NEWPORT, Ore. (AP) — Jeff Boardman has been a shrimp fisherman for three decades, plying the waters of the Oregon Coast at the helm of the Miss Yvonne.
He's an agile businessman, moving his homeport from Yaquina Bay to Charleston last year because that's where the shrimp were, so he could cut fuel costs. His fleet caught 9 million more pounds of shrimp in 2010 than it did the year before. And the crustacean's price at the marketplace has enjoyed a steady climb over the years. But Boardman, 51, lost money in 2009, and broke even last year only because he caught more shrimp. That's because, despite increased costs in everything from fuel to boat maintenance, the price he gets for shrimp at the processing plant is half what it was 15 years ago.
For this, Boardman squarely blames Frank Dulcich. Dulcich is president and CEO of Pacific Seafood Group, a company profiled in The Register-Guard in 2007 after a stunning two-decade rise to power. Dulcich's business acumen and ruthless approach to competition have catapulted the Clackamas-based company into not just one of the largest seafood sellers in the country but the undisputed king, with $1 billion in global sales.
This power is facing its first real test since Dulcich began acquiring it. The Portland attorneys who successfully sued Weyerhaeuser for violating federal antitrust laws have filed a class action lawsuit against the seafood giant, alleging more than 3,000 potential plaintiffs, seeking $500 million in damages and an order forcing Dulcich to sell off much of his resources in four fisheries, from boats to processing plants.
Dulcich has used his clout, the case contends, to build monopolies in four of the most lucrative and critical seafood markets on the West Coast: whiting, Dungeness crab, trawl-caught groundfish and, Boardman's bread and butter, Pacific coldwater shrimp.
Pacific Seafood's market share in each of those industries ranges from 50 percent to 70 percent, according to fisheries economist James Wilen, a professor at the University of California at Davis. In Pacific shrimp alone, Dulcich commands a staggering 71 percent of the market, and according to Boardman and others, uses that buying faculty to dictate prices along the entire West Coast. The plaintiffs want Pacific to reduce its market share of these fisheries to below 30 percent.
If the case is successful, it could humble a company that has grown so big it can, by its own admission, effectively dictate the price in the four seafood markets, which represent hundreds of millions of dollars in annual income to West Coast fishing communities.
Dulcich's attorneys are doing everything they can to keep that from happening, arguing that Pacific Seafood's role in the seafood industry is a positive one, that it opens up new markets, puts more fishermen to work and allows them to earn substantially more money than they would without the company's buying power and influence.
But just the filing of the lawsuit has already had three results: One, it reveals in new ways the vast extent of Pacific Seafood's clout; two, according to some Oregon fishermen, it is beginning to embolden Dulcich's competitors, who have for many years waited to set their own prices for seafood purchasing until they hear from Clackamas; and three, it has drawn the attention of Oregon Attorney General John Kroger, who had an attorney from his office at the recent opening arguments in the case in Medford.
The antitrust case, led by Portland attorneys Mike Haglund and Mike Kelley, is an exhaustive effort to convince a federal judge in Medford that Dulcich has built his company on decades of anticompetitive tactics in violation of federal law — a notion Pacific Seafood's attorneys dispute. They argue that the case is largely based on events that occurred outside the federal statute of limitations and lacks proof that the company has hurt fishermen. To the contrary, Pacific's lawyers say, Dulcich has used his buying power and his skill to expand the market reach of West Coast seafood, to find buyers where they didn't previously exist and to put fishermen to work who otherwise might be stuck at the docks.
"I do know Frank has developed an unbelievable market for crab," testified Hammond fisherman Dennis Sturgell, who fishes for Pacific in part because he borrowed $600,000 from the company several years ago to buy gear. "And back before Frank got in the business, there was lots of years when there weren't enough processors around to process all the crabs you could catch and we would be put on limits and I don't think I have ever been put on a limit as long as I have been fishing for Frank."
Sturgell also testified, though, that "Frank is a businessman and he pays only what he has to pay to get the product. And he . he's the man on the West Coast. As you know, nobody does anything without Pacific leading them . they are all afraid to do anything for fear that Pacific will buy crabs cheaper or something and they will get stuck with crab."
Which side will prevail in the lawsuit largely hinges on one question: Has the company raked in profits inordinately while keeping the prices it pays crab, shrimp, groundfish and whiting fishermen depressed?
"We want to determine whether they've been exacting an unfair level of profit," Haglund said. "We're ultimately going to get down to see the relative margins they make in various products."
"In salmon, in tilapia, they don't have this power," he said, so if the profit margins are smaller in those fisheries, that could help win the case for the plaintiffs.
Haglund admits he's not far enough into the case to have evidence in hand. But the evidence already in the record, he insists, shows not only that Dulcich has built his conglomerate of 57 companies in violation of federal antitrust laws but also that he uses that network to illegally dictate prices, which harms fishermen and the coastal communities that rely on their income. The lawsuit alleges that prices paid to crab, groundfish and shrimp fleets are between 15 percent and 20 percent below what they'd be in a competitive market, and in whiting, as little as half what it should be.
"The difference between what the fishermen are getting paid and prices in the supermarket are such an astronomical difference guys are pretty much fed up with it," Sturgell, the Hammond fisherman, testified. "A lot of guys have gone out of business and other people moved elsewhere."
The most recent — and what Haglund calls the most egregious — example of the company's attempt to consolidate power comes in the form of a contract Pacific signed with Ocean Gold Seafoods, which owns and operates a cold storage and blast freezing facility in Westport, Wash. Ocean Gold owns the single largest seafood processing plant on the West Coast, a status that should give it plenty of autonomy about what to pay its fishermen.
But according to the 10-year deal signed in 2006. Pacific Seafood is "solely responsible for determining raw material costs," and Ocean Gold is obligated to sell every pound of fish it buys from fishermen to Pacific. Profits are split 50-50. "It's an incredible contract, in terms of control," Haglund said.
Dulcich now owns 32 percent of Ocean Gold and, until Haglund asked a judge to halt it, was negotiating to buy it outright. The deal is now "on hold," Pacific attorney Craig Urness said. And Haglund has shifted his focus to trying to get the 2006 contract nullified, on the grounds that, as Wilen put it in his declaration, it is "anticompetitive in its terms and in its implementation by the parties."
Ocean Gold is now named as a defendant in the antitrust suit against Pacific. The companies' lawyers argued that most of the plaintiffs' case hinges on actions that took place outside of the statute of limitations, and that neither company has hurt the industry or fishermen — especially the lead plaintiffs in the case, Lloyd and Todd Whaley, who don't directly fish for Pacific and don't allege that they've been paid unfairly by that company or Ocean Gold.
In the whiting fishery, for example, the attorneys argued, prices have actually gone up in some recent years, and more fishermen can be at sea as a result of the markets Dulcich created for the product in Russia.
Ocean Gold was founded 20 years ago by Washington fisherman Dennis Rydman, company attorney Chris Kayser said, "to be good to fishermen." It now employs more than 700 people annually, processing more than 100 million pounds of fish.
Rydman cut a deal with Dulcich because Pacific had access to a whiting market in Russia and Europe that Rydman couldn't access, Kayser said.
"Once they opened those markets, demand for whiting skyrocketed," Kayser said, "and the pro-competitive benefits of this venture became obvious."
In 2002, Ocean Gold sold 20 million pounds of whiting, Whaley said. By 2004, that had surged to 60 million pounds, and in 2006, Ocean Gold processed more than 100 million pounds of whiting. Prices went from $77 per ton in 2004 to $137 in 2006, Whaley said. He said eight new processors entered the whiting market between 2004 and 2010, attracted by the demand Pacific had tapped into.
"If the intent of this joint venture is to suppress . prices, I have to say," Whaley said, looking at his clients, "you guys really screwed up. How much higher do plaintiffs expect prices to go?"
Last week, U.S. District Judge Owen Panner agreed with Whaley, rejecting Haglund's motion for an injunction that would have crippled the Ocean Gold contract. His wording was almost identical to the defense's motions, which Kayser called "a good indication of where the judge is going."
Panner has yet to rule on Ocean Gold's and Pacific's motions to dismiss the suit, or decide whether the lawsuit merits class action status. But win or lose, some say the case is already making a difference on the coast. Pete Leipzig, executive director of the Fishermen's Marketing Association, wrote that larger processors "appear not to be as fearful of Pacific Seafood Group," perhaps because the lawsuit is a source of newfound courage.
In 2010, for example, Pacific set the price for Dover sole at 30 cents per pound, 75 cents for Petrale sole. It also put a 10,000-pound limit on Dover, dropping the price to 10 cents per pound if a trawler brought in any extra.
But in January of this year, Leipzig wrote, Bornstein Seafoods of Bellingham, Wash., came out first with prices for groundfish and at significantly higher levels: 42 cents per pound for Dover, with no poundage limit, and $1.50 to $2 for Petrale, depending on quality. Pacific matched the Dover price and came up to $1.50 for Petrale.
"During the last six months, I have seen more movement of fishing vessels between processing plants because of price competition than I have seen in any other six-month period in the prior five years," Leipzig wrote.
State Rep. Wayne Krieger, D-Gold Beach, also has re-introduced a bill that would limit any entity to three permits in a commercial fishery. If passed, it would affect Dulcich most. Pacific has gone from owning 10 permits in the crab fishery to 17, and from 11 permits in shrimp to 20 in just the past two years, Krieger said.
"He's able to dominate the fishery and just deliver to his own plants. With crab, 17 permits, 500 pots per permit, you put those out for two to three weeks while everybody else is tied to the docks in a price dispute, and it's over," he said.
In 2008, Dulcich married Jill Bundrant, the daughter of Chuck Bundrant, owner of Seattle-based Trident Seafoods, another of the country's largest fish companies, in what IntraFish Magazine called "the seafood industry equivalent of a royal wedding."
In court earlier this month, Haglund read an e-mail from Dulcich to Bundrant, in which he addresses him as "pops" and asks about