Chocolate Cartel May Owe $726 Million

(CN) - Candy lovers who claim that a worldwide chocolate cartel inflated the price of chocolate for years can sue as a class and retain expert testimony, a federal judge ruled.

In an antitrust class action filed in late 2007, Hershey, Mars, Nestle and Cadbury were accused of running a worldwide chocolate cartel that conspired to fix prices on chocolate from 2002 through 2007.

The class claims that the chocolate industry's structure is conducive to collusive behavior, in that a small number of manufacturers control a large percentage of the market, preventing demand from fluctuating.

The Judicial Panel on Multidistrict Litigation consolidated all pre-trial matters for 91 related actions in April 2008.

In May 2011, direct purchasers sought class certification, and a hearing was held in November 2011.

The next month, Cadbury settled for $1.3 million and was dismissed from the case.

Hershey, Mars, and Nestle - which produce about 75 percent of the U.S. chocolate market - filed two motions in limine to exclude expert testimony.

U.S. District Judge Christopher Conner, in Scranton, Pa., denied the motions on Friday, Dec. 7.

Conner found that the plaintiffs - specifically, all those who directly purchased standard and king-size chocolate bars for resale from the defendants between December 2002 and December 2007 - met requirements for class certification.

Conner tossed the chocolate companies' claim that because individual customers paid different prices or bought different brands of candy, the class representatives' claims are neither typical nor aligned with those of the class.

"The same allegations of a conspiracy to fix the price of chocolate confectionary products will be made for all class members. The fact that class members ultimately paid a different price for certain products is a damages conundrum which class counsel has chosen to address through expert witnesses. It does not impact the court's assessment of adequacy under Rule 23(a)(4)," the judge wrote.

Conner also brushed aside the defendants' argument that proving fraudulent concealment necessitates an individualized inquiry into when each class plaintiff knew or should have known about the alleged conspiracy.

"First, the court notes that fraudulent concealment for a single year of the alleged conspiracy is not the predominant issue in this matter. Class certification is still appropriate regardless of whether it is ultimately determined that the statute of limitations should be tolled. Second, the linchpin of direct purchasers' fraudulent concealment claim will be defendants' conduct, i.e., precisely what they did to cover up their allegedly collusive activities. These acts are all common to the class and will require common proof at trial," the 56-page opinion states.

The judge generally ruled in favor of the plaintiffs' expert, James T. McClave, but was not persuaded by the defendants' expert, John H. Johnson.

"[McClave] observes, and the court concurs, that list prices are quite relevant to the underlying claims because direct purchasers allege that defendants colluded to increase list prices, thereby raising the starting point for price negotiations, ultimately inflating the prices paid," Conner wrote.

The court approved McClave's calculation that the ultimate damages amassed for candy bars will total approximately $726 million.

"In summary, the court finds that Dr. McClave presents statistically feasible methods for estimating damages on a class-wide basis," Conner concluded.

The original four defendants controlled more than 80 percent of the $16 billion U.S. chocolate market in 2006, and half of the world market, according to a 2007 class action filed in Newark.

Hershey's controlled 45 percent of the U.S. chocolate market in 2006, Mars 27 percent, Nestle 9 percent, and Cadbury about 4 percent, according to the Newark complaint.

Mars controlled 15 percent of the world market, Nestle 13 percent, and Hershey's and Cadbury 8 percent each, according to that complaint. The chocolatiers then employed more than 400,000 people.

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