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In the Dog Days of Summer, Prescription Pet Food Conspiracy Case Beats a Motion to Dismiss in Kansas

Posted  September 2, 2021
By Taline Sahakian, Alysia A. Solow

Is there any truth to the allegations that pet food manufacturers have conspired to monopolize and artificially inflate prices in the prescription pet food market?   The Court of Appeals of Kansas says possibly—or at least that Stevie Kucharski-Berger’s case making those allegations can withstand a motion to dismiss and seek proof of those claims through discovery.

Kucharski-Berger, upon advice of, and with a prescription from, her trusted veterinarian, purchased prescription pet food manufactured by Hill’s Pet Nutrition, Inc. (Hill’s).  Eventually, plaintiff discovered the prescription did not require the purchase of prescription dog food because the prescribed food contained neither medicine nor drugs and was not even required to be tested or approved by the Food and Drug Administration (FDA).

Kucharski-Berger’s beef is that “pet food manufacturers ‘combined and conspired with pet food retailers and veterinary clinics … to communicate [a] false and misleading message’ that prescription pet food offered benefits over nonprescription pet food justifying its higher price.” Kucharski-Berger vs. Hill’s Pet Nutrition, Inc., — P.3d —, 2021 WL 3707999 at 2 (Kan. App. 2021).  Plaintiff brought her claim that manufacturers were conspiring to attempt to monopolize the prescription pet food market and to artificially inflate pricing.  Although the district court granted a motion to dismiss, the Kansas appellate court reversed and reinstated all the of plaintiff’s claims, which allege violations of the Kansas Restraint of Trade Act (KRTA) and the Kansas Consumer Protection Act (KCPA), as well as unjust enrichment claims.

Under the KRTA, Kucharski-Berger asserts two claims.

First, she alleges that Hill’s restrained trade in the prescription pet food market in violation of K.S.A. 2020 Supp. 50-101 and K.S.A. 2020 Supp. 50-112, which was per se unlawful and resulted in increased pricing.  Specifically, plaintiff claims that Hill’s and other manufacturers and retailers, not named parties to the Complaint, including Purina, Mars, PetSmart and Banfield, entered into an illegal agreement in March of 2005 to sell prescription pet food.  In doing so, they “entered into a trust and contract, combination or conspiracy in restraint of trade or commerce in Kansas to fix, raise, stabilize … prices for Prescription Pet Food by … conspiring to misrepresent and market and sell Prescription Pet Food through a knowingly deceptive, misleading, and self-imposed prescription requirement having no legal basis or mandate.”  2021 WL 3707999 at 12.

Second, she alleges that Hill and the other manufacturers and retailers conspired to monopolize the Kansas prescription pet food market under K.S.A. 50-132 by “agreeing, combining, and conspiring to misrepresent and market and sell Prescription Pet Food through a knowingly deceptive, misleading, and self-imposed prescription requirement having no legal basis or mandate, and by agreeing, combining, and conspiring to limit and preclude non-conspiring competing manufacturers of Prescription Pet Food from access to major channels of distribution, including their co-conspirator retailers and veterinary clinics.”  Id.

How does the plaintiff claim the manufacturers and retailers of prescription pet food pull this off?

Kucharski-Berger alleges that Hill’s, Purina and Mars control between 95 to nearly 100 percent of the prescription pet food market, that Hill’s entered into merchandising agreements with PetSmart and Banfield (which is owned by Mars) restricting them from selling prescription pet food of other competitors, and that doing so was against the economic interest of Mars, which could have excluded Hill’s from PetSmart and Banfield.  This new agreement allowed the co-conspirators to control the market and to maintain “unjustifiably increased prices” for prescription pet food.  Id. at 12-13.  A comparison of a prescription and a non-prescription variant had 75% overlap in ingredients and neither contained any drugs or medication.   Plaintiff alleges the prescription requirement “prey[ed] on the known propensities of consumers to love their pets and trust their vets.”  Id. at 13.   With a draft Compliance Policy Guide (CPG) in hand in 2012, the manufacturers and retailers, she alleges, used their power in the industry to convince the FDA not to require FDA approval for the sale of the prescription food, but rather to insert only a requirement that the food be made available through a veterinarian.   Allegedly, they then agreed to construe the draft CPG to require them to use a prescription requirement to comply with the policy.  Id. at 14.

The Kansas Court of Appeals found the allegations of conscious parallelism among the competitors and plus factors (such as actions against economic self-interest or which posed significant risks to the co-conspirators) supported allegations of conspiracy.  The court noted, however, that unlike Bell Atl. Corp. v. Twombly, 550 U.S. 544, 553 (2007), the Supreme Court decision that sets forth the federal standard for analyzing the sufficiency of a complaint at the motion to dismiss stage—in which allegations of parallel conduct must be accompanied by plus factors—no Kansas case law supports defendant’s claim that evidence of “plus factors” need to be shown at the pleading stage.  Id. at 15.   The Court of Appeals held that the merchandising agreements adequately showed plus factors, and that the 2005 per se price-fixing agreement was adequately pled without any plus factors necessary.

Interestingly, in an unpublished decision, the U.S. Court of Appeals for the Ninth Circuit held that a similar consumer lawsuit filed in Federal court against Mars Petcare should be dismissed.  Moore v. Mars Petcare US, Inc., 820 Fed. Appx 573 (2020).  Specifically with respect to California Unfair Competition Law (UCL) and federal antitrust law, plaintiffs failed to adequately plead an agreement that unreasonably restrained trade under TwomblySee Twombly, 550 U.S. at 553.  The plaintiffs in Moore failed to allege adequate “plus factors” to show a “meeting of the minds,” with the court holding that there were obvious alternative explanations for the conduct including “significant barriers to entry” in the prescription pet food market due to the high amount of research, development, and investment necessary to enter the market.  Moore at 575-576.  The court disagreed with plaintiffs’ allegations that manufacturers acted against their self-interest by not whistleblowing on each other and noted that the FDA encouraged the role of the veterinarian in the process and had not itself brought actions against these marketing practices despite the alleged violations of conditions in the FDA’s final CPG.  Id. at 576.  Finally, the court held that plaintiffs’ conspiracy theory failed to adequately account for the role of other players in the market.

While state antitrust laws in most cases follow federal antitrust laws, these contrasting decisions demonstrate that the application of those laws to similar facts does not always yield the same outcome.  There can be divergences between state and federal courts or between different judges.

As some states like New York work on revamping their state antitrust laws to reach areas Federal law does not, the Kucharski-Berger decision serves as a good reminder to mind the nuances of state antitrust laws when bringing or defending antitrust claims.

Edited by Gary J. Malone

Tagged in: Antitrust Litigation,