Indriolo Distributors, Inc. v. Schreiber Food, Inc. ( 2015 )

In the
United States Court of Appeals
For the Seventh Circuit
No. 14-3239
IN RE:
DAIRY FARMERS OF AMERICA, INC.
CHEESE ANTITRUST LITIGATION,
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 09 C 3690 — Robert M. Dow, Jr., Judge.
ARGUED APRIL 23, 2015 — DECIDED SEPTEMBER 1, 2015
Before BAUER and SYKES, Circuit Judges, and REAGAN, Chief
District Judge.*
BAUER, Circuit Judge. Plaintiff-appellants, Indriolo Distribu-
tors, Inc., Knutson’s, Inc., and Valley Gold, LLC (“Appel-
lants”), filed a class action against Dairy Farmers of America
(“DFA”), a dairy marketing cooperative, Keller’s Creamery,
*
The Honorable Michael J. Reagan, Chief Judge of the United States
District Court for the Southern District of Illinois, sitting by designation.
2 No. 14-3239
L.P. (“Keller’s”), a butter manufacturer, two DFA officers, and
two Keller’s officers. The case has been ongoing since its
consolidation in the Northern District of Illinois in 2009. Since
then, all parties named in the initial complaint have reached a
settlement (“DFA Settlement”) with Appellants, which the
district court approved on September 12, 2014.
On March 22, 2012, Appellants filed an amended class
action complaint, adding Schreiber Foods, Inc. (“Schreiber”)
as a defendant and alleging violations of §§ 1 and 2 of the
Sherman Act, the California Cartwright Act, the Commodity
Exchange Act, and RICO. On Schreiber’s motion, the district
court dismissed the § 2 Sherman Act claims, but allowed
Appellants to go forward on their claims arising under § 1 of
the Sherman Act, the Commodity Exchange Act, and the
Cartwright Act, as well as their claims for unjust enrichment
and restitution. On December 13, 2013, Schreiber moved for
summary judgment on these remaining claims, which the
district court granted. For the following reasons, we affirm.
I. BACKGROUND
Appellants contend that between May 24, 2004, and
June 23, 2004, Schreiber conspired with DFA to purchase
cheese traded on the Chicago Mercantile Exchange (“CME”)
in order to help DFA and Keller’s manipulate the price of
Class III milk futures. They allege that Schreiber and DFA
purchased cheese to stabilize prices while DFA and Keller’s
unwound their milk futures positions at a profit, then Schreiber
and DFA stopped buying cheese, causing the cheese price to
crash at the end of June. Schreiber argues that its purchasing
activity during the relevant time period was neither unusual
No. 14-3239 3
nor parallel to DFA’s activity and can be explained by
Schreiber’s independent business interest in preventing a large
spread between the prices of block cheese and barrel cheese.
Schreiber manufactures and distributes various cheese
products, including natural cheese and process cheese. Its
products are purchased for use by restaurants and other food
service distributors, or produced as store brand products for
grocery stores. Schreiber purchases most of its cheese directly
from suppliers, but it also purchases a small fraction of its
cheese on the CME. The CME hosts the trading of spot com-
modities, including spot barrel and block cheese, as well as
commodity futures such as Class III milk futures. The CME
cheese markets serve an informal “price discovery” function
and many cheese transactions in the wider market are based
on CME cheese prices. The differential between the CME block
and barrel closing prices is known as the “spread.” The block
and barrel cheese spread is typically three cents, but can
fluctuate higher or lower depending on several factors, such as
supply and demand.
According to Schreiber, because it purchases upwards of
one billion pounds of milk to turn into process cheese every
year, a larger spread between block and barrel cheese can be
damaging to it as a producer of barrel and process cheese. For
example, a large spread in cheese pricing decreases Schreiber’s
profits on milk turned into and sold as process cheese. There-
fore, Schreiber would regularly purchase barrel cheese on the
CME in an effort to correct or maintain the three cent spread.
In 2004, Schreiber purchased approximately 350 million
pounds of bulk cheese at a cost of approximately $1.2 billion.
4 No. 14-3239
Schreiber purchased 93 million pounds of that cheese from
DFA, a dairy marketing cooperative consisting of more than
18,000 dairy farmers in 48 states, at a cost of about $180 million.
The deal is representative of the significance of the relationship
between DFA and Schreiber in 2004; although the two were
horizontal competitors, Schreiber was also one of DFA’s largest
customers and DFA was Schreiber’s second largest supplier.
By comparison, in 2003, Schreiber purchased approximately
602 million pounds of bulk cheese for $841.5 million, with 116
million pounds of that cheese coming from DFA, at a cost of
approximately $159 million.
Of the 120 barrels Schreiber purchased in fiscal year 2004
(October 2003 to September 2004), 107 were purchased
between April 20, 2004, and June 22, 2004. According to
Schreiber, a significant amount of the 2004 activity was
directed toward correcting a large spread. In January 2004,
the spread was seven cents, rather than Schreiber’s preferred
three cents. By February, the spread dropped to five cents and
held steady around four or five cents through April. But by
May 5, the spread grew to 11.5 cents, and by May 20, it had
grown to 17 cents. On May 24, the CME barrel cheese price
increased 16 cents, closing the spread to three cents. The record
shows that at each of these price intervals, Schreiber had acted
to close the spread by purchasing cheese on the CME.
DFA was also active on the CME cheese market in 2004.
DFA purchased at least 50 loads of CME block cheese in May
2004. DFA testified that it sought to defend the CME block
market because of the impact that it had on the prices that its
dairy farmers received for milk; if CME cheese prices were
higher, DFA achieved higher pricing for its members’ milk.
No. 14-3239 5
From May 24 to June 22, 2004, Schreiber and DFA purchased
all of the block and barrel cheese traded on the CME.
Throughout this time, Schreiber and DFA employees
engaged in regular communications. The communications
included meetings between DFA and Schreiber’s top execu-
tives; between April and June 2004, executives met five times.
In April 2004, Gary Hanman (DFA’s President and CEO during
the relevant time period) and Larry Ferguson (Schreiber’s
CEO) met, but the substance of the meeting is unclear. Hanman
stated he does not recall what was discussed, while Ferguson
stated that they met to discuss a patent infringement lawsuit.
The CEOs met again on April 30 and May 1, this time with
other executives. Neither recall what was discussed at those
meetings. On May 11, Hanman, David Pozniak (the head of
Schreiber’s CME cheese purchasing), and other dairy execu-
tives met at Schreiber’s offices in Green Bay, Wisconsin. The
agenda for the May 11 meeting included “market conditions &
forecasts,” which Hanman testified was typical and involved
discussions about production and how to read markets,
although “generally [they] would not talk about activities on
the CME.” And on May 26, Mark Korsmeyer (President of
DFA’s American Dairy Brands), Pozniak, and Sam McCroskey
(then President of DFA’s Dairy Food Products) met; Schreiber
contends that the meeting was about a potential joint venture.
No additional evidence has been presented about the substance
of the meeting.
Based on the discovery of these activities and interactions,
Appellants added Schreiber as a defendant on March 22, 2012,
6 No. 14-3239
alleging antitrust violations.1 Schreiber moved for summary
judgment on December 13, 2013, which the district court
granted on August 18, 2014.
II. DISCUSSION
Appellants raise five arguments on appeal. The first three
relate to the district court’s summary judgment order—
Appellants argue that summary judgment on their antitrust
conspiracy claims under § 1 of the Sherman Act and Califor-
nia’s Cartwright Act, their claim under the CEA, and on their
unjust enrichment claim was inappropriate. Appellants’ fourth
argument alleges that the district court abused its discretion by
limiting discovery to only “high-level” employees and prohib-
iting the depositions of several employees. And fifth, Appel-
lants contend that the district court erred in including
Schreiber in the DFA Settlement.
1
Appellants originally brought this consolidated putative class action
against DFA, Keller’s, and four individual officers of those companies,
alleging conspiracies to inflate milk futures and spot cheese prices from
April to June 2004. During discovery, DFA and Keller’s produced copies of
documents subpoenaed by the Commodity Futures Trading Commission
(“CFTC”) as a part of an earlier investigation into DFA and Keller’s
activities on the CME in 2004. The documents included documents from
Schreiber regarding its communication and relationship with DFA, as well
as its cheese trading on the CME. The CFTC did not bring charges against
Schreiber or otherwise suggest involvement in DFA and Keller’s conspir-
acy.
No. 14-3239 7
A. Antitrust Conspiracy Claims
The thrust of Appellants’ remaining antitrust claim2 is that
from May 24, 2004 to June 23, 2004, Schreiber conspired with
DFA to manipulate the price of Class III milk futures on the
CME in violation of § 1 of the Sherman Act and California’s
Cartwright Act. The district court held that Appellants’
evidence did not present a question for a jury on whether
Schreiber conspired to manipulate the price of milk futures by
purchasing spot cheese. Appellants argue that they have
provided sufficient evidence to survive Schreiber’s summary
judgment motion. We review a grant of summary judgment
de novo, construing all facts and drawing all reasonable
inferences in favor of the nonmoving party. Sojka v. Bovis Lend
Lease, Inc., 686 F.3d 394, 397 (7th Cir. 2012). “‘[B]ecause the
Cartwright Act is patterned after the federal Sherman Act and
both have their roots in the common law, federal cases inter-
preting the Sherman Act are applicable in construing the
Cartwright Act.’” In re Copper Antitrust Litigation, 436 F.3d 782,
802 (7th Cir. 2006) (quoting Oakland-Alameda Cnty Builders’
Exch. v. F.P. Lathrop Constr. Co., 482 P.2d 226, 231 n.3 (Cal.
1971)). Therefore, we will conduct a single analysis for both
claims using federal cases interpreting the Sherman Act.
Section 1 of the Sherman Act prohibits “[e]very contract,
combination … or conspiracy, in restraint of trade or com-
merce,” 15 U.S.C. § 1, “though courts have long restricted its
2
The district court dismissed Appellants other conspiracy claims against
Schreiber—monopolization and attempted monopolization in violation of
§ 2 of the Sherman Act—earlier in this litigation.
8 No. 14-3239
reach to agreements that unreasonably restrain trade,” Omn-
icare, Inc. v. UnitedHealth Grp., Inc., 629 F.3d 697, 705 (7th Cir.
2011). Agreements to fix prices unambiguously fall within the
ambit of § 1. Id. To prove a § 1 claim, plaintiffs must prove
three things: (1) defendants had a contract, combination, or
conspiracy (“an agreement”); (2) as a result, trade in the
relevant market was unreasonably restrained; and (3) they
were injured. Id.
“To show concerted action, antitrust plaintiffs must
produce evidence that would allow a jury to infer that the
alleged conspirators ‘had a conscious commitment to a
common scheme designed to achieve an unlawful objective.’”
Id. at 706 (quoting Monsanto Co. v. Spray-Rite Serv. Corp., 465
U.S. 752, 764 (1984)). The evidence must “reveal ‘a unity of
purpose or a common design and understanding, or a meeting
of minds in an unlawful arrangement.’” Id. (quoting Am.
Tobacco Co. v. United States, 328 U.S. 781, 810 (1946)). In sum,
Appellants must produce evidence showing there is a genuine
issue of material fact as to whether Schreiber’s decision to
purchase spot cheese on the CME was made by Schreiber
alone, or while acting in concert with DFA.
To determine whether summary judgment is appropriate
in light of the produced evidence, we use a two-part inquiry.
First, we “assess whether [Appellants’] evidence of agreement
is ambiguous—that is, whether it is equally consistent with
[Schreiber’s] permissible independent interests as it is with
improper activity.” Id. at 707. Appellants argue that communi-
cations between DFA and Schreiber employees support an
inference of conspiracy and tend to rule out an inference of
No. 14-3239 9
independent activity. Considering the evidence as a whole, we
disagree. Appellants’ evidence highlights “conduct as consis-
tent with permissible competition as with illegal conspiracy,”
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574,
588 (1986), which “does not, standing alone, support an
inference of antitrust conspiracy.” Id.
Appellants’ core evidence, communications between
employees at Schreiber and DFA, could be understood as a
part of a legitimate business relationship as readily as they
could be understood as a part of a conspiracy. Although the
two companies were competitors, DFA was also one of Schrei-
ber’s main suppliers, and Schreiber was one of DFA’s largest
customers, giving them a number of legitimate reasons to
communicate with each other. Additionally, Appellants have
not pointed to a single communication that suggests a meeting
of the minds to fix prices.
Because we find the evidence of agreement is ambiguous,
we now “look for any evidence that tends to exclude the
possibility that [Schreiber was] pursuing independent inter-
ests.” Omnicare, 629 F.3d at 707; see also Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 554 (2007) (“[P]roof of a § 1 conspiracy
must include evidence tending to exclude the possibility of
independent action … and at the summary judgment stage a
§ 1 plaintiff’s offer of conspiracy evidence must tend to rule out
the possibility that the defendants were acting independently
…” (citations omitted)).
Appellants argue that parallel inflation of public market
prices and “unusual” parallel conduct are more consistent with
agreement than individual action. But this position merely
10 No. 14-3239
reiterates the ambiguity of Appellants’ evidence of agreement
and does nothing to diminish the inference of independent
action, particularly in light of Schreiber’s evidence; Schreiber
has provided voluminous evidence showing that Schreiber’s
CME purchasing activity was the result of its own interest in
restoring a certain spread between the prices of block and
barrel cheese. Without evidence tending to exclude the
possibility that Schreiber was pursuing independent interests
when it purchased cheese on the CME, Appellants have not
raised a genuine issue of material fact as to whether Schreiber
conspired with DFA. Therefore, we affirm the district court’s
grant of summary judgment in favor of Schreiber on the § 1
Sherman Act and Cartwright Act claims.
B. Commodity Exchange Act
Appellants also contend that Schreiber conspired with the
co-defendants to manipulate CME cheese prices, which
necessarily resulted in higher CME Class III milk future prices,
in violation of the CEA. The district court granted summary
judgment in favor of Schreiber on this count holding that the
CEA does not provide a private right of action for manipula-
tion of CME cheese prices because the commodity underlying
the CME Class III milk futures contract at issue is Class III
milk, not spot cheese. On appeal, Appellants argue this was
error. Specifically, Appellants argue that they can proceed on
a CEA claim because spot cheese is the commodity underlying
the Class III milk futures contracts and that they have raised a
genuine issue of fact as to Schreiber’s involvement in price
manipulation.
No. 14-3239 11
Our analysis begins, then, with a determination of the
commodity underlying the futures contract at issue. Under
the CEA, actionable manipulation must be directed at “the
price of the commodity underlying such contract.” 7 U.S.C.
§ 25(a)(1)(D)(iii). Appellants essentially argue that because
cheese affects the Class III milk futures contract, it is the
commodity underlying the contract.
Having no case law on this issue in our own circuit, we turn
to our sister circuits for guidance. The Fifth Circuit considered
and rejected an argument very similar to Appellants’ in
Hershey v. Energy Transfer Partners, L.P., 610 F.3d 239 (5th Cir.
2010). In Hershey, the plaintiffs argued that natural gas gener-
ally was the underlying commodity of a natural gas futures
contract. The Fifth Circuit concluded, however, that even
though natural gas prices everywhere affected the price of
natural gas delivered under the contract, the CEA only
permitted claims directed at the price of a commodity underly-
ing such contract. Id. at 247. Looking to the applicable ex-
change rules, the court determined (and the plaintiffs con-
ceded) that the settlement price of a natural gas futures
contract is “the price of natural gas delivered at the Henry
Hub,” not natural gas generally. Id. Therefore, the court held
that the plaintiffs were required to “allege that Defendants
specifically intended to manipulate the underlying [commod-
ity] of that contract, not some hypothetical natural gas futures
contract.” Id. (emphasis in original).
Borrowing this reasoning, we must look to the futures
contract at issue to determine its underlying commodity. It is
undisputed that the contract in question in this case is a
12 No. 14-3239
Class III milk futures contract. According to the CME Rule-
book, which governs the contract, “[e]ach [Class III milk]
futures contract shall be valued at 2,000 times the USDA Class
III Price for milk.” CME Rulebook, § 5201. The CME Rulebook
further specifies that “the USDA Class III price for milk for the
month” determines the settlement price of Class III milk
futures traded on the CME. Id. at § 5203.A. Therefore, the
commodity specified in the Class III milk futures contract is
milk, not cheese, as milk prices determine the settlement of the
contract. Because milk is the underlying commodity, Appel-
lants must raise a genuine issue of fact as to whether Schreiber
specifically intended to manipulate the price of milk in order to
survive Schreiber’s motion for summary judgment on Appel-
lants’ CEA claim.
We agree with the district court that Appellants have failed
to raise a genuine issue of material fact precluding summary
judgment on their manipulation claim. To prevail on a claim of
manipulation, Appellants must prove four elements: (1) the
defendants possessed the ability to influence prices; (2) an
artificial price existed; (3) the defendant caused the artificial
price; and (4) the defendant specifically intended to cause the
artificial price. See Frey v. Commodity Futures Trading Comm’n,
931 F.2d 1171, 1177–78 (7th Cir. 1991); see also In re Soybean
Futures Litig., 892 F. Supp. 1025, 2045 (N.D. Ill. 1995). The
wrinkle in Appellants’ case is with the fourth element. As
stated above, the underlying commodity relevant to this CEA
claim is Class III milk, but there is no evidence in the record
that Schreiber was interested in milk futures, let alone any
evidence showing specific intent to cause an artificial price.
Appellants point to internal documents that they contend
No. 14-3239 13
reflect Schreiber held and traded Class III milk futures posi-
tions in May and June 2004. But the evidence in the record does
not support an inference of intent to inflate milk prices. The
evidence merely reveals that Schreiber had a continual interest
in the CME cheese spread. In fact, the evidence would more
easily support an inference that Schreiber was interested in
keeping milk prices down, as higher milk prices would only
serve to increase Schreiber’s costs.
A plaintiff may alternatively recover from one who aids or
abets another’s price manipulation violation. See 7 U.S.C.
§ 25(a)(1). To demonstrate an aiding and abetting claim,
Appellants must first demonstrate the components of a
manipulation claim against a principal. See Damato v. Her-
manson, 153 F.3d 464, 470–71 (7th Cir. 1998). Second, they
must prove that Schreiber (1) had knowledge of the principal’s
intent to commit a violation of the CEA by manipulating the
price of milk; (2) had the intent to further that violation; and
(3) committed some act in furtherance of the scheme. Id. at 473.
But Appellants’ claim again falters on intent. Appellants’
evidence simply does not support an inference that anyone at
Schreiber was aware of the alleged plan to affect the Class III
milk futures market. Schreiber employees, including Ferguson
and Chris Herlache (a Risk Analyst and Schreiber employee in
charge of CME cheese trading during the relevant period),
testified that they were unaware of any plan to inflate prices.
Additionally, as with the manipulation claim against Schreiber
as a principal, there is no evidence in the record supporting an
inference that Schreiber intended to further price manipulation
of milk futures. For these reasons, we affirm the district court’s
grant of summary judgment on Appellants’ CEA claim.
14 No. 14-3239
C. Unjust Enrichment
The district court granted summary judgment against
Appellants’ on their unjust enrichment claim because Appel-
lants failed to establish any statutory violation underlying the
claim. On appeal, Appellants argue that they have provided
evidence sufficient to show Schreiber conspired with DFA in
violation of the Sherman Act and that Schreiber manipulated
the price of cheese in violation of the CEA, thus establishing
viable statutory violations. As explained above, however,
Appellants do not raise a genuine issue of material fact as to
the existence of a conspiracy or intentional price manipulation.
Without evidence of either of these fraudulent dealings, “it
follows that [Appellants] cannot demonstrate that [Schreiber
was] enriched thereby.” Omnicare, 629 F.3d at 723; see also Ass’n
Ben. Servs., Inc. v. Caremark Rx, Inc., 493 F.3d 841, 855 (7th Cir.
2007) (“When the plaintiff’s particular theory of unjust enrich-
ment is based on alleged fraudulent dealings and we reject the
plaintiff’s claims that those dealings, indeed, were fraudulent,
the theory of unjust enrichment that the plaintiff has pursued
is no longer viable.”) (emphasis in original). Therefore, we
affirm the district court’s grant of summary judgment in favor
of Schreiber and against Appellants’ unjust enrichment claim.
D. Discovery
After Schreiber filed its summary judgment motion in
December 2013, the parties began requesting depositions from
each others’ employees. On May 22, 2014, Schreiber moved for
a protective order to prevent Appellants from deposing eight
Schreiber witnesses. Magistrate Judge Maria Valdez granted
Schreiber’s motion as to six of the eight witnesses (all but Ron
No. 14-3239 15
Dunford and Deborah Van Dyk, two of Schreiber’s officers) on
June 3, 2014. On June 17, 2014, Appellants filed objections to
the Magistrate’s order with the district court, which the district
court overruled on June 25, 2014. Appellants now challenge the
district court’s ruling on their objections to Magistrate Judge
Valdez’s order, as well as the district court’s limitation of
discovery to “high-level” personnel. We review a district
court’s limitations on discovery for an abuse of discretion.
Semien v. Life Ins. Co. of N. Am., 436 F.3d 805, 813 (7th Cir. 2006);
see also Matter of Rassi, 701 F.2d 627, 631 (7th Cir. 1983).
When Schreiber moved for summary judgment, the district
court gave Appellants six months to conduct Rule 56(d)
discovery before responding to the motion. The district court
also limited that discovery to information regarding high-level
Schreiber and DFA employees that might corroborate Appel-
lants’ allegations that those same employees agreed to coordi-
nate purchases of spot cheese on the CME. During this time,
Schreiber accommodated requests for various documents,
interrogatories, and document subpoenas. Schreiber also
agreed to make available for deposition a 30(b)(6) representa-
tive, as well as three then-current and former employees. When
Appellants sought to depose eight additional employees,
Schreiber moved for a protective order preventing their
depositions for Rule 56(d) purposes.
Appellants essentially argue that the scope of discovery as
limited by the district court prevents them from uncovering
evidence of the conspiracy, but they do so without indicating
why the depositions they seek would be likely to yield relevant
information. Instead, they merely request leave to cast a wider
net with the apparent hope that, with it, they would uncover
16 No. 14-3239
direct evidence of conspiracy. In Davis v. G.N. Mortg. Corp., 396
F.3d 869 (7th Cir. 2005), we held that the district court did not
abuse its discretion in denying additional discovery where the
request was “based on nothing more than mere speculation
and would amount to a fishing expedition.” Id. at 885. We
noted that “[t]he only reason to believe that additional,
relevant evidence would materialize from deposing the
defendants’ employees is the [appellants’] apparent hope of
finding a proverbial ‘smoking gun.’” Id.
Here, the district court did not abuse its discretion in
affirming Magistrate Judge Valdez’s order over Appellants’
objections for largely the same reason as in Davis. Appellants
have not presented any evidence that the six depositions, if
permitted, would yield relevant information. Additionally, as
the district court explained, the passage of ten years since the
date of the alleged conspiracy makes it unlikely that these
individuals would have information relevant to establishing a
conspiracy. Under these circumstances, it cannot be said that
the district court abused its discretion in affirming the Magis-
trate Judge’s order preventing the deposition of six Schreiber
employees and limiting discovery to only “high-level” employ-
ees.
E. Inclusion in the DFA Settlement
Finally, Appellants also challenge Schreiber’s inclusion
in the court-approved DFA Settlement that Appellants
negotiated with all of the defendants named in the initial
complaint. Earlier in this litigation, Appellants agreed to
permit Schreiber to participate in the DFA Settlement as a
condition of receiving approval of their proposed class
No. 14-3239 17
settlement. Pursuant to the settlement judgment to which
Appellants agreed, Schreiber’s inclusion in the settlement class
is only entitled to reconsideration by the district court should
its entry of summary judgment be reversed. Therefore, Schrei-
ber’s inclusion in the DFA Settlement will stand along with the
district court’s grant of summary judgment.
III. CONCLUSION
For the foregoing reasons, we AFFIRM the judgment of the
district court.