A federal judge has dismissed a lawsuit alleging Clackamas, Oregon, U.S.A.-based Pacific Seafood engaged in anticompetitive practices concerning the Dungeness crab fishery on the U.S. West Coast.
Filed in March 2023 in the U.S. District Court of Northern California by commercial fisherman Brand Little, the suit alleged Pacific Seafood artificially suppressed the price paid to fishermen for Dungeness crab through a “multipronged strategy of monopsonization, coercion, dumping, and secret deals.”
On 21 May 2024, U.S. Magistrate Court Judge Alex G. Tse ruled Little’s suit did not sufficiently prove his case but gave him the ability to amend most of his claims by 20 August 2024. Tse also allowed Little to request targeted discovery by 6 June 2024, so long as it didn’t create “a massive factual controversy." Tse rejected Little’s standalone claim that Pacific had made secret payments to some crabbers, saying it wasn’t plausible.
“[Little] alleges that all, or substantially all, direct purchasers of fresh crab on the West Coast are part of a price-fixing conspiracy. There are hundreds of these direct purchasers, and Little must plausibly allege that Pacific Seafood coerced substantially all of them into the alleged conspiracy. He hasn’t done so. He pleads only a couple of instances of coercion, impacting direct purchasers in only some geographic areas along the West Coast. From these occurrences, it’s a big jump to conclude that hundreds of direct purchasers up and down the West Coast were coerced into joining a price-fixing conspiracy,” Tse said in his decision. “Little’s allegations, while not bare bones, aren’t specific enough to support a plausible multi-hundred-member buyer’s cartel. He needs to offer more detail before the court will allow him to proceed with a claim that could involve hundreds of non-parties in discovery.”
Pacific Seafood Chief Administrative Officer Dan Occhipinti welcomed the case’s dismissal.
“As we’ve said all along, the things the plaintiff and his lawyer claim about the crab market and Pacific Seafood make no sense and aren’t true. It looks like the court found the plaintiff’s allegations as confusing as we did,” Occhipinti told SeafoodSource.
Tse said many of Little’s claims were consistent with violations of the federal Sherman Act, as well as California’s Cartwright Act, Unfair Practices Act, and Unfair Competition Law, but that Little didn’t adequately prove his claims. Without more evidence, Pacific’s actions could be justified as legitimate business practices, Tse said.
“Little’s complaint does include more expansive coercion allegations … [but they] are too general or conclusory,” Tse wrote. “Little alleges that Pacific Seafood retaliates against direct purchasers who don’t follow its pricing decisions by failing to ‘pick up the phone’ when these direct purchasers want to sell crab to Pacific Seafood for processing. He also alleges that Pacific Seafood ‘punishes non-compliant crab buyers on the sell-side by denying non-compliant crab buyers access to other fish products whose supply Pacific Seafood controls.’ But, it’s far from clear how often Pacific Seafood has failed to pick up the phone or denied direct purchasers access to other fish products. It’s also uncertain how many direct purchasers know about Pacific Seafood’s coercive tactics. Here again, the jump is considerable from Little’s allegations to a plausible inference that hundreds of direct purchasers have been coerced into joining a price-fixing conspiracy.”
Tse said Pacific Seafood occupies a unique place in the market, not only as a direct purchaser of Dungeness crab but also as the only significant processor of Dungeness crab on the U.S. West Coast.
“Pacific Seafood, then, is not merely a competing direct purchaser of fresh crab; Pacific Seafood is a critical second-level buyer of other direct purchasers’ leftover fresh crab,” Tse said. “At the beginning of the season, when direct purchasers have more fresh crab than they can sell to restaurants and similar retailers, they end up selling 'a huge portion' of their fresh crab to Pacific Seafood for processing. When direct purchasers (other than Pacific Seafood) are about to set the prices they will pay crabbers for freshly caught crab, they sensibly will consider the price they will obtain from Pacific Seafood for the excess crab they can’t sell to restaurants and similar retailers. If direct purchasers pay too high a price to crabbers, they may be forced to sell their excess crab to Pacific Seafood for a loss. It is no surprise, then, that other direct purchasers wait for Pacific Seafood to set its prices before they set theirs and that their prices converge. [But], Little insists that something more sinister is going on. He says Pacific Seafood punishes direct purchasers who don’t follow its pricing decisions or who start buying crab from crabbers before Pacific Seafood does.”
If true, Little’s claim that Pacific Seafood has monopsony power is plausible, Tse said, as Pacific Seafood owns or controls substantially all of the Dungeness crab-processing capacity along the West Coast and could conceivably use that market power to pay suppliers lower prices than it would pay in a truly competitive market. However, Little doesn’t sell crab to processors, and, therefore, “it is doubtful that Little would have standing to pursue a monopsony claim focused on the processing market.”
“Perhaps for this reason, Little bases his monopsony claims on a different market, which he refers to as the ‘wholesale-input market.’ In this market, crabbers such as Little are sellers, while direct purchasers of the crabbers’ catch are buyers; in the same market, the direct purchasers are also sellers when they resell crab to processors but not when they resell crab to restaurants and similar retailers. In the wholesale-input market, Little alleges that Pacific Seafood is the ‘ultimate buyer of at least 50 percent of all the Dungeness crab sold,’ a market share he suggests can support a monopsony claim,” Tse said. “If readers find the court’s summary of the wholesale-input market confusing, they are likely not alone. The wholesale-input market is a market of Little’s invention, which stitches together portions of separate markets in an attempt to establish monopsony power. It is a ‘gerrymandered market,’ as Pacific Seafood puts it.”
Little did not persuasively articulate how his proposed wholesale-input market reflects commercial realities, Tse said.
“Little alleges that Pacific Seafood leverages its processing power to control the prices that direct purchasers offer crabbers for freshly caught crab, alleging that Pacific Seafood uses the processing chokepoint strategically to coerce other seafood buyers into using the ex-vessel price that Pacific Seafood sets for Dungeness crab. Leveraging implies that there must be two separate markets – an ex-vessel market and a processing market – because leveraging is predicated upon the existence of two separate product or service markets,” Tse said. “Little tries to have it both ways, relying on leveraging but asserting that the cause and effect of the leveraging are felt in the same market: the wholesale-input market. If leveraging is the commercial reality, as Little alleges, there must be two markets. Given that Little bases claims on a leveraging theory, which requires the existence of two separate product or service markets, his market definition, which combines the two relevant markets into one, is facially unsustainable.”
Little’s attorney, Gross Klein PC Partner Stuart G. Gross, told SeafoodSource he and Little will be filing an amended claim and requesting a targeted discovery.
“We are confident in our ability to satisfy the court's concerns and look forward to making the Dungeness crab market fair for the hardworking crabbers on whom it depends,” Gross told SeafoodSource.
