Tuesday, August 16, 2011

Nuclear Power Meter Maker May Recast Antitrust Claims Against Rival

This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.

A manufacturer of ultrasonic flow meters (UFMs)—devices used to measure the flow of feedwater and the level of thermal power generated at nuclear power plants—was entitled to further amend its complaint in a long-standing antitrust and false advertising suit against a competitor and its affiliate, the federal district court in Pittsburgh has ruled.

The proposed amendments would redefine the relevant market and add a charge of conspiracy to monopolize to the antitrust allegations in the suit.

The complaining manufacturer filed the suit nearly seven years ago, alleging that the competitor—a dominant power within the industry—misrepresented the accuracy of its own devices and disparaged the complaining company and the company's apparently superior products in order to capture all of its potential and actual customers.

A motion to dismiss the claims was denied in 2007 (2007-1 Trade Cases ¶75,758), and the parties have been embroiled in discovery disputes ever since.

The complaining manufacturer now seeks to recast the conflict as taking place not in the market for the UFM devices, but in the “measurement uncertainty recapture uprate” market. That market consists of the increase in the power limit that a nuclear plant is permitted to generate as a consequence of implementing improved techniques for measuring its output—namely, by using devices that measure more precisely, allowing a plant to operate far closer to the maximum level authorized by the Nuclear Regulatory Commission (NRC) without risk of crossing the line.

While the output increase at issue (1.7%) appears slight, every 0.1% equates to $200,000 in sales for every 1000 megawatts of power that a facility generates, the court explained.

Undue Delay, Prejudice

The motion to amend could not be denied on the basis that it was unduly delayed and therefore highly prejudicial, the court held. The court rejected an argument by the competitor and affiliate that the proposed amended complaint improperly offered a new theory of liability from that asserted in the original complaint. The complaining manufacturer's theory of liability based upon "fraud on the NRC" was not novel, notwithstanding the earlier complaint's focus on false statements the defendants made to customers and potential customers about the accuracy of their UFMs. Rather, the court said, it amounted to a more detailed allegation pertaining to an issue underlying the original complaint: the defendants' communications to the NRC.

The defendants' own motion to dismiss brief, submitted near the beginning of the litigation, demonstrated that they knew since the filing of the initial complaint that the communications with the NRC were a part of the case. Because the complaining manufacturer's theories regarding false statements to customers and to the NRC were similar and factually related, there was no undue prejudice to the defendants.

Even if the “fraud on the NRC” theory were completely independent, it still would not have been prejudicial to the defendants, since it arose from a common nucleus of operative facts, putting the defendants on notice that claims alleging such fraud could arise in the case. The inclusion of a new conspiracy to monopolize allegation did not create a new legal theory. Instead, it conformed to the facts that had already been pleaded since the outset of the case.

The purported delay in filing the motion also did not “severely prejudice” the defendants in the discovery process. Discovery had already been extended multiple times, and the defendants had had ample opportunity to conduct the necessary discovery. It was unlikely
that they would need to conduct significant additional discovery, given the similarity in theories of liability alleged in the original and proposed amended complaints. A change in the relevant market definition merely clarified the market and did not prejudice the defendants, the court added.


The court also rejected an assertion that the proposed amendment was futile. Contentions that state law claims in the suit were impliedly preempted by the NRC's regulatory authority were rejected. The claims did not conflict with a federal regulatory scheme the same way that state law tort claims were found by the U.S. Supreme Court to conflict with a Food and Drug Administration (FDA) scheme in Buckman Co. v. Plaintiff's Legal Committee, 531 U.S. 341 (2000).

In contrast to the FDA, the NRC's regulatory scheme consisted of a federal-state partnership and did not preempt all state tort claims. The NRC's authority was not exclusive. Nor did it have primary jurisdiction over the complaining manufacturer's Lanham Act, Sherman Act, and Connecticut state law claims such that those claims would be barred. The law of the case had already established that fraud—what the defendant was basing its current primary jurisdiction argument on—was unquestionably within the competence of the court overseeing the litigation.

Moreover, the defendants' argument with respect to the complaining manufacturer's "fraud on the NRC" theory—that the lack of a private right of action under the relevant statute (10 C.F.R. § 50.5) gave the agency alone the authority to police fraud—was irrelevant because the plaintiff was not seeking damages under § 50.5. It was merely pointing to that statute to further its claims.

The August 9 decision is DOCA Co. v. Westinghouse Electric Co., LLC., 2011-2 Trade Cases ¶77,555.

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