Dow Chemical Denied Summary Judgment on Urethane Price Fixing Conspiracy Claims

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

Dow Chemical Company could have violated federal antitrust law through its alleged participation in a conspiracy with other manufacturers to fix prices of certain urethane products from 1999 to 2003, the federal district court in Kansas City, Kansas, has ruled. A motion by Dow for summary judgment in its favor on class claims related to purchases of polyether polyol-based products was, therefore, denied (In re: Urethane Antitrust Litigation, December 18, 2012, Lungstrum, J.).

Dow is the last remaining defendant in the case, as the class and opt-out plaintiffs have settled their claims against competing manufacturers Bayer, BASF, Huntsman, and Lyondell.

The plaintiffs in the case provided sufficient direct and indirect evidence of a price fixing conspiracy involving Dow to allow a reasonable jury to find that such a conspiracy existed, the court held. Direct evidence included testimony by Dow employees about meetings between the company and its competitors at which agreements were reached to set prices and to make price increases stick, as well as testimony by employees of competing manufacturers confirming those agreements.

The direct evidence was also supported by circumstantial evidence of conspiracy, the court added. This evidence consisted of: (1) testimony by additional witnesses that at least supported the inference of a price fixing agreement; (2) simultaneous or near-simultaneous identical price increase announcements; (3) communications, meetings, and joint vacations among executives of the competing manufacturers that involved pricing; and (4) apparent efforts undertaken by the alleged conspirators to maintain the secrecy of their communications, particularly those involving pricing. Further factors suggesting a conspiracy were evidence that: the executives allegedly in communication with each other were high-ranking officers of the company with the authority to set pricing, the structure of the market was conducive to price fixing and provided a motive to enter into an illegal agreement, various actions by the conspirators that were contrary to their own interests absent a conspiracy, and expert opinion evidence suggested that prices were supracompetitive during the conspiracy period.

The court rejected an argument by Dow that the alleged meetings and communications were justified by legitimate business reasons. Dow’s contention that the class failed to exclude the possibility that the conspirators acted competitively instead of collusively in communicating with each other did not merit serious consideration because the plaintiffs’ evidence was not limited to circumstantial evidence of parallel conduct coupled with mere communications between competitors, the court said. The plaintiffs’ evidence included direct evidence of conspiracy and was not ambiguous.

Additionally rejected was a narrower argument by Dow that it was entitled to summary judgment for claims arising from the period of the alleged conspiracy prior to the dates in 2000 on which several key witnesses began their employment for allegedly conspiring manufacturers. The plaintiffs’ evidence of conspiracy went beyond these witnesses’ testimony, the court explained. The class pointed to two specific series of evidence in 1999 to support a conspiracy period extending back to that year. Further, the evidence of a conspiracy existing in 2000 at least allowed for the reasonable inference that the conspiracy was ongoing at that point. “Assuming the existence of a conspiracy,” the court remarked, “its duration is a question of fact for the jury.”

Claims for the period within the alleged conspiracy prior to November 24, 2000, were not time-barred because the class introduced sufficient evidence of fraudulent concealment to toll the limitations period, the court also decided.

The case is MDL No. 1616, No. 04-1616-JWL.

George A. Hanson (Stueve Siegel Hanson LLP - KC) for plaintiffs. Brian R. Markley (Stinson Morrison Hecker LLP) for The Dow Chemical Company.

AU Optronics Fined $500 Million for Fixing Prices of TFT-LCD Panels

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

The federal district court in San Francisco on September 20 imposed a record-tying $500 million fine on AU Optronics Corporation (AUO), a Taiwan-based liquid crystal display (LCD) producer, for its participation in a five-year conspiracy to fix the prices of thin-film transistor LCD panels.

The company and its U.S. subsidiary also were placed on probation for three years and ordered to implement antitrust compliance programs. Two high-level executives, Hsuan Bin Chen and Hui Hsiung, were sentenced to three-year prison terms and each fined $200,000.

The sentencing follows a jury’s conviction in March 2012 of AU Optronics Corporation, AU Optronics Corporation America, Hsuan Bin Chen, and Hui Hsiung. After the eight-week trial in the matter, the jury also found two lower-level AU Optronics Corporation employees not guilty. A mistrial was declared against a former senior manager within AU Optronics Corporation’s Desktop Display Business Group. The government is preparing for a retrial of that mid-level executive.

Although the Antitrust Division had sought stiffer penalties on the convicted companies and executives than those imposed, the sentences are still significant. The fine against AUO is matched only by a 1999 fine against F. Hoffmann-La Roche, Ltd. for participating in a conspiracy in the vitamins industry. The government had sought a $1 billion fine against AUO and maximum 10-year prison terms for the convicted executives. The Probation Office had recommended a $500 million fine for AUO.

Speaking at Fordham’s 39th Annual International Antitrust Law & Policy Conference in New York City on September 21, Joseph Wayland, Acting Assistant Attorney General in charge of the Department of Justice Antitrust Division, would not comment on the sentences other than to say that the $500 million fine was “substantial” and was something that corporations need to think seriously about. He cautioned that the matter could be appealed.

AUO issued a statement on September 21, noting “regrets on the judgment” and its intention “to lodge an appeal.” The company went on to say that there were “important, yet unresolved, legal questions surrounding this matter.”

Further information regarding United States v. Au Optronics Corp. appears here on the Justice Department Antitrust Division website.

Direct Purchaser Class Certified in Railroad Fuel Surcharge Case

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

The federal district court in Washington, D.C. has approved a class of direct purchasers to pursue price fixing claims against the largest railroads in the United States.

The complaining customers allege that the railroads conspired to fix the prices of rail freight transportation services through the use of rail fuel surcharges. These surcharges were fees added to customers' bills to compensate the defending railroads for increased fuel costs. According to the plaintiffs, the railroads collectively implemented a uniform rail fuel surcharge program and imposed artificially high surcharges that exceeded their increased fuel costs.

The court granted certification of a class of entities or persons that during the relevant period (July 1, 2003, until December 31, 2008) purchased rate-unregulated rail freight transportation services directly from one or more of the defendants and paid a challenged rail freight fuel surcharge. Eight named plaintiffs were designated as the class representatives.

The court also appointed two firms that had served as interim co-lead class counsel as co-lead class counsel for the class.

According to the court, designation of the firms as co-lead class counsel was in the best interests of the class because both firms:

(1) Had zealously represented the interests of the class in litigating the case while serving as interim co-lead class counsel;

(2) Had extensive relevant experience in complex antitrust litigation and knowledge of the law applicable to the case; and

(3) Were willing to commit the resources necessary to represent the class.

The decision is In Re: Rail Freight Fuel Surcharge Antitrust Litigation, 2012-1 Trade Cases ¶77,945.

Cement Firms Could Have Conspired to Fix Prices, Allocate Customers and Markets

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

Four vertically-integrated cement companies could have illegally conspired to fix prices and allocate customers and markets for ready-mix concrete in Florida through a course of parallel conduct alleged by direct and indirect purchasers, according to the federal district court in Miami.

The allegations of parallel conduct coinciding with the arrival of an executive at one of the cement producers nudged the claims of the purchasers across the line from conceivable to plausible.

The plaintiffs asserted that the executive made statements shortly after becoming head of one of the defending companies that implied an agreement had been made between the companies to raise the price of ready-mix concrete and to refrain from competing with each other’s customers.

Uniform Price Increases

The plaintiffs documented that the four companies all increased their ready-mix concrete by a uniform amount and eliminated their fuel surcharge in the face of declining demand, and offered specific examples where the companies refrained from competing for each other’s customers, even pointing to one case where a defendant retaliated against a co-conspirator for offering a low bid to one of its customers.

The plaintiffs also related an incident in which an independent trucking company refused to help an independent concrete producer carry mobile-mix concrete out of fear the defending producers would refuse to work with it. In addition, a letter from a division manager at one of the companies to the Department of Justice—expressing concerns about antitrust violations, and a purported corporate cover-up that included retaliation against the manager—lent further support for the existence of a conspiracy.

Taken together, it was plausible to infer a conspiracy among the four producers to fix the price of ready-mix concrete in the areas where they sold it, in the court’s view.

The allegations were, however, insufficient to permit a plausible inference that the conspiracy began before the executive joined the defending company, that the conspiracy involved the cement market, or that six other cement producers were directly involved, the court held.

The decision is In re: Florida Cement and Concrete Antitrust Litigation, 2011-2 Trade Cases ¶77,642.

Consumers’ State Antitrust Law Claims Against Korean Air Carriers Preempted

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

Putative class action claims brought by consumers against Korean Airlines and Asiana Airlines for conspiring to fix prices in violation of the California Business and Professions Code and unfair competition laws, as well as similar laws of 19 other states and the District of Columbia, were preempted by the Airline Deregulation Act of 1978, the U.S. Court of Appeals in San Francisco has ruled. Thus, dismissal of the state law claims was upheld.

However, the appellate court vacated the lower court’s decision to deny the consumers leave to amend their complaint to assert federal antitrust claims.

Airline Deregulation Act Preemption Provision

Under the Airline Deregulation Act’s express preemption provision, a “[s]tate . . . may not enact or enforce a law, regulation, or other provision having the force and effect of law related to a price, route, or service of an air carrier that may provide air transportation under this subpart.”

The indirect purchaser plaintiffs unsuccessfully argued that the provision did not apply to foreign air carriers. They pointed to the provision’s use of the term “air carrier” as opposed to “foreign air carrier.” They contended that Congress intended the terms “air carrier” and “foreign air carrier” to refer to different entities and that it consistently employed those terms for distinct uses.

The appellate court held that Congress intended that the preemption provision apply to all air carriers and not only to domestic ones. Congress’s use of the term “air carrier” throughout the Act did not always correspond with that term’s statutory definition and that “air carrier” is sometimes used to refer generally to both domestic and foreign airlines, the court explained.

The legislative history behind the ADA also demonstrated that Congress intended to preserve its authority to regulate the airline industry by prohibiting states from regulating all air carriers, both domestic and foreign. Moreover, because the indirect purchaser plaintiffs alleged a price fixing conspiracy, their claims were plainly related to a price of an air carrier and consequently were preempted.

Sherman Act Claims

The complaining consumers in this appeal were not direct purchasers from the defending airlines. They bought their airline tickets from travel agents and consolidators. Separate claims were brought on behalf of the plaintiffs who purchased directly from Korean Air and Asiana.

Although the indirect purchasers sought to assert both federal and state antitrust law claims, the district court decided that the indirect purchaser plaintiffs could only represent those claims arising under state law. The court assigned responsibility for litigating federal antitrust claims to the direct purchaser plaintiffs in the multi-district litigation (MDL).

The appellate court concluded that the district court erred in denying the indirect purchaser plaintiffs leave to amend based on its determination that other counsel would pursue the federal antitrust claims. The lower court applied an incorrect legal standard in denying the indirect purchaser plaintiffs’ motion to amend their complaint.

“Although a district court overseeing MDL proceedings has the authority to decide which law firm should serve as lead counsel for the purposes of pretrial proceedings, MDL proceedings do not expand the grounds for disposing of individual cases,” according to the appellate court.

Details of April 18, 2011, decision in In re: Korean Air Lines Co., Ltd. Antitrust Litigation, No. 08-56385, will appear in CCH Trade Regulation Reporter.

High Gasoline Prices on Island Not the Result of Price Fixing

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

Gas station operators on the island of Martha’s Vineyard in Massachusetts did not engage in price fixing in violation of the Sherman Act, despite maintaining prices that were considerably higher than on the Cape Cod mainland, the U.S. Court of Appeals in Boston has decided.

Summary judgment in favor of the gas station operators on the claims brought by summer and year-round island residents, as well as an island real estate agency, was affirmed.

Conspiracy v. Independent Parallel Pricing

Though features of the retail gasoline market on Martha’s Vineyard—including barriers to entry, inelastic consumer demand, and product homogeneity—made it susceptible to efforts by gas stations to sustain anticompetitive prices, those features facilitated not only conspiratorial pricing but also merely interdependent parallel pricing, the court stated.

Knowing these features of the market, each gas station operator was likely to reach its own independent conclusion that its best interests involved keeping prices high, including following price changes by a price "leader" (if one emerged), in confidence that the other station owners would reach the same independent conclusion.

There was no evidence or suggestion that the business risk, to any station on the island, of raising its prices was so great as to require communication among stations before any one of them would venture it, the court observed.

“Plus Factors”

Much of the evidence offered by the complaining island residents as "plus factors" for an inference of conspiracy did no more than corroborate that the Martha’s Vineyard gasoline market was an oligopolistic market highly conducive to parallel pricing, the court explained.

These "plus factors" included:

(1) The defendants’ parallel holding or increasing of prices while the wholesale cost declined;

(2) Deposition testimony by station operators that they did not know what margin over cost they needed to charge to turn a profit;

(3) The defendants’ motive to conspire;

(4) Barriers to entry;

(5) Inelastic demand; and

(6) Stable relative market shares over time among the four defendants.

This evidence did not explain whether the parallel pricing was achieved by agreement or mere interdependent decisions.

The remaining evidence of plus factors was that collusion could be revealed by variations in price from region to region (i.e. Martha’s Vineyard to Cape Cod), one defendant’s employment of a consultant to lobby for the denial of a petition for a new gas station on the island, and certain communications between two of the defendants’ principals.

This evidence did not tend to exclude the possibility that the alleged conspirators acted independently.

Thus, the evidence was not sufficient to permit a reasonable inference that the defendants’ behavior was more than mere conscious parallelism, the court concluded.

The decision is White v. R.M. Packer Co., Inc., 2011-1 Trade Cases ¶77,352.

OPEC Price Fixing Allegations Barred by Political Question, Act of State Doctrines

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

Gasoline retailers' price fixing claims against oil production companies—most of which were owned in whole or in part by the member nations of the Organization of Petroleum Exporting Countries (OPEC)—were properly dismissed, the U.S. Court of Appeals in New Orleans has ruled.

The allegations posed a nonjusticiable political question and had to be dismissed. Alternatively, judgment dismissing the class action complaints was appropriate because the complaints sought a remedy that was barred by the act of state doctrine.

The case involved two class actions brought by U.S. gasoline retailers. One action accused Citgo Petroleum Corporation, which is wholly-owned by Venezuela through its national oil company, of conspiring with OPEC member nations “to raise, fix, and stabilize the price of gasoline and other oil-based products in the United States.”

Conspiracy to Fix Prices

A consolidated class action complaint sued Citgo and other oil production companies for conspiring to fix prices. The consolidated complaint did not directly name OPEC or its members as coconspirators but described the formation and function of OPEC as background for its allegations.

Both complaints alleged an overarching conspiracy between OPEC member nations to fix the price of crude oil and refined petroleum products in the United States, according to the court. As a result, they were barred by the political question doctrine.

Political Question

The political question doctrine excluded from judicial review controversies that revolved around policy choices and value determinations constitutionally committed for resolution to the legislative and judicial branches.

The U.S. Supreme Court’s 1962 decision in Baker v. Carr, 369 U.S. 186, outlined factors indicating the presence of a nonjusticiable political question, according to the appellate court. Each one of the Baker factors counseled declining to adjudicate the merits of the complaints.

The dominant consideration in any political question inquiry was whether there was a constitutional commitment of the issue to one of the political branches of the government. In this case, the core of the alleged conspiracy consisted of agreements entered into by foreign sovereign states to limit production of crude oil.

A pronouncement on the legality of other sovereigns’ actions fell within the realm of delicate foreign policy questions committed to the political branches, in the court’s view.

The appellate court noted that the federal government had emphasized in a non-binding statement of interest that the case would result in the frustration of various objectives “vital interest to the United States’ national security.”

The government’s brief underscored that the damaging consequences of the litigation were likely to include immediate disruption of oil imports into the United States, the undermining of relationships with OPEC nations on issues such as counterterrorism and nuclear non-proliferation, the undermining of relationships with non-OPEC nations that have a stake in the questions presented, and the frustration of other national priorities, including foreign investment.

Moreover, there were no judicially manageable standards for resolving the antitrust claims—another factor in the political question inquiry. The Sherman and Clayton Acts were inadequate to provide judicially manageable standards for resolving such momentous foreign policy questions, the court explained.

Lastly, other Baker considerations weighed against an adjudication of the case on the merits: the impossibility of deciding without an initial policy determination of a kind clearly for nonjudicial discretion; the impossibility of a court’s undertaking independent resolution without expressing lack of the respect owing to the coordinate branches of government; an unusual need for unquestioning adherence to a political decision already made; and the potential of embarrassment from multifarious pronouncements by various departments on one question.

Act of State Doctrine

The appellate court alternatively held that, under the act of state doctrine, the retailers failed to state a claim on which relief can be granted. The act of state doctrine is rooted in constitutional separation-of-powers concerns, the court explained. It prohibits judicial review of the acts of state of a foreign government.

Adjudication of the suit necessarily would have called into question the acts of foreign governments with respect to exploitation of their natural resources—an inherently sovereign function—the court ruled. The granting of any relief to the retailers effectively would have ordered foreign governments to dismantle their chosen means of exploiting the valuable natural resources within their sovereign territories.

The February 8, 2011, decision, In Re: Refined Petroleum Products Antitrust Litigation, No. 09-20084, will appear at 2011-1 Trade Cases ¶77,328.

U.S. Price Fixing Charges Against LCD Maker Held Adequate

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

The federal district court in San Francisco has refused to dismiss an indictment against Taiwan-based AU Optronics Corporation and nine Taiwanese individuals for participating in an alleged conspiracy to fix the prices of thin-film transistor liquid crystal display (TFT-LCD) panels.

According to the indictment, the conspiracy drove up prices of TFT-LCDs for use in notebook computers, desktop computer monitors, and televisions in the United States and elsewhere.

Rule of Reason?

The defendants argued that criminal Sherman Act violations based entirely on foreign conduct were subject to rule of reason analysis and that the government had to allege and prove that the defendants acted with the knowledge that their conduct would likely cause anticompetitive effects in the United States. As a result, the defendants argued that the government's indictment was insufficient as pleaded.

However, because price fixing was generally considered a per se violation of the antitrust laws, the indictment was not dismissed on the ground that the government failed to allege that the defendants acted with the knowledge that the challenged conduct would likely cause anticompetitive effects in the United States. When per se violations are alleged, the government need not prove a defendant’s intent to produce anticompetitive effects, the court ruled.

Bill of Particulars

The court also denied the defendants' motion for a bill of particulars. The indictment adequately advised the defendants of the charges against them, and the defendants sought extremely detailed evidence to which they were not entitled through a bill of particulars.

The indictment set forth the dates of the conspiracy and the specific time periods each of the defendants were alleged to have participated in it, a description of the type of antitrust conspiracy charged and the specific types of TFT-LCDs covered by the indictment, a description of the goals of the conspiracy, as well as a detailed description of the means and methods by which those goals were to be accomplished.

In addition, the discovery provided to the defendants obviated the need for a bill of particulars. While the discovery was voluminous, the government provided it in a fashion designed to help the defendants prepare their defense. Moreover, the individual defendants had stated to the court that they were familiar with the allegations against them.

The January 28 decision is United States v. Chen, 2011-1 Trade Cases ¶77,322.

Indictment Charges Former Airline Executives with Conspiracy to Fix Fuel Surcharges

This posting was written by John W. Arden.

Four former airline executives have been charged with a conspiracy to fix surcharges on air cargo shipments from the U.S. to South and Central American, following Hurricanes Katrina and Rita, in a one-count indictment returned yesterday in the federal district court in Miami.

Guillermo “Willy” Cabeza, George Gonzales, Rodrigo Hernan Hildalgo, and Luis Juan Soto allegedly conspired to suppress and eliminate competition by agreeing to impose an increase to fuel surcharges on air cargo from September 2005 to at least November 2005.

According to the indictment, the four executives engaged in discussions—including during a meeting near Miami’s Kendall-Tamiami Executive Airport—agreeing to impose an increase in fuel surcharges; participated in communications to implement and monitor the agreement; and accepted payments at collusive and noncompetitive rates.

The former executives are charged with price fixing in violation of the Sherman Act, which carries a maximum penalty for each individual of 10 years in prison and a $1 million fine. A fine may be increased to twice the gain derived from the crime or twice the loss suffered by victims of the crime.

Cabeza and Soto are former presidents of Miami-based air cargo carriers. Gonzales is the former chief commercial officer of a Peruvian air cargo carrier. Hildalgo is the former vice president of sales and marketing of a Miami-based air cargo carrier.

The indictment is the result of the Justice Department’s ongoing investigation into price fixing in the air transportation industry. Thus far, 18 airlines and 14 executives have been charged. More than $1.6 billion in criminal fines have been imposed, and four executives have been sentenced to serve prison time. Charges are pending against 10 individuals.

Further information is available here on the Department of Justice Antitrust Division’s website.

Buyers of Municipal Derivatives Adequately Allege Conspiracy to Fix Prices, Allocate Customers

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

Municipalities and other purchasers of municipal derivatives adequately alleged a conspiracy to allocate customers and fix prices for municipal derivatives, the federal district court in New York City has ruled. A motion to dismiss a second consolidated class action complaint (SCAC) was denied.

The defending financial services companies sought dismissal on the ground that the SCAC failed “to allege any facts showing a single conspiracy among all the defendants, or among any subset of defendants regarding the entire municipal derivatives industry.” The SCAC provided more specific allegations regarding certain defendants' involvement in the conspiracy than was alleged in the original consolidated class action complaint.

The plaintiffs relied on information obtained “in the context of a settlement process” from a defendant that had entered into the antitrust corporate leniency program administered by the Department of Justice Antitrust Division, as well as information provided by a confidential witness who is cooperating with the Justice Department in its antitrust investigation.

The SCAC was viewed in light of developments in state and federal investigations into the municipal derivatives industry. Although pending government investigations might not, standing alone, satisfy an antitrust plaintiff’s pleading burden, government investigations could be used to bolster the plausibility of Sherman Act, Sec. 1 claims, the court explained.

Statute of Limitations

The original complaint was ultimately dismissed because the claims were based upon events that occurred outside of the applicable statute of limitations period. The SCAC, however, sufficiently alleged fraudulent concealment so as to toll the statute of limitations.

Because allegations of bid rigging and price fixing were self-concealing, the plaintiffs were not required to show that the defendants took independent affirmative steps to conceal their conduct. Rather, the named plaintiffs needed to plead only ignorance of the violation and due diligence, both with the particularity required by Rule 9(b) of the Federal Rules of Civil Procedure.

They alleged that they were put on notice of their antitrust claims only after one of the defendants participated in the Department of Justice Leniency Program, approximately one year before the complaint was filed. With respect to due diligence, the named plaintiffs pled with particularity the inquiries that were made, to whom they were made, regarding what, and with what response.

Preclusion of Claims

The claims were not precluded by “an extensive set of federal regulations governing the operation of the market for tax-exempt municipal debt,” the court decided. The defendants unsuccessfully argued that private antitrust enforcement was precluded because awarding damages to the named plaintiffs would conflict with Internal Revenue Service and Treasury Department regulations governing tax-exempt debt, including the reinvestment of municipal bond proceeds.

Implied preclusion analysis turned on four considerations:

(1) whether the underlying market activity lies squarely within the heartland of the IRS regulations;

(2) whether the IRS had the authority to regulate the activities in question, namely a conspiratorial agreement to rig bids and fix prices;

(3) whether the IRS has regularly exercised its legal authority to regulate the alleged price fixing and bid rigging practices; and

(4) whether application of the antitrust laws to the challenged conduct would conflict with application of the IRS regulations.

Only the first prong weighed in favor of implied preclusion. The investment of tax-exempt municipal bond proceeds—the underlying market activity—fell squarely within the heartland of IRS regulation. The other three considerations weighed against implied preclusion, in the court's view.

The text of the decision in Hinds County, Mississippi, v. Wachovia Bank, appears at 2010-1 Trade Cases ¶76,954.

Price Fixing Claims Against Urethane Producers Take Shape

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

In multidistrict litigation consisting of numerous putative class action lawsuits alleging a conspiracy among urethane chemical producers to fix prices of polyether polyol products, 56 opt-out plaintiffs sufficiently alleged a federal antitrust claim based on charges of conspiratorial conduct prior to 1999, the federal district court in Kansas City, Kansas, has ruled.

The court declined, however, to exercise supplemental jurisdiction over claims that were brought by European plaintiffs under European law and barred claims against two individual executives under the statute of limitations. The defendants’ motions to dismiss the claims were, therefore, granted in part and denied in part.

Pleading

The complaining purchasers corrected the pleading deficiencies that led to dismissal of their claims of a conspiracy existing prior to 1999 (2009-2 TRADE CASES ¶76,754), the court decided. In support of these pre-1999 conspiracy allegations, the plaintiffs’ second amended complaints included allegations of meetings and communications, involving specific participants and locations, in furtherance of the alleged conspiracy.

Rejected was an argument that the plaintiffs failed to plead sufficient non-conclusory facts to state a plausible claim for the pre-1999 period because they did not allege the particular dates, participants, products discussed, markets discussed, agreements reached, and actions taken for each meeting or communication alleged for that time period, or the specific way in which all of the meetings and communications were connected. Requiring such allegations would impose an overly strict pleading standard, the court said.

Statute of Limitations

The court refused to dismiss the pre-1999 claims as time-barred on the ground that the complaining purchasers had failed to sufficiently allege affirmative acts of fraudulent concealment for that time period. The plaintiffs could rely on their allegations of false and pretextual announcements and letters by the defendants during that time period—such as a statement that prices were being increased because of rising costs—as acts of fraudulent concealment. They did not have to plead with particularity why the alleged misrepresentations were actually false, such as by alleging facts showing that costs were not in fact rising. Nevertheless, the plaintiffs did so plead by claiming that the price increases actually resulted from the alleged price fixing conspiracy instead of from rising costs.

The plaintiffs’ allegations of secret meetings, communications, and agreements to conceal the conspiracy also sufficed as affirmative acts of concealment, the court said. Claims against two individuals—who were executives for one of the chemical producing companies—were time-barred, however, because fraudulent concealment of the alleged conspiracy could not toll the limitations period sufficiently to render the claims timely, the court found.

The statute of limitations, as it related to the individual defendants, began to run, at the latest, when the plaintiffs admittedly discovered the existence of a claim against the individuals’ employer—November 23, 2004, the date upon which the first polyether polyols class action had been filed. This was approximately four years and four months before the individuals were first made parties to the suit.

The court rejected the plaintiffs’ argument that their claims should have been tolled for more than three more years because they did not discover that they had claims against the individuals until December 2007. Once the plaintiffs discovered in November 2004 that the employer was a member of the alleged conspiracy, their exercise of due diligence should have led them to investigate and discover the identity of additional individual defendants who acted on behalf of the employer, the court explained.

Four years was ample time to conduct that inquiry. As the plaintiffs themselves conceded, they actually did discover that they had claims against the individuals well within that window, the court noted. The plaintiffs offered no explanation for their subsequent failure to add those individuals as defendants to the suit at that time or within the year that followed.

European Law Claims

Finally, the court chose not to exercise supplemental jurisdiction over claims brought by 26 European plaintiffs under European law. Litigation of the claims would raise novel and complex issues of European law, such as the issue of cross-jurisdictional tolling from the filing of a class action complaint and the issue of the effect of some nations’ joining the European Union (EU) only after the defendants’ price fixing conduct, the court said.

The court added that while it could determine any question of European law to the best of its ability, it would do so without the benefit of review by and instruction from the European Court of Justice and the European Commission. Given the state of European antitrust law, such law would be more ably interpreted and applied in Europe, in the court's view.

In addition, resolution of the European law claims in the United States would undermine principles of international comity. Dismissal of the claims would also have been appropriate under the doctrine of forum non conveniens, the court concluded.

The decision is In re: Urethane Antitrust Litigation, 2010-1 Trade Cases ¶76,903.

NCAA Fails to Obtain Dismissal of Ex-College Basketball Player’s Antitrust Claims

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

Edward O’Bannon, a member of the University of California, Los Angeles men’s basketball team in the early 1990s, can proceed with antitrust claims against the National Collegiate Athletic Association (NCAA) and its “licensing arm” for excluding him and other college athletes from the licensing market, the federal district court in Oakland decided on February 8.

In the same decision, the court dismissed the similar but “truncated” antitrust claims of Craig Newsome, a member of Arizona State University football team from 1993 to 1994.

Use of Images

Under NCAA rules, student athletes are not compensated for the use of their images in NCAA licensed products. O’Bannon asserted that the actions of the NCAA and its licensing arm excluded him and other former student athletes from the collegiate licensing market. He claimed that, because the NCAA had rights to images of him from his collegiate career, the association, along with its co-conspirators, fix the price for the use of his image at “zero.”

O’Bannon pointed to a 2007 agreement between the NCAA and Thought Equity Motion, Inc. to offer “classic” college basketball games online that would allow the use of his image without compensation paid to him.

Conspiracy to Fix Prices, Boycott

O’Bannon sufficiently alleged a conspiracy to fix the price of former student athletes’ images at zero and to boycott former student athletes in the collegiate licensing market. The athlete pleaded sufficient facts to make out a prima facie case that the challenged conduct constituted a conspiracy to unreasonably restrain trade in the U.S. “collegiate licensing market,” under a rule of reason analysis.

A claim that the conduct restrained trade under a per se rule of illegality could not be pursued, however, because the allegations did not suggest the existence of a horizontal agreement to fix prices or to engage in a group boycott, according to the court.

The athlete alleged that NCAA rules enabled the association to enter into licensing agreements with companies that distribute products containing student athletes’ images. Student athletes allegedly did not consent to these agreements and did not receive compensation for the use of their images.

As a result, O’Bannon alleged, the NCAA’s actions excluded him and other former student athletes from the collegiate licensing market.

Newsome’s truncated complaint was dismissed, however, because it did not contain sufficient allegations to make out a prima facie case under a rule of reason analysis. Among other things, the football player did not plead a relevant market, the court explained.

Statute of Limitations

Although the complaint was filed more than a decade after O’Bannon played college basketball, the statute of limitations did not bar his antitrust claims, the court ruled. The 2007 agreement between the NCAA and a company to offer “classic” college basketball games online supported an inference that O’Bannon’s image was included in that agreement.

Text of the February 8, 2010, decision in Edward O’Bannon v. National Collegiate Athletic Assn., No. C09-1967 CW, appears at 2010-1 Trade Cases ¶76,899.

Right of Publicity Action

In a separate case before the same judge, former Arizona State and Nebraska quarterback Samuel Michael Keller brought a class action complaint, asserting that Electronic Arts and the NCAA violated his right of publicity by using his likeness without consent in video games.

The court rejected EA’s and NCAA’s motions to dismiss Keller’s California right of publicity, civil conspiracy, and unfair competition law claims.

The February 8, 2010 opinion in Keller v. Electronic Arts, Inc., No. C 09-1967 CW, is reported at CCH Advertising Law Guide ¶63,760.