Hershey Mars Nestle Price Fixing

Legal Affairs writer Peter Geier, Policy and Regulatory Report, reports on Steve D. Shadowen's oral argument in the chocolate in a price-fixing case:

Hershey, Mars, and Nestlé insist parallel pricing no proof of collusion in price-fixing case

"Contrary to accusations that parallel price increases reveal a “conscious commitment” to collusion, chocolate manufacturers in a civil price-fixing case insisted in a hearing in US federal court 7 October that their behavior reflects a classic and lawful oligopoly.

“The history of the [chocolate confectionary] industry has been parallel pricing, and this is entirely consistent with a competitive market,” said William F. Cavanaugh Jr. of Patterson Belknap Webb & Tyler, arguing for Hershey.

Cavanaugh walked the court through a series of price increases beginning in the 1980s through 1995, reassuring presiding US District Judge Christopher C. Conner that the three price rises at issue in 2002, 2004 and 2007 reflected “oligopoly behavior that goes back decades. [The plaintiffs] cannot refute that”.

David Marx Jr. of McDermott Will & Emory, arguing for Mars, said that “in a highly concentrated market, any single firm’s pricing decision is going to have an impact on the other firms. Conscious parallelism by itself does not get to a jury.”

Hershey, Mars and Nestlé each made cases for summary judgment in the chocolate price-fixing case by distancing themselves from each other, from direct purchaser plaintiffs’ experts’ assessments, and from their Canadian cousins’ allegedly criminal activity.

As PaRR previously reported, the US civil action arose from a Canadian Competition Bureau (CCB) investigation into chocolate price-fixing Canada in 2007. However, the criminal price-fixing alleged to have taken place among Hershey’s, Mars’, and Nestlé’s Canadian affiliates has yet to go to trial in Canada, and it did not occur in the US, said Cavanaugh.

The companies reached a global settlement in Canada with civil class action plaintiffs over related claims last summer. The Canadian criminal cases are pending and as yet do not have a trial date, according to Gabrielle Tassé, senior communications advisor for the CCB.

Cavanaugh admitted to the court that the CCB filed criminal charges after it found out that in October 2007, “the general manager of Hershey Canada talked with someone at Nestlé”. Hershey Canada cooperated with the CCB investigation and subsequently pleaded guilty. But the Hershey Company was not involved and there is no evidence that touched on its operations in the US, Cavanaugh said.

Marx told the court that, despite rumors, the US Department of Justice did not investigate American chocolate manufacturers for alleged price-fixing.

But a judiciously skeptical Conner pressed Cavanaugh and Marx at length on this issue, as well as on whether the defense expected him plausibly to believe that American company officials did not discuss pricing information when they met at trade association meetings. Each of the three attorneys who spoke respectively for Hershey, Mars and Nestlé answered the questions with a consistent and emphatic “no, never”.

But the three lawyers who argued the plaintiffs’ case provided a range of responses indicating a preponderance of circumstantial evidence, which point to the three evils of the Sherman Act: combination, collusion, and conspiracy. The plaintiffs argued that the Canadian executives’ collusive pricing simply provided a “model” for what their American colleagues could do—and purportedly did do—in the US.

Steve D. Shadowen of Hilliard & Shadowen, of Mechanicsburg, Pennsylvania, representing the plaintiffs’ class of direct purchasers, disparaged the defendants’ purported “mere interdependence” as a “conscious commitment” to a common (and illegal) scheme that had been shown to work in Canada.

“This knowledge did not stay in Canada,” Shadowen said. “It shaped the thinking of US executives. At a minimum, they were aware of it; at a maximum, they were directing it.”

“The main problem that oligopolists face is uncertainty. They used Canada as a showplace to show how it could work in Canada,” Shadowen said. They then did it in the US, he said.

“The question for your honor is, 'How do you explain the sharp difference between the collusion period of 2002-2007 and the preceding period of time?'... They say it’s interdependence. We say it’s collusion,” said Joseph Goldberg, of Freedman Boyd Hollander Goldberg Urias & Ward, of Albuquerque, New Mexico, for the plaintiffs.

Conner may be close to deciding how to rule on summary judgment, but the court’s questions to counsel on 7 October highlighted the conundrum that his longest step may be getting from "close" to a final decision.

The defense invoked key appellate decisions affirming summary judgment in antitrust cases: “Baby Food,” (In re Baby Food Antitrust Litigation, whether plaintiffs produced sufficient circumstantial evidence to prove concerted collusion that tends to exclude the possibility of independent action); “Flat Glass,” (In re Flat Glass Antitrust Litigation, a claim of collusion on inferences of consciously parallel behavior must show that certain “plus factors” also exist); and “Elevator,” (In re Elevator Antitrust litigation, emphasizing the need to show linking transactions)—among others.

After hearing oral argument on 7 October, Conner ordered the remaining defendants, the individual plaintiffs, and the direct purchaser plaintiff class “jointly [to] schedule and participate in a final mediation session forthwith.”

“Mediation shall conclude and counsel for the defendants shall file a joint status report with the court by November 15, 2013. If the parties have not reached a resolution at that time but remain hopeful toward a global settlement, the court will entertain the parties’ request for a reasonable extension of time,” Conner wrote.

Co-lead counsel for the direct purchaser plaintiffs are Berger & Montague and Hausfeld, with Obermayer Rebmann Maxwell & Hippel as local counsel. Co-lead counsel for the indirect purchasers are Robins, Kaplan, Miller & Ciresi and The Maher Law Firm, with Dilworth Paxson as local counsel. Co-lead counsel for the indirect end users are Kellogg, Huber, Hansen, Todd, Evans & Figel, and Lovell Stewart Halebian, with McCarthy Weisberg Cummings as local counsel.

Hershey is represented by Kirkland & Ellis and McNees Wallace & Nurick. Nestlé is represented by Cadwalader Wickersham & Taft, Mayer Brown and Saul Ewing. Mars is represented by Gibbons and McDermott Will & Emory.

The case is In re: Chocolate Confectionary Antitrust Litigation, case no. 1:08-md-01935, in the US District Court for the Middle District of Pennsylvania."

by Peter Geier in Washington, DC

Policy and Regulatory Report