In re Broiler Chicken Antitrust Litig.

290 F.Supp.3d 772

IN RE BROILER CHICKEN ANTITRUST LITIGATION

No. 16 C 8637¹

United States District Court, N.D. Illinois, Eastern Division.

Signed November 20, 2017

MEMORANDUM OPINION AND ORDER

Honorable Thomas M. Durkin, United States District JudgeDefendants are industrial producers of chicken meat. Plaintiffs are three putative classes of businesses and individuals who purchased chicken from Defendants, either directly or indirectly, for resale, business, or personal use, between 2008 and 2016. Plaintiffs allege that during that time period Defendants conspired to fix chicken prices higher than the market would naturally support, in violation of the Sherman Act § 1 and state law. Defendants have moved to dismiss for failure to state a claim pursuant to Federal Rule of Civil Procedure 12(b)(6). See R. 279; R. 292.² For the following reasons, the motions are denied to the extent that Plaintiffs' Sherman Act claims survive, at least one state law claim survives in every jurisdiction except for Arkansas, and none of the defendants are dismissed from the case entirely. The motion addressing Plaintiffs' state law claims, R. 292, is granted in part in that all claims under Wisconsin law are dismissed.

Legal Standard

A Rule 12(b)(6) motion challenges the sufficiency of the complaint. See, e.g., Hallinan v. Fraternal Order of Police of Chi. Lodge No. 7 , 570 F.3d 811, 820 (7th Cir. 2009). A complaint must provide "a short and plain statement of the claim showing that the pleader is entitled to relief," Fed. R. Civ. P. 8(a)(2), sufficient to provide defendant with "fair notice" of the claim and the basis for it. Bell Atl. Corp. v. Twombly , 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). This standard "demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation." Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009). While "detailed factual allegations" are not required, "labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Twombly , 550 U.S. at 555, 127 S.Ct. 1955. The complaint must "contain sufficient factual matter, accepted as true, to 'state a claim to relief that is plausible on its face.' " Iqbal , 556 U.S. at 678, 129 S.Ct. 1937 (quoting Twombly , 550 U.S. at 570, 127 S.Ct. 1955 ). " 'A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged.' " Mann v. Vogel , 707 F.3d 872, 877 (7th Cir. 2013) (quoting Iqbal , 556 U.S. at 678, 129 S.Ct. 1937 ). In applying this standard, the Court accepts all well-pleaded facts as true and draws all reasonable inferences in favor of the non-moving party. Mann , 707 F.3d at 877.

Background

I. The Chicken Industry

"Broilers" are "chickens raised for meat consumption to be slaughtered before the age of 13 weeks, and which may be sold in a variety of forms, including fresh or frozen, raw or cooked, whole or in parts, or as a meat ingredient in a value added product, but excluding chicken that is grown, processed, and sold according to halal, kosher, free range, or organic standards." R. 212 ¶ 79. Broilers constitute approximately 98% of all chicken meat sold in the United States. Id. ¶ 2.

Defendants are industrial Broiler producers. As of 2015, Defendants controlled 88.8% of Broiler production in the United States. Id. ¶ 286. Defendants own or tightly control all aspects of producing Broilers, including laying eggs; hatching chicks; raising chicks; slaughtering chickens; and processing and distributing the meat. See id. ¶¶ 270–74. The technology and process of industrial scale Broiler production is well known among Defendants, and all defendants use the same types of equipment and processes. Id. ¶ 330. Entry into the market would cost in excess of $100 million, see id. ¶¶ 319–22, and "no company has created a new poultry company from scratch in decades." Id. at ¶ 323. Defendants Tyson and Pilgrim's Pride maintain the largest market shares, approximately 22% and 17% respectively, while the other defendants maintain market shares no greater than 8–9%, with several below 5%. See id. ¶ 286 (including the following chart).

Defendants' businesses also have relatively similar cost structures. Id. ¶ 330. The primary costs of production are labor and feed for the chickens. Id. ¶¶ 327–38. Labor costs have declined significantly over the past two decades, while labor productivity has substantially increased. Id. ¶ 328. Defendants feed their chickens corn and soybean meal, and purchase these ingredients on the open market. Id. ¶¶ 327, 330. "Feed prices have varied widely from 2007–2016, reaching 71% of the cost of producing Broilers in 2012, but falling to only about 50% by 2014." Id. ¶ 327. "Since January 1, 2008, corn prices have declined roughly 21% and soybean prices have declined 13%." Id. ¶ 329.

Defendants purchase their breeder flocks (the chickens that lay the eggs Defendants raise into Broilers) from three "global genetics conglomerates" that account for 98% of Broilers raised in the United States, and 80% of Broilers raised globally. Id. ¶¶ 6, 275. These three genetic companies own a "biological lock" on their unique Broiler lines, meaning they tightly control the purebred genetic strain they develop. Id. ¶ 274. These genetic strains have special hybrid characteristics, such as a tendency to product a large chicken breast. Id.

Because all aspects of Defendants' methods of production are nearly identical, Broilers are substantially uniform across all Defendants' brands. See id. ¶ 80. For this reason, Broilers are considered a commodity product. See id. ¶¶ 80–81. Commodity industries are particularly susceptible to agreements that violate antitrust laws. See In re High Fructose Corn Syrup Antitrust Litig. , 295 F.3d 651, 658 (7th Cir. 2002) ("[When] the product is uniform (a 'commodity') ... competition would be expected to prevent any one seller from raising his price to any of this customers above cost.").

II. Agri Stats

Plaintiffs allege that Defendants communicated their conspiracy to restrain production and inflate prices in part through an entity called Agri Stats. Agri Stats is a subsidiary of Eli Lilly & Co. that produces subscription reports about the Broiler industry. Id. ¶¶ 67, 118. Agri Stats collects data directly from Defendants' Broiler production facilities. Id. ¶ 129. Only Broiler producers that supply data to Agri Stats are permitted to receive the Agri Stats reports. Id. ¶ 128.

Agri Stats reports provide information about where Broiler producers buy their breeder stock and feed, the size of production facilities, and actual production numbers. Id. ¶ 130. The reports also provide detailed information regarding production capacity, including numbers of eggs, the size of breeder flocks, and other inventory numbers, as well as financial information about each company. Id. ¶¶ 130, 135C. Although the reports do not identify the Broiler producers by name, the reports are so detailed that a reasonably informed producer can discern the other producers' identities, and it is common knowledge among producers that this is possible. Id. ¶ 124. This ability to identify each other by the information in the reports is enhanced by tours Defendants' executives take of each other's production facilities, see id. ¶ 313, and by the relatively frequent movement of employees and executives among the Defendant companies, without the protection of noncompete clauses. Id. ¶ 314.

Defendants have publicly stated that Agri Stats reports provide them knowledge of their competitors' production plans, and that they rely on this information to plan their own production. See id. ¶ 131A (defendant Sanderson Farms reported that "every year we review our operations and every facet within [Agri Stats] ... we set operational goals every year ... and [we] try to improve our operations within this benchmarking service we call [Agri Stats]"); id. ¶ 131B (Sanderson Farms CEO was quoted as saying, "my judgment is that based on what I see in Agr[i] [S]tats nobody is planning on, pullet placements say no ramp up and what I've gleaned from Agr[i] [S]tats, people are not planning on ramping up. I see a lot of information from Agr[i] [S]tats that tells me that nobody is going to ramp up.");³ id. ¶ 131E (Tyson stated in an investor presentation, "It's very profitable right now. And we will not hit the top of the top, because within the profitability segmentation right now, the most profitable segments are in fact big bird, and secondly, tray pack. We can tell that through Agri Stats.").⁴ Plaintiffs allege that a Broiler industry expert has said that the extent of information shared by Broiler producers through Agri Stats is "unusual" and "a significant antitrust issue." Id. ¶ 133.

Beyond the contact necessary to collect data, Agri Stats employees also interact regularly with Broiler producer executives and employees at trade association meetings. Id. ¶ 127. Agri Stats also offers to meet with Broiler producer executives on a quarterly basis to make detailed presentations about company and industry data, including whether the industry is over- or undersupplying the market. Id. ¶ 127. Plaintiffs allege that Agri Stats breaches the anonymity of the reports at these meetings by matching the data to particular companies. Id.

III. Defendants' Production & Pricing

A. The Years 2008–2010

Plaintiffs allege that prior to 2008, there was a "historic pattern of annual increases in Broiler production," of about 3%. Id. ¶ 335. Industry publications noted that 2008 was the "first time in decades [that] total broiler production ... remained virtually unchanged from the year before." Id.

These production cuts began in 2007 when defendants Tyson, Pilgrim's, Foster Farms, Peco Foods, and Perdue cut back their Broiler production. Id. ¶ 143. Plaintiffs allege that these production cuts did not result in a "meaningful"...