throbber
CASE 0:20-cv-01414 Document 1 Filed 06/18/20 Page 1 of 81
`
`UNITED STATES DISTRICT COURT
`DISTRICT OF MINNESOTA
`
`ERBERT & GERBERT’S, INC.,
`
`Plaintiff,
`
`Case No.
`
`0:20-cv-1414
`
`v.
`
`JBS USA FOOD COMPANY HOLDINGS,
`TYSON FOODS, INC., CARGILL, INC., and
`NATIONAL BEEF PACKING COMPANY,
`
`Defendants.
`
`CLASS ACTION COMPLAINT
`
`DEMAND FOR JURY TRIAL
`
`

`

`CASE 0:20-cv-01414 Document 1 Filed 06/18/20 Page 2 of 81
`
`TABLE OF CONTENTS
`
`Page
`
`NATURE OF ACTION .................................................................................................. 1
`
`JURISDICTION AND VENUE ..................................................................................... 6
`
`I.
`
`II.
`
`III.
`
`PARTIES ........................................................................................................................ 7
`
`A.
`
`B.
`
`Plaintiff ............................................................................................................... 7
`
`Defendants .......................................................................................................... 8
`
`IV.
`
`TRADE AND COMMERCE .......................................................................................... 9
`
`A.
`
`B.
`
`Beef Distribution Chain ...................................................................................... 9
`
`Structure of the Beef Industry ............................................................................. 9
`
`1.
`
`2.
`
`3.
`
`4.
`
`The Beef Meatpacking Industry is Highly Concentrated. .................... 10
`
`The Meat-Packing Market Features High Barriers to Entry. ................ 11
`
`Beef is a commodity product. ............................................................... 12
`
`The Demand for Beef is Inelastic. ........................................................ 12
`
`V.
`
`VIOLATIONS ALLEGED ........................................................................................... 13
`
`A.
`
`B.
`
`C.
`
`D.
`
`E.
`
`F.
`
`Defendants Agreed to Reduce Slaughter Volumes. .......................................... 13
`
`The Agreement Resulted in Significantly Reduced Slaughter Volumes by the
`Defendants during the Class Period. ................................................................. 16
`
`Defendants Closed or Idled Plants, and Refrained from Expanding. ............... 17
`
`Defendants Publicly Signaled Each Other to Keep Slaughter and Capacity
`Restrained. ........................................................................................................ 21
`
`The Collusive Agreement to Reduce Resulted in an Increased Spread Between
`the Fed Cattle and Beef Prices. ......................................................................... 26
`
`Tyson and JBS Attribute Their Record 2017 & 2018 Profits to “Visibility” into
`the Beef Supply Chain. ..................................................................................... 27
`
`VI.
`
`ADDITIONAL FACTORS SUPPORTING THE EXISTENCE OF DEFENDANTS’
`CONSPIRACY ............................................................................................................. 29
`
`A.
`
`Defendants Took Advantage of Numerous Opportunities to Collude. ............. 29
`
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`CASE 0:20-cv-01414 Document 1 Filed 06/18/20 Page 3 of 81
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`B.
`
`C.
`
`D.
`
`E.
`
`The Defendants Supply Restraints Were Not Offset and Were Further
`Exacerbated by Reductions in Imports. ............................................................ 31
`
`Overcharges due to the cartel were passed through to the indirect purchaser
`class. .................................................................................................................. 32
`
`The Defendants actively concealed the conspiracy. ......................................... 33
`
`The Defendants’ conspiracy continues through the present. ............................ 40
`
`VII. CLASS ACTION ALLEGATIONS ............................................................................. 41
`
`VIII. ANTITRUST INJURY ................................................................................................. 44
`
`IX.
`
`CAUSES OF ACTION ................................................................................................. 45
`
`REQUEST FOR RELIEF ......................................................................................................... 75
`
`JURY TRIAL DEMANDED .................................................................................................... 77
`
`
`
`
`
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`CASE 0:20-cv-01414 Document 1 Filed 06/18/20 Page 4 of 81
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`Plaintiff brings this action on behalf of itself individually and on behalf of a plaintiff class
`
`consisting of all commercial and institutional indirect purchasers of beef that purchased beef other
`
`than directly from defendant or co-conspirator in the United States from at least January 1, 2015
`
`until the present (Class Period). Plaintiff brings this action for injunctive relief under Section 1 of
`
`the Sherman Act, and for treble damages under the antitrust laws, unfair competition laws,
`
`consumer protection laws, and unjust enrichment common laws of the several states against
`
`defendants, and demand a trial by jury.
`
`I.
`
`NATURE OF ACTION
`
`1.
`
`This is an antitrust class action for injuries sustained to the business and property
`
`of Plaintiff and the members of the Plaintiff Class from Defendants’ violations of Section 1 of the
`
`Sherman Act, and for treble damages under the antitrust laws, unfair competition laws, consumer
`
`protection laws, and unjust enrichment common laws of several states.
`
`2.
`
`From at least as early as 2015 through the present, the Defendants entered into a
`
`combination, contract or conspiracy to fix, maintain and raise the price of Beef to supracompetitive
`
`levels. They engaged in their scheme using mechanisms that included suppressing throughput of
`
`fed cattle1 thereby creating artificial Beef supply restraints. The conspiracy to suppress the
`
`throughput of fed cattle led to Beef prices paid by Plaintiff and commercial and institutional
`
`indirect purchaser class members being higher than they otherwise would have been in a
`
`competitive market.
`
`3.
`
`Beef is meat from full-grown cattle that is approximately 2 years old. “Boxed beef”
`
`is a combination of cuts subject to USDA grading. Price is the primary competitive factor. “Beef”
`
`
`1 Fed cattle are steers and heifers raised and fed for the production and sale of high-quality beef
`products. Fed-cattle does not include culled cows, which are primary used for dairy production,
`and then at the end of their dairy producing life, are slaughtered for lower quality ground beef.
`
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`CASE 0:20-cv-01414 Document 1 Filed 06/18/20 Page 5 of 81
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`for purposes of this complaint is defined as “boxed beef” and case ready cuts, and does not include
`
`ground beef from culled cows.
`
`4.
`
`5.
`
`The four Defendant families are the largest meatpacking companies in the world.
`
`Defendants’ scheme succeeded, in part, due to the structure of the Beef industry.
`
`The Defendants purchase fed cattle from farmers, process it into Beef, and sell the Beef
`
`downstream. Slaughter and packing are essential parts of the Beef supply chain.
`
`6.
`
`The Defendants account for over 80% of the Beef supplied to the wholesale market,
`
`thus collectively controlling a crucial component of the distribution chain. The meatpacking
`
`industry, therefore, is highly concentrated. This high industry concentration affords the Defendants
`
`market power with respect to both upstream fed cattle purchases and downstream Beef sales. As
`
`the “big four” players in this highly concentrated industry, the Defendants interact frequently at
`
`industry events and trade association meetings, and their respective executives are well-
`
`acquainted. The market is therefore highly conducive to collusion. Plaintiffs in several other
`
`actions have alleged the existence of a confidential informant. On information and belief on the
`
`basis of the allegations found in related actions, Plaintiff makes the following and all subsequent
`
`allegations relating to the confidential witness: the existence of the Defendants’ conspiracy is
`
`confirmed by at least one confidential witness account. A confidential witness previously
`
`employed by a Packing Defendant (“Witness 1”), has confirmed that each of the Defendants
`
`expressly agreed to reduce their respective purchase and slaughter volumes, which would have the
`
`effect of artificially raising the price of Beef. Witness 1’s account is corroborated by transactional
`
`data and slaughter volume records reported by Defendants and published by the United States
`
`Department of Agriculture (“USDA”), as well as Defendants’ public calls for industry-wide
`
`slaughter and capacity reductions.
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`CASE 0:20-cv-01414 Document 1 Filed 06/18/20 Page 6 of 81
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`7.
`
`Defendants engaged in periodic and parallel slaughter reductions throughout the
`
`Class Period. The impact of Defendants’ respective slaughter reductions upon their annual
`
`slaughter volumes is illustrated in the below figure. This figure compares the average annual
`
`slaughter volume of the Defendants during the pre-Class Period and the portion of the Class Period
`
`for which data exists against that of the other US beef packers. It shows that Defendants all reduced
`
`their annual slaughter volumes relative to the pre- Class Period, while independent regional
`
`packing businesses (“Independent Packers”) increased their slaughter volume.
`
`
`
`8.
`
`The Defendants’ profitability is driven by the “meat margin,” which is the spread
`
`between the price packers pay for fed cattle and the price they charge for Beef. As the supply of
`
`fed cattle is insensitive to short-term changes of price – owing to the long life cycle of fed cattle,
`
`their perishable nature, and their lack of any alternative use – and as Beef demand is relatively
`
`insensitive to changes in price, the meat margin is very sensitive to changes in aggregate industry
`
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`CASE 0:20-cv-01414 Document 1 Filed 06/18/20 Page 7 of 81
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`slaughter levels. A collusive restraint on the volume of the purchase of fed cattle naturally creates
`
`an artificial restraint on the supply of Beef. This decrease in purchase and throughput has the effect
`
`of artificially suppressing the prices paid for fed cattle and artificially raising the price of Beef
`
`above the levels which would prevail in a freely competitive market. The Defendants, in this way,
`
`increased the meat margin, and thus their profitability, by working cooperatively to reduce their
`
`respective slaughter volumes.
`
`9.
`
`The Beef market saw a marked change in pricing practices in 2015. Before 2015,
`
`the prices of fed cattle and Beef moved in tandem: as one would expect, lower cattle prices usually
`
`led to correspondingly lower wholesale Beef prices. After 2015 when Defendants collusively cut
`
`production, however, this fundamental economic relationship was altered. Suddenly, the degree of
`
`correlation of cattle and Beef prices diverged to the benefit of the Defendants, and without credible
`
`explanation. The relevant supply and demand factors in the industry no longer explained the prices
`
`being seen by purchasers. Wholesale Beef prices showed unusual trends starting in 2015. The per
`
`pound price of cattle had historically stayed within 20 to 40 cents of the per pound wholesale price
`
`of Beef on average, but in 2015, the spread between those prices increased dramatically, as seen
`
`on the chart below.
`
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`CASE 0:20-cv-01414 Document 1 Filed 06/18/20 Page 8 of 81
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`
`
`10.
`
`There was a steep decline in the price of fed cattle starting in 2015 where
`
`meatpackers did not purchase as much of the farmers’ fed cattle inventory. But wholesale and
`
`other prices remained high relative to the price of fed cattle. This incongruous pricing trend
`
`continued into 2016: although cattle prices had fallen to pre-2014/2015 levels, wholesale and other
`
`Beef prices remained high relative to cattle prices. Defendants’ burgeoning meatpacker cartel had
`
`realized that if no meatpacker “broke rank” to increase throughput of fed cattle to the unmet
`
`demand for beef, the “big four” could increase their profitability by achieving and maintaining
`
`unprecedented high wholesale prices relative to fed cattle prices.
`
`11.
`
`The Defendants’ conspiracy and exercise of their market power in both the
`
`upstream and downstream markets allowed them to grow their operating margins steadily from
`
`2015 through 2018. By the end of 2018, Tyson and JBS, the two publicly traded Beef packers,
`
`were reporting record operating margins in their beef business. That year, Tyson reported beef
`
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`CASE 0:20-cv-01414 Document 1 Filed 06/18/20 Page 9 of 81
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`business operating margins of nearly 7 percent,2 almost double its 2014 operating margins, and
`
`JBS reported beef business margins of 10.2 percent.3 As industry reporter Cassandra Fish noted at
`
`the time, the Defendants “no longer compete[d]” and were enjoying “gangbuster profits.”4
`
`12. Aside from the information provided by Witness 1, numerous “plus factors”
`
`support the inference of collusion by the meatpackers during the Class Period, including high
`
`barriers to entry, high industry consolidation and concentration, inelastic supply and demand,
`
`unusual market share stability, economic factors that are consistent with the existence of a
`
`horizontal conspiracy, a homogenous product, and ample opportunities to conspire.
`
`13.
`
`Because of Defendants’ unlawful conduct, Plaintiff and the commercial and
`
`institutional indirect purchaser class paid artificially inflated prices for Beef during the Class
`
`Period, and Beef prices during the Class Period were greater than they otherwise would have been
`
`in a competitive market. Plaintiff and class members therefore suffered antitrust injury and injury
`
`to their business or property because of Defendants’ illegal conduct.
`
`II.
`
`JURISDICTION AND VENUE
`
`14.
`
`Plaintiff brings this action under Section 16 of the Clayton Act (15 U.S.C. § 26) to
`
`secure injunctive relief against defendants for violating Section 1 of the Sherman Act (15 U.S.C.
`
`§ 1). Plaintiff also brings these state law class claims on behalf of all the classes to recover actual
`
`and/or compensatory damages, double and treble damages as permitted, pre- and post-judgment
`
`interest, costs, and attorneys’ fees for the injury caused by defendants’ conduct in restricting the
`
`supply of beef and increasing the price of beef. Plaintiff seeks damages in excess of $5,000,000.
`
`
`2 Tyson November 13, 2018 Q4 Earnings Call.
`3 JBS August 15, 2018 Q2 Earnings Call.
`4 Cassandra Fish, “Whatever Happened to a Fair Fight,” The Beef (Nov. 10, 2015),
`https://www.thebeefread.com/2015/11/10/whatever-happened-to-a-fair-fight/.
`
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`CASE 0:20-cv-01414 Document 1 Filed 06/18/20 Page 10 of 81
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`This Court has subject matter jurisdiction under 28 U.S.C. §§ 1331, 1337, and Sections 4 and 16
`
`of the Clayton Act, 15 U.S.C. §§ 15(a) and 26.
`
`15. Venue is appropriate in this District under 28 U.S.C. § 1391(b), (c) and (d) because
`
`one or more defendants resided or transacted business in this District, is licensed to do business or
`
`is doing business in this District, and because a substantial portion of the affected interstate
`
`commerce described herein was carried out in this District.
`
`16.
`
`This Court has personal jurisdiction over each defendant because, inter alia, each
`
`defendant: (a) transacted business throughout the United States, including in this District; (b)
`
`manufactured, sold, shipped, and/or delivered substantial quantities of beef throughout the United
`
`States, including in this District; (c) had substantial contacts with the United States, including in
`
`this District; and/or (d) engaged in an antitrust conspiracy that was directed at and had a direct,
`
`foreseeable, and intended effect of causing injury to the business or property of persons residing
`
`in, located in, or doing business throughout the United States, including in this District.
`
`17.
`
`The activities of the defendants and all co-conspirators, as described herein, were
`
`within the flow of, were intended to, and did have direct, substantial, and reasonably foreseeable
`
`effects on, the foreign and interstate commerce of the United States.
`
`A.
`
`Plaintiff
`
`III. PARTIES
`
`18.
`
`Plaintiff Erbert & Gerbert’s, Inc., operates a sandwich shop in Eau Claire,
`
`Wisconsin. During the Class Period, Plaintiff purchased beef in Wisconsin, once or more, other
`
`than directly from Defendants, entities owned or controlled by Defendants, or other producers of
`
`beef. The beef purchased by Plaintiff was impacted by the conduct of one or more of the
`
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`CASE 0:20-cv-01414 Document 1 Filed 06/18/20 Page 11 of 81
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`Defendants, constituting an antitrust violation as alleged herein, and plaintiff suffered monetary
`
`loss as a result of the antitrust violations alleged herein.
`
`B.
`
`Defendants
`
`19.
`
`Cargill, Incorporated (Cargill)
`
`is a privately held Delaware corporation
`
`headquartered in Minnetonka, Minnesota. During the Class Period, Cargill and/or its predecessors,
`
`wholly owned or controlled subsidiaries, or affiliates sold beef in interstate commerce, directly or
`
`through its wholly owned or controlled affiliates, to purchasers in the United States.
`
`20.
`
`JBS USA Food Company Holdings (JBS USA) is a subsidiary of Brazilian-based
`
`JBS SA. JBS Food Company Holdings is a Delaware corporation, headquartered in Greeley,
`
`Colorado. JBS USA Food Company Holdings holds a 78.5 percent controlling interest in Pilgrim’s
`
`Pride Corporation, one of the largest chicken-producing companies in the world. During the Class
`
`Period, JBS USA and/or its predecessors, wholly owned or controlled subsidiaries, or affiliates
`
`sold beef in interstate commerce, directly or through its wholly owned or controlled affiliates, to
`
`purchasers in the United States.
`
`21.
`
`Tyson Foods, Inc. (Tyson) is a publicly traded Delaware corporation headquartered
`
`in Springdale, Arkansas. During the Class Period, Tyson and/or its predecessors, wholly owned or
`
`controlled subsidiaries, or affiliates sold beef in interstate commerce, directly or through its wholly
`
`owned or controlled affiliates, to purchasers in the United States.
`
`22. National Beef Packing Company (National Beef) is a privately owned Delaware
`
`corporation headquartered in Kansas City, Missouri. National Beef and/or its predecessors, wholly
`
`owned or controlled subsidiaries, or affiliates sold beef in interstate commerce, directly or through
`
`its wholly owned or controlled affiliates, to purchasers in the United States.
`
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`CASE 0:20-cv-01414 Document 1 Filed 06/18/20 Page 12 of 81
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`IV. TRADE AND COMMERCE
`Beef Distribution Chain
`
`A.
`
`23.
`
`The Beef value chain includes four stages: (1) ranch and farm grazing, (2) feedlot,
`
`(3) meatpacking, and (4) wholesale/distribution and foodservice and retail.
`
`24.
`
`In the first stage, ranches and farms birth and raise cattle. There are hundreds of
`
`thousands of ranching operations in the United States, and as many as 90% are family-owned or
`
`individually operated.5
`
`25.
`
`In the second stage, feedlots engage in intensive feeding that raise the weight of
`
`cattle prior to sale. Once cattle reach between 950 and 1,500 pounds, they are sold to meatpacking
`
`operations as “fed cattle.”
`
`26.
`
`In the third stage, the Defendants and other producers purchase and transport fed
`
`cattle to a packing plant for slaughter and processing into various cuts the meatpackers sell as
`
`“boxed beef” to various purchasers, such as distributors, large retailers, and foodservice
`
`operations.
`
`27. Distributors, large retailers, and foodservice operations purchase processed Beef
`
`and sell it to other, smaller commercial and institutional indirect purchasers or consumers. Large
`
`resellers may include supermarkets and wholesalers, such as Sysco, US Foods, Costco, and Sam’s
`
`Club.
`
`B.
`
`Structure of the Beef Industry
`
`28. Defendants’ conspiracy to maintain supracompetitive Beef prices was facilitated
`
`by the structure of the meatpacking market. The Beef meatpacking industry has all the hallmark
`
`features of a market that is susceptible to cartelization, including high concentration,
`
`
`5 Available at http://www.beefusa.org/beefindustrystatistics.aspx.
`
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`CASE 0:20-cv-01414 Document 1 Filed 06/18/20 Page 13 of 81
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`commoditization, and inelastic demand. Concern over anticompetitive conduct by Beef processors
`
`was a leading driver for the initial passage of the Sherman Act, as the Federal Trade Commission
`
`reminded the public in 2008.6
`
`The Beef Meatpacking Industry is Highly Concentrated.
`
`1.
`29. Market concentration facilitates collusion. Collusive agreements are easier to
`
`implement and sustain where a few firms control much of the market. Practical matters, such as
`
`coordinating cartel meetings and exchanging information, are easier when there are fewer
`
`members of the cartel. A high degree of market concentration simplifies coordination because
`
`there is little outside competitive presence to undermine the cartel. Additionally, with fewer
`
`members in a cartel, it is easier for cartel participants to monitor each other’s actions related to
`
`supply and pricing. And with fewer firms in the market, the short-term gains that might be achieved
`
`by undercutting the cartel price and gaining a short-term increase in market share would be
`
`outweighed by the greater long-term profits for colluding firm in a concentrated industry with
`
`artificially increased prices.
`
`30.
`
`By contrast, if an industry is divided into a large number of small firms, the current
`
`gain from cheating the cartel is large relative to the firm’s possible gains from the cartel’s
`
`continuing future success (i.e., the profits from sales captured from other cartel members through
`
`
`6 See Note by the United States, pg. 1 Roundtable on Monopsony and Buyer Power, October 13,
`2008 (“The 1890 debates in both houses of the United States Congress demonstrated concern with
`the exercise of market power on both the buying and selling sides of the market. Many legislators
`singled out large meat packers for condemnation, and they were condemned as much for reducing
`the prices paid to cattle farmers as for raising prices to consumers. In response, Congress passed
`the Sherman Act, “aimed at preserving free and unfettered competition as the rule of trade.” “The
`Act is comprehensive in its terms and coverage, protecting all who are made victims of the
`forbidden
`practices
`by whomever
`they may
`be
`perpetrated.”)
`(available
`at
`https://www.ftc.gov/sites/default/files/attachments/us-submissions-oecd-and-other-international-
`competition-fora/monopsony.pdf).
`
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`CASE 0:20-cv-01414 Document 1 Filed 06/18/20 Page 14 of 81
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`undercutting of the cartel-fixed price in the current time period, which risks causing the cartel to
`
`fall apart in the future are greater than the firm’s future share of the total cartel profits if collusion
`
`were to continue successfully).
`
`31.
`
`The Beef industry experienced increased market concentration leading up to and
`
`during the Class Period. In 2001, Tyson purchased IBP, then the United States’ largest Beef packer.
`
`In 2002, Cargill purchased another Beef packer, Taylor Packing. In 2007 and 2008, JBS acquired
`
`Swift & Co and Smithfield Beef Group, respectively the third- and fifth-largest Beef packers in
`
`the United States.
`
`32.
`
`Throughout the Class Period, the four Defendants controlled approximately 81-
`
`85% of the fed cattle slaughter market.7 The next largest meatpacker had only a 2-3% percent
`
`market share. The Defendants chokehold on the market allowed for the conspiracy to occur,
`
`continue, and prosper.
`
`2.
`33.
`
`The Meat-Packing Market Features High Barriers to Entry.
`
`Barriers to entry are obstacles that prevent new competitors from easily entering
`
`the market. They restrict competition in a market and make it easier for those taking up the market
`
`to collude with each other, and harder for would be competitors to enter the market to undermine
`
`the cartel.
`
`34.
`
`The construction of a large packing plant requires an investment of at least $250
`
`million-$350 million, and two or more years to obtain necessary permits, plan, design, and build.8
`
`
`7 Cattle Buyers Weekly Market Share of Steers and Heifers.
`8 U.S. v. JBS Amended Complaint, ¶41.
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`35.
`
`These barriers often cause new entrants, for example Northern Beef Packers9 and
`
`Kane Beef,10 to file for bankruptcy shortly after attempting to enter the market. Relative insulation
`
`from the threat of new competitors enabled Defendants to maintain their unlawful agreement and
`
`supracompetitive prices without constraint.
`
`Beef is a commodity product.
`
`3.
`36. A commodity is a basic item or good used in commerce that is interchangeable with
`
`other goods of the same type. Commodities are most often used as inputs in the production of other
`
`goods or services. Markets for commodity products are conducive to collusion because
`
`competition is limited to price, as opposed to other attributes like quality or customer service.11
`
`37.
`
`Beef is a commodity. For example, beef roasts from Tyson and Cargill are virtually
`
`indistinguishable and share similar nutritional values. The USDA recognizes boxed beef as a
`
`commodity, and posts daily boxed beef prices.12 Options and futures for fed cattle, from which
`
`boxed beef is produced, are traded on the Chicago Mercantile Exchange (“CME”).
`
`4.
`38.
`
`The Demand for Beef is Inelastic.
`
`Beef demand is also relatively insensitive to price changes. According to a recent
`
`study of beef demand, “Since beef has an inelastic demand, industry total revenue increases when
`
`
`9 See https://www.feedstuffs.com/story-northern-beef-packers-goes-belly-up-52-100764 (last
`accessed June 16, 2020).
`10 See https://www.meatpoultry.com/articles/20783-sam-kane-beef-processors-files-forchapter-11
`(last accessed June 16, 2020).
`11
`https://www.investopedia.com/terms/c/commodity.asp;
`e.g.,
`See,
`https://kresgeguides.bus.umich.edu/c.php?g=199860&p=1314301 (last accessed June 16, 2020).
`See also Dennis W. Carlton & Jeffrey M. Perloff, Modern Industrial Organization, Fourth Ed., 200
`(2005) (discussing that homogenous or undifferentiated good are “viewed as identical as
`consumers … [and] as perfect substitutes for each other.”).
`12
`See,
`https://www.ers.usda.gov/webdocs/publications/47486/17470_tb1911fm.pdf?v=41029;
`https://www.ams.usda.gov/sites/default/files/media/LMR2018ReporttoCongress.pdf.
`
`e.g.,
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`CASE 0:20-cv-01414 Document 1 Filed 06/18/20 Page 16 of 81
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`prices rise as there comparatively is a limited reduction in volume purchased.”13 The same study
`
`concluded that chicken and pork had little impact on Beef pricing. Accordingly, when prices are
`
`increased to purchasers at a supra-competitive level, there will not be a decrease in Beef purchases,
`
`nor a switch to other proteins such as chicken or pork.
`
`V.
`
`VIOLATIONS ALLEGED
`
`39.
`
`By the beginning of 2015 the Defendants were facing lower profitability and
`
`shrinking profit margins. Rather than acting independently to maintain profitability, Defendants
`
`agreed to collectively reduce slaughter and reduce purchases of fed cattle, which has the effect of
`
`raising prices in the purchaser market for Beef. The result were wholesale prices above a
`
`competitive level.
`
`A.
`
`Defendants Agreed to Reduce Slaughter Volumes.
`
`40. As confirmed by Witness 1, each of the Defendants expressly agreed to periodically
`
`reduce their respective slaughter volumes, resulting in wholesale prices above competitive levels.
`
`41. Witness 1 is a former employee of one of the Defendants (“Defendant 1”). Witness
`
`1 was a quality assurance officer (“QA”) at one of Defendant 1’s slaughter plants located within
`
`the Texas Panhandle / Western Kansas region (“Slaughter Plant 1” and “Panhandle Region”,
`
`respectively) for over 10 years until his employment ceased in 2018.
`
`42. During the Class Period, Witness 1 acted as a head QA and had primary
`
`responsibility for the plant’s kill floor, hotboxes, and coolers. The kill floor is where cattle are
`
`slaughtered and dressed, i.e., head, hide, and internal organs removed. The carcasses are then
`
`
`13 Glynn Tonsor, Jason Lusk, Ted Schroeder, Assessing Beef Demand Determinants, (Jan. 18,
`2018) at 7-9, https://www.beefboard.org/wp-content/uploads/2019/06/Assessing-Beef-Demand-
`Determinants_FullReport.pdf.
`
`
`
`- 13 -
`
`

`

`CASE 0:20-cv-01414 Document 1 Filed 06/18/20 Page 17 of 81
`
`moved to the hotboxes to cool down, before being stored in the coolers ahead of fabrication, where
`
`they are broken down into smaller cuts.
`
`43. Witness 1 learned of the Defendants’ slaughter reduction “agreement” from another
`
`employee in a position to know about the unlawful “agreement” – Slaughter Plant 1’s head of
`
`fabrication (“Fabrication Manager”).
`
`44. Witness 1 reports having multiple discussions with the Fabrication Manager during
`
`which the Fabrication Manager explained that all of the Defendants agreed to reduce their purchase
`
`of fed cattle and slaughter volume. For example, during one conversation, the Fabrication manager
`
`specifically admitted that the Defendants had an “agreement” to reduce their purchase and
`
`slaughter volumes in response to what they perceived to be high fed cattle prices.
`
`45. Witness 1 reports that he was in the Fabrication Manager’s office when the
`
`Fabrication Manager received an angry phone call from his immediate supervisor, who worked
`
`out of Defendant 1’s central office.
`
`46. After the call concluded, Witness 1 reports that he asked the Fabrication Manager
`
`how “many are we [Slaughter Plant 1] cutting [i.e., fabricating]?” Witness 1 reports that the
`
`Fabrication Manager replied the “cut” was going to be steady that day, but that the “kills are getting
`
`cut back, [because the] price is getting too high” (or words to that effect).14 Witness 1 then reports
`
`asking the Fabrication Manager whether other Defendants’ plants were also cutting back their kill.
`
`Witness 1 reports he recalls that the Fabrication Manager answered Witness 1’s question as
`
`
`14 Witness 1 reports that there was typically a lag between the commencement of a slaughter
`reduction and the reduction of fabrication activities. Among other reasons, this reflected the fact
`that Slaughter Plant 1’s fabrication team had to continue to process the carcasses the were already
`hanging in the coolers. This would allow Defendant to reap the benefits of higher wholesale prices
`in the short term.
`
`
`
`- 14 -
`
`

`

`CASE 0:20-cv-01414 Document 1 Filed 06/18/20 Page 18 of 81
`
`follows: “Yes, they are. We have had that agreement that we don’t kill while prices are up for a
`
`while” (or words to that effect).
`
`47. Witness 1 recalls specifically that the Fabrication Manager used the word
`
`“agreement” and understood that he was referring to at least all of Defendants’ plants in the
`
`Panhandle Region, namely Tyson Amarillo, Texas; JBS Cactus, Texas; Cargill Friona, Texas; and
`
`National Beef, Liberal, Kansas. Each of these plants provide a significant portion of each
`
`Defendants’ fed cattle slaughter capacity (at least 20% in the case of each Packing Defendant).
`
`48. Witness 1 is certain that the Fabrication Manager intended to convey that all of the
`
`Defendants were reducing their slaughter volumes by agreement with their competitors in response
`
`to what they perceived as high prices for fed cattle and was not simply commenting on the fact
`
`that one or some of the Defendants had independently decided to do so.
`
`49. Witness 1 understands that the Fabrication Manager had first-hand knowledge of
`
`Defendants’ anticompetitive agreement. The Fabrication Manager continues to work at Slaughter
`
`Plant 1, where he has worked for over 15 years in that role. In that capacity, the Fabrication
`
`Manager reported directly to Defendant 1’s head office. As head of fabrication, the Fabrication
`
`Manager needed to be informed as to cattle buying, cattle slaughter, and Beef selling aspects of
`
`Defendant 1’s business. He thus interacted with personnel across Defendant 1’s business.
`
`50. Witness 1 reports that prior to working for Defendant 1, the Fabrication Manager
`
`worked at another Packing Defendan

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