In re Chocolate Confectionary Antitrust Litigation

602 F.Supp.2d 538

In re CHOCOLATE CONFECTIONARY ANTITRUST LITIGATION This Document Applies to: All Cases.

MDL Docket No. 1935.

Civil Action No. 1:08-MDL-1935.

United States District Court, M.D. Pennsylvania.

March 4, 2009.

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MEMORANDUM

CHRISTOPHER C. CONNER, District Judge.

This is a multidistrict antitrust matter brought under Section 1 of the Sherman Act, 15 U.S.C. § 1, and various state antitrust and consumer protection statutes. Plaintiffs allege that defendants conspired to fix the prices of chocolate confectionary products in the United States. Defendants, who control approximately 75% of the American market for chocolate candy, allegedly entered pricing agreements, resulting in coordinated price increases on three distinct occasions between 2002 and 2007. Defendants argue that the amended complaints fail to raise a plausible inference of an agreement to fix prices as required by Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). Defendants have filed motions to dismiss (Docs. 464, 469, 477) the complaints under Rule 12(b)(6) of the Federal Rules of Civil Procedure.

Defendants Cadbury plc, Cadbury Holdings, Mars Canada, Nestle S.A., and Nestle Canada have also filed motions to dismiss (Docs. 466, 471, 473, 474) under Rule 12(b)(2) for lack of in personam jurisdiction. These defendants contend that they do not sell chocolate candy in the United States, maintain no facilities inside the U.S., and have no pricing authority in the U.S. chocolate market.

For the reasons that follow, the Rule 12(b)(2) motions will be deferred during a period of jurisdictional discovery. The Rule 12(b)(6) motions filed by the remaining defendants will be denied except with respect to certain common law and consumer protection claims. The Rule 12(b)(6) motions filed by Cadbury plc, Cadbury Holdings, Mars Canada, Nestle S.A. and Nestle Canada will be deferred until resolution of their jurisdictional challenges.

I. Factual Background¹

Defendants are members of four multinational corporate families that produce chocolate confectionary products for markets around the globe. Plaintiffs allege that from December 2002 to April 2007 defendants conspired to fix prices in the American chocolate candy market,² as evidenced by three synchronized price increases that occurred during the early-and mid-2000s. In August 2008, three putative subclasses of plaintiffs and one group of individual plaintiffs filed consolidated amended complaints against all defendants.

A. Defendants' Respective Corporate Structures and Market Shares

Defendant The Hershey Company (hereinafter "Hershey Global") dominates the American chocolate confectionary market, supplying more than 40% of the chocolate candy sold in the U.S. (Doc. 418 ¶ 19; Doc. 420 ¶ 80; Doc. 448 ¶ 31.) Defendant Hershey Canada, a wholly owned subsidiary of Hershey Global, distributes Hershey products in Canada. (Doc. 418 ¶ 20; Doc. 420 ¶ 50; Doc. 448 ¶ 28.) Hershey Global has integrated its American and Canadian operations, and Hershey North America, a division of Hershey Global, oversees sales and marketing operations in both countries. (Doc. 418 ¶ 20; Doc. 448 ¶ 30.)

Defendant Mars, Inc. ("Mars Global") possesses a 26% share of the American chocolate candy market. (Doc. 418 ¶ 22; Doc. 420 ¶ 80; Doc. 448 ¶ 38.) In the U.S. and Canada, Mars Global operates through two subsidiaries: defendants Mars Snackfood U.S. LLC ("Mars Snackfood") and Mars Canada, Inc. ("Mars Canada"). (Doc. 418 ¶¶ 23-24; Doc. 420 ¶¶ 53-54; Doc. 448 ¶¶ 36-38.) These subsidiaries collectively form Mars Global's North America division (Doc. 418 ¶¶ 23-24; Doc. 420 ¶¶ 53-54; Doc. 448 ¶¶ 36-38.)

Defendant Nestle S.A. is the world's largest food and beverage corporation and controls 8% of the American chocolate candy market. (Doc. 418 ¶ 26; Doc. 420 ¶ 80; Doc. 448 ¶¶ 47.) Nestle" S.A., based in Vevey, Switzerland, does not operate directly in either the United States or Canada. (Doc. 418 ¶ 26; Doc. 420 ¶ 56; Doc. 422 ¶ 10; Doc. 448 ¶ 42.) Rather, its subsidiaries, defendants Nestle U.S.A., Inc. ("Nestle U.S.A.") and Nestle Canada, Inc. ("Nestle Canada"), market and distribute Nestle products in the nations for which they are named. (Doc. 418 ¶¶ 27-28; Doc. 420 ¶¶ 57-58; Doc. 422 ¶¶ 9, 11; Doc. 448 ¶¶ 43-44.) Both Nestlé U.S.A. and Nestlé Canada are members of Nestlé S.A.'s Zone Americas division. (Doc. 418 ¶ 26; Doc. 448 ¶ 46.)

Defendant Cadbury plc is also a titan in worldwide chocolate markets. Cadbury plc is the corporate parent of defendant Cadbury Holdings Ltd. ("Cadbury Holdings") and defendant Cadbury Adams Canada, Inc. ("Cadbury Canada"). (Doc. 418 ¶¶ 30-32; Doc. 420 ¶¶ 60-62; Doc. 422 ¶ 13-14; Doc. 448 ¶ 51-53.) Cadbury Canada produces and distributes Cadbury products in Canada. (Doc. 418 ¶ 32; Doc. 420 ¶ 62; Doc. 422 ¶ 14; Doc. 448 153.) In the U.S., Hershey Global distributes Cadbury-branded products under license agreements with Cadbury Holdings and Cadbury plc. (Doc. 418 ¶¶ 30, 89; Doc. 420 ¶¶ 61, 82; Doc. 422 ¶¶ 13, 61; Doc. 448 ¶¶ 51, 107.g.) The amended complaints contain few other details about the role that Cadbury plc, Cadbury Holdings, and Cadbury Canada play in the American market.

B. Integration of the American and Canadian Markets for Chocolate Candy

Defendants collectively control approximately 75% of the chocolate candy market in the U.S. and 64% in Canada. (Doc. 418 ¶ 52; Doc. 420 ¶ 80; Doc. 422 ¶ 35; Doc. 448 ¶ 107.a.) Plaintiffs contend that these markets are tightly interwoven and consist of homogenous, interchangeable chocolate candy products. (Doc. 418 ¶ 52; Doc. 420 ¶ 80; Doc. 422 ¶ 35; Doc. 448 ¶ 107.a.) They bolster this assertion with trade statistics that allegedly demonstrate synergism between the markets. For example, in 2003 the United States imported approximately $1.8 billion in confectionary products, 40% of which consisted of chocolate candy. (Doc. 418 ¶ 49.) According to the amended complaints, much of this chocolate originated in Canada, where defendants manufactured and packaged it for sale in the United States. (Doc. 418 ¶¶ 49, 53; Doc. 422 ¶ 40; Doc. 448 ¶ 107.h) The U.S. also ships chocolate products to Canada. American manufacturers purportedly supply approximately 45% of Canada's chocolate candy imports. (Doc. 420 ¶ 90; Doc. 422 ¶ 40.)

Defendants have allegedly integrated their American and Canadian operations. Plaintiffs assert that defendants have developed manufacturing and distribution systems designed to serve consumers across international borders. Defendants supply similar chocolate products to both markets. In addition, defendants have created North American divisions that oversee U.S. and Canadian operations. (Doc. 418 ¶¶ 82-83; Doc. 420 ¶ 92; Doc. 422 ¶¶ 85-89; Doc. 448 ¶ 107.b.)

According to the pleadings, Hershey Global has instituted a single corporate division to coordinate all North American sales and marketing, and the company aggregates operations in the United States, Canada, Mexico, and Brazil for purposes of its reporting obligations under the Securities Exchange Act of 1934. (Doc. 418 ¶¶ 83-84; Doc. 420 ¶ 92; Doc. 422 ¶ 85; Doc. 448 ¶ 107.b.) Hershey allegedly groups these nations based upon "similar economic characteristics, and similar products and services, production processes, types of consumers, distribution methods, and the similar nature of the regulatory environment in each location." (Doc. 418 ¶ 84.) Similarly, Mars Canada manufactures and packages chocolate candy products in Canada for sale in the United States. (Doc. 418 ¶ 53; Doc. 420 ¶¶ 53; Doc. 422 ¶ 21; Doc. 448 ¶¶ 37, 39.) Either Mars Canada or another member of Mars Global's corporate family purportedly manages the sale of these products. (Doc. 418 ¶ 22, 24, 53; Doc. 420 ¶ 52-53; Doc. 422 ¶ 20-21; Doc. 448 ¶¶ 37, 39.) Nestle S.A., Cadbury plc, and Cadbury Holdings likewise fuse the United States and Canada for purposes of corporate operations. Nestlé's Zone Americas is the company's leading sales territory and includes the U.S., Canada, Mexico, and Central and South America. (Doc. 418 ¶¶ 86-87; Doc. 420 ¶ 92; Doc. 422 ¶ 88; Doc. 448 ¶ 107.b.) And the president of Cadbury's Americas Confectionery division possesses ultimate responsibility for the daily management and operation of the Cadbury chocolate business in both the United States and Canada. (Doc. 418 ¶¶ 86-87; Doc. 420 ¶ 92; Doc. 422 ¶ 87; Doc. 448 ¶ 107.b.)

Licensing agreements among defendants further contribute to the coalescence of these markets. Cadbury Holdings and Hershey Global have executed asset purchase and trademark licensing agreements³ under which Hershey possesses an exclusive license to manufacture and market Cadbury-branded products in the United States. (Doc. 418 ¶¶ 30, 89; Doc. 420 ¶¶ 61, 82; Doc. 422 ¶¶ 13, 61; Doc. 448 ¶¶ 51, 107.g.) Brands subject to the license include York Peppermint Patties^TM, Mounds®, and Almond Joy®. (Doc. 418 ¶ 30; Doc. 420 ¶ 61; Doc. 422 ¶ 13; Doc. 448 ¶ 51.) Hershey also has a similar licensing arrangement for certain Nestlébranded products including Kit-Kat® and Rolo®. (Doc. 418 ¶ 90; Doc. 420 ¶ 82; Doc. 422 ¶ 62; Doc. 448 ¶ 107.g.) Under the Hershey-Cadbury agreements, Hershey Global remits quarterly royalty payments to Cadbury plc and Cadbury Holdings, which may audit Hershey's accounting records, observe its manufacturing processes, and test its products for quality. (Doc. 478-6 at 3, 13-14; Doc. 478-8 at 10, 16-18; Doc. 418 ¶¶ 89-90; Doc. 420 ¶ 84.) The agreements require personnel from both companies to meet on a quarterly basis to discuss marketing, promotion, and development of Cadbury-branded products. (Doc. 478-6 at 16; Doc. 478-8 at 18-19.)

In contrast to monolithic supply points,...