Hearing Before The Honorable Rodney W. Sippel, United States District Judge - May 6, 2015

8/9/2019 Hearing Before The Honorable Rodney W. Sippel, United States District Judge - May 6, 2015

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Appearances Cont'd:

For Defendant: David H. Luce, Esq.

CARMODY MACDONALD P.C.

120 South Central, Suite 1800

Clayton, MO 63105

Darren Johnson, Esq.

PAUL AND WEISS

1285 Avenue of the Americas

New York, NY 10019

For Counter Charles A. Weiss, Esq.

Defendant PRCG/ BRYAN CAVE LLP

Haggerty: One Metropolitan Square

211 North Broadway, Suite 3600

St. Louis, MO 63101

For Counter Michael A. Kahn, Esq.

Defendant Blue CAPES AND SOKOL

State Digital: 7701 Forsyth Boulevard, 12th Floor

Clayton, MO 63105

REPORTED BY: SHANNON L. WHITE, RMR, CRR, CSR, CCR

Official Court Reporter

United States District Court

111 South Tenth Street, Third Floor

St. Louis, MO 63102

(314) 244-7966

PRODUCED BY COURT REPORTER COMPUTER-AIDED TRANSCRIPTION


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Nestle Purina v Blue Buffalo Company -- 05-06-15

(PROCEEDINGS BEGAN AT 10:05 AM.)

THE COURT: Good morning. We're here today in the

case styled Nestle Purina against Blue Buffalo, 4:14-CV-859.

Would counsel make their appearances, please?

MR. ZARLENGA: Carmine Zarlenga, Mayer Brown, for

Purina.

MR. ASSMUS: Richard Assmus also for Mayer Brown for

the plaintiff, Nestle Purina.

MR. ROODMAN: David Roodman, Bryan Cave, on behalf of

Purina.

MR. WEISS: Charles Weiss on behalf of PRCG/Haggerty.

MR. KAHN: Michael Kahn, Your Honor, on behalf of

Blue State Digital.

MR. LUCE: Morning, Judge. Dave Luce with Carmody.

With me today is Steve Zalesin, Adeel Mangi, and Darren

Johnson on behalf of Defendant Blue Buffalo.

THE COURT: Very good. All right. Are there any

announcements before we begin to work our way through the

pending motions this morning?

MR. ZALESIN: There is one.

THE COURT: Good.

MR. ZALESIN: Good morning, Your Honor. Steve

Zalesin for Blue Buffalo. The parties worked out and

submitted to Your Honor a joint proposed scheduling order

which would extend all deadlines by roughly two months.

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THE COURT: The experts were, like, four months out,

weren't they? Or did I missing something?

MR. ZALESIN: There were some further extensions at

the back end.

THE COURT: Two months, four months.

MR. ZALESIN: I think that had a lot to do with

trying not to ruin anybody's Christmas or Thanksgiving.

THE COURT: Okay.

MR. ZALESIN: But recent developments suggest to Blue

Buffalo at least that that -- even that revised schedule is

going to need further revision. And the reason for that is

that Blue Buffalo has determined that it is going to bring

third-party claims in this proceeding against Wilbur-Ellis,

which is the supplier Your Honor has heard so much about,

which delivered product to Blue Buffalo's co-packers, which

was not what Blue Buffalo ordered and purchased and paid for,

not what it was labeled to be. We've previously told the

Court that we may at some point bring Wilbur-Ellis in as a

party to these proceedings if the facts warrant such a claim.

What has occurred in the very recent past is the week

before last, the end of the week of last week of April -- so I

think it was the 23rd -- we got a significant new production

of material and information from Wilbur-Ellis in response to

third-party subpoenas and discovery requests that both Blue

Buffalo and Nestle had served on Wilbur-Ellis.

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And we then analyzed that information carefully over

the weekend and last week and were able to determine for the

first time that the Wilbur-Ellis mislabeling scheme did, in

fact, impact a significant proportion of Blue Buffalo's dry

pet food products that were manufactured from material that

was shipped to our co-packers prior to May of 2014. And as a

result of that determination, we've decided to assert

third-party claims against Wilbur-Ellis and possibly others

involved in that mislabeling scheme.

Now, we did not come to this decision lightly, Your

Honor. As you know, Blue Buffalo has been the party that has

been pushing for tighter discovery, tighter deadlines in this

case. We wanted to try this case this year, in 2015, and get

it resolved in no small part because we have counterclaims in

the case in which we seek, among other things, a permanent

injunction against the ongoing attack or advertising campaign

that Purina is still running to this day, calling Blue Buffalo

liars and dishonest and what have you.

But this latest production from Wilbur-Ellis provides

an important puzzle piece that had been missing until now,

which is: What proportion of the shipments to our co-packers,

in fact, were impacted by the mislabeling? And we now know

from their most recent spreadsheets and documents that the

answer appears to be a very -- a substantial proportion. So

we intend now to take prompt action against Wilbur-Ellis.

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As I mentioned, we are also looking at the

possibility of additional third-party defendants who were

complicit in that mislabeling conduct. We'll come to a

decision on that in the next couple of days, but we thought we

should make the Court aware of our intentions.

Now, let me be clear about what this means for Blue

Buffalo and its position in this case. Nestle Purina brought

this case alleging that Blue Buffalo had intentionally lied

about the ingredients in its pet foods, said we were using

high-quality, expensive ingredients when, in fact, we were

knowingly substituting cheaper, lower-quality ingredients.

That claim is completely false. Blue Buffalo had no knowledge

that it was being defrauded by its supplier, as were

apparently many other pet food manufacturers who were sourcing

from Wilbur-Ellis, which is one of the biggest names in the

business.

We ordered high-priced, high-quality chicken meal.

We paid for high-priced, high-quality chicken meal, but that's

not what we got in many instances. And Nestle Purina is

trying to capitalize on this.

We believe that this, in fact, had no impact on

Nestle Purina or its business. This is really a matter

between Blue Buffalo and its suppliers and Blue Buffalo and

its customers, but if Blue Buffalo is found to have any

liability in this case -- because we did put in our ads and on

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our bags "no chicken by-product meal," and that turns out not

to be true in many cases -- then if we have liability to

Nestle Purina, then those responsible should have to answer

for it.

So we would expect, Your Honor, with your permission,

to be in a position to file an amended answer, counterclaims,

and third-party claims within two weeks. We would request

until -- today's the 6th; so that would be May 20. If that's

acceptable to the Court. And we would respectfully request

the Court's permission to do so.

We are willing, obviously, if Your Honor prefers, to

file a formal motion for leave to bring these additional

third-party claims. Your Honor's existing scheduling order

had a cutoff date. I'm not even sure when it was, but it was

some months ago for adding parties. But we just got this

information from Wilbur-Ellis.

And I should add, Your Honor, that Nestle Purina has

been in a rush to judgment saying, oh, it's obvious, it's been

obvious for six months or longer, that a significant

proportion of these products were impacted.

That is not true. We have been waiting on

Wilbur-Ellis. The information has been coming out very

slowly. They sent us information about turkey meal, which is

a relatively minor ingredient, in February. It wasn't until

the end of April they sent us the information we needed on

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chicken meal, and now that the facts have come to our

attention, we intend to act.

THE COURT: All right. Mr. Zarlenga.

MR. ZARLENGA: Well, Your Honor, it may be the first

time in this case that I actually agree with a lot of what Mr.

Zalesin said. Whoever put on their labels that the product

has no chicken by-product meal on product that has that in it

should be held responsible. We've been saying that from the

beginning.

I do disagree that Blue Buffalo needed a year to

figure this out. It was obvious a year ago. And you will see

today, later in this hearing, that it should have been

determined three years ago, and we'll go through the documents

on that because they relate to the declassification motion.

So we think this is a very late development that Blue

Buffalo is only doing because they are completely backed into

a corner. The first day this case was filed, within five

hours, with not one single shred of due diligence, they

categorically denied -- those are not my words; those are the

chairman of the company's words -- every single allegation in

the case.

The other thing that I will just say that needs to be

corrected is that every time -- it happens in every hearing.

Blue Buffalo gets up here and tries to tell you what my case

is about. Every time they get it wrong. And we are not

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alleging intentional knowledge or dishonesty or falsehoods on

their part that they knew about things. I don't need to prove

that. I think that that evidence is -- there will be plenty

of evidence indicating that's what happened, but I don't need

to prove that. That's not an element of my claim. And the

Court just issued a ruling keeping in two codefendants that

we'd like out of the case, saying you don't need to have

intent. Blue Buffalo exploited that, and my claims exploit

that too. I don't want to take on that burden, but I do think

it may come out in this trial. And clearly, to me, it

indicates that they knew or certainly should have known this

was a problem, a widespread, long-term problem for many years.

So I don't have much more to say. I don't object to

bringing in a third party.

THE COURT: That's my question. I mean, whatever

happens, I don't want there to be any confusion about how we

got there. You know, the rule says "leave shall be freely

granted," and I always set the marker as before that date, you

know, there's not much of a conversation. After that date we

need to have a conversation or motion practice to determine

whether it's appropriate in this case to amend or add.

So are you consenting to giving them two weeks to

file their amended pleadings, or do you want them to file a

motion with your opportunity to respond?

MR. ZARLENGA: I will gladly give them two weeks, but

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I may want to amend our pleadings because a lot -- this is

new. The admission part is new. This has been -- we have

spent a year fighting tooth and nail over this question which

really wasn't necessary, from our standpoint.

THE COURT: Right.

MR. ZARLENGA: It was a monumental waste of our time.

So, therefore, we may seek relief on that, and we may seek

some other relief. There's been new things that have come out

that I would like to add to the complaints. So if we're going

it rephrase things, reframe things, then I want that

opportunity too. And provided I get it, I have no objection

to adding Wilbur-Ellis or whoever else is going to be added.

THE COURT: So by May 20 Blue Buffalo's to file its

proposed amended pleadings, which you suggest were amended

answer, amended counterclaim, and new third-party practice.

Is that --

MR. ZALESIN: That's correct, Your Honor. And just

to be clear, we currently are facing a deadline of this Friday

pursuant to your most recent order on the granting in part the

ad agency's motions to dismiss our counterclaims with leave to

amend to file amended counterclaims against the ad agencies.

I would request --

THE COURT: I'm going to roll that all together.

MR. ZALESIN: Yes, if that's permissible. Now, if

Mr. Zarlenga is going to file another pleading, then we're

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additional time this is going to add to the overall life of a

case.

THE COURT: Mr. Zarlenga, you might as well attack

the CMO issue now, or the alternative is just to vacate it and

wait until everybody gets back together again, but I don't

think that's a good idea.

MR. ZARLENGA: You do not think that's a good idea?

THE COURT: Do you?

MR. ZARLENGA: I don't know.

THE COURT: I can be persuaded it is, but I hate

having no deadlines. That makes me really nervous.

MR. ZARLENGA: So I defer to the Court. That's fine.

Your Honor knows more about this than I do. Just that, okay,

I'm facing an unknown. This is brand new. I had no notice of

this this morning.

THE COURT: Okay.

MR. ZARLENGA: Right? So, you know, you've been

flexible. If flexibility is needed, then maybe we'll, you

know, extend it further. I don't know.

THE COURT: I've talked about this before. The Rule

No. 1 that no lawyer reads, which is that every decision in

the conduct of a case should be done as inexpensively as

possible, if this is new information to you but we're prepared

to move on and bring Wilbur-Ellis in -- I'm trying to get my

brain around "it's new information to me" -- how we manage

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this so we don't, in the interim, end up -- I'll tell you. I

mean, when I do a Rule 16 order, a case management order, the

reason I have that marker out there about when you amend is

that, after that date, we need to talk about what can we do to

minimize the cost of changing course.

Obviously, bringing in a new party, especially in

this case, we're going to change course here. You're talking

about maybe some different theories. I don't know.

MR. ZARLENGA: Well, so if I can answer that

directly.

THE COURT: How do we manage this so we're not doing

things we're going to have to repeat again? Wilbur-Ellis

isn't going to just take your word for it, right? They're out

there. I mean, everybody is kind of looking at them for now.

They may have another version of events.

MR. ZARLENGA: Yeah. And I will go through that.

I'm pretty sure I know what that is. I'll go through that

later today. It's germane to one of the motions, but -- so

following up on the Rule 1 -- and I do, I read the rules cover

to cover every year. Once a year.

THE COURT: Oh.

MR. ZARLENGA: And sometimes I read them backwards

because that way --

THE COURT: You don't get bored by the time you get

to them.

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MR. ZARLENGA: -- you focus on the ones at the end

first, which everybody ignores --

MR. ZALESIN: He really is a fun guy.

THE COURT: I hope it's not on vacation. That's all

I'm going to say. Sitting by the pool at the Breakers,

reading the Rules of Civil Procedure.

MR. ZARLENGA: Every time I read them, I see

something new. Every single time, I see something new.

THE COURT: Well, the Chief Justice just sent over a

bunch of new rules to Congress.

MR. ZARLENGA: No. I mean, I see something that

maybe has been in there a long time.

THE COURT: There will be new ones this year, you

know, and it's about -- the new focus is on proportionality.

MR. ZARLENGA: Right. Right. So let's go back to

your Rule 1 point, which I like. So, for example, that timing

is great if Blue Buffalo comes clean, so to speak, on how much

of this is in their product, which is now, you know, the issue

du jour, not whether, how much, how long. It would be nice.

It would save us a lot of money, you know. The money we

spent, we've already spent, maybe we'll get that back, but

I --

THE COURT: I don't want to keep down that path if

we're redefining.

MR. ZARLENGA: Right. I'd like to get some answers

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on that that make it easy. That would be great. But if we

have to go, you know, hammer and tong, tooth and nail, you

know, document by document, which we've done over the last

year, I don't think that's enough time. That's all I'm

saying.

THE COURT: Well, you know, we need to take a release

valve off of it today. The real question is: Once

Wilbur-Ellis gets here and we get back together, what's the

new world version going to be after that happens?

MR. ZARLENGA: Right. I agree.

THE COURT: And we know the current schedule is not

going to occur.

MR. ZARLENGA: I don't see any way that can happen.

THE COURT: So I will extend everything in the

interim for three months, understanding I still think it's

always good to have deadlines, but when we bring a new

substantial party in like this and -- I take it this is a

little bit of a sea change in how we're approaching the case.

It's not "no." It's "We got duped."

MR. ZALESIN: That's right, Your Honor. We have been

saying --

THE COURT: Is that the CliffsNotes version? You've

been saying, "It ain't so," but if it is so, and it looks like

it might be so, we got somebody else who's got to hold the bag

for this is what you're saying.

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MR. ZALESIN: Yeah. Look, we've been saying since

the fall of 2014 "We got duped." We certainly knew that there

was some material shipped to our co-packers by Wilbur-Ellis

that was mislabeled, and we admitted that not only in this

court but publicly to consumers in the fall of 2014.

What we didn't know is: Was it material? Are we

talking about one percent of our bags or some larger

proportion? And there's still work to be done. We don't know

the bottom-line answer yet, but we know it's --

THE COURT: You've concluded it's material.

MR. ZALESIN: It's material, it's substantial, and

it's a serious, serious issue between Blue Buffalo and

Wilbur-Ellis for sure.

THE COURT: So the one thing that's clear to me today

is we're not going to talk about Wilbur-Ellis depositions

today. It's --

MR. ZALESIN: I have not --

THE COURT: I think it would be fundamentally unfair

to take a deposition and then show up with a complaint against

somebody.

MR. ZALESIN: Well, we will certainly --

THE COURT: The landscape is a little different for

them.

MR. ZALESIN: I agree, Your Honor.

THE COURT: Unless there's a different view of the

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universe here. I wouldn't -- if I was in private practice and

I knew there was a lawsuit coming against my client but I

haven't seen it yet, I wouldn't let them show up and sit for a

deposition --

MR. ZALESIN: Yeah.

THE COURT: -- until I know what I'm dealing with.

MR. ZALESIN: Yeah. We anticipate that that will be

Wilbur-Ellis' position. We have not discussed the issue with

Wilbur-Ellis.

THE COURT: It would certainly be a deposition you'd

end up taking twice if you redefine the case, and that's not

helpful.

MR. ZALESIN: In all likelihood -- they are

represented by Covington & Burling, a big, very sophisticated

firm. I don't think they're going to put their person out

there until they see --

THE COURT: Paul Tagliabue gone back there yet so he

can --

MR. ZALESIN: I don't know.

THE COURT: Okay.

MR. ZALESIN: In any event, that seems almost

inevitable that we're going to wind up with an adjournment of

the third-party depositions against Wilbur-Ellis until they're

properly joined.

THE COURT: Till we define their participation. I

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just don't see, out of a fundamental sense of fairness, that

it makes any sense to go down that road.

MR. ZALESIN: Do you disagree?

MR. ZARLENGA: Well --

THE COURT: Oh. Okay.

MR. ZARLENGA: You know, I'll use a line I use with

my wife sometimes: I only care about me.

THE COURT: How does that work out for you?

MR. ZARLENGA: It's a train wreck every time.

THE COURT: But I'm going to keep doing it and hope

one day I'll get a different result. You know what that's the

definition of.

MR. ZARLENGA: We've been waiting a really long time

to get to Wilbur-Ellis and for --

THE COURT: Apparently, you're going to get them big

time.

MR. ZARLENGA: Yeah, well. So, I mean, look, I agree

with you, Your Honor. I mean, it is -- we have to take --

THE COURT: You wouldn't let your client show up for

a deposition knowing that they're going to get a lawsuit next

week.

MR. ZARLENGA: You know I wouldn't; so . . .

THE COURT: You wouldn't.

MR. ZARLENGA: No, I would not. So, yeah, that's

fine. That's fine. I do want to --

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THE COURT: But it's all about me.

MR. ZARLENGA: Well, it doesn't work here either. It

doesn't work here either.

I do want to correct something because this does

bother me. It just bother me.

THE COURT: Okay. Let's get it out.

MR. ZARLENGA: I will put this document on the

screen. So this is what Blue Buffalo said what they actually

said on October 14. Can you see that?

THE COURT: I have it.

MR. ZARLENGA: Okay. Just want to make sure. They

did not admit that there was by-product meal in their product.

They said in the first highlighted line in this letter from

the chairman of Blue Buffalo to so-called pet parents: "Since

this Wilbur-Ellis plant was the source of some of our chicken

meal, we may have received some of these mislabeled

shipments." Period. "May have."

And they have said that consistently. Even a week

ago their CEO said that under oath in a deposition. So I

don't know how anybody could be up here saying, oh, we

admitted this a long time ago. Not true.

So this was the first time anybody admitted it.

MR. ZALESIN: Your Honor, I object. I object to

putting what I believe is confidential designated material up

on the ELMO. There's no reason for this right now.

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Hearing Before The Honorable Rodney W. Sippel, United States District Judge - May 6, 2015

Documents

Transcript of Hearing Before The Honorable Rodney W. Sippel, United States District Judge - May 6, 2015