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In Re: Processed Egg Products Antitrust Litigation

July 16, 2012


The opinion of the court was delivered by: Gene E.K. Pratter, J.



Direct Purchaser Plaintiffs move the Court for final approval of a proposed settlement agreement between the Plaintiffs and Defendant Sparboe Farms, Inc. ("Sparboe").*fn1 Under the proposed Sparboe Settlement, Plaintiffs will release Sparboe from all pending claims in exchange for cooperation in prosecuting the Plaintiffs' claims against the remaining Defendants, such cooperation being in the form of documents and witness testimony. For the reasons set forth below, the Court grants the motion for final approval of the Sparboe Settlement.

I. Factual and Procedural Background*fn2

This litigation embraces numerous consolidated and coordinated actions based upon allegations of a conspiracy in violation of the Sherman Act among egg producers and trade groups to manipulate the supply of eggs and egg products and thereby affect the domestic prices of those goods. See In re Processed Egg Prods. Antitrust Litig., 588 F. Supp. 2d 1366, 1367 (J.P.M.L. 2008). The plaintiffs are direct purchasers (such as grocery stores, commercial food manufacturers, restaurants, other food service providers, and other entities who purchase directly from Defendants or other egg producers) and indirect purchasers (individual consumers who purchased from other parties along the distribution chain) of shell eggs, egg products, or both. The direct purchaser plaintiffs are categorized as "Direct Purchaser Plaintiffs" who have brought a consolidated class action against Defendants, and "Direct Action Plaintiffs" who are pursuing individual actions against Defendants.

A. Direct Purchaser Plaintiffs' Suit

The moving Plaintiffs are Direct Purchaser Plaintiffs who accuse defendant egg producers, including Sparboe, and certain trade groups, of violating Section 1 of the Sherman Act and seek injunctive relief, treble damages, attorneys' fees and costs. They have demanded a jury trial. These Plaintiffs filed a consolidated class action complaint, which they have amended. The allegations of the consolidated complaint superseded or replaced all of the previously-filed individual and consolidated complaints.

The most recent iteration of the Plaintiffs' claim is the Second Consolidated Amended Class Action Complaint (Doc. No. 291) which prompted extensive motion practice. The culmination of this motion activity resulted in the Court dismissing without prejudice claims brought against individual Defendants Hillandale-Gettysburg, L.P., Hillandale Farms, Inc., and Hillandale Farms East, Inc. and United Egg Association. See Sept. 26, 2011 Mem. and Order, 821 F. Supp. 2d 709 (Doc. Nos. 562 and 563). The Court also dismissed without prejudice claims against all Defendants for damages barred by the four-year statute of limitations. See Nov. 30, 2011 Opinion and Order, 2011 WL 5980001 (Doc. Nos. 593 and 594).*fn3

As a result of these rulings, Plaintiffs presently proceed on the core of their Section 1 Sherman Act claims against Defendants. At the time the parties' filed their motions to dismiss, the Court partially lifted the stay of discovery previously entered at the outset of this litigation. Lifting the stay permitted the parties to exchange requests for production of documents and confer as to various aspects of a discovery plan. See Order (Doc. No. 320); Pls.' Mot. for an Award of Attorneys' Fees and for Reimbursement of Expenses (Doc. No. 493) (hereinafter, "Fees Mot."), Ex. 1, Asher Decl. ¶¶ 21-22 (Doc. No. 493-2) (hereinafter, "Asher Decl."). Following the Court's rulings on the motions to dismiss the Second Consolidated Amended Class Action Complaint, the parties requested a further partial lifting of the discovery stay. The Court entered Orders further partially lifting the discovery stay, commencing the discovery period, and setting forth various discovery deadlines and parameters concerning, inter alia, document production, interrogatories, depositions, non-party discovery, class certification, and class certification experts. See Case Mgmt. Orders Nos. 18 and 19 (Doc. Nos. 656 and 676).

B. Sparboe Settlement Negotiations

Sparboe was named as a Defendant in the Consolidated Amended Class Action Complaint (Doc. No. 41). Less than two months after the Consolidated Amended Class Action Complaint was filed, Interim Co-Lead Counsel*fn4 and Sparboe's counsel began engaging in settlement negotiations. Mot., Ex. A, Hausfeld Decl. ¶ 8 (Doc. No. 443-2) (hereinafter, "Hausfeld Decl."). Spanning three months, these negotiations included numerous telephone conferences and four in-person meetings. Id. ¶¶ 6, 7. The negotiations centered upon Sparboe cooperating with Plaintiffs in the prosecution of the claims against the other Defendants by providing to Plaintiffs information in the form of documents and witness testimony. Id. ¶¶ 8-9.

Sparboe made an initial proffer to Interim Co-Lead Counsel in Washington, D.C. "regarding what Sparboe's information would show and how it would assist Plaintiffs' in the prosecution of their case." Id. ¶ 9. A month later, Sparboe "proffered both hundreds of pages of documents and live witness testimony from Sparboe employee Wayne Carlson in Minneapolis" to Plaintiffs. Id. ¶ 10. Plaintiffs have represented that Interim Co-Lead Counsel was "not initially convinced that they should enter into a settlement agreement" at that time, and Interim Co-Lead Counsel and Sparboe's counsel held several telephone conferences concerning the nature of Sparboe's cooperation. Id. ¶ 11.

Following these conferences, Sparboe then proffered "hundreds of pages of additional documents, as well as identifying several executives and current and former Sparboe employees who could offer testimony in the case that may corroborate the information contained in the documents, as well as provide additional information." Id. ¶ 12. Shortly thereafter, Sparboe's counsel proffered documents and "additional descriptions of expected witness testimony." Id. ¶ 13.

In addition to the proffers concerning documents and witness testimony, at some point during negotiations Interim Co-Lead Counsel made a demand for monetary compensation that "was based on what an econometric analysis would have produced with regard to the production of transaction data and then an analysis of the market and the transaction data as it related to Sparboe with the traditional approach as well of having Sparboe, if it were the first [party to settle], have a discount off its actual damages." Prelim. Hr'g Tr. at 7:16-21. (Doc. No. 198). Sparboe consistently maintained the position that it would not agree to a settlement that provided direct monetary compensation to the Class Members. See Prelim. Hr'g Tr. at 7:12-14; id. at 7:22-23.

Based upon the conferences and proffers, Interim Co-Lead Counsel concluded that Sparboe's cooperation in advance of discovery would provide information that would supplement and enhance the information that Interim Co-Lead Counsel previously had uncovered through their own independent investigation prior to filing the First Consolidated Amended Complaint. See Hausfeld Decl.¶ 14; Mot. at 3. Thereafter, the parties reached an agreement and executed the Sparboe Settlement Agreement. Hausfeld Decl. ¶ 15.

The day after the parties executed the Agreement, Sparboe produced documents to Interim Co-Lead Counsel for inspection and review in Minneapolis, Minnesota. Id. ¶ 16. In the next months, Sparboe made available for interviews four witnesses, who, according to Interim Co-Lead Counsel, "provided invaluable information about Defendants' conspiracy." Id. ¶ 17. Based upon the information that Interim Co-Lead Counsel obtained from Sparboe, they prepared the Second Consolidated Amended Class Action Complaint. Id. ¶ 18. Sparboe is not presently named in this Complaint. See Second Consol. Am. Class Action Compl. ¶ 3.*fn5 Presumably, Sparboe's absence is the result of the pending settlement. The following discussion of the nature of the case presupposes Sparboe would indeed occupy in the claims going forward the role it was assigned in the claims initially if the settlement had not been achieved.

The Court preliminarily approved the Sparboe Settlement and certified the Class and Subclasses for settlement purposes following a hearing. See Order on Preliminary Approval of Sparboe Settlement (Doc. No. 214). In the same Order, the Court stayed the Plaintiffs' suit against Sparboe pending further Order of the Court. See id. at ¶ E.1. In a separate Order, the Court also approved the form of notice of the Sparboe Settlement. See Order Approving Dissemination of Notice of Settlements Between Direct Purchaser Plaintiffs and (i) Defendant Sparboe Farms, Inc. and (ii) Defendants Moark, LLC, Norco Ranch, Inc. and Land O'Lakes, Inc. (Doc. No. 388) (hereinafter, "Notice Approval Order").

Following the notice period established by the Court, Plaintiffs filed the motion sub judice, and the Court held the final fairness hearing on the Sparboe Settlement as required by Fed. R. Civ. P. 23(e)(2). See Sparboe Final Approval Hr'g Tr. (Doc. No. 463) (hereinafter, "Final Hr'g Tr."). No objections were filed to the proposed Sparboe Agreement. No objectors appeared at the fairness hearing. Plaintiffs filed supplemental briefing and materials in support of their motion for final approval. Following the hearing, the Court withheld ruling on the motion until the notice period required pursuant to 28 U.S.C. § 1715(d) under the Class Action Fairness Act ("CAFA") had elapsed.

C. Moark Settlement

As further background, following the Sparboe Settlement, Defendants Moark, LLC, Norco Ranch, Inc., and Land O'Lakes, Inc. (collectively, "Moark") entered into a settlement agreement. Following a hearing, the Court entered Orders preliminarily approving that agreement and the form of notice. See Order on Preliminary Approval of Settlement with Moark, LLC, Norco Ranch, Inc., and Land O'Lakes Inc. (Doc. No. 387); Notice Approval Order. Following the notice period, Plaintiffs filed a motion seeking final approval of the Moark Settlement, and the Court held a final fairness hearing. See Moark Final Approval Hr'g Tr. (Doc. No. 688) (hereinafter, "Moark Final Hr'g Tr."). In a separate Memorandum and Order issued this same date, the Court is granting the Plaintiffs' motion for final approval of the Moark Settlement.

II. Proposed Sparboe Settlement Agreement*fn6

The proposed Settlement Class for settlement purposes under the Sparboe Settlement is defined as:

All persons and entities that purchased eggs, including shell eggs and egg products, produced from caged birds in the United States directly from any producer during the Class Period from January 1, 2000 through the present.

a.) Shell Egg Subclass

All individuals and entities that purchased shell eggs produced from caged birds in the United States directly from any during the Class Period from January 1, 2000 through the present.

b.) Egg Products Subclass

All individuals and entities that purchased egg products produced from shell eggs that came from caged birds in the United States directly from any producer during the Class Period from January 1, 2000 through the present.

Excluded from the class and subclasses are the Defendants, their co-conspirators, and their respective parents, subsidiaries and affiliates, all government entities, as well as the Court and staff to whom this case is assigned, and any member of the Court's or staff's immediate family. Also excluded from the Class and Subclasses are purchases of "specialty" shell egg or egg products (such as "organic," "free-range" or "cage-free") and purchases of hatching eggs (used by poultry breeders to produce breeder stock or growing stock for laying hens or meat).

Mot., Ex. A, Settlement Agreement Between Direct Purchaser Plaintiffs and Sparboe Farms, Inc. ¶ 11 (hereinafter, "Sparboe Settlement Agreement").*fn7 As mentioned earlier, the Court preliminarily certified the Settlement Class for settlement purposes under Fed. R. Civ. P. 23(b)(3). See Order on Preliminary Approval of Sparboe Settlement. The agreement's principal terms require Sparboe to cooperate with the Plaintiffs' preparation for and prosecution of their class action. See Moark Settlement Agreement ¶ 23. The Agreement details the extent of Sparboe's cooperation in terms of "making documents related to the claims asserted in this action available for review and making witnesses with knowledge related to the claims asserted in this action available for informal interviews and, as necessary, consultation with Plaintiffs' Counsel." Id. "Sparboe Farms agree[d] to provide discovery to Plaintiffs in the pending Action as if Sparboe Farms were a party subject to all rules for discovery." Id. Sparboe agreed to "use its best efforts to produce interviewees . . . who are current or former directors, officers, or employees of Sparboe Farms for deposition at the time discovery in this Action commences . . . and make those person available for trial testimony." Id. ¶ 23(a).

In consideration, Plaintiffs and their counsel "agree not to assert that Sparboe Farms waived its attorney-client privilege, work product immunity or any other privilege or protection with respect to information or documents provided or identified" to Plaintiffs pursuant to the Agreement. Id. ¶ 24.

Furthermore, Plaintiffs agree that they "shall not . . . seek to recover against [Sparboe] for any of the Released Claims." Id. ¶ 17. Under the Agreement, "Released Claims" are defined as any and all claims arising out of injuries or damages that occurred "from the beginning of time to the date of this Agreement" and that arose out of or resulted from "conduct concerning any agreement among Defendants, the reduction or restraint of supply, the reduction of or restrictions on production capacity, or the pricing, selling, discounting, marketing, or distributing of Shell Eggs and Processed Egg Products in the United States or elsewhere. Id. The Agreement sets forth non-exclusive examples of Released Claims by providing that such claims "includ[e] but [are] not limited to any conduct alleged, and causes of action asserted, or that could have been alleged or asserted, whether or not concealed or hidden, in the Complaints filed in the Action . . . , which arise from or are predicated on the facts and/or actions described in the Complaints under any federal, state, or foreign antirust, unfair competition, unfair practices, price discrimination, unitary pricing, trade practice, consumer protection, fraud, RICO, civil conspiracy law, or similar laws, including, without limitation, the Sherman Antitrust Act, 15 U.S.C. § 1 et seq." Id. Plaintiffs also agree to waive California Civil Code Section 1542 and similar provisions in other states. Id. ¶ 17(a). Additionally, Plaintiffs agree to waive and release "any and all defenses, rights, and benefits that [Plaintiffs] may have or that may be derived from the provisions of applicable law which, absent such waiver, may limit the extent or effect of the release" set forth in the Agreement. Id. ¶ 18. The release excludes "claims relating to payment disputes, physical harm, defective product or bodily injury . . . and do[es] not include any Non-Settling Defendant." Id. ¶ 19.

The settlement proposes an opt-out provision which sets forth the procedures through which possible class members could opt out of the settlement. Id. ¶ 14; see also Sparboe Notice at 1, 4. Class members had 75 days from the postmark date that the notice of the settlement was mailed by first-class mail to the final postmark date designated in the Claims Notice to return an exclusion request or submit an objection to the Settlement. See Sparboe Notice at 1, 3, 4; Mot., Ex. 2, Affidavit of Jennifer M. Keough re: Notice and Settlement Administration ¶¶ 9, 17 (Doc. No. 443-5) (hereinafter, "Keough Aff.").

Finally, the Agreement delineates Sparboe's agreement to reimburse Plaintiffs up to a maximum of $350,000.00 towards the cost of notice of the Settlement." Sparboe Settlement Agreement ¶ 28. However, this provision is subject to several provisos, one of which provides that "[i]n the event Plaintiffs enter into a cash settlement with any Non-Settling Defendant and receive preliminary approval of that settlement prior to the issuance of notice under this Agreement (such that the settlement notices can be combined), Plaintiffs shall apply those settlement funds towards the cost of notice, thus reducing or eliminating Sparboe Farms' obligation to reimburse Plaintiffs for the notice costs of this Agreement." Id. ¶ 29.

III. Notice of Sparboe Settlement

Notice of the Sparboe Settlement was disseminated to possible members of the Settlement Class through a variety of means ranging from direct mailings, publications, press releases, a website and a toll-free information and request telephone line. See Keough Aff. ¶¶ 5-6; see also Sparboe Settlement Agreement ¶ 13. The Notice explained that any possible Class Members wishing to be excluded from or to object to the terms of the Sparboe Settlement Agreement should postmark their exclusion requests or objections no later than a specific date that was 58 days before the final fairness hearing on the Sparboe Settlement. See Sparboe Notice at 1, 3-4. Notices of the Moark and Sparboe Settlements were jointly distributed to the putative Class members, and $170,000 was spent on notice expenses with respect to the Sparboe Settlement Agreement. See Moark Final Hr'g Tr. at 31:3-31-23. No other information has been provided to the Court concerning whether other administrative costs and expenses were (or were not) incurred in relation to the Sparboe Settlement.

The Claims Administrator received no objections to the Sparboe Settlement and received 364 requests for exclusion from the Sparboe Settlement Class. See Keough Aff. ¶ 17. Some of those parties who opted-out of the class have filed their own complaints against Defendants, including Sparboe, such as Direct Action Plaintiffs Giant Eagle, Inc., Winn-Dixie Stores, Inc., Roundy's Supermarkets, Inc., C&S Wholesale Grocers, Inc., H.J. Heinz Company, L.P., Publix Super Markets, Inc., Kraft Foods Global, Inc., The Kellogg Company, General Mills, Inc., and Nestle USA, Inc., The Kroger Co., The Great Atlantic & Pacific Tea Co., Inc., Hy-Vee, Inc., H.E. Butt Grocery Co., Conopco, Inc., Safeway Inc., Albertsons LLC, and Walgreen Co., and Supervalu, Inc., as well as plaintiffs in a state court action proceeding in Kansas.*fn8 Interim Co-Lead Counsel has represented that the potential Class for the Moark Settlement "is composed of thousands of entities nationwide, many of which are sophisticated companies with their own in-house legal counsel," Fees Mot. at 12, a descriptor which the Court recognizes can be applied to the Sparboe Settlement Class, given that both settlements' classes are defined virtually identically.

The Claims Administrator mailed Notice and Claim Forms to 13,211 direct purchasers of shell eggs and egg products, whose names and addresses were obtained from various electronic data files that contained potential Class Member names and addresses from 17 named egg producer Defendants that were given to the Claims Administrator at the direction of the Court. See Keough Aff. ¶ 7, 9; Notice Approval Order ¶ 3. Eighty-three (83) Notice and Claim Forms, returned by the U.S. Postal Service with forwarding address information, were re-mailed. See id. ¶ 12. In contrast, twenty-three hundred thirty-nine (2,339) Notice and Claim Forms were returned without forwarding address information and, according to Interim Co-Lead Counsel, could not be re-mailed. See id.*fn9

Additionally, during the notice period a Summary Notice was published in several publications with a total circulation of over 2,316,000. See id. ¶ 11. The Summary Notice was published in a monthly issue of fifteen (15) industry journals thought to be likely to reach potential purchasers of shell eggs and egg products. See id. Those publications are: PetFood Industry, Restaurant Business, Convenience Store News, Hotel F&B, Nation's Restaurant News, Food Service Director, Progressive Grocer, Food Manufacturing, Supermarket News, Stores, Egg Industry Magazine, Modern Baking, Baking Buyer, Food Processing, and Long Term Living. See id.

The Summary Notice was also published for one day in the Wall Street Journal. See id. That same day, the Claims Administrator distributed a press release for the Sparboe Settlement, as well as a separate release about the Moark Settlement, to approximately 1,000 journalists in the restaurant and food industries through the US1 Newsline on the PR Newswire. See id. ¶ 13. The press releases resulted in some 335 articles that reported on the two settlements. See id.

A publicly-available website specifically devoted to the Sparboe and Moark Settlements was established. See id. ¶ 14. The website makes available for review and downloading the Notice Packet, the Sparboe Settlement Agreement, and various Court orders and filings relating to the Sparboe Settlement. See id. In the first 106 days of operation, the website received 2,821 "visits." See id.

The Claims Administrator and Plaintiffs established a toll-free 24-hour telephone number and call center for potential Class Members to obtain information about the settlement and to request the Notice and Claim Form. See id. ¶ 15. The automated number received 328 calls, and 61 callers requested and received a Notice Packet during the first 106 days of operation. See id.

Additionally, Sparboe served notice of the settlement to federal and state officials of the settlement pursuant to 28 U.S.C. § 1715(d) under CAFA. See Final Hr'g Tr. at 26:23-26:24, 38:1-38:6. No federal or state officials filed objections to the Sparboe Settlement, nor requested a hearing following the issuance of the CAFA notice. The statutory period elapsed prior to the date of this Memorandum and accompanying Order.*fn10

IV. Discussion

Federal Rule of Civil Procedure 23 provides that "[t]he claims, issues, or defenses of a certified class may be settled, voluntarily dismissed, or compromised only with the court's approval." Fed. R. Civ. P. 23(e). The following procedures apply to a proposed settlement, voluntary dismissal, or compromise:

(1) The court must direct notice in a reasonable manner to all class members who would be bound by the proposal.

(2) If the proposal would bind class members, the court may approve it only after a hearing and on finding that it is fair, reasonable, and adequate.

(3) The parties seeking approval must file a statement identifying any agreement made in connection with the proposal.

(4) If the class action was previously certified under Rule 23(b)(3), the court may refuse to approve a settlement unless it affords a new opportunity to request exclusion to individual class members who had an earlier opportunity to request exclusion but did not do so.

(5) Any class member may object to the proposal if it requires court approval under this subdivision (e); the objection may be withdrawn only with the court's approval. Id. The "[f]actual determinations necessary to make Rule 23 findings must be made by a preponderance of the evidence. In other words, to certify a class the district court must find that the evidence more likely than not establishes each fact necessary to meet the requirements of Rule 23." In re Ins. Brokerage Antitrust Litig., 579 F.3d 241, 257-58 (3d Cir. 2009) (quoting In re Hydrogen Peroxide Antitrust Litig., 552 F.3d 305, 320 (3d Cir. 2008)). "The decision of whether to approve a proposed settlement of a class action is left to the sound discretion ...

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