In Re Processed Egg Products Antitrust Litigation

Citations: 821 F. Supp. 2d 709; 2011 WL 4467685; 2011 U.S. Dist. LEXIS 109641Docket: 2:08-cv-02002

Court: District Court, E.D. Pennsylvania; September 26, 2011; Federal District Court

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The multidistrict litigation involves allegations against egg producers and trade groups for conspiring to restrict the domestic supply of eggs, violating Section 1 of the Sherman Act. The court is addressing multiple motions to dismiss filed by defendants, who contend that the Second Consolidated Amended Class Action Complaint (SAC) inadequately alleges their involvement in the conspiracy. The court finds the SAC sufficient for some defendants but grants motions to dismiss for the Hillandale Entities and the United Egg Association due to lack of specific allegations against them. The plaintiffs, direct purchasers of eggs, assert that the defendants engaged in a conspiracy to manipulate egg supply and prices, necessitating collective action to restrain supply. The SAC details the defendants' coordinated actions during the Class Period beginning January 1, 2000, aimed at fixing and stabilizing egg prices in the U.S. The court acknowledges the complexity of the allegations but focuses on the core claims made against the defendants.

Plaintiffs allege that Defendants engaged in eight collective actions to manipulate the supply and price of eggs as part of an overarching conspiracy. The first action, established in 1999-2000, involved a "supply adjustment program" that included a five-percent flock molt and inventory reduction. The second action was a five-percent emergency flock reduction in 2001. The third action occurred in 2002 with an early molt and hen disposal plan. The fourth involved adopting cage space density guidelines under the "United Egg Producers Certification Program," which allowed producers to sell "UEP-certified eggs." The fifth action, in mid-2004, included another early molt and flock disposal plan. The sixth action was the convening of an "Egg Industry Economic Summit" to coordinate a supply reduction scheme. The seventh action mandated that companies must implement welfare guidelines on all production facilities to sell "UEP Certified" eggs. The eighth and final action involved an export program where Defendants allegedly agreed to export eggs at a loss to reduce domestic supply and reimburse each other for those losses. Plaintiffs assert that the trade groups United Egg Producers, United Egg Association, and United States Egg Marketers facilitated these collective actions, aimed at raising egg prices by exploiting the inelastic demand for eggs and the lack of substitutes. Defendants purportedly sought to stabilize the volatile egg market through these actions.

Supply in the egg market was previously cyclical, influenced by fluctuating prices. Defendants allegedly coordinated actions to increase egg prices in response to market volatility. Plaintiffs claim these actions reduced egg production and supply, resulting in higher prices from 2003 to 2009, which they argue is a consequence of Defendants' conspiratorial behavior. Egg products producers among the Defendants reportedly benefited by selling products at inflated prices, despite purchasing shell eggs at these elevated rates. Defendants contest the allegations and the sufficiency of the claims but appear to allow the core of Plaintiffs' claims to proceed past the initial dismissal stage. 

The legal standards for a motion to dismiss under Rule 12(b)(6) require that a complaint presents sufficient factual content to support a reasonable inference of liability. A complaint must provide more than mere labels or conclusions, with factual allegations raising the right to relief above a speculative level. The threshold for survival of such a motion is whether the complaint states a plausible claim for relief, suggesting that discovery may uncover evidence of illegality. Courts assess the sufficiency of complaints by accepting all allegations as true and drawing reasonable inferences in favor of the non-moving party, while disregarding unsupported conclusions and bald assertions. Additionally, courts may only consider the complaint, its attached exhibits, matters of public record, and authentic documents relevant to the claims.

Under Section 1 of the Sherman Act, any contract, combination, or conspiracy that restrains trade or commerce is deemed illegal. The Third Circuit requires two essential elements to plead a Section 1 claim: (1) the defendant must be part of a "contract, combination, or conspiracy," and (2) the conspiracy must impose an unreasonable restraint on trade. A plaintiff must demonstrate: (1) concerted action by defendants; (2) resulting anti-competitive effects in relevant markets; (3) the illegality of the concerted actions; and (4) injury as a proximate result of these actions. 

A critical aspect of antitrust pleadings is determining whether the alleged anti-competitive conduct arises from an agreement or independent decisions. Section 1 targets only restraints resulting from a contract or conspiracy. To survive a motion to dismiss, a plaintiff must present sufficient factual allegations suggesting the existence of an agreement. If relying on direct evidence of conspiracy, the complaint must raise a reasonable expectation that discovery will uncover this evidence. Conversely, if relying on circumstantial evidence, the allegations must indicate a context that implies an agreement rather than mere parallel conduct. 

Claims based solely on parallel conduct and vague assertions of conspiracy fail to meet the pleading standard, as such conduct may be attributed to independent actions. The Supreme Court's decision in Twombly emphasizes that claims based on parallel conduct must be dismissed if independent self-interest is a plausible alternative explanation. Ultimately, the adequacy of the complaint regarding each defendant's involvement in the conspiracy is central to evaluating a motion to dismiss.

In evaluating allegations against individual defendants within a multi-defendant conspiracy, a court must consider the conspiracy as a whole, avoiding compartmentalization of allegations. Each defendant's involvement should not be assessed in isolation; rather, the overall context must support an inference of collective action. The court emphasizes that antitrust allegations need not detail actions for each defendant individually, as long as reasonable notice is provided that a defendant participated in the conspiracy. Plaintiffs must assert that each defendant joined and played a role in the conspiracy, and antitrust law does not require uniform motives among participants. 

In the current case, plaintiffs allege an "overarching conspiracy" to limit egg supply, prompting a review of whether specific facts about each defendant's actions support this claim. Michael Foods, Inc. contends that the allegations against it are insufficient, arguing that its mere membership in trade groups and participation in one of several coordinated actions do not demonstrate actual involvement in the overarching conspiracy. Legal precedent supports that attendance at trade association meetings alone does not imply agreement to a conspiracy, as such meetings may align with lawful business conduct rather than collusion. Therefore, the opportunity for conspiracy indicated by attendance is insufficient to imply an illegal agreement.

Michael Foods' employees are alleged to have participated in various committees of UEP and UEA, with some holding leadership roles, such as Toby Catherman, who was chairman of UEA in 2004. The plaintiffs claim that Michael Foods was present at UEP Board meetings where discussions occurred about the benefits of reduced supply on egg prices and encouraged participation in industry supply restrictions. However, mere membership or attendance at meetings does not suffice to establish conspiracy; active participation is required for inferring agreement and liability.

The only specific action attributed to Michael Foods at a trade meeting was during an August 12, 2008 earnings call, where a representative made comments linking high egg prices to reduced supply due to animal welfare programs. The allegations do not indicate Michael Foods engaged in conduct beyond passive attendance or expressing opinions, thus suggesting mere opportunity to conspire rather than actual participation.

Attendance at trade events alone does not imply conspiracy without additional evidence. Even if some competitors met to fix prices, it is unreasonable to assume that all attendees were involved in such actions. While participation in trade organizations does provide opportunities for information exchange, the SAC alleges that Michael Foods' certification under the UEP Certification Program indicates more than just opportunity, potentially implying conspiracy involvement.

The motion's core issue is whether Michael Foods' certification under the UEP Certification Program, combined with its participation in trade associations, suggests it joined a conspiracy. The SAC notes that Michael Foods was certified under the UEP Program as of September 30, 2008, adopting guidelines to reduce chick hatch, but lacks details about when or why it sought certification. Michael Foods argues that the SAC fails to demonstrate any unlawful agreement and implies a pro-competitive rationale for joining the UEP Program, as major retailers like Kroger and Walmart would only purchase UEP-certified eggs.

The Court finds that the allegations surrounding Michael Foods' involvement in the UEP Certification Program suggest anti-competitive behavior that may obscure any independent actions. The UEP Program is purported to promote animal welfare, yet its guidelines compel producers to act against their self-interest to maintain certification, raising concerns about an overarching conspiracy. Attendance at meetings where key decisions were made, combined with adherence to the Program's restrictive guidelines, supports the inference of knowing participation in anti-competitive conduct.

The UEP Certification Program ostensibly aims to increase cage space for hens but is alleged to restrict egg supply without legitimate business justification. The Court notes that the program's cage space requirements naturally lead to a decrease in egg production, as fewer hens per cage yield fewer eggs. While there can be legitimate animal welfare motivations for these guidelines, many aspects of the Program lack pro-competitive rationale. Notably, the Program is said to rely on certified producers to reduce bird density by decreasing chick hatch rates over time, a strategy that has been formalized as part of the UEP Certified Program. Additionally, the approval by the Animal Welfare Committee in 2006 allows new companies to join the program by adhering to specific hatch schedules rather than reducing their existing flocks, further emphasizing the connection between hatch rates and the Program's objectives.

A reduction in chick hatch by producers leads to fewer hens available for egg production, resulting in decreased egg output. Michael Foods, along with other defendants seeking dismissal, has not provided a pro-competitive rationale for the Program’s requirement to reduce bird density per cage. The facts presented indicate that reducing the supply of egg-laying hens contradicts individual producers' interests, particularly given the short productive cycle of hens, which typically last from 100 to 130 weeks of age. The Program's open-ended requirement for chick hatch reduction makes it impossible for certified producers to increase output through additional cages if they are reducing their hen supply.

Additionally, the Program includes guidelines that prohibit “backfilling,” which is replacing lost hens with younger pullets, thereby promoting attrition and further decreasing egg production. This prohibition aligns with a supply restriction that appears economically disadvantageous without an anti-competitive agreement. The Program enforces strict penalties for backfilling, including automatic failure of audits, and mandates that all of a producer's facilities comply with welfare guidelines to achieve certification. The rationale behind requiring all facilities to adhere to these guidelines remains unclear based on the allegations in the Second Amended Complaint (SAC).

An independent egg producer would not voluntarily limit its production to certified eggs without considering consumer preferences, which include both certified and non-certified options. The allegations in the Second Amended Complaint (SAC) indicate that there was no universal demand for UEP-certified eggs among consumers, and that some consumers continued to purchase non-certified eggs. The implementation of the "100% rule" is claimed to have been driven by a conspiracy to reduce flock sizes, rather than consumer demand. 

The UEP Certification Program’s structure, including its marketing licensing policies, appears to lack a legitimate business rationale, especially since companies would be unable to produce and market non-certified eggs without an agreement. The August 2006 UEP newsletter suggests that non-certified companies could purchase certified eggs only from UEP-certified producers, yet a company producing non-certified eggs would not receive a marketing license for certified eggs unless it committed to the 100% rule.

The SAC argues that the requirement for a marketing license based on ownership of production facilities, combined with compliance with the 100% rule, lacks a legitimate business explanation, implying an anti-competitive agreement. Although Michael Foods claims that consumer demand justifies participation in the UEP Certification Program, the SAC does not support this assertion, citing that major retailers like Kroger and Wal-Mart announced their preference for UEP-certified eggs. However, there is little evidence in the SAC indicating that consumer demand for UEP-certified eggs was significant. In fact, it alleges that some grocers, like Albertson's, purchased non-certified eggs, contradicting the notion of overwhelming consumer preference for certification.

Kreider Farm Eggs, after exiting the UEP Certification Program, sold non-certified eggs to a loyal customer, indicating potential consumer preference for non-certified eggs due to their lower cost. The SAC suggests that consumer demand for UEP-certified eggs may be flexible since Wal-Mart considered purchasing eggs from an alternative program proposed by Sparboe in 2009. This highlights a general consumer interest in non-certified eggs, which are often indistinguishable from UEP-certified ones, thus supporting the premise of this litigation. Despite Michael Foods' claims of acting independently due to consumer demand, the Plaintiffs' allegations do not provide a clear alternative explanation for its UEP certification. Additionally, the SAC asserts that other animal welfare programs could achieve similar goals without restrictive measures, suggesting that the UEP Certification Program may be anti-competitive. Michael Foods' arguments for pro-competitive justification cannot be accepted at this stage, as the allegations imply that its participation in the UEP Program conflicicted with independent self-interest. The Court finds sufficient specific allegations in the SAC linking Michael Foods to the alleged conspiracy, thus denying its Rule 12(b)(6) motion. In contrast, Daybreak Foods, Inc. contends it is distinct from other defendants due to insufficient linkage to the collective actions supporting the conspiracy.

Daybreak argues that the allegations against it in the Second Amended Complaint (SAC) are insufficient to imply participation in a conspiracy, asserting that the claims merely state its membership in the United Egg Producers (UEP), its board involvement, and its comments on the egg market, without indicating any agreement to conspire. A key issue is whether the SAC adequately alleges Daybreak's participation in the UEP Certified Program. Paragraph 93 of the SAC alleges that Daybreak participated in efforts to reduce supply and fix prices, adopted UEP Certified guidelines to reduce chick hatch, and attended a UEP meeting related to a flock disposal scheme. Plaintiffs contend this paragraph sufficiently claims Daybreak's involvement in the UEP Certification Program, while Daybreak counters that the allegations lack plausibility and are merely conclusory, noting its absence from lists of certified defendants and the lack of a certification number.

The court emphasizes that it must accept the factual allegations in Paragraph 93 as true under the prevailing pleading standards, which require courts to assume the veracity of well-pleaded facts. The specific statement indicating Daybreak’s adherence to UEP Certified guidelines is viewed as a factual assertion supporting the legal conclusion of conspiracy involvement. The court finds that the allegation is not merely a legal conclusion but is supported by factual specificity regarding chick hatch reduction, thus deserving of credibility. Additionally, the absence of Daybreak’s name from certain certification lists does not undermine the plausibility of the allegations, as the plaintiffs are not required to maintain uniformity in the quality or quantity of allegations against different defendants.

Liability in an antitrust conspiracy does not require each conspirator to be involved in every detail; varying roles among conspirators are acceptable. The Second Amended Complaint (SAC) does not need to present identical allegations for each defendant. It suffices that the plaintiffs outline a claim against the antitrust defendant, even if concisely. The claim regarding Daybreak's adoption of UEP Certified guidelines on chick hatch reduction is not inconsistent with other allegations in the SAC. Plaintiffs argue that "adopting" guidelines indicates participation in the UEP Certification Program, suggesting that such action, regardless of its minimal nature, is more than passive attendance at meetings. Conversely, Daybreak argues that certification under the Program is necessary for participation and that the SAC lacks allegations confirming Daybreak's certification. However, the SAC implies that Daybreak could still have participated by adopting guidelines without formal certification. Furthermore, the SAC outlines three specific categories of allegations against Daybreak: (1) involvement in UEP, including board membership and active participation in meetings, (2) comments made about the egg market, and (3) the adoption of UEP guidelines on chick hatch reduction.

The first two categories of factual allegations do not sufficiently demonstrate Daybreak's agreement to a conspiracy. Allegations of mere membership and attendance at meetings are inadequate to imply such agreement. The Second Amended Complaint (SAC) states that Daybreak employees participated in several UEP committees in 2008, with some holding leadership roles, including a position on the UEP Board. Daybreak representatives attended various UEP meetings where significant discussions occurred, including meetings regarding the "animal husbandry" program aimed at reducing supply and a UEP Board meeting in May 2002 where a crisis management plan for early hen disposal was communicated. Additionally, they were present at UEP Annual Board meetings that approved the "100% rule" and discussed supply reduction strategies. However, these instances reflect only passive attendance rather than active participation in a conspiracy. Allegations of Daybreak’s statements, including opinions about consumer demand and market conditions, do not indicate a conspiratorial intent; instead, they appear to express personal viewpoints. Overall, the evidence presented suggests a lack of active involvement by Daybreak in any alleged conspiracy.

High egg prices are partly attributed to a contraction in supply linked to the adoption of animal welfare programs that limit bird density. An article from March 2007 cites Daybreak's President acknowledging that these programs contribute to elevated shell egg prices, although this comment may be more observational than indicative of consensus. The SAC claims that Daybreak discussed the implications of the UEP Certified Program on supply and pricing with other industry members, including in-house counsel from another egg producer. Despite the plaintiffs' characterization suggesting that Daybreak was concerned about potential price-fixing implications, the conversations could also be interpreted as merely observational without an intent to collude. 

Notably, Daybreak's adoption of UEP Certified guidelines concerning chick hatch reduction is highlighted as inconsistent with independent business practices, as it restricts the supply of egg-laying hens and limits production capabilities. Although the plaintiffs have not claimed that Daybreak embraced other UEP Certification elements, the adoption of this specific guideline lacks a clear self-interested rationale, implying potential agreement with the alleged conspiracy. The SAC presents sufficient facts suggesting that Daybreak's involvement in UEP activities and its restrictive practices may indicate assent to the purported conspiracy.

Daybreak's motion to dismiss is denied based on established case law. Rose Acre Farms, Inc. challenges the sufficiency of the Second Amended Complaint (SAC), referencing the Third Circuit's guideline that conspiracy claims based on parallel conduct should be dismissed if independent self-interest provides a clear alternative explanation for the defendants' actions. Rose Acre acknowledges its involvement in the United Egg Producers (UEP), United Egg Association (UEA), and United States Egg Marketers (USEM), noting that its representatives participated in relevant meetings and held leadership roles. Additionally, Rose Acre is accused of actively promoting and participating in the USEM export program.

While Rose Acre argues that these actions suggest it acted independently rather than as part of a conspiracy, the SAC portrays Rose Acre's involvement in the export program as part of a larger coordinated effort to manipulate domestic egg supply and prices. The export program allegedly aimed to export eggs at a loss to reduce domestic supply, taking advantage of the inverse relationship between domestic egg prices and supply dynamics. Plaintiffs assert that this program involved members exporting eggs at a loss, with other members compensating for those losses, raising concerns about anti-competitive implications. The court must consider all allegations collectively rather than in isolation while assessing Rose Acre's role in the alleged conspiracy.

The allegations in the Second Amended Complaint (SAC) regarding the egg export program lack sufficient support. Specifically, the SAC does not convincingly demonstrate that all exports were sold at a loss or that loss sharing occurred among members. Before Rose Acre joined the program in late 2006, USEM exported eggs at prices significantly higher than domestic breaking stock prices. The SAC acknowledges that USEM's export program allowed for exports even when prices were below domestic levels, suggesting that not all exports were sold at a loss. Plaintiffs claim that exported eggs were sold at a loss due to lower foreign prices, but the specific pricing data provided indicates that domestic prices were generally higher than export prices, with domestic prices rising substantially from 2006 to 2007. 

This data implies that some domestic prices could have been lower than the export prices, making it ambiguous whether foreign prices were consistently lower. The SAC allows for the possibility that Rose Acre's exports could have been driven by legitimate business reasons, as not all exports necessarily involved losses. While the SAC suggests Rose Acre participated in loss sharing, it does not definitively establish that all exports incurred losses. Additionally, participation in the export program was not mandatory; it was encouraged, with members like Sparboe facing only pressure to contribute eggs or funds for losses. Overall, the SAC presents insufficient and ambiguous information to substantiate the claims of price manipulation or obligatory loss sharing.

Members of the alleged conspiracy reportedly agreed to share losses on an export basis, but it was not mandatory. A memorandum from March 20, 2003, indicated a new member's agreement to share losses from a recent export, implying ambiguity regarding Rose Acre’s involvement in sharing losses, as it raises the possibility that there were no losses or that Rose Acre did not contribute when opportunities arose. The SAC also claims that exports of eggs occurred independently of the USEM export program, noting that the U.S. was the second-largest egg exporter in 1998 and that no eggs were exported through the program in the three years leading up to November 2006. Despite this, the SAC states that 14 million dozen eggs were exported from January to April 2006, suggesting that some U.S. egg producers had independent reasons for exporting, which contradicts claims that there would be no business justification for costly exports at the expense of domestic sales. The allegations about the export program partially support the Plaintiffs' claims of anti-competitive behavior but also indicate that Rose Acre may have had legitimate business reasons for its participation. The Court evaluated Rose Acre's arguments regarding its involvement in the UEP Certification program, ultimately finding that the Plaintiffs’ allegations sufficiently suggest Rose Acre's participation in the conspiracy. Rose Acre contended that joining the UEP Certification Program was in line with consumer demand for welfare-compliant eggs and that their business grew during this time. However, the Court rejected this reasoning, asserting that the SAC does not provide a clear alternative explanation for joining the program, despite Rose Acre's reliance on external articles and allegations not formally attached to the complaint.

Dolph Baker, president of Cal-Maine Foods, stated that the industry could control its destiny in 2008, implying a positive outlook for the year. Rose Acres cites a statement by Marcus Rust indicating business expansion, challenging the UEP Certification Program's restrictions. However, Rose Acres fails to provide legal grounds for the Court to consider these statements in the motion to dismiss, as they are not included in the Second Amended Complaint (SAC). Plaintiffs assert that the pleading standard prohibits the inclusion of extraneous materials, which would improperly shift the motion to dismiss to a summary judgment stage. The Court typically only considers the complaint, attached exhibits, public records, and undisputed documents directly related to the claims. Since the materials from Rose Acre were not attached to the SAC, their authenticity is questionable, and limited quotations do not suffice for incorporation by reference. The Plaintiffs' antitrust claims do not depend on these documents. The Court emphasizes that it cannot consider external factual assertions or defenses at this stage, thereby rejecting Rose Acre's attempt to introduce alternative explanations for its conduct. Additionally, Rose Acre argues it was not part of the primary group of defendants involved in the alleged conspiracy.

Rose Acre contends that the Second Amended Complaint (SAC) fails to allege that it "knowingly joined" an agreement aimed at illicitly restraining competition, arguing its latecomer status undermines the allegations against it. However, the court finds that this latecomer status does not negate the overall plausibility of the SAC's claims, which suggest Rose Acre agreed to the overarching conspiracy. The SAC states that companies certified under the UEP Certification Program were required to implement measures that reduced egg output without legitimate business justification. Additionally, it alleges that Rose Acre attended meetings where conspiratorial decisions were made and made comments indicating awareness of market manipulations. While Rose Acre's export program involvement could seem legitimate on its own, it must be viewed in the context of its alleged conduct. The combination of attending meetings, comments made, certification under the UEP, and export participation supports a plausible inference of Rose Acre's agreement to the conspiracy, particularly given the totality of the allegations. 

Ohio Fresh Eggs, LLC challenges the SAC by asserting it did not partake in significant conduct that advanced the alleged conspiracy, emphasizing a lack of involvement in the UEP Board or export program. Nonetheless, the court clarifies that the SAC does not require uniformity in the specific actions alleged against each defendant, meaning that disparate levels of involvement among defendants do not invalidate the broader conspiracy claims.

A defendant in a conspiracy case is not required to be implicated in all activities alleged in the conspiracy. The absence of specific allegations against Ohio Fresh, compared to other defendants, does not weaken the Second Amended Complaint (SAC). Ohio Fresh claims it should be treated separately due to operating under a federal court decree and a state consent order that limit its hen population. However, the SAC does not clarify Ohio Fresh's role in the alleged conspiracy despite these restrictions. Ohio Fresh references a prior motion to dismiss but fails to request its consideration or provide legal grounds for it. The court notes that consent decrees are not included as exhibits in the current motion, and it is uncertain how these limitations might relate to the alleged conspiracy. Thus, the argument regarding consent orders is seen as an affirmative defense suited for later resolution rather than for assessing the sufficiency of the SAC. Additionally, Ohio Fresh argues that the SAC does not demonstrate its independent action from Hillandale Farms, being described merely as an "affiliate and supplier." The relationship between Ohio Fresh and Hillandale is ambiguous, with the SAC indicating that Hillandale PA purchases all eggs from Ohio Fresh, yet Ohio Fresh's claims of independence do not align with the SAC's allegations upon thorough review.

The Second Amended Complaint (SAC) presents specific allegations against Ohio Fresh that suggest its involvement in a broader conspiracy, even in light of its relationship with Hillandale Farms. For the SAC to withstand Ohio Fresh's motion to dismiss, it must only plausibly imply Ohio Fresh's agreement to the conspiracy, which the plaintiffs have achieved. The SAC claims Ohio Fresh adopted UEP Certification guidelines aimed at reducing chick hatch rates and obtained a certification number, indicating involvement as a UEP member who participated in meetings where conspiracy elements were discussed.

Moreover, the SAC details actions consistent with conspiracy participation, such as Ohio Fresh agreeing to a plan for flock management, which involved molting at 62 weeks and disposing of hens by 108 weeks, effective immediately until August 1, 2004. The SAC also alleges that Ohio Fresh signed a commitment to either dispose of hens four weeks earlier than scheduled or reduce flock size by five percent in early 2005. These management strategies—molting, disposal, and flock reduction—are alleged to intentionally decrease hen numbers and thus total egg supply.

Ohio Fresh's defense contends that the SAC fails to show that it actually reduced flock size after these agreements or during the purported ten-year conspiracy. It argues that merely agreeing to dispose of hens does not preclude the possibility of increasing egg supply through other means, such as filling with additional pullets. Nonetheless, the allegations in the SAC provide adequate grounds to infer Ohio Fresh's agreement to the overarching conspiracy at this stage of litigation.

Ohio Fresh's assertion that it could have increased egg production while participating in the UEP Certification Program and committing to reduce its flock is inconsistent with the allegations in the Second Amended Complaint (SAC). The Plaintiffs have provided sufficient factual allegations indicating Ohio Fresh's involvement in a conspiracy to limit egg supply, thus the Court denies Ohio Fresh's motion to dismiss. 

The Hillandale Entities—Hillandale Gettysburg L.P., Hillandale Farms Inc., and Hillandale Farms East, Inc.—seek dismissal on the grounds that the SAC lacks specific allegations linking them to the alleged supply restriction conspiracy. They argue that the Plaintiffs have failed to connect each entity individually to the conspiracy, as they are simply grouped together without specific facts demonstrating their involvement. 

The SAC notes that, despite having distinct legal identities and locations in Pennsylvania, the Hillandale Entities are affiliated through shared ownership by individuals Orland Bethel, Gary Bethel, and Don Hershey. The Plaintiffs claim that these individuals hold significant positions and ownership across the entities, which operate as an integrated enterprise for egg production and sales alongside a fourth entity, Hillandale Farms of Pa. Inc. 

The concept of "vertical integration" is crucial in the Plaintiffs' argument that the Hillandale Entities are part of the conspiracy. The SAC defines vertically integrated firms as those that manage all aspects of egg production from feed milling to marketing and distribution. This model is prevalent in the egg industry, with many large firms owning production facilities or having contracts with local producers. The SAC claims that "Hillandale Farms" operates as a vertically integrated supplier and that all Hillandale Entities are part of this integrated enterprise.

The SAC primarily implicates "Hillandale Farms" in conspiracy-related conduct, citing specific actions such as adopting UEP Certified guidelines to lower chick hatch rates, signing a commitment to reduce flock size or dispose of hens, and participating in egg exports while sharing financial losses with other members. Evidence includes UEP newsletters detailing animal care audits and certifications, with particular emphasis on "Hillandale Farms of Pa. Inc." which reportedly agreed to the UEP Certified Program in 2003 and holds certification no. 182. A spokesperson for Hillandale Farms, Gary Bethel, noted efforts to provide more space for caged chickens, leading to a reduction in egg production.

However, the SAC lacks robust factual allegations connecting all Hillandale entities to the conspiracy, with only "Hillandale Farms of Pa. Inc." being specifically linked through detailed claims. Other references to "Hillandale Farms" are vague and do not establish direct involvement in the conspiracy. The document notes that the plaintiffs have not adequately alleged any Hillandale entities' direct participation in the alleged conspiracy, echoing legal precedents that require clear connections between defendants and the alleged unlawful agreements. Without specific allegations of direct involvement or a plausible basis for liability, the claims against the Hillandale entities are insufficient.

To establish a claim against the Parent Corporations, Plaintiffs must demonstrate either direct involvement in the alleged conspiracy or sufficient grounds for vicarious liability for their subsidiaries' actions. Common law dictates that a subsidiary operates as a distinct legal entity and is not liable for its parent or sister corporations' actions solely due to their corporate relationship. Without a basis for imposing liability, subsidiaries cannot be held accountable for agreements involving their parent corporations. 

Plaintiffs propose a "single enterprise" theory to attribute liability among the Hillandale Entities, asserting that different legal entities can be treated as a single entity for antitrust violations when they function as an integrated unit. They argue that the entities' vertical integration and shared management justify this approach, allowing them to claim that actions attributed to "Hillandale Farms" apply to all Hillandale Entities without needing additional factual connections to the conspiracy.

However, this argument is deemed unpersuasive. Plaintiffs' assertion that separately incorporated entities can be treated as a single entity lacks robust legal support, relying instead on limited excerpts from case law that do not substantiate their claims. Specifically, their reference to the Copperweld ruling, which discusses the concept of unilateral behavior within corporate families, does not effectively support their position.

A parent corporation and its wholly owned subsidiaries are likened to a team of horses under the control of a single driver, as articulated in Copperweld, which established that such entities cannot conspire under Section 1 of the Sherman Act due to their unified purpose. The Third Circuit rejected the plaintiffs' assertion that subsidiaries operate under the common direction of the parent, emphasizing that the Supreme Court's ruling in Copperweld clarified that a parent and subsidiary cannot conspire, as they do not represent independent decision-making entities. Furthermore, the court noted that the plaintiffs failed to demonstrate why a parent should be liable for a subsidiary’s alleged antitrust violations if Copperweld absolves cooperation between them of liability. The concept of "vertical integration" presented by the plaintiffs was insufficient to assert that the Hillandale Entities functioned as a single entity in antitrust terms. The plaintiffs did not provide adequate allegations to indicate that these entities were structured as a typical parent-subsidiary relationship, nor did they establish that common ownership or management implied a singular control or decision-making authority over the entities involved.

In the case of In re Mushroom Direct Purchaser Antitrust Litigation, the court addressed issues regarding the alleged common ownership and control among affiliated distributors and member growers. It clarified that overlapping ownership does not equate to the legal control typical of a corporation and its subsidiaries. The court noted that the affiliated distributors do not possess complete ownership, and there is no evidence that overlapping owners could exercise control independently of their co-owners.

The court emphasized that mere shared shareholders, officers, or directors among corporations does not create liability for one corporation for the actions of another. The plaintiffs' claims of common ownership were found to lack sufficient support in the Second Amended Complaint (SAC), failing to meet the required pleading standards. The proposed "single enterprise" theory to impute liability was deemed unsupported by legal precedent, and the plaintiffs did not provide adequate allegations regarding vertical integration or ownership dynamics.

The court further stated that general allegations against the Hillandale Entities did not sufficiently inform those entities of the claims against them, as there was no specific connection established between them and the alleged conspiracy. The SAC's limited allegations did not imply direct participation in the conspiracy by the Hillandale Entities, resulting in uncertainty about how to respond to the claims. Consequently, the court partially granted the Hillandale Entities' motion to dismiss, allowing plaintiffs the opportunity to amend their complaint with more detailed allegations of participation in the conspiracy.

Additionally, UEA's motion to dismiss was discussed, with the court agreeing that the allegations against UEA were either conclusory or insufficient to imply that UEA participated in the alleged conspiracy.

UEA is identified as a 501(c)(6) nonprofit corporation based in Alpharetta, Georgia, with a mission to promote and defend the egg industry, as noted in its IRS Form 990. UEA comprises three divisions: Further Processors, Producers and Packers, and Allied Industries, and is part of an alliance with UEP and USEM, which represent various sectors of the egg industry. The plaintiffs assert that there is significant overlap in leadership and membership among UEA, UEP, and USEM, citing Gene Gregory as president of all three entities and noting that family members hold senior positions across these organizations. 

The allegations detail instances of shared governance and collaboration, indicating that UEA and UEP not only share staff but also hold joint meetings and events, with members attending each other's board and committee meetings. Specific examples include UEA's annual meeting being held concurrently with UEP's in 2004 and 2007, and newsletters implying ongoing attendance and participation by UEA members at UEP meetings. Despite these claims, the court finds that the plaintiffs have not provided sufficient factual basis to establish UEA's liability in relation to the alleged conspiracy.

UEP's Annual Meeting is scheduled for October 20-22 in New Orleans, during which UEA will also hold its annual membership meeting. The SAC claims that UEA's "Further Processors" division invited UEP's Executive Committee to a meeting on April 27, 2004, but alleges that after the action was filed, UEP barred UEA and non-egg producers from attending meetings. A UEP newsletter from January 20, 2009, states that certain committee meetings will be restricted to UEP members only, marking a shift from previously open meetings. The SAC further alleges that UEA has provided financial support for UEP's projects, citing an instance where UEA voted to allocate $20,000 for animal welfare research and another where it approved a budget of approximately $70,000 for UEP programs. However, the Court finds that these allegations do not plausibly indicate that UEA participated in a conspiracy with UEP or other parties to implement an unlawful supply control campaign. Claims that UEA and its members were aware of or participated in the conspiracy lack sufficient support. The Court emphasizes that mere shared resources or membership between trade groups does not constitute actionable conspiracy, and the allegations do not demonstrate UEA's role as a co-conspirator. Overall, the facts presented only suggest opportunities for collaboration, not an actual conspiracy.

A trade association can only be held liable for concerted action if it acted as an entity; mere actions or statements by its members do not constitute concerted action. Liability cannot be imputed to the association without allegations of its participation in the conspiracy. Overlapping membership and attendance at meetings between UEA, UEP, and USEM do not suffice to suggest UEA's involvement in the conspiracy. The court notes that even if UEA members attended a significant meeting in New Orleans related to a flock disposal plan, this alone does not establish liability. Attendance at meetings is insufficient for holding the organization accountable, nor can the actions of UEA leadership automatically implicate UEA. While a trade organization can be liable for an agent's antitrust violations if acting with apparent authority, the plaintiffs must provide facts indicating that the agents were acting under UEA’s apparent authority. The allegations regarding UEA leadership do not demonstrate this authority. For instance, although certain leaders advocated for exporting eggs to raise domestic prices, there are no claims indicating these actions were taken with UEA’s authority. Furthermore, Mr. Gregory's writings in "United Voices," a UEP publication, and his participation in meetings do not imply he was acting in dual capacities representing both UEA and UEP.

Mr. Gregory is not alleged to have acted in a dual capacity regarding UEP's unlawful conduct, as outlined in the Second Amended Complaint (SAC). The facts do not support claims that he used knowledge from his role as UEA president to influence UEP's actions, nor does the SAC suggest that any of his actions could be imputed to UEA. The document consistently specifies Mr. Gregory's affiliation with UEP, detailing instances where he acted in this capacity, such as praising the economic benefits of a supply decrease at UEP meetings and discussing supply issues in emails. When the SAC does not explicitly state his affiliation, it does not provide sufficient context to infer that he acted under UEA's authority. 

Plaintiffs argue that UEA had an "alliance" with UEP and USEM, claiming UEP managed this alliance, but the purpose of these allegations is unclear, and they do not support a legal theory of conspiracy involving UEA. The court finds that general claims of an "alliance" are too vague to suggest a significant connection between UEA, UEP, and USEM that would implicate UEA in the alleged conspiracy. For UEA to be held liable, it must have acted as an entity, but the court concludes that the plaintiffs' allegations do not sufficiently establish a claim against UEA. Specifically, the claim regarding UEA's "Further Processors" division inviting UEP to a meeting lacks detail, and there is no additional context provided about the meeting's occurrence or content. Furthermore, UEA's financial support of UEP does not indicate agreement or participation in the alleged conspiracy, as the allegations regarding funding for "animal welfare research projects" are vague and do not substantiate involvement in the conspiracy.

UEP's management and related programs do not demonstrate that UEA financially supported UEP's alleged output restriction scheme. The allegations in the Second Amended Complaint (SAC) fail to link UEA to the conspiracy or suggest its agreement to it. The SAC also allows for the possibility that UEP engaged in legitimate animal welfare research while being part of the conspiracy. Specifically, the SAC mentions UEP's involvement in a study indicating hens require more space than provided. As a result, the Court agrees that the SAC cannot withstand UEA's motion to dismiss due to inadequate claims, granting the motion without prejudice, allowing plaintiffs the opportunity to amend their complaint if warranted.

In contrast, the Court finds that the plaintiffs have sufficiently alleged that Michael Foods, Daybreak, Rose Acre, and Ohio Fresh participated in the conspiracy to limit egg supply, denying their motions to dismiss. The Court acknowledges that the defendants may ultimately be found to have varying degrees of involvement in the conspiracy, emphasizing the burden on plaintiffs to prove each defendant's culpability. The Court grants the motions to dismiss filed by the Hillandale Entities and UEA, also without prejudice, permitting plaintiffs to seek amendments to their complaint in a timely manner. An order consistent with this memorandum will follow.

Pending motions in the litigation will be addressed in separate memoranda. The direct purchaser plaintiffs are divided into two subclasses: one for entities that purchased shell eggs and another for those that bought egg products directly from the Defendants. "Shell eggs" are defined to include both table eggs, typically sold to retail for consumer resale, and breaking eggs, generally purchased by food service entities for processing. "Egg products" refer to breaking eggs that have been processed into various forms. A joint motion by Defendants to dismiss the claim regarding egg products is still pending, but the current definitions for "eggs" will apply for now, as the dispute over definitions is not relevant to the motions discussed in this memorandum.

Transcripts from oral arguments on the motions to dismiss are recorded at specific docket numbers. The Second Amended Complaint (SAC) is noted for being lengthy and somewhat disorganized, prompting the Court to conduct a thorough examination despite concerns over potential dismissal risks due to brevity. The SAC includes repeated assertions about a conspiracy among Defendants to fix and stabilize egg prices through collective actions that restricted supply, in violation of Section 1 of the Sherman Act. Plaintiffs assert that this overarching conspiracy involved various components aimed at reducing egg supply to maintain inflated prices.

The Supreme Court has previously referenced examples of parallel conduct indicating potential collusion sufficient to support a Sherman Act claim, but further discussion of these examples is deemed unnecessary in this case. Several issues remain unaddressed in this opinion.

The Court does not accept the plaintiffs' assertion that the Second Amended Complaint (SAC) establishes a legal conspiracy based on direct evidence or parallel conduct. While the allegations of an overarching conspiracy and collective actions are accepted as true for the current motions, there is no requirement for the Court to make a decision on this issue, as no motion challenges the sufficiency of the antitrust claims. The defendants' strategic decisions, including the choice of several to answer the SAC without moving to dismiss the conspiracy claim, do not impact the case. Additionally, some defendants highlight that only a few paragraphs specifically name them, arguing for an examination limited to those allegations. However, the Court maintains that all allegations must be considered collectively rather than in isolation. The plaintiffs argue that market conditions, such as inelastic demand for eggs, favor collusion and support the plausibility of their claims. While the Court acknowledges these conditions as relevant, they do not relieve the plaintiffs from the obligation to specifically plead each defendant's agreement or participation in the conspiracy. The overall market conditions are considered in the analysis but do not independently establish a defendant's involvement.

The stipulation between Plaintiffs and Michael Foods resulted in the removal of references to Michael Foods' participation in the export program from the Second Amended Complaint (SAC), thus excluding that aspect of the alleged conspiracy from consideration. While the Plaintiffs' characterization of the export program in the SAC is not necessarily dismissed as false, the determination of its validity is not appropriate at this stage. The Court notes that whether the Defendants' actions were benign unilateral business decisions or indicative of a concerted effort violating the Sherman Act remains an unresolved factual issue requiring discovery. The communications reviewed suggest competitors discussing price adjustments, although innocent explanations for these communications may exist. The SAC asserts that the demand for eggs is relatively inelastic, meaning producers are incentivized to maintain or increase their supply to protect market share, as low prices do not enhance sales significantly. Michael Foods contends that general assertions of a capacity agreement lack factual support, but the SAC describes the UEP Certified Program’s guidelines, which Michael Foods must follow as a certified producer. Furthermore, claims in the SAC indicate that producers were discouraged from expanding capacity, contradicting Michael Foods' argument that it could increase hen numbers through additional housing. The SAC also alleges that chick hatch reductions contributed to decreased hen populations prior to Michael Foods’ involvement in the certification program.

An August 2003 editorial by Gene Gregory of UEP highlighted that since the hatch reduction began in April 2002 to align with animal husbandry guidelines, there was a decrease of 14.7 million pullets compared to the previous year. A July 16, 2004 UEP newsletter confirmed that animal care certified companies had reduced hen numbers. Despite this trend, the SAC contends that if Michael Foods increased its hen population, it does not negate their involvement in an alleged conspiracy, as the industry philosophy suggests not all producers need to reduce supply simultaneously. An August 2011 document indicated that a segment of the industry should be willing to reduce egg supply to achieve profitability. A November 15, 2004 article discussed oversupply issues in the egg industry and supported the idea that eliminating old hens could help manage supply without needing to halt new housing or reduce hatch. The SAC argues that increasing hen numbers while UEP-certified does not absolve Michael Foods of conspiracy allegations. The Court noted that the SAC did not provide evidence that prohibiting backfilling served legitimate business purposes like animal welfare. Furthermore, the UEP Certification Program involved self-reporting by producers and passing audits to maintain certification, but the Plaintiffs claimed the audit process prioritized supply restriction over promoting animal welfare, highlighting disparities in penalties related to animal welfare violations.

Plaintiffs argue that the guidelines for animal husbandry practices reveal inconsistencies in promoting humane treatment, noting that severe violations, such as high ammonia levels and cruel killing methods, only incur a minor audit penalty, while certain practices like improper cage spacing result in automatic audit failure. The SAC undermines their argument by highlighting that starvation-induced molting, deemed inhumane, also leads to audit failure. Molting, typically used to increase egg production, results in a temporary cessation of egg laying, with producers employing various methods, including light reduction and dietary restrictions, to induce it. Plaintiffs claim molting is a supply-restrictive practice, potentially aligning with the alleged conspiracy's goals. However, since one method of molting results in severe penalties, this complicates the assertion that audit penalties uniformly support the conspiracy's aims. The court acknowledges Michael Foods' participation in the UEP Certification Program but notes that not all facilities may adhere to the guidelines. Plaintiffs reference a 2006 UEP newsletter allowing non-certified egg producers to commit to the 100% cage space rule, implying that Michael Foods may only have made a commitment rather than fully comply. The court finds no alternative explanations in the SAC for achieving certification to obtain or retain a marketing license, noting a 2005 policy that restricts new licenses to certified producers.

The SAC articulates a motion aimed at preserving the integrity of the ACC program and logo due to challenges in preventing the mixing of certified and non-certified eggs, and ensuring equal treatment for all egg producers. However, a close reading indicates that these reasons may not reflect the actual motivations of the Committee members in voting for the motion. The purported explanations cannot be interpreted as reasons for companies to pursue or maintain certification for marketing licenses. Additionally, it is alleged that Wal-Mart, which had committed to purchasing UEP-certified eggs starting January 1, 2003, was still buying eggs from Sparboe in 2009, despite Sparboe's lack of UEP certification at that time. UEP attempted to dissuade Wal-Mart from this purchasing decision. The Court does not make any judgments regarding marketing practices or beliefs associated with various egg production methods. Plaintiffs argued that Daybreak was part of the UEP certification program, while other producers, such as Michael Foods and Rose Acre, are reported to have adopted UEP guidelines without necessarily obtaining certified status. Daybreak contests the claim of adopting UEP guidelines by referencing the UEP's Answer, which states that Daybreak has never been certified under the program. However, the Court notes that a co-defendant's Answer does not influence the analysis of the SAC under Rule 12(b)(6). The SAC also notes that the UEP Marketing Committee held meetings in Washington, D.C. in May and October 2008, where similar comments were made by the committee chairman.

Plaintiffs argue that two meetings involving identical company representatives and verbatim comments from the chairman should be considered separate, despite the defense's claim that Daybreak was merely a passive attendee at UEP meetings. They suggest that Daybreak voted at these meetings to coordinate and reduce flock sizes, inferring involvement in a conspiracy. However, the Second Amended Complaint (SAC) lacks factual support for Daybreak’s active participation or affirmative voting at these meetings. Notably, while the UEP board approved actions to reduce flock sizes, including one instance with no recorded dissent, the absence of dissent does not confirm that Daybreak voted or participated actively, as many board members could have abstained or been absent. The court highlights the need for caution against drawing "false inferences" from the allegations, referencing Twombly’s warning about insufficient evidence of parallel conduct. The court suggests that disputes may be resolved informally or through summary judgment as more evidence becomes available, emphasizing the importance of a focused discovery plan tailored to the unique circumstances of each defendant, particularly in light of similar allegations against other defendants.

The Court finds the allegations against Rose Acre insufficient to demonstrate its involvement in the alleged conspiracy. The Second Amended Complaint (SAC) states that Rose Acre participated in the USEM export program starting in late 2006, coinciding with the program's expansion after a three-year hiatus in exports. However, the SAC lacks comparative data to substantiate claims about pricing differences between European and domestic markets, particularly failing to provide domestic price comparisons when asserting that European egg prices were lower.

Rose Acre does not specify which parts of the SAC mention a prohibition related to production capacity and hen loss. Although the SAC references UEP Certified guidelines that purportedly restrict adding capacity, no authenticated guidelines have been submitted by any defendant. The Court notes that while Twombly permits judicial notice of published articles cited in complaints, it is inapplicable here as Rose Acre did not provide a valid basis for judicial notice of the materials it attached to its motion.

The Court emphasizes that judicial notice remains at the trial judge's discretion and adheres to Third Circuit standards when considering materials beyond the pleadings. The UEP Certification guidelines are seen as potentially relevant to the plaintiffs' antitrust claims, but this point is academic as no authenticated guidelines have been provided. The plaintiffs' interpretation of these arguments appears to be misconstrued.

Plaintiffs assert that a defendant's late entry into a conspiracy does not exempt them from liability for actions that occurred prior to their involvement. This argument is deemed irrelevant to Rose Acre's motion, which claims its latecomer status negates participation in a conspiracy to limit egg supply. The Court will not determine the liability of latecomers in civil antitrust cases, noting that the Third Circuit has not definitively ruled on this matter. Generally, civil liability remains unaffected by the duration of participation in a conspiracy, and co-conspirators may be accountable for actions taken before their involvement.

Plaintiffs argue that not all defendants need to participate in every coordinated action throughout the conspiracy's duration, asserting that the defendants agreed to manipulate supply and adjusted their methods over time. The viability of this theory will be assessed later in the litigation, considering whether the evidence presents a coherent conspiracy. Ohio Fresh raises a latecomer argument, but the Court does not recognize it as significant in avoiding liability. Evaluating Ohio Fresh's claims would require examining compliance with court orders, which is inappropriate at the motion to dismiss stage. The Court indicates that it may take judicial notice of other courts' opinions during this stage.

The document addresses the distinction between the existence of an opinion and the truth of the facts presented, emphasizing that the opinion is not open to reasonable dispute regarding its authenticity. Hillandale Farms of Pennsylvania Inc. is a defendant in the case and has submitted an answer to the Second Amended Complaint (SAC). The Hillandale Entities argue that the term "vertical integration" suffers from the same vagueness as "governing sponsor," which was criticized in the Jung v. Association of American Medical Colleges case. In that case, the court found the term lacked clarity and did not allow for inferences based on vague allegations. The document notes that while plaintiffs are favored on motions to dismiss, vague claims cannot be the basis for drawing inferences.

Furthermore, the text states that leave to amend a complaint should generally be granted unless it would be unjust. The Hillandale Entities request that the SAC be dismissed with prejudice, citing fairness concerns regarding further amendments causing additional expense and delay. However, the court finds these concerns insufficient to deny the plaintiffs the opportunity to amend, expecting any new amendment to be more substantive than previous claims.

Additionally, there are conflicting assertions within the SAC regarding the UEA's state of incorporation, with one paragraph stating it exists under Georgia law while another indicates it is organized in the District of Columbia. There is also a conflicting claim about Chad Gregory's position within the UEA. The court advises that if the plaintiffs seek to amend their complaint, they should include a "redline version" to track changes and provide an electronically searchable format of the amended pleading for ease of review.