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WOMAN
SUPERIOR COURT OF CALIFORNIA
COUNTY OF SAN FRANCISCO
Document Scanning Lead Sheet
Jan-14-2010 11:51 am
Case Number: CGC-10-496030
Filing Date: Jan-14-2010 11:45
Juke Box: 001 Image: 02732610
COMPLAINT
PATRICIA MCALLISTER VS. NESTLE USA, INC. et al
001002732610
Instructions:
Please place this sheet on top of the document to be scanned.SUM-100
(cracion NCYAL) colt BE bee
NOTICE TO DEFENDANT:
(AVISO AL DEMANDADO):
NESTLE USA, INC., and DOES 1-50 inclusive
YOU ARE BEING SUED BY PLAINTIFF:
(LO ESTA DEMANDANDO EL DEMANDANTE):
PATRICIA McALLISTER, on behalf of herself and all others similarly
situated
NOTICE! You have been sued. The court may decide against you without your being heard unless you respond within 30 days. Read the information
below.
You have 30 CALENDAR DAYS after this summons and legal papers are served on you to file a written response at this court and have a copy,
served on the plaintiff. A letter or phone call will not protect you. Your written response must be in proper legal form if you want the court to hear your
case. There may be a court form that you can use for your response. You can find these court forms and more information at the California Courts
Online Self-Help Center (www. courtinfo.ca.gov/selfhelp), your county law library, or the courthouse nearest you. If you cannot pay the filing fee, ask
the court clerk for a fee waiver form. If you do not fle your response on time, you may lose the case by default, and your wages, money, and property
may be taken without further warning from the court.
There are other legal requirements. You may want to call an attorney right away. If you do not know an attorney, you may want to call an attomey
referral service. If you cannot afford an attorney, you may be eligible for free legal services from a nonprofit legal services program. You can locate
these nonprofit groups at the California Legal ‘Services Web site (www. lawhelpcalifornia.org), the California Courts Online Self-Help Center
(www.courtinfo.ca.gov/selthelp), or by contacting your local court or county bar ‘association. NOTE: The court has a statutory lien for waived fees and
costs on any settlement or arbitration award of $10,000 or more in a civil case. The court's lien must be paid before the court will dismiss the case.
JAVISO! Lo han demandado. Sino responde dentro de 30 dias, la corte puede decidir en su contra sin escuchar su version. Lea la informacion a
continuacion.
Tiane 30 DIAS DE CALENDARIO después de que le entreguen esta citacion y papeles legales para presentar una respuesta por escrito en esta
corte y hacer que se entregue una copia al demandante. Una carta 0 una llamada telefonica no lo protegen. Su respuesta por escrito tiene que estar
en formato legal correcto si desea que procesen su caso en la corte. Es posible que haya un formulario que usted pueda usar para su respuesta.
Puede encontrar estos formularios de la corte y mas informacion en el Centro de Ayuda de las Cortes de California (www.sucorte.ca.gov), en fa
biblioteca de leyes de su condado 0 en la corte que le quede mas cerca. Sino puede pagar la cuota de presentaci6n, pida al secretario de la corte
que le 06 un formulario de exencién de pago de cuotas. Si no presenta su respuesta a tiempo, puede perder el caso por incumplimiento y la corte le
podra quitar su sueldo, dinero y bienes sin mas advertencia.
Hay otros requisitos legales. Es recomendable que llame a un abogado inmediatamente. ‘Sino conoce a un abogado, puede llamar a un servicio de
remision a abogados. Si no puede pagar a un abogads, es posible que cumpla con los requisitos para obtener servicios legales gratuitos de un
programa de servicios legales sin fines ‘de lucro. Puede encontrar estos grupos sin fines de lucro en el sitio web de California Legal Services,
(www lawhelpcalifornia.org), en el Centro de Ayuda de las Cortes de California, (www.sucorte.ca. gov) 0 poniéndose en contacto con la corte o ef
colegio de abogados locales. AVISO: Por ley, la corte tiene derecho a reclamar las cuotas y los costos exentos por imponer un gravamen sobre
cualquier recuperacion de $10,000 6 mas de valor recibida mediante un acuerdo o una concesién de arbitraje en un caso de derecho civil. Tiene que
pagar el gravamen de la corte antes de que la corte pueda desechar el caso.
The name and address of the court is:
(El nombre y direcci6n de la corte es):
CASE NUMBER:
San Francisco Superior Court
( 2
“PRB 10-496 030
400 MacAllister Street, San Francisco, CA 94102
The name, address, and telephone number of plaintiffs attorney, or plaintiff without an attorney, is:
(El nombre, la direccién y el nimero de teléfono del abogado del demandante, o del demandante que no tiene abogado, es):
R. Alexander Saveri, Saveri & Saveri, Inc., 706 Sansom: Stree cisco, CA 94111, 415-217-6810
weraon Parke
DATE: JAN 7 4 2010 Clerk, by ~ SBR Ade puty
(Fecha) (Secretario) (Adjunto)
(For proof of service of this summons, use Proof of Service of Summons (form POS-010).)
(Para prueba de entrega de esta citation use el formulario Proof of Service of Summons, (POS-010)).
NOTICE TO THE PERSON SERVED: You are served
4. [] as an individual defendant.
2. [[] as the person sued under the fictitious name of (specify):
3, (1 on behalf of (specify):
under, [__] CCP 416.10 (corporation) C4 CCP 416.60 (minor)
CCP 416.20 (defunct corporation) [) ccp 416.70 (conservatee)
[—] CCP 416.40 (association or partnership) [_] CCP 416.90 (authorized person)
{} other (specify):
4. [__] by personal delivery on (date):
Page 1 of 1
Form Adopted for Mandatory Use IMO! ‘Code of Civil Procedure §§ 412.20, 465
Judicial Council of California SUMMONS ‘wiww.courtingo.ca. gov
‘SUM-100 [Rev. July 1, 2008]
[American LegaiNet, ne.
|] wiew.FormsWorkffow.com|CM-010
[ATTORNEY OR PARTY WITHOUT ATTORNEY (Name, tate Bar number, and actress) FOR COURT USE ONLY
R. Alexander Saveri (173102)
Saveri & Saveri, Inc., 706 Sansome Street
San Francisco, CA 94111
reverroneno 415-217-6810 raxno: 415-217-6813 F I E D
artorney For (Name. Plaintiff Patricia McAllister Swpetior of Cal if
[SUPERIOR COURT OF CALIFORNIA, COUNTY OF San. Francisco ° Francisco
street aporess: 400 MacAlister Street
ALLNG ADDRESS JAN 1 4 2010
city anozp cove. San Francisco, CA 94102
ean NANE GORDON PARK-LI, Clerk
CASE NAME: . B
McALLISTER v. NESTLE USA, INC. Deputy Clerk
4
CIVIL CASE COVER SHEET Complex Case Designation «~
a gl Limited a “BEP- 10-496 030
(Amount (Amount Counter Joinder
demanded demanded is Filed with first appearance by defendant
exceeds $25,000) $25,000 or less) (Cal. Rules of Court, rule 3.402) DEPT:
items 1-6 below must be completed (see instructions on page 2).
i. Check one box below for the case type that best describes this case:
Cor
JUDGE!
‘Auto Tort ntract Provisionally Complex Civil Litigation
‘Auto (22) [oT Breach of contractwvarranty (06) (Cal. Rules of Court, rules 3.400-3.403)
Uninsured motorist (46) 1 Rute 3.740 collections (09) [Z1 antitrust/Trade regulation (03)
Other P/PD/WD (Personal Injury/Property Other collections (09) CI Construction defect (10)
Damage/Wrongful Death) Tort (1 insurance coverage (18) [_] Mass tort (40)
‘Asbestos (04) [1 other contract (37) 1 securities litigation (28)
[_] Product liability (24) Real Property [_] Environmental/Toxic tort (30)
LE) Medicat matpractice (45) [1 Eminent domain/inverse [J insurance coverage claims arising from the
[1 other PuPDMD (23) condemnation (14) above listed provisionaly complex case
Non-PUPDIWD (Other) Tort L21 Wrongful eviction (33) ‘ypes (41)
usiness torVunfar business practice (07) [1 Other real property (26) Enforcement of Judgment
C1 civit rights (08) Unlawful Detainer [J Enforcement of judgment (20)
Defamation (13) LJ commercial (31) Miscellaneous Civil Complaint
[2] Fraud (16) [__] Residential (32) C2 rico @7)
[—] intellectual property (19) [1 ongs (38) Other complaint (not specified above) (42)
[__] Professional negligence (25) dudicial Review Miscellaneous Civil Petition
|__| Other non-PI/PDIWD tort (35) L_] Asset forfeiture (05) Partnership and corporate governance (21)
Esgloyment [1 Petition re: arbitration award 11) [—] otner petition (not specified above) (43)
Wrongful termination (36) [_] writ of mandate (02)
Other employment (15) [1 other judicial review (39)
2. This case Ww is L_Jisnot complex under rule 3.400 of the California Rules of Court. If the case is complex, mark the
factors requiring exceptional judicial management:
a. Large number of separately represented parties d.L¥_] Large number of witnesses
b. OO Extensive motion practice raising difficult or novel e. Z| Coordination with related actions pending in one or more courts
issues that will be time-consuming to resolve in other counties, states, or countries, or in a federal court
c. LY] Substantial amount of documentary evidence f. Substantial postjudgment judicial supervision
3. Remedies sought (check ail that apply): Ww monetary bv] nonmonetary; declaratory or injunctive relief L Jpunitive
4, Number of causes of action (specify): 2
5. Thiscase Lv J is Jis not aclass action suit.
6. Ifthere are any known related cases, file and serve a notice of related case. (You may use form CM-015.)
Date: January 14, 2010 hh ‘
R. Alexander Saveri > x ancbe Chetty)
(TYPE OR PRINT NAME) {SIGNATURE OF PARTY OR ATTORNEY. FOR PARTY)
NOTICE
« Plaintiff must file this cover sheet with the first paper filed in the action or proceeding (except small claims cases or cases filed
under the Probate Code, Family Code, ‘or Welfare and Institutions Code). (Cal. Rules of Court, rule 3.220.) Failure to file may result
in sanctions.
© File this cover sheet in addition to any cover sheet required by local court rule.
© If this case is complex under rule 3.400 et seq. of the California Rules of Court, you must serve a copy of this cover sheet on all
other parties to the action or proceeding.
© Unless this is a collections case under rule 3. 740 or a complex case, this cover sheet will be used for statistical purposes only.
ge 4 o 2
Form Adopted for Mandatory Use ‘Cal. Rules of Court, rules 2,30, 3.220, 3.400-3.403, 3.740;
Juda! Goucl of Calfora CIVIL CASE COVER SHEET Gar Stance of Judie Admistraton, st. 210
Moro Rev. ly +2007] tv courinfo.c8 gov
[American LegaiNet, inc
www. FormsWorkflow.com|SUMMONS ISSJED
Guido Saveri (22349)
R. Alexander Saveri (173102)
Geoffrey C. Rushing (126910) F odie ddadienD
of
2 || William Heye (233249) “ASE MANAGEMENT ‘CONFERENCE SEI
SAVERI & SAVERL, INC.
3 | 706 Sansome Street JAN 1 4 2010
San Francisco, California 94111 UN 18 2010 -9#
4 | Telephone: (415) 217-6810 9 MAGORDON PARK-L], Clerk
Facsimile: (415) 217-6813 * Cie
5 RAND
6 | Attorneys for Plaintiff and the Class
7 || [Additional Counsel Appear On Signature Page]
8
9 SUPERIOR COURT OF THE STATE OF CALIFORNIA
10 CITY AND COUNTY OF SAN FRANCISCO
1 UNLIMITED JURISDICTION
12
13 | PATRICIA McALLISTER, on behalf of Case No. ff GDBe 10 “49 603 0
herself and all others similarly situated,
14 CLASS ACTION
Plaintiffs,
15
16 v. COMPLAINT
JURY TRIAL DEMANDED
x
NESTLE USA, INC., and DOES 1 through
50 inclusive,
oO ©
Defendants.
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-1-
CLASS ACTION COMPLAINTPlaintiff Patricia McAllister, individually and on behalf of all others similarly situated,
2 | brings this Class Action Complaint (“Complaint”) for treble damages under the antitrust and
3 | unfair competition laws of the State of California. Plaintiff states and alleges as follows:
4 | JURISDICTION AND VENUE
5 | 1. Plaintiff brings this action pursuant to California Business and Professions Code
6 | Section 16750(a), to recover treble damages that Plaintiff and the members of the Class, as
7 | defined below, have sustained due to violations by the Defendant of California Business and
8 | Professions Code Section 16720 (the “Cartwright Act”). Plaintiff's claims also are brought
9 | pursuant to Sections 17203 and 17204 of the Business and Professions Code to obtain restitution
10 | from the Defendant due to its violations of Section 17200 of the Business and Professions Code
11 || (the “Unfair Competition Law”). Plaintiff and the proposed Class assert no claims under federal
12 | law.
13 2. Venue is proper in this judicial district pursuant to the provisions of Section
14 | 16750(a) of the Business and Professions Code and Sections 395(a) and 395.5 of the California
15 | Code of Civil Procedure. Defendant either maintains an office, transacts business, has an agent or
16 || is found in the City and County of San Francisco. Plaintiff's causes of action arose in part within
17 | the City and County of San Francisco and Defendant is subject to the jurisdiction of this Court.
18 | The unlawful acts committed and the conduct undertaken pursuant to the combination or
19 | conspiracy alleged herein has a direct effect on consumers within the State of California,
20 | including the City and County of San Francisco, and the trade and commerce described below is
21 | carried on within the State of California, as well as within the City and County of San Francisco.
22 | DEFINITIONS
23 3. As used in this Complaint, the following terms are defined as follows:
24 (a) Chocolate is a confectionary product created by processing cocoa beans and
25 | mixing the processed beans with milk, sugar, and other ingredients. As used in this Complaint,
26 | the term “Chocolate Products” includes chocolate bars and other chocolate confectionery
27 | products packaged for retail sale (e.g., Snickers, Kit Kats, 3 Musketeers, Hershey Bars, Hershey’s
2 |
| 2
CLASS ACTION COMPLAINTow ND
Kisses, M&Ms, etc.).
(b) “Person” or “persons” have the same meaning as set forth in Business and
Professions Code Sections 16702 and 17201.
THE PARTIES
PLAINTIFF
4, Plaintiff Patricia McAllister is a resident of California, and purchased Chocolate
Products in the State of California for her own use and not for resale, and suffered injury as a
result of Defendant’s illegal conduct described in this Complaint.
DEFENDANT AND CO-CONSPIRATORS
5. NESTLE USA, INC. (hereafter “Nestlé” or “Defendant”) is a corporation
organized under the laws of Delaware, with its principal place of business in Glendale, California.
Nestlé is a wholly owned subsidiary of Nestle S.A. Throughout the Class Period, Nestle
manufactured and/or indirectly sold Chocolate Products to purchasers in California.
6. Various other individuals, partnerships, firms, trade associations, and corporations,
who have not been named as defendants in this Complaint, have participated as co-conspirators
with the Defendant in the violations alleged herein, and have performed acts and made statements
in furtherance thereof. These co-conspirators include The Hershey Company, Hershey Canada
Inc., Mars, Incorporated, Mars Canada, Inc., Mars Snackfood US, LLC, Nestlé S.A., Nestlé Canada,
Inc., Cadbury ple, Cadbury Holdings Ltd. (formerly known as Cadbury Schweppes plc), and Cadbury
Adams Canada, Inc. In addition there are other individuals, partnerships, firms, trade associations,
and corporations, who have participated as co-conspirators with the Defendant in the violations
alleged herein whose identities are presently unknown, and are named as Doe defendants.
7. The acts alleged in this Complaint were done by the Defendant, were authorized,
ordered, or done by duly authorized officers, agents, employees or representatives of the
Defendant, while actively engaged in the management, direction or control of Defendant’s
business or affairs.
8. The acts that this Complaint alleges were done by each of the co-conspirators,
were fully authorized by each of those co-conspirators, or ordered or done by duly authorized
3-
CLASS ACTION COMPLAINToon nun ss
|
officers, agents, employees or representatives of each co-conspirator while actively engaged in
the management, direction, or control of such co-conspirator’s business or affairs.
DOE DEFENDANTS
9. The true names and capacities, whether individual, corporate, associate,
representative, or otherwise of defendants named herein as Does One through Fifty are unknown
to Plaintiff at this time, and they are therefore sued by such fictitious names pursuant to the
California Code of Civil Procedure Section 474. Plaintiff will amend this Complaint to allege the
true names and capacities of Does One through Fifty when Plaintiff knows them. Each of Does
One through Fifty is in some manner legally responsible for the violations of law alleged herein.
Hereafter, the term “Defendant” shall include the Doe Defendants.
10. The acts that this Complaint alleges were done by each of the Doe Defendants
were authorized, ordered or done by duly authorized officers, agents, employees, or
representatives, while actively engaged in the management, direction or control of such Doe
Defendant’s and its co-conspirators’ business or affairs.
CLASS ACTION ALLEGATIONS
Lec yx——————————
11. Plaintiff brings this action pursuant to California Code of Civil Procedure, Section
382, on her own behalf and as representative of a Class defined as follows:
All persons and/or entities residing in California who indirectly
purchased Chocolate Products, at any time during the period from
December 9, 2002 to the present, for their own use and not for
resale. Excluded from the Class are Defendant, its co-
conspirators, all present or former parents, predecessors,
subsidiaries or affiliates of Defendant, and all governmental
entities.
12. Plaintiff does not know the exact number of class members. Due to the nature of
the trade and commerce involved, however, Plaintiff believes that the total number of class
members is at least in the hundreds of thousands and members of the class are so numerous and
geographically dispersed across the State of California that joinder of all class members is
impracticable.
13. There are questions of law or fact common to all members of the Class, including,
but not limited to:
4.
CLASS ACTION COMPLAINToe ND HW FY N
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(a) Whether Defendant engaged with its co-conspirators in a trust, contract,
combination or conspiracy among the world’s leading manufacturers of Chocolate Products to fix,
raise, maintain, and/or stabilize prices for those products in California and the United States;
(b) The duration and extent of the trust, contract, combination or conspiracy alleged in
this Complaint;
(c) Whether the alleged trust, contract, combination or conspiracy violates the
California Cartwright Act;
(d) Whether Defendant’s conduct alleged herein violates California’s Unfair
Competition Law;
(e) The effect of Defendant’s trust, contract, combination or conspiracy on the world’s
leading manufacturers of Chocolate Products to fix, raise, maintain, and/or stabilize prices for those
products in California and the United States during the Class Period; and
(f) The appropriate measure of damages sustained by Plaintiff and other members of
the class.
(g) | Whether Defendant and its co-conspirators engaged in a conspiracy to fix, raise,
maintain, and/or stabilize the price of Chocolate Products;
(h) Whether Defendant’s combination or conspiracy with its co-conspirators caused
prices for Chocolate Products to be higher than they would have been in the absence of
Defendant’s conduct;
(i) Whether Defendant's combination or conspiracy caused injury to the business or
property of Plaintiff and the other members of the Class;
Gg) Whether Defendant’s conduct violates the Unfair Competition Law,
(k) Whether Defendant has been unjustly enriched through overpayments by Plaintiff
and members of the Class;
ad The appropriate Class-wide measure of damages; and
(m) The appropriate nature of Class-wide equitable relief.
14. Plaintiff, who is a member of the Class, and who has claims that are typical of the
claims of the class members, will fairly and adequately protect the interests of the Class. Plaintiff
5.
CLASS ACTION COMPLAINTis a typical purchaser of Chocolate Products made by Defendant for sale in California and her
interests are coincident with, and not antagonistic to, those of the other members of the Class. In
addition, Plaintiff is represented by counsel who are competent and experienced in the
prosecution of antitrust and class action litigation.
15. The prosecution of separate actions by individual members of the Class would
create a risk of inconsistent or varying adjudications, establishing incompatible standards of
conduct for Defendant.
16. The questions of law or fact common to the members of the Class predominate
over any questions affecting only individual members, including legal and factual issues relating
to liability and damages.
17. Actass action is superior to other methods for the fair and efficient adjudication of
this controversy. Treatment as a class action will permit a large number of similarly situated
persons to adjudicate their common claims in a single forum simultaneously, efficiently, and
without the duplication of effort and expense that numerous individual actions would engender.
Class treatment will also permit the adjudication of claims by many class members who could not
afford individually to litigate antitrust and unfair competition claims such as those asserted in this
Complaint. This class action presents no difficulties in management that would preclude
maintenance as a class action. Finally, the class is readily ascertainable.
NATURE OF TRADE AND COMMERCE
18. The Chocolate Products market constitutes a distinct product market recognized by
Defendant and its co-conspirators, the trade associations that serve the confectionery industry,
and other bodies that have examined the industry. According to statistics reported by the United
States Department of Agriculture, wholesale sales of chocolate candy in the United States totaled
approximately $10.2 billion, while retail sales totaled $15.6 billion. A June 2007 report
published in Matrade New York, entitled Trends in USA the USA Cocoa and Cocoa Product
Market, reported that United States chocolate candy sales in 2006 totaled approximately 56% of
all United States candy sales.
19. Important characteristics of the chocolate market facilitate anticompetitive collusion
-6-
CLASS ACTION COMPLAINTamong the Defendant and its co-conspirators.
20. Chocolate is a commodity-like product. Thus, each Defendant and co-
conspirator can and do produce and sell, for example, a certain type of chocolate candy bar,
seasonal novelty chocolate, or boxed chocolate that is similar to a chocolate candy bar, seasonal
novelty chocolate, or boxed chocolate offered by Defendant or another co-conspirator,
respectively.
21. The market for Chocolate Products is highly concentrated. Defendant and its co-
conspirators collectively control more than 40% of the global chocolate confectionery products
market, with Nestlé controlling 12.6%, while its co-conspirators Hershey controls 8.2%, Cadbury
7.5%, and Mars 14.8%. Defendant Nestlé and its co-conspirators Hershey and Mars collectively
possess approximately 80% of the United States chocolate market, with Hershey possessing about
45%, Mars about 27%, and Nestlé about 9%. Nestlé Canada, Hershey Canada, Mars Canada, and
Cadbury Adams Canada collectively possess about 64% of the Canadian chocolate market. By
contrast, the buyer side of the market for Chocolate Products is diffuse, comprised of many
buyers without the ability to influence pricing significantly.
22. The chocolate industry is conducive to price fixing agreements. First, the industry
is highly concentrated with Nestlé, Hershey and Mars controlling more than 75% of the United
States market for chocolate candy.
23. Second, that concentration is substantially exacerbated by licensing agreements
between Defendant and its co-conspirators. Hershey has a licensing agreement with Nestlé
whereby Hershey has a right to sell and/or manufacture certain Nestlé products (i.e., Kit Kat bars
and Rolo candy) in the United States. In addition, Hershey and Cadbury have a licensing
arrangement whereby Hershey has the exclusive right to manufacture and/or sell Cadbury
products in the United States.
24. Asaresult, Hershey and Cadbury control 45% of the market, and Hershey’s share
is further increased by sales of certain Nestlé products. For Herfindahl-Hirschman Index (“HHI”
purposes, a concentration in the market greater than 1,800 in the market is indicative of
oligopolistic market power. The chocolate industry has a HHI rating based on the three firms
-7-
)
CLASS ACTION COMPLAINT
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(Hershey, Mars, and Nestlé) of 2,835.
25. The terms of the licensing agreements between Hershey and Nestlé, and also
Hershey and Cadbury, are similar in that both agreements contain terms that allow Hershey to
manufacture and sell competitors’ products in the United States in exchange for Hershey paying
quarterly royalty payments based upon net sales of the licensed products.
26. Both licenses also contain a right for Cadbury and Nestlé, respectively, to audit
Hershey’s sales of the licensed products. The audit rights allow Cadbury and Nestlé to obtain key
information from Hershey pertaining to the licensed products.
27. The exchange of data among multiple competitors provides Defendant and its co-
conspirators with opportunities to collude on product pricing.
28. The exchange of pricing and cost data also provides a mechanism where, for at
least the licensed products, Defendant and its co-conspirators can insure compliance with any
conspiratorial price fixing agreements. It also further enhances the Defendant’s and its co-
conspirators’ ability to enforce price fixing agreements on non-licensed products as well.
29. Hershey’s licensing agreements with Cadbury and Nestlé also provide Hershey
with pricing control over a larger percentage of the United States chocolate market than it would
possess in the absence of such licensing agreements, also resulting in further concentration of the
United States chocolate market.
30. In addition, there are high barriers to entry into the chocolate market in the form
of technical know-how, advertising, and access to distribution channels. The manufacture of
confectionery products is highly technical, requiring considerable understanding of food
technology, including hardware (processing machinery and computers), software, and formulation
technology. There is significant spending on advertising and access to supply channels is
critical to gain a foothold, as wholesale distributors, chain grocery stores, mass merchandisers,
chain drug stores, vending companies, wholesale clubs, convenience stores, dollar stores,
concessionaires, and department stores form the most significant distribution channel for
27 | confectionery sales. Because of their high collective market share globally, as well as in the
United States and Canada, Defendant and its co-conspirators collectively are able to exercise
-8-
CLASS ACTION COMPLAINTmarket power in each of these markets, including the ability to raise prices and erect barriers to
entry. Pricing for Chocolate Products in the United States and Canada, during the Class Period
was characterized by industry-wide price increases. Moreover, during the Class Period, price
increases in the same or similar amounts for Chocolate Products were announced by Defendant
and multiple of its co-conspirators and/or became effective at or near the same time.
31. The United States is the leading exporter of Chocolate Products to Canada as well
as the leading importer of Chocolate Products from Canada. A 2004 United States Department of
Agriculture report noted that in 2003, 46% of United States confectionery exports were to
Canada. A 2005 United States Department of Agriculture report noted that “the United States
supplied 45% of Canadian chocolate candy imports by value.” The 2007 Matrade New York
10
11 | report, referenced above, indicated that Canada was the largest exporter of chocolate food products
12 } to the United States in 2004 through 2006, with annual total customs values ranging from $690 to
13 } $705 million United States dollars.
THE CONSPIRACY OF DEFENDANT AND. ITS CO-CONSPIRATORS
32. The market for Chocolate Products was ripe for collusion. In addition to the
collective market power exercised by the Defendant and its co-conspirators, as detailed above,
demand for these products has stagnated in recent years because of increasing health concerns and
changing consumer preferences with respect to chocolate consumption.
33. The Canadian and United States operations of the Defendant and its co-
conspirators are tightly interwoven. For example, sales of Hershey’s chocolate in the United States
and Canada are overseen by its North American Commercial Group. Likewise, Cadbury’s
confectionery sales in the United States and Canada are overseen by its Americas Confectionery
operating unit. Similarly, Nestlé conducts its chocolate business through a Chocolate,
Confectionery and Biscuits Strategic Business Unit, and Nestlé also organizes its businesses by
geographic zone, with its “Zone Americas” including the United States and Canada. Defendant’s
and its co-conspirators’ geographically integrated operations for their Canadian and U.S. operations
suggest that decisions related to Defendant’s and its co-conspirators’ pricing in Canada either
affected or reflected pricing decisions applicable to the U.S. operations of Defendant and its co-
-9-
CLASS ACTION COMPLAINT| conspirators.
| 34. The prices of Chocolate Products in North America had been generally stable from
1996 to 2002. In the face of waning demand, Defendant and its co-conspirators responded by
instituting uniform parallel price increases during the Class Period in the United States and Canada.
| 35. Inthe United States, for example:
(a) On or about December 9, 2002, Mars (via its Masterfoods USA division) increased
wholesale prices on standard-size chocolate bars by approximately 10.7%. A few days later, on or
about December 11, 2002, Hershey announced a price increase (which was effective January 1,
2003) for the wholesale price of its domestic standard size, king size, variety pack, six-pack, and
ten-pack candy bar lines. The increase raised the price of standard-size candy bars in particular
by approximately 10.7%. Hershey spokeswoman Christine Dugan said Hershey raised
prices after rival Mars recently raised its prices. On or about December 13, 2002, Nestlé
announced a price increase of approximately 10.3% on its standard-size chocolate bars.
(b) Onor about December 15, 2004, Hershey again increased the wholesale prices
for many of its Chocolate Products. Hershey increased the price of its standard-size bars by
approximately 5.5% and also increased prices for king-size bars, six-packs, variety packs,
and peg bags. Significantly, Hershey’s increase came weeks after Mars (via its Masterfoods
USA division) raised its prices for its Chocolate Products baglines by similar amounts on or
about November 19, 2004. On or about December 17, 2004 (only two days after Hershey’s price
increase), Mars increased the price of its standard-size bars by approximately 5.5% and also
increased prices for its king-size bars and six-packs. Nestlé then increased prices on its standard-
size bars by approximately 5.7% on or about December 22, 2004, and also increased prices on its
king-size bars, six-packs, and peg bags.
(c) On or about March 23, 2007, Mars announced price increases of approximately
5.3% on its standard-size bars, six-packs, and variety packs and also increased prices for other
Chocolate Products, citing the need to help offset costs. Hershey then announced price
increases on or about April 4, 2007, purportedly due to rising costs, particularly cocoa. Hershey
increased its prices for standard-size bars, six-packs, and variety-packs by approximately 5.2%
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CLASS ACTION COMPLAINTwon
and also increased prices for other Chocolate Products. Mars and Hershey both publicly noted
that their previous price increases were more than two years ago. Nestlé also raised prices for its
chocolate confectionery products on or about April 5, 2007, by an average of approximately 5%,
including a 5.4% increase in the price of its standard-size bars, purportedly due to rising
commodity, packaging, and energy costs.
36. In Canada, for example, on July 19, 2005, Nestlé Canada announced a chocolate
price increase for 5-8%, effective October 31, 2005, for base confectionery, and April 18, 2006,
for seasonal confectionery. Cadbury Adams Canada announced a price increase on average of
5.2% on its chocolate portfolio soon thereafter, effective October 31, 2005. In addition, Hershey
announced a price increase on most chocolate, also effective October 31, 2005. Mars announced a
price increase on average of 6% on select items in its chocolate confectionery portfolio,
effective November 7, 2005.
37. Defendant and its co-conspirators falsely asserted that these price changes were fully
justified by increases in costs. The price increases were instead the product of a conspiracy among
Defendant and its co-conspirators, and cannot be explained solely by purported changes in the price of
raw materials for these products.
38. Defendant and its co-conspirators offered various explanations in the media for
their price increases on Chocolate Products, including rising costs in commodity prices such as
cocoa, sugar, milk, or fuel prices. However, examination of commodity prices throughout the
Class Period show that these prices cannot explain price increases on Chocolate Products as
commodity and raw material costs remained relatively constant throughout periods when
Defendant and its co-conspirators claimed a price increase was necessary.
39. For example, as discussed above, Defendant Hershey announced a price increase
on standard-size candy bars of approximately 5.5% in December 2004. Defendant Mars had also
raised prices around the same time. Hershey blamed the increase at least in part on higher fuel
prices. However, an examination of the United States On-Highway Diesel Fuel Price Index
published by the United States Energy Information Administration shows that fuel prices were
relatively stable at less than $2.00 per gallon at the time this price increase was announced.
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40. Similarly, in April 2007, Defendant Hershey announced an approximate 5.2%
increase in the price of standard-size chocolate candy bars and other Chocolate Products. Nestlé
and Mars also announced similar price increases at approximately the same time. Hershey stated
that the price increase was necessary to “help offset the company’s input costs, including raw and
packaging materials ... While there has been no change in list prices on these impacted items
since December 2004, over this period costs have continued to rise.” However, the raw material
prices for the key ingredients in chocolate, i.e., cocoa, sugar, and milk, showed virtually no net
increase in the commodity prices between December 2004 and April 2007.
41. Defendant’s and its co-conspirators’ other purported reasons for price increases,
such as increased packaging and employee benefit costs, were also only pretextual reasons for
their price increases during the Class Period.
42. Inacompetitive market operating free of Defendant’s and its co-conspirators’
conspiracy, cost increases would have resulted in decreases to Defendant’s and its co-
conspirators’ profit margins because Defendant and its co-conspirators would have been able to
only partially offset any cost increases by increasing prices.
43. However, due to Defendant’s and its co-conspirators’ price fixing agreement,
Defendant and its co-conspirators were able to raise prices repeatedly to maintain their margins at
or about the same levels. For example, Hershey’s gross margins from 2001 through 2007 were
35.5%, 37.8%, 39.0%, 39.5%, 38.7%, 37.8%, and 33% respectively. Nestlé’s Chocolate,
Confectionary and Biscuits operating segment reported EBIT margins from 2001 through 2007 of
11.0%, 10.9%, 10.3%, 11.2%, 11.7%, 11.4%, and 11.4% respectively.
44. Moreover, during the Class Period, demand for Chocolate Products was declining
or stagnant. Defendant and its co-conspirators were nonetheless able to maintain their profit
margins as a result of their price fixing conspiracy.
45. From a date unknown, but at least January 1, 2002 through the present, Defendant
and its co-conspirators engaged in a continuing contract, combination, or conspiracy with respect
to the sale of Chocolate Products in the United States or for delivery in the United States in
unreasonable restraint of interstate trade and commerce, in violation of the Cartwright Act,
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California Business & Professions Code Section 16720 et seq.
46. The contract, combination, or conspiracy consisted of an agreement among Defendant
and its co-conspirators to fix, raise, stabilize, or maintain at artificially high levels the prices they
charged for Chocolate Products in the United States or for delivery in the United States.
47. In formulating and effectuating this conspiracy, Defendant and its co-conspirators did
those things that they combined and conspired to do, including:
(a) Participating in meetings and conversations among themselves during which
they agreed to charge prices at certain levels, and otherwise to fix, increase, maintain, or stabilize
prices of Chocolate Products in the United States and California;
(b) Issuing price announcements consistent with, and selling Chocolate Products at, the
agreed upon prices; and
(c) Participating in meetings and conversations among themselves to implement,
adhere, and police the agreements they reached.
48. The Canadian Competition Bureau (“Bureau”) currently is investigating Defendant
and its co-conspirators for alleged price fixing of Chocolate Products and recently received
permission to search their Canadian offices, The Bureau submitted two sets of information on
November 19 and November 28, 2007, in support of its request to obtain search warrants. On
November 21, 2007, Ontario’s Superior Court of Justice granted the November 19, 2007 search
warrants.
49. The search warrants were based in part on information obtained from a
“Cooperating Party,” which according to news reports is believed to be Cadbury. Cadbury is
believed to be the party cooperating with Canadian authorities because Cadbury is not named in
the warrants as one of the companies under investigation, despite its large Canadian market share.
50. The Information of Daniel Wilcock, sworn November 19, 2007 (“November 19,
2007 Information”), details many meetings and communications regarding pricing of Chocolate
Products beginning at least as early as February 2004, including meetings at coffee shops,
restaurants, conventions, and the offices of Nestlé, amongst Hershey, Mars, Nestlé, and the
“Cooperating Party.” In the November 19, 2007 Information, the Bureau set forth the following:
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(a)
“Cooperating Individual 1” attended a breakfast meeting with the President and
| CEO of Nestlé Canada, Bob Leonidas, on February 23, 2004, at which time the parties discussed the
topic of “trade spend” (the industry practice of providing discounts, rebates, and allowances to
customers, often linked to promotions). According to the November 19, 2007 Information,
(b)
Cooperating Individual 1 indicated that it was known in the industry
that he disagreed with the industry’s prevailing approach to trade
spend and that the Cooperating Party was going to reduce trade spend
onchocolate. Cooperating Individual | indicated that he left the
meeting with the impression that Leonidas “sees the world the
way” that he did. Cooperating Individual 1 also understood that
he had an open line to call Leonidas if there were any issues in the
market, including trade spend practices.
“Cooperating Party” informed the Bureau of an internal email exchange, which
began on June 1, 2005, regarding a discussion with their customer, ITWAL Limited, a distributor,
concerning chocolate pricing:
(©)
Cooperating Individual 11 sent an email with the subject heading
“Chocolate pricing” to Cooperating Individual 12 and
Cooperating Individual 13 stating: “At ITWAL I was informed by a
reliable source that both Nestlé and Effem have been to customers
hinting at 2005 price increases. No details or confirmation. I
suggested that we would seriously consider appropriate actions once
firm details known, and that I would be concerned about the other
leading player not following Which [sic] my contact said they would
inquire about. This is similar to info we had picked up a couple of
months ago. Martin I would send out a note to ADWM’s to start
digging.”
“Cooperating Individual 1” met Leonidas of Nestlé at Manoir Richelieu during a
Confectionary Manufacturers Association of Canada annual meeting, held from June 2 to 5,
2005. According to the November 19, 2007 Information,
@)
Cooperating Individual 1 stated that Leonidas said words to him to
the effect of “I want you to hear it from the top — I take my pricing
seriously” or “[w]e are going to take a price increase and I want you
to hear it from the top.” Leonidas handed Cooperating Individual 1
an envelope. Cooperating Individual 1 accepted the envelope
without objection. Cooperating Individual 1 said “I may have said
‘we like to take pricing too, we take it seriously.’ T don’t think
[Leonidas] took a negative impression. Tjust don’t know if he
thought it was favorable.” Cooperating Individual 1 agreed that
Leonidas would have left the meeting with the idea that the
Cooperating Party would follow a price increase led by Nestlé.
“Cooperating Individual 1” informed the Bureau that the envelope contained
-14-
CLASS ACTION COMPLAINTinformation concerning Nestlé’s planned price increases for chocolate in 2005. He understood
that there was a problem with him receiving this information, and advised the Bureau that “you
shouldn’t talk about pricing. I didn’t want to be rude to Bob [Leonidas] so I said OK, was
neutral, but I didn’t want him to think, in any way, that I was coordinating with him.” Cooperating
Individual 1 also stated that the letter was similar to another Nestlé price increase letter he had
received.
(ec) Anemail exchange provided by the Cooperating Party, dated July 6, 2005, indicates
that by at least that date a letter containing confidential Nestlé price increase information was
| circulating around the Cooperating Party’s office:
| One of the emails observed that the letter was a draft, as it was
dated July 15, 2005 . . .. was unsigned and contained spelling mistakes.
The information was that Nestlé was increasing the price of its
| confectionery portfolio by approximately 5 to 7%, effective October
31, 2005 for base confectionery and April 18, 2006 for seasonal
confectionery. This pricing information was discussed among the
Cooperating Party’s leadership team and prompted the Cooperating
Party to consider and announce a price increase on chocolate. The
Cooperating Party has also provided the Bureau with a copy ofa
letter located in its files that appears to be the July 15 letter.
(f) Cooperating Individual 2 stated that Cooperating Individual 1 called her on J uly 6,
2005 from Europe and instructed her to go to the Nestlé [Canada] offices to pick up something
from Leonidas. Cooperating Individual 2 got Leonidas’ phone number from Cooperating Individual
1’s contacts and called Leonidas to arrange a time. Cooperating Individual 2 went to the Nestlé
[Canada] offices with a colleague and was met by Leonidas downstairs. He said something to the
effect that it was better not to be seen in his office and handed Cooperating Individual 2 an
| envelope. Cooperating Individual 2 subsequently opened the envelope and it contained
| information about a planned price increase by Nestlé [Canada]. Counsel for the Cooperating
| Party provided the Bureau with a copy of the document that Cooperating Individual 2 had retrieved
| from the files and Cooperating Individual 2 believes it is the document that was contained in
| the envelope from Leonidas. The document is an unsigned letter on Nestlé letterhead announcing
| a chocolate price increase to the trade and was forward dated July 19, 2005.... The July 19
| letter is substantively the same as the July 15 letter, except that spelling mistakes had been
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corrected and the percentage price increase had been increased to “5 to 8%.”
(g) Cooperating Individual 2 stated that when she returned to the office on July 6,
2005, she called Cooperating Individual 1 in Europe, as he had requested, and left a voice-
mail reading the contents of the letter. Cooperating Individual 2 also states that she sent an email
message to Cooperating Individual 1 informing him that she had left him a voice-mail regarding the
Nestlé letter. The Cooperating Party has provided the Bureau with a copy of an email from
Cooperating Individual 2 to Cooperating Individual 1 dated July 6, 2005 that states “[s]ent voice-
mail re Nestlé letter.”
(h) Regarding the email from Cooperating Individual 2 dated July 6, 2007,
Cooperating Party 1 explained:
that earlier that day he had got a confirmation on voice-mail that
Nestlé [Canada] was going to have a price increase. Cooperating
Individual 1 thinks he sent a voice-mail or email message to
Cooperating Individual 2 and asked her to forward the message by
voice-mail to others in the Cooperating Party along the lines of
“[i]f Nestlé is going to take a price increase then we will too.”
(i) Counsel for the Cooperating Party gave the Bureau a price increase letter from the
Cooperating Party dated July 29, 2005:
The Cooperating Party announced a price increase on average of 5.2%
on its Chocolate portfolio, effective October 31, 2005. The price
increase for the Cooperating Party was such as to align its prices ona
number of common formats with those of Nestlé [Canada].
G) Counsel for the Cooperating Party gave the Bureau a Hershey [Canada] price
increase letter dated August 23, 2005 that was located in the files of Cooperating Party... .
Hershey [Canada] announced a price increase of an unknown percentage on most chocolate and
candy products effective 31 October, 2005.
(k) Counsel for the Cooperating Party gave the Bureau a “Mars [Canada] price
increase letter dated September 6, 2005 .... Mars [Canada] announced a price increase on average
of 6% on select items in its confectionery portfolio, effective November 7, 2005.”
(ay Counsel for the Cooperating Party stated that Cooperating Individual 3 was
contacted by Nestlé [Canada] employee Lynn Hashinsky in late fall 2005 regarding pricing at a
key account. Cooperating Individual 3 reported this to the Cooperating Party’s in-house counsel
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CLASS ACTION COMPLAINT|
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who in turn informed Cooperating Individual 1 of the incident.
(m) Counsel for the Cooperating Party provided the Bureau with an email exchange
between Leonidas and Cooperating Individual 1 beginning on January 18, 2006 .... Cooperating
Individual 1 congratulated Leonidas on his promotion to President and CEO of Nestlé [Canada].
Leonidas responded on January 19, 2006: “Thanks [first name of Cooperating Individual 1], still
want to see you Feb 7th 8am to TALK.”
(n) Counsel for the Cooperating Party gave the Bureau a “copy of an entry from
Cooperating Individual 1’s calendar dated February 15, 2006 showing a meeting scheduled for
7:30am with Leonidas at a Second Cup coffee shop.” Cooperating Individual 1 met Leonidas in
February 2006, at a Second Cup coffee shop in Toronto:
During this meeting they discussed the price of seasonal chocolate.
Leonidas said he wanted Cooperating Individual | to take a price
increase. Cooperating Individual 1 states that he refused to commit
to taking a price increase. ... On October 30, 2006 the Cooperating
Party announced a price increase on seasonal chocolate to take
effect February 5, 2007 — 5% for Halloween products and 4% for
Easter products.
(0) Cooperating Individual 1 received a phone call from Sandra Martinez de Arevalo,
the new President of Nestlé Confectionery, in mid 2007, and stated that
Martinez wanted to meet and talk. Cooperating Individual 1 and
Martinez met for lunch at Auberge du Pommier on July 4, 2007 in
Toronto. The discussion covered a number of issues, both personal
and professional. Martinez suggested that the Cooperating Party
lead a price increase in 2007, as Nestlé wanted to take a price
increase in the third quarter. Cooperating Individual 1 replied that
he was not prepared to take a price increase in 2007, but indicated
that the Cooperating Party might take one in 2008. Cooperating
Individual 1 said he would follow on chocolate but not lead. Martinez
said she would call him back in two weeks. Cooperating Individual
1 said that he was of the view that the discussion did not matter
because he was leaving the Cooperating Party; he could lead her down
the garden path because he would not be making the decisions.
Martinez could “say whatever she wants and hear whatever she
wants” because Cooperating Individual 1 would not be making
pricing decisions. Cooperating Individual 1 also states that Martinez
would have understood that “they were on the same page.” Counsel
for t