By Terry Dillman
A class action antitrust lawsuit filed in June 2010 against Clackamas, Oregon-based Pacific Seafood Group (PSG) is still tacking toward a requested court showdown, despite some legal course changes along the way.
Initially filed by Portland law firm Haglund Kelley Horngren Jones & Wilder LLP for Brookings-based fishermen Lloyd Whaley and Todd Whaley and as many as 3,000 other “similarly situated fishermen and fishing vessel owners,” the lawsuit alleges monopolization of the Dungeness crab, Oregon coldwater (pink) shrimp, groundfish, and whiting seafood markets along the West Coast by PSG and its owner Frank Dulcich. Prices paid to fishermen are the central issue. The complaint alleges that PSG uses its market share of 50 to 70 percent in each of those four critical fisheries and coordinates with other processors to drive down those prices, thus violating federal antitrust laws.
The original complaint also featured an allegation of conspiracy to restrain trade, which disappeared in the filing of a first amended complaint in August 2010. The plaintiffs’ lead attorney Michael Haglund said they re-filed after learning that Dulcich owns PSG outright and is not just a majority partner.
Antitrust laws say “you can’t conspire with yourself,” said Haglund, noting that they weren’t aware of the 57-company conglomerate’s full organization at the time of the initial filing, and that it’s common to re-file a case after such discoveries.
The complaint has since undergone two more iterations, and the latest re-filing in July 2011 added Newport-based pink shrimp fisherman Jeff Boardman, Brookings-based fisherman Brian Nolte and Dynamik Fisheries, Inc. and Miss Sarah LLC as plaintiffs.
The monopoly allegations remain, and the law firm’s website prominently features a section devoted to the lawsuit. It describes the actions taken so far, a copy of the complaint to download and peruse, and lists seven categories of alleged anticompetitive conduct:
• Price fixing – using “multiple tactics to set and enforce low prices to fishermen, including “retaliation against processors who dare to deviate from Pacific’s set prices.”
• Theft from fishermen by manipulating scales, misreporting actual weights, or “arbitrarily designating a portion of a delivered catch as an unusable ‘weighback’” and deducting it from the paid poundage, yet still processing and selling the “unusable” fish.
• Acquiring 18 West Coast seafood processing plants – some through “predatory tactics” that set up a vulnerable company for acquisition “at a bargain price.”
• Widespread use of “exclusive dealing and tying arrangements.”
• Restricting crab, shrimp and groundfish harvest outputs.
• “False representations” to the Pacific Fisheries Management Council that “have impacted” council decisions.
• “Miscellaneous dirty tricks” – among them, “illegally targeting” threatened fish stocks (criminally prosecuted by the state in 2001), and “fraudulently manipulating a delay” in the start of the 2005-2006 crab season.
The lawsuit remains on course toward a potential courtroom showdown, despite a setback at the end of February.
During the discovery process, Haglund said they found out that Pacific aimed at boosting its market share even more by purchasing Westport, Washington-based Ocean Gold, the largest whiting processor and owner of the single largest seafood processing plant on the West Coast.
Founded in 1991 by Washington fisherman Dennis Rydman, Ocean Gold now employs 700 people and processes more than 100 million pounds of fish annually.
In 2006, Ocean Gold and Pacific inked a 10-year deal that made Pacific Seafood “solely responsible” for setting “raw material costs” (fishermen’s prices), and obligated Ocean Gold to sell all fish it buys from fishermen to Pacific. The companies split the profits 50-50. Dulcich currently owns 32 percent of Ocean Gold, and was recently negotiating to buy it outright until Haglund took legal action to try to stop it with a preliminary injunction, asking the court to keep the two companies from communicating with each other about the prices they are paying fishermen, except as needed for accounting. It also asked to halt any communications “intended to direct fishing vessels to particular seafood processing plants.”
Pacific Seafood put the purchase on hold in December 2010, awaiting the outcome.
At the end of February, US District Court Judge Owen Panner rejected the request to keep PSG from communicating with Ocean Gold about how much to pay for whiting, and from which boats to buy the fish.
The judge also noted that Haglund failed to prove that Pacific has used its market share to suppress prices paid to fishermen.
“Plaintiffs have not shown at this stage that they are being harmed by defendants’ alleged illegal price-fixing,” Panner wrote. “On the other hand, the defendants have presented evidence that the proposed injunction would interfere with their business operations.”
Haglund, who won an $82 million judgment against Weyerhaeuser in 2007 following a seven-year legal fight that went to the US Supreme Court, remained undaunted, noting that the decision did not reflect on the merits of his case. He said the case against Weyerhaeuser started out much weaker than the case against Pacific Seafood.
Ocean Gold is also now a named defendant in the antitrust lawsuit.
Craig Urness, PSG’s general counsel, has said the claims “are completely without merit,” and the lawsuit contains “gross misinterpretations.”
Launched in 1941 as a small, fresh seafood retail operation, PSG has since expanded to encompass 57 companies that together put PSG at the top of the seafood seller food chain, with $1 billion in annual global sales. The group’s holdings include Pacific Shrimp in Newport, added to the fold in 1996.
“We plan to aggressively defend against the allegations,” Urness noted. “Pacific Seafood has a long history on the Oregon coast. For more than 25 years, we’ve prided ourselves on providing value, service and jobs on the Oregon coast to our partners in the fishing and seafood industries. We will continue this commitment into the future.”
Attorneys for PSG and Ocean Gold say that most of the complaint field by Haglund focuses on actions that took place outside the statute of limitations, and that neither company has hurt either the fishermen or the industry. They say the companies open up new markets, put more fishermen to work, and allow those fishermen “to earn substantially more money” than they could without the companies’ influence and purchasing power.
But Haglund said the evidence already on the record indicates that Dulcich built his conglomerate in violation of federal antitrust laws, and has used the network of companies to illegally dictate prices, harming not just the fishermen, but also the coastal communities that rely on their incomes.
And his team is still immersed in the discovery process.
In fact, the website offers a questionnaire for commercial fishermen to use to describe “any predatory tactic directed at you or known by you” pertaining to PSG. “Although we spent many months investigating this case, we believe there is considerable additional evidence of anticompetitive behavior by Pacific Seafood Group which is not detailed in the complaint,” it states. “We want to hear from everyone who has evidence of anticompetitive conduct by Pacific Seafood Group.”
Any fishermen with a tale to tell can go to www.hk-law.com and fill out the questionnaire.
State Rep. Wayne Krieger (R-Gold Beach) introduced Senate Bill 668 that would limit the number of commercial fishing permits any individual or company could hold in any fishery to no more than three. Krieger said the bill derived from his frustration over Pacific’s ability to hinder competition in fish prices.
PSG attorney Urness said the bill unfairly targets a successful, family-owned Oregon company that has developed new markets for fishermen.
Pacific Seafood was just named as one of Oregon’s 10 most admired companies in the agriculture and forest products category for 2011 during the seventh annual recognition event held Dec. 7 in Portland. The company earned similar honors in 2007 and 2009.
The Portland Business Journal sponsors the program aimed at recognizing Oregon’s “leading businesses.”
But fishermen claim PSG leads the way in much less flattering and admired categories. Several of them testified in favor of Krieger’s bill during the March 14 hearing of the Senate Committee on General Government, Consumer, and Small Business Protection, and repeated many of the accusations made in the antitrust case.
“I am fortunate not to have any mortgage on my fish boat, but it still has become harder and harder to make a decent living in my fishery over the last five years,” Newport-based Jeff Boardman, skipper of the F/V Miss Yvonne, told the committee. Boardman has been an Oregon coast shrimper since 1967.
“Although the wholesale and retail prices for our shrimp have been rising since 2006, the ex vessel prices paid to fishermen for pink shrimp have been on the decline during this same period,” he added. “I strongly believe that all of the fault for this disconnect between wholesale prices and ex vessel prices lies with Pacific Seafood. With more than three permits, any large processor just has too much power to dictate price. I believe we have been receiving prices that are 10 to 15 cents below what we would be paid if the processor market was truly competitive.”
With 30 million pounds of shrimp landings during an average year, that price difference means a loss of $3 million to $4.5 million to fishing families and Oregon coastal communities.
Steve Bodnar, executive director of the Coos Bay Trawlers (which favors the bill), testified as a private citizen in relation to specific comments about Pacific Seafood. He said Urness called the president of the organization and “asked him to stop me from testifying.” As a result, Bodnar said he “was told not to say anything negative about Pacific Seafood” in his testimony.
“I cannot in good conscience testify in a way that keeps this committee in the dark,” he said.
Emily Dunn has fished on the West Coast for 26 years, the past eight out of Garibaldi with her husband, Edward, primarily for Dungeness crab. She told the committee that it had become “increasingly difficult to make a good living” during the past five years as operating costs rose and prices paid to crabbers “flat-lined,” averaging about $2 per pound. At the same time, she noted, wholesale prices rose substantially.
“None of this increase has been shared with fishermen, and I place all the blame for this at the door of Pacific Seafood,” she stated. “Competing processors are intimidated by Pacific and wait to see what price Pacific Seafood will set at the beginning of each season. With their market share and reputation, Pacific Seafood can veto the higher prices that would be set in a competitive market.”
Darus Peake, who owns and operates Garibaldi-based Tillamook Bay Boathouse, which processes crab, tuna, salmon and some groundfish and has eight employees. He is currently chairman of the Oregon Salmon Commission, and has served as a port commissioner in Garibaldi.
Peake participated in the 2010 crab price negotiations sponsored by the Oregon Department of Agriculture, and said he “came away disgusted” over Pacific Seafood’s refusal to budge above $1.675 per pound, even though he and “a number of other processors” were willing to pay prices higher than the 2009 opening price of $1.75 per pound. PS representatives also insisted on delaying the season to Dec. 10 to set crab pots, and first deliveries in Dec. 12.
“Because of their market share and the practice of requiring complete consensus on the processor side in those negotiations, we ended up with no choice but to stick with the prices proposed by Pacific Seafood,” said Peake. “I see the financial stress encountered by many fishing families on Oregon’s north coast and I see the declining level of maintenance throughout the Oregon fleet. If competitive conditions do not improve, I fear that we will lose a significant share of our fleet, and it will gradually be taken over through acquisitions of fishing vessels and permits by Pacific Seafood.”
Unlike the PS business model, which he said aims to dominate and buy up fishermen, he has a vision “where free and fair competition results in more processors, more fresh as opposed to frozen product, and more fishing industry jobs in Oregon.”
Krieger’s bill is still stuck in the committee process.
The lawsuit alleges that PSG uses vertically integrated acquisitions, multiple tactics to set and enforce ex-vessel prices, exclusive dealing and tying arrangements, restrictions on output, “theft of seafood commodities” from fishermen, “fraudulent representations” to public agencies, and “miscellaneous dirty tricks.” The lawsuit requests a trial by jury, and asks the court, among other things, to declare PSG’s conduct illegal, and award the fishermen and fishing vessel owners a class judgment of $131.5 million to $173.5 million for actual damages, and to triple those damages to between $394 million and $520 million “as a result of the antitrust violations.”
The attorneys squared off in front of Judge Panner in October, with PSG’s legal eagles trying to convince the judge that the lawsuit doesn’t merit class action status. As of this writing, Panner had yet to rule on motions from Ocean Gold and Pacific to dismiss the lawsuit, or determine whether or not it merits class action status.
The trial was originally scheduled to begin in February 2012.