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In re Processed Egg Products Antitrust Litigation

United States District Court, E.D. Pennsylvania

October 10, 2014

IN RE: PROCESSED EGG PRODUCTS ANTITRUST LITIGATION THIS DOCUMENT APPLIES TO: ALL DIRECT PURCHASER PLAINTIFF ACTIONS

MEMORANDUM

GENE E.K. PRATTER, District Judge.

Direct Purchaser Plaintiffs seek the Court's final approval of a proposed settlement agreement between Plaintiffs and Defendant Cal-Maine Foods, Inc.[1] Under the proposed Cal-Maine Settlement, Plaintiffs will release Cal-Maine from all pending claims in exchange for monetary consideration as well as for various information and documents to be supplied on behalf of Cal-Maine. For the reasons set forth below, the Court grants the motion for final approval of the Cal-Maine Settlement.

I. Factual Background[2]

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 The allegations of the Third Consolidated Amended Complaint superseded or replaced all of the previously-filed individual and consolidated complaints.

After extensive motion activity centered on the Second Consolidated Amended Complaint, the Court partially lifted the previously entered stay of discovery. See April 21, 2010 Order (Docket No. 320); Case Mgmt. Orders Nos. 18 and 19 (Doc. Nos. 656 and 676). Fact discovery began in April 2012, and the parties began conducting depositions in April 2014. Mem. Supp. Fees Mot. 3. The Direct Purchaser Plaintiffs and Cal-Maine entered into their Settlement Agreement approximately four months later on August 2, 2013. Id.

B. Cal-Maine Settlement Negotiations and Preliminary Approval

Settlement discussions between Cal-Maine and Direct Purchaser Plaintiffs reportedly began around March 2012, about five months after the Court denied Cal-Maine's Motion to Dismiss under Rule 12(b)(6). See Mot., Ex. A, Pizzirusso Decl. ¶ 4 (hereinafter, "Pizzirusso Decl."); Oct. 17, 2011 Mem. and Order (Doc. Nos. 581 and 582). These early settlement negotiations, however, ended in April 2012 after the parties reached an impasse. Pizzirusso Decl. ¶ 4. Negotiations quickly resumed in October 2012 after several months of document production. Id. These talks eventually led to a mediation session, which occurred in late June 2013. Id. ¶¶ 5-6. Settlement efforts continued, culminating in a July 17, 2013 agreement in principle. Id. ¶¶ 6, 9. On August 2, 2013, the parties executed the Settlement Agreement. Id. ¶ 9. In advance of entering into the Settlement Agreement, Plaintiffs had reviewed many of the one million documents produced by Defendants and had taken several depositions of key witnesses. Id. ¶ 7.

The parties submitted the proposed settlement to the Court for preliminary approval. Following a hearing, the Court entered an Order preliminarily approving the proposed Cal-Maine agreement and preliminarily certifying the class and subclasses for settlement purposes. Order, Feb. 28, 2014 (Docket No. 908) (hereinafter, "Cal-Maine Prelim. Approval Order"). The Order also approved the form of notice of the Cal-Maine Settlement. Id.

The Court held the final fairness hearing on the Cal-Maine Settlement as required by Fed.R.Civ.P. 23(e)(2) on September 18, 2014. Plaintiffs had notified the appropriate federal and state officials pursuant the Class Action Fairness Action ("CAFA"), 28 U.S.C. § 1715, in September 2014. See Declaration of CAFA Compliance by Cal-Maine Foods, Inc. (Docket No. 1030). No objections were filed to the proposed Settlement. No objectors appeared at the fairness hearing.

C. Amendment to the Sparboe Settlement Agreement

Direct Purchaser Plaintiffs have also filed a Motion for Final Approval of the First Amendment to the Sparboe Settlement Agreement (Docket No. 1035) (hereinafter "Sparboe Am. Mot."). Plaintiffs and Defendant Sparboe Farms, Inc., previously entered into a settlement agreement in 2009 that required Sparboe Farms to cooperate and assist Plaintiffs in their prosecution of their case. See Mot. for Final Approval of Class Action Settlement, Ex. 4 ¶¶ 23-24 (Docket No. 443). The Sparboe Settlement Agreement provides that if and when Plaintiffs enter into later settlements with other Defendants, "Plaintiffs agree to use their best efforts to modify the class definition and Class Period of this Agreement to conform to any and all subsequent expansion of the class definition or Class Period, including moving for approval of an amendment to this Agreement...." Id. ¶ 31. Accordingly, the present Motion seeks only to extend the class period for the Sparboe Settlement Agreement to match the class period in the Cal-Maine Settlement Agreement. Sparboe Am. Mot. 1. The Court will separately consider the merits of the amendment to the Sparboe Settlement.

II. Proposed Cal-Maine Settlement Agreement[3]

The proposed Settlement Class for settlement purposes under the Cal-Maine Settlement is defined as:

All persons and entities that purchased Shell Eggs and Egg Products in the United States directly from any Producer, including any Defendant, during the Class Period from January 1, 2000 through the date on which the Court enters an order preliminarily approving the Agreement and certifying a Class for Settlement purposes.
a) Shell Egg SubClass
All individuals and entities that purchased Shell Eggs in the United States directly from any Producer, including any Defendant, during the Class Period from January 1, 2000 through the date on which the Court enters an order preliminarily approving the Agreement and certifying a Class for Settlement purposes.
b) Egg Products SubClass
All individuals and entities that purchased Egg Products produced from Shell Eggs in the United States directly from any Producer, including any Defendant, during the Class Period from January 1, 2000 through the date on which the Court enters an order preliminarily approving the Agreement and certifying a Class for Settlement purposes.
Excluded from the Class and SubClasses are Defendants, Other Settling Defendants, and producers, and the parents, subsidiaries and affiliates of Defendants, Other Settling Defendants, and Producers, 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.1, Settlement Agreement between Direct Purchaser Plaintiffs and Defendant Cal-Maine Foods, Inc. ¶ 20 (hereinafter, "Cal-Maine Settlement Agreement"). As mentioned earlier, the Court preliminarily certified the Settlement Class for settlement purposes under Fed.R.Civ.P. 23(b)(3). See Cal-Maine Prelim. Approval Order.

The settlement's key provision requires Cal-Maine to pay Direct Purchaser Plaintiffs $28, 000, 000.00, which is currently being held in escrow pending final approval of the settlement. See Cal-Maine Settlement Agreement ¶ 34. This amount will be distributed on a pro rata basis to the Class Members who submit a timely, valid claim. See Mot., Ex. B.1, Notice of Cal-Maine Settlement 4 (hereinafter "Notice"). 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 4. The Claims Notice provides 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 4.

Additionally, pursuant to the agreement, Cal-Maine will cooperate with Plaintiffs' preparation for and prosecution of their class action. See Cal-Maine Settlement Agreement ¶¶ 40-43. The Agreement details the extent of Cal-Maine's cooperation, which includes providing factual information through an attorney proffer, clarifying transactional data provided during discovery, establishing the authenticity of documents, and producing a knowledgeable representative for trial from among its current or former directors, officers, and employees. See id.

In consideration, Plaintiffs agree to release Cal-Maine from further litigation relating to the alleged conduct. See id. ¶ 26. That is, Cal-Maine shall be released from claims arising out of:

(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 (iii) the pricing, selling, discounting, marketing, or distributing of Shell Eggs and Egg Products in the United States or elsewhere... from the beginning of time to the date on which the Court enters an order preliminarily approving the Settlement and certifying a Class for settlement purposes.

Id. The Agreement specifically notes that the "Released Claims" include, but are not limited to, claims that "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. ¶ 27. 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. ¶ 28. 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 detailing how potential Class Members can exclude themselves from the settlement. Id. ¶ 23; see also Notice at 1-2, 7-8. Class Members had until August 1, 2014, to request exclusion by sending a written request for exclusion to the Claims Administrator. Notice at 8. Class Members also had until August 1, 2014, (108 days after the posting of the notice), to postmark the Claim Form requesting to share in the settlement. Notice at 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. Cal-Maine agrees not to object to Class Counsel's petition to the Court for payment of attorneys' fees, costs, expenses, and incentive awards for class representatives from the Settlement Amount.
Except to the extent that the Court may award attorneys' fees and litigation expenses to be paid out of the Settlement Amount, Cal-Maine shall have no obligation to pay any fees or expenses from Class Counsel.

Cal-Maine Settlement Agreement ¶ 36.

III. Notice

Notice of the Cal-Maine Settlement was disseminated to possible members of the Settlement Class through a variety of means, including direct mailings, publications, press releases, a website, and a toll-free information and request telephone line. See Mot., Ex. B, Affidavit of Jennifer M. Keough re: Notice and Settlement Administration ¶¶ 5 (Docket No. 1036-4) (hereinafter, "Keough Aff."). The Notice explained how potential Class Members could exclude themselves from, or object to, the terms of the Cal-Maine Settlement. See Notice at 1-2, 7-8. Potential Class Members had until August 1, 2014, (48 days before the final fairness hearing and 108 days from the date of the mailing of the notices) to postmark their exclusion requests or objections. See id. at 7-8; see also Am. Decl. of Mindee J. Reuben re: Mot. for Attorneys' Fees ¶ 4 (Docket No. 1046) (hereinafter, "Am. Reuben Decl."). The parties agreed that up to $350, 000 of the Settlement Amount could be spent on the notice expenses. Cal-Maine Settlement Agreement ¶ 45.

The Claims Administrator mailed Notice and Claim Forms (the "Notice Packet") to approximately 16, 796 direct purchasers of Shell Egg and Egg Products, who were identified using the sales data from the Defendants. Mem. Supp. Mot. 7. Of those nearly 17, 000 Notice Packets, 65 were returned by the U.S. Postal Service with forwarding address information and were re-mailed; 2, 961 were returned without forwarding address information. Id. at 7 & n.4.

A Summary Notice was published in The Wall Street Journal as well a variety of trade magazines of the restaurant and food industries-specifically: Restaurant Business, Convenience Store News, Hotel F&B, Nation's Restaurant News, FoodService Director, Progressive Grover, Food Manufacturing, Supermarket News, Sores, Egg Industry, Bake, Food Processing, Long Term Living, PetFood Industry, and School Nutrition. Keough Aff. ¶ 11. A press release about the Settlement was distributed to over 1, 000 journalists in the Restaurant and Food Industries, US1 Newsline, and the Hispanic Newsline. Id. ¶ 12. The Claims Administrator also created a website allowing for public access to the Notice Packet, Order, Settlement Agreement, and other relevant Court documents. Id. ¶ 13. The web address was included in the Notice Packet and received 7, 348 visits between April 4, 2014 and August 14, 2014. 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. ¶ 14. The automated number received 644 calls during the relevant period. See id.

The Claims Administrators received 470 Claim Forms by August 14, 2014. Mem. Supp. Mot. 8. Class Members who submitted a Claim Form in the Moark Settlement were not required to submit an additional Claim Form for the Cal-Maine Settlement, and there are, as of August 14, 2014, a total of 1, 185 claims on file for the Cal-Maine Settlement. Id. The Claims Administrator did not receive any objections, but received 61 requests for exclusion, ostensibly without substantive explanation. Id. at 7-8.

Cal-Maine provided sufficient notice to federal and state officials of the settlement as required by CAFA, 28 U.S.C. § 1715(d). Id. at 10. No federal or state officials filed objections to the Cal-Maine Settlement, nor did any request a hearing following the issuance of the CAFA notice. The statutory period following the CAFA notice elapsed prior to the date of this Memorandum and accompanying Order.

The Claims Notice explained 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, " and 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." Cal-Maine Notice at 4. The Claims Notice explained that the lawyers for the Class intended to apply for award of fees "in an amount not to exceed thirty percent of $28 million as well as the costs and expenses incurred." Id. at 6.

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 ...

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