PHILADELPHIA (CN) – A class has offered sufficient evidence at this stage to sue four of the nation’s largest egg producers, which they say joined in a conspiracy to reduce the supply of eggs available on store shelves and jack up prices, a federal judge ruled.
U.S. District Judge Gene Pratter also ruled, however, that the class failed to plausibly suggest two other egg producers participated in the conspiracy, granting their motions to dismiss.
The plaintiffs, direct-purchasers of eggs, alleged the egg producers engaged in eight distinct coordinated actions over the course of a decade that are hallmarks of an anticompetitive conspiracy. As a result, they said, egg prices rose between 2003 and 2009.
The most prominent of those actions was an initiative known as the United Egg Producers (UEP) Certification Program.
That program imposed blanket guidelines on participating egg producers, setting limits on cage size for fowl and on the number of egg-laying hens a company could maintain, according to court records.
If a producer complied, it could stamp the UEP’s imprimatur on its products.
That mark of approval became critically important when major retailers like Wal-Mart and Kroger indicated they’d only purchase UEP-certified eggs, plaintiffs said.
They went on to describe the program as an all or nothing proposition: if a producer wanted to participate, it was precluded from producing non-certified eggs at any of its facilities
The plaintiffs contend there was only one reason why producers would participate in such a program: it was a collective effort to stanch supply and jack-up egg prices.
The industry responded by saying there is an obvious alternative explanation: participating companies were responding to consumers who were clamoring for eggs from chickens raised in better living conditions, and the program was therefore an inherently competitive undertaking.
But in a 78-page decision filed this week, Pratter found that, accepting the allegations in plaintiffs’ amended class-action complaint as true, the UEP Certification Program offered no legitimate business reason for an egg producer to join.
Pratter found that “The SAC [second amended complaint] alleges that the companies who became certified under the UEP Certification Program were required to undertake, in order to obtain and maintain their certification, certain measures that have the effect of reducing that company’s output of eggs and without apparent legitimate business rationale.”
“The allegations as to the program raise enough of a plausible inference that certification in the program was inconsistent with independent self-interest, at least because no non-conspiring, self-interested company would have followed the program guidelines,” Pratter wrote.
But, she found, the same can’t be said about another coordinated anticompetitive act alleged by the plaintiffs: the United States Egg Marketers Export Program.
The plaintiffs said the initiative asked producers to export eggs at a loss in an effort to stifle domestic supply, and entailed a plan for trade-group members to absorb export losses incurred by individual producers.
But unlike the UEP Certification Program, when taking the allegations as true, the plaintiff’s characterization of the Export Program fails to foreclose the possibility that “participation in the egg export program might have been for independent, legitimate business reasons,” Pratter found.
The plaintiffs claim the Program rings of anticompetitive conduct because domestic egg prices were generally higher than foreign rates.
But, Pratter said, plaintiffs have merely alleged that domestic prices were higher on average, and have therefore left open the possibility that participating in the Export Program could have been, at times, a prudent, legitimately competitive business decision.
The plaintiffs’ assertion that there “would have been no independent business reason for each Defendant on its own to undertake costly exports at the expense of more profitable domestic sales” isn’t supported by their suit, Pratter found.
Pratter denied four motions to dismiss Monday, finding that Michael Foods, Daybreak Foods, Rose Acre Farms and Ohio Fresh Eggs appear to have entered into a supply-management conspiracy.
But Pratter couldn’t same the same with respect to the United Egg Association and entities associated with Hillandale Farms, so she granted without prejudice their motions to dismiss.
Seventeen actions were consolidated before Pratter in December 2008.
The owner of Land O’Lakes agreed to a $25 million settlement last year.Pratter gave preliminary approval in October 2009 to a non-monetary settlement with Sparboe Farms Inc., which agreed to aid the plaintiffs’ case against the remaining defendants by producing witnesses and handing over documents.