Food Lion, LLC v. Dean Foods Co. (In re Se. Milk Antitrust Litig.)

739 F.3d 262

In re SOUTHEASTERN MILK ANTITRUST LITIGATION.Food Lion, LLC and Fidel Breto, on behalf of himself and all others similarly situated, Plaintiffs–Appellants,

v.Dean Foods Company, National Dairy Holdings, L.P., Dairy Farmers of America, Inc., Dairy Marketing Services, LLC, and Southern Marketing Agency, Inc., Defendants–Appellees.

No. 12–5457.

United States Court of Appeals, Sixth Circuit.

Argued: July 25, 2013.

Decided and Filed: Jan. 3, 2014.

Rehearing and Rehearing En Banc Denied March 4, 2014.

ARGUED:Neil K. Gilman, Hunton & Williams LLP, Washington, D.C., for Appellants. Paul H. Friedman, Dechert LLP, Washington, D.C., for Appellees. ON BRIEF:Neil K. Gilman, Richard L. Wyatt, Jr., Todd M. Stenerson, Hunton & Williams LLP, Washington, D.C., Gordon Ball, Ball & Scott, Knoxville, Tennessee, R. Laurence Macon, Akin Gump Strauss Hauer & Feld LLP, San Antonio, Texas, for Appellants. Paul H. Friedman, DECHERT LLP, Washington, D.C., Carolyn Hazard Feeney, Dechert LLP, Philadelphia, Pennsylvania, Steven R. Kuney, Williams & Connolly LLP, Washington, D.C., W. Todd Miller, Baker & Miller PLLC, Washington, D.C., Jerry L. Beane, Kay Lynn Brumbaugh, Andrews Kurth LLP, Dallas, Texas, for Appellees.

Before: ROGERS and COOK, Circuit Judges; VAN TATENHOVE, District Judge.^*

OPINION

GREGORY F. VAN TATENHOVE, District Judge.

Dean Foods Company and Suiza Foods Corporation were the two largest processed milk bottlers in the country in 2001. At that time, they announced plans to merge their operations, which the Department of Justice approved subject to divestment of particular milk processing plants. The merged company, now known as Dean Foods, is accused of violating 15 U.S.C. § 1 of the Sherman Antitrust Act by conspiring with a raw milk supplier/milk processor and the purchaser of the divested processing facilities to divide markets and restrict output. The district court granted summary judgment for Defendants, ruling that Plaintiffs could not provide sufficient proof of injury, nor could they establish the relevant antitrust geographic market, primarily because their expert's testimony was excluded. Two retailers of processed milk, Food Lion LLC and Fidel Breto, appeal both of these conclusions. For the following reasons, we REVERSE and REMAND.

I

A

Prior to 2001, Dean Foods Company and Suiza Foods Corporation competed to process and sell bottled milk to retailers. Suiza was the largest processor of milk in the United States, and Dean Foods was the second largest. Both processors purchased their raw milk from other entities. Dairy Farmers of America (“DFA”), a dairy farmer cooperative, was Suiza's primary supplier and business partner, owning almost 34% of Suiza Dairy Group, which was a subsidiary of Suiza's. Dean Foods obtained its raw milk predominantly from independent farmers.

Dean Foods and Suiza merged in 2001 under the name Dean Foods, hoping to obtain “distribution efficiencies and economies of scale,” which would result in millions of dollars in cost savings. As they began consolidating, certain agreements were negotiated, with input from the Department of Justice, to avoid antitrust problems. To secure financing for the merger, Suiza purchased DFA's ownership interest in exchange for cash, six dairy processing plants, and two contractual provisions related to DFA's ability to provide raw milk to the merging companies' processing plants. One provision promised DFA a specific sum of money if its supply contracts for plants previously owned by Suiza were terminated within twenty years. The other provision stipulated that Dean Foods would owe DFA liquidated damages if DFA were not provided an opportunity to supply raw milk for the plants Dean Foods owned prior to the merger.

The six processing plants that DFA received from Suiza were quickly transferred to a newly formed partnership called National Dairy Holdings (“NDH”), which DFA partly owned. NDH was formed to compete with Dean Foods, and after it added five more processing plants Dean Foods divested, it became the second largest milk bottler in the southeast. NDH had four owners. Two owners were former Suiza executives, and one was a former business partner of DFA's chief executive officer. Together, they owned a 50% equity interest. DFA owned the other 50% equity interest, and it possessed the power to “veto any agreement that would substantially affect the operation of NDH, contracts, or capital expenditures greater than $50,000, and the acquisition, expansion or disposal of NDH's facilities.” The Department of Justice's Antitrust Division approved NDH's purchase and operation of the eleven plants.

These facts set the stage for the illegal conspiracy that Food Lion and Fidel Breto (“Plaintiffs”), two retailers of processed milk, have alleged—a conspiracy in which DFA serves as the keystone. With NDH as Dean Foods' largest competitor, it would stand to reason that if NDH were weakened, Dean Foods would enjoy a stronger position in the marketplace for selling processed milk. Although DFA's ownership stake provides an obvious incentive to fully support NDH's fledgling enterprise, DFA's raw milk supply agreements with the merged company create fertile soil for the development of a conflict of interest. Supported by several disputed factual allegations, the essence of Plaintiffs' conspiracy claim is as follows:

NDH knowingly accepted ‘second best’ plants, operated those plants at losses and eventually shuttered some of those plants in an unlawful agreement with its competitor Dean/Suiza because, in return, its parent company, DFA, received a commitment from Dean/Suiza to allow it to supply raw milk to each Dean/Suiza bottling plant, including the pre-merger Dean plants previously supplied by independent dairy farmers.

[Appellant Br. at 15.]

B

The Plaintiffs originally brought suit in the district court based on five claims, alleging violations of Sections 1 and 2 of the Sherman Antitrust Act and Section 3 of the Clayton Act. The district court granted summary judgment to the Defendants on Counts II, III, and IV, but denied summary judgment on Counts I and V. After the close of discovery, the Defendants again moved for summary judgment on several additional grounds that had not been raised previously. The district court found the additional arguments Defendants raised to be convincing and granted summary judgment in favor of Defendants on Counts I and V, ruling that the Plaintiffs failed to meet the requirements for establishing an antitrust violation under Section 1 of the Sherman Antitrust Act. Plaintiffs now appeal the district court's ruling on Count I.

In Count I, the Plaintiffs allege that the Defendants engaged in a conspiracy not to compete, in violation of 15 U.S.C. § 1. For a plaintiff to successfully bring an antitrust claim under Section 1 of the Sherman Act, the plaintiff must establish that the defendant's actions constituted an unreasonable restraint of trade which caused the plaintiff to experience an antitrust injury. Expert Masonry, Inc. v. Boone County, Kentucky, 440 F.3d 336, 342 (6th Cir.2006) (quoting Crane & Shovel Sales Corp. v. Bucyrus–Erie Co., 854 F.2d 802, 805 (6th Cir.1988)). In its second summary judgment opinion, the district court found that: 1) Plaintiffs failed to establish that the restraint on trade was unreasonable, largely because the court excluded the testimony of Plaintiffs' expert; and 2) that Plaintiffs failed to establish the requisite element of injury. In re Southeastern Milk Antitrust Litig., 2:08–MD–1000, 2012 WL 1032797, at *6, *12 (E.D.Tenn. Mar. 27, 2012). Those decisions are the subject of this review.

II

This Court reviews the district court's grant of summary judgment de novo. Yet it must be mindful that “[i]n this circuit, courts are generally reluctant to use summary judgment dispositions in antitrust actions due to the critical ‘role that intent and motive have in antitrust claims and the difficulty of proving conspiracy by means other than factual inference.’ ” Expert Masonry, Inc. v. Boone County, Kentucky, 440 F.3d 336, 341 (6th Cir.2006) (quoting Smith v. N. Mich. Hosp., Inc., 703 F.2d 942, 947 (6th Cir.1983)).

A

Unfortunately, there is no general agreement on the exact standards to use when resolving antitrust cases. As much as we might wish that a precise process with clear elements existed, antitrust cases in this circuit, and in others, apply various approaches to adjudicating antitrust claims. There are some areas of consensus, however. A good starting point is the statute itself. Section 1 of the Sherman Act states that “Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.” 15 U.S.C. § 1. The plaintiffs must first show, therefore, that an agreement between two or more economic entities exists since unilateral conduct would not violate this statute. Nat'l Hockey League Players Ass'n v. Plymouth Whalers Hockey Club, 419 F.3d 462, 469 (6th Cir.2005).

Next, because nearly every agreement between parties could be considered a restraint of trade, the Supreme Court has limited Section 1 to apply only to “unreasonable” restraints of trade. Nat'l Hockey League Players, 419 F.3d at 469 (citing Nat'l Collegiate Athletic Ass'n v. Board of Regents of Univ. of Okla., 468 U.S. 85, 98, 104 S.Ct. 2948, 82 L.Ed.2d 70 (1984)). Whether the restraint is “unreasonable” is determined by one of two approaches—either the per se rule or the “rule of reason.” Id. at 469;Care Heating & Cooling, Inc. v. American Standard, Inc., 427 F.3d 1008, 1012 (6th Cir.2005). If the rule of reason is used, plaintiffs must additionally show that the restraint produced anticompetitive effects within the relevant product and geographic markets, while the per se rule is reserved for restraints that are so clearly unreasonable that their anticompetitive effects within geographic and...