Antitrust opt-outs entice litigation funders to opt-in

18 February 2020
When Hewlett-Packard (HP) won a price-fixing court case against one of its suppliers last month, the ruling marked a windfall for the plaintiff and further validated an opt-out litigation strategy that’s ripe for third party capital, according to multiple legal and litigation funding sources.

In the HP matter against Quanta Storage, a Southern District of Texas jury found that the defendant fixed prices in the optical disk drive (ODD) market over a six-year period. The award for HP came to USD 439m – a figure that factors in the court’s decision to triple damages after also deducting USD 89m in settlements the company received from six other defendants.

The inflated award calculus also factors in another key decision – one made by HP itself when it abstained, or opted out, from participating in a related class action that started up in 2010 and came to a settlement in 2016 valued at USD 75m – less than a fifth of HPs eventual recovery.
 
For HP, wherewithal to shoulder the cost of its own litigation helped produce the outsized return. And while HP won’t have to share proceeds with the more than 25,000 claims in the settled class action against Quanta and other ODD suppliers, it’s path to victory benefitted from the cases’ shared merits, the sources noted.
 
To that end, the winning playbook for opt-outs who can ride the due diligence and precedents of high-profile class actions fits the litigation funding world’s dream scenario: bankrolling matters with both a high-return potential and a high probability of success, the sources continued. “There’s a lot of opportunity to invest in those opt-out cases because they rely on the same fact pattern as the class action,” one litigation funder said.
 
Opportunities to invest are expected to continue heating up around several price-fixing class actions being tried in the food industry where low-margin supermarket plaintiffs may not have the means to fund stand-alone pursuits. But their sizable claims could be worth the cost for a third party to monetize, the sources noted.
 
“Everybody likes opt-outs because the work has been done, there’s treble damages, and they’re big clients,” another litigation funding source told Debtwire. Antitrust actions can result in outsized awards because they're eligible for treble damages, which triples the amount awarded to a successful plaintiff.
 
Feeding time
 
The percolation of price-fixing allegations in the food space stems largely from more sophisticated and widespread use of statistical tracking, which has large purchasers such as supermarkets waging claims of wrongdoing against suppliers, the sources noted.
 
A major case in point is In re Broiler Chicken Antitrust Litigation (a/k/a chicken price fixing) in 2016. The complaint filed in the Northern District of Illinois alleges that more than a dozen major broiler chicken producers including Koch FoodsTyson, and Perdue conspired to fix, maintain, and raise prices partially by using an industry data provider called Agri Stats, which is also a key defendant in the lawsuit.
 
Agri Stats provides anonymized product and cost data for agricultural markets including chicken, pork, and turkey. According to the chicken price fixing class action, Agri Stats “while supposedly anonymous, in fact provide Defendants with sufficient detail to determine with reasonable accuracy producer-level data on production, cost, and general efficiencies.

“[…] This permits the Defendants to share, on a weekly and/or monthly basis, their confidential production and pricing information, including forward-looking production information,” the complaint goes on.
 
Already the case has given related parties reason to be optimistic. Some of the defendants, including Peco Foods IncGeorge’s Inc, and Amick Farms, LLC agreed to settle for more than USD 13m in early December – a move that bodes well for the merits of the remaining litigation, which is still relatively early in its life cycle. More than 20 other broiler chicken producers are still battling the litigation, according to recent court filings.
 
Following the claim that Agri Stats may have helped broiler chicken producers fix prices, antitrust class actions in the turkey and pork markets sprung up shortly after with similar arguments regarding the data provider.
 
In Re Pork Antitrust Litigation (a/k/a pork price fixing), Olean Wholesale Grocery Cooperation et al v Agri Stats, Inc (a/k/a turkey price fixing) were filed in June 2018 and December 2019, respectively. The cases have released new opportunities into the market for litigation funders to peel off large claimholders that might be able to win larger awards by pursuing their claims individually, the sources said.

The lead plaintiffs in the turkey price fixing class action are Olean Wholesale Grocery CooperativeInc, a supermarket chain, and John Gross and Company, Inc, a food distributor. The number of plaintiffs in the class action, which is brought on behalf of other parties who may be entitled to damages, has yet to be determined, according to recent court filings.
 
Olean Wholesale Grocery Cooperative and John Gross and Company are also lead plaintiffs in the pork pricing case, in addition to Maplevale FarmsFerraro Foods, and Joe Christiana Food Distributors.
 
Of note, Winn-Dixie Stores, Inc, a Florida-based supermarket chain, has opted to pursue the pork litigation individually against the defendants named in the class action in the District of Minnesota. (Winn-Dixie Stores, Inc v Agri Stats, Inc et al, Civil Action 19-cv-01578)

In the can
 
While the pork, turkey and chicken cases are all at relatively early stages, advanced developments in a similar antitrust class action involving tuna price fixing allegations demonstrate how settlements and criminal fines can signal virtual slam dunk opportunities to wage parallel litigations, the sources said.
 
The tuna class action, In Re Packaged Seafood Products Antitrust Litigation, is still being tried in the Southern District of California. But the fact that StarKist, one of the major canned tuna suppliers tied up in the antitrust case, has already settled with several retailers, including Walmart for USD 20.5m last year, bodes well for both the underlying class action and opt out potential. Just the same, a criminal fine of USD 100m levied against StarKist in September 2019 further strengthens the merits plaintiffs’ claims, the sources said.
 
Collectability could become complex, however. StarKist last September asked a federal judge in San Francisco to cut the penalty in half, warning that the full fine could send the company into bankruptcy as it still faces millions more in potential civil damages. StarKist-competitor Bumble Bee Parent Inc – also a defendant in the Packaged Seafood Products class action – filed for bankruptcy in November following years of investigations by the DOJ and more than 50 class actions filed against the company.
 
Plaintiffs in the tuna price-fixing class action include several grocery chains and distributors such as Capitol Hill SupermarketOlean Wholesale Grocery Cooperative, Inc, and Pacific Groservice, Inc.