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In the case, In Re Southeastern Milk Antitrust Litigation, Plaintiffs retailers of processed milk filed suit against Dean Foods for violating Section One of the Sherman Antitrust Act by conspiring with a raw milk supplier/milk processor and the purchaser of the divested processing facilities to divide markets and restrict output.  The district court granted summary judgment for Defendants, ruling that Plaintiffs could not provide sufficient proof of injury, nor could they establish the relevant antitrust geographic market, primarily because their expert’s testimony was excluded.  Two retailers of processed milk, Food Lion LLC and Fidel Breto, appealed both of the district court’s conclusions.  In a 28-page opinion issued on Friday (click here for full text), the Sixth Circuit reversed and remanded the case.  As explained more fully below, the Sixth Circuit held that the district court could have applied a “quick-look” rule of reason, which meant that Plaintiffs would not have necessarily needed to show geographic market evidence to defeat summary judgment.  However, even if on remand the district court were to conclude that the rule of reason analysis should apply and expert testimony was required to establish a geographic market, the Sixth Circuit held that the district court abused its discretion in excluding Plaintiff’s expert, Prof. Froeb, on this point because it “rested on an incomplete review of the facts and the application of incorrect legal standards.”  Finally, the Sixth Circuit, applying a de novo standard, held that the district court’s ruling that the testimony of Plaintiff’s injury expert, Prof. Cotterill, did not establish a genuine issue of material fact regarding an antitrust injury was incorrect.

 

The District Court Did Not Err In Refusing To Apply A Per Se Analysis
In resolving the Section One conspiracy claim, the Sixth Circuit noted at the outset that the parties did not contest the first required element of the claim – the existence of a conspiracy.  The district court found enough evidence of a conspiracy for Plaintiffs to persist past summary judgment on that element, and that issue was thus not challenged on appeal.  Rather, the dispute centered on whether the district court erred in applying the rule of reason instead of the per se rule.  The Plaintiffs maintained that, even if the conspiracy at issue is not a per se violation, proof of a geographic market was unnecessary and thus contested the district court’s finding that they failed to provide sufficient evidence of an appropriate geographic market.

 

As a threshold matter, the Sixth Circuit rejected Plaintiffs’ attempt on appeal to re-characterize the conspiracy as horizontal rather than vertical and held, even if the conspiracy was horizontal, that the rule of reason is the default position and can be applied to horizontal restraints if they do not fit into existing categories of per se violations.  Therefore, the Sixth Circuit ruled that the district court was correct in applying the default standard of the rule of reason to the Section One claim.  However, the Court agreed with Plaintiffs that the “quick-look” rule of reason could have been applied by the district court, and under that standard Plaintiffs met their burden of raising a genuine issue of material fact as to whether Dean Foods violated the antitrust laws even without establishing the relevant geographic market.

 

If The District Court Applies A Full Rule of Reason Analysis – Rather Than A “Quick Look” Analysis – It Should Not Exclude Plaintiff’s Expert Testimony Regarding The Relevant Market
However, the Sixth Circuit noted that the district court may yet determine that a full rule of reason analysis is still required, in which case Plaintiffs would not be able to establish the relevant market apart from the testimony of their expert, Professor Froeb, which was excluded by the district court.  Because the expert’s testimony may yet return to prominence, the Sixth Circuit reviewed the district court’s decision to exclude it.  The Sixth Circuit ruled that the district court abused its discretion in excluding Prof. Froeb’s testimony because the district court’s opinion “rested on an incomplete review of the facts and the application of incorrect legal standards.”  First, the Court held that the blanket exclusion of Prof. Froeb’s testimony was not warranted by his alleged use of one customer when defining a market.  Second, the Court held that the requirement that an expert base his findings on facts in the record is a proper legal proposition, but it was misapplied.  Third, the Court held that, contrary to the district court’s conclusion, Prof. Froeb did not ignore “commercial realities.”  Finally, the Court held that market definition is a question of fact and better left for a jury to decide.

 

The District Court Should Have Credited Plaintiff’s Expert Testimony Regarding Antitrust Injury
The Sixth Circuit further noted that the district court in granting summary judgment had incorrectly held that the testimony of Plaintiff’s injury expert, Prof. Cotterill, did not create a genuine issue of material fact regarding the existence of an antitrust injury.  In so ruling, the Sixth Circuit held that the district court should not have rejected Prof. Cotterill’s multiple regression analysis as “too simplistic.”  Rather, the Court held that Prof. Cotterill’s model, as applied to the facts, reveals three conclusions which, taken together, can be viewed as evidence of antitrust injury: (1) Plaintiffs purchased processed milk from Defendants; (2) after the merger, Plaintiffs were charged 7.9% more for milk than an econometric analysis could justify; and (3) evidence indicated that Defendants conspired to avoid competing vigorously.  Because this is precisely the kind of injury that the Sherman Act was designed to prevent, summary judgment was not warranted based on the lack of an antitrust injury.  Accordingly, the Sixth Circuit reversed the district court’s opinion granting summary judgment on the Section One claim and remanded the case for further proceedings consistent with this opinion.

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