McCormick and Co. Must Defend Claims Over Its Pepper Practices

By Laura Bittner

RICHMOND, Va. (CN) – A federal judge dismissed part of a Sherman Act suit against McCormick & Company that accuses the spice manufacturer of colluding with retailers to cheat consumers buying its pepper products, but said others need more time to be addressed.

Plaintiffs in several states filed class actions against McCormick & Company and their cases were eventually consolidated in the U.S. District Court for the District of Columbia.

What all the cases had in common was they were based on claims that McCormick agreed with Wal-Mart and other retailers to reduce the weight of pepper in store-branded containers supplied by the manufacturer at the same time that it reduced the weight for containers bearing its own brand name.

The plaintiffs went on to claim that McCormick and the retailers not only agreed on the weight of pepper in their containers but also agreed on a set retail price.

In addition to those cases, an additional lawsuit, filed by McCormick’s competitor Watkins, was also consolidated with the consumer cases.

Watkins claimed that as a result of the deceptive practices alleged by the consumers, it had lost a considerable amount of sales.

The allegations all rely in part on an industry tradition of selling black pepper in closed containers. The consumers claim that because they couldn’t see into the containers to see just how much pepper was inside, it was easy for the manufacturer to ship the same container with markedly less pepper inside.

After the cases were consolidated, McCormick moved for dismissal, and on Nov. 11, U.S. District Judge Ellen Segal Huvelle, granted its motion in part, while also denying it in part.

Where Huvelle disagreed with the plaintiffs was on the question of alleged price-fixing.

The plaintiffs’ complaint, she wrote, “fails to plausibly suggest an agreement between McCormick and Wal-Mart or any other retailer to fix retail prices. In the language of Twombly [Bell Atlantic Corp. v. Twombly], there is an

“obvious alternative explanation” for the continuity in retail prices that does not require any

agreement.”

Judge Huvelle goes on to explain the “natural explanation” is that “McCormick maintained its wholesale prices when it reduced the fill level of pepper to offset the increased cost of raw pepper, and retailers, in turn, maintained their retail prices to preserve their usual allowance for operating costs and their traditional profit margin.”

“Retailers could well have expected that most consumers would be insensitive to the precise amount of pepper in a container and therefore willing to pay the same retail prices as before,”  Huvelle  said. “Retailers could also have

expected their competitors to reach the same conclusions, and therefore, they did not worry that

they needed to reduce their traditional profit margins in order to avoid being undercut by their

competitors.”

“Plaintiffs have offered no basis for rejecting this logical and lawful explanation,” the judge noted.

Huvelle also found the plaintiffs alleged no facts to suggest McCormick and the retailers had acted in any way contrary to how they would have independent of each other.

Finally, she said, the plaintiff consumers had simply failed to come up with any possible motive for McCormick and the retailers to collude on price.

“In sum, the complaint fails to plausibly suggest an agreement on prices because there is

an obvious lawful explanation for the observed prices, no allegations of specific communications

that suggest agreement, no allegations that defendants were acting against their independent

economic self-interest, and no alleged motivations for defendants to make an agreement on price,” Huvelle wrote.

Despite this, the judge concluded that additional fact-finding needs to occur before a decision on the plaintiffs’ other claims — of consumer injury and unjust enrichment of the defendants — could be made.

McCormick contended that no class could be certified on the injury issue because “the alleged injury depends on individual consumers’ state of mind at the time they purchased the pepper.”

But Huvelle said she found McCormick’s argument unpersuasive, at least until additional briefs are filed pertaining to case law on the issue in the states in which the lawsuits originated.

Likewise, she said, “It seems likely that plaintiffs’ unjust enrichment claims against McCormick and Wal-Mart will require individualized factual inquiries that bar class treatment.”