Indirect Purchasers’ State Law Antitrust Claims Against Foreign Air Carriers Preempted

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

The Federal Aviation Act expressly preempted price fixing claims brought under state antitrust laws by indirect purchasers of air freight shipping services against numerous foreign airlines, the U.S. Court of Appeals in New York City ruled.

The indirect purchasers alleged that foreign air carriers conspired to fix prices by levying a number of surcharges, including a fuel surcharge, a war-risk-insurance surcharge, a security surcharge, and a U.S. customs surcharge. In fact, many of the foreign air carriers had pleaded guilty to federal criminal charges in the United States in connection with the alleged conspiracy.

The Federal Aviation Act preempts state-law claims “related to a price, route, or service of an air carrier.” The claims undoubtedly arose under state law and were related to price, the court noted. Thus, the issue was whether the term “air carrier” in this context applied to foreign air carriers or only to domestic air carriers.

Generally, where a statute includes explicit definitions, such as air carrier and foreign air carrier, the statutory definition controls. The Federal Aviation Act defined both terms. However, Congress’s use of the term “air carrier” in the preemption provision was ambiguous, according to the court.

The term was used generically to reference air carriers, both domestic and foreign. Since the Act used the statutory definition in some places, and in other places used the normal, everyday meaning, the statutory definitions did not have compulsory application.

As a result, the court considered the various amendments to the Federal Aviation Act and the legislative history and purpose of Act. The legislative history and purpose of the preemption provision confirmed that state-law antitrust suits against foreign, as well as domestic, air carriers were preempted. The court also reasoned that the indirect purchasers’ reading of the preemption provision, which would preempt only state regulation of domestic air carriers, would allow states to regulate the routes, prices, and services of foreign air carriers that operate all over the world.

Such a result would risk subjecting foreign air carriers and their customers to “a confusing patchwork” of state-by-state regulation, such as different rules for purchase of otherwise identical international flights if one ticket is from an American air carrier and the other is from a foreign carrier.

The case is In re Air Cargo Shipping Services Antitrust Litigation, 2012-2 Trade Cases ¶78,083.

Settlement Preliminarily Approved in Cathode Ray Tube Price Fixing Class Action

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

The federal district court in San Francisco has given preliminary approval to a $10 million settlement resolving price fixing claims brought on behalf of indirect purchasers of products contain cathode ray tubes (CRTs) against manufacturer Chunghwa Picture Tubes, Ltd.

A special master will hold a hearing to determine the sufficiency, fairness, reasonableness, and adequacy of the proposed settlement in March 2012.

Indirect Purchaser Claims

The indirect purchaser claims were brought on behalf of all persons or entities who or which indirectly purchased in the United States CRT products manufacture red or sold by defending CRT makers or their subsidiaries between March 1995 and November 2007. The net settlement fund will be no less than $5 million. The settlement calls for $2.5 million in attorneys’ fees and sets aside $2.5 million for costs, including costs of notice and administration of the settlement funds.

Last year, the court refused to dismiss the indirect purchasers’ claims based on an alleged failure to adequately plead a conspiracy, the Foreign Trade Antitrust Improvements Act (FTAIA), or an alleged lack of standing.

The complaint met the pleading standards articulated by the U.S. Supreme Court in Bell Atlantic Corp. v. Twombly (550 U.S. 544, 2007-1 Trade Cases ¶75,709) and Ashcroft v. Iqbal (129 S. Ct. 1937, 2009-2 Trade Cases ¶76,785).

The plaintiffs were not required to plead detailed, defendant-by-defendant allegations. It was sufficient that they made allegations that plausibly suggested that each defendant participated in the alleged conspiracy. The complaints contained allegations concerning certain defendants’ participation in alleged unlawful meetings and agreements.

Regarding the FTAIA argument, the indirect purchasers alleged a conspiracy that was carried out both in the United States and abroad, that involved a substantial amount of import and domestic commerce, and that targeted and injured American consumers.

Illinois Brick Repealer Statutes

The court also ruled that the indirect purchasers adequately alleged standing to assert state antitrust violations predicated on the Illinois Brick repealer statutes of Arizona, California, Iowa, Kansas, Michigan, Minnesota, Mississippi, Nebraska, Nevada, New Mexico, North Carolina, North Dakota, South Dakota, Tennessee, Vermont, West Virginia, and Wisconsin.

The indirect purchasers alleged that they paid higher prices for CRT products than they would have paid in the absence of the conspiracy and that prices of CRT products were directly correlated to the prices of CRTs.

CRTs purportedly account for approximately 60 percent of the cost of manufacturing computer monitors and a slightly smaller percentage of the cost of manufacturing televisions.

The decisions are Cathode Ray Tube (CRT) Antitrust Litigation, 2011-2 Trade Cases ¶77,592 and 2011-2 Trade Cases ¶77,593.

$295 Million Antitrust Class Action Settlement with De Beers Rejected

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

The U.S. Court of Appeals in Philadelphia has rejected a $295 million settlement in antitrust class action lawsuits against the De Beers family of companies for anticompetitive practices in the markets for gem-quality diamonds.

A decision certifying nationwide classes of direct and indirect purchasers for settlement purposes (2008-2 Trade Cases ¶76,304) was reversed, and the matter was remanded to the district court for further proceedings.

The purchasers had alleged a conspiracy to fix prices in the wholesale market for gem-quality diamonds through a web of pricing and output-purchase agreements and monopolization by De Beers.

There were two categories of plaintiffs. First, there were direct purchasers that acquired rough gem diamonds directly from De Beers or one of its competitors and asserted federal antitrust claims. The second class was composed of indirect purchasers. These entities and individuals acquired either rough or cut-and-polished gem diamonds but did not do so directly from De Beers or its competitors. They included consumers, jewelry retailers, and middlemen who asserted state law claims as a route to monetary relief because they lacked standing to bring a federal antitrust claim for damages.

Class of Indirect Purchasers

The appellate court remarked that it was tasked with considering for the first time whether a national class of indirect purchaser claimants under state law was sufficiently cohesive to warrant adjudication by representation.

The appellate court decided that the lower court should not have certified a nationwide class of litigants whose claims implicated the laws of multiple jurisdictions, since only some of those jurisdictions recognized the claims for which recovery was sought. It was improper to include in an indirect purchaser class plaintiffs whose claims arose in states that foreclosed indirect purchasers from recovering for price fixing or monopolization.

The parties could not salvage an improper certification order by saying that De Beers has stipulated out of existence defects in the commonality and predominance of the class claims.

The lower court was instructed to entertain on remand any renewed motions to certify classes that, at least as to state law claims, were not nationwide in scope. A certification order would have to sufficiently identify those claims and issues subject to the class treatment.

Injunctive Class

Certification of an injunctive class also was vacated by the appellate court. Objectors successfully argued that the class members did not show an imminent threat of prospective antitrust injury. In order to have standing under Sec. 16 of the Clayton Act, a plaintiff had to establish a prospective threat of loss or damage as a result of conduct prohibited elsewhere in antitrust law. De Beers’ willingness to stipulate to liability was sufficient in and of itself to establish a prospective threat of antitrust harm.

Moreover, the plaintiffs faced no significant threat of future antitrust harm in the absence of the injunction because, according to their experts, the market had become increasingly competitive and there is no longer any guarantee that the prices De Beers set would hold in the marketplace.

The July 13, 2010, decision in Sullivan v. DB Investments, Inc., No. 08-2784, will appear at 2010-2 Trade Cases ¶77,090.

Further information regarding CCH Trade Regulation Reporter appears here on the CCH Online Store.