In re Potash Antitrust Litigation

667 F.Supp.2d 907

In re POTASH ANTITRUST LITIGATION.

No. 08 C 6910.

MDL No. 1996.

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

November 3, 2009.

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Anna M. Horning Nygren, Heidi M. Silton, Richard A. Lockridge, W. Joseph Bruckner, Lockridge Grindal Nauen P.L.L.P., Minneapolis, MN, Bruce L. Simon, Jonathan Mark Watkins, Pearson Simon Warshaw & Penny, LLP, San Francisco CA, Steven Alan Hart, Segal, McCambridge, Singer & Mahoney, John Reid Malkinson, Malkinson & Halpern, P.C., Chicago, IL, Christopher King Wilson, Daniel D. Owen, Patrick John Brady, Polsinelli Shughart PC, Kansas City, MO, Elizabeth Anne McKenna, Milberg LLP, Bernard Persky, William Reiss, Labaton Sucharow LLP, New York, NY, Paul F. Novak, Milberg LLP, Detroit, MI, Daniel A. Bushell, Manuel Juan Dominguez, Berman DeValerio, Palm Beach Gardens, FL, M. Stephen Dampier, Vickers, Riis, Murray and Curran, LLC, Mobile, AL, Howard J. Sedran, Levin, Fishbein, Sedran & Berman, Philadelphia, PA, Michael Jerry Freed, Steven A. Kanner, Freed Kanner London & Millen, LLC, Bannockburn, IL, for Plaintiffs.

Alan S. Madans, John David Silk, Robin Korman Powers, Rothschild, Barry & Myers LLP, Britt Marie Miller, Mayer Brown LLP, Daniel E. Reidy, James R. Daly, Michael Sennett, Thomas F. Gardner, Brian Joseph Murray, Paula Sue Quist, Jones Day, Elizabeth M. Bradshaw, Dewey & LeBoeuf LLP, Thomas E. Dutton, Greenberg Traurig, Paul T. Olszowka, Michael Lee McCluggage, Paul T. Olszowka, Wildman, Harrold, Allen & Dixon LLP, Duane M. Kelley, Winston & Strawn LLP, Lori Ann Fanning, Marvin Alan Miller, Matthew E. Van Tine, Miller Law LLC, Timothy G. Martin, Cooney & Conway, Chicago, IL, J. Michael Hennigan, Lauren A. Smith, Peter Jay Most, Robert L. Palmer, Donald F. Woods, Jr., Hennigan, Bennett & Dorman, Los Angeles, CA, Mark W. Ryan, Richard J. Favretto, Mayer, Brown & Platt, David A. Baron, Greenberg Traurig LLP, Maria Kostytska Scala, Michael Thomas Dyson, Thomas Matthew Buchanan, Winston & Strawn LLP, Michael G. McLellan, Richard M. Volin, Finkelstein, Thompson & Loughran, Washington, DC, A. Paul Victor, Eamon O'Kelly, James F. Lerner, Jason D. Clark, Jeffrey L. Kessler, Dewey & LeBoeuf LLP, Jack Edward Pace, III, John Douglas Rue, Mary Elaine Johnston, Robert A. Milne, Milana Salzman, White & Case LLP, Jay L. Himes, William Reiss, Bernard Persky, Labaton Sucharow LLP, New York, NY, Gregory J. Casas, Greenberg Traurig, LLP, Houston, TX, JSC International Potash, Co., JSC Silvinit, JSC Uralkali, Rue Pa Belarusian Potash, Co., Rue Pa Belaruskali, Russia, Bruce L. Simon, Pearson Simon Warshaw & Penny, LLP, San Francisco, CA, Christopher L. Schnieders, Eric D. Barton, Wagstaff & Cartmell LLP, Kansas City, MO, Eugene A. Spector, Spector, Roseman & Kodroff, P.C., Philadelphia, PA, Jay S. Cohen, Spector Roseman & Kodroff, Philadelphia, NJ, for Defendants.

MEMORANDUM OPINION AND ORDER

RUBEN CASTILLO, District Judge.

This Multi-District Litigation ("MDL") consists of two class actions. In the first action, Gage's Fertilizer & Grain, Inc., Kraft Chemical Company, Minn-Chem., Inc., Shannon D. Flinn, Thomasville Feed & Seed, Inc., and Westside Forestry Services, Inc. (collectively, the "Direct Purchaser Plaintiffs") bring suit on behalf of themselves and all others who purchased potash products in the United States directly from Potash Corporation of Saskatchewan Inc. and PCS Sales (USA), Inc. ("PCS"),¹ Mosaic Company and Mosaic Crop Nutrition LLC ("Mosaic"),² Agrium Inc. and Agrium U.S. Inc. ("Agrium"),³ JSC Uralkali ("Uralkali"),⁴ RUE PA Belaruskali ("Belaruskali"),⁵ JSC Silvinit ("Silvinit"),⁶ JSC Belarusian Potash Company and BPC Chicago LLC ("BPC Chicago") (collectively, "BPC"),⁷ and JSC International Potash Company ("IPC")⁸ (collectively, "Defendants"). (R. 142, Am. Direct Compl.) In the second action, Kevin Gillespie ("Gillespie"), Gordon Tillman ("Tillman"), Feyh Farms Company ("Feyh Farms"), William H. Coaker, Jr. ("Coaker"), and David Baier ("Baier") (collectively, the "Indirect Purchaser Plaintiffs") bring suit on behalf of themselves and all others who purchased potash products in the United States indirectly from Defendants.⁹ (R. 50, Indirect Compl.) Both the Direct Purchaser Plaintiffs and the Indirect Purchaser Plaintiffs (collectively, "Plaintiffs") allege that Defendants conspired to fix the price of potash in violation of the Sherman Antitrust Act ("Sherman Act"), 15 U.S.C. § 1, and various state laws. (R. 142, Am. Direct Compl.; R. 50, Indirect Compl.)

Currently before the Court are eight motions to dismiss the Direct and Indirect Complaints. (R. 104, BPC Chicago's Mot. to Dismiss the Direct Compl.; R. 105, BPC Chicago's Mot. to Dismiss the Indirect Compl.; R. 107, Agrium, Mosaic, PCS, and BPC's Mot. to Dismiss the Direct Compl. ("Certain Defs.' Mot. to Dismiss the Direct Compl."); R. 112, Agrium, Mosaic, PCS, and BPC's Mot. to Dismiss the Indirect Compl. ("Certain Defs.' Mot. to Dismiss the Indirect Compl."); R. 126, Silvinit and IPC's Mot. to Dismiss the Indirect Compl. ("JSC Defs.' Mot. to Dismiss the Indirect Compl."); R. 127, Silvinit and IPC's Mot. to Dismiss the Direct Compl. ("JSC Defs.' Mot. to Dismiss the Direct Compl."); R. 130, Uralkali's Mot. to Dismiss the Indirect Compl.; R. 135, Uralkali's Mot. to Dismiss the Indirect Compl.) For the reasons stated below, the motions are granted in part and denied in part.

RELEVANT FACTS

Potash refers to mineral and chemical salts that contain potassium and a multitude of other elements in various combinations that are mined from naturally occurring ore deposits. (R. 142, Am. Direct Compl. ¶ 48; R. 50, Indirect Compl. ¶ 44.) Principally, potash is used as an agricultural fertilizer but is also used in the production of glass, ceramics, soaps, and animal feed supplements. (R. 142, Am. Direct Compl. ¶ 48.) It is a homogeneous product; potash supplied by one producer is interchangeable with another producer's supply. (Id. ¶ 53.) As a result, buyers make purchase decisions based largely, if not entirely, on price. (Id.)

Plaintiffs allege that the world's potash reserves are confined to a relatively few areas, with over half of the capacity located in just two regions—Canada and the former Soviet Union (specifically Russia and Belarus). (R. 50, Indirect Compl. ¶ 46.) Further, Plaintiffs allege that the potash industry has been dominated by few companies that market, sell, and distribute potash. (Id. ¶ 52.) As of 2008, Plaintiffs allege that PCS, Mosaic, Agrium, Uralkali, Belaruskali, and Silvinit produced approximately 71% of the world's potash. (R. 142, Am. Direct Compl. ¶ 57.) Plaintiffs allege that PCS, Mosaic, Agrium, and BPC are responsible for the vast majority of potash sales in the United States. (Id. ¶ 52.)

Plaintiffs allege that prices for potash are set according to benchmarks established by Defendants based on sales to buyers in China, India, Brazil and elsewhere. (id.) Plaintiffs allege that during the 1990's there was an increase in the supply of potash in the market, resulting in substantial price declines and a corresponding decrease in the profits of potash producers around the world. (Id. ¶ 3.) Beginning in mid-2003, however, Plaintiffs allege that Defendants "instituted a number of price increases resulting in an unprecedented rise in potash prices." (Id. ¶¶ 112-113.) Plaintiffs' claim that by 2008, potash prices had increased at least 600%. (Id. ¶ 113.) Plaintiffs allege that this price increase is not commensurate with changes in the cost of potash production or other input costs and cannot be explained by demand factors. (Id. ¶¶ 129-130.) Further, Plaintiffs claim that although demand for potash and other fertilizers began to decline in 2008, prices for potash have remained high and have continued to increase while other fertilizer prices have declined. (R. 50, Indirect Compl. ¶ 124.) Plaintiffs allege that based on World Bank statistics, average fertilizer price indices rose from 1.0 to 2.2 and then fell back to 1.0 in 2008, while potash price indices started 2008 at 1.0 and rose to 3.5 by the end of the year. (Id.) Plaintiffs claim that these price increases were a result of Defendants "conspir[ing] and combin[ing] to fix, raise, maintain, and stabilize the price" at which potash was sold in order to "increase profitability." (R. 142, Am. Direct Compl. ¶ 3.) Plaintiffs allege that PCS posted first quarter 2008 income figures that were triple the year-earlier figure and that Mosaic's earnings for first quarter 2008 were up more than 10-fold from a year earlier. (R. 50, Indirect Compl. ¶ 126.)

I. The Potash Market is Conducive to a Cartel

Plaintiffs claim that the potash market makes a "supply restriction cartel attractive to producers." (R. 142, Am. Direct Compl. ¶ 54.) Plaintiffs allege that because the cost of potash is a relatively small part of total crop production costs and there are no ready, cost-effective substitutes for the product, demand for potash is elastic; as potash prices increase, buyers tend to purchase at the higher price, rather than decrease the amount of their purchases. (Id.; R. 50, Indirect Compl. ¶ 44.) Plaintiffs further claim that the majority of production costs for potash producers are variable, giving producers less incentive to operate facilities at full capacity. (R. 142, Am. Direct Compl. ¶ 55.) Plaintiffs argue that this allows a potash cartel to boost prices artificially with greater success than it would have if fixed costs were the largest component of production. (Id.) Further, Plaintiffs allege that the potash industry has very high barriers to entry. (Id. ¶ 56.) Plaintiffs estimate that a single new mine requires approximately $2.5 billion or more in upfront costs, five to seven years of development time, and additional outlays for associated roads and other infrastructure. (Id.) Plaintiffs claim that these...