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In Re: Processed Egg Products Antitrust Litigation

July 16, 2012

IN RE: PROCESSED EGG PRODUCTS ANTITRUST LITIGATION


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

THIS DOCUMENT APPLIES TO: ALL DIRECT PURCHASER PLAINTIFF ACTIONS MEMORANDUM

Direct Purchaser Plaintiffs move the Court for final approval of a proposed settlement agreement between the Plaintiffs and Defendants Moark, LLC, Norco Ranch, Inc., and Land O'Lakes, Inc. (collectively, "Moark").*fn1 Under the proposed Moark Settlement, Plaintiffs will release Moark from all pending claims in exchange for monetary consideration as well as information and documents. For the reasons set forth below, the Court grants the motion for final approval of the Moark Settlement.

I. Factual 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 Moark, 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 The allegations of the consolidated complaint superseded or replaced all of the previously-filed individual and consolidated complaints.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 which prompted extensive motion practice.*fn3 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).*fn4

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); 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

Following the earlier partial lift of discovery that permitted the parties to exchange requests for production of documents and meet and confer as to certain matters, Defendant Sparboe Farms, Inc. and Plaintiffs entered into a settlement agreement ("Sparboe Settlement"), the terms of which provided that Sparboe would produce certain documents and make certain witnesses available to Plaintiffs. In turn, Plaintiffs used the information that they obtained from Sparboe to draft their Second Consolidated Amended Class Action Complaint. See Mot., Ex. 1, Bernstein Decl. ¶ 4 (hereinafter, "Bernstein Decl."); Asher Decl. ¶ 11; Sparboe Final Approval Mot., Ex. A, Hausfeld Decl. ¶ 18 (hereinafter, "Hausfeld Decl."). The Court preliminarily approved the Sparboe Settlement and held a final fairness hearing. See Order on Preliminary Approval of Sparboe Settlement (Doc. No. 214); Sparboe Final Approval Hr'g Tr. (Doc. No. 463). In a separate Memorandum and Order issued this same date, the Court is granting the Plaintiffs' motion for final approval of the Sparboe Settlement.

C. Moark Settlement Negotiations and Preliminary Approval

Subsequent to the Sparboe Settlement, Moark's counsel reportedly contacted Interim Co- Lead Counsel for Plaintiffs*fn5 about a potential settlement, and the parties had a meeting during which Moark provided Plaintiffs with their sales data and other financial information. See Bernstein Decl. ¶¶ 8, 9. Some five months later, the parties began to engage in settlement negotiations. See id. ¶ 10.

Over the course of the ensuing three months, the parties negotiated through telephone conferences and in-person meetings on multiple occasions. See id. ¶¶ 11, 12. They discussed potential settlement terms, including possible settlement amounts and the extent of Moark's cooperation, and exchanged information, such as sales data for the alleged class period. See id. At the conclusion of these efforts, the parties reached an agreement and executed the Moark Settlement documents. See id. ¶ 13.*fn6

The parties submitted the proposed settlement to the Court for preliminary approval. Following a hearing, the Court entered an Order preliminarily approving the proposed Moark agreement and preliminarily certifying the class and subclasses for settlement purposes. See Order on Preliminary Approval of Settlement with Moark, LLC, Norco Ranch, Inc., and Land O'Lakes Inc. (Doc. No. 387) (hereinafter, "Moark Preliminary Approval Order"). The Order also stayed the litigation against Moark pending further order of the Court. Id. In a separate Order, the Court approved the form of notice of the Moark Settlement in conjunction with a separate form of notice for 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").

Plaintiffs filed the motion sub judice, and the Court held the final fairness hearing on the Moark Settlement as required by Fed. R. Civ. P. 23(e)(2). See Moark Final Approval Hr'g Tr. (Doc. No. 688) (hereinafter, "Final Hr'g Tr."). No objections were filed to the proposed Moark 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. After the expiration of the notice period, Plaintiffs filed a motion for approval of attorneys' fees, which the Court will address apart from this Memorandum.

II. Proposed Moark Settlement Agreement*fn7

The proposed Settlement Class for settlement purposes under the Moark 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, including any Defendant, during the Class Period from January 1, 2000 through the date when notice of the Court's entry of an order preliminarily approving this settlement and certifying a Class for settlement purposes is first published.

a.) Shell Egg SubClass

All individuals and entities that purchased Shell Eggs produced from caged birds in the United States directly from any Producer including any Defendant, during the Class Period from January 1, 2000 through the date when notice of the Court's entry of an order preliminarily approving this settlement and certifying a Class for settlement purposes is first published, excluding individuals and entities that purchased only "specialty" Shell Eggs (certified organic, nutritionally enhanced, cage-free, free-range, and vegetarian-fed types) and "hatching" Shell Eggs (used by poultry breeders to produce breeder stock or growing stock for laying hens or meat).

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, including any Defendant, during the Class Period from January 1, 2000 through the date when notice of the Court's entry of an order preliminarily approving this settlement and certifying a Class for settlement purposes is first published, excluding individuals and entities that purchased only "specialty" Egg Products (certified organic, nutritionally enhanced, cage-free, free-range, and vegetarian-fed types). Excluded from the Class and SubClasses are Producers, 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.

Mot., Ex. A, Settlement Agreement Between Direct Purchaser Plaintiffs and Defendants Moark, LLC, Norco Ranch, Inc., and Land O'Lakes, Inc. ¶ 19 (hereinafter, "Moark Settlement Agreement"). As mentioned earlier, the Court preliminarily certified the Settlement Class for settlement purposes under Fed. R. Civ. P. 23(b)(3). See Moark Preliminary Approval Order. The agreement's principal terms require Moark to pay the Settlement Amount of twenty-five million dollars ($25,000,000). See Moark Settlement Agreement ¶¶ 15, 33. The Settlement Amount has been deposited into an interest-bearing escrow account. See Bernstein Decl. ¶ 15; Fees Mot. at 2. Any interest, net realized gains and other earnings accrued on the Settlement Amount are part of the funds available for disbursement to the Class and Subclass Members. See Moark Settlement Agreement ¶ 33; Moark Settlement Agreement, Ex. A, Escrow Agreement, Schedule A, at 1-4 (Doc. No. 690-1) (hereinafter, "Escrow Agreement").

According to the Notice of the Moark Settlement, which is discussed in more detail, infra, the Settlement Amount, with any interest earned, and less administrative expenses, escrow expenses, taxes, and attorneys' fees, will be distributed on a pro rata basis to the settlement class members who timely and properly submit a valid Claim Form, which is a form documenting a member's claim for damages. See Mot., Ex. 2.1, Notice of Moark Settlement at 3-4 (Doc. No. 465-8) (hereinafter, "Moark Notice"); see also Mot. at Ex. 2.1, Moark Claim Form (hereinafter, "Claim Form"); Escrow Agreement at 3-4. The pro rata share is based upon the dollar amount of a Class Members' direct purchases of shell egg and egg products in the United States from any producer, including Defendants, during the period designated in the Agreement. See Notice at 3; Claim Form at 1. The Claims Notice provided that "[b]ecause the alleged overcharge is only a portion of the price paid for eggs and egg products, your recovery will be less than the total amount you paid." Notice at 3. *fn8

Additionally, pursuant to the agreement, Moark will cooperate with the Plaintiffs' preparation for and prosecution of their class action. See Moark Settlement Agreement ¶ 39. The Agreement details the extent of Moark's cooperation in terms of production of certain non-privileged documents and ensuring the availability of current Moark directors, officers, and employees to give non-privileged testimony through interviews, depositions, declarations and affidavits, and appearance at trial. See id. Moark also agrees to assist Plaintiffs in arranging for non-privileged testimony from former directors, officers, and employees. See id. ¶ 39(b).

In consideration, Plaintiffs agree that they "shall not . . . seek to recover against [Moark] for any of the Released Claims." Id. ¶ 25. 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 when notice of the Court's entry of an order preliminarily approving this Agreement is first published" and that resulted from the conduct asserted in the Plaintiffs' suit. See id. The Agreement delineates the conduct asserted by the Plaintiffs' suit as: "(i) any agreement or understanding between or among two or more Producers of eggs, including any Defendants, including any entities or individuals that may later be added as a defendant to the Action, (ii) the reduction or restraint of supply, the reduction of or restrictions on production capacity, or (ii) the pricing, selling, discounting, marketing, or distributing of Shell Eggs and 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 in whole or in part arise from or are related to the facts and/or actions described in the Complaints, including under any federal or state 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. ¶ 26. Additionally, Plaintiffs agree to waive and release "all defenses, rights, and benefits that [Plaintiffs] may have or that may have been derived from the provisions of applicable law which, absent such waiver, may limit the extent or effect of the release" of the aforementioned claims. Id. ¶ 27. 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. ¶ 28.

The settlement proposes an opt-out provision which sets forth the procedures through which possible class members could opt out of the settlement. Id. ¶ 22; see also Moark Notice at 1, 5-6. 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. See Moark Notice at 1, 5-6. Class Members had 127 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 a completed Claim Form to make a claim for benefits. See id. at 3-4.

Finally, the parties set forth certain provisions in their agreement concerning attorneys' fees, specifically:

Class Counsel may seek an award of attorneys' fees and reasonable litigation expenses approved by the Court, to be paid out of the Settlement Amount after the Final Approval of the Agreement. Moark Defendants agree not to object to Class Counsel's petition to the Court for payment of attorneys' fees, costs, and expenses from the Settlement Amount. The Moark Defendants shall have no obligation to pay any fees or expenses from Class Counsel.

Moark Settlement Agreement ¶ 35.

III. Notice

Notice of the Moark 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 Mot., Ex. 2, Affidavit of Jennifer M. Keough re: Notice and Settlement Administration ¶¶ 5-6 (Doc. No. 465-7) (hereinafter, "Keough Aff."); see also Moark Settlement Agreement ¶ 21. The Notice explained that any possible Class Members wishing to be excluded from or to object to the terms of the Moark Settlement Agreement should postmark their exclusion requests or objections no later than a specific date that was 104 days before the final fairness hearing on the Moark Settlement. See Moark Notice at 1, 5-6. A maximum of $350,000 of the Settlement Amount was authorized to be used for costs of notice. See Moark Settlement Agreement ¶ 45. Ultimately, $170,000 was spent on notice expenses with respect to the Moark Settlement Agreement. See Final Hr'g Tr. at 30:21-30-23. No other information has been provided to the Court concerning whether other administrative costs and expenses were (or were not) incurred.

The Claims Administrator received 905 Claim forms by the time of the hearing for final approval of the settlement; 881 of those Claim Forms met the deadline set forth for filing such forms and 24 Claim Forms did not. See Final Hr'g Tr. 14:4-14:6.*fn9 The Claims Administrator received no objections to the settlement and received 150 requests for exclusion from the class. See id. at 14:7-14:9. Some of those parties who opted-out of the class have filed their own complaints against Defendants, including Moark, such as Direct Action Plaintiffs Giant Eagle Inc., Winn-Dixie Stores, Inc., Roundy's Supermarkets, Inc., C&S Wholesale Grocers, Inc., and H.J. Heinz Company, L.P., as well as plaintiffs in a state court action proceeding in Kansas. See Am. Compl. (Doc. No. 623) (Giant Eagle Inc.); Second Am. Compl. (Doc. No. 622) (Winn-Dixie Stores, Inc., Roundy's Supermarkets, Inc., C&S Wholesale Grocers, Inc., and H.J. Heinz Company, L.P.), Dec. 19, 2011 Mem. and Order, 2011 WL 6396462, at *5 n.8 (Doc. Nos. 601 and 602) (explaining that six direct purchasers opted out of the Sparboe and Moark Settlements and filed an action against Defendants in Kansas state court, which, after being removed to federal court by Defendants, was remanded to state court); Direct Action Plaintiff Status Report (Doc. No. 457).*fn10 Interim Co-Lead Counsel has represented that the "potential Class is composed of thousands of entities nationwide, many of which are sophisticated companies with their own in-house legal counsel." Fees Mot. at 12.

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-three (2,333) Notice and Claim Forms were returned without forwarding address information and, according to Interim Co-Lead Counsel, could not be re-mailed. See id. *fn11

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: PetFoodIndustry, 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 Moark Settlement, as well as a separate release about the Sparboe 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 Moark and Sparboe Settlements was established. See id. ¶ 14. The website makes available for review and downloading the Notice Packet, the Moark Settlement Agreement, and various Court orders and filings relating to the Moark Settlement. See id. In the first 148 days of operation, the website received 4,820 "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 549 calls, and 95 callers requested and received a Notice Packet during the first 148 days of operation. See id.

Additionally, Moark served notice of the settlement to federal and state officials of the settlement as required by 28 U.S.C. § 1715(d) under CAFA. See Mot. at 9. No federal or state officials filed objections to the Moark 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. *fn12

Following approval of the settlement, Plaintiffs intend to submit for the Court's approval a plan of allocation relating to the Claims Administration process for evaluating the procedure for processing individual claims under the settlement, the allocation of the Settlement Fund distributions, administrative costs and expenses, and so forth. See Mot. at 1 n.1. The Claims Notice provided that the "Court retains the power to approve or reject, in part or in full, any individual claim of a class member based on equitable grounds." Moark Notice at 3. The Notice also stated that the Settlement Amount "may be reduced by court-ordered attorneys' fees and reimbursement of litigation expenses, including administration of the Settlement, as approved by the Court" and reduced "by the expense of providing notice to the Class." Id.

The Claims Notice also explained that "Class Counsel will apply to the Court for an award from the Settlement Funds of attorneys' fees and for reimbursement of litigation costs and expenses incurred, including fees and costs expended while providing Notice to the Class and while administering the Settlement Fund (including the plan of allocation)." Id. at 4. The Notice stated that Interim Co-Lead Counsel intends to apply for attorneys' fees "in an amount not to exceed thirty percent of $25 million as well as the costs and expenses incurred." Id.

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 maybe 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 of the district court." In re ...


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