In re Broiler Chicken Antitrust Litigation

COMPLAINT filed by Maplevale Farms, Inc.; Jury Demand. Filing fee $ 400, receipt number 0752-12325046.

Northern District of Illinois, ilnd-1:2016-cv-08637

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Case: 1:16-cv-08637 Document #: 1 Filed: 09/02/16 Page 1 of 116 PageID #:1 UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS Maplevale Farms, Inc., individually and on Case No. ________________ behalf of all others similarly situated, CLASS ACTION COMPLAINT Plaintiff, vs. Koch Foods, Inc., JCG Foods of Alabama, LLC, JCG Foods of Georgia, LLC, Koch Meats Co., Inc., Tyson Foods, Inc., Tyson Chicken, Inc., Tyson Breeders, Inc., Tyson Poultry, Inc., Pilgrim's Pride Corporation, Perdue Farms, Inc., Sanderson Farms, Inc., Sanderson Farms, Inc. (Foods Division), Sanderson Farms, Inc. (Production Division), Sanderson Farms, Inc. (Processing Division), Wayne Farms, LLC, Mountaire Farms, Inc., Mountaire Farms, LLC, Mountaire Farms of Delaware, Inc., Peco Foods, Inc., Foster Farms, LLC, House of Raeford Farms, Inc., Simmons Foods, Inc., Fieldale Farms Corporation, George's, Inc., George's Farms, Inc., O.K. Foods, Inc., O.K. Farms, Inc., and O.K. Industries, Inc. Defendants. 492538 Case: 1:16-cv-08637 Document #: 1 Filed: 09/02/16 Page 2 of 116 PageID #:2 Table of Contents I. NATURE OF ACTION .......................................................................................................1 II. JURISDICTION AND VENUE ..........................................................................................5 III. PARTIES .............................................................................................................................7 A. Plaintiff ....................................................................................................................7 B. Defendants ...............................................................................................................7 IV. AGENTS AND CO-CONSPIRATORS ............................................................................16 V. TRADE AND COMMERCE.............................................................................................17 VI. FACTUAL ALLEGATIONS ............................................................................................17 A. Background on Broilers. ........................................................................................17 B. Defendants Relied Upon Co-Conspirator Agri Stats To Facilitate Communications Among Defendants And To Provide Data And Analysis Critical To The Monitoring And Enforcement Of Defendants' Conspiracy. .....................23 C. Defendants Coordinated Production Cuts To Stabilize And Then Increase The Price Of Broilers From 2008-2012, Then Continued Depressing Broiler Supply To Maintain Historically High Prices. ...................................................................33 1. Pre-Class Period Events. ...........................................................................36 2. 2008-2009 Production Cuts. ......................................................................36 3. Defendants' 2008 To Early 2009 Broiler Production Cuts Included Unprecedented Reductions To Broiler Breeder Flocks. ............................50 4. The Cuts in 2008 and 2009 Led To Record Broiler Prices For Much Of 2009 And Early 2010. ................................................................................51 5. Defendants Reacted With Unprecedented Speed To Overproduction In 2011, Which Led To A Second Wave Of Unprecedented Production Cuts.52 6. Defendants' 2011-2012 Production Cuts Lowered Broiler Breeder Flocks To Unprecedented Levels, Which Led To Record Profits For The 2013- 2014 Time Period.......................................................................................62 7. Avian Flu Disrupted Export Relief Valve During 2015, But Prices And Profitability Remained Relatively Stable Into 2016...................................69 492538 i Case: 1:16-cv-08637 Document #: 1 Filed: 09/02/16 Page 3 of 116 PageID #:3 D. The Structure And Characteristics Of The Broiler Market, Together With Other Factors, Render The Conspiracy Economically Plausible. ....................................73 1. The Broiler Industry Is Highly Vertically Integrated. ...............................73 2. The Market For Broilers Is Characterized By Inelastic Supply And Demand. .....................................................................................................77 3. There Are No Significant Substitutes For Broilers. ...................................78 4. The Broiler Industry Has Experienced High Consolidation And Is Highly Concentrated. .............................................................................................78 5. The Broiler Industry Has A History Of Government Investigations And Collusive Actions. ......................................................................................81 6. Defendants Had Numerous Opportunities To Collude. .............................83 7. There Are High Barriers To Entry In The Broiler Market. .......................90 8. Defendants Have Similar Cost Structures And Work Collaboratively To Share Cost Information. .............................................................................92 E. Since 2008 Defendants' Collusion Has Led to Unprecedented Capacity Reductions, Steadily Increasing Prices, and Record Profits. .................................94 F. Defendants Reduced Their Own Production And Used Direct Purchases of Broilers To Reduce Industry Supply......................................................................95 G. Defendants Made A Coordinated Move Away From Fixed-Price Contracts To Contracts That Changed Prices Quarterly Or Followed Broiler Price Indexes. ....98 VII. CLASS ACTION ALLEGATIONS ................................................................................100 VIII. ANTITRUST INJURY ....................................................................................................102 IX. ACTIVE CONCEALMENT............................................................................................103 X. VIOLATION OF SECTION 1 OF THE SHERMAN ACT ............................................108 XI. REQUEST FOR RELIEF ................................................................................................110 XII. JURY TRIAL DEMANDED ...........................................................................................112 492538 ii Case: 1:16-cv-08637 Document #: 1 Filed: 09/02/16 Page 4 of 116 PageID #:4 Plaintiff brings this action on behalf of itself individually and on behalf of a plaintiff class (the "Class") consisting of all persons who purchased Broilers1 directly from any of the Defendants or their subsidiaries or affiliates for use or delivery in the United States from at least as early as January 1, 2008 until the Present (the "Class Period"). Plaintiff brings this action for treble damages under the antitrust laws of the United States against Defendants, and demands a trial by jury. I. NATURE OF ACTION 1. Plaintiff is informed and believes, and thereon alleges, that in order to maintain price stability and increase profitability, beginning at least as early as January 2008 Defendants conspired and combined to fix, raise, maintain, and stabilize the price of Broilers. The principal (but not exclusive) method by which Defendants implemented and executed their conspiracy was by coordinating their output and limiting production with the intent and expected result of increasing prices of Broilers in the United States. In furtherance of their conspiracy, Defendants exchanged detailed, competitively sensitive, and closely-guarded non-public information about prices, capacity, sales volume, and demand, including through third party co-conspirator Agri Stats. Plaintiff is further informed and believes that Defendants fraudulently concealed their anticompetitive conduct from Plaintiff and the Class in furtherance of the conspiracy. 2. Broilers constitute approximately 98% of all chicken meat sold in the United States. Defendants are the leading suppliers of Broilers in an industry with over $30 billion in annual wholesale revenue. The Broiler industry is highly concentrated, with a small number of 1 "Broilers," as defined in ¶ 66 herein, are chickens raised for meat consumption to be slaughtered before the age of 13 weeks, and which may be sold in a variety of forms, including fresh or frozen, raw or cooked, whole or in parts, or as a meat ingredient in a value added product, but excluding chicken that is grown, processed, and sold according to halal, kosher, free range, or organic standards. Hereinafter, "Broilers" or "Broiler." 492538 1 Case: 1:16-cv-08637 Document #: 1 Filed: 09/02/16 Page 5 of 116 PageID #:5 large producers in the United States controlling supply. Defendants collectively control approximately 90% of the wholesale Broiler market. Since the 1950s, the production of Broilers has become highly industrialized and commoditized. 3. Historically, the Broiler industry was marked by boom and bust cycles where, in response to rising prices, producers increased production, which caused an oversupply and resulting decrease in pricing. However, that market pattern changed markedly in 2008. 4. In 2007, Pilgrim's and Tyson attempted to cut their production levels enough to cause industry prices to rise. However, despite Pilgrim's and Tyson's combined 40% market share, their production cuts in 2007 were not enough to increase prices through supply cuts because other Broiler companies increased their production. 5. As a result, in January 2008 Pilgrim's and Tyson changed tactics and concluded that only through broader cooperation among major producers in the Broiler industry could supply be cut enough to force prices to increase. In January 2008, both Pilgrim's and Tyson made clear to the Broiler industry in public statements that neither Pilgrim's nor Tyson would continue to cut production while their competitors used the opportunity to take away Pilgrim's and Tyson's market share. A few days after attending an industry event in late January 2008, Tyson's CEO announced Tyson would be raising prices because "we have no choice [but] to raise prices substantially." A day later, a Pilgrim's executive announced publicly that Pilgrim's would be cutting its production and "the rest [] of the market is going to have to pick-up a fair share in order for the production to come out of the system." 6. Subsequently, as described in detail below, the other Defendants followed Pilgrim's and Tyson's call to arms and made substantial cuts to their own production. However, unlike Pilgrim's and Tyson's prior production cuts, in 2008 the Defendants did not rely solely on 492538 2 Case: 1:16-cv-08637 Document #: 1 Filed: 09/02/16 Page 6 of 116 PageID #:6 the ordinary mechanisms available to temporarily reduce production, which would have permitted production to be quickly ramped up if prices rose. Instead, Defendants cut their ability to ramp up production for 18 months or more by destroying Broiler breeder hens in their Broiler breeder flocks responsible for supplying the eggs Defendants raise into Broilers. This destruction of the Broiler breeder flock was unparalleled and the consequences continue to reverberate in the Broiler industry to present day. Further, when some Defendants in 2010 became "undisciplined" and began gradually increasing their production, Defendants made a second wave of coordinated production cuts in 2011 and 2012, which included further substantial destruction of industry Broiler breeder flocks. Defendants continued to limit the United States Broiler supply in subsequent years by destroying eggs, relying upon one another's production to meet customer needs, and exporting excess Broiler breeder flocks to Mexico, even when doing so was against their independent economic interest. 7. The consequence of Defendants' cuts in 2008 and 2011-2012 have been a nearly 50% increase in Broiler wholesale prices since 2008, despite input costs (primarily corn and soybeans) falling roughly 20% to 23% over the same time period. The r