- A Texas judge dismissed a lawsuit filed by the Texas Attorney General's office that accused egg producer Cal-Maine Foods of price gouging in the early weeks of the coronavirus pandemic. The case was dismissed with prejudice, meaning the state can't bring the same case again.
- The one-page order does not explain the judge's motivation, except to say she granted Cal-Maine's motion to dismiss. Cal-Maine's motion, filed in June, does not mince words, calling the state's case unconstitutional and with no basis in fact. "This case really is about the State’s unconstitutional rejection (and attempted manipulation) of the free market and existing contracts between sophisticated businesses," it said.
- Cal-Maine said it was grateful for the court's ruling in a written statement. "Cal-Maine Foods has never engaged in price gouging. Since 1957, we have strived to operate with honesty and integrity and will continue to do so going forward," the company's statement said. The Texas Attorney General's Office did not issue a response to the ruling.
As consumers stocked up for long quarantines and the Easter holiday in March and early April, an unexpected spike in demand in retail eggs lead to an increase in prices nationwide. Eggs are a commodity, priced each week through the third-party Urner Barry Index. The unprecedented run on eggs — coupled with an inability to quickly bring more to the retail market — had consumers paying almost three times more per dozen.
Texas, as well as Minnesota and New York, fought back with lawsuits and orders, trying to force egg producers into keeping prices low and paying restitution to consumers who paid too much.
Forsman Farms was targeted by the state of Minnesota. The company responded by settling with the state. It denied price gouging but retroactively reset prices to a lower threshold, offering refunds to retail customers. According to the settlement, Forsman Farms needs to get written permission from the state if conditions in the pandemic force it to raise prices more than 20%.
New York just filed its lawsuit against egg producer Hillandale Farms in state court last week.
Even though the Texas case was filed in a single state's court — therefore taking only state laws into consideration — it could have wide implications for the pending case in New York. Cal-Maine used the U.S. Constitution, federal court cases and the Texas Deceptive Trade Practices Consumer Protection Act to successfully make its case.
"The State believes it can govern and set prices for the national shell egg market and two egg producers," the motion reads. "The U.S. and Texas Constitutions disagree."
Cal-Maine laid out exactly how pricing for the egg market works. It pointed out that retailers set their own prices for consumers, so there's no way a lawsuit can hold the producer liable for grocery prices. Egg prices are determined mostly by the Urner Barry index, which looks at supply and demand.
The number of eggs on the market is relatively fixed. There were 330.6 million egg-laying hens in the U.S. as of April 1 — 3.5% less than last year, according to April's monthly statistics from the Egg Industry Center. On any single day, about 81 out of 100 hens produce an egg.
But only about six in 10 eggs produced go to grocery stores, according to the American Egg Board. Another 9% are shell eggs that go to foodservice. The remaining eggs often go straight to a processing facility to become liquid. Grocery store and foodservice shell eggs have different packaging and inspection requirements. FDA made allowances for foodservice shell eggs to be sold at grocery stores in April, but that was after some weeks of heightened retail demand for eggs and empty grocery shelves.
In its motion to dismiss, Cal-Maine makes the same argument that other experts and producers used to explain high prices. The market was not expecting such a quick shift in demand — both on the grocery retail side, where consumers started buying more eggs to stock up, and on the foodservice side, where demand abruptly shut off almost completely. After a number of weeks, prices and demand stabilized, and things are more or less back to normal.
The egg producer points out the state neither explained how eggs priced in line with a national index could be overpriced, nor offered what it believes a fair price for eggs would be. Cal-Maine argued the state of Texas is trying to force Cal-Maine to operate outside of long-negotiated contracts with retailers and suppliers, as well as forgo opportunities to recoup the costs of doing business. For Cal-Maine, expenses increased during the coronavirus outbreak as the provider needed to enhance employee health and safety measures and work through a suddenly-more-complex supply chain.
While Cal-Maine identified several ways the case violates the Texas Constitution and state law, it also cited the commerce clause of the U.S. Constitution. The egg producer said a state trying to regulate the national shell egg market is impeding interstate business. This argument could also be used in the New York case against Hillandale Farms, which is based in Ohio and Pennsylvania — as well as any other state that tried to use the courts as a remedy for egg price volatility in the pandemic.