Case: 1:16-cv-08637 Document #: 4210 Filed: 01/22/21 Page 1 of 74 PageID #:279166
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`
`
`UNITED STATES DISTRICT COURT
`FOR THE NORTHERN DISTRICT OF ILLINOIS
`EASTERN DIVISION
`
`
`IN RE BROILER CHICKEN ANTITRUST
`LITIGATION
`_______________________________________
`
`THIS DOCUMENT RELATES TO:
`DIRECT PURCHASER ACTIONS
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`
`
`
`
`
` Case No: 1:16-cv-08637
`
` Judge Thomas Durkin
` Magistrate Judge Jeffrey T. Gilbert
`
` [PUBLIC, REDACTED]
`
`
`
`DEFENDANTS’ OPPOSITION TO DIRECT PURCHASER PLAINTIFFS’
`MOTION FOR CLASS CERTIFICATION
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`Case: 1:16-cv-08637 Document #: 4210 Filed: 01/22/21 Page 2 of 74 PageID #:279167
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`
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`TABLE OF CONTENTS
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`Page
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`PRELIMINARY STATEMENT .................................................................................................... 1
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`FACTUAL BACKGROUND ......................................................................................................... 8
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`A.
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`Broiler Basics. ......................................................................................................... 8
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`1.
`
`2.
`
`All Chicken Is Not Equal: Distinct Market Segments And Products ......... 8
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`Feed Prices Cannot Be Ignored. ................................................................ 11
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`B.
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`Chronology Of Key Events: The “Perfect Storm.” ............................................... 12
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`1.
`
`2.
`
`3.
`
`4.
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`5.
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`6.
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`2005-2007: The Renewable Fuel Standard (RFS) Passes And The
`USDA Forecasts Production Cuts In The Broiler Industry. ..................... 12
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`Corn Prices Spike To Record Highs In 2008. ........................................... 13
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`The Great Recession. ................................................................................ 14
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`Industry Reaction: Financial Losses, Bankruptcies, And Supply
`Adjustments. ............................................................................................. 15
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`2011–2012: Corn Prices Shatter Previous Records, Devastate The
`Industry, And Lead To More Bankruptcies. ............................................. 17
`
`Producers Once Again Reacted Differently, Showing There Were
`No Unilateral Or Coordinated Cuts During The Class Period. ................. 19
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`C.
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`DPP Class Members Faced Different Contracting And Pricing Dynamics. ......... 20
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`1.
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`2.
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`3.
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`Purchasing Volume & Bargaining Power. ................................................ 20
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`Contracting Practices. ............................................................................... 21
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`Direct Purchasers Paid Different Prices. ................................................... 22
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`D.
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`Plaintiffs’ Expert Model. ...................................................................................... 23
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`ARGUMENT ................................................................................................................................ 24
`
`I.
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`The “Foundation” of Plaintiffs’ Model Is Unreliable And Violates Comcast. ................. 25
`
`A.
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`Plaintiffs’ Structural Break Supply Analysis Is Fundamentally Unreliable. ........ 27
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`1.
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`The Model Is Inherently Unreliable: Ignores Demand & Costs. ............. 27
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`
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`2.
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`Dr. Carter’s Model Ignores The Individual Defendants’ Production
`Decisions That Contradict His Conclusions. ............................................ 28
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`B.
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`Plaintiffs’ Model Also Fails Under Comcast v. Behrend. .................................... 32
`
`1.
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`2.
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`Models That Sweep In Lawful Conduct Cannot Support
`Certification. ............................................................................................. 33
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`Plaintiffs’ Model Does Not Even Try To Isolate Unlawful Conduct ....... 35
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`C.
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`These Basic Failures Doom the DPPs’ Entire Motion.......................................... 41
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`II.
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`Dr. Carter’s Models Do Not Demonstrate That Injury Is Susceptible To Common
`Proof. ................................................................................................................................. 42
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`A.
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`B.
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`C.
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`D.
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`Dr. Carter’s Overcharge Model Uses Bad Assumptions. ..................................... 43
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`Dr. Carter Cannot Mask These Individualized Problems With Averages. ........... 51
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`Dr. Carter’s Overcharge Model Leads To Absurd Results. .................................. 54
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`Dr. Carter’s Two “Tests” Do Not Show Common Impact Either. ....................... 55
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`1.
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`2.
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`3.
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`Dr. Carter’s First “Test” Does Not Match Reality, Applies The Same
`Uniform Overcharges, And Generates False Positives. ............................ 55
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`Dr. Carter’s Second “Test” Extrapolates From His Flawed
`Benchmark And Projects Impossible Prices. ............................................ 57
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`Dr. Carter’s Ipse Dixit Also Does Not Show Common Injury. ................ 58
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`E.
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`Plaintiffs Do Not Have Any Methodology For Showing Damages, Either. ......... 59
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`CONCLUSION ............................................................................................................................. 60
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`ii
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`
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`Cases
`
`TABLE OF AUTHORITIES
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`
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`Page(s)
`
`In re Aluminum Warehousing Antitrust Litig.,
`336 F.R.D 5 (S.D.N.Y. 2020) (“In re Aluminum”) ......................................................... passim
`
`Cates v. Whirlpool Corp.,
`2017 WL 1862640 (N.D. Ill. May 9, 2017) .........................................................................3, 28
`
`In re Catfish Antitrust Litig.,
`826 F. Supp. 1019 (N.D. Miss. 1993) ......................................................................................50
`
`Comcast Corp. v. Behrend,
`569 U.S. 27 (2013) ........................................................................................................... passim
`
`Concord Boat Corp. v. Brunswick Corp.,
`207 F.3d 1039 (8th Cir. 2000) .................................................................................................54
`
`Food Lion, LLC v. Dean Foods Co.,
`312 F.R.D. 472 (E.D. Tenn. 2016) .....................................................................................49, 57
`
`Gen. Leaseways, Inc. v. Nat’l Truck Leasing Assoc.,
`744 F.2d 588 (7th Cir. 1984) ...................................................................................................50
`
`In re Graphics Processing Units Antitrust Litig.,
`253 F.R.D. 478 (N.D. Cal. 2008) .................................................................................49, 54, 59
`
`Hughes v. Baird & Warner, Inc.,
`30 Fed. R. Serv. 2d 704 (N.D. Ill. 1980) .................................................................................50
`
`Kleen Products LLC v. Int’l Paper Co.,
`831 F.3d 919 (7th Cir. 2016) .............................................................................................50, 51
`
`In re Lamictal Direct Purchaser Antitrust Litig.,
`957 F.3d 184 (3d Cir. 2020).....................................................................................................51
`
`Messner v. Northshore Univ. Healthsystem,
`669 F.3d 802 (7th Cir. 2012) ...................................................................................................50
`
`In re New Motor Vehicles Canadian Export Antitrust Litig.,
`522 F.3d 6 (1st Cir. 2008) ........................................................................................................35
`
`In re Optical Disk Drive Antitrust Litig.,
`303 F.R.D. 311 (N.D. Cal. 2014) .......................................................................................49, 53
`
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`iii
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`
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`People Who Care v. Rockford Bd. of Educ., Sch. Dist. No. 205,
`111 F.3d 528 (7th Cir. 1997) .................................................................................................3, 4
`
`In re Pharmacy Benefit Managers Antitrust Litig.,
`2017 WL 275398 (E.D. Pa. Jan. 18, 2017) ..............................................................................34
`
`In re Photochromatic Lens Antitrust Litig.,
`2014 WL 1338605 (M.D. Fla. April 3, 2014) ..............................................................49, 53, 59
`
`In re Pilgrim’s Pride Corp.,
`448 B.R. 896 (Bankr. N.D. Tex. 2011) ..............................................................................15, 16
`
`Polaroid Corp. v. Eastman Kodak Co.,
`1990 WL 324105 (D. Mass. Oct. 12, 1990).................................................................40, 54, 58
`
`In re: Processed Egg Prod. Antitrust Litig.,
`2016 WL 410279 (E.D. Pa. Feb. 3, 2016) ..............................................................................35
`
`In re Processed Egg Prods. Litig.,
`312 F.R.D. 171 (E.D. Pa. 2015) .........................................................................................48, 53
`
`In re Rail Freight,
`292 F. Supp. 3d 14 (D.D.C. 2017), aff’d, 934 F.3d 619 (D.C. Cir. 2019) ...................25, 34, 57
`
`In re Rail Freight Fuel Surcharge Antitrust Litig.,
`725 F.3d 244 (D.C. Cir. 2013) .......................................................................................7, 25, 42
`
`Reed v. Advocate Health Care,
`268 F.R.D. 573 (N.D. Ill. 2009) ....................................................................................... passim
`
`In re Steel Antirust Litig.,
`2015 WL 5304629 (N.D. Ill. Sept. 9, 2015) .................................................................... passim
`
`Whitserve, LLC v. Comput. Packages, Inc.,
`694 F.3d 10 (Fed. Cir. 2012)........................................................................................39, 54, 58
`
`Statutes
`
`42 U.S.C. § 7545 ............................................................................................................................12
`
`Rules
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`Fed. R. Civ. P. 23 ................................................................................................................... passim
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`iv
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`PRELIMINARY STATEMENT
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`The Direct Purchaser Plaintiffs (DPPs or Plaintiffs)1 have no common methodology that
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`can demonstrate class-wide impact or damages, and so cannot meet the Rule 23(b)(3)
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`predominance requirement. The DPPs rely exclusively on the models of their expert, Dr.
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`Carter. But Dr. Carter’s models are rigged and thus cannot withstand the “rigorous analysis”
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`required by Comcast Corp. v. Behrend, 569 U.S. 27 (2013). All of his modeling depends on first
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`identifying when the conspiracy began and ended, i.e., a “conspiracy period.” To do this, he
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`purports to compare expected levels of broiler supply to actual levels.
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` These are not minor omissions, nor can any reliable
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`analysis disregard them. They are the direct explanation for why some producers independently
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`and rationally cut back in 2008 and 2011: the Great Recession and the two largest feed price spikes
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`in the nation’s history.
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`produce different size birds: small (fast food), medium (grocery store), and large (food service).
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` Different Defendants
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`1 117 direct purchasers—representing 59% of sales—opted out of the class to proceed as Direct Action Plaintiffs.
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`1
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`Demand in each channel varies significantly, as we have all experienced during the COVID-19
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`pandemic, in which many restaurants closed for months.
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`As Defendants' expe1i economist, Dr. John H. Johnson IV, observes,
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`Ex. 1, Dr. John Johnson Report ("Johnson") ,nr 24, 221. -
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`This defies common sense-and does not withstand the "rigorous
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`analysis" the Comi must perfonn at class certification. Comcast, 569 U.S. at 35.
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`While its flaws are many, Dr. Calier's three-pali analysis is quite simple:
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`•
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`Because that conclusion is the "foundation"
`of all of his subsequent modeling, this failure is fatal.
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`2
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`To show common impact, DPPs' model must be sufficiently reliable to survive a "rigorous
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`analysis." Comcast, 569 U.S. at 35. It must account for "salient explanato1y variables." People
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`Who Care v. Rockford Bd. of Educ., Sch. Dist. No. 205, 111 F.3d 528, 537-38 (7th Cir. 1997). It
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`cannot "ignore evidence." Cates v. Whirlpool C01p., 2017 WL 1862640, at *15 (N.D. Ill. May 9,
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`2017).
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`In other words, the model must be "methodologically sound" in order to show
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`predominance under Rule 23. In re Aluminum Warehousing Antitrust Litig., 336 F.R.D 5, 47
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`(S.D.N.Y. 2020) ( "In re Aluminum'') . For the reasons summarized below and discussed more
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`fully in this memorandum, Dr. Carter's model does not withstand a "rigorous analysis"-it does
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`not even survive a curso1y one.
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`As discussed in Section I.A,
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`Caii er ,I,I 48, 177-79. (cid:127)
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`And, if common sense is not persuasive enough, then the
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`USDA's top economists should be. The USDA has an entire department of economists devoted
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`to modeling broiler supply, and they were remarkably accurate in predicting the small supply dips
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`3
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`in 2008 and 2011. And while the USDA’s analysis looks at many variables (in comparison to
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` it emphasizes the importance of one: feed prices.
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`Corn prices rose to their highest levels in history in 2008 and 2011. That is a devastating
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`fact that must not be ignored—as one neutral third-party agricultural economist explained, it is
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`well understood that when there are “higher corn prices, the cost of producing . . . chicken . . .
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`increases,” and “[t]his reduces industry profits and causes at least some producers to scale back
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`production.” Ex. 2, P. Westhoff (Food and Agricultural Policy Research Institute, University of
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`Missouri), “Economics of Food,” at 22-23.
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`Ex. 3, Carter Dep. 106:4-7. His Structural Break Supply Analysis does not control for
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`the corn-price disasters that befell the industry at all, and so is fatally unreliable. People Who
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`Care, 111 F.3d at 537-38 (a model “that fails to correct for salient explanatory variables . . . has
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`no value as causal explanation and is therefore inadmissible in a federal court”).
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` All of this underscores that the analysis makes no
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`attempt to explain the choices or predicaments facing each individual broiler producer.
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`As discussed in Section I.B, the
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`it does not meet the requirements of Comcast Corp. v. Behrend, 569 U.S. 27
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`(2013).
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`Doing so is not optional; it is a Supreme Court requirement. Comcast, 569 U.S. at 35.
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` Johnson ¶ 213.
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`4
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`Put another way, Dr. Carter makes no effort to answer the question:
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` The need to answer that question isn’t theoretical; the USDA itself testified
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` Ex. 4, Shagam (USDA) Dep. 66:13-67:2; 68:22-
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`69:13. Indeed, at least five producers—including the largest processor at the time—went bankrupt
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`during the class period, and nearly all lost millions.
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` That is modeling irrational behavior,
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`not the real world. And it certainly is not measuring what cuts happened because of conspiracy.
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`Cf. Comcast, 569 U.S. at 35; In re Aluminum., 336 F.R.D. at 57 (denying certification because the
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`“models are repeatedly insensitive to conduct which is conspiratorial and conduct which is not”).
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`Next, as set out in Sections II.A and II.B,
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` Courts repeatedly warn against such lumping and averaging in complex cases
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`like this one. See, e.g., Reed v. Advocate Health Care, 268 F.R.D. 573, 592 (N.D. Ill. 2009) (“[T]he
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`5
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`relative movements of mere averages . . . do not prove common impact to individual [class
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`members].”); In re Steel Antirust Litig., 2015 WL 5304629, at *11 (N.D. Ill. Sept. 9, 2015)
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`(denying class certification where average regression model did not account for “the realities of
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`the steel industry”).
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`The problem with lumping and averaging is that it masks variation: the highs and the lows.
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`Perhaps a customer paid $1.00 for a breast and another paid $2.00 for a wing. Or Costco paid $.75
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`for a breast and another customer (with less bargaining power) paid $1.50.
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` Johnson ¶ 265.
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`or common under the law. Reed, 268 F.R.D. at 592.
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`Moreover, as discussed in Section II.C,
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` That is not acceptable, reliable,
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`6
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`Johnson Ex. 3 & ¶ 25.
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` required under Rule 23. Comcast, 569 U.S. at 27, 37.
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` In re Rail Freight
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`Fuel Surcharge Antitrust Litig., 725 F.3d 244, 252-53 (D.C. Cir. 2013).
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`This is a complex case involving 19 producer Defendants; 43.6 million transactions; and
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`over 20,000 products. But while the facts are complex, the problems with DPPs’ motion are not.
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`Their sole expert, Dr. Carter, cuts corners, ignores critical facts, tries to take the easy way out by
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`“methodologically sound” model that shows class-wide impact and that can withstand “rigorous[]
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`examin[ation].” In re Aluminum, 336 F.R.D. at 46. That, DPPs have not provided; not even close.
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` Rule 23 demands more. It demands a
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`7
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`FACTUAL BACKGROUND
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`A.
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`Broiler Basics.
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`1.
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`All Chicken Is Not Equal: Distinct Market Segments And Products.
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`in demand may manifest in one market segment (e.g., restaurants) while other segments might
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`experience those changes differently. Indeed, this happened during the Great Recession, and more
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`recently, as our common experience shows, during the COVID-19 pandemic.
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`This matters. Changes
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`a.
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`Bird Size: Small, Medium, and Large.
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`There are three distinct "segments" in the market for broiler products, each of which
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`purchases chicken from different sizes of birds: Small, Medium, and Large. These sizes refer to
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`the physical size of the birds grown for consumption, which are tailored to different uses.2
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`•
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`•
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`•
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`Small Birds: These are broilers typically under 4.5 pounds, sold to fast food
`restaurants that buy chicken priced on a per pound basis, and sell it per piece. Ex.
`6, USDA Broiler Market News Report, Dec. 2019; Caiier Dep. 150:23-25.
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`Medium Birds: These 4.5 to 8 pound "trny pack" birds ai·e most commonly sold
`in groce1y stores, for sale to customers in styrofoam trays. Ex. 6, USDA Broiler
`Mai·ket News Repo1i, Dec. 2019; Johnson ~ 79.
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`Big Birds: These birds are over 8 pounds, and are most commonly de-boned by
`the producer and then sold to food service distributors. Johnson ~ 78.
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`Supply thus vai·ies for each type of bird. And different Defendants operate in different segments:
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`2
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`8
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`Johnson Ex. H-6.
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` Id.
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` Ex. 7, Reese Dep. 72:17-74:6.
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`Demand varies by Bird Size as well. Restaurant demand may go up, particularly in a strong
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`economy. In contrast, during the Great Recession, restaurant demand plummeted.
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` Johnson ¶ 78.
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` Id.
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`Defendants cannot easily change a Big Bird plant to a Small Bird, and so on: converting
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`a plant to a new bird size requires extensive, costly overhauls of factory equipment. Ex. 8, Downes
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`30(b)(6) Dep. 36:6-37:22; Johnson ¶ 85.
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` Ex. 9, Kenney Dep. 63:17-22 (emphasis added); see also Ex. 10,
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`Windham Dep. 373:11-13.
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`9
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`b.
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`Different Production Responses.
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`Changes in output varied across segments
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`Caiier Dep. 152:16-153:1.
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`Johnson Ex. 13. The same is hue of the second period 2011 to 2012. Id. Ex. 14.
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`Fai· from "coordinated" reactions, producers made widely vaiying decisions. For example,
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`Koch increased its Medium Bird output 13% and decreased its Small Bird output 5% in 2008- 09.
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`c.
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`Broiler Parts: Breasts, Wings, and More.
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`case for different bird sizes, demand and pricing dynamics va1y widely for different paiis as well.
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`Id. ,r,r 73-74 & Ex. 5. As is the
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`Caiier Dep. 24:8-9, doing nothing to address the fact that different paiis may nonetheless be
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`demanded differently. This is because different types of customers prefer different cuts. For
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`example, groce1y stores tend to buy breasts, whereas ce1iain restamants
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`Johnson ,r,r 73-74. Plaintiffs' expe1i(cid:173)
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`Carter Dep
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`201 :24-202:5.
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`Johnson ,r 139 (emphasis added). Even when averaged across all different
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`10
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`types of customers, the prices of different cuts behave differently.
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`Johnson Ex. 19.
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` Johnson ¶ 282.
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` Id.
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`2.
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`Feed Prices Cannot Be Ignored.
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` Carter Dep. at 103:1-6.
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`100:22-101:3.
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` Id. at 106:4-7.
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` Id. at
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`Accordingly, when corn prices get too high, producers lose money on each bird sold. As
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`detailed below, that is exactly what happened during both 2008 to 2009 and 2011 to 2012,
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` Johnson ¶ 134.
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`11
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`B.
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`Chronology Of Key Events: The “Perfect Storm.”
`1.
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`2005-2007: The Renewable Fuel Standard (RFS) Passes And The USDA
`Forecasts Production Cuts In The Broiler Industry.
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`
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`The RFS—first passed by Congress in 2005 but not fully implemented until 2007—
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`mandated that gasoline sold in the United States must contain a certain percentage of ethanol,
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`which increased over time. 42 U.S.C. § 7545.
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`-
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` Carter Dep. 90:6-19.
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`anticipated adverse effects on the broiler industry from the RFS as early as 2007.
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`The USDA—which has a significant role in analyzing broiler supply, price, and demand3—
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`-
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` Shagam (USDA) Dep. 17:23-18:7.
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` Id. at 26:4-19. And from 2006 to
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`2007, the USDA significantly reduced its projection for broiler production as a result of the RFS.
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`Ex. 14, 2007 USDA Projections at 51; Ex. 15, 2006 USDA Projections at 49; see also infra at I.B.
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`That is, USDA forecasts dating back to February 2007—22 months before the start of the
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`class period—forecasted supply reductions for reasons that have nothing to do with conspiracy,
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`but instead because corn prices began to rise in 2007 in reaction to the RFS. USDA economists
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`thus completed—contemporaneously—the same broiler supply analysis Dr. Carter purports to
`
`
`Agricultural
`3 Ex.
`11,
`USDA
`National
`https://www.nass.usda.gov/About_NASS/index.php.
`
`Statistics
`
`Service,
`
`available
`
`at
`
`4 E.g., Ex. 12, USDA, Economics, Statistics, and Market Information System, “Chicken & Eggs” (reports covering
`egg sets, pullet placements); Ex. 13, Agricultural Marketing Service, “Broiler Market News Report” (covering
`pounds, head produced), both available at http://usda.library.cornell.edu.
`
`
`
`
`
`12
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`

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`Case: 1:16-cv-08637 Document #: 4210 Filed: 01/22/21 Page 18 of 74 PageID #:279183
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`
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`conduct. Infra at I.B. Both the USDA and Dr. Carter observed reduced output at the start of the
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`proposed class period. But the USDA attributed those reductions to the predictable results of
`
`higher feed costs,
`
` It bears emphasis: the USDA projected
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`reduced output across the broiler industry during the purported class period. As Shayle
`
`Shagam—a USDA economist who has analyzed the livestock sector for over three decades—
`
`testified,
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` Shagam (USDA) Dep. 176:9-178:18.
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`The USDA thus recognized what Plaintiffs and their expert, Dr. Carter, do not. Broiler production
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`declines—in the aggregate—were entirely predictable, and fully consistent with rational
`
`independent decisions.
`
`2.
`
`Corn Prices Spike To Record Highs In 2008.
`
`
`
`The USDA’s predictions were correct. The RFS led to a sharp and shocking spike in
`
`demand for corn. Between 2005 and 2011, the share of the U.S. corn crop used for ethanol rose
`
`from less than 20% to more than 40%. Ex. 16, Shagam (USDA) Dep. Ex. 977 at 8. That trend
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`continued throughout the class period, as the use of corn for ethanol eventually eclipsed the use of
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`corn for livestock feed. Ex. 17, Id. Ex. 990 at 20. On top of this backdrop of steadily rising corn
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`demand, unanticipated weather led to a shortfall in corn supply. The 2008 corn crop was
`
`significantly hampered by heavy rainfall and flooding in key corn-producing Midwest states.5
`
`
`
` Carter Dep. 92:3-12.
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`These dramatic spikes in the cost of chicken feed resulted in over $7.8 billion in additional costs
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`to the poultry industry between October 2006 and October 2008.6 Plaintiffs’ own expert admits
`
`
`5 Ex. 18, “2008 Midwestern U.S. Floods,” National Oceanic and Atmospheric Administration, available at
`ftp://ftp ncdc noaa.gov/pub/data/extremeevents/specialreports/2008 Midwestern US Floods.pdf.
`6 Ex. 19, M. Donohue & D.L. Cunningham, “Effects of Grain and Oilseed Prices on the Costs of US Poultry
`Production,” Journal of Applied Poultry Research, 18:325-337, at 334.
`
`
`
`
`13
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`

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`Case: 1:16-cv-08637 Document #: 4210 Filed: 01/22/21 Page 19 of 74 PageID #:279184
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`
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` Carter Dep. 99:5-8
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`
`
`
`
` This is why, in 2008, the USDA’s chief economist testified to Congress that “livestock
`
`and dairy producers will adjust to higher feed costs by reducing production.”7
`
`3.
`
`The Great Recession.
`
`
`
`Corn prices were not the only macro-economic headwind facing the industry in 2008. The
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`Great Recession—which officially ran from December 2007 through June 2009 and was the most
`
`severe economic downturn since the Great Depression—hit at the same time. Key components of
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`consumer demand plummeted: unemployment peaked at 10% in the fall of 2009, 8.7 million jobs
`
`were shed from the economy, and real GDP contracted by 4.2%.8 Along with general consumer
`
`demand, demand for broiler chicken products in particular fell sharply, declining by nearly six
`
`percent.9 The Great Recession significantly changed consumer spending habits: money spent
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`dining outside of the home declined precipitously.10 The restaurant industry reached its lowest
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`point in 30 years, and the share of food expenditures spent at restaurants had not yet reached pre-
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`recession levels in 2016, seven years after the Recession officially ended.11
`
`
`
` Carter Dep. 199:4-12.
`
`
`7 Ex. 20, Biofuels Impact on Food Prices, Before Comm. on Energy and National Resources, 110 Cong. 110-529
`(2008) (statement of J. Glauber, USDA).
`
`Shagam (USDA) Dep. 141:20-142:10; Ex. 21, U.S. Bureau of Labor Statistics, “Civilian Unemployment Rate.”
`8
`9 Christopher R. Sims, “Time Series Forecast Analysis in Wholesale Broiler Markets,” at 15 (Dec. 2017).
`10 See, e.g., Ex. 22, McCann Dep. 261:21-262:4; Ex. 23, Macaraeg Dep. 81:2-11; Shagam (USDA) Dep. 51:6-53:4.
`11 Ex. 24, TROYER.CHICKENS.017850-52 at 855 (mentioning “FS industry,” i.e. food service industry); Shagam
`(USDA) Dep. Ex. 978; Ex. 25, Sunding Dep. (Rough) 120:15-19 (“it was kind of a slow climb-out”).
`
`
`
`
`14
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`

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`Case: 1:16-cv-08637 Document #: 4210 Filed: 01/22/21 Page 20 of 74 PageID #:279185
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`4.
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`Industry Reaction: Financial Losses, Bankruptcies, And Supply
`Adjustments.
`
`99:5-12.
`
`Id. at 99:14-19.
`
`Ouier Dep.
`
`Caiier Fig. 12
`
`Ex. 27, Welch Dep. 372:11-16. Some producers-not surprisingly- seriously snuggled to meet
`
`their financial obligations to their lenders. The fonner President of Wayne Fanns testified that, in
`
`Ex. 26, Cogdill Dep. 259:14-1 8; see also
`
`2008:
`
`Carter Dep. 109:4-8. Wayne Farms survived the bust
`
`cycle, but others were not as fortunate. Most notably Pilgrim's Pride-the largest producer in
`
`2008-filed for bankrnptcy on December 1, 2008. As the Bankrnptcy Court explained:
`
`• Pilgrim's had to make production cuts in connection with its bankrnptcy because it "faced
`a choice between production cutbacks and corporate extinction." In re Pilgrim 's Pride
`Corp., 448 B.R. 896, 905-07 (Bankr. N.D. Tex. 2011) (emphasis added).
`
`15
`
`

`

`Case: 1:16-cv-08637 Document #: 4210 Filed: 01/22/21 Page 21 of 74 PageID #:279186
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`
`
`• The court emphasized: “the evidence is overwhelming that Debtors were incurring huge
`losses that could best be stemmed by reducing their production . . . The plants selected
`were poor performers and/or required immediate, substantial investment. Thus, Debtors
`clearly had a valid business purpose for their actions. It would not be possible for a
`reasonable jury to conclude otherwise.” Id. (emphasis added).
`
`Indeed, Pilgrim’s 2008–2009 plant closures in connection with its bankruptcy represented
`
`approximately 5% of total industry production. Ex. 29, PILGRIMS-0002555920 at 5923; Johnson
`
`¶ 103 & n. 197.
`
` Carter Dep. 207:2-8.
`
`
`
`Given the above, it would not have been at all surprising
`
`
`
`
`
` DPP Br. at 7. But, in reality, producers reacted to the
`
`deepening recession and ongoing corn costs not with uniform cuts, but instead with a zig-zag of
`
`differing decisions, as reflected in the chart showing the change from the last year of the pre-class
`
`period (Dec. 2007 – Nov. 2008) to the first year of the class period (Dec. 2008 – Nov. 2009):
`
`Johnson Ex. 11. As Dr. Johnson’s graph shows,
`
`
`
`
`
`
`
`
`12 This chart shows only a snapshot; other Defendants may have increased production over different periods. For
`instance, Claxton increased its average weekly live pounds slaughtered by 2% from calendar year 2008 to calendar
`year 2009. And
`
`
`
`
`16
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`

`

`Case: 1:16-cv-08637 Document #: 4210 Filed: 01/22/21 Page 22 of 74 PageID #:279187
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`5.
`
`2011-2012: Corn Prices Shatter Previous Records, Devastate The Industry,
`And Lead To More Bankruptcies.
`
`The staggering feed costs in 2008 would soon be bested in 2011 and 2012, when com
`
`reached $8 per bushel as a result of disastrous weather, and, in turn, a disastrnus com crop. -
`
`Ex. 34, Sanderson-
`
`0003048807. Following a rainy spring, the entire Com Belt experienced excessive heat, which
`
`led to drought conditions in some states. By August 2011, the USDA lowered its projections for
`
`the 2011 com harvest and projected com prices to reach $6.20 to $7.20 per bushel. Ex. 35, Aug.
`
`11 , 2011 USDA Supply and Demand Estimate at 2.
`
`2012, the US government predicted "the lowest yield in 17 years." 15 Com prices soared again,
`
`rising 50% between June and August 2012. Id. That summer, analysts con ectly predicted that
`
`Ca1ter Dep. at 99:20-25. By August
`
`13 Ex. 30, CASEFOODS0000620603 at 615; Ex. 31 , CASEFOODS0000620573 at 593.
`
`14 Ex. 32, OKFoods_0000368041 ; Ex. 33, OKFoods_0000936145.
`
`15 Ex. 36, Patti Domm, "Massive US Drought Leads to Worst Fears for Com Crop," CNBC (Aug. 10, 2012) .
`
`17
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`

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`Case: 1:16-cv-08637 Document #: 4210 Filed: 01/22/21 Page 23 of 74 PageID #:279188
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`
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`2012 corn prices would exceed $8 per bushel—besting records set just a year before in 2011.16 By
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`August 2012, the situation became so dire that the government intervened: the Secretary of
`
`Agriculture made the dramatic decision to purchase excess broiler chicken products through the
`
`United States government.17
`
`
`
`
`
` Ex. 39, Donohue Dep. 209:24-210:1, 190:16-21.
`
`In these disastrous circumstances, output reductions were,
`
` DPP Br. 5, an essential means of self-preservation. As the USDA put it in this very case:
`
`-
`
`
`
` Shagam (USDA) Dep. 19:22-
`
`
`
` Id. at 309:13-310:8 (emphasis
`
`20:1. Put simply:
`
`added). Underscoring that reality, analysts estimated that in 2012, broiler producers were losing
`
`between 5 and 10 cents on every pound they produced.19 Accordingly, the USDA again lowered
`
`its forecast for broiler supply. Ex. 41, July 11, 2012 USDA Estimate at 2, 4.
`
`Indeed, several producers declared bankruptcy during this period on account of
`
`unsustainable input costs and their inability to pass those on to customers:
`
`Townsends, Inc. declared bankruptcy on December 19, 2010.
`
`Carter ¶ 172. Townsends’ CFO swore that Townsend’s
`
`