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In Re: Fresh and Process Potatoes Antitrust

July 27, 2012

IN RE: FRESH AND PROCESS POTATOES ANTITRUST LITIGATION


The opinion of the court was delivered by: Honorable B. Lynn Winmill Chief U. S. District Judge

MEMORANDUM DECISION AND ORDER

THIS DOCUMENT RELATES TO: ALL ACTIONS

INTRODUCTION

In December 2011, this Court granted certain defendants' motions to dismiss, though it allowed plaintiffs to amend as to four defendants: (1) Potandon Produce LLC, (2) United II Potato Growers of Idaho, Inc. (United II), (3) Idahoan Foods, LLC, and (4) R.D. Offutt Co. Plaintiffs filed amended complaints against these defendants and also named a new individual defendant -- Ronald D. Offutt, Jr. All these defendants have moved to dismiss under Federal Rule of Civil Procedure 12(b)(6). See Dkts. 180, 182, 183, 194. The Offutt defendants also moved for summary judgment on two discrete factual issues. See Dkt. 180. For the reasons explained below, the Court will deny all pending motions to dismiss and will deem the motion for summary judgment moot.

ALLEGED FACTS*fn1

Plaintiffs, who are both direct and indirect potato purchasers, contend that defendants illegally agreed to reduce the supply of potatoes in order to raise prices. Plaintiffs assert that the alleged scheme started when potato growers in Idaho formed a cooperative called United Potato Growers of Idaho (UPGI). The Idaho potato growers, along with potato farmers in several other states, then established United Potato Growers of America (UPGA) as an umbrella cooperative.

Plaintiffs assert that the cooperatives were created for the purpose of increasing the price of potatoes through supply management. Plaintiffs allege that defendants implemented their plan by, among other things, agreeing to limit potato acreage, and by paying farmers to either destroy existing potatoes or refrain from growing additional potatoes in order to reduce the overall number of potatoes available for sale to direct purchasers. Plaintiffs contend that defendants' supply reduction program caused potato prices to be fixed, raised, maintained, and/or stabilized. Accordingly, plaintiffs contend that defendants' actions violate established antitrust laws.

LEGAL STANDARD

The standards governing Rule 12(b)(6) motions are familiar. These motions test the legal sufficiency of a complaint. Conley v. Gibson, 355 U.S. 41, 46 (1957). Federal Rule of Civil Procedure 8(a)(2) requires only "a short and plain statement of the claim showing that the pleader is entitled to relief," in order to "give the defendant fair notice of what the . . . claim is and the grounds upon which it rests." Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555 (2007). While a complaint attacked by a Rule 12(b)(6) motion to dismiss "does not need detailed factual allegations," it must set forth "more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do." Id. at 555. To survive a motion to dismiss, a complaint must contain sufficient factual matter, accepted as true, to "state a claim to relief that is plausible on its face." Id. at 570. 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. Id. at 556. The plausibility standard is not akin to a "probability requirement," but it asks for more than a sheer possibility that a defendant has acted unlawfully. Id. Where a complaint pleads facts that are "merely consistent with" a defendant's liability, it "stops short of the line between possibility and plausibility of 'entitlement to relief.' " Id. at 557.

In a more recent case, the Supreme Court identified two "working principles" that underlie Twombly. See Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). First, the tenet that a court must accept as true all of the allegations contained in a complaint is inapplicable to legal conclusions. Id. "Rule 8 marks a notable and generous departure from the hyper-technical, code-pleading regime of a prior era, but it does not unlock the doors of discovery for a plaintiff armed with nothing more than conclusions." Id. Second, only a complaint that states a plausible claim for relief survives a motion to dismiss. Id. at 679. "Determining whether a complaint states a plausible claim for relief will . . . be a context-specific task that requires the reviewing court to draw on its judicial experience and common sense." Id.

Providing too much in the complaint may also be fatal to a plaintiff. Dismissal may be appropriate when the plaintiff has included sufficient allegations disclosing some absolute defense or bar to recovery. See Weisbuch v. County of L.A., 119 F.3d 778, 783, n. 1 (9th Cir. 1997) (stating that "[i]f the pleadings establish facts compelling a decision one way, that is as good as if depositions and other . . . evidence on summary judgment establishes the identical facts").

A dismissal without leave to amend is improper unless it is beyond doubt that the complaint "could not be saved by any amendment." Harris v. Amgen, Inc., 573 F.3d 728, 737 (9th Cir. 2009) (issued two months after Iqbal).*fn2 The Ninth Circuit has held that "in dismissals for failure to state a claim, a district court should grant leave to amend even if no request to amend the pleadingwas made, unless it determines that the pleading could not possibly be cured by the allegation of other facts." Cook, Perkiss and Liehe, Inc. v. N. Cal. Collection Serv., Inc., 911 F.2d 242, 247 (9th Cir. 1990). The issue is not whether plaintiff will prevail but whether he "is entitled to offer evidence to support the claims." Diaz v. Int'l Longshore & Warehouse Union, 474 F.3d 1202, 1205 (9th Cir. 2007) (citations omitted).

ANALYSIS

Plaintiffs allege that defendants violated § 1 of the Sherman Act, which prohibits "any contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce." 15 U.S.C. § 1. To state a claim under § 1, plaintiffs must plead facts that plausibly suggest "(1) an agreement or conspiracy among two or more persons or distinct business entities, (2) by which the persons or entities intend to harm or restrain competition, and (3) which actually injures competition." Les Shockley Racing, Inc. v. Nat'l Hot Rod Ass'n, 884 F.2d 504, 507 (9th Cir. 1989). Additionally, for each individual defendant, plaintiff must allege that that defendant had "'a conscious commitment to a common scheme designed to achieve an unlawful object.'" Monsanto Co. v. Spray-Rite Corp., 465 U.S. 752, 764 (1984) (citation omitted).

In this round of Rule 12(b)(6) motions, the moving defendants fall into two categories: Potandon is a marketer defendant and the others are "dehydrator defendants." The Court will first address Potandon's motion, and then turn to the dehydrator defendants' motions.

1. The Marketer Defendant -- Potandon

Unlike many of the defendants in this action, Potandon does not grow potatoes. It sells potatoes and onions to major retailers, club stores, wholesalers, produce distributors and restaurant chains. It is also the marketing agent for several grower defendants.

Plaintiffs' theory is that Potandon joined and participated in the supply-reduction/price-fixing conspiracy by assisting growers in "flow-control" efforts. As plaintiffs explain it, flow control is exactly what it sounds like -- controlling the number of potatoes that flow into the marketplace. The underlying economics are simple -- keep supply levels such that they do not exceed demand, which will, in turn, ensure that prices do not drop. See IPC*fn3 ¶¶ 224-25 (quoting a March 2007 UPGI newsletter, which explains: "'Flow controls are based upon sound economic princip[le]s . . . if daily offerings (supplies) DO NOT exceed buyers' needs (demand), buyers begin calling salesman searching for product. When salespeople DO NOT have the product available, they raise the price.'").

The Court dismissed plaintiff's original complaints against Potandon primarily because plaintiffs had not alleged Potandon was directly involved in flow-control efforts. Both amended complaints cure this deficiency. The indirect purchasers now allege that Potandon directly participated in flow-control efforts by changing the grade assigned to potatoes based on supply levels, rather than the actual quality of the potatoes. More specifically, the indirect purchasers allege:

Potandon knowingly participated in the flow control and output restriction scheme through intentionally imposing pretextual and inconsistent grading controls on the fresh potatoes it sold. Throughout the Class Period, Potandon's principals met on a weekly basis in Snake River Valley, Idaho, to discuss flow control issues, including the amount of potatoes to be sold on the fresh potato market.

As a result of these weekly meetings, and in order to reduce the number of potatoes sold on the fresh potato market when fresh potatoes supplies were high, Potandon management instructed the Potandon operations team to grade potatoes more rigorously. Potandon's employee oversaw the more rigorous grading of the potatoes in Potandon's own packing sheds,[*fn4 ] as well as the packing sheds of other growers, including Larsen Farms and Driscoll Potatoes. Potandon's application of the more rigorous grading standards while supplies were high facilitated the conspirators' objective of reducing the supply of potatoes to the fresh potato market. Potandon thereby reduced the supply of fresh potatoes to the market by intentionally participating in the flow control and output restrictions.

IPC ¶¶ 226-27. The direct purchaser plaintiffs allege similar facts regarding pretextual grading:

One of the methods used by Potandon to control the flow of potatoes to the market in concert with its growers was "grading" -- the process of modifying quality criteria in order to increase or reduce the flow of potatoes into the market. Following their meeting with Potandon's constituent growers, Potandon executives would direct Potandon's Director of Idaho Operations with regard to the appropriate grading standard. Potandon would gather its Quality Assurance (QA) personnel and the Director of Operations would instruct the QA personnel regarding the grading standard ...


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