The Record – Business Section
By Bruce Spence
September 17, 1998
A class-action suit that alleged price fixing by manufacturers of citric acid – a flavor enhancer, preservative and sterilizing agent widely used by soda producers, wineries and canneries – resulted in a $3 million settlement for California businesses Wednesday in San Francisco Superior Court. The original price-fixing complaint was filed in 1995 by Stockton attorney James Brown, of the Stockton law firm of Herum, Crabtree, Dyer & Zolezzi, on behalf of California Cooler cofounder Michael Crete.
Crete owns MCFH Inc., a Lodi beverage firm that produced California Sports Seltzer and currently makes Isotec, a sports beverage. The suit, eventually joined by 10 law firms, charges that manufacturers conspired to artificially raise citric acid prices by 8 percent to 9 percent over a three year period before the complaint was filed. The settlement deal includes full compensation for overcharges and an agreement not to fix prices in the future.
“Since it is a settlement, they don’t confess to do anything,” Brown said. “It’s like, ‘We didn’t do anything wrong. We won’t do anything wrong in the future. And here’s your $3 million.'” The suit arose out of a widely publicized price-fixing investigation by the federal Justice Department of the Archer-Daniels-Midland Co. and several top officers. Three-fourths of the $2,957,884 settlement will be distributed among hundreds of California businesses that bought citric acid during the three-year period.
The remainder of the proceeds, plus roughly $100,000 in expenses, will go to 11 law firms that combined their class-action complaints against a half-dozen citric-acid manufacturers – all but one of which settled with Wednesday’s agreement. Brown said the settlement, approved by Judge Thomas Mellon, recovers the full amount of overcharge to California commercial buyers of citric acid from the settling defendants.
The settling defendants include ADM, Jungbunzlauer Inc., Hoffman-La Roche Inc., Citrique Belge and Haarman & Riemer Corp. The suit remains pending against Cargill Inc., which didn’t participate in the settlement. Businesses will have until the end of the month to file a claim for compensation, he said, and each company will be reimbursed at a rate of 8 percent to 9 percent for each dollar spent over the three-year period for citric acid. Citric acid is widely used as a flavoring and preservative in drinks. Canneries and wineries also use citric acid, diluted in water, to organically sanitize processing equipment. The citric-acid market is a relatively small one, though.
“The total amount Michael bought for the California Sports Seltzer was less than $10,000 worth,” Brown said. Settlement stakes are much bigger for a parallel class-action suit involving allegations of price fixing for the more widely used high-fructose corn syrup and involves some of the same defendants, including Cargill and Archer-Daniels-Midland. That suit also arises from the same Justice Department investigation and charges price fixing in roughly the same 8 percent-to-9 percent overcharge range, he said. “But that market could involve hundreds of millions of dollars.”
Executives at Archer-Daniels-Midland Co., an Illinois-based food-products manufacturer with $13.3 billion in annual revenue, didn’t return telephone calls for comment Wednesday afternoon. That company remains in the midst of a federal price-fixing suit against a top company executive and two former executives. The three stand accused of fixing the market for lysine, a feed additive used to spur growth in poultry and swine. Though the three executives deny wrongdoing, ADM pleaded guilty two years ago to fixing prices of lysine and citric acid and agreed to pay a $100 million fine.