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First Impressions Salon, Inc. v. National Milk Producers Federation

United States District Court, S.D. Illinois

October 5, 2016

FIRST IMPRESSIONS SALON, INC., ROY MATTSON, BELLE FOODS TRUST, GERRY WHITING, KPH HEALTHCARE SERVICES d/b/a Kinney Drugs, Inc., and PIGGLY WIGGLY MIDWEST, LLC, Plaintiffs,
v.
NATIONAL MILK PRODUCERS FEDERATION, COOPERATIVES WORKING TOGETHER, DAIRY FARMERS OF AMERICA, INC., LAND O'LAKES, INC., and AGRI-MARK, INC., Defendants.

          MEMORANDUM AND ORDER

          NANCY J. ROSENSTENGEL United States District Judge

         This matter is currently before the Court on the motion filed jointly by all Defendants seeking to dismiss the Third Amended Consolidated Class Action Complaint pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6) and to strike certain class allegations pursuant to Federal Rule of Civil Procedure 23(d)(1)(D) (Doc. 166).[1] For the reasons explained below, the motion is granted in part and denied in part.

         Background

         These background facts were derived from the Third Amended Consolidated Class Action Complaint filed by Plaintiffs First Impressions Salon, Roy Mattson, Belle Foods Trust, Gerry Whiting, [2] KPH Healthcare Services, and Piggly Wiggly Midwest (Doc. 182). Plaintiffs allege that Defendants National Milk Producers Federation, Cooperatives Working Together, Dairy Farmers of America, Land O'Lakes, and Agri-Mark engaged in a nationwide conspiracy to prematurely slaughter dairy cows thereby limiting the production of raw milk and driving up prices for milk and milk products. More specifically, it is alleged that the National Milk Producers Federation is a trade association of dairy cooperatives that created Cooperatives Working Together (“CWT”) in order to “strengthen and stabilize milk prices.” Dairy Farmers of America, Land O'Lakes, and Agri-Mark, along with over 30 other dairy cooperatives and over 130 independent dairy farmers, joined CWT. CWT's members collectively produce almost 70% of the nation's milk. It is alleged that CWT used fees collected from its members to finance “herd retirement programs.” These programs consisted of paying strategically chosen members to prematurely slaughter their dairy herds in order to limit the supply of raw milk, thereby artificially inflating the price of butter and cheese and the over-order price for raw milk to “supracompetitive” levels. Plaintiffs directly purchased raw milk, cheese, and/or butter at these inflated prices from one or more CWT members or their subsidiaries. Plaintiffs bring this putative class action on behalf of themselves and all other direct purchasers of raw milk, cheese, and butter, against Defendants for violations of § 1 of the Sherman Antitrust Act.

         Discussion

         Defendants' Motion to Strike

         Defendants argue that Belle Foods Trust and the Bankruptcy Estate of Yarnell's Ice Cream Company are not adequate class representatives under Rule 23(d)(1)(D) and therefore allegations to that effect in the complaint should be stricken (Doc. 188-1, pp. 17-18). More specifically, Belle Foods Trust and Yarnell's are both involved in bankruptcy proceedings, which Defendants contend creates an inherent conflict of interest between these two Plaintiffs and the other potential class members (Doc. 188-1, p. 17). Because of the purported conflict of interest, Defendants contend they are not adequate class representatives (Id.). After this motion was briefed, Magistrate Judge Williams allowed Gerry Whiting to be substituted for Yarnell's as a Plaintiff in this matter (Doc. 216), however, Defendants believe that Whiting has the same conflicts of interest as Yarnell's (Doc. 192).

         A motion to strike portions of a pleading is properly brought under Rule 12(f). See Fed. R. Civ. P. 12(f). It is well-established, however, that a disputed issue of law should not be decided on a Rule 12(f) motion. See, e.g., Riemer v. Chase Bank, N.A., 275 F.R.D. 492, 494 (N.D. Ill. 2011) (“A motion to strike under Rule 12(f) is not a mechanism for deciding disputed issues of law or fact . . . .”); Van Schouwen v. Connaught Corp., 782 F.Supp. 1240, 1245 (N.D. Ill. 1991) (citing United States v. 416.81 Acres of Land, 514 F.2d 627 (7th Cir. 1975)) (“[C]ourts are typically reluctant to decide disputed or substantial issues of law on a motion to strike.”); Garza v. Chicago Health Clubs, Inc., 347 F.Supp. 955, 963 (N.D. Ill. 1972) (“The Court is not unmindful that motions to strike under Federal Rule 12(f) are not a favored means for disposition of substantial questions of law.”) See also 5C Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 1380 (3d ed.) (“A motion to strike under Federal Rule 12(f) is the appropriate remedy for the elimination of redundant, immaterial, impertinent, or scandalous matter in any pleading[.]”)

         Whether Belle Foods Trust and Yarnell's/Whiting are adequate class representatives is an issue of law that goes to the propriety of certifying a class; it cannot be decided on a motion to strike under Rule 12(f). To the extent Defendants are attempting to bring their motion to strike under Rule 23(d)(1)(D), [3] they are jumping the gun. The issue of adequacy, along with all of the other requirements of Rule 23, should be decided in the context of the motion for class certification, not a motion to dismiss.

         Defendants' Motion to Dismiss

         A majority of the arguments in the motion to dismiss relate to Plaintiffs' standing to assert their claims. In particular, Defendants argue that Plaintiffs Belle Foods Trust and KPH Healthcare Services, Inc. lack antitrust standing because they failed to sufficiently allege that they are direct purchasers. Defendants also argue that Plaintiffs lack antitrust standing to pursue claims for products they did not purchase, i.e., Yarnell's cannot pursue claims based on the prices of butter and cheese, and all other Plaintiffs cannot pursue claims based on the price of raw milk. Finally, Defendants argue that Plaintiffs lack standing to sue for injunctive relief, or in the alternative, fail to state a claim for injunctive relief. Beyond the threshold issue of standing, Defendants argue that the entire complaint should be dismissed under the filed-rate doctrine. They also argue that certain claims are barred by the statute of limitations.

         Almost all of Defendants' arguments seek dismissal under Federal Rule of Rule 12(b)(6) (Doc. 188). The purpose of a motion to dismiss under Rule 12(b)(6) is to address the legal sufficiency of a plaintiff's claim for relief, not the merits of the case or whether the plaintiff will ultimately prevail. Camasta v. Jos. A. Bank Clothiers, Inc., 761 F.3d 732, 736 (7th Cir. 2014); Gibson v. City of Chicago, 910 F.2d 1510, 1520 (7th Cir. 1990). In reviewing a motion to dismiss under Rule 12(b)(6), the court must construe the complaint in the light most favorable to the plaintiff, accept as true all well-pleaded facts, and draw all possible inferences in the plaintiff's favor. See, e.g., Hecker v. Deere & Co., 556 F.3d 575, 580 (7th Cir. 2009) (quoting Tamayo v. Blagojevich, 526 F.3d 1074, 1081 (7th Cir. 2008)). To survive a motion to dismiss, the complaint must allege facts sufficient to “‘state a claim to relief that is plausible on its face' and ‘raise a right to relief above the speculative level.'” Camasta, 761 F.3d at 736 (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555 (2007)). “Determining whether a complaint states a claim upon which relief may be granted is dependent upon the context of the case and ‘requires the reviewing court to draw on its judicial experience and common sense.'” Camasta, 761 F.3d at 736 (quoting Ashcroft v. Iqbal, 556 U.S. 662, 679 (2009)).

         Only one argument regarding Plaintiffs' standing to seek injunctive relief invokes Rule 12(b)(1) as the basis for dismissal (Doc. 188). This argument is properly understood as a facial challenge because Defendants contend that the complaint lacks sufficient allegations to suggest that any injury Plaintiffs suffered as a result of Defendants' conduct is still ongoing and likely to continue (Doc. 188-1, p. 29). Apex Digital, Inc. v. Sears, Roebuck & Co., 572 F.3d 440, 443 (7th Cir. 2009) (“Facial challenges require only that the court look to the complaint and see if the plaintiff has sufficiently alleged a basis of subject matter jurisdiction.”) “When evaluating a facial challenge to subject matter jurisdiction under Rule 12(b)(1), a court should use Twombly-Iqbal's ‘plausibility' requirement, which is the same standard used to evaluate facial challenges to claims under Rule 12(b)(6).” Silha v. ACT, Inc., 807 F.3d 169, 174 (7th Cir. 2015).

         1. Antitrust Standing of Belle Foods Trust, Inc. and KPH Healthcare Services

         Defendants argue that Plaintiffs Belle Foods Trust, Inc. and KPH Healthcare Services failed to sufficiently allege that they were direct purchasers and therefore they lack anti-trust standing to sue (Doc. 188-1, pp. 11-15). The Court agrees as to Belle Foods Trust, but disagrees as to KPH Healthcare Services.

         Private citizens may bring civil actions to enforce the Sherman Act. 15 U.S.C. § 15(a) (“[A]ny person who shall be injured in his business or property by reason of anything forbidden in the antitrust laws may sue therefor in any district court of the United States in the district in which the defendant resides or is found or has an agent. . . .”). The Supreme Court has endorsed several limiting principles, however, so that “not all persons who have suffered an injury flowing from [an] antitrust violation have standing to sue . . . .” Kochert v. Greater Lafayette Health Servs., Inc., 463 F.3d 710, 716 (7th Cir. 2006) (citation omitted). The limitation at issue here is the direct purchaser rule of Illinois Brick Co. v. Illinois, 431 U.S. 720, 729-30 (1977). Illinois Brick held that “only direct purchasers may sue sellers who violate the antitrust laws; the purchaser's customers (the “indirect” purchasers) may not.” State of Ill., ex rel. Burris v. Panhandle E. Pipe Line Co., 935 F.2d 1469, 1477 (7th Cir. 1991) (parenthetical in original). The rationale behind the indirect purchaser bar is that allowing every person along a chain of distribution to claim damages arising from a single violation of the antitrust laws would create a risk of duplicative recovery against the violator. Id. Additionally, even if there was a way to prevent duplicative recovery, it would be nearly impossible for a court to determine what portion of the overcharge was absorbed by the direct purchaser and what portion was passed on to the indirect purchaser. Id.

         A. Belle Foods

         It is undisputed that Belle Foods is an indirect purchaser-the complaint alleges that Belle Foods purchased butter and cheese from C&S Wholesale Grocers, who had previously purchased those products directly from Defendants (Doc. 182; Doc. 206). Plaintiffs argue that even though Belle Foods is an indirect purchaser it still has standing to bring this antitrust suit based on the cost-plus exception to the indirect purchaser rule (Doc. 206).

         In Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977), the Supreme Court suggested that there may be an exception to the ban on suits by indirect purchasers when the indirect purchaser received the goods from the direct purchaser pursuant to a pre-existing cost-plus contract. In re Bulk Petroleum Corp., 796 F.3d 667, 677 (7th Cir. 2015), cert. denied sub nom. Kentucky Dep't of Revenue v. Bulk Petroleum Corp., 136 S.Ct. 1162 (2016); Burris, 935 F.2d at 1477. “In a cost-plus contract, a customer has an obligation to purchase a fixed quantity of the good at a price that is equal to the supplier's cost plus a contractually predetermined markup.” William B. Rubenstein, Newburg on Class Actions § 20:7 (5th ed.). Consequently, the direct purchaser is able to pass on the entire overcharge to its customer and, furthermore, it is “insulated from any decrease in its sales as a result of attempting to pass on the overcharge, because its customer is committed to buying a fixed quantity regardless of price.” Illinois Brick Co., 431 U.S. at 736; Simon v. KeySpan Corp., 694 F.3d 196, 202 (2d Cir. 2012); Newburg on Class Actions § 20:7. This means that courts are able to circumvent the complicated task of determining who absorbed what portion of the overcharge is avoided because 100% of it goes to the indirect purchaser. And, because the direct purchaser did not absorb any of the overcharge or lose any sales, it suffered no anti-trust injury, which eliminates the risk of duplicative liability for the antitrust violator. Simon, 694 F.3d 202; Newburg on Class Actions § 20:7. Because neither of the concerns underlying the indirect purchaser ban is implicated, an indirect purchaser may have “standing to sue if they are able to demonstrate that a pre-existing contract locked them into a fixed quantity of purchases at a fixed profit margin . . . .” Newburg on Class Actions § 20:7.

         That being said, the Supreme Court “made it clear that this exception would rarely apply, if indeed it still could be invoked at all.” In re Bulk Petroleum Corp., 796 F.3d at 677 (citing Kansas v. UtiliCorp United, Inc.,497 U.S. 199 (1990)). See also Burris, 935 F.2d at 1478 (“The [Supreme] Court's interpretation of the cost-plus exception appears so narrow . . . as to preclude its application in any case . . . .”) Plaintiffs do not cite to, and the Court is unaware of, any case ...


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