Logic Melts in Dismissal of Chocolate Price-Fixing Lawsuit

Industry players absolved of guilt despite some of them admitting to as much elsewhere.

Mar 3, 2014 at 7:00PM

Funny how a judge in one country can ignore admissions of guilt by participants in a crime in another country, and dismiss all charges against the perpetrators for a lack of evidence here at home.

Last year after Mondelez International's (NASDAQ:MDLZ) Cadbury unit confessed to Canadian authorities it had participated in a price fixing scheme, co-conspirators Hershey (NYSE:HSY), Nestle (NASDAQOTH:NSRGY), and Mars ended up paying a total of $23.2 million in fines for their roles. Cadbury got off scot-free because it dimed out the others first -- Canadian law allows the first participant to step forward and admit guilt to gain immunity -- and Hershey had to pay just $4 million because it cooperated with authorities. 


Nestle and Mars, however, which both denied any collusion to fix prices, bore the brunt of the balance of the total, as did distributor Itwal. 

Yet here in the U.S., a federal judge this week dismissed all claims against the chocolatiers (all except Cadbury, that is, as it settled the claims against it in 2012) that were brought by some 91 grocery stores, drugstores, and other businesses that purchased chocolate products. Middle District Chief Judge Christopher Conner ruled that even though the defendants all hiked their prices by identical or nearly identical amounts over that time, and often did so at the very same time, cocoa prices also rose 53% between 2002 and 2009, so the price hikes don't necessarily mean anything.

Even though Hershey, Nestle, and Mars control 75% of the U.S. chocolate market, and the small number of players could have opened the door for collusion, does not mean it actually occurred, the judge said. He did go on to note in his ruling that "the record reveals that [the companies] were frequently surprised by both the timing and amounts of their competitors' increases," but to Conner the hikes that occurred in 2002, 2004, and 2007 were just a normal business response to rising industry costs.

The admission by Cadbury to fixing prices in Canada is irrelevant to what occurred in the U.S., as the judge noted, "Nothing scandalous or improper has been discovered within our borders." That's an interesting assertion, particularly since Cadbury paid $1.3 million to settle price-fixing claims here and was required to help the plaintiffs in their case against the other three chocolate companies that refused to settle. And the same judge approved the agreement.

Cadbury itself was the victim of a price-fixing scheme in Australia between 2000 and 2004 when its corrugated fiberboard supplier Amcor colluded with industry partners to raise prices on its packaging. As in Canada, Australia has an immunity law that allowed Amcor to blow the whistle on its co-conspirators and escape prosecution, though Cadbury still filed a lawsuit against the company that was settled out of court.

Sure, many companies believe it's cheaper to settle a case than fight for their innocence, though it seems oftentimes that course of action just invites more lawsuits. However, when participants to a scheme have admitted crimes occurred elsewhere, it's hard to believe they didn't occur everywhere, and that could be the basis for an appeal by the plaintiffs.

This lawsuit is not likely to melt away for the chocolate makers anytime soon, but even if they are ultimately found to have fixed prices, the impact of any fines imposed would likely not be material to their operations -- suggesting that if you're still sweet on its chances, Hershey's stock at least would satisfy your portfolio's chocolate cravings.

A melt-in-your-mouth opportunity
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Rich Duprey has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

©1995-2014 The Motley Fool. All rights reserved. | Privacy/Legal Information