Wednesday, April 2, 2008

Retail Grocery Chains File Suit Against Chocolate Makers

Retailers File Suit - A number of retail grocery stores have filed suit against major chocolate makers for alleged price-fixing, adding to an already large number of suits that have been filed since government investigations into alleged price fixing of chocolate was revealed.

According to a Wall Street Journal article on April 1, retailers filing suit against chocolate makers include Safeway, Kroger, Walgreen, Hy-Vee, Meijer, Publix, CVS, Rite Aid, Food Lion, Kash N' Karry, Hannaford Bros. (which itself became the subject of numerous recent lawsuits because of a data security breach), and Giant Eagle.

Complaints Rely on Canadian Investigation - Investigations have been launched by Canada, the U.S., and Germany, and the complaints are heavily reliant on the government investigations. For example, the Giant Eagle complaint (available on the WSJ Law Blog), alleges a number of facts taken from documents filed in the Canadian government investigation, including statements by unnamed cooperating witnesses about secret meetings and communications between chocolate makers. The complaint states that the party cooperating with the government is believed to be Cadbury because Cadbury is not named as a target of the Canadian investigation despite its large market share in Canada.

Other Allegations Limited - Without the factual allegations from the unnamed sources, the complaint would be unlikely to survive a motion to dismiss under the Twombly pleading standard. Other than the allegations from the Canadian investigation, the complaint makes only general allegations, such as the industry being "ripe for collusion" because: the industry is highly-concentrated; there are high barriers to entry; the product is an undifferentiated commodity; and the industry has faced decreasing demand and profits. The complaint also alleges that there were parallel price increases, and that the stated reasons for the price increases were pretextual.

Potential Gains for Retailers - If the government investigations pan out, the defendants may face substantial liability and retailers could reap a sizeable recovery.

While many businesses focus heavily on defensive litigation and see their legal departments only as a cost center, I encourage retailers (and other businesses) to also consider any possible plaintiff's litigation (like the chocolate antitrust lawsuits) that may recover money for the company, or that can provide the company with a competitive or strategic advantage. Plaintiff's litigation may provide an especially compelling risk/reward ratio to the company's business people when law firms are willing to bring their cases on a contingency basis.

Related Posts: Investigation of Chocolate Makers Goes Global; Chocolate Makers Allegedly Fixed Prices


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