Northwest Business Litigation

Grocers' plan to share profits during strike violates antitrust law, Ninth Circuit holds

When faced with a strike by their unionized employees in 2003, four supermarket chains in Southern California entered into a Mutual Strike Assistance Agreement.  The chains agreed that they would lock out all union employees in the event of a strike against one of them, and that they would redistribute and share profits during the course of the strike. 

While the lock-out agreement is a traditional tactic in labor disputes, the profit-sharing agreement drew the attention of the State of California, which sued the supermarkets alleging an unlawful agreement in restraint of trade, in violation of Section 1 of the Sherman Act.  In California v. Safeway, Inc., the Ninth Circuit Court of Appeals last week held that the agreement was unlawful, and directed that summary judgment be entered in favor of the state. 

The supermarkets argued that the profit-sharing arrangement was justified because it was designed to end once the labor dispute was resolved, and did not decrease the number of competitors in the market.  Further, they argued, it served the pro-competitive purpose of resisting an increase in labor costs by allowing the supermarkets to fend off union demands.  Finally, they contended that the agreement was subject to an exemption from the antitrust laws for the purpose of engaging in labor negotiations. 

The Ninth Circuit rejected all of those arguments, holding "to exempt defendants' anticompetitive agreement from the antitrust laws simply because it was entered into in order to help employers prevail in a labor dispute would be contrary to the fundamental priciples of both labor and antitrust law, as well as the actions of both Congress and the courts in their efforts to reconcile those two important bodies of national law."

American Needle opinion highlights joint venture risks

Last week's unanimous decision in American Needle, Inc. v. NFL has been hailed as the first win for an antitrust plaintiff in years in the US Supreme Court -- following victories for defendants in cases including most recently Leegin, Twombly, and Weyerhaeuser. It's also a reminder of the dangers present when competitors enter into a joint venture.

At issue in American Needle is National Football League Properties (NFLP), which the 32 NFL teams formed to develop, license and market the teams' names and logos.  A former licensee of NFLP claimed that the agreement among the teams to form NFLP was a violation of Sherman Act Section 1, which prohibits contracts and conspiracies in restraint of trade.  The NFL and its teams argued in response that they are, for purposes of antitrust law, a single entity that cannot conspire with itself.  

The Supreme Court disagreed with the NFL.  The relevant inquiry is whether the alleged joint action is among "separate economic actors pursuing separate economic interests such that the agreement deprives the marketplace of independent centers of decisionmaking, and therefore of diversity of entrepreneurial interests."  The court held that NFLP is the result of concerted action by independent actors and thus is not protected from Section 1 scrutiny.  "Directly relevant to this case, the teams compete in the market for intellectual property.  To a firm making hats, the Saints and the Colts are two potentially competing suppliers of valuable trademarks. . . . Decisions by NFL teams to license their separately owned trademarks collectively and to only one vendor are decisions that deprive the marketplace of independent centers of decisionmaking and therefore of actual or potential competition."

Joint ventures often enhance value to consumers by bringing novel products to market.  But to avoid antitrust problems, joint venturers that are also competitors must ensure that they are not pooling resources simply to avoid competition in the marketplace

U.S. Supreme Court: FAA does not mandate class arbitration

Today the U.S. Supreme Court held that the Federal Arbitration Act (FAA) does not require class arbitration unless the parties' arbitration agreement expressly provides for class arbitration. 

In Stolt-Nielsen, S.A. v. AnimalFeeds Int'l Inc., AnimalFeeds claimed that Stolt-Nielsen violated the antitrust laws by charging supracompetitive prices.  The parties' agreement provided for arbitration of all disputes arising from the contract.  AnimalFeeds initiated an arbitration claim on behalf of a class of purchasers, and Stolt-Nielsen disputed that class arbitration was available under the contract.  While the arbitration clause was silent on the issue of class arbitration, the arbitration panel determined that it was appropriate to proceed with a class arbitration, and the Second Circuit agreed.

The Supreme Court reversed, holding that, because the parties did not expressly agree to arbitration of claims by a class of claimants, class arbitration was not available.  According to Justice Alito, writing for the majority, despite the FAA's policy favoring arbitration of disputes, "a party may not be compelled under the FAA to submit to class arbitration unless there is a contractual basis for concluding that the parties agreed to do so."

Attorneys not subject to sanctions under the Fair Debt Collection Practices Act

The Ninth Circuit Court of Appeals last week addressed the scope of sanctions for bad faith claims under the Fair Debt Collections Practices Act ("FDCPA").  A California plaintiff brought suit against two companies for violations of the FDCPA.  The plaintiff lost the suit, and the federal district court awarded attorney's fees and costs against the both plaintiff and his lawyers, finding that the lawsuit had been filed in bad faith and for the purpose of harassment as defined by the FDCPA.  The plaintiff's attorneys appealed.

On June 9, the Ninth Circuit issued its opinion in Hyde v. Midland Credit Management, Inc., holding that even if an FDCPA case is brought in bad faith and for the purpose of harassment, attorney's fees and costs cannot be awarded against the plaintiff's attorney under the FDCPA.

While the FDCPA does provide for an award of attorney's fees and costs against an unsuccessful abusive plaintiff, the Ninth Circuit looked at laws the FDCPA is modeled after and determined that Congress did not intend to allow fee awards against an attorney.  The Court reasoned that, had Congress intended to allow direct sanctions against an attorney, it would have explicitly said so.  The Court noted that there are other laws and rules by which courts can penalize attorneys directly.

Ninth Circuit puts Internet domain name registry in dispute

In an opinion issued earlier this month, Ninth Circuit Judge Mary M. Schroeder applied "antitrust statutes drafted in the late 19th century" to reinstate a lawsuit alleging wrongful acts in a very 21st century business:  the registry for ".com" and ".net" Internet domain names.

Plaintiff in Coalition for ICANN Transparency, Inc. v. VeriSign, Inc. alleges that VeriSign, the company that has the exclusive right to administer the registry of domain names, and ICANN, the non-profit oversight body that coordinates the Internet domain name system, prevented competition in the pricing of domain name registration.  While the trial court had dismissed the complaint for failure to state a claim, the Ninth Circuit held that, among other things, plaintiff adequately pleaded conspiracies to set artificially high prices for ".com" domain names and to prevent competitive bidding for the right to register domain names.

U.S. Supreme Court increases pleading burden for plaintiffs

Memo to plaintiffs in federal court:  You'll have to plead facts to support your claim in order to survive a motion to dismiss.  A complaint reciting the elements of a claim and amounting to a series of legal conclusions is no longer adequate.  Earlier this week, the U.S. Supreme Court held in Ashcroft v. Iqbal that Federal Rule of Civil Procedure 8, requiring a "short and plain statement of the claim," "does not unlock the doors of discovery for a plaintiff armed with nothing more than conclusions." Instead, legal conclusions must be supported by facts that are plausible - meaning facts that allow the court to draw the reasonable inference that defendant is liable.

While Iqbal garners media attention for addressing immunity from claims of unlawful detention of Muslims after the 9/11 attacks, its interpretation of federal pleading rules will have an impact on all civil litigants for years to come.

Iqbal follows the 2007 U.S. Supreme Court case of Bell Atlantic Corp. v. Twombly, which first stated the more stringent pleading rules.  Twombly was an antitrust case, and at the time it was unclear whether the heightened pleading requirements applied only to antitrust plaintiffs.  Justice Kennedy, writing for the majority in Iqbal, states that Twombly was not so limited, and applies to all civil complaints in federal court.

Falling book prices doom antitrust lawsuit against Amazon and Borders

A customer can't sue two retailers for illegal collusion unless he can show that he suffered actual damages, according an opinion issued this week by the Ninth Circuit.  In Gerlinger v. Amazon.com, Inc., plaintiff challenged an agreement under which the book retailer Borders Group, Inc.'s web site directed shoppers to a site hosted by Amazon.  The books purchased on that site were sold and shipped by Amazon, and Borders received a commission for each sale. 

Plaintiff, a customer of Amazon, claimed that Borders' commitment not to sell books directly on the internet during the term of the agreement amounted to a per se market allocation in violation of federal antitrust law.  The Ninth Circuit never addressed the legality of the agreement, instead affirming summary judgment in favor of defendants on the ground that plaintiff could not show that the prices he paid for books increased as a result of the agreement.  In fact, Amazon offered evidence that book prices declined after the agreement became effective.  Without proof of an "injury-in-fact," the customer could not challenge Borders' agreement to stay out of the on-line market.

Coincidentally, on the same day as the Ninth Circuit's ruling, Borders announced that it was ending its seven-year relationship with Amazon and launching its own e-commerce web site.

Another antitrust verdict hits forest-products firm

A year after the U.S. Supreme Court tossed out a $79 million antitrust verdict against it, Weyerhaeuser has this week been hit with another antitrust judgment by a jury in Portland - this time in the amount of $28 million, which will be trebeled to $84 million.  While the earlier case involved a claim by Weyerhaeuser's competitors in the alder mill business, this time the plaintiffs are a group of customers who purchased finished alder lumber.  Those plaintiffs contend that Weyerhaeuser monopolized the market for finished alder logs, illegally raising prices charged to plaintiffs.

See news coverage of this week's verdict here and here.  And see our coverage of last year's Supreme Court ruling here. 

Court dismisses antitrust complaint, then allows discovery

In 2007 the US Supreme Court raised the standards for pleading a federal antitrust claim, holding in Bell Atlantic v. Twombly that plaintiff must plead sufficient facts to suggest an illegal agreement in restraint of trade.  The Ninth Circuit last week agreed to dismiss an antitrust complaint for failing to meet that pleading standard.  What's interesting about the case, Kendall v. Visa USA, Inc., is what happened in the trial court:  the plaintiffs had been allowed to take depositions of defense witnesses after their complaint had been dismissed. 

According to the Ninth Circuit opinion, the district court judge dismissed the initial complaint for failure to plead adequate facts, but agreed that plaintiffs could conduct discovery before filing an amended complaint.  Because the amended complaint continued to be deficient, the court dismissed it without leave to amend.  This case turns the usual litigation process on its head:  a complaint must typically be in place before discovery can begin.  If discovery after dismissal becomes the norm in antitrust cases, expect many disputes over how much discovery defendants must make available to plaintiffs.

See our earlier coverage of the Supreme Court's Twombly opinion here.

Looking to Europe for antitrust enforcement

With the U.S. Supreme Court consistently ruling against antitrust plaintiffs, and with the Justice Department scaling back its antitrust enforcement efforts, it appears the European Union has taken the lead in regulating trade and competition.  Monday's ruling by the EU's Court of First Instance against Microsoft, including imposition of a $613 million fine, confirms that European law takes a hard line against dominant firms.  That tough stance will have repercussions outside of Europe.  The court's order that Microsoft must, for example, share communications code with its rivals will affect how the company conducts operations throughout the world.