Japanese Auto Parts Maker to Plead Guilty to Price Fixing, Obstructing Justice

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

Japan-based auto parts maker Tokai Rika Co. Ltd., has agreed to plead guilty and to pay a $17.7 million criminal fine for its role in a conspiracy to fix prices of heater control panels (HCPs) installed in cars sold in the United States and elsewhere, the Department of Justice announced on October 30. HCPs are located in the center console of an automobile and control the temperature of the interior environment of a vehicle.

Tokai Rika has also agreed to plead guilty to a charge of obstruction of justice related to the investigation of the antitrust violation. A two-count felony charge was filed in the federal district court in Detroit.

Including Tokai Rika, nine companies and 11 executives have pleaded guilty or agreed to plead guilty in the Justice Department’s ongoing investigation into price fixing and bid rigging in the auto parts industry, according to the announcement.

Tokai Rika and its co-conspirators carried out the conspiracy from at least as early as September 2003 until at least February 2010, the government alleged. The company admitted to fixing prices of HCPs sold to Toyota in the United States and elsewhere, on a model-by-model basis.

The company also admitted to obstructing the government’s investigation. After learning that the FBI had executed a search warrant on Tokai Rika’s U.S. subsidiary, a company executive directed employees to delete electronic data and destroy paper documents likely to contain evidence of antitrust crimes in the United States and elsewhere, according to the Justice Department.

“The conspirators used code names and chose meeting places and times to avoid detection,” said Scott D. Hammond, Deputy Assistant Attorney General in charge of the Department of Justice Antitrust Division’s criminal enforcement program. “They knew their actions would harm American consumers, and attempted to cover it up when caught. The division will continue to hold accountable companies who engage in anticompetitive conduct and who obstruct law enforcement.”

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.

Paper Maker, Competitor Could Have Agreed to Fix Prices

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

Evidence of a publication paper manufacturer’s communications with a competitor, in the context of several industry-wide, parallel price increases in the publication paper industry, could establish that it participated in a price fixing conspiracy, the U.S. Court of Appeals in New York City has ruled.

Because a jury could reasonably find that the manufacturer—Stora Enso North America Corporation (SENA)—reached an unlawful agreement to raise the price of publication paper and this agreement injured a class of complaining purchasers, a trial court’s granting of summary judgment to SENA (2010-2 Trade Cases ¶77,293) was erroneous and was vacated in part.

Testimony in which a co-conspirator—an executive of a competing manufacturer—acknowledged that he understood his numerous communications with a SENA executive to reflect a price fixing agreement was strong evidence of a collusive scheme between the competitors, the appellate court decided. In addition, a finding that the companies engaged in price fixing was supported by evidence that the industry was conducive to collusion, that the two executives had shared pricing strategies in private phone calls and meetings, and that they had developed a joint strategy to conceal from the government the true nature of their communications.

From this behavior, the court said, a jury could infer that both men were aware that their communications and related pricing actions violated the law.

The evidence further sufficed for a jury to find that the agreement actually caused the price increases that occurred, the court held. The causal link could be presumed to be particularly strong, since the agreement was between executives at rival companies, each of whom had final pricing authority. There was scant evidence to support SENA’s contention that it had historically been a market follower rather than a market leader, and that any agreement was therefore of no effect. T

he alleged agreement between the executives would have been valuable to SENA because it significantly reduced the company’s risk in raising prices, by assuring that the company could follow competitors’ price increases secure in the knowledge that its rival would not undercut it.

European Entity’s Participation

A sister company based in Europe—Stora Enso Oyj (SEO)—was entitled to summary judgment, in the court’s view. The purchaser class offered testimony showing that an SEO executive met with an executive of a competitor, and that during the meeting they agreed that the competitor’s company would lead a price increase for publication paper in Europe that SEO would then match. However, the purchasers failed to offer any concrete evidence in support of their theory that the success of SEO’s price fixing efforts in Europe depended on its ability to ensure that its competitors fixed the price of publication paper in the United States.

The record also was devoid of any evidence that SEO had any direct involvement in decisions regarding the marketing, sale, or pricing of publication paper in the United States, the court concluded.

The decision is In re Publication Paper Antitrust Litigation, 2012-2 Trade Cases ¶78,000.

U.S. Impact of Potash Price Fixing Conspiracy Adequately Alleged

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

An alleged conspiracy among foreign producers of potash — a naturally occurring mineral used in agricultural fertilizers and other products — to fix prices charged to U.S. purchasers was not outside the scope of the Sherman Act, the U.S. Court of Appeals in Chicago, sitting en banc, ruled earlier this week.

The purchasers satisfied the requirements of the Foreign Trade Antitrust Improvements Act 1982 (FTAIA) with respect to challenged transactions that were not straightforward import transactions subject to the more general antitrust rules for effects on commerce.

The FTAIA makes clear that “the Sherman Act does not apply to every arrangement that literally can be said to involve trade or commerce with foreign nations.” The FTAIA excludes foreign activities, other than import trade or commerce, from the scope of the Sherman Act, unless the conduct has a “direct, substantial, and reasonably foreseeable effect” on domestic or import commerce.

The complaint alleged an international cartel in a commodity, and it asserted that the cartel succeeded in raising prices for direct U.S. purchasers of potash. The FTAIA’s requirements of substantiality and foreseeability were easily met. The complaint alleged that 5.3 million tons of potash were imported into the United States in one year alone and the vast majority of these imports came from the defendants. Over a five-year period, the price of potash allegedly increased by over 600 percent. Moreover, the effects alleged were a rationally expected outcome of the challenged conduct. It was objectively foreseeable that an international cartel with a grip on 71 percent of the world’s supply of a homogeneous commodity would charge supracompetitive prices, and in the absence of any evidence showing that arbitrage was impossible, those prices (net of shipping costs) would be uniform throughout the world.

Further, the effects were “direct” and not too remote, the court ruled. This was not a case where an action was undertaken in a foreign country and filtered through many layers, finally causing a few ripples in the United States. The court followed the Department of Justice approach with respect to the meaning of "direct" in the statute.

The Justice Department had suggested in a friend-of-the-court brief that the direct effects exception should not be limited to effects that follow as an immediate consequence of the challenged conduct. "Direct" is best defined as "reasonably proximate," according to the government brief.

Thus, the allegations stated a claim, as required by Federal Rule of Civil Procedure 8, and were enough to withstand a motion to dismiss under Rule 12(b)(6).

The case was before the appellate court because a district court decision (2010-2 Trade Cases ¶77,112), denying the defendants’ motion to dismiss, was certified for interlocutory appeal. An earlier decision of a three-judge panel, which reversed the lower court’s ruling after concluding that the complaint failed to meet the requirements of the FTAIA (2011-2 Trade Cases ¶77,611), was vacated in December 2011. The panel had suggested that the issue of whether the FTAIA was an element of a Sherman Act claim or jurisdictional in nature was ripe for reconsideration.

FTAIA as Element of Sherman Act Claim

Before taking on the particular issues in this case, the full appellate court considered whether the FTAIA was an element of a Sherman Act claim or was jurisdictional in nature. The court overruled a 2003 en banc decision of the Seventh Circuit, (United Phosphorus, Ltd. v. Angus Chem. Co., 322 F.3d 942, 2003-1 Trade Cases ¶73,971) and held that the FTAIA was an element of the Sherman Act. The FTAIA did not use the word “jurisdiction” or any commonly accepted synonym, it was noted. Instead, it spoke of the “conduct” to which the Sherman Act (or the Federal Trade Commission Act) applied.

Thus, a party contesting the propriety of an antitrust claim implicating foreign activities was required, at the outset, to use Federal Rule of Civil Procedure 12(b)(6), not Rule 12(b)(1). Because foreign connections were unlikely to be difficult to detect, parties who wanted to argue that a particular claim failed the requirements of the FTAIA would be able to do so within these generous time limits, the court reasoned.

The June 27, 2012, decision in Minn-Chem, Inc. v. Agrium Inc., No. 10-1712, will appear at 2012-1 Trade Cases ¶77,943.

DHL’s Price Fixing Claims Against United Survive Motion to Dismiss

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

The federal district court in Brooklyn, New York, has denied a request from United Air Lines to dismiss price fixing claims brought against the carrier by DHL—a major shipper of air cargo.

The court rejected United’s contentions that the claims were discharged in bankruptcy or barred by the statute of limitations. In addition, DHL’s claims were found to have been adequately alleged to survive a motion to dismiss.

Discharge of Claims in Bankruptcy

DHL’s antitrust claims were not discharged in bankruptcy, even though the action was filed after a bankruptcy court confirmed United’s plan of reorganization in proceedings pursuant to Chapter 11 of the Bankruptcy Code.

Generally, a claim that arose before the confirmation of the debtor’s reorganization plan was dismissed as having been discharged in bankruptcy. However, discharge of the shipper’s antitrust claim would not have satisfied due process unless United provided sufficient information to apprise the shipper of the nature of the claim to be discharged.

Accepting the allegations in the complaint as true, United was aware of its involvement in the conspiracy to fix surcharges and, thus, of the antitrust claim against it, while the shipper was completely unaware of the antitrust conspiracy and could not have learned of its antitrust claim through the exercise of reasonable diligence until after the confirmation of the reorganization plan.

If United had no obligation to notify DHL of a potential antitrust claim because there was no such claim, then United would prevail on the merits and would not be liable just as it would not be liable if DHL’s antitrust claim had been discharged. The court also rejected United’s contention that DHL was required to seek relief from the bankruptcy court that issued the confirmation order.

Statute of Limitations

DHL’s claims were not time-barred because the filing of a price fixing class action, in which DHL had been a putative class member, tolled the statute of limitations until United was dropped from the class action. DHL’s action against United was brought within four years of the class plaintiffs’ filing of an amended complaint that did not name United as a defendant.

The court disagreed with United’s assertion that tolling from the class action ended with a non-monetary settlement between United and the class plaintiffs. Until the filing of the amended complaint dropping United as a defendant there could be no certainty that the settlement had been consummated.

Absent class members were entitled to rely on the class action to press their claims against United until they had a definitive indication that such claims would not go forward, the court reasoned. The first such indication was the omission of United from the amended complaint. Tolling continued until the absent class members could have reasonably determined from a review of the docket that United was no longer a defendant in the case.

Plausible Allegations

DHL plausibly alleged that United participated in the conspiracy to fix surcharges on air cargo shipments for fuel and security costs, the court ruled. The shipper alleged United’s active role in developing, advocating, and following the fuel surcharge practices collectively developed by the airlines. Moreover, the claim was not implausible simply because United had thus far avoided any criminal or civil liability relating to the alleged conspiracy.

Although the coordination of fuel surcharges began through meetings of International Air Transport Association members, including United, any limited antitrust immunity granted by the U.S. Department of Transportation for IATA conduct did not immunize the subsequent decision by the airlines to coordinate their fuel surcharges. Similarly, any immunity arising out of United’s alliance with German carrier Lufthansa did not extend to the challenged conduct, the court held.

The decision is DPWN Holdings (USA), Inc. v. United Air Lines, Inc., 2012-1 Trade Cases ¶77,897.

Mississippi’s LCD Price Fixing Claims Remanded to State Court

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

An action brought by the State of Mississippi against companies that manufacture liquid crystal display (LCD) panels for conspiring to fix prices in violation of the Mississippi state law was remanded to state court by the federal district court in Jackson.

The companies removed the case to federal court pursuant to the Class Action Fairness Act of 2005 (CAFA); however, remand was appropriate because the action was neither a class action nor a mass action subject to removal.

Class Action Fairness Act

To establish jurisdiction under CAFA, the companies needed to show that the parties were minimally diverse and that the action was a class action or a mass action not subject to CAFA exceptions. CAFA’s diversity requirement was met, the court ruled, because Mississippi’s consumers and local governments—the real parties in interest—but no defendant was a citizen of Mississippi. The court rejected the state’s argument that it was the real party in interest, and, therefore, there was no minimal diversity because the state was not a “citizen” for purposes of diversity jurisdiction.

Because the claims were not brought pursuant to the Federal Rule of Civil Procedure 23 or a similar state statute, the suit was not a CAFA class action, the court ruled. Mississippi had no comparable class action statute. Nor did the Mississippi Consumer Protection Act and Mississippi Antitrust Act impose class action-like requirements.

Rejected was the defending companies’ contention that legislative history supported its position that a lawsuit that resembled a purported class action should be considered a class action for the purpose of applying CAFA. Because CAFA unambiguously defined class action, it was unnecessary to consider the legislative history offered by the defendants, which was questionable in any event.

Mass Action

Although the suit was a mass action, a statutory exception for actions brought on behalf of the general public required remand. A suit brought by the Mississippi Attorney General (AG) could be defined as a mass action under CAFA, as the real parties in interest numbered at least 100 persons seeking monetary relief and the AG proposed to try the claims jointly on the grounds that they involved common questions of law or fact. However, a general public exception applied that excluded actions asserted on behalf of the general public, and not on behalf of individuals or a purported class, pursuant to state statutes.

Based on the sheer number of LCD panel products bought by consumers, the case was clearly brought on behalf of the general public and fell within the state’s quasi-sovereign interest. Also, the claims were brought under state statutes that specifically authorized these kinds of suits. Therefore, the claims fell under the general public exception, in the court’s view.

Preemption

The manufacturers could not show that the Sherman Act completely preempted the Mississippi antitrust claims. Where plaintiffs have artfully avoided any suggestion of federal issues, removal is allowed where the state law is subject to complete preemption. However, the court rejected the manufacturers’ contention that the artful pleading doctrine applied because the Sherman Act applied to the claims, which were interstate and international in nature.

The decision is State of Mississippi v. AU Optronics Corp., 2012-1 Trade Cases ¶77,883.

Sentence for Executive’s Bid Rigging, Price Fixing Upheld

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

The U.S. Court of Appeals in St. Louis has upheld a 48-month prison sentence imposed on a former ready-mix concrete executive who pleaded guilty to participating in separate bid rigging and price fixing conspiracies with three different companies in northern Iowa.

The prison sentence was not substantively unreasonable, even though it was well above the U.S. Sentencing Guidelines range of 21 to 27 months. A fine of nearly $830,000 also was upheld.

The appellate court concluded that the district court considered appropriate factors in varying from the guidelines and adequately explained its prison sentence and fine.

The district court gave two permissible reasons for varying from the guidelines: (1) a policy disagreement with the antitrust guidelines and (2) the defendant’s lack of remorse. The district court believed that, while the antitrust guidelines and the fraud guidelines attacked a similar societal harm, the antitrust guidelines were too lenient. The district court gave cogent reasons for its policy disagreement by comparing the guidelines for antitrust offenses to the guidelines for fraud, and then using the alternate calculation under the fraud guidelines.

The district court also tied its policy disagreement to the specific facts involved in the defendant’s case, the appellate court explained. According to the district court, the primary reason that the U.S. Sentencing Commission gave for increasing the levels of antitrust violations less drastically than levels of fraud cases depending on the relative amount of loss or volume of commerce involved was that, with respect to antitrust violations, the level of markup may tend to decline with the volume of commerce involved. However, the defendant’s prices for concrete did not decrease as the volume of sales increased.

The appellate court rejected at the outset the defendant’s contention that the district court abused its discretion by not accepting his initial binding plea agreement under Rule 11(c)(1)(C) of the Federal Rules of Criminal Procedure. The binding agreement, if accepted by the district court, called for the defendant to serve a sentence of 19 months and pay a fine of $100,000. However, the district court never rejected the earlier agreement. It merely deferred the decision until after reviewing the presentence report.

The defendant chose to change his plea agreement after the district court said that there was “a less than 10 percent chance” that it would accept the plea.

The new plea agreement did not preserve the defendant’s right to challenge the district court’s nonacceptance of the binding pleas agreement, and the defendant did not claim that his decision to enter the nonbinding plea agreement was unknowing or involuntary. Nor did the defendant challenge the factual basis for the plea.

The defendant’s decision to enter a nonbinding plea agreement under Rule 11 (c)(1)(b) waived the right to complain on appeal about the district court’s nonacceptance of the earlier binding plea agreement entered into with the Justice Department.

A dissent argued that the district court lacked authority to set aside the guidelines sentencing range for antitrust offenses in favor or the alternate calculation using the guidelines for offenders convicted of fraud.

The decision is U.S. v. VandeBrake, 2012-1 Trade Cases ¶77,880.

Idaho Potato Growers Could Have Conspired Through Co-op Supply Program

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

Idaho potato growers who allegedly founded statewide and national cooperatives that implemented a scheme to increase the price of potatoes through a supply management program could have engaged in an unlawful price fixing conspiracy, the federal district court in Boise has ruled.

A complaining putative class of direct and indirect purchasers failed, however, to sufficiently allege that licensors, marketers, and dehydrators associated with the growers illegally participated in the conspiracy.

Motions by numerous defendants to dismiss the claims against them for failure to state a claim were, therefore, either granted in their entirety or in part. Additionally, the indirect purchasers’ claims were dismissed without prejudice for lack of standing.

Capper-Volstead Immunity

The claims against the potato growers could not be dismissed on the basis that the defendants were exempt from antitrust attack under the Capper-Volstead Act, which provides agricultural cooperatives a limited exemption from antitrust laws.

Questions of fact remained about whether the Capper-Volstead Act applied. Allegations that the defendants entered into agreements with unprotected entities—including non-protected potato groups, non-producer partners, and a dehydration joint venture—could, if proved, preclude application of the exemption. Moreover, acreage reductions, production restrictions, and collusive crop planning were not activities protected by the Capper-Volstead Act, the court explained.

Sufficiency of Allegations

The complaint answered “the basic who-what-where-when Question” with sufficient factual detail to survive outright dismissal, the court decided. It detailed various acts undertaken by the most of the grower defendants in furtherance of the conspiracy, including yearly acreage reduction rules, a bid buy-down program, shipping holidays, flow control activities, and offloading of surplus potatoes to dehydration plants.

These defending growers’ alleged involvement in the scheme surpassed mere participation in a trade association and was sufficiently detailed to form the basis of a federal antitrust claim, the court found. They were alleged to have been directly involved in the meetings and agreements leading to the formation of the cooperatives, which were specifically aimed at stabilizing potato prices and supplies.

As such, the defendants did not merely join an extant trade association and then choose whether or not to follow guidelines, but actually agreed to the conspiracy outlined in the complaint, and then created the trade associations to formalize and implement that agreement, the court said.

Two of the potato growers, however, were not sufficiently alleged to have participated in the conspiracy, the court added. While the complaint asserted that these two growers were founding members of the cooperatives, that claim rested on an unsupported allegation that certain individuals connected with the growers’ organizations attended a meeting and signed on to the purported conspiracy.

Nothing in the pleadings indicated the individuals’ relationship to the defending entities or their ability to act—or even attend the meetings at issue—on behalf of the entities, the court observed.

Companies that licensed the right to place their branded label on certain growers’ potatoes, the marketing agent for several of the growers, and dehydrators that participated in a joint venture further down the supply chain could not be found liable under the Sherman Act for the alleged conspiracy among the growers, in the court’s view. The plaintiffs failed to sufficiently link them to the conspiracy either by direct participation or an agency relationship, the court held.

While the complaint plausibly alleged that the Idaho cooperative viewed the dehydration venture as a key part of its supply-management efforts, the plaintiffs had failed to alleged that the individual dehydrators joined the underlying conspiracy.

Claims Against Canadian Cooperative

Claims against a Canadian potato farmers’ cooperative were barred as well, the court held. The Canadian defendant was not immunized by either the Foreign Sovereign Immunities Act or the Cooperative Marketing Act. The defendant was protected from suit by the act of state doctrine because Canada had effectively granted the cooperative authority, as a member agency, to engage in the acts deemed unlawful by the purchasers.

The decision is In Re: Fresh and Process Potatoes Antitrust Litigation, 2011-2 Trade Cases ¶77,739.

Global Price Fixing Conspiracy Claim Barred by Foreign Trade Antitrust Improvements Act

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

Federal antitrust claims asserted by direct and indirect purchasers of potash—alleging a global price fixing conspiracy among producers—were beyond the subject matter jurisdiction of a federal court in Illinois, the U.S. Court of Appeals in Chicago has ruled.

The Foreign Trade Antitrust Improvements Act (FTAIA) applied to bar the suit regardless of whether the FTAIA was construed to state a jurisdictional requirement or an element of the plaintiffs’ Sherman Act claim. A federal district court’s refusal to dismiss the suit on jurisdictional or pleading grounds was vacated and remanded.

Import Commerce, Direct Effects

The lower court found that FTAIA’s "import commerce" exception applied because the defendants’ importation of potash and purported conspiracy to fix the price of potash globally created a sufficiently tight nexus between the alleged illegal conduct and the defendants’ import activities.

The lower court’s reasoning essentially conflated the FTAIA’s "import commerce" exception and its "direct effects" exception, the appellate court explained. If foreign anticompetitive conduct were deemed to involve U.S. import commerce even if directed entirely at markets overseas, then the "direct effects" exception would be effectively rendered meaningless.

Reading the FTAIA to mean that a foreign company doing any import business in the United States would violate the Sherman Act whenever it entered a joint-selling arrangement overseas—regardless of its impact on the American market— "would produce the very interference with foreign economic activity that the FTAIA seeks to prevent," according to the appellate court.

The complaint contained no factual allegations to support application of the import commerce exception, the appellate court said. Its specific allegations described anticompetitive conduct aimed at the potash markets in Brazil, China, and India—not the U.S. import market.

The general assertion that the defendants "conspired to coordinate potash prices and price increases so as to fix, raise, maintain, and stabilize the price at which potash was sold in the United States at artificially inflated and anticompetitive levels" was wholly conclusory and insufficient to satisfy the pleading standards established by the U.S. Supreme Court in Bell Atlantic Corp. v. Twombly (2007-1 Trade Cases ¶75,709) and Ashcroft v. Iqbal (2009-2 Trade Cases ¶76,785).

Overseas, Domestic Prices

Moreover, the connection asserted in the complaint between the alleged cartelized prices of potash overseas and the domestic price of potash was too speculative and indirect to state an actionable claim under the FTAIA’s "direct effects" exception, the court stated. The complaint’s general allusion to a link between the prices in the Brazilian, Chinese, and Indian markets and American potash prices was insufficient on its own to permit a plausible inference of direct effects.

The "cryptic" chain-of-events allegation offered by the plaintiffs relied on too many intervening variables to support application of the direct effects exception.

The decision is Minn-Chem, Inc. v. Agrium Inc., 2011-2 Trade Cases ¶77,611.

Class Certification Denied in Plastics Additives Price Fixing Case

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

The federal district court in Philadelphia has refused to grant class certification to two groups of direct purchasers of certain types of plastics additives used to manufacture or process plastics because the complaining purchasers failed to demonstrate that individual injury was capable of proof by evidence common to the proposed classes.

Because the plaintiffs' price fixing claims would require individual treatment, class certification was unsuitable, the court found.

The plaintiffs sought certification of two subclasses: purchasers of organotin heat stabilizers (tins) and purchasers of epoxidized soybean oil (ESBO). Four other groups of products that were originally at issue were no longer at issue because the plaintiffs settled their claims with respect to these products against the defendants.

The plaintiffs claimed that the remaining class members were impacted by the alleged conspiracy because they paid higher prices for tins and/or ESBO than they would have in the absence of the conspiracy. However, the plaintiffs could not demonstrate impact common to the class.

The court rejected the four methods that they proposed:

(1) the defending manufacturers' pricing behavior, including references to list prices and price increase announcements;

(2) an economics expert's questionable opinion that the characteristics of the tins and ESBO markets were vulnerable to a price fixing conspiracy;

(3) the expert's analysis of the pricing structure in these markets, suggesting that every purchaser would have been impacted by the conspiracy because prices moved similarly over time; and

(4) the expert's market-wide regression analysis, which was not indicative of individual impact.

Hydrogen Peroxide Antitrust Litigation Standard

The decision demonstrates the hurdles facing antitrust plaintiffs attempting to satisfy the requirements for certification under Rule 23 of the Federal Rules of Civil Procedure.

An earlier order certifying a class in the case was vacated by the U.S. Court of Appeals in Philadelphia, and the lower court was instructed to revisit the certification request and apply the standard set forth in the Third Circuit's 2008 In re Hydrogen Peroxide Antitrust Litigation decision (2008-2 Trade Cases ¶76,453).

The lower court said that in its earlier order “in line with what we believed to be common practice at the time, we declined to balance the credibility of the parties’ experts on the issue of the predominance of common evidence demonstrating impact.”

Citing the Hydrogen Peroxide decision, the court explained that, in order to determine whether the requirements for class certification under Rule 23 of the Federal Rules of Civil Procedure were met, it would need to "delve beyond the pleadings" and "resolve all factual or legal disputes relevant to class certification, even if they overlap with the merits."

The decision is In re Plastics Additives Antitrust Litigation, 2010-2 Trade Cases ¶77,159.

Market Adequately Alleged in ATM Network Price Fixing Case

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

The federal district court in San Francisco has refused to dismiss antitrust claims against members of the Star ATM Network—“the largest ATM Network in the United States”—on the ground that complaining customers failed to allege a legally adequate “relevant market.”

The customers' “all ATM Networks” market was both legally cognizable and adequately pled. Therefore, the complaint was sufficient to survive the pleadings stage.

The customers alleged that banks conspired to fix interchange fees in the Star ATM network for “foreign ATM transactions.” The dispute involved the alleged fixing of fees that one member of the Star ATM network charged another member when the customer of the second member used an ATM owned by the first.

“All ATM Networks”

The complaining customers plausibly alleged that Star and network members possessed market power in an “all ATM Networks” relevant market, the court ruled. Further, the plaintiffs alleged that the defendants set interchange fees at a level that was well above their costs and maintained the supracompetitive prices (and the resulting profits) for many years.

A prolonged period of substantially-above-cost pricing provided a strong indication that the defendants and Star possessed market power in the ATM networks market, in the court's view. Although the complaining customers did not expressly allege that the defendants’ conduct had an affect on marketwide prices and output in the all ATM networks market, that conclusion could be reasonably inferred from their allegations.

Single-Brand Market

The court rejected the plaintiffs’ alternative, narrower product market, which was limited to a single-brand, derivative market for “Star Network” foreign ATM transactions. This was not one of the “extremely rare” instances in which a valid single-brand market existed, the court noted.

Under the plaintiffs’ theory, the market for demand deposit accounts was a “foremarket” that gave rise to a “derivative aftermarket” consisting of foreign ATM transactions that were routed over the network that the customer’s new bank had chosen. Further, customers were allegedly economically locked into their chosen bank and locked into their bank’s choice of foreign ATM network providers—the Star Network.

According to the court, the market for demand deposit accounts and the market for ATM network services involved two different sets of consumers. Individuals, businesses, and others purchased deposit accounts; banks purchased ATM network services. The market for Star’s services, as well as the market for ATM networks generally, was not a derivative aftermarket of the market for demand deposit accounts.

The decision is In re ATM Fee Antitrust Litigation, 2010-1 Trade Cases ¶77,066.

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

Trade Regulation Tidbits

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

News, updates, and observations:

 House Transportation Committee Chair James L. Oberstar (D, Minn.) announced his opposition to the proposed merger between United Airlines and Continental Airlines in a conference call with reporters on May 6. Rep. Oberstar sent a letter on May 5 to Christine A. Varney, Assistant Attorney General in charge of the Department of Justice Antitrust Division, urging the agency’s disapproval of the proposed merger. "If United and Continental merge, another domino in a chain of mergers will fall, and there will be strong pressure for further consolidation, " Oberstar’s letter reads. "As I predicted when I wrote your predecessor in 2008 on the Delta-Northwest merger, approval of that merger created conditions that have persuaded Delta’s competitors to pursue their own combinations. The United-Continental transaction is the latest, but it likely will not be the last." The text of the letter is available here on the website of the U.S. House of Representatives Transportation and Infrastructure Committee.

 Former FTC Chairman Timothy J. Muris is the 2010 recipient of the Miles W. Kirkpatrick Award for Lifetime FTC Achievement. The award was announced on May 5. “Tim Muris provided inspired service to the Federal Trade Commission and to the American public,” FTC Chairman Jon Leibowitz said, citing Muris’s contributions and the agency’s mission to protect consumers and encourage competition. “He understood the value of combining economic and legal analyses with common sense, and the measures he advanced to realize this vision, such as the National Do Not Call Registry, raised the FTC’s stature among public institutions throughout the world and among our nation’s consumers.” Muris served as FTC Chairman from 2001 through 2004. Earlier, he held other key positions at the Commission, including Director of the Bureau of Competition, Director of the Bureau of Consumer Protection, and Assistant Director of the Planning Office. Currently, Muris is of counsel at the law firm of O’Melveny & Myers and is Co-Chair of the firm's Antitrust/Competition Practice. Further details appear here on the FTC website.

 Four current and former British Airways executives have been acquitted of price fixing charges by a jury in London, the United Kingdom Office of Fair Trading (OFT) announced in a May 10 press release. The OFT said that it asked the jury to acquit the defendants in the U.K.'s first criminal competition law trial following "the discovery last week of a substantial volume of electronic material, which neither the OFT nor the defence had previously been able to review." The OFT said: "Given that the trial had already begun and the volume of material involved, the OFT accepts that to continue with the trial in light of this unforeseen development would be potentially unfair to the defendants." The OFT "acknowledge[d] responsibility for its part in this oversight, which occurred at a time when the UK criminal cartel regime was still relatively new and the OFT's approach to the handling of leniency applications in the context of parallel criminal and civil investigations was still evolving." The OFT also said that it would review the role played by Virgin Atlantic Airways and its advisers in light of the airline's obligations, as a leniency applicant, to cooperate with the OFT. The previously-undisclosed electronic material included e-mails sent or received by a former Virgin Atlantic employee. In an August 7, 2008 press release, the OFT announced that it had charged four individuals with cartel offenses, in connection with its criminal investigation into price-fixing of fuel surcharges for long-haul passenger flights. The individuals were alleged to have dishonestly agreed with others to make or implement arrangements that directly or indirectly fixed the price for the supply of passenger air transport services by British Airways and Virgin Atlantic Airways in the United Kingdom. The charges related to a period between July 2004 and April 2006, when the defendants were employed by British Airways.

High Court Rules Class Arbitration in Price Fixing Case Was Improper

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

International shipping companies should not be forced to defend in class arbitration customers' price fixing claims where their arbitration clause was “silent” on the class arbitration issue, the U.S. Supreme Court ruled today in a five-to-three decision.

Finding that the arbitration panel erred in imposing class arbitration, the Court said: “instead of identifying and applying a rule of decision derived from the [Federal Arbitration Act] or either maritime or New York law, the arbitration panel imposed its own policy choice and thus exceeded its powers.”

Class Arbitration

A putative class action was brought against the shipping companies after a Department of Justice criminal investigation revealed an illegal price fixing conspiracy in 2003. After it was determined that the parties were required to arbitrate their antitrust dispute, the customers sought class arbitration of their claims. The arbitration panel granted the request but stayed the proceeding to allow the parties to seek judicial review.

The federal district court in New York City vacated the arbitration panel's clause-construction award (2006-2 Trade Cases ¶75,353); however, the federal appellate court subsequently reversed the district court and upheld the award. The federal appellate court held that class arbitration was permissible, even though the arbitration clauses in the underlying maritime agreements did not specifically provide for it (2008-2 Trade Cases ¶76,355).

“[P]arties may specify with whom they choose to arbitrate their disputes,” explained Justice Samuel Anthony Alito, writing for the majority, explained, in reversing the appellate court. The High Court cautioned courts and arbitrators “to give effect to the intent of the parties.”

Agreement Required

It followed that a party may not be compelled under the FAA to submit to class arbitration unless there was a contractual basis for concluding that the party had agreed to do so. In this matter, the parties had stipulated that there was “no agreement” on that issue, the Court noted.

Moreover, an agreement to authorize class arbitration could not be inferred based on the parties' “agreement to arbitrate" because class-action arbitration changed the nature of arbitration, according to the Court.

Dissent

The dissenting opinion, authored by Justice Ruth Bader Ginsburg, argued that the majority was improperly addressing an issue not ripe for judicial review. The dissent contended that,
even if the matter was ripe for judicial review, the Court should have rejected it on the merits. The Court should have affirmed the Second Circuit judgment confirming the arbitrators’ clause-construction decision.

Text of the April 27 decision in Stolt-Nielsen S.A. v. Animalfeeds International Corp., 2010-1 Trade Cases ¶76,982, is posted here on the U.S. Supreme Court website.

Second Circuit Revives Consumers’ Price Fixing Claims Against Major Music Labels

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

Consumers who claimed they were overcharged for Internet music can proceed with an antitrust action against the country’s largest music recording companies for conspiring to fix prices and terms of use for music sold over the Internet, the U.S. Court of Appeals in New York City has decided.

Judgment in favor of the defending music recording companies was vacated, and the matter was remanded to the district court for further proceedings.

The federal district court in New York City in October 2008 dismissed the action (2008-2 Trade Cases ¶76,338), holding that the complaint did not state a claim under the U.S. Supreme Court’s decision in Bell Atlantic Corp. v. Twombly (2007-1 Trade Cases ¶75,709).

The district court concluded that the alleged facts, considered alone and collectively, did not place the defendants' conduct “in a context that raise[d] a suggestion of a preceding agreement,” as Twombly required.

Parallel Conduct

According to the appellate court, the complaint alleged parallel conduct. The consumers alleged that the defendants formed joint ventures to sell music online—MusicNet and pressplay—in an effort to control the price and terms of distribution for Internet music.

When the defendants eventually began to sell Internet music through entities they did not own or control, they allegedly agreed to a wholesale price floor for songs, and enforced these price floors through most favored nation clauses (MFNs) in their license agreements. The MFN agreements specified that the retailers had to pay each defendant the same amount per song, according to the plaintiffs.

Suggestion of a Preceding Agreement

These allegations of parallel conduct were placed in a context that raised a suggestion of a preceding agreement, not merely parallel conduct that could just as well be independent action, the appellate court held.

The court pointed to the plaintiffs’ contention that the defendants—EMI, Sony BMG Music Entertainment, Universal Music Group Recordings, Inc., and Warner Music Group Corp.—together controlled over 80 percent of digital music sold to end purchasers in the United States. In addition, the plaintiffs alleged behavior that would plausibly contravene each defendant’s self-interest “in the absence of similar behavior by rivals.”

The court noted that the defendants would have acted contrary to their interests if they sold Internet music at high prices and with unpopular, restrictive terms through their joint ventures. A prominent computer industry magazine had suggested that “nobody in their right mind will want to use” the joint ventures’ services. Moreover, the alleged price fixing was the subject of state and federal investigations.

The appellate court rejected the defendants' arguments that the claims had to be dismissed because the plaintiffs failed to allege facts that tended to exclude independent self-interested conduct as an explanation for the defendants’ parallel behavior and failed to identify the specific time, place, or person related to each conspiracy allegation. Such standards were not imposed on the plaintiffs, according to the appellate court.

Application of Dagher

The appellate court also found that the U.S. Supreme Court’s decision in Texaco Inc. v. Dagher (2006-1 Trade Cases ¶75,143) did not support dismissal in this case. Dagher’s holding that a lawful joint venture’s pricing policy was not a per se illegal price fixing agreement between competitors was inapplicable.

The plaintiffs challenged the MusicNet and pressplay joint ventures as shams. Even if the joint ventures were presumed lawful, the plaintiffs were still free to challenge their activities pursuant to the rule of reason.

The text of the January 13, 2010, decision in Starr v. Sony BMG Music Entertainment, No. 08-5637-cv, will appear at 2010-1 Trade Cases ¶76,866.

High Court Hears Arguments on Class Arbitration in Price Fixing Case

This posting was written by John W. Arden.

The U.S. Supreme Court today heard arguments on whether the Federal Arbitration Act (FAA) permits the imposition of class arbitration when the parties’ agreement is silent on the issue.

The Court is reviewing a decision of the U.S. Court of Appeals in New York City (2008-2 Trade Cases ¶76,355), holding that purchasers of shipping services could proceed with class arbitration of their price fixing claims against four major maritime shipping companies.

The federal appellate court held that class arbitration was permissible, even though arbitration clauses in the underlying maritime agreements did not specifically provide for it.

In their petition for certiorari, the maritime shipping companies argued that Supreme Court review was appropriate in light of a split among the circuits and because the case was free of threshold issues that previously thwarted review of the question.

The companies contended that “the Second Circuit’s decision that class arbitration may be imposed on parties whose arbitration contract does not provide for it cannot be reconciled with [the Supreme] Court’s FAA precedents.” Stolt-Nielsen SA v. Animalfeeds International Corp., Docket No. 08-1198, cert. granted June 15, 2009.

Authority of Arbitrators

Arguing for the shipping companies, Seth P. Waxman pointed out that—unlike courts—arbitrators derive their authority “solely from the consent of the parties to a particular agreement.”

When an agreement reveals no intent to add participants, arbitrators who nevertheless extend the process to hundreds of parties to other contracts “violate the basic principle reflected in the FAA that their authority is created and circumscribed by an agreement,” according to Mr. Waxman.

In a discussion with Justice Breyer, the petitioners' lawyer stated that there were two questions before the Court (1) whether there was a meeting of the minds between the parties on the issue of class arbitration and (2) if there was no meeting of the minds, and the contract was truly silent, whether ordering class arbitration would be permissible under the FAA.

Mr. Waxman answered his own questions—that no meeting of the minds was objectively revealed and therefore the arbitrator exceeded his authority under the FAA in requiring class arbitration. There was no express provision one way or the other, and maritime law governing the contract looks to the custom and practice in the industry, which is to not allow class arbitration.

Contract Interpretation

Speaking on behalf of the purchasers of shipping services, Cornelia T.L. Pillard maintained that the arbitrators only did what they were asked to do—interpret the contract. “They did not impose their own policy judgment,” she said. They relied on the broad language of the agreement and on the fact that “many other arbitrators had read similar language to permit class arbitration.”

By agreeing to arbitrate “any disputes,” the parties gave the arbitrators the authority to use class arbitration, among other procedures, that was appropriate to a particular case, she said.

There was an extensive discussion—between Justice Scalia and Ms. Pillard—about whether the arbitrators in the case agreed to permit class arbitration or simply did not agree to prohibit it. Ms. Pillard maintained that once the arbitrators had “affirmative general authorization” to choose any appropriate procedures, the shippers would have had to show the parties’ intent to preclude class arbitration.

Chief Justice Roberts pointed out that there is a difference “between allowing something and a background rule that requires it if you don’t say anything about it.” Later, he summed up, “So we have to decide, when . . . the contract says nothing about class actions, whether the background rule should be you can go ahead—or the background rule should be, you can’t go ahead.”

Justice Ginsburg opined that if the purchasers win this case and obtain class arbitration, that the shippers would insert “express no-class-action terms” in all their future contracts.

Ms. Pillard agreed, but said “at least it was incumbent on them to do that here if this was something they were so concerned about. . . . “

The 71-page transcript of the oral argument appears here on the U.S. Supreme Court website.

Short Seller's Price Fixing Claims Against “Prime Brokers” Barred

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

The federal securities law preempted a claim against large financial institutions that served as “prime brokers” in short sale transactions for artificially inflating fees imposed on short sellers in violation of the antitrust laws, the U.S. Court of Appeals in New York City has ruled.

Dismissal of the antitrust claim with prejudice (2007-2 Trade Cases ¶75,988), on the ground of implied preclusion of the antitrust laws by the securities laws, was affirmed.

A short seller profits from borrowing stocks that it believes will drop in price from a prime broker, selling them on the open market, and then purchasing replacement securities to return to the broker. The broker charges the short seller a borrowing fee.

A complaining short seller alleged that since 2000 prime brokers charged artificially inflated borrowing fees by agreeing on which securities to designate arbitrarily as hard-to-borrow and setting minimum borrowing fees for these securities.

Applying the reasoning of the U.S. Supreme Court's 2007 decision in Credit Suisse Securities (USA) LLC v. Billing, 2007-1 Trade Cases ¶75,738, the Second Circuit ruled that the short seller's price fixing claims were barred.

In Credit Suisse, the Supreme Court ruled that federal securities law implicitly precluded application of the antitrust law to the underwriters’ alleged anticompetitive conduct. The Court articulated four considerations that bear upon whether “the securities laws are ‘clearly incompatible’ with the application of the antitrust laws” in a particular context:

(1) Location within the heartland of securities regulations;
(2) SEC authority to regulate;
(3) Ongoing SEC regulation; and
(4) Conflict between the two regimes.

All four Billing considerations weighed in favor of implied preclusion, it was decided. The appellate court concluded that (1) short selling was squarely within the heartland of the securities business and (2) the Securities Exchange Commission not only had authority to regulate the role of the prime brokers in short selling and the borrowing fees charged by prime brokers under Sec. 10(a) of the Securities Exchange Act of 1934, but the agency exercised its authority to regulate the role of the prime brokers in short selling.

Lastly, the court concluded that antitrust liability would create actual and potential conflicts with the securities regime. Antitrust liability would inhibit the brokers from engaging in other
conduct that the SEC currently permits and that benefits the efficient functioning of the short selling market. There was a potential conflict because, in the future, the SEC might decide to regulate the borrowing fees charged by brokers.

Details of the December 3 decision, In re Short Sale Antitrust Litigation, 08-0420-cv, appears at 2009-2 Trade Cases ¶76,822..

Price Fixing Claims Against Title Insurers Dismissed

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

Groups of title insurance companies did not engage in a price fixing conspiracy in violation of federal or California antitrust law through their participation in rate-setting organizations in several states, the federal district court in San Francisco has decided in an unpublished opinion.

The companies' alleged conduct and motive to conspire, in light of the characteristics of the title insurance market, were insufficient to state a claim of illegal price fixing, under the pleading standard established by the U.S. Supreme Court in Bell Atlantic Corp. v. Twombly (2007-1 Trade Cases ¶75,709).

Participation in the same trade associations was not sufficient to establish a conspiracy. Likewise, assertions about when the organizations held meetings, and about which of the defendants' representatives attended those meetings, contained no information that could be construed as invitations to conspire or responsive actions by the defendants, the court explained.

Claims of "plus factors"—such as high market concentration, stability of the defendants' prices despite a decline in costs, and the homogeneity of title insurance policies—did not support the complaining consumers' argument that conspiracy could be inferred from the parallel behavior. An equally plausible inference was that the defendants merely engaged in conscious parallelism.

The decision is In re California Title Insurance Antitrust Litigation, 2009-2 Trade Cases ¶76,803.

High Court to Consider Class Arbitration in Price Fixing Case, Constructive Nonrenewal under PMPA

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

The U.S. Supreme Court on June 15 agreed to take up two important issues facing antitrust and trade regulation practitioners.

In one case, the Court agreed to decide whether the Federal Arbitration Act (FAA) permits the imposition of class arbitration when the parties’ agreement is silent on the issue.

The Court granted a petition filed by international shipping companies seeking review of a decision of the U.S. Court of Appeals in New York City (2008-2 Trade Cases ¶76,355) holding that purchasers of the shipping services could proceed with class arbitration of their price fixing claims against the shipping companies.

The federal appellate court held that class arbitration was permissible, even though the arbitration clauses in the underlying maritime agreements did not specifically provide for it.

The petitioners argued that review was appropriate in light of a split among the circuits on the issue, and because the case was free of threshold issues that previously thwarted review of the question.

Moreover, the petitioners contended that “the Second Circuit’s decision that class arbitration may be imposed on parties whose arbitration contract does not provide for it cannot be reconciled with [the Supreme] Court’s FAA precedents.”

The petition is Stolt-Nielsen SA v. v. Animalfeeds International Corp. Dkt. 08-1198.

On the same day, the Court agreed to review of a decision of the U.S. Court of Appeals in Boston (Business Franchise Guide ¶13,890), rejecting the constructive nonrenewal claims brought by Shell gasoline station operators under the Petroleum Marketing Practices Act (PMPA).

The appellate court held that the PMPA did not support a claim for constructive nonrenewal where a franchisee had signed and continued to operate under the renewal agreement complained of. The Court granted the petition of the franchisees and Shell.

The franchisees asked the Court to consider “the scope of the protections afforded by the PMPA to franchisees who face termination or nonrenewal of their franchise agreements unless they accept onerous contract terms.’’

According to the petitioners—gasoline station operators—the circuits “are fundamentally split over whether a franchisor can lawfully present its franchisees with the Hobson’s choice of accepting unlawful contract terms or risking their livelihoods on a chance that a court will grant a preliminary injunction.”

There is a split between the First and Ninth Circuits on the issue. The franchisees contended that, under the First Circuit decision in Marcoux v. Shell Oil Products Co, LLC, a dealer presented with a questionable lease must either sign the lease and forgo the claim that the lease violates the Act or refuse to sign, receive a notice of termination, and risk the franchise on a chance that a district court will grant injunctive relief.

The franchisees contend that the Ninth Circuit, on the other hand, recognized the Catch -22 situation, and rejected such a requirement on the franchisee. In Pro Sales, Inc. v. Texaco, U.S.A. (Business Franchise Guide ¶8604), the U.S. Court of Appeals in San Francisco rejected a reading of the PMPA that would force a franchisee to choose between accepting an unlawful and coercive contract in order to stay in business or rejecting the contract and going out of business.

The petitions are Mac's Shell Service, Inc. v. Shell Oil Products Co., Dkt. 08-240, and Shell Oil Products Co. v. Mac's Shell Service, Inc., Dkt. 08-372.