processing plants in 29 states, and by 2001, Dean was the
second largest milk bottler, operating 43 dairy processing plants in
19 states. By a large margin, Dean and Suiza were the largest two
competitors in the highly fragmented industry. Meanwhile, by
2001 Suiza’s supplier DFA was the largest dairy co-op in the
United States.
On December 1, 2000, as the competitive race proceeded,
the presidents of Suiza, DFA, and Dean—Gregg Engles, Gary
Hanman, and Howard Dean—went on a hunting trip. This meeting
ultimately led to the December 2001 merger of Suiza and Dean.
Before the hunting trip, Engles had been actively pursuing the
acquisition of Crowley-Marigold, two key groups of bottling plants
in the Northeast and the Midwest. Suiza’s Vice-President of
Corporate Development, Tracy Noll, was in charge of conducting
the due diligence review of Crowley-Marigold. Upon returning
from the hunting trip in early December 2000 with the CEOs of
Dean and DFA, Engles told his Suiza management team that Suiza
would seek to buy Dean or Crowley-Marigold—but not both.
Suiza could not acquire both Dean and the Crowley-Marigold
plants because of antitrust concerns—i.e., Suiza would control and
own too many milk bottling plants. Engles instructed Noll to
continue exploring the Crowley-Marigold acquisition. Noll
retained Suiza’s long-time acquisition consultants, Deloitte and
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Touche, to assist with due diligence. Suiza simultaneously
explored its ability to acquire Dean.
By the end of January 2001, Suiza chose to acquire Dean
instead of Crowley-Marigold; the newly merged Dean/Suiza
company would be called “Dean.” Furthermore, in mid-January
2001, Noll told Engles that Noll would be leaving Suiza to rejoin
Cletes “Tex” Beshears at the predecessor of NDH. As the
Dean/Suiza deal began to take shape, it was obvious that
consolidation of the two bottling giants would create substantial
antitrust concerns on the part of the DOJ. Because of the
unprecedented level of concentration in the milk bottling business
that would result from the merger, particularly in the Southeast,
Suiza and Dean expected that the DOJ would likely (1) require
divestitures of several Dean/Suiza plants and (2) mandate that
Dean/Suiza not purchase any other plants.
A solution, however, was orchestrated through a four-way
deal. In mid-February 2001, Suiza’s Greg Engles and Pete
Schenkel met with DFA’s Hanman and Bos and others about
acquiring the eventual spin-off plants from the Dean/Suiza merger.
DFA established an entity—Defendant NDH—to first purchase the
Crowley-Marigold plants that Suiza previously had been pursuing
and then to capture the inevitable plant divestitures from the
Dean/Suiza merger. That new company, was immediately stocked
with senior executives who had previously worked for Suiza or
DFA. DFA, along with Allen Meyer (a long-time business partner
in the bottling business with DFA), Tracy Noll (a former Suiza
executive) and Tex Beshears (another former Suiza executive)
became NDH’s owners. Curiously, NDH’s Allen Meyer was paid a
$1.6 million bonus for “originating, negotiating and facilitating”
the transaction with Suiza. When asked in a recent deposition
about the specifics of Meyer’s involvement and the bonus Meyer
was paid, however, NDH’s Tracy Noll “took the Fifth.”
Ultimately, in a successful attempt to placate DOJ and win
approval for the merger, Dean agreed to divest 11 bottling plants to
NDH. In numerous presentations during the merger review
process, Dean convinced the DOJ that the divested plants would
provide vigorous competition and that following the merger, there
would remain “many” local and regional milk bottlers to compete
for sales to retail customers.
For example, Dean provided the DOJ with maps of the
Bristol, Virginia area and the Huntsville, Alabama area and labeled
the maps, “Fluid Milk—Vigorous Local and Regional support
acquisitions increasing its investment at times, primarily through
preferred equity investments . . . .”. At the end of 2007, NDH
expected that DFA would have $390.3 million in preferred equity
invested in NDH, with DFA having an 87.5% common ownership
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stake in Competition.” Dean and Suiza also assured the DOJ that
NDH planned to make further acquisitions of milk bottling
facilities. Those efforts ultimately led the DOJ to announce on
December 18, 2001, that it had approved the merger. The DOJ’s
announcement extolled the fact that “these divestitures ensure the
fact that consumers of milk . . . continue to get the benefits of
competition” and that there would be increased choices and lower
prices. The merger created unprecedented market concentration in
the fluid milk business in the Southeast United States. The
resulting Dean is a publicly-traded, for-profit corporation based in
Dallas, Texas, with 2007 net sales of $11.8 billion; Dean has more
than 100 milk bottling plants, located in thirty-six states.
In summary, when the dust settled from the Dean/Suiza
merger: (1) Suiza had accomplished its goal of eliminating its
biggest competitor, Dean; (2) DFA had accomplished its goal of
contractually controlling access to supply all-interested bottling
plants through full supply agreements, including the combined
Dean/Suiza bottling plants, the spun-off NDH bottling plants, and
the Crowley-Marigold bottling plants acquired by NDH; (3)
Dean/Suiza’s new biggest “competitor,” NDH, was run by insiders
from both Suiza (Noll and Beshears) and DFA (Meyer); and (4)
the newly-formed co-conspirator, NDH, captured the Dean/Suiza
divested plants and the Crowley-Marigold plants—with NDH
executive Noll even using the due diligence commissioned by
Suiza when Noll previously analyzed the Crowley-Marigold
acquisition on Suiza’s behalf.
Defendants’ ultimate mission—which forms the basis for
Retailer Plaintiffs’ claims— was to enlist DFA’s allegiance in
ensuring that NDH remained a compliant and cooperative partner
rather than a “vigorous” competitor. The conspiracy manifested
itself in four key ways. First, NDH was complicit in undermining
the competitive significance of the spun-off plants. Second, Dean
and NDH cooperated with each other rather than competing
vigorously as Dean told the DOJ they would. Third, Dean, NDH
and DFA minimized their opportunities for robust competition by
retreating to separate geographic portions of the Southeast. Fourth,
Dean, NDH and DFA acted together to block new entrants of other
milk bottlers in the Southeast.
1. Undermining the Divestitures—Dean and NDH Move
Customers to Dean to Facilitate Closing Competing Plants
Despite the fact that Dean and Suiza told the DOJ that
NDH would be “an aggressive expanding competitor,” Suiza acted
even before receiving DOJ’s merger approval to undermine the
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competitive position of at least two of the plants that NDH
acquired pursuant to the merger.
For example, before the former Suiza Meadow Gold plant
in Huntsville, Alabama was spun-off to NDH, Dean/Suiza
knowingly and intentionally hobbled the plant by moving the WalMart business supplied by Huntsville to a Dean plant in
Birmingham. Because Wal-Mart was Huntsville’s largest customer
by far, representing almost 40 percent of the plant’s total sales,
losing that business assured that the Huntsville plant would
become immediately unprofitable.
Moreover, NDH co-owner Meyer testified that NDH knew
even before the Dean/Suiza merger closed that NDH would lose
money on the hobbled Huntsville plant, and admitted that “[i]t
should have been closed day one.” It was not until 2003, however,
that NDH closed the Huntsville plant after posting substantial
financial losses for many months. Likewise, Dean also switched
Wal-Mart business away from the former Suiza Flav-O-Rich plant
in Bristol, Virginia that was also spun-off to NDH in the merger.
As a result, two of the five spin-off plants located in the Southeast
market were instantly rendered financially non-viable, and NDH
ceased milk bottling at both plants.
2. Customer Allocation and “Courtesy Bidding”—NDH, at
Dean’s “Instruction” Declines to Compete
Although discovery is still on-going, Retailer Plaintiffs
have already uncovered evidence that NDH agreed, at Dean’s
instruction, not to bid aggressively for certain customer business.
In a December 2002 e-mail exchange between NDH President—
and former Suiza executive— Tracy Noll and NDH’s Rob Cottet
(also a former Suiza employee), the latter a manager for several
Southeast plants, Noll and Cottet discussed NDH’s unexpected
grab of Associated Grocers (“AG”), Dean’s largest customer at
least at one of its bottling plants in Florida. But NDH was unhappy
with this “win,” however, because it violated the agreement
between Defendants to allocate customers. As Cottet put it:
We were actually approached last spring/summer
for the [AG] business and we did not bid
aggressively at the instructions of our former
owners.
(emphasis added). The “former owner[]” who instructed NDH not
to “bid aggressively” was Suiza, which became the new Dean—
NDH’s ostensible competitor.
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The December 2002 e-mail exchange was not the only time
that Noll and Cottet discussed NDH’s agreement not to compete
with Dean. Following the loss of the Wal-Mart business at its
Huntsville and Bristol plants, Cottet, perhaps unaware of the
anticompetitive scheme that was in place, attempted to find new
customers to replace that lost business. Cottet’s initial efforts met
with some modest success, including winning the AG business
discussed above. But before Cottet could fully implement his new
customer strategy, he received a phone call from NDH’s President,
Tracy Noll. Noll told Cottet that “Dallas” (which Cottet understood
as shorthand for Dallas-based Dean) had complained about NDH’s
going after Dean-allocated customers. Noll told Cottet that Cottet
could not solicit any more of Dean’s customers. When Cottet
complained that without new customers, the Huntsville and Bristol
plants would continue to lose money and that they should then be
immediately shut down, he was told that NDH could not close the
plants just yet—because it was too soon after the merger to do so.
Plainly, NDH hoped to keep up appearances of competition where
there was none, in case the DOJ was still watching. Absent the
conspiracy, there was no rational reason for NDH to care how
things looked to the DOJ.
The evidence also indicates that NDH engaged in collusive
“courtesy bidding” to avoid taking business from Dean while
giving purchasers the appearance of competition. For example, a
2005 NDH email details how a Dean customer called Cowboy, a
chain of approximately 40 retail stores in several states, solicited
NDH to bid on its ice cream business, presumably to see if the
retail chain could obtain better pricing. An NDH employee
recommended to CEO Brian Haugh that NDH make a “courtesy
bid” that would allow Dean to keep the Cowboy’s business:
I believe most of the stores are worked by Mayfield
[Dean plants in Braselton, Georgia and Athens,
Tennessee]. He is also looking for us to bid on this,
I would recommend a courtesy bid letting Mayfield
keep it.
This document—which also notes that NDH “gave” bottled milk
customers to Dean, shows the common interests and coordination
between Dean and NDH to share the market and to not compete
with each other.
3. Territorial Division and Capacity Restriction—Dean, NDH,
and DFA Allocate Territories in the Southeast Through
Strategic Acquisitions and Plant Closings
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In addition to Defendants’ efforts to avoid competing
aggressively for customers, the Retailer Plaintiffs’ will prove that
Dean, DFA, and NDH engaged in coordinated plant closings and
acquisitions designed to physically separate their plant locations
throughout the Southeast. For example, as NDH was preparing to
withdraw from Huntsville, Alabama and cede the area to Dean,
Dairy Fresh—at the time one of the few remaining independent
bottlers in the Southeast—saw an opportunity to expand by
purchasing the plant. Instead of obtaining full value from Dairy
Fresh by selling the plant as a going concern, however, NDH sold
the plant to the city of Huntsville at land value, after DFA “killed
the deal” with Dairy Fresh. NDH was therefore willing to take less
money to ensure that the plant would not be available to provide
competition to Dean.
Less than a year after DFA killed Dairy Fresh’s effort to
purchase the Meadow Gold plant as a going concern, NDH
acquired Dairy Fresh, using DFA’s financial backing—thereby
extinguishing the threat the Dairy Fresh posed as an independent
bottling company to Defendants’ geographic market allocations.61
NDH also acquired a local bottling plant in Chattanooga,
Tennessee in October 2003 and then closed it in May 2006. In
total, since 2001, Dean, NDH, and DFA have acquired seven
Southeast bottling plants and have shut down seven plants.
Following these actions, including NDH’s closing its milk
bottling plants in Huntsville, Alabama, and Roanoke, Virginia, and
ceasing its milk bottling operations at its Bristol, Virginia plant, the
competitive milk bottling landscape in the Southeast looks very
different today from the scene of vigorous competition promised to
the DOJ in 2001. Immediately following the Dean/Suiza merger,
there was an NDH plant in relatively close proximity to almost
every Dean plant located in Order 5. Likewise, in Order 7, as of
early 2002, most wholesale milk buyers were within reasonable
distance of more than one milk bottler. Accordingly, retail
customers had a choice of bottlers from whom they could purchase
processed milk. By 2008, Dean and NDH had, in essence,
“moved” their facilities to separate portions of the Southeast.
Dean’s milk bottling plants are now heavily concentrated
throughout Order 5 and in the eastern half of Order 7. NDH’s
bottling plants are located mostly along the Gulf Coast, while the
DFA joint venture bottling plants are located chiefly in the western
portions of Order 7. Few NDH or DFA joint venture plants are
now located near Dean plants, and few Dean plants are now
located near the majority of the remaining NDH plants. As a result,
each Defendant bottler is now located primarily in a separate area
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of influence and control within the Southeast, with only token
competition (if that) throughout much of the rest of the Southeast.
This separation of plants was important to accomplish the
goals of the conspiracy. Indeed, Ernie Yates, head of Dean milk
procurement, and John Wilson, a senior DFA executive, met in
2007 to discuss “plant rationalization” and collusively reducing
bottling output to increase retail margins. Despite the fact that
DFA/NDH and Dean are ostensibly competitors in the bottling
market, Wilson reported to DFA’s CEO Rick Smith that Wilson
and Yates:
talked some about plant rationalization. He, you
know, between he and I, we were kind of
concluding, you know, that’s really our fundamental
problem right now on profitability of bottling. Is
that the plants there’s just a few too many plants out
there with too much capacity and if we could take,
the industry could take some strategic plants out of
the system it would certain allow folks to be more
aggressive on pricing to retailers and help things.
Obviously, we did not get specific on locations but
it was generally the spirit there.
(emphasis added). “[P]lant rationalization”—i.e., the reduction of
output in order to increase prices—by competitors is, of course,
per se illegal under the antitrust laws.
4. Payments to Potential Competitors to Exit the Market and
Retaliation Against Entrants—Dean, NDH and DFA Use
Economic Leverage to Block Competitor Entry into the
Southeast
Defendants were not satisfied to divide customers and
territories. Indeed, if other milk bottlers entered the Southeast
market, Defendants’ plan to charge and maintain illegally high
prices for processed milk would be much less profitable.
Therefore, Defendants also constructed a market-wide blockade,
working together to keep would-be competitors out of the milk
bottling business.
a. Defendants coordinate to block competition
from “Red Oak” bottling plant
For example, an investor group (which included a DFArival co-op, Maryland and Virginia Milk Producers (“MD/VA”)),
began building a new milk bottling facility, known as the “Red
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Oak” facility, in Baxley, Georgia. Dean was immediately alarmed.
Dean concluded that the plant would be its “biggest threat” in the
area. Indeed, the Red Oak owners expected the plant to be
profitable in its first or second year of operation.
Dean made an initial offer to purchase Red Oak, but it was
rejected—partly because Dean would not commit to actually
completing or operating the plant—and the Red Oak investors
preferred an investment from northeast bottler, HP Hood, Inc.
(“Hood”). In fact, Jay Bryant at MD/VA testified that instead of
actually intending to utilize the bottling plant, Dean wanted only to
eliminate a potential competitor. Dean, working together with DFA
and NDH, used economic leverage in other deals to dissuade the
Red Oak investors from completing the plant. After DFA and
NDH intervened, Hood backed away from the Red Oak deal.
Hood, which had been in discussions with DFA/NDH regarding
selling plants to NDH, fortuitously found itself purchasing a
number of NDH bottling plants in the northeast, and MD/VA
received supply rights to at least two bottling plants. DFA had the
exclusive right to supply them—one owned by Hood and one
owned by Dean. With Hood and MD/VA appeased with other
plants and supply rights, Dean purchased the Red Oak facility and,
as part of the deal, Dean sought and secured a wide-ranging, fiveyear, non-compete agreement from MD/VA in the process. The
MD/VA board was told to keep the deal terms confidential and that
neither MD/VA nor Dean would be issuing a press release
announcing the transaction.
b. Coordinated retaliation against co-op/bottler
Southeast Milk
Defendants also choreographed a retaliation scheme against
Southeast Milk, Inc. (“Southeast Milk”), a dairy farmer
cooperative with operations in Florida, Georgia and Tennessee.
Defendants were concerned that Southeast Milk would infringe on
their bottling plant footprint in the Southeast.
Beginning in 2003, DFA began using its control of supply
rights to certain NDH plants to extort payments from Southeast
Milk. Southeast Milk was supplying the NDH plants with DFA’s
acquiescence, but DFA required payments from Southeast Milk
designed to subsidize DFA pay prices for raw milk in south
Georgia and to suppress raw milk pay prices paid by Southeast
Milk in the Southeast. Southeast Milk—much like MD/VA before
it—began exploring plant acquisitions to secure a market for its
raw milk after DFA effectively cornered access to bottlers through
use of its full supply agreements.
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In April 2004, Southeast Milk purchased the Gustafson’s
bottling plant in Northeast Florida. Almost immediately, NDH
noted internally its desire to “[s]hut the plant down if we can. We
could make a little money.” In the short-term, DFA continued to
allow Southeast Milk to supply the two NDH plants in Florida so
long as Southeast Milk continued to make the tribute payments
demanded by DFA.
However, in late 2004 and early 2005, a team of investors
including Southeast Milk sought to build support for a major push
to expand into Southeast milk bottling—“Flagship.” In December
2004, Flagship approached MD/VA and asked if MD/VA would
join forces with it. Having just accepted payment from Dean and
DFA (i.e., supply rights to Dean’s Red Oak facility and Hood’s
Winchester facility) to abandon Red Oak and for the
accompanying noncompetition agreement, MD/VA decided not to
join Flagship. Instead, it divulged Flagship’s plans to both DFA
and Dean. Those plans included Flagship purchasing the New
Atlanta Dairies from Parmalat in Atlanta, Georgia and the Giant
plant in Landover, Maryland. MD/VA expressed its fear to both
Dean and DFA that by not joining Flagship, MD/VA stood to lose
its current supply rights to the Giant Landover plant.
Dean was very concerned about the Flagship initiative and
approached DFA with a plan to jointly placate MD/VA and to keep
individual farmers from joining co-ops (namely Southeast Milk
and USA Milk) that would potentially supply rival bottling
ventures such as Flagship. In a transcribed voicemail, Dean Dairy
Group President, Pete Schenkel and Dean’s Ernie Yates note that
Dean has spent millions on “antitrust” and we “are concerned
about losing millions more in some sort of milk situation where
effectively due to people looking for alternatives and making dumb
moves by buying underutilized plants they are going to lose more
margins.”
Defendant’s overall plan to prevent new competitors’ entry,
articulated at length in the transcribed voicemail, was to: (1) have
DFA relax the full-supply agreement between Dean and DFA; (2)
give MD/VA supply rights to Dean’s Shenandoah’s Pride plant to
“appease” MD/VA’s members, and (3) allow Dean’s Barber and
Purity plants to purchase raw milk supply directly from
independents and non-DFA cooperatives in order to keep
farmers—frustrated with DFA and DMS—within the Dean system
rather than supplying Flagship and other rival milk bottlers.
As planned, shortly after this conversation, MD/VA
received supply rights to Dean’s Shenandoah’s Pride plant outside
of the DFA full-supply agreement, but with DFA’s acquiescence.
Contemporaneous notes from MD/VA’s COO Mike John
explicitly refer to MD/VA’s new Shenandoah’s Pride supply rights
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as a payment to MD/VA compensating it for the Giant, Landover
sales MD/VA stood to lose by not joining the Flagship venture.
Also, as planned and again outside of the DFA full-supply
agreement, Dean began purchasing raw milk directly from
independent producers to keep that raw milk out of competitor
bottlers’ hands.
In addition to paying-off MD/VA for not joining Flagship
and coordinating their approach to farmers contemplating joining
rival co-ops pursuing bottling alternatives, DFA and Dean along
with NDH finally were prepared to collectively punish Southeast
Milk. They attacked Southeast Milk on all fronts: (1) NDH no
longer accepted Southeast Milk’s supply at its Florida plants, and
NDH noted that it was ”forced to seek DFA support” from out-ofstate to “subsidize competitive activity;” (2) Dean—nearly
simultaneously—notified Southeast Milk that Dean intended not to
automatically renew Southeast Milk’s raw milk supply agreement
at Dean’s T.G. Lee and McArthur dairies; and (3) DFA reiterated
its demand that Southeast Milk lower the price it was paying its
cooperative milk farmer members in Georgia, or DFA would
destroy raw milk prices in Southeast Milk’s home Florida market
by flooding the area with additional raw milk.
[Doc. 731 (originally filed as Doc. 202) at 10 – 30].
II.
The Proposed Class
Plaintiffs seek certification of a class defined as follows:
All persons, other than schools and school districts, within the
Southeast United States who have purchased, at any time from
January 1, 2002 until December 31, 2009, from any defendant,
fresh white fluid milk which has been pasteurized and processed
for human consumption and then packaged into containers which
are sold to retail outlets and other customers.
[Doc. 669 at 12]. The proposed class has been modified from the class originally proposed by
plaintiffs in two ways in response to criticism raised by defendants’ initial opposition. First,
plaintiffs have modified the time period for qualifying purchases from “January 1, 2002 until the
present” to “January 1, 2002 until December 31, 2009.” Second, they substitute the term “fresh,
white, fluid milk” for the term “grade A milk.” [Id. at 11-12].
III.
Class Certification Standard
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“Class certification is appropriate if the [district] court finds, after conducting a ‘rigorous
analysis’, that the requirements of Rule 23 have been met.” Rikos v. Proctor & Gamble Co., 799
F.3d 497, 504 (6th Cir. 2015) (quoting In re Whirlpool Corp. Front-Loading Washer Prods. Liab.
Litig., 722 F.3d 838, 851 (6th Cir. 2013) (quoting Wal-Mart Stores, Inc. v. Dukes, 564 U.S.338,
131 S. Ct. 2541, 2551 (2011)). “The class action is ‘an exception to the usual rule that litigation
is conducted by and on behalf of the individual named parties only.’” Dukes, 131 S. Ct. at 2550
(quoting Califano v. Yamasaki, 442 U.S. 682, 700-701 (1979)). The burden of establishing the
propriety of class certification rests with the proponent of the class. Beattie v. CenturyTel, Inc.,
511 F.3d 554, 560 (6th Cir. 2007). A class may be certified only if (1) the class is so numerous
that joinder of all members would be impracticable (“numerosity”); (2) there are questions of
fact and law common to the class (“commonality”); (3) the claims of the representatives are
typical of the claims of the unnamed members (“typicality”); and (4) the named representatives
will be able to represent the interests of the class adequately (“adequacy”). Fed. R. Civ. P. 23(a).
In addition to the requirements of Rule 23(a), at least one of the three alternative
subsections of Rule 23(b) must be satisfied before the class can be certified. Fed. R. Civ. P.
23(b); Sprague v. General Motors Corp., 133 F.3d 388, 397 (6th Cir. 1998) (“No class that fails
to satisfy all four of the prerequisites of Rule 23(a) may be certified, and each class meeting
those prerequisites must also pass at least one of the tests set forth in Rule 23(b).”). Here,
plaintiffs seek certification under Rule 23(b)(3), which requires them to demonstrate (1) that
questions of law or fact common to class members predominate over any questions affecting
only individual members, and (2) that a class action is superior to other available methods for
fairly and efficiently adjudicating the controversy (“predominance” and “superiority”). Fed. R.
Civ. P. 23(b)(3); In re Whirlpool, 722 F.3d at 850-51.
13
Since Rule 23 does not impose a mere pleadings standard, it may be necessary for the
court to probe behind the pleadings in conducting its certification inquiry and to conduct “a
rigorous analysis” of the evidence. Dukes, 131 S. Ct. at 2551; Gen. Tele. Co. of Southwest v.
Falcon, 457 U.S. 147 (1982). Evidentiary proof is required to show compliance with Rule 23,
Comcast Corp. v. Behrend, -- U.S. --, 133 S. Ct. 1426, 1432 (2013), and ‘“rigorous analysis’ may
involve some overlap between the proof necessary for class certification and the proof required
to establish the merits of the plaintiffs’ underlying claims.” In re Whirlpool, 722 F.3d at 851
(citing Dukes, 131 S. Ct. at 2251). But inquiry into the merits is limited at the class certification
stage and merits questions may be considered only to the extent relevant to the Rule 23
prerequisites. Id. at 851 (citing Amgen, Inc. v. Conn. Retirement Plans & Trust Funds, -- U.S. --,
133 S. Ct. 1184, 1194-95 (2013)). “[A] court may not refuse to certify a class on the ground that
it thinks the class will eventually lose on the merits.” Loeb Ind., Inc. v. Sumitomo Corp., 306
F.3d 469, 480 (7th Cir. 2002) (citing Eisen v. Carlisle & Jacquelin, 417 U.S. 156 (1974)).
A.
The Rule 23(a) Requirements
1.
Numerosity
The class must be so numerous that joinder of all members is impractical. Fed. R.
Civ. P. 23(a)(1). According to plaintiffs, this requirement is met because the proposed class
contains thousands of members. Generally, the number of members of the proposed class, if
more than several hundred, easily satisfies the requirements of Rule 23(a)(1). Bacon v. Honda of
Am. Mfg., Inc., 370 F.3d 565, 570 (6th Cir. 2004); see also Bittinger v. Tecumseh Prods. Co.,
123 F.3d 877, 884 n. 1 (6th Cir. 1997) (joinder of parties impracticable for class with over 1100
members and “[t]o reach this conclusion is to state the obvious.”). Defendants do not appear to
contest plaintiffs’ position on numerosity. The requirements of Rule 23(a)(1) are met.
14
2.
Commonality
Rule 23(a)(2) provides that “[o]ne or more members of a class may sue or be sued as
representative parties on behalf of all members only if . . . there are questions of law or fact
common to the class,” Fed. R. Civ. P. 23(a)(2), and commonality requires the plaintiffs to
demonstrate that the class members ‘have suffered the same injury.’” Dukes, 131 S. Ct. at 2251
(quoting Falcon, 457 U.S. at 157). “[P]laintiffs must show that their claims ‘depend upon a
common contention’ that is ‘of such a nature that it is capable of classwide resolution—which
means that determination of its truth or falsity will resolve an issue that is central to the validity
of each one of the claims in one stroke.’” Rikos, 799 F.3d at 505 (quoting Dukes, 131 S. Ct. at
2251) (emphasis in original). One common question is sufficient. Powers v. Hamilton County
Pub. Defender Com’n, 501 F.3d 592, 619 (6th Cir. 2007).
In antitrust cases, the commonality requirement is often easily met.
“Price-fixing
conspiracy cases by their very nature deal with common legal and factual questions about the
existence, scope, and extent of the alleged conspiracy.” In re Foundry Resins Antitrust Litig.,
242 F.R.D. 393, 404-05 (S.D. Ohio, 2007) (citing In re Workers’ Comp., 130 F.R.D. 99, 105 (D.
Minn. 1990)). In this case, plaintiffs argue that “their claims, along with those of all other absent
class members, depend upon a common contention: that defendants conspired to, and did,
prevent NDH from becoming a strong competitor, and that defendants agreed not to compete on
price as vigorously during the conspiracy.” [Doc. 699 at 13]. Defendants do not appear to
challenge plaintiffs’ assertion that the commonality requirement has been met and the Court
finds that the requirements of Rule 23(a)(2) is met.
3.
Typicality
15
Rule 23(a)(3) requires plaintiffs to show that “the claims or defenses of the
representative parties are typical of the claims or defenses of the class.” Fed. R. Civ. P. 23(a)(3).
Often, “[t]he commonality and typicality requirements of Rule 23(a) tend to merge.” Rikos, 799
F.3d at 508 (quoting Dukes, 131 S. Ct. at 2551 n. 5).
There are differences, however.
Commonality traditionally refers to characteristics of the class as a whole, while typically “refers
to the individual characteristics of the named plaintiff in relation to the class.” Prado-Steiman,
ex rel. Prado v. Bush, 221 F.3d 1266, 1279 (11th Cir. 2000). Typicality is ordinarily established
in the antitrust context when the named plaintiffs and all class members allege the same antitrust
violation by defendants.
Thomas & Thomas Rodmakers, Inc. v. Newport Adhesives &
Composites, Inc., 209 F.R.D. 159, 164 (C. D. Cal. 2002); (citing In re Playmobil Antitrust Litgi.,
35 F. Supp. 2d 231, 244 (E.D. N.Y. 1998)).
Defendants argue that plaintiffs do not meet the typicality requirement of Rule 23 “for the
same reasons that common issues do not predominate.” [Doc. 728 at 47]. Defendants point to
“the tremendous diversity among purchasers and the competitive conditions they faced,” and
argue that “there is no putative class member whose claims could be considered “typical” of all
others. [Id.]. With respect to Breto, defendants assert that there are three reasons why he fails to
meet the typicality (and adequacy) requirements: (1) Breto operated one small convenient store
for only a short period of time between June, 2006 and December, 2008; (2) Breto purchased
milk at list prices; and (3) Breto sold his business. As for Food Lion, defendants argue it fails
the test for Rule 23(a)(3) too because: (1) Food Lion operated only in the Eastern portion of the
relevant geographical market; (2) the competitive conditions it faced were dissimilar to those
faced by smaller, local retailers, large national retailers, or regional retailers; and (3) Food Lion
was the only customer of two Dean processing plants in the Southeast, which gave it significant
16
economic leverage and its cost-plus purchasing arrangement makes it subject to a unique
defense. [Id. at 48]. Plaintiffs, of course, disagree, relying on Professor Cotterill’s expert
conclusion that the alleged “conspiracy would have permeated all [ ] transactions, causing
market-wide impact.” [Doc. 699 at 15]. Because these are the same issues raised by defendants
in support of their argument that common issues do not predominate under Rule 23(b)(3), the
Court will discuss them below and finds, for the same reason that it finds plaintiffs’ claims to
lack predominance, that the typicality requirement is not met in this case.
4.
Adequacy
The final requirement of Rule 23(a) is that the representative parties must “fairly
and adequately represent the interests of the class.” Fed. R. Civ. P. 24(a)(4). “It is axiomatic
that a putative representative cannot adequately protect the class if his interests are antagonistic
to or in conflict with the objectives of those he purports to represent.” 7A Wright, Miller &
Kane, Federal Practice and Procedure Civil, 3d § 1768. The adequacy inquiry under Rule
23(a)(4) serves to uncover conflicts of interests between named parties and the class they seek to
represent. Amchem Products, Inc. v. Windsor, 521 U.S. 591, 625 (1997). The burden of proof is
on the party advocating class certification to demonstrate that class representation will be
adequate. Valley Drug Co. v. Geneva Pharms., Inc., 350 F.3d 1181, 1187 (11th Cir. 2003).
Whenever named plaintiffs have interests that are actually or potentially antagonistic to the
interests and objectives of other class members, the concern is that the named plaintiffs cannot
“vigorously prosecute” the interests and objectives of the class. Valley Drug, 350 F.3d at 1189.
The adequacy of representation requirement “overlaps with the typicality requirement” because a
class representative has no incentive to pursue the claims of the other members absent typical
claims. In re Amer. Med. Sys., Inc., 75 F.3d 1069, 1083 (6th Cir. 1996).
17
“[D]isparate groups cannot be mixed together under Rule 23(a) where the economic
reality of the situation leads some class members to have economic interests that are significantly
different from—and potentially antagonistic to—the named representatives purporting to
represent them.” Valley Drug, 350 F.3d at 1195. And, a class cannot be certified when some
members of the proposed class benefitted from the allegedly wrongful conduct. Pickett v. Iowa
Beef Processors, 209 F.3d 1276, 1280 (11th Cir. 2000) (“Thus, a class cannot be certified when
… it consists of members who benefit from the same acts alleged to be harmful to other
members of the class.”).
As noted in the preceding section, defendants argue that plaintiffs do not meet the
adequacy requirements of Rule 24(a)(4) “for the same reasons that common issues do not
predominate . . . .” As with the typicality requirement, the Court will largely discuss defendants’
argument in the section below discussing the predominance requirement. Even absent these
concerns, however, it would be difficult for the Court to find that Breto and/or Food Lion could
adequately represent the proposed class here. Plaintiffs’ proposed class definition includes a
wide variety of individuals and entities, from huge corporate entities like Wal-Mart to single
location businesses that simply use milk as an ingredient in the products they sell. Some class
members are national in scope, while some are regional and other operate on a local basis. Large
volume purchasers appear to have had significant bargaining power, while the smaller operators
had virtually none. Some purchasers simply purchase from a price list, while others negotiate
prices or obtained “pay-to-stay” payments from Dean in exchange for business.
Breto’s adequacy is of special concern for the Court. As noted above, Breto operated a
convenience store at a single location in Jonesborough, Tennessee and purchased only about
$5,000 worth of processed milk between June 2006 and December 2008. Breto bought from
18
Dean price lists, even though he had been told he could obtain product from a cheaper supplier.
Breto has sold his business and, in the Court’s view, has little incentive to pursue the perhaps
much more significant interests of other absent class members despite the fact that he is
represented by very competent and qualified class counsel. So far as the Court is aware, Breto
has personally had very little involvement in the litigation except for a deposition. He has not
attended court hearings in the matter, including the evidentiary hearing and oral argument on the
class certification motion. Indeed, the attorney representing Breto and Food Lion acknowledged
at oral argument that he did not know Breto and could not represent to the Court that he had
attended any hearing in the case. [Doc. 776 at 29].
Food Lion as a class representative presents other, and potentially far more serious,
concerns. Food Lion purchases hundreds of millions of dollars worth of processed milk annually
and has approximately 1,300 supermarkets in 11 different states. It has distribution centers in
North Carolina, Pennsylvania, Virginia, Tennessee, South Carolina, and Florida. Food Lion
operations are located in only the eastern part of FMMOs 5 and 7, plaintiffs’ proposed
geographic market, with the rest outside orders 5 and 7. Food Lion, a large-volume customer,
has been able to extract “paid to stay” concessions from Dean. In 2005, Dean agreed to pay
Food Lion one-percent of 2005 net milk sales for the right to continue to supply milk products to
Food Lion’s distribution centers 1 through 4, an amount that exceeded $1.6 million. Other plants
have likewise made similar payments to Food Lion. Maybe most importantly, Food Lion has
operated under a “cost-plus” arrangement with Dean under which Food Lion’s prices have been
determined pursuant to a formula which includes the cost of raw milk, determined on published
government figures, processing costs, based on figures published by the Virginia Milk
Commission, plus an agreed upon profit margin. These facts raise the possibility that Food Lion
19
may have suffered no injury from the alleged conspiracy based on its purchases pursuant to the
negotiated price, apparently a majority of its sales. Other large volume purchasers apparently
have similar arrangements. This situation may leave Food Lion with an incentive to settle its
claims for less than the full amount of potential damages at the expense of all other absent class
members. It likewise “generates unwarranted pressure” on [defendants] to settle [potentially]
nonmeritorious or marginal claims.” In re Rail Freight Fuel Surcharge Antitrust Litig., 725 F.3d
244, 252 (D.C. Cir. 2013). The Court will not specifically decide whether all this means
plaintiffs have not met their burden to show adequacy in light of the Court’s discussion below
and decision that the requirements of Rule 23(b)(3) are not met in this case.
B.
Rule 23(b)(3) Requirements: Predominance
Meeting the predominance requirement of Rule 23(b)(3) demands more than common
evidence that defendants colluded to raise prices for processed milk. The plaintiffs must also
show that they can prove, through common evidence, that all class members were in fact injured
by the alleged conspiracy. Amchem, 521 U.S. at 623-24. That is not to say, however, that
plaintiffs must be prepared at the certification stage to demonstrate through common evidence
the precise amount of damages incurred by each class member. See Dukes, 131 S. Ct. at 2558.
Rule 23(b)(3) tests “whether proposed classes are sufficiently cohesive to warrant
adjudication by representation,” Amchem, 521 U.S. at 623, but it is far more demanding than the
commonality, typicality, and adequacy inquiries of Rule 23(a). Comcast, 133 S. Ct. at 1432;
Amchem, 521 U.S. at 623-24. To satisfy Rule 23(b)(3), the questions in a class action that are
subject to generalized proof, and thus applicable to the class as a whole, must predominate over
questions that are subject only to individualized proof. Beattie, 511 F.3d at 560.
20
In conducting the predominance inquiry, courts must “take into account ‘the claims,
defenses, relevant facts, and applicable substantive law,’ . . . to assess the degree to which
resolution of the classwide issues will further each individual class member’s claim against the
defendant.” Klay v. Humana, Inc., 382 F.3d 1241, 1254 (11th Cir. 2004), abrogated on other
grounds by Bridge v. Phoenix Bond & Indem. Co., 533 U.S. 639 (2008) (quoting Castano v. Am.
Tobacco Co., 84 F.3d 734, 744 (5th Cir. 1996)). “If proof of the essential elements of the cause
of action requires individual treatment, then class certification is unsuitable.” In re Hydrogen
Peroxide Antitrust Litig., 552 F.3d 305, 311 (3d Cir. 2008) (citing Newton v. Merrill Lynch,
Pierce, Fenner & Smith, Inc., 259 F.3d 154, 172 (3d Cir. 2001)). Although individual treatment
of the essential elements of a case precludes certification, it is not necessary that all questions of
fact be common, but only that some questions are common and that they predominate over
individual questions. Id.; see Amgen, 133 S. Ct. at 1196 (“Rule 23(b)(3) . . . does not require a
plaintiff seeking class certification to prove that each element of her claim is susceptible to classwide proof.”) (internal quotations omitted).
A “close look” must be taken at whether common questions predominate over individual
ones and a “rigorous analysis” must be conducted that may “entail overlap with the merits of the
plaintiff’s underlying claim.” Comcast, 133 S. Ct. at 1432 (internal quotations omitted). Freeranging merits inquires are not permitted at the certification stage, however. Amgen, 133 S. Ct.
at 1194-95. “Merits questions may be considered to the extent-but only to the extent- that they
are relevant to determining whether the Rule 23 prerequisites for class certification are satisfied.”
Id. at 1195.
The predominance inquiry begins with the elements of the underlying cause of action.
Erica P. John Fund, Inc. v. Haliburton Co., 563 U.S. 804, ___ 131 S. Ct. 2179, 2184 (2011). As
21
set forth above, plaintiffs have a single claim remaining in this case, that is, a claim of conspiracy
to violate the antitrust laws. To prevail on their antitrust claims based on allegations of a
conspiracy, plaintiffs must demonstrate (1) a violation of antitrust laws (i.e. the conspiracy), (2)
direct injury (or impact) from the violation, and (3) measurable damages.
See Hydrogen
Peroxide, 522 F.3d at 311; In re Polyurethane Foam Antitrust Litig., 2014 WL 6461355 at * 8
(N. D. Ohio Nov. 17, 2014).
1.
The Conspiracy
“Predominance is a test readily met in certain cases alleging . . . violations of the antitrust
laws” and generally “proof of the conspiracy is a common question that is thought to
predominate over the other issues of the case . . .” In re Scrap Metal Antitrust Litig., 527 F.3d
517, 532, 535 (6th Cir. 2008) (quoting Amchem, 521 U.S. at 625 and citing 7AA Wright & Miller
§ 1781). Plaintiffs allege here that defendants engaged in a single, market wide conspiracy to
reduce competition in the sale of fluid white milk, which they will prove with evidence common
to the class. “Courts have fairly consistently found . . . that common issues regarding the
existence and scope of the conspiracy predominate over other questions affecting only individual
members in antitrust price fixing cases.” In re Southeastern Milk Antitrust Litig., 2010 WL
3521747 at * 9 (E.D. Tenn. Sept. 7, 2010). That makes sense because determination of the
conspiracy issue will focus on the conduct of the defendants, not the individual class members.
See Merenda v. VHS of Mich., Inc., 296 F.R.D. 528, 548 (E.D. Mich., 2013). The existence of a
conspiracy is central to the claims of all class members and thus is appropriate for resolution
generally on a classwide basis. Since the parties have focused on the second element, impact,
and because that element poses the more serious impediment to certification, the Court will
likewise focus its attention there.
22
2.
Impact
In addition to proving an antitrust violation, plaintiffs must also establish “actual” injury
“attributable to an antitrust violation,” J. Truett Payne Co., Inc. v. Chrysler Motors Corp., 451
U.S. 557, 561-62 (1981) (citing Perkins v. Standard Oil Co., 395 U.S. 642, 648 (1969)),
commonly referred to as antitrust impact. The Third Circuit has described the element of
antitrust impact as follows:
. . . [I]ndividual injury (also known as antitrust impact) is an
element of the cause of action; to prevail on the merits, every class
member must prove at least some antitrust impact resulting from
the alleged violation. In antitrust cases, impact often is critically
important for the purpose of evaluating Rule 23(b)(3)’s
predominance requirement because it is an element of the claim
that may call for individual, as opposed to common, proof.
Plaintiffs’ burden at the class certification stage is not to prove the
element of antitrust impact, although in order to prevail on the
merits each class member must do so. Instead, the task for
plaintiffs at class certification is to demonstrate that the element of
antitrust impact is capable of proof at trial through evidence that is
common to the class rather than individual to its members.
Deciding this issue calls for the district court’s rigorous assessment
of the available evidence and the method or methods by which
plaintiffs propose to use the evidence to prove impact at trial.
Hydrogen Peroxide, 552 F.3d at 311-12 (citations omitted).
“Establishing causation” or “fact of damage” requires plaintiffs to demonstrate a causal
connection between the antitrust violation and the antitrust plaintiff, and the class members,
through proof common to the class. Bell Atlantic Corp. v. AT&T Corp., 339 F.3d 294, 302 (5th
Cir. 2003). See also Rail Freight, 725 F.3d at 252 (“The plaintiffs must also show that they can
prove, through common evidence, that all class members were in fact injured by the alleged
conspiracy.”); Rikos, 799 F.3d at 507 (affirming the “normal rule” that named plaintiffs must
show “ʻthat they can prove, through common evidence, that all class members were in fact
injured by the alleged conspiracy.’”) (quoting Rail Freight, 725 F.3d at 252) (emphasis added).
23
While impact must be determined by a common methodology or evidence, Rule 23(b)(3) does
not require identical damages for each class member.
Messner v. Northshore Univ.
HealthSystem, 669 F.3d 802, 815 (7th Cir. 2012). In other words, plaintiffs must show that every
class member was impacted to some degree by the antitrust violation.
Whether the plaintiffs have offered a reliable method of proof of classwide impact is at
the heart of the parties’ dispute on this motion. Plaintiffs first argue that “impact is often
presumed to be common to a class in conspiracy cases,” but even if not presumed, plaintiffs
“have gone well beyond the presumption and have provided an expert methodology to prove
impact on a class-wide basis.” [Doc. 731 at 45-46].
To prove common impact and the
accompanying damages, plaintiffs offer the expert testimony of Professor Ronald W. Cotterill; in
rebuttal defendants offer the testimony of Professor Joseph P. Kalt. These experts, both of whom
testified at the evidentiary hearing on this motion, very predictably disagree. Professor Cotterill
has conducted a regression analysis using data from defendants’ records which plaintiffs assert
shows antitrust impact across the whole class. Defendants attack the Cotterill regression analysis
in numerous ways and with various iterations of the same argument. The Court, however, will
address those which are of most concern with respect to the class certification motion.
a.
Plaintiffs’ Damages Model
Professor Cotterill employs a “multiple regression reduced form spatial model” to
estimate damages. According to Professor Cotterill, his estimate require a two-step process. He
first “estimate[s] the regression model;” then he “calculate[s] but-for prices predicted by this
model once competition is restored to levels existing prior to the anticompetitive conduct”
alleged by the plaintiffs in this case. The but-for price results in an “overcharge” which is
multiplied by purchases to obtain “estimated damages.” The Sixth Circuit briefly discussed
24
Professor Cotterill’s regression analysis in its opinion and noted that “[a] multiple regression
analysis is useful in quantifying the relationship between a dependent variable (i.e. the price of
milk) and independent variables (e.g. energy costs and/or demand factors).” 739 F.3d at 285
(citing Wiesfield v. Sun Chemical Corp., 84 Fed. App’x 257, 261 n. 3 (3d Cir. 2003)). The
model used by Professor Cotterill is similar to the regression model used by the Department of
Justice in its analysis of the 2001 Dean-Suiza merger.
The model estimated its “price observations” from sales data from the defendants.
Professor Cotterill calculates the price of milk by customer zip code, by product and facility from
which it was produced using approximately seven million price observations/data points.
Defendants produced sales data from 2000 through 2007, two years before the beginning of the
conspiracy alleged by plaintiffs (i.e. two years before the Dean-Suiza merger which was
completed in December, 2001), and five years during which competition was allegedly lessened.
The model relies on several supply factors, such as the cost of raw milk, electricity and diesel
fuel costs, cost of resins, a dairy manufacturing wage rate, the prime interest rate, and limited
demand factors measured by per capita income. The modeling also uses certain “fixed effect
variables” to account for such things as “fat content, package size, brand name, customer
location, or production facility” and other factors which could potentially affect milk prices.2
The model then measures the before and after effect of all these variables on the price of
processed milk to predict what the price of processed milk should be for the “after” period.
Professor Cotterill then concludes based on his modeling that the price of processed milk in the
after period is 7.2 percent higher than what is explained by the supply/demand variables and thus
attributable to the lessening of competition. Professor Cotterill concludes that “in virtually all
areas of orders 5 and 7 we did find an impact. In some areas, its more than in others.”
2
The model has approximately 7,000 fixed effect variables.
25
Professor Cotterill adds certain competition variables to his model to “measure the
validity of plaintiffs’ allegations,” where, in a competitive market, the presence of a plant
operating nearby would indicate lower prices to a customer. Professor Cotterill adds these
“explanatory variables” to measure the impact of a Defendant plant within 200 miles of a
customer, “because defendants’ data show that over 90% of processed milk sales occur to zip
codes within 200 miles of a customer.” Professor Cotterill includes the following competition
variables in his regression model: (1) DFA JV within 200 miles, pre-conduct; (2) DFA JV
plant within 200 miles, post-conduct; (3) Legacy Dean plant within 200 miles, pre-conduct; (4)
Suiza plant within 200 miles, pre-conduct; (5) Dean-Suiza plant within 200 miles, post-conduct;
(6) NDH plant within 200 miles, post-conduct; and (7) Independent plant within 200 miles.
b. Assumed Impact/Averaging
According to Professor Cotterill, his analysis of nearly seven million pieces of
sales data received from defendants, using his regression model, establishes that “99.9 percent of
the [proposed] class members were affected by this overcharge,”3 thus meeting the requirement
that plaintiffs offer a reliable method of proof of classwide impact. The late Professor Catherine
Morrison Paul, defendants’ original expert, and Professor Kalt respond that Professor Cotterill
simply assumes common impact and his economic model only calculates the effect of
Defendants’ alleged unlawful activity as a forced average across all types of products within
each zip code. As Professor Kalt explains, Professor Cotterill’s model “analyzes only average
zip code-level prices for products and plants, and calculates only an average zip code-level
overcharge on average milk purchases.
Professor Cotterill then assumes that the average
3
The Court admits some confusion about Professor Cotterill’s actual conclusion on this point in light of what
appears to be conflicting and contradictory testimony at the evidentiary hearing. He testified that the overcharges
“potentially” affect every potential class member, [Doc. 739 at 47], that the overcharge affects “virtually all of orders
5 and 7,” [id. at 39-40], and that “a great number of people in the Southeast, 80, 90 percent or more, suffered
impact.” [Id. at 48]. Finally, he gave the testimony quoted above, leaving the Court with some doubt based on
Professor Cotterill’s testimony whether the claimed impact is indeed classwide.
26
overcharge apples to each individual class member and each product in each zip code.”
Professor Cotterill predictably responds that he neither assumes impact nor does he average.
What Professor Cotterill does in fact do is quite clear. He takes nearly seven
million pieces of sales data produced by defendants and uses his regression model to find a
common impact for each zip code in orders 5 and 7, even though he has no before and after data
for all zip codes. He comes to his conclusion based on his further conclusion that both the
supply and demand and competition variables “ripple” across all zip codes in orders 5 and 7,
what defendants refer to as “assumed” impact.
Professor Kalt, using Professor Cotterill’s regression model, ran the same data
used by Professor Cotterill, but on a zip code by zip code basis. Of the 5,489 zip codes in orders
5 and 7, Professor Cotterill’s model shows no evidence of injury for 1,446 (26.3%) zip codes.
This, Professor Kalt says, means that Professor Cotterill “is only able to assert that these zip
codes [and the individual class members within them] suffered injury because his modeling
assumes that the facts of zip codes where his model can calculate effects of defendants’ allegedly
unlawful conduct stand for the facts of the zip codes where his model cannot calculate such
effects.” Furthermore, only a little more than half (56.8%) of the 5,489 zip codes in orders 5 and
7 have positive and statistically average overcharges when the regression model is run on a zip
code by zip code bases. Of the remaining zip codes where the model can estimate overcharges,
571 zip codes have either zero or not statistically different from zero zip code average
overcharges, while 356 zip codes have statistically significant negative overcharges.
Professor Kalt also tested, again using Professor Cotterill’s regression model, the
conclusion of Professor Cotterill that defendants’ alleged non-competitive conduct resulted in the
overcharges.
Professor Cotterill’s analysis looked specifically at the impact of eight plant
27
closures alleged by plaintiffs to be at the core of defendant’s allegedly unlawful conspiracy to
lessen competition. For that analysis, Professor Cotterill’s model is constructed to apply the
same effect of a plant closure within a 200 mile radius of the plant, a radius chosen by Professor
Cotterill, as noted above, “because Defendants’ data show that over 90% of processed milk sales
occur to zip codes located within 200 miles of the facility.” To test Professor Cotterill’s
conclusion, Professor Kalt applied Professor Cotterill’s model to his data, once again by zip
code, for the ten largest zip codes by transaction volume.
When run this way, Professor
Cotterill’s model is not capable of providing any information on overcharges at the level of
individual class member purchases 60 to 100 percent of the time. The model finds positive and
statistically significant overcharges for only about one-quarter of class member purchases,
negative and significant changes up to 5% of the time, and damages which are zero 15 percent of
the time. Thus, Professor Kalt concludes, the Cotterill model does not provide a reliable basis
for common classwide impact.
Despite Professor Cotterill’s conclusory claims that his model does not assume
common impact or rely on averaging, the Court finds, regardless of the nomenclature used, that
the model does in fact assume, largely by the coefficients assigned to competitive variables, i.e.
changes in plant ownership or plant closures, common impact and does employ averaging,4 in
the ordinary sense of the word, to find impact within zip codes where data is otherwise
insufficient to draw the conclusion of impact or where the available data for that particular zip
code shows positive benefits or neutral impact. Professor Cotterill protests that he does not do
averaging but his own report refers to average price effect by zip code for all changes in “spatial”
competition (which the Court understands to refer to changes in plant ownership or plant
4
In some ways, Professor Cotterill’s insistence that his model does not rely on averaging is baffling. Multiple
regression analysis, by definition, relies on averaging the underlying trends in a particular data series. Fed. Jud.
Center, Reference Guide On Multiple Regression (3d Ed. 2012) at 334.
28
closures within the model’s 200 mile radius), referred to by Professor Cotterill as “proxies” for
changes in competition and states that the model “aggregates” the individual customer’s
purchases from a particular plant by “taking the average price.” Professor Cotterill also candidly
acknowledges that the model cannot distinguish between market power exercised unilaterally
from that exercised by coordination. The model simply finds an effect that correlates with the
change in ownership. Professor Cotterill also notes that his model is constructed to allow
damage estimates to be recalculated if the jury ultimately decides that certain plant closures were
for normal business reasons while others closed as the result of an illegal price fixing conspiracy.
All of this is particularly problematic in light of the geographic terms of the
proposed class, i.e. orders 5 and 7. The Court, of course, looks to the merits of plaintiffs’ claim
only to the extent necessary to resolve the class certification motion and leaves most merit
questions for resolution by a jury. Resolution of the major question, that of common impact,
however, does not actually require the Court to resolve disputed facts. Professor Kalt analyzed
the very same data as Professor Cotterill by the same methods used by Professor Cotterill but
relying on actual customer-level data rather than the aggregates based on average prices used by
Professor Cotterill. When the data is analyzed based on actual prices from the data set, the
average price paid by a customer in orders 5 and 7 for 19% of the purchases was lower during
the class period than before it, and there was no statistically significant difference during the
class period than before it.
Thus, only 52.4% of the purchases showed any statistically
significant increase in prices and, when weighted by volume, only 39.9% of the transactions
were statistically higher than before the class period began. Professor Cotterill’s model thus
cannot prove impact for all, or even substantially all of the putative class members, largely
because the model assumes the same impact from being located in a zip code within 200 miles of
29
a post-merger Dean plant. [“Average prices] say [ ] nothing about the actual price paid by each
impacted class member.
Average prices falter as a method for proving class-wide injury,
because averaging by definition glides over what may be important differences.” See Sheet
Metal Workers Local 441 Health & Welfare Plan v. GlaxoSmithKline, PLC, 2010 WL 3855552
at * 30 (E.D. Penn. Sept. 30, 2010) (citing Reed v. Advocate Health Care, No. 06-3337, 2009
WL 3146999, at * 17 (N.D. Ill. Sept. 28, 2009) (quoting In re Graphics Processing Units
Antitrust Litig, 253 F.R.D. 478, 494 (N.D. Cal. July 18, 2005)).
C.
False Positives/Formula Pricing
Beginning before the onset of the alleged conspiracy5 and continuing throughout the
entire conspiracy period, Food Lion purchased a significant portion, approximately 80%, of its
processed milk pursuant to oral “cost-plus” pricing arrangements.6 These “private-label”
purchases were apparently made from two Dean plants in Winston-Salem and High Point, North
Carolina. The prices paid by Food Lion were determined by three factors: (1) raw milk prices
announced by FMMO and/or analogous state agencies,7 (2) a processing cost element based on a
monthly processing cost survey published by the Virginia Milk Commission, and (3) an agreedupon profit margin.8
Two of these components are indisputably beyond the effects of the
alleged conspiracy. Professor Cotterill acknowledged these “formula pricing” arrangements in
his March 5, 2010 expert report:
11.4. The impact of formula pricing
5
The formula was first established in the mid-1990s.
The record does not establish which other purported class members also made purchases pursuant to a negotiated
formula; however, the plaintiffs do not dispute that many, especially the larger purchases, did so. Professor Cotterill
identifies some of them in his report, i.e. Albertsons, Costco, Bi-Lo, Rite-Aid, and Sodexho.
7
Plaintiffs originally claimed in Count II of their complaint that defendants inflated raw milk prices as part of the
illegal conspiracy. The Court dismissed Court II and plaintiffs have now abandoned that claim.
8
The profit margin started out in the 5-7% range and fluctuated monthly based on audited indices published by the
Virginia Milk Commission. In 2007, Food Lion demanded and received large incentive payments from Dean in order
to continue the purchases and the parties switched to a fixed six percent profit margin.
6
30
Many purchasers of milk have "contracts" that link the price of processed milk to known cost factors. This type of
pricing is referred to asformula pricing . Although the phrase "formula pricing" refers to a variety of arrangements
between bottlers and their customers, a primary component of formula pricing for retailer customers is the cost of
raw milk. Review of written formula pricing contracts entered into by Dean and NDH shows that typically
pricing adjustments for retail customers are made on a monthly basis. Although the formulas in these written
contracts vary regarding the factors taken into account (e.g. some formulas include the price of resin, others do
not), the formulas invariably contain a provision for an adjustment in price tied to monthly changes in the cost of
raw milk. Further, the cost of raw milk in the formula normally includes the announced Federal Milk Marketing
Order price (or state order, as the case may be), plus any applicable premiums (e.g. over-order premiums) or
surcharges charged by cooperatives. Accordingly, as the cost of raw milk changes, so does the price of processed
milk for retailer customers whose prices are formula-based. In some cases, changes in costs may have a delayed
effect on a customer's formula price.
Formula pricing is common in the processed milk industry, even though the majority of pricing arrangements are
not based on a formal written contract. Major customers such as Albertsons, Costco, Bi-Lo, Rite-Aid, Sodexho,
and Food Lion are all formula pricing customers who were automatically billed for changes in the over-order
premium . Rick Beamon, a former executive at NDH as well as former Chief Operating Officer of Dean's
Southwest Division, testified that 73 to 78 percent of NDH' s total customer base had prices determined by a
formula. Similar!y, he also testified that close to 80% of Dean's customers under his management had a formula
pricing arrangement. Although such arrangements may, in some cases, take the form of a written contract, Dean
has stated that it does not maintain formal written contracts with the majority of its customers. For example,
Dean's Dairy Fresh-Winston-Salem plant manager Byron Meredith testified he was unaware of a formal contract
documenting Dairy Fresh's formula pricing agreement with Food Lion, a longstanding formula-pricing customer.
Although the "formula" or calculation used may vary across customers or plants , inputs typically include raw
milk costs. Food Lion's current formula price, for example, relies on a blend of prices from the Virginia Milk
Commission ("VMC") and FMMO prices charged to Dairy Fresh by DFA as inputs based on the percentage of
Dean' s sales to Food Lion in Federal Order 5 and the unregulated portion of Virginia. The contract between NDH
and The Pantry states that The Pantry 's unit price will increase or decrease by an amount equal to the sum of the
change in NDH' s unit cost of raw milk, the change in cost of ingredients and packaging , and the change in the
cost of resin . The cost of raw milk is "determined based on the applicable Federal Milk Market Order price for
raw milk plus or minus cooperative adjustinents."
As described in Section 11.3, raw milk is the principal cost component of processed milk, and given the common
use of formula pricing, one would expect changes in processed milk prices to follow changes in raw milk prices.
Thus, Figure 7 compares the price paid by Food Lion for gallon-sized private label whole milk from Dean's Dairy
Fresh-Winston-Salem facility to Dean's estimated raw milk cost. Estimated cost to Dean is calculated as the sum
of the Class I Federal Minimum, applicable statutory transportation , administration, and hurricane assessments,
and Charlotte announced Coop Class I over-order premium. Not surprisingly, the two lines generally exhibit
similar movements. While processed milk prices do respond to changes in raw milk costs, the gap between
processed and raw milk prices on Figure 7 increases over time, indicating that processed prices have increased
more than raw milk costs would otherwise indicate. For example, in July 2001, the graph shows that Food Lion's
sales price of processed milk was $2.28, while raw milk cost was $1.68, resulting in a difference of
$0.60. However, in July 2006, the graph shows that the sales price of processed milk was $2.32, while raw milk
cost was $1.50, resulting in a difference of $0.82. Thus, prices have been increasing relative to raw milk costs. I
explore this further in Section 111.5.2 and Section
31
V.3 below.
111.5.2.
Formula pricing does not immunize retailer
Plaintiffs from harm
Defendants claim that impact to class members arising from the anticompetitive conduct at issue cannot be
isolated and quantified because "to the extent Plaintiffs suffered any injury or economic loss as alleged in their
Amended Complaint, those injuries would arise from a variety of factors unrelated to any allegedly illegal
conduct by Dean ." Specifically, Defendants incorrectly claim that retailers whose processed milk prices were set
according to a pricing formula were immune from Defendants' conduct, stating:
"Some retailers (including Food Lion) can and do negotiate pricing formulas or mechanisms
pegged to various objective factors. Fluctuations in price to these customers are a function of
changes in the values of the underlying objective factors, not any alleged antitrust violation. "
I examine Defendants ' claim empirically and find that readily-available data contradict their claim and instead
support the premise that retailers with formula pricing arrangements were impacted.
If Defendants' claims were true, one would expect to observe Food Lion' s price moving similarly to raw milk
cost, the "the underlying objective factor" in Food Lion's pricing formula calculation described in Section II.4. In
other words, the spread between price and cost would remain constant over time. In order to test Defendants '
claims empirically , Figure 11 examines the price paid by Food Lion for private label one gallon whole milk from
Dean's Winston-Salem facility to customers located in Orders 5 and 7 (upper line) calculated from Defendants'
sales data. It also shows the raw milk cost over time (lower line), calculated as the Class I Federal Minimum milk
price, plus the zone differential applicable at Winston-Salem, the Charlotte, NC announced Coop Class I overorder premium, and applicable Federal Order 5 assessments. The difference between these two lines is an estimate
of the amount above the formulaic cost that Food Lion pays .
32
Figure 12 shows the difference over time between the prjce paid by Food Lion and the raw milk cost to Dean
illustrated on Figure 11. The difference is the plant's gross margin and as such represents the amount above raw
milk cost that Food Lion paid for private label one gallon whole milk from the Winston-Salem facility. The yellow
trend line indicates that there is a positive linear trend calculated from 2002 onward . Thus the plant's gross margin
on Food Lion sales increased over time, notably during the period 2004 through 2006. The drop in 2007
corresponds to Food Lion's negotiations with.Dean to reduce the price paid for milk; however, this graph
indicates the price/cost difference in 2007 was still higher than it was in 2003 and earlier. This indicates that Food
Lion's price increased relative to raw milk costs.
Figure 12: Difference between raw milk cost and Food Lion private label one gallon whole milk price from the
Winston-Salem plant
33
V.3. Comparison of processed milk prices and raw milk costs
As described earlier, raw milk is the largest component of production costs for processing milk. Thus, it is
instructive to examine how processed milk prices move in relation to raw milk costs. Admittedly, other production
inputs can (and do) affect milk processing, hence why they are included as control variables in my statistical model.
However, this section focuses only on raw milk costs to serve as a corroborating analysis examining whether the
results of my regression analysis are consistent with a less sophisticated approach I examine the difference between
processed milk prices and raw milk costs. To the extent competition remained largely the same, and other cost
factors changed little (or had a small impact), then one would expect a similar difference over time between
processed milk prices and raw milk costs. However, if competition in the Southeast decreased, as Plaintiffs claim,
then Defendant bottlers' increase in market power may have enabled them to raise processed milk prices without
fear of losing sales to a rival. If Plaintiffs' allegations are true, and Defendants' conduct increased their ability to
raise prices, then one would expect to observe a widening gap between processed milk prices and raw milk costs
over time.
Figure 32 , repeated from Figure 11 in Section IIl.5.2 above, shows the price paid by Food Lion for private label one
gallon whole milk from Dean's Winston-Salem facility (upper line) calculated from Defendants' sales data. It also
shows the raw milk cost over time (lower line), calculated as the Class I whole milk price, plus the base zone
(Mecklenburg County, NC) differential, the Charlotte, NC announced over-order premium, and applicable Federal
Order 5 assessments.288 In July 2001, the graph shows that the sales price of processed milk was $2.28, while raw
milk cost was $1.68, resulting in a difference of $0.60. Over the 2000 to 2001 pre-conduct period, this difference
was $0.56 on average. However, in post-conduct July 2006, the graph shows that the sales price of processed milk
was $2.32, while raw milk cost was $1.50, resulting in a difference of $0.82. Thus, Dean's markup of processed milk
price over raw milk cost in July 2 006 was $0.26 higher than the average 2000-2001 markup.
34
Figure 33 shows prices generated when assuming that the 2000-2001 processed-to-raw milk difference persisted
from 2002 to 2007, when Defendants' sales data ends. The yellow line shows the same processed milk price shown
on Figure 32, while the red line shows the price that would have prevailed if the processed-to-raw milk difference
remained at 2000-2001 levels ($0.56 on average).
35
The two lines in Figure 33 show that actual milk prices on average were $0.15 higher, or 6.0%, than movements in
raw milk costs would suggest. Replicating the analysis in Figure 33 using only the Federal minimum for raw milk
costs, i.e., excluding the over-order premium and other assessments, results in an average difference of 8.8%.
As illustrated by these excerpts from Professor Cotterill’s expert report, Professor
Cotterill ties his estimate of impact from these purchases to the alleged conspiratorial conduct of
defendants related to raw milk prices established by government agencies and unrelated to the
alleged conspiracy.
Defendants therefore argue that the “over-charge” found by Professor
Cotterill cannot have anything to do with the alleged conspiracy, resulting in a false positive as a
result of the analysis of the data by Professor Cotterill’s model, and the fact that he does not find
zero overcharges for these purchases means the model does not reliably measure the effects of
the alleged conspiracy. Defendants rely largely on Rail Freight. In Rail Freight, the district
court certified a class of railroad shippers who accused the nation’s largest freight railroads of
conspiring to fix fuel surcharges. As in this case, the plaintiffs offered a regression model
36
designed by their damages expert that purported to estimate the portion of fuel surcharges
attributable to the conspiracy. The debate over certification “centered on the predominance
requirement and whether the plaintiffs could show, through common evidence, injury in fact to
all class members from the alleged price-fixing scheme, . . .” 725 F.3d at 249 (emphasis added).
That debate, in turn, focused on whether the damages model yielded false positives because it
found injury to certain “legacy” shippers who were bound by rates negotiated before any
conspiratorial behavior was alleged to have occurred.
Citing Amchem, the D.C. Circuit noted that “[m]eeting the predominance requirement
demands more than common evidence the defendants colluded to raise [prices]. The plaintiffs
must also show that they can prove, through common evidence, that all class members were in
fact injured by the alleged conspiracy.” Id. at 252 (citing Amchem, 521 U.S. at 623-24). The
D.C. Circuit found that while plaintiff need not be prepared at the certification stage to prove the
amount of damages incurred by each class member, they must, through common evidence, show
that “all class members suffered some injury.” Id. (emphasis in original). See also Rikos, 799
F.3d at 522. The D.C. Circuit vacated the district court’s grant of class certification because the
model found damages as to the legacy shippers, producing false estimates and “detect[ing] injury
where none could exist.” Id. at 252. Defendants argue that Professor Cotterill’s model suffers
from the same infirmity and the Court agrees. Neither Professor Cotterill nor plaintiffs’ counsel
have provided the Court with a plausible explanation for how Food Lion, or any other purported
class member with a negotiated formula, has suffered injury from the alleged conspiracy,
although they have attempted to do so. At oral argument, plaintiffs’ counsel suggested that the
formula pricing agreements in this case were different from the Legacy contracts in Rail Freight
because the contracts here were oral and terminable at will. Plaintiffs argue that Food Lion’s
37
injury therefore was loss of the opportunity to negotiate a better contract with another supplier
because of the conspiracy. There are two problems with the explanation, however. First, Food
Lion never sought to terminate its agreements with Dean, but rather was able to negotiate and
receive large rebate payments and other concessions from Dean under threat of termination of
the formula-pricing agreements, belying Food Lion’s argument that it had no other supply
options. Second, no evidence in the record supports counsel’s claim.
Other courts have come to similar conclusions.
For instance, in Piggly Wiggly
Clarksville, Inc. v. Interstate Brands Corp., the Fifth Circuit affirmed the district court’s denial
of a class certification motion where “many of the class members negotiated a price rather than
being charged strictly on price lists.” 100 Fed. App’x 296, 297, 2004 WL 1245275 (5th Cir.
2004). Even though plaintiffs had offered an expert’s view, as here, that damages could easily
be calculated, the district court was not required to accept the expert’s opinion, and was within
its discretion to deny class certification given the degree of inquiry needed into the individual
facts of thousands of class members and potentially thousands of transactions. Id. at 299.
Here, inquiry will be needed as to which members of the class had negotiated prices, the
terms of their negotiated agreements, when the formula was established, and the extent of their
damages, if any, as to both formula-pricing and non-formula-pricing purchases.9 Counsel for
plaintiffs reluctantly conceded at oral argument that the issues related to Food Lion’s formulapricing agreements would likely need to be submitted to the jury separately, likely through
interrogatories, and that the jury could find that Food Lion suffered no injury as to these
negotiated transactions. This, of course, raises the possibility that the jury could find in favor of
9
Plaintiffs appear to focus on the argeed upon profit margin as the part of the formula where defendants’ alleged anticompetitive conduct is reflected; however, the profit margins were generally between 6 and 7%. Professor Cotterill
found average overcharges of greater than 7%, an amount equal to or greater than the actual profit margins. If this is
plaintiffs’ focus, the appropriate measure of damages would likely be the difference between the “anti-competitive”
margin and a “competitive” margin, not Professor Cotterill’s overcharges.
38
Food Lion with respect to its non-negotiated transactions but against Food Lion as to its formulapricing transactions. The same would ultimately be true of all other purchasers of processed
milk, a vast majority of the class apparently, who bought pursuant to negotiated prices and/or
received pricing concessions, rebates, and the like. These damages issues would ultimately
overwhelm the Court’s inquiry into questions common to the class. See Comcast, 133 S. Ct. at
1433. Predominance and manageability (relevant on the superiority question) may be destroyed
solely by the complexity of determining damages. See Windham v. Am. Brands, Inc., 565 F.2d
59, 67-68 (4th Cir. 1977). See also O’Sullivan v. Countrywide Home Loans, Inc., 319 F.3d 732,
745 (5th Cir. 2003) (district court abused discretion in certifying class “[i]n light of the individual
calculation of damages that is required.”). Under these circumstances, it is hard to say that a
class action here will lead to economies of time and expense.
In Deiter v. Microsoft Corp., the Fourth Circuit affirmed a district court order excluding
from a certified class purchasers of software licenses through Microsoft’s enterprise program
who had negotiated individual three-year purchase agreements. 436 F.3d 461, 465 (4th Cir.
2006). The Fourth Circuit stated:
In proving their case, however, the plaintiffs would hardly prove a
case on behalf of Microsoft’s Enterprise customers. These
customers, who purchased at least 250 licenses, did not purchase
on-line or by telephone, nor did they pay prices established in
advance by Microsoft. The prices that Enterprise customers paid
were negotiated and, as a consequence, were both discounted and
unique to each transaction. . . . .
“Moreover, to prove that Microsoft over charged the Enterprise
customers would require new and different proof because the
Enterprise customers were able to negotiate their deals in a
different competition context from that involving the plaintiffs. . . .
39
Id. at 468. Although the Fourth Circuit appears to have decided the Deiter case on the basis that
plaintiff’s claims were not typical of the claims of Microsoft’s Enterprise customers, its logic
applies fully to the predominance question as well.
IV.
Conclusion
For the reasons stated herein, plaintiffs have not “affirmatively demonstrate[d] their
compliance with the Rule,” Dukes, 131 S. Ct. at 2551, and the motion to certify class is
DENIED.
So ordered.
ENTER:
s/J. RONNIE GREER
UNITED STATES DISTRICT JUDGE
40
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