"control" or other, unidentified "exceptions" to Illinois

Brick. (Pls. Memo. in Opp., pp. 7-11)

However, it is clear that the Supreme Court meant that Illinois Brick should have broad application and that "exceptions" were specific ones applicable only in For example,

a narrow set of specialized circumstances.

the Court explicitly stated:

There

"It is quite true that these difficulties and uncertainties [of proof] will be less substantial in some contexts than in others. have been many proposals to allow pass-on theories in some of these contexts while preserving the Hanover Shoe rule in others.

"We reject these attempts to carve out exceptions to the Hanover Shoe rule for particular types of markets.

...

Hanover Shoe itself implicitly discouraged the creation of exceptions to its rule barring pass-on defenses, and we adhere to the narrow scope of exemption indicated by our decision there." 97 S.Ct. at 2073-74 (emphasis added).

The "exceptions" proposed by plaintiffs herein do not fall within the narrow scope of any exemption recognized

by the Supreme Court in Illinois Brick.

A. The "Pre-existing Cost-Plus Contract"
Exception to Illinois Brick Is Not
Available In These Cases.

Plaintiffs argue that it is a "possibility" that

the facts of the present cases might bring the plaintiffs within the cost-plus exception to Illinois Brick which was first identified in Hanover Shoe, Inc. v. United Shoe

Machinery Corp., 392 U.S. 481, 494 (1968), the case upon which Illinois Brick was based. (Pls. Memo. in Opp., However, this exception is available only for a "pre-existing 'cost-plus' contract" (Hanover Shoe, 392 U.S.

P. 7)

5

at 494; Illinois Brick, 97 S.Ct. at 2068 n.12, 2070), and

such contracts do not exist here.

As the Court of Appeals for the Fifth Circuit has
recognized, the cost-plus exception to the rule of Hanover
Shoe is extremely narrow, and a litigant seeking to invoke
the exception faces an "almost 'insurmountable' burden."
Yoder Brothers, Inc. v. California-Florida Plant Corp.,
537 F.2d 1347, 1375 (5th Cir. 1976), cert. denied, 97 S.Ct.
1108 (1977). The Court in Yoder specified two "essential"
characteristics of every pre-existing cost-plus contract:

"[F]irst, the buyer must have his contract with a
particular customer for a particular sale before
the illegal overcharge is imposed on the buyer,
and second, the contractual arrangement must
assume that whatever the cost of the product was
to the buyer, it is the same to the customer.
[The programs here] were not pre-existing con-
tracts
Volume was indefinite; identity of
customer was indefinite." 537 F.2d at 1376.

question of

Int.

Plaintiffs in these cases have not, and cannot, allege that they sell their cattle pursuant to cost-plus 1/

contracts meeting these strict requirements. Instead,

plaintiffs have simply alleged that meat packers use some

sort of "formula" to decide the price that they will

offer to cattlemen for live cattle.

2/

The fact is,

1/ A pre-existing cost-plus contract allegation would be
frivolous in this litigation because cattle are generally
sold on an ad hoc basis, rather than pursuant to pre-
existing contractual commitments. Moreover, the com-
plaints acknowledge that some cattle are sold at auctions
or terminal markets (see, e.g., Becker Amended and Sub-
stituted Complaint, ¶ 28), where potential purchasers
openly bid against one another. This is the antithesis
of a cost-plus arrangement.

-

2/ For example, the Amended and Substituted Complaint
in MPIA (¶ 28) which was filed in response to defen-
dants' Illinois Brick motion alleges that cattle buyers
"give the cattle feeder a price for the live animal based
[Footnote continued on following page]

however, that in Illinois Brick the Supreme Court expressly

Not Regi лилида

rejected the idea that allegations of "formula pricing" % wakut

can afford an escape from Hanover Shoe and Illinois Brick.
Indeed, plaintiffs' argument here is the same as the
claim unsuccessfully urged by plaintiffs in Illinois Brick.
As the Supreme Court stated in Illinois Brick:

"Respondents here argue
that pass-on theories
should be permitted for middlemen that resell
goods without altering them and for contractors
that add a fixed percentage markup to the cost of
their materials in submitting bids.

out of

дестве

the

freate is missing

what?

..

"We reject these attempts to carve out excep-
tions to the Hanover Shoe rule for particular
types of markets.
An exception for the
contractors here on the ground that they purport
to charge a fixed percentage above their costs
would substantially erode the Hanover Shoe rule
without justification. Firms in many sectors of
the economy rely to an extent on cost-based rules
of thumb in setting prices." 97 S.Ct. at 2073-74
(emphasis added).

Accordingly, lacking an actual pre-existing cost-plus
contract, plaintiffs are not able to argue that they are
eligible for the cost-plus exception simply because they
allege the possibility of a direct pass-on pursuant to
1/
some sort of "formula" mechanism.

[Footnote continued from preceding page] upon the value
of the dressed carcass according to a formula based on
the Yellow Sheet or its west coast counterpart, the 'Safe-

way price.'" (Emphasis added) It also alleges that de-
pressed beef prices are passed through to cattlemen by
means of "formula pricing to cattlemen." (Id. 37 (a),
emphasis added.) The various sets of plaintiffs in these
cases incorporate these allegations in their Joint Memo-
randum in Opposition to Defendants' Motion, in which it is
stated that the allegations in MPIA set forth a "descrip-
tion
in some detail" of plaintiffs' attempt to invoke
the cost-plus exception. (See Pls. Memo. in Opp., p. 8)

1/ The discussion in this memorandum is addressed mainly
to the plaintiffs who feed cattle for sale to meat packers.
It should be noted, however, that many of the plaintiffs
in these actions are cow-calf operators and other persons
who sell their cattle to other cattlemen, rather than to
meat packers. Since the spurious "exceptions" argued by
plaintiffs do not provide an escape from Illinois Brick
for those who deal with packers, a fortiori they are
not available to those who, like cow-calf men, are even
more remote from retailers in the chain of distribution.

In addition to their attempt to fit within the

cost-plus exception, plaintiffs suggest the "possibility" that two other asserted "exceptions" to Illinois Brick may Neither argument affords a basis for cir

be applicable.

possibility" that the middlemen with whom some of the

plaintiffs deal

-

packers and slaughterhouses

-- are

(Pls.

"controlled by the defendant supermarket chains." Memo. in Opp., pp. 8-9) They attempt by this assertion to fit within a potential exception which the Court in Illinois Brick noted might exist "where the direct purchaser is owned or controlled by its customer." 97 S.Ct.

at 2070 n.16.

The possible "control" exception noted by the Court in Illinois Brick is intended to prevent an antitrust violator from using its wholly-owned or controlled subsidiary to avoid the sanctions of the antitrust laws by "the simple expedient of adding an additional link to the distribution chain." Perkins v. Standard Oil Co., 395 U.S. 642, 647 (1969) (cited in Illinois Brick, 97 S.Ct. 2070 n.16). Plaintiffs in the present cases do not allege that the hundreds of meat packers in the United States are owned or financially controlled by the defen

dants.

Rather, the control that plaintiffs are asserting

8

is alleged "control through economic dominance, because of the inevitable reliance of the packers upon the chains as their major customers." (Pls. Memo. in Opp., p. 9)

There is no exception to Illinois Brick available

for "control" alleged to derive from dependence of packers on chain stores as customers. If this sort of "control"

were deemed to provide an exception to Illinois Brick, the exception would eclipse the rule, since all middlemen in an asserted pass-on theory might be similarly "controlled" by their dependence on either customers or suppliers.

In fact, Hanover Shoe involved an adjudicated monopolist, which virtually by definition enjoyed economic dominance over its customers. See Hanover Shoe, 392 U.S. at 486-87. Even so, Hanover Shoe and Illinois Brick hold that only the person who dealt directly with the violator "and not others in the chain of manufac

-

under the antitrust laws. Therefore, it is futile to argue that the rule of Hanover Shoe and Illinois Brick can be avoided simply by alleging that the defendant held "economic dominance" over the middleman with whom the indirect plaintiff dealt.

2. The Argument That Plaintiffs May
Someday Find An Unidentified "New
Exception" to Illinois Brick.

Plaintiffs argue that the Court should deny the

present motion because at some point in the case plaintiffs might be able to argue for some new, but presently