Posted on 06/21/2002 6:13:43 PM PDT by CHACHI
The AGRIBUSINESS EXAMINER June 21, 2002 #170 Monitoring Corporate Agribusiness From a Public Interest Perspective EDITOR\PUBLISHER: A.V. Krebs ADDRESS: PO. Box 2201, Everett, Washington 98203-0201
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U.S. APPEALS COURT REINSTATES LAWSUIT ALLEGING ADM AND OTHERS ENGAGED IN CORN SWEETNER PRICE FIXING
SCOTT KILMAN, THE WALL STREET JOURNAL: The Seventh U.S. Circuit Court of Appeals reinstated a seven-year-old civil lawsuit alleging Archer Daniels Midland Co. and its rivals rigged what is now a $2.4 billion market for a corn sweetener used in everything from soft drinks to candy.
The decision Tuesday resurrects what has long been the stepchild of the price-fixing scandal that embroiled the Decatur, Illinois, grain-processing company in the 1990s. The Justice Department wrung a $100 million fine from Archer Daniels in 1996 for rigging prices of two much smaller products --- lysine and citric acid --- and a federal jury here sent three Archer Daniels executives to prison in that case.
But the federal government dropped its inquiry into high-fructose corn syrup, leaving plaintiffs lawyers to do a lot of digging on their own. Unimpressed by what they found, federal Judge Michael Mihm in Peoria, Illinois, finally threw out the case last year, concluding that "no reasonable jury" would find that there had been a conspiracy to rig the price of high-fructose corn syrup in the early 1990s.
"I have no idea about the merits of the case," said David Nelson, an analyst at Credit Suisse First Boston. "But a trial would bring back that taint."
The plaintiffs, a group of about 30 companies that make everything from candy and soft drinks to baking goods, are seeking billions of dollars in damages, said Robert N. Kaplan, of Kaplan Fox & Kilsheimer of New York, which is co-lead counsel for the plaintiffs.
Without taking sides on the guilt or innocence of Archer Daniels and its rivals, the circuit court here concluded that there is enough evidence for a jury to consider. The decision, which was written by Circuit Judge Richard A. Posner, noted among other things that the plaintiffs lawyers had presented evidence showing the structure of the high-fructose market, which is dominated by a few manufacturers, is "auspicious for price fixing" and that the defendants "avoided or at least limited price competition." Much of the evidence presented in Peoria has been kept under seal.
A spokeswoman for Archer Daniels, which controls roughly one-third of the high-fructose corn-syrup market, said Tuesday that the company is still studying the decision, and didn't comment on whether it plans any appeal.
The lawsuit also names Cargill Inc., the Minneapolis grain-processing company, which, too, controls about one-third of the U.S. corn sweetener market. "We agree with the judge at the trial-court level that there shouldn't be a trial," said Bonnie Raquet, a Cargill spokeswoman. "We believe that there are absolutely no facts to support going to trial in this case."
The plaintiffs lawyers, who last year won access to piles of tapes from the government's undercover investigation of Archer Daniels, have mined them for tidbits about high-fructose corn syrup. According to Tuesday's decision, Michael Andreas, a former Archer Daniels executive convicted in 1998, talks on one tape about a deal with the company's two biggest competitors that hurts soft-drink company Coca-Cola Co., a major buyer of high-fructose corn syrup. Coca-Cola isn't a plaintiff in the lawsuit.
ADM, CARGILL WEIGHT COURT APPEAL HFCS PRICE FIXING VERDICT COULD RESULT IN POSSIBLE $4.2 BILLION IN DAMAGES
MICHAEL MCHUGH, DOW JONES NEWSWIRES: Archer Daniels Midland Co. (ADM) and Cargill Inc. are reviewing an appeals court decision Tuesday that threw out a summary judgment dismissing a 1995 class action lawsuit against the principal makers of high fructose corn syrup over alleged price fixing in the sweetener.
The U.S. Court of Appeals for the Seventh Circuit said in its ruling it does not mean to prejudge the outcome of any trial. "We hold only that there is sufficient admissible evidence in support of the hypothesis of a price-fixing conspiracy to prevent the grant of summary judgment to the defendants," the court said.
Last July, Judge Michael M. Mihm of the U.S. District Court for the Central District of Illinois granted a summary judgment in favor of the defendants, which also include A.E. Staley and American Maize-Products, throwing out the case launched in 1995 alleging collusion between 1989 and 1995.
The appeals court ruling said that an enormous amount of evidence was brought together during pretrial discovery and, quoting the initial ruling, said the district judge concluded that no reasonable jury could find in favor of the plaintiffs without "resorting to pure speculation or conjecture." "The soundness of this conclusion is the basic issue presented by the appeal," the appeals court said.
Plaintiffs in the case include named parties, such as the Coca Cola Co.and PepsiCo Inc. and other users of the sweetener as part of a class action lawsuit. "We respectfully disagree with the appellate panel's decision," said Bonnie Raquet, corporate vice president for public affairs at Minnesota-based Cargill. "We believe the district court correctly analyzed the factual and legal issues under current legal precedent," she continued. "We believe there are no facts to support going to trial in this case."
A spokeswoman for ADM said the company is in the process of reviewing the decision. A spokesman for Pepsi declined to comment and a Coca-Cola spokeswoman couldn't immediately comment.
Robert Kaplan, of Kaplan Fox & Kilsheimer LLP, co-lead attorneys for the class, said the plaintiffs' experts estimate that the alleged price fixing boosted prices 15% per year over the period of time in the $1 billion per year industry. That leads to damages of $1.4 billion, said Kaplan, adding antitrust violations result in a tripling of the damages.
High fructose corn syrup is used to sweeten a variety of foods, including soft drinks, candy and baked goods.
In the ruling, the appellate court said "there is evidence that the defendants were not competing; we might go so far as to say they had tacitly agreed not to compete, or at least to compete as little as possible; but the plaintiffs must prove that there was an actual, manifest agreement not to compete."
No trial date has been set.
The defendants have a couple of options. They could ask for a rehearing by the appellate court, or essentially appeal the appeal to the U.S. Supreme Court.
The appeals court said in view of the complexity of the case --- sealed exhibits alone filled 14 large boxes --- the district judge may want to split the case in two, having a trial on the liability first, and then if a jury finds the defendants violated the law, then conduct a trial to determine damages.
Along with other suggestions, the appeals court said "we think the case can be tried in a reasonable amount of time and be made comprehensible to a jury." The court said much of the nonstatistical evidence is not in dispute, but merely the inferences drawn from individual pieces of evidence and from the evidence as a whole. Given it found sufficient evidence to proceed with trial, the appeals court said it trusts the parties "will make every effort to settle the case in advance of trial."
David Nelson, equity analyst at CS First Boston, said he doesn't see the case having a "big impact" on ADM, adding the worse that could happen would be some sort of fine. Shares in ADM closed 1.1% lower at $12.74, down 15 cents. Volume was 1.2 million versus an average daily volume of 1.3 million.
In 1996, ADM pleaded guilty to fixing prices in animal feed additive lysine and citric acid, a food additive, and paid a $100 million fine. The case involving high fructose corn syrup was part of that investigation.
OPINION: GIANT AG-BIZ RATS CAUGHT IN SWEET TRAP
DAVID HOECH: Just nine days shy of the seven-year anniversary of the raid on Archer Daniels Midland corporate headquarters for price rigging, the Seventh Circuit Court of Appeals deals a devastating blow to High Fructose Corn Syrup producers, ADM, A.E. Staley, Cargill, American Maize-Products, and CPC International. In the ruling Judge Posner sends the case back to the courtroom of Judge Michael M. Mihm, whose summary judgment ruling last August led the HFCS price fixers to believe they would not be held accountable.
In the book Rats in the Grain author James Lieber wrote, "On May 29, 1996, Mihm ordered WAND-TV in Decatur to comply with a subpoena from ADM seeking all notes, tapes, out-takes, and other documents pertaining to the station's interviews with Mark Whitacre. The station claimed protection under the state's shield law known as the Illinois Reporter's Privilege Act. But Mihm ruled the law inapplicable since Whitacre was not a confidential source and ordered that all material be turned over to ADM." Judge Mihm's decisions regarding ADM show him to be a Moral Midget. If you read this, Judge, do the respectful thing and retire.
Sources at ADM say ex-convict and former ADM Vice Chairman Michael Andreas released from prison last fall is running ADM from a downtown office in Decatur located at One Main Place, 101 S. Main Street. Michael who served time for price rigging in lysine could be up to his old tricks. Sources say the price of HFCS increased five percent in the last six months.
This was also confirmed by Larry Pillard in a speech June 7 this year. Pillard at the time CEO of Tate & Lyle and the former president of A. E. Staley stated, "In the last quarter of the financial year to 31 March 2002 Staley has reported a further average five percent increase in sweetener prices for the calendar year 2002 but Amylum saw a slight weakening in prices of some products."
Staley and Amylum are both owned by Tate & Lyle. ADM is also a large stockholder of Tate & Lyle. Some estimate the total to be 13% through its intricate web of investing in Amylum, Staley and direct investment in Tate & Lyle. According to a Tate & Lyle press release last Friday, June 14, Pillard relinquished his position as CEO of Tate & Lyle. For the present he will remain as a Non-Executive Director. Some allege the defrocking was due to Staley's involvement in HFCS price fixing while he was CEO of Staley.
The multi billion-dollar class action lawsuit against the producers of HFCS is going to cost them a hefty amount. The HFCS market is $2 billion a year, and price fixing for four years with an illegal gain of 16% per year equals $1.280 billion. In price fixing, this amount is tripled for damages giving the producers a potential exposure of $3.84 billion. Of course, you didn't hear about this on CNBC. Could it be because ADM is an advertiser? You decide.
As Attorney General, Janet Reno turned Lady Justice into a street prostitute with justice for sale, and the lawyers for ADM, Williams & Connolly, were more than willing buyers. In letters to Reno dated October 4, 1996 and again on February 3, 1999 we asked her office to use the opportunity to insure that justice be delivered and send a message to corporate America that corporate crime doesn't pay.
Instead, her office gave credence to the fact that if you're white, rich and influential, or work for a politically connected company, you can break the law with impunity. We also sent her some of the transcripts of FBI tapes recorded by the government witness Mark E. Whitacre while working at ADM.
These transcripts show why Judge Mihm would seal all the documents in the HFCS case protecting his friends, the Andreas Crime Family. One transcript has Michael Andreas quoting his father, Dwayne Andreas, referring to the 27,000 Mexicans working at IBP as "Fucking Wetbacks." Another ex-convict, Terrance Wilson, quoted Dwayne Andreas as saying, "You have to write down the lies you told so you will remember them."
In his ruling Judge Posner quoted from one of the transcripts where Michael Andreas, the vice chairman and executive vice president of ADM said: "What are you gonna tell [Keough, the recently retired president of Coca-Cola], that we gotta [i.e.,have a] deal with . . . our two biggest competitors to fuck ya over[?]"
Yet, Judge Mihm gave the HFCS producers a free pass. Shame on Judge Mihm. The public should hear all the tapes to show what is wrong with corporate America and the DOJ's involvement in depriving the people of justice. Howard Buffett, the son of the famous Warren Buffett, worked at ADM as assistant to the chairman Dwayne Andreas.
Howard resigned on July 7,1995, as he was astounded at the conduct of ADM after the raid. He told FBI agents, which is all recorded on FBI-302's, that ADM was destroying documents by the tubloads burning them in the co-generation plant. Yet, DOJ did nothing. Joshua Hochberg, the assistant attorney general for fraud, was well aware of this and did nothing. Yet, he goes after Andersen when they had not even been subpoenaed.
Judge Posner recommended that the defendants try and settle this out of court. Trust me that if the public were to hear what is on the tapes, they would not only want to run the Andreases out of the country, but also all of those who protected them using shareholder money. If justice were served in 1996 instead of plea-bargained away, maybe it would have sent a message to other companies that this sort of conduct will not be tolerated. No, DOJ sold out the ADM shareholders, protected the auditing firm of Ernst & Young who knew the books were dirty, and then sent the whistleblower to jail for ten years.
David Hoech is president of Global Consultants, Inc. and was an industry consultant in agribusiness during the late 80's and 90's. He resides in Hallandale, Florida with his wife and business partner, Carol, who co-founded the ADM Shareholders Watch Committee. Globalfl1@peoplepc.com
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