Monday, February 23, 2009

Defendants Seek Dismissal of Chocolate Price-Fixing Class Actions


Defendants have filed motions to dismiss in the multi-district litigation cases captioned In re Chocolate Confectionary Antitrust Litigation, and are awaiting a ruling from Judge Conner of the Middle District of Pennsylvania.

Briefing on the motions was completed in December, and oral argument was held before the Court on January 16. Some of the key issues raised in the motions are: (1) whether personal jurisdiction existed over the Canadian defendants; (2) whether the Court can consider conduct that occurred in Canada when ruling on the motions to dismiss; and (3) whether the amended complaints satisfy the Twombly pleading standard with respect to defendants whose allegedly anticompetitive conduct was not described in Informations filed in connection with the Canadian criminal investigation.

In 2007, the Supreme Court heightened the pleading standard for an antitrust challenge to allegedly collusive conduct, ruling in Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007), that Plaintiffs must allege enough factual matter to suggest that an agreement was made – i.e., that the claim is "plausible," not just "possible." Under the new standard, Plaintiffs need to allege more facts in support of their claim than the mere existence of a government investigation.

Class action lawsuits are typically filed very shortly after the public disclosure of the existence of a government antitrust investigation. In such situations, the plaintiffs try to include as many additional facts regarding the alleged conspiracy as they can quickly gather, which can be a difficult task given that the government's evidence is not public information. The additional facts are often largely circumstantial "plus factors" suggesting an agreement, such as pre-textual explanations of price increases, communications or meetings that provide the opportunity to conspire, such as trade association meetings, or conduct that would be against a company's self-interest if acting alone, but not when acting in concert.

In the chocolate investigation, the Department of Justice has not made its evidence public, but the Canadian Competition Bureau has filed publicly available Informations, which includes direct allegations of an agreement. In the Informations, the Canadian government indicates that it has received evidence from a party that has applied to participate in its immunity program, including specific factual allegations regarding agreements to fix prices of chocolate in Canada. While price-fixing in Canada is not direct evidence of price-fixing in the United States, it certainly makes such a claim plausible, and, in my opinion, should be sufficient to allow the Chocolate cases to survive the motion to dismiss.

We'll likely find out what the Court thinks in a few months, when it rules on the motions to dismiss.

Related posts: Study Shows That Commodity Price Rises Don't Justify Chocolate Price Rises; Chocolate Price Fixing Cases Consolidated; Retail Grocery Chains File Suit Against Chocolate Makers; Investigation of Chocolate Makers Goes Global; Chocolate Makers Allegedly Fixed Prices.

Friday, February 20, 2009

Valassis’ Quarterly Earnings Update

Valassis reported its quarterly earnings on February 17, stating that it spent $2.5 million in the Fourth Quarter of 2008 on legal fees in its lawsuit against News America.

During its earnings call, Valassis stated:

News America has been trying to delay these trials as long as they can and push them off as long as they can.

So my understanding is there's a motion being heard by the judge right now where they are trying to delay the . . . March trial date [sic] because they have got another trial that overlaps with Floor Graphics, who has a case against them."

The court subsequently issued an order canceling the March 3 final pre-trial conference pending the resolution of the parties' motions for summary judgment. Depending on how long it takes for the court to resolve the summary judgment motions, it's likely that trial will be pushed back from April until at least May, if not longer.

The summary judgment motions were filed under seal, as were most documents in the case, as observed in this article today on BNET. Such secrecy is typical in this type of litigation, which involves competitively sensitive business information.

Valassis' reported a loss of $222 million for the quarter, which includes a non-cash write-down of assets of $245.7 million. Excluding the write-down, earnings would have been $1.4 million, or 3 cents per share.

UPDATE 2/24/09: UponNews America Marketing's request, Judge Cox recused himself from hearing the case, and the case was randomly assigned to Judge Arthur Tarnow. A reassignment this late in the case is unusual, and is likely to cause a delay while the newly-assigned judge gets up to speed on the issues. Judge Cox's order does not specify the grounds for his recusal.

Related posts: Update on News America Litigation; Valassis and News America File Summary Judgment Motions; Valassis' $1.5 billion Lawsuit Over FSIs.

Tuesday, February 17, 2009

Whole Foods’ CEO Anticipates Settlement with FTC


Last week, Whole Foods CEO John Mackey indicated that he anticipates that Whole Foods and the FTC will soon reach a settlement agreement regarding Whole Foods merger with Wild Oats.

During a visit to Yale University, Mackey stated, "Hopefully, there'll be an announcement in the next couple of weeks," reported the Hartford Courant. Whole Foods had made a settlement offer to the FTC on January 26, 2009. The FTC initially issued an order withdrawing the case from adjudicative status for five days to consider the proposal, but subsequently extended the withdrawal from adjudicative status for an additional thirty days, until March 6 – presumably because the parties are close to reaching an agreement.

Both sides will likely be relieved to settle the case, as the case has resulted in criticism for both the FTC and Mackey. The FTC's "home court advantage" – i.e., litigating the case administratively with the presiding Commissioners deciding the merits of the case after the agency had approved filing a suit in the first place – was attacked on constitutional and fairness grounds. The agency was also criticized for prosecuting the case after the merger had consummated. (While I personally view the FTC's actions as good-faith efforts to vigorously enforce the law, the procedural posture of the case is certainly unfortunate). Some have questioned the merits of the FTC's position given the competition to Whole Foods from mainstream grocers that offer a growing selection of organic or natural food products. In addition, several senators sent a letter (at the urging of Whole Foods) expressing concern that the FTC had shortened the comment period for proposed rule changes that will affect the time frame for adjudicating the Whole Foods case and other Part 3 adjudications.

Whole Foods CEO, meanwhile, has personally drawn substantial criticism for statements he has made. On a Yahoo! Finance message board, Mackey made approximately 1400 posts from 1999 to 2006, including posts stating that Wild Oats stock was overpriced and that the company would go bankrupt. In addition, Mackey told his board of directors that the merger would allow Whole Foods to "avoid nasty price wars," and would prevent a mainstream grocery chain, such as Safeway or Kroger, from using Wild Oats as a springboard to launch a rival organic food chain.

Mackey delivered two lectures last week at Yale (which is where I attended law school – Go Bulldogs!), and was asked to comment on the case. When asked about his message board postings, he indicated, "I'm actually proud of [them]," though he added that he has since "grown up." He was also asked if the messages contributed to the FTC's decision to act, to which he responded: "No. Well, I don't know. You'd have to ask the FTC."

Related posts: Whole Foods Proposes Settlement with FTC; Whole Foods Files Suit Against FTC; Whole Foods Faces Consumer Class Action; D.C. Circuit Reverses Ruling That Allowed Whole Foods Merger.



Monday, February 2, 2009

Kraft Foods and Frito-Lay Buyers Plead Guilty to Accepting Bribes from Tomato Processor



Purchasing managers for Kraft and Frito-Lay recently agreed to plead guilty to accepting bribes of over $150,000 each in return for helping SK Foods sell its processed tomatoes to their companies at inflated prices.

According to prosecutors, Kraft bought about 230 million pounds of processed tomato products from SK Foods at inflated prices between 2004 and 2008, and Frito-Lay purchased tomato products at inflated prices between 1998 and 2008. The purchasing managers provided information to SK Foods that assisted it in securing contracts at higher prices. According to Kraft and Frito-Lay, none of their other employees were involved in the scheme. Safeway, ConAgra, Agusa, and B&G Foods allegedly had buyers who also accepted bribes from SK Foods. The SK Foods sales broker involved in the scheme pleaded guilty on December 16 to racketeering, price fixing, bid rigging, and contract allocation conspiracies.

The DOJ press release regarding the plea agreements is available here.

Related posts: Trade Associations Investigated for Possible Antitrust Violations; Antitrust Compliance Policies Can Help Prevent or Limit Liability.

 

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