DAVID H. COAR, District Judge.
Plaintiffs have filed suit on behalf of a class of sulfuric acid consumers against several producers of the commodity (collectively "Defendants") for violations of § 1 of the Sherman Act, 15 U.S.C. § 1. Plaintiffs allege that Defendants engaged in anticompetitive behavior by conspiring to reduce the output and fix the price of sulfuric acid in Canada and the United States. In furtherance of the conspiracy, American Defendants GAC Chemical Corporation ("GAC"),
Before this Court are motions for summary judgment brought by Defendants GAC [413], Noranda [418], Boliden [422], Falconbridge [426], PVS [430], Norfalco [433], and Koch [439]. All Defendants join
The instant action centers on allegedly anticompetitive behavior that took place in the sulfuric acid market in Canada and the United States from 1988 through 2001.
Summary judgment is appropriate if "the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue as to
When reviewing a motion for summary judgment, the court must view the facts in the light most favorable to the nonmoving party and draw all reasonable inferences in that party's favor. See Schuster v. Lucent Tech., Inc., 327 F.3d 569, 573 (7th Cir.2003); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) ("The evidence of the non-movant is to be believed, and all justifiable inferences are to be drawn in his favor."). At summary judgment, the "court's role is not to evaluate the weight of the evidence, to judge the credibility of witnesses, or to determine the truth of the matter, but instead to determine whether there is a genuine issue of triable fact." Nat'l Athletic Sportswear, Inc. v. Westfield Ins. Co., 528 F.3d 508, 512 (7th Cir.2008).
Plaintiffs claim that Defendants violated the Sherman Act by engaging in collusive and anticompetitive behavior between 1988 and 2001. According to Plaintiffs, Noranda and Falconbridge negotiated agreements in which co-Defendants could access cheaper Noranda-Falconbridge acid if they shut down or curtailed their own voluntary production of sulfuric acid. Profit-sharing arrangements allegedly served to distribute the proceeds of this collusion. Dominant producers Noranda, Falconbridge, and DuPont later formed a joint venture that virtually controlled the merchant market supply of sulfuric acid. DuPont allegedly restricted its production at the Joint Venture's direction. Overall, Plaintiffs allege that these arrangements enabled Defendants to control and reduce the industry-wide supply of sulfuric acid; stabilize, raise, or otherwise fix prices; and allocate market share, customers, and profits among themselves to eliminate competition.
Defendants contend that closing sulfuric acid production facilities was not, as Plaintiffs argue, a condition of any agreements to purchase Noranda-Falconbridge acid. Defendants generally argue that older facilities were shut down because the capital costs of maintaining them or complying with environmental regulations made continued voluntary production economically unfeasible. Noranda and Falconbridge further argue that DuPont's production was only temporarily reduced to deal with a short-term inventory bubble.
As an initial matter, the Court must identify the governing law in this case. 28 U.S.C. § 1407 authorizes the Judicial Panel on Multidistrict Litigation to consolidate, by transfer of venue to a single district, civil actions pending in different federal courts. When cases are based on diversity of citizenship, the transferee court must apply the state laws that the transferor forums would have, according to that forums' choice-of-law rules. See In re Data General Corp. Antitrust Litigation, 510 F.Supp. 1220, 1227-28 (J.P.M.L.1979) (quoting In re Air Crash Disaster at John F. Kennedy International Airport on June 24, 1975, 407 F.Supp. 244, 246-47
With cases based on federal question jurisdiction, however, adopting the law of multiple transferor circuits poses problems. As the D.C. Circuit observed in In re Korean Air Lines Disaster, "because there is ultimately a single proper interpretation of federal law, the attempt to ascertain and apply diverse circuit interpretations simultaneously is inherently self-contradictory." 829 F.2d 1171, 1175 (D.C.Cir.1987). For this reason, circuits considering the issue since Korean Air have held that, in federal question cases consolidated under § 1407, the law of the transferor court warrants "close consideration" but does not bind the transferee court. Id. at 1176; see also, e.g., Menowitz v. Brown, 991 F.2d 36, 41 (2d Cir.1993); In re Temporomandibular Joint Implants Prods. Liab. Litig., 97 F.3d 1050, 1055 (8th Cir.1996).
Although the Seventh Circuit has yet to decide which law governs federal claims in cases transferred under 28 U.S.C. § 1407, it has adopted the rationale of Korean Air when resolving the question under 28 U.S.C. § 1404(a), which authorizes district courts to transfer cases for reasons of convenience. See McMasters v. U.S., 260 F.3d 814, 819 (7th Cir.2001); Eckstein v. Balcor Film Investors, 8 F.3d 1121, 1126 (7th Cir.1993), cert. denied, 510 U.S. 1073, 114 S.Ct. 883, 127 L.Ed.2d 78 (1994).
Before proceeding to the merits of Defendants' motions, the Court must address their assertion that all Sherman Act claims fail due to the expiration of the statute of limitations. Antitrust claims are subject to a four-year statute of limitations period. 15 U.S.C. § 15b. Generally, an antitrust claim "accrues and the statute begins to run when a defendant commits an act that injures a plaintiff's business." Zenith Radio Corp. v. Hazeltine Research, Inc., 401 U.S. 321, 338, 91 S.Ct. 795, 28 L.Ed.2d 77 (1971). However, the Seventh Circuit has held that, "in the absence of a contrary directive from Congress," antitrust actions are subject to the "discovery rule, which `postpones the beginning of the limitations period from the date when the plaintiff is wronged to the date when he discovers he has been injured.'" In re Copper Antitrust Litigation, 436 F.3d 782, 789 (7th Cir.2006) (quoting Cada v. Baxter Healthcare Corp., 920 F.2d 446, 450 (7th Cir.1990)). In other words, a plaintiff's claim accrues not when the conduct or injury occurs, but when the plaintiff, through the exercise of due diligence, "discovers that he has been injured and who has caused the injury." Id. (internal citations and quotation marks omitted) (emphasis in original).
Defendants assert that the Seventh Circuit's interpretation is contrary to Supreme Court precedent, and that the proper standard for accrual of the statute of limitations in antitrust suits is the incident of injury, rather than the discovery of the harm. Under Defendants' approach, most of Plaintiffs' claims are time-barred because all but one of the challenged contracts expired more than four years before Plaintiffs acted. Defendants' reading of Supreme Court jurisprudence cannot change the fact that, as discussed above, Seventh Circuit precedent governs this multidistrict litigation. It is for the Seventh Circuit or the Supreme Court to overturn that precedent, not this Court. Therefore, Defendants' initial argument fails.
Assuming for the sake of argument that the discovery rule does not apply to antitrust claims, genuine issues of material fact would remain as to whether Plaintiffs' accrual dates should be tolled on the grounds of fraudulent concealment. In an antitrust case, the doctrine of fraudulent concealment "presupposes that the plaintiff . . . should have discovered[] that the defendant injured him, and denotes efforts by the defendant . . . to prevent the plaintiff from suing in time." Copper Antitrust, 436 F.3d at 791 (quoting Cada, 920 F.2d at 451). The doctrine requires Defendants to take affirmative steps after the original wrongdoing to divert attention, mislead, or prevent discovery. See Tomera v. Galt, 511 F.2d 504, 510 (7th Cir.1975); Teamsters Local 282 Pension Trust Fund v. Angelos, 815 F.2d 452, 456 n. 4 (7th Cir.1987). Failure to actively disclose illegal conduct, or mere denial of wrongdoing, does not qualify as an affirmative act of concealment. Clow Corp. v. Witco Chemical Corp., No. 82 C 1287, 1984 WL 876, at *5 (N.D.Ill. June 20, 1984); see also Rutledge v. Boston Woven Hose & Rubber Co., 576 F.2d 248, 250 (9th Cir.1978); King & King Enterprises v. Champlin Petroleum Co., 657 F.2d 1147, 1155 (10th Cir.1981). However, "hiding" the misconduct, "throwing up a smokescreen" or "misrepresentation" of facts comprising the cause of action can toll the
As grounds for tolling under fraudulent concealment, Plaintiffs point to announcements made by Defendants throughout the 1990s that go beyond mere failures to disclose or denials of wrongdoing. See Pl. Ex. 30; Pl. Ex. 75; Pl. Ex. 154; Pl. Ex. 155; Pl. Ex. 157. These statements go so far as to offer alternative, and allegedly false, explanations for Defendants' decisions to shut down facilities or raise prices. While Defendants contend that their announcements are honest disclosures supported by market data, the Court must draw all reasonable inferences in Plaintiffs' favor where matters are disputed. Defendants' public statements create triable issues of fact as to whether Defendants, through misleading public statements, affirmatively concealed agreements to reduce industry-wide output or fix prices. See Copper Antitrust, 436 F.3d at 792 (evidence that defendant publicly offered "innocent alternative explanations to explain away events related to the price-fixing conspiracy, knowing that they were misleading," among other deceptive acts, was enough to show a dispute of material fact as to defendant's fraudulent concealment); United Nat. Records, Inc. v. MCA, Inc., 609 F.Supp. 33, 36 (D.C.Ill.1984) (evidence that defendant publicly released "alternative explanations" for parallel price increases created genuine issues of fact as to whether defendants affirmatively concealed price-fixing arrangement). Determinations of fact are therefore necessary to ascertain whether Plaintiffs may benefit from equitable tolling, and if so, when a diligent inquiry would have revealed evidence supporting the present cause of action.
Fraudulent concealment aside, Defendants contend that this action remains time-barred because a reasonably diligent plaintiff should have been aware of all relevant aspects of the alleged anticompetitive behavior early on. See Cathedral of Joy Baptist Church v. Village of Hazel Crest, 22 F.3d 713, 717 (7th Cir.1994) (under the discovery rule, a court determines when a plaintiff should have discovered its injury according to an objective standard). Throughout the late 1980's and early 1990's, Defendants' resale contracts, zone contracts, and the Noranda DuPont Joint Venture had all received publicity in various trade publications. Defendants thus maintain that Plaintiffs had constructive notice of Defendants' injurious acts several years prior to the earliest permissible accrual date.
In re Copper Antitrust Litigation ("Copper Antitrust") guides the Court's ensuing analysis. 436 F.3d at 790. In that case, major newspapers had reported that the defendant bank had financed another company's illegal transactions, hedged deals in the copper market, and was one of several banks under federal investigation. However, because news articles stopped short of indicating that the bank had engaged in anything unlawful, and because the bank was never charged with violating any laws, the Seventh Circuit held that a dispute of material fact existed as to when a diligent inquiry would have revealed the defendant's illicit activity. See id.
As in Copper Antitrust, the publications cited by Defendants fail to make any mention of collusive behavior that could potentially give rise to liability under the Sherman Act. The reports merely expound upon common knowledge: namely, that
What can be established with certainty is that, in January of 2003, the Canadian Government raided Noranda and Falconbridge offices for a U.S. federal investigation into possible anticompetitive activity. The Canadian news media immediately pounced on the event, producing ample coverage of the potentially illegal nature of Defendants' agreements. From that point on, Plaintiffs had undeniable access to the facts required to support an antitrust suit against Defendants. If the limitations period began accruing at that time, Plaintiffs would have had until January 2007 to file their complaints. Plaintiffs' cases, all filed before September 16, 2003, were brought well within the applicable four-year statute of limitations.
The record does not indisputably show that, prior to 2003, information detectable upon diligent inquiry would have put Plaintiffs on notice of the alleged conduct forming the basis of this case. The point at which a reasonable person would have appreciated the need for diligent inquiry, or whether a resulting investigation would have produced useful results, are ultimately questions of fact for a juror to decide. See Morton's Market, Inc. v. Gustafson's Dairy, Inc., 198 F.3d 823, 832 (11th Cir. 1999) ("[A]s a general rule, the issue of when a plaintiff in the exercise of due diligence should have known of the basis for his claims is not an appropriate question for summary judgment."). This precludes the entry of summary judgment on the issue of timeliness.
The Court now addresses the merits of Defendants' motions for summary judgment on Plaintiff's Sherman Act claims.
Section 1 of the Sherman Act prohibits any "contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations." 15 U.S.C. § 1. To prevail on a
While courts at summary judgment construe all reasonable inferences in the light most favorable to the nonmovant, an exception is made for lawsuits alleging conspiracies to violate § 1 of the Sherman Act. See Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 588, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). Due to the costly risk of chilling procompetitive conduct, antitrust law limits the range of inferences a factfinder can draw from ambiguous evidence of conspiracy in a § 1 case. See id. Ultimately, conduct that is "as consistent with permissible competition as with illegal conspiracy does not, standing alone, support an inference of antitrust conspiracy." Id. at 593-94, 106 S.Ct. 1348 (citing Monsanto Co. v. Spray-Rite Service Corp., 465 U.S. 752, 764, 104 S.Ct. 1464, 79 L.Ed.2d 775 (1984)). In order to survive summary judgment, a plaintiff must present evidence "`that tends to exclude the possibility' that the alleged conspirators acted independently." Id. at 588, 106 S.Ct. 1348 (citing Monsanto, 465 U.S. at 764, 104 S.Ct. 1464). Put differently, the inference of conspiracy must be reasonable even when considered against competing inferences of independent action or concerted, harmless action. See id. (citing First National Bank of Arizona v. Cities Service Co., 391 U.S. 253, 280, 88 S.Ct. 1575, 20 L.Ed.2d 569 (1968)).
Courts in the Seventh Circuit divide this inquiry into two parts. A court first asks if the plaintiff's evidence of conspiracy is ambiguous, that is, if it is as consistent with the defendants' permissible independent interests as with an illegal conspiracy. If so, the court looks for any evidence that tends to exclude the possibility that the defendants were pursuing these independent interests. Market Force Inc. v. Wauwatosa Realty Co., 906 F.2d 1167, 1171 (7th Cir.1990). Plaintiffs can satisfy the second prong with direct or circumstantial evidence that "reasonably tends to prove that [defendants] had a conscious commitment to a common scheme designed to achieve an unlawful objective." Monsanto, 465 U.S. at 764, 104 S.Ct. 1464.
While Defendants assert that the facts cannot reasonably be construed as proof of collusion, evidence pointing to cooperation among Noranda, Falconbridge, PVS, Koch, and Boliden
The inquiry does not end there, though. Plaintiffs have further submitted evidence tending to exclude the possibility of independent action on the part of Defendants. The most damaging piece of evidence is Noranda's "Sulphuric Acid 1989 Plan," in which the company articulates its continuing strategy to "approach[] sulphur burning acid producers to purchase acid from Noranda and thereby shutdown sulphur burning acid plants. It is a strategy of displacement by agreement." This strategy is being followed so as not to force an oversupply into a balanced market with predictable price disruption and to minimize the risk of inviting trade action by U.S. authorities." Pl. Ex. 13 ¶ 12 (emphasis added). Evidence pointing to compliance with this plan on the part of Defendants Koch, Boliden, PVS, and Falconbridge only strengthens the inference of collusive activity. See, e.g., Pl. Ex. 54 at KSP00062754 (Koch memo) ("Koch could displace acid currently in the market with Noranda acid, so as to maintain industry structure."); Pl. Ex. 42 (Boliden internal letter) ("Noranda will undoubtedly continue to press the Copperhill shutdown issue with Boliden."); Pl. Ex. 39 at 2 (Falconbridge memo) ("Boliden have just recently conceded they will cut back Copperhill by 112,500 MT and move only 50% (112,500 MT) of our tonnage to Florida."); Pl. Ex. 40 at 2; Pl. Ex. 41 at 8 (Falconbridge memo) ("Boliden will reduce their sulphur burning acid production to purchase acid from KCM/FL."); Pl. Ex. 14 at 8 (Noranda Report) ("Agreement has been reached whereby PVS will close this facility and receive all their acid requirements from Noranda."); Pl. Ex. 27 at 166784 (PVS/Noranda Contract) ("PVS agrees to arrange to have its affiliate discontinue production of sulphuric acid at its Bay City, Michigan acid plant no later than October 15, 1990."); Pl. Ex. 13 at 13 (Noranda Report) ("Confirmed contracts with PVS in Copley, Ohio . . . involving closure of sulphur
Defendants constantly fault Plaintiffs for failing to produce direct evidence revealing anything more than arms-length negotiations and independent make-buy decisions. As shown above, Plaintiffs have submitted circumstantial evidence tending to show that Defendants' negotiations went beyond commerce in acid to produce a cleverly disguised conspiracy. Plaintiffs are not limited to proving their claims through direct evidence. The Court must deny summary judgment if the evidence, whether directly or indirectly indicating guilt, tends to exclude the possibility of independent action. See In re High Fructose Corn Syrup Antitrust Litig., 295 F.3d 651, 662 (7th Cir.2002) (Ambiguous statements "are not to be disregarded because of their ambiguity; most cases are constructed out of a tissue of such statements and other circumstantial evidence, since an outright confession will ordinarily obviate the need for a trial."). The fact remains that the extra-contractual nature of Defendants' conduct is significantly disputed.
As Defendants accurately state, none of the evidence necessarily excludes the possibility that Defendants arrived at make-buy
Defendants further assert that evidence of separate agreements between Noranda and American producers is insufficient to support the inference that they agreed to a single and common scheme. For their argument, Defendants overstate the holding of Spectators' Communication Network Inc. v. Colonial Country Club, which holds that hub-and-spoke conspiracies wherein a core conspirator (at the hub) stands in a vertical relationship with coconspirators (the spokes) cannot qualify as a horizontal combination in violation of § 1 without evidence that the competing coconspirators agreed among themselves. 253 F.3d 215, 224-25 (5th Cir.2001) (citing cases). As discussed in Section III.B.1.a of this opinion, a triable issue of fact exists as to whether Noranda and Falconbridge horizontally compete with the American Defendants. Should a jury find that all Defendants were in competition, PVS, Koch, and Boliden could remain liable for separate horizontal conspiracies with Noranda and Falconbridge, regardless of whether the evidence connected all Defendants in a single conspiracy.
In any event, Plaintiffs' evidence can reasonably be read to indicate a single conspiracy among Defendants. A classic hub-and-spoke conspiracy involves a "rim" connecting the spokes, such that the spokes "must have been aware of each other and must do something in furtherance of some single, illegal enterprise." U.S. v. Haynes, 582 F.3d 686, 699 (7th Cir.2009) (citing United States v. Bustamante, 493 F.3d 879, 885 (7th Cir.2007)). The parties have produced evidence indicating that the American Defendants' highly publicized shutdowns and concurrent collaborations with Noranda and Falconbridge were generally known among them,
None of Defendants' remaining case law supports a grant of summary judgment on this record. The cases only confirm that antitrust law's heightened standard of proof serves to weed out factually or economically implausible claims. In Matsushita, the Supreme Court approved summary judgment on a claim alleging a conspiracy to charge higher-than-competitive prices because the alleged restraint "simply [made] no economic sense" and defendants lacked "any rational motive to conspire." See 475 U.S. at 587, 597, 106 S.Ct. 1348. Further, something more than evidence of parallel prices, or even conscious parallelism, is required to establish a price-fixing conspiracy. See Monsanto, 465 U.S. at 763-64, 104 S.Ct. 1464; Blomkest Fertilizer, Inc. v. Potash Corp. of Saskatchewan, 203 F.3d 1028, 1032 (8th Cir.2000); Barry v. Blue Cross of California, 805 F.2d 866, 869 (9th Cir.1986); Amer. Floral Services, Inc. v. Florists' Transworld Delivery Assoc., 633 F.Supp. 201 (N.D.Ill.1986); see also See Market Force, 906 F.2d at 1174 (fact that two companies were mutually aware of each other's policies, combined with hostile comments made about a plaintiff, was insufficient to avoid summary judgment on price fixing claim).
Defendants' attempt to characterize the alleged conspiracy as "economically implausible" fails. Plaintiffs allege and produce evidence to support the existence of a garden-variety output limitation scheme. See, infra, Section III.B.1.b. The actual and probable anticompetitive effects of such conspiracies are well established. Moreover, unlike the above cases, Plaintiffs in the instant case do not solely rely on nebulous accusations of cooperation. Plaintiffs have submitted tangible evidence against each Defendant
Defendant GAC, the purchaser of Delta Inc.'s assets, paints a much more compelling portrait of its lack of collusive behavior. On October 6, 1989, Delta and Noranda entered into a contract for the sale of smelter acid satisfying the total requirements of Delta's Searsport, Maine facility until 1996. GAC Ex. 23 at 2, 6 (Delta-Noranda contract). Delta shut down the Searsport facility in 1988. GAC purchased most of Delta's assets on March 8, 1994, after which Delta survived as a separate entity. At the time of the acquisition, the Searsport facility was inoperable, with many parts either rusted or missing. Searsport was therefore not valued in or considered as part of GAC's acquisition. GAC did retain Delta management in the sulfuric acid business, and assumed the Delta-Noranda contract for the remainder of its term. See Pl. Ex. 26 at NFD106333 (GAC-Delta contract). On March 1, 1996, GAC entered into a new supply contract with Noranda. GAC later contracted with the Noranda DuPont Joint Venture for the supply of sulfuric acid.
In Plaintiffs' brief in opposition to GAC's motion to dismiss, they promised to establish through discovery that GAC acquired Delta with knowledge of the Delta-Noranda conspiracy and with the intent to benefit from that illegal agreement. As Plaintiffs observed, "[i]t is well recognized that a co-conspirator who joins a conspiracy may, in the antitrust context, be charged with the preceding acts of its co-conspirators." Havoco of America, Ltd. v. Shell Oil Co., 626 F.2d 549, 554 (7th Cir. 1980). Thus far, Plaintiffs have supplied no evidence indicating, even tangentially, that GAC was aware of the allegedly illegal nature of Delta's agreement with Noranda. Nor does the record contain anything pointing to GAC's intent to benefit from any prior anticompetitive conduct.
Plaintiffs further argued that GAC may have assumed liability for Delta's past actions under exceptions to the common law rule against successor liability. In most American jurisdictions, a purchaser of assets does not assume the seller's liabilities "even if all the assets are transferred by the sale so that in effect the entire business has been sold, and the purchaser intends to continue it as a going concern." E.E.O.C. v. G-K-G, Inc., 39 F.3d 740, 747 (7th Cir.1994); see also Leannais v. Cincinnati, Inc., 565 F.2d 437, 439 (7th Cir. 1977). Some states, under the de facto merger or continuity of enterprise doctrines, observe exceptions to this common law rule. See, e.g., In re Master Key Antitrust Litig., 1976 WL 1377, at *1 (D.Conn. Sept. 28, 1976). However, to date, Plaintiffs have not attempted to produce evidence in support of these doctrines. At any rate, Maine, under whose law the GAC-Delta contract is expressly governed, does not recognize exceptions to
The GAC-Delta Asset Purchase Agreement undisputedly provides that, except for certain specific "Assumed Liabilities," GAC "shall in no event assume or be responsible for any liabilities, liens, security interests, claims, obligations, or encumbrances of [Delta]." GAC SOF ¶ 51, GAC Ex. 26 ¶ 2.2. As per the explicit language of the contract, GAC did not assume liability for antitrust infringements. Plaintiffs have produced nothing to refute the validity of the Asset Purchase Agreement. Delta's complicity in the alleged conspiracy— to which Plaintiffs devote the bulk of their argument—is therefore irrelevant to the question of whether summary judgment is appropriate on GAC's motion.
At summary judgment, Plaintiffs have apparently shifted the theory of their case. Plaintiffs now contend that the following factors combine to produce a reasonable inference that GAC consciously joined the conspiracy allegedly entered by Delta: (1) GAC "stepped into Delta's shoes" by knowingly and intentionally assuming the Delta-Noranda Agreement with the knowledge and consent of Noranda, and operating under it until at least March 1996; (2) Delta personnel continued with GAC's acid business; and (3) GAC never rendered the Searsport facility operational and never produced sulfuric acid.
Plaintiffs cite no authority for their position that an asset purchaser knowingly joins in a seller's antitrust conspiracy as a matter of law by assuming an existing contract, maintaining the seller's personnel, and deciding against restarting production at inoperable plants. The conspiracy alleged by Plaintiffs was to reduce output to stabilize prices.
In sum, Plaintiffs have produced neither direct nor circumstantial evidence that reasonably tends to prove that GAC was aware of, much less made a conscious commitment to enter into, an illegal conspiracy with co-Defendants. See Monsanto, 465 U.S. at 763, 104 S.Ct. 1464. None of the documents relied on by Plaintiffs excludes the possibility that GAC was acting independently when it purchased Delta's assets, assumed Delta's contract, and later entered into contracts for the resale of Noranda acid. See Matsushita, 475 U.S. at 588, 106 S.Ct. 1348; Market Force, 906 F.2d at 1171. Plaintiffs have failed to carry their burden of proving that GAC knew of or entered a conspiracy violating § 1 of the Sherman Act. For the foregoing reasons, GAC's motion for summary judgment is granted.
Depending on the nature of an alleged restraint, the reasonableness of a restraint of trade is judged according to one of two standards. Denny's Marina, 8 F.3d at 1220. Activities such as horizontal price fixing, market allocation, group boycotts, or tying arrangements are so inherently anticompetitive, they are considered illegal per se. See Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 768, 104 S.Ct. 2731, 81 L.Ed.2d 628 (1984); Northern Pacific Railway Co. v. United States, 356 U.S. 1, 5-6, 78 S.Ct. 514, 2 L.Ed.2d 545 (1958); Broadcast Music, Inc. v. Columbia Broadcasting Sys., Inc. ("BMI"),U.S. 1, 19-20, 99 S.Ct. 1551, 60 L.Ed.2d 1 (1979). Because these actions are conclusively presumed to be unreasonable, no inquiry into the harm actually caused is required. Copperweld, 467 U.S. at 768, 104 S.Ct. 2731; Northern Pacific, 356 U.S. at 5, 78 S.Ct. 514. In contrast, such combinations as mergers, joint ventures, and various vertical agreements may enable a firm to compete more effectively. Such activities are therefore commonly judged under the "rule of reason," which considers the actual effects of these commercial efforts. Copperweld, 467 U.S. at 768, 104 S.Ct. 2731. A challenged action is unreasonable if—in light of facts particular to the industry, its condition before and after the imposition of the restraint, and the restraint's nature, history, and effects—it suppresses rather than promotes competition. State Oil Co. v. Khan, 522 U.S. 3, 10, 118 S.Ct. 275, 139 L.Ed.2d 199 (1997); National Soc. of Professional Engineers v. U.S., 435 U.S. 679, 691-92, 98 S.Ct. 1355, 55 L.Ed.2d 637 (1978); Chicago Board of Trade v. United States, 246 U.S. 231, 238, 38 S.Ct. 242, 62 L.Ed. 683 (1918).
Claims under § 1 of the Sherman Act are generally evaluated under the rule of reason, unless the challenged action falls into the narrow category of per se violations. Wilk v. American Medical Ass'n, 895 F.2d 352, 359 (7th Cir.1990). However, Plaintiffs adamantly insist that the rule of reason should not be applied in the instant case. Instead, Plaintiffs dedicate their briefs to showing that Defendants' activities were illegal per se. Consistent with this position, Plaintiffs offer no arguments or evidence pertaining to critical elements of rule of reason analysis. They do not, for instance, discuss the anticompetitive effects of the challenged practices, or whether Defendants possessed the market power to substantially restrain competition.
Since Plaintiffs have waived the argument, the Court need not consider whether a factual dispute exists as to the prevailing parties under the rule of reason. See Laborers' Int'l Union of N. Am. v. Caruso, 197 F.3d 1195, 1197 (7th Cir.1999) (arguments not presented to the district court in response to summary judgment motions are waived). Accordingly, Plaintiffs can survive summary judgment only if a genuine issue of material fact exists as to whether Defendants committed a restraint that is per se unreasonable.
The Supreme Court has cautioned against the over-zealous application of the per se label. Phil Tolkan Datsun, Inc. v. Greater Milwaukee Datsun Dealers' Advertising Ass'n, Inc., 672 F.2d 1280, 1284 (7th Cir.1982) (citing BMI, 441 U.S. 1, 99 S.Ct. 1551 (1979); Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 97 S.Ct. 2549, 53 L.Ed.2d 568 (1977)). The Seventh Circuit has concluded that "[a] particular course of conduct will not be termed a per se violation of the Sherman Antitrust Act until the courts have had considerable experience with that type of conduct and application of the rule of reason has inevitably resulted in a finding of anticompetitive effects." Bunker Ramo Corp. v. United Business Forms, Inc., 713 F.2d 1272, 1284 (7th Cir.1983); see also United States v. Topco Associates, Inc., 405 U.S. 596, 607-608, 92 S.Ct. 1126, 31 L.Ed.2d 515 (1972) ("It is only after considerable experience with certain business relationships that courts classify [certain agreements or practices] as per se violations of the Sherman Act."); BMI, 441 U.S. at 19-20, 99 S.Ct. 1551 (a per se violation is a practice that "facially appears to be one that would almost or almost always tend to restrict competition and decrease output"). Plaintiffs may thus proceed to trial on a per se theory if a reasonable juror could find, from the undisputed facts, that Defendants' conduct is of the type that is either typically treated as a per se violation, or has been found invariably anticompetitive after multiple applications of the rule of reason by courts.
Because the parties disagree on virtually every aspect of the multi-step analysis required to determine the appropriateness of the per se rule, the Court addresses these arguments separately in Section III.B of this opinion. As the Court's reasoning will show, outstanding factual disputes preclude a decision at this point on the applicable legal rule in this case.
Seeing as multiple Defendants have raised the issue, the Court shall first touch on the accompanying injury element. To survive summary judgment, Plaintiffs must also show that they suffered a cognizable injury resulting from Defendants' alleged conspiracy. See Matsushita, 475 U.S. at 585-86, 106 S.Ct. 1348 (citing Cities Service, 391 U.S. at 288-289, 88 S.Ct. 1575). However, the Seventh Circuit has clearly stated that "antitrust remedies may be available without a showing of market injury if an individual competitor can show that the defendant's anticompetitive actions were per se illegal under Section 1." Tri-Gen Inc. v. Int'l Union of Operating
Calculating damages presents a separate challenge. A plaintiff seeking damages must prove that his financial loss was caused by the unlawful acts of the defendant. MCI Communications Corp. v. American Tel. and Tel. Co., 708 F.2d 1081, 1161 (7th Cir.1983) ("[T]he courts have been consistent in requiring plaintiffs to prove in a reasonable manner the link between the injury suffered and the illegal practices of the defendant."). Injury to individual plaintiffs may not be assumed simply because a case is being treated as a per se antitrust violation; Plaintiffs must show that they were the type of plaintiff to be affected by the anticompetitive conduct. See Atl. Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 341-45, 110 S.Ct. 1884, 109 L.Ed.2d 333 (1990) (finding that competitor dealer was not of the type to be impacted by the anticompetitive effects of vertical arrangement in question).
Although Defendants argue that this litigation may not proceed because Plaintiffs cannot prove antitrust injury, the substance of Defendants' arguments targets Plaintiffs' damages calculations. Defendants assert that Plaintiffs' causation expert and statistician rely on faulty analytical methods or mere guesswork. But the arguable inaccuracy of Plaintiffs' damages calculations is not grounds for granting summary judgment. The credibility and persuasiveness of Plaintiffs' expert witnesses are issues best left to a factfinder. For the purposes of the instant motions, what matters is that Plaintiffs' satisfaction of the accompanying injury requirement hinges on the success of their per se case. Until a factfinder is given an opportunity to assess the disputed facts underlying Plaintiffs' per se theory, the issue of antitrust injury is not ripe for summary judgment.
Defendants generally argue that the unique nature of the sulfuric acid industry, the complexity of Defendants' relationships, and the procompetitive effects of their actions prevent the Court from holding that their actions "would always or almost always tend to restrict competition and decrease output," so as to warrant per se treatment. BMI, 441 U.S. at 19-20, 99 S.Ct. 1551; see also Bunker Ramo, 713 F.2d at 1284 (citing Topco, 405 U.S. at 607-08, 92 S.Ct. 1126). Defendants offer volumes of evidentiary support, including economic data, expert testimony, and industry publications, to show that their methods were not only ancillary to a plainly lawful purpose, but also necessary for the benefit of the consumer. These justifications, Defendants reason, contradict a finding that their conduct was "manifestly anticompetitive." GTE Sylvania, 433 U.S. at 50, 97 S.Ct. 2549.
The cumulative weight of Defendants' evidence may certainly bear fruit at trial, when a factfinder must decide whether Plaintiffs have satisfied their burden of proof. At the summary judgment stage, however, Defendants' efforts are misdirected. At this stage of the proceedings, is not this Court's task to determine whether Defendants' conduct would be
Per se analysis calls for a distinction between horizontal and vertical arrangements. Only a small class of "manifestly competitive" horizontal agreements among competitors falls under the per se rule. All other horizontal agreements, and all vertical ones, have been deemed potentially procompetitive and are thus judged under the rule of reason. See Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877, 899, 127 S.Ct. 2705, 168 L.Ed.2d 623 (2007); GTE Sylvania, 433 U.S. at 58, 97 S.Ct. 2549.
Horizontal price-fixing is one of the clearest per se violations of the Sherman Act. See Texaco v. Dagher, 547 U.S. 1, 5, 126 S.Ct. 1276, 164 L.Ed.2d 1 (2006) ("Price-fixing agreements between two or more competitors . . . fall into the category of arrangements that are per se unlawful."). An agreement among competitors to restrict the production of a certain good equates to a price-fixing agreement, because conspiracies to limit output are designed to raise, stabilize, or otherwise fix the price of goods. See Westinghouse Elec. Corp. v. Gulf Oil Corp., 588 F.2d 221, 226 (7th Cir.1978) (equating an output limitation agreement with a price fixing arrangement because "[p]rice fixing is a characterization which extends to all conspiracies designed to manipulate the price of goods.") (citing Socony-Vacuum, 310 U.S. 150, 60 S.Ct. 811) (internal quotation marks omitted); General Leaseways, 744 F.2d at 594-95 ("If firms . . . restrict output directly, price will. . . rise in order to limit demand to the reduced supply. Thus, . . . raising price, reducing output, and dividing markets have the same anticompetitive effects.").
"An arrangement is said to be `horizontal' when its participants are (1) either actual or potential rivals at the time the agreement is made; and (2) the agreement eliminates some avenue of rivalry among them." 11 H. Hovenkamp, Antitrust Law ¶ 1901b, p. 203 (2d ed.2005). Defendants claim that, because Noranda and Falconbridge were neither actual nor potential competitors of the American co-Defendants, their relationships were vertical rather than horizontal in nature, and thus subject to the rule of reason.
Noranda and Falconbridge depict themselves as suppliers in desperate need of distributors, rather than producers in competition with other producers. Noranda, the exclusive sales agent for Falconbridge, claims that it lacked the capacity to compete against American co-Defendants because it had no distribution infrastructure with which to disseminate sulfuric acid. Plaintiffs not only dispute that Noranda lacked the capacity to compete with co-Defendants, but they also assert that Noranda actually competed against them. See Pl. Ex. 5 at 1, 3, 4 (Noranda marketing video) (advertising "dedicated information and transportation networks for total customer service" and "Noranda's single car fleet of 200 line railcars to the 40-car unit trains dedicated to a large volume of sulfuric
Alternatively, Defendants argue that their arrangement belongs to the class of horizontal-vertical hybrids subject to the rule of reason. In support of this position, they cite cases applying the rule of reason whenever the general lack of experience with hybrid vertical/horizontal arrangements, like dual-distributorships, counseled against per se treatment. See, e.g., Krehl v. Baskin-Robbins Ice Cream Co., 664 F.2d 1348, 1357 (9th Cir.1982) (applying rule of reason to dual distributorship, in which an operator licenses independent area franchisers to manufacture branded ice cream, but also operates as an area franchiser itself); Dimidowich v. Bell & Howell, 803 F.2d 1473, 1481 (9th Cir.1986) (applying rule of reason to a "hybrid arrangement" comprised of both a dual distributorship and horizontal relationship). While there is some evidence that Defendants established a dual distributorship-like arrangement, the argument seems somewhat premature, as enough evidence exists to place Defendants within traditional horizontal relationships, as well.
According to Noranda's own briefs, it approached American acid producers as a matter of necessity, seeking to offload large quantities of the commodity without bearing the risk of antidumping actions associated with direct sales. As such, whether or not Noranda had the capacity for direct sales at the time, it arguably could have developed that capacity, as their ultimate purpose was the sale of acid to end users. See Pl. Ex. 97 at NFD206607 (Noranda DuPont presentation) ("If Noranda and DuPont are unable to conclude agreement on joint venture then Noranda will withdraw & will set up its own U.S. company to sell directly to customers"). Noranda's strategy was motivated by concerns about antidumping actions and low prices—there is no indication that distribution, transportation, or related problems were foremost in the company's mind. Ultimately, the evidence can be reasonably read to infer that Noranda and Falconbridge, upon realizing that the market would not accommodate their product at the price levels of the time, placed themselves in a vertical relationship with co-Defendants as a matter of necessity, negotiating with the American producers to become distributors when they might not have otherwise done so. The Canadian acid producers essentially went through a series of communications to adjust the market to their good. While the resulting conspiracy, as alleged, incorporates vertical elements as a vehicle for restraining trade, it substantively amounts to the concerted action of actual or potential competitors eliminating some avenue of rivalry among them.
All this is to say whether Noranda and Falconbridge stood in a horizontal, vertical, or hybrid relationship with co-Defendants remains a triable issue of fact. Defendants cannot prevail on the position that their agreements were solely vertical and thus necessarily governed by the rule of reason.
Defendants observe on numerous occasions that a given business practice does not earn per se illegality until courts have had considerable experience with it. See Topco, 405 U.S. at 607-08, 92 S.Ct. 1126. Yet, despite Defendants' attempts to portray their agreements as the product of a hybrid or dual distributorship, there is nothing new about the alleged restraint at issue. While perhaps a little unique in its arrangement, the alleged conspiracy is at heart a classic instance of price fixing and output restriction. Courts have had considerable exposure to such conspiracies, and application of the rule of reason has inevitably resulted in a finding of anticompetitive effects.
Defendants thus overreach when accusing Plaintiffs of formalistic literalism in their use of the terms "price fixing" and "output restrictions" to Defendants' conduct. In Broadcast Music, Inc. v. Columbia Broadcasting Sys., Inc. ("BMI"), the Supreme Court contrasted the use of "price fixing" in the literal sense—as when two partners set a common price for their goods and services—against "price fixing" as a descriptive term for anticompetitive practices commonly considered per se illegal. BMI, 441 U.S. at 9, 99 S.Ct. 1551. While the literal application of antitrust terminology is "overly simplistic and often overbroad," the per se rule is rightly applied to price fixing that substantively resembles the category of behavior found manifestly anticompetitive in collective judicial experience. Id.
Plaintiffs have alleged conduct characteristic of price fixing in the substantive, rather than literal sense. Conspiring to reduce industry output as a means of stabilizing or raising prices is prototypical of conduct that has time and again been condemned by courts as per se illegal. See, e.g., U.S. v. Socony-Vacuum Oil Co., 310 U.S. 150, 190-91, 60 S.Ct. 811, 84 L.Ed. 1129 (1940) (per se illegal horizontal agreement to remove surplus gasoline from the market, despite continuing competition among defendants, artificially raised prices in violation of the Sherman Act); Westinghouse, 588 F.2d at 226 ("[A]n agreement to restrict the production of uranium unquestionably is a price fixing arrangement. . . . In fact, all serious attempts to establish a supracompetitive price must necessarily include an agreement to restrict output.").
Defendants continually confuse their version of the facts, which does not involve archetypal price fixing behavior, with the factual story generated when all reasonable inferences are drawn in Plaintiffs' favor. While this tactic pervades all arguments in Defendants' briefs, it fails in each instance. In particular, a recurring theme in Defendants briefs intones that per se treatment is inappropriate because the undisputed facts remain consistent with Defendants' claims. Defendants fail to acknowledge that neither are the undisputed facts inconsistent with Plaintiffs' interpretations, which additionally benefit from favorable inferences.
For example, consider Defendants' repeated assertions that the terminated plants were among the least profitable operated by Defendants, that Noranda's acid was relatively cheap, and that make-buy analyses favored displacement. See PVS Br. at 11; Koch Br. at 5; Falconbridge Br. at 7; Noranda Br. at 5. The undisputed nature of these facts does not preclude the possibility that facilities were shut down pursuant to a collusive agreement to limit production. Firstly, as noted by Plaintiffs, "competitors would be most amenable to closing less profitable plants, not their most profitable ones. There is no requirement under the antitrust laws
While Defendants frequently refer to their financial constraints as an element in their defense, an unforgiving market offers no excuse for violating antitrust laws. In writing the Sherman Act, Congress did "not permit[ ] the age-old cry of ruinous competition and competitive evils to be a defense to price-fixing conspiracies." Socony-Vacuum, 310 U.S. at 221, 60 S.Ct. 811. As the Supreme Court noted, "[r]uinous competition, financial disaster, evils of price cutting and the like appear throughout our history as ostensible justifications for price-fixing." Id. If courts had to account for these factors, "the reasonableness of prices would necessarily become an issue in every price-fixing case. In that event the Sherman Act would soon be emasculated; . . . it would not be the charter of freedom which its framers intended." Id.
The facts of U.S. v. Socony-Vacuum Oil Co., 310 U.S. at 190-91, 60 S.Ct. 811, are on point. In the 1930s, a flood of cheap and illegal "hot oil" led to a precipitous decline in oil and gasoline prices. To stabilize prices, defendant companies bought up surplus gasoline to remove it from the market. At trial, defendants claimed that these measures did not raise prices, but rather maintained a fair market price, because competitive forces were still in effect. Essentially, the challenged conduct arguably eliminated the illegitimate inflating effect introduced by "hot gasoline." The Supreme Court responded,
Moving on, Defendants rightly note that, due to environmental regulations and the nature of the material, Noranda indisputably lacked a viable alternative to selling its acid, other than shutting down smelting operations. But Plaintiffs do not condemn the sale of the acid, merely the unlawful conspiracy that allegedly accompanied those sales. Plaintiffs allege that Noranda could have sold the acid in a legitimate manner, but opted not to. As an example, Plaintiffs point to the Noranda/Delta agreement, claiming that Noranda could have won Delta's largest customer, Georgia Pulp and Paper, by underbidding Delta. However, as explained in Noranda's "Sulfuric Acid 1989 Plan," the competition would have "force[d] an oversupply into a balanced market with predictable price disruption." Pl. Ex. 13 at 14. Noranda allegedly chose the more lucrative and illegal route, colluding with Delta to shut down its plant, take tons out of production, and continue contracts with existing customers with Noranda smelter acid. Plaintiffs further suggest that the Florida fertilizer market was a viable alternative destination for Noranda's smelter acid. See Pl. Ex. 11, 12.
Noranda's argument that they avoided end consumers to prevent antidumping actions, while potentially true, does not avoid antitrust liability. Defendants offer no authority for the position that a company is immune from antitrust actions simply because it engaged in anticompetitive behavior as a means of diminishing the probability of other types of lawsuits. Even if well-intended, Defendants' state of mind is not a determinative factor in the Court's analysis. See Professional Engineers, 435 U.S. at 693, 98 S.Ct. 1355 (finding illegal a rule forbidding competitive bidding within professional organization, apparently made on the good faith belief that competitive bidding would result in deficient engineering work and defective products).
Defendants' general argument that the undisputed facts can be read in their favor does not alter the Court's analysis. It is undisputed that had defendants engaged in arms-length negotiations, the ensuing conduct would not have invoked antitrust liability. Unfortunately for Defendants, a person resolving all factual disputes in Plaintiffs' favor could find that Defendants did not act independently or legitimately. See, supra, Section III.A.1 (summarizing evidence tending to exclude the possibility of independent action).
An "ancillary" restraint "contribute[s] to the success of a cooperative venture that promises greater productivity and output," whereas a "naked" restraint restricts competition without the benefit of a redeeming procompetitive virtue. Polk Bros., Inc. v. Forest City Enters., Inc., 776 F.2d 185, 188-89 (7th Cir.1985). Where an ancillary restraint is per se illegal standing alone, it nevertheless benefits from rule of reason analysis because, in the context of the greater venture, it holds the potential to "increase economic efficiency and render markets more, rather than less, competitive." BMI, 441 U.S. at 20, 99 S.Ct. 1551.
The Seventh Circuit articulates the requisite inquiry in Polk Brothers. It instructs, "[a] court must ask whether an agreement promoted enterprise and productivity at the time it was adopted. If it arguably did, then the court must apply the Rule of Reason to make a more discriminating assessment." Id. By contrast, if an agreement "is formed with the objectively intended purpose or likely effect of increasing price or decreasing marketwide output in the short run," it may be condemned as a naked restraint on competition. 11 H. Hovenkamp, Antitrust Law ¶ 1906a, p. 235 (2d ed.2005). Summary judgment is therefore warranted if the shutdown agreements undisputedly promoted a cooperative venture with plausible prospects for increasing output or creating more desirable products.
Defendants posit that the output reduction agreements, as alleged, necessarily contributed to the success of a larger and lawful cooperative venture. They reiterate that the economic realities of the time were such that voluntary producers had to decide whether to continue producing sulfuric acid in an environment that made it difficult for them to compete. By entering into a distribution relationship with Noranda in lieu of producing all their acid, co-Defendants continued using their existing tangible and intangible distribution assets, rather than idling them. Defendants submit that shutting down production promoted and enabled the success of Defendants' relationship by ensuring Noranda a "home" for its acid. Arguably, consumers stood to benefit from an increased supply of lower cost acid made available through an expanded distributional network.
Defendants' position is problematic in a number of regards. To begin, under established precedent, a restraint is only ancillary if it necessary to achieve otherwise unattainable procompetitive benefits. See BMI, 441 U.S. at 21-22, 99 S.Ct. 1551 (blanket license promised greater productivity at lower costs to consumers, but could not have been rationally administered without price fixing); Polk Bros., 776 F.2d at 189-90 (restrictive covenant between retailers who had constructed and occupied a joint facility was ancillary, because allocating items between them made possible the overall cooperative venture to increase output); Los Angeles Mem'l Coliseum Comm'n v. Nat'l Football League, 726 F.2d 1381, 1395 (9th Cir.1984) ("[S]ome agreements [that] restrain competition may be valid if they are subordinate and collateral to another legitimate transaction and necessary to make that transaction effective.") (quoting R. Bork, The Rule of Reason, at 797-98); 11 H. Hovenkamp, Antitrust Law ¶ 1906d, p. 242 (2d ed.2005) ("[T]he fixing of prices is presumptively a naked restraint unless there is clear evidence of joint productive activity with the potential for increasing output, and the price fixing was essential to facilitating this output increase."); National Bancard Corp. (NaBanco) v. VISA U.S.A., Inc., 779 F.2d 592, 601 (11th Cir.1986) (certain arrangements are ancillary because they are "counterbalanced by otherwise unattainable procompetitive benefits") (citing Arizona v. Maricopa County Medical Soc., 457 U.S. 332, 365, 102 S.Ct. 2466, 73 L.Ed.2d 48 (1982) (Powell, J., dissenting)).
Defendants claim that the alleged shutdown agreements made possible an otherwise unobtainable "new and unique product" in the form of "cheap by-product smelter acid" delivered through the distribution
In any event, Defendants' argument relies on an interpretation of the record in which the shutdowns buttressed some efficiency-enhancing integration among the parties. See BMI, 441 U.S. at 20, 99 S.Ct. 1551. It goes without saying that the facts underlying that assumption—indeed, the very nature of Defendants' agreements—remain hotly disputed. Given the parties' lack of economic integration, see, e.g., Polk Bros., 776 F.2d at 189-90 (joint facility), or the absence of a new and unique product, see, e.g., BMI, 441 U.S. at 21-22, 99 S.Ct. 1551 (blanket license), a factfinder resolving all disputes in Plaintiffs favor could conclude that the alleged shutdown agreements did not support some higher goal, but rather served the naked and objectively intended purpose of reducing output to buoy declining market prices.
Defendants argue that the unique nature of the sulfuric acid industry differentiates it from other price-fixing and output-reduction cases, such that the Court cannot say with confidence that Defendants' restraints "would always or almost always tend to restrict competition and decrease output." BMI, 441 U.S. at 19-20, 99 S.Ct. 1551.
In National Collegiate Athletic Association ("NCAA") v. Board of Regents, the Supreme Court held that the collegiate athletic industry was such that "horizontal restraints on competition are essential if the product is to be available at all." 468 U.S. 85, 101, 104 S.Ct. 2948, 82 L.Ed.2d 70 (1984). Since the products being marketed were contests between competing institutions, an athletic industry could not function if competitors were not permitted to agree on the rules defining that competition. See id. In other words, a certain degree of cooperation is necessary for the survival of the industry. Id. In such industries, restraints that might typically receive per se treatment have to be analyzed under the rule of reason. See id.; American Needle, ___ U.S. ___, 130 S.Ct. 2201, 2216, 176 L.Ed.2d 947 (2010) (applying rationale of NCAA to the National Football League)
Hoping to similarly distinguish this case from the typical per se fact pattern, Defendants point out that "U.S. Courts have yet to consider the competitive effects accompanying the displacement of voluntary acid with essentially costless by-product acid." Noranda Br. at 10.
This is not a case, as Defendants argue, where reluctance to adopt a per se rule should be observed "in the context of business relationships where the economic impact of certain practices is not immediately obvious." Khan, 522 U.S. at 10, 118 S.Ct. 275. That oft-quoted phrase advises courts to be careful when assessing arrangements substantively different from a typical per se illegal restraint, not industries with rare appearances on the antitrust stage. See, e.g., F.T.C. v. Indiana Federation of Dentists, 476 U.S. 447, 458, 106 S.Ct. 2009, 90 L.Ed.2d 445 (1986) (policy of federation of dentists with respect to its members' dealings with third-party insurers constituting a concerted refusal to deal on particular terms with patients covered by group dental insurance, similar but not identical to practices that had been labeled "group boycotts"); Northwest Wholesale Stationers, Inc. v. Pacific Stationery and Printing Co., 472 U.S. 284, 298, 105 S.Ct. 2613, 86 L.Ed.2d 202 (1985) (system in which nonmember retailers can purchase supplies from nonprofit cooperative buying association at the same price as members, resulting in effectively lower prices to members due to annual distribution of profits to members in the form of a percentage rebate). The restraint at issue is not distinguishable from the sort normally considered under the per se rule simply because it occurs in the context of the sulfuric acid industry. Defendants' argument to that effect is unavailing.
Plaintiffs challenge Defendants' zone contracts as an attempt at horizontal market allocation and thus a per se violation of § 1. One of the classic examples of a per se violation is an agreement between competitors to allocate territories in order to minimize competition. See Topco, 405 U.S. at 608, 92 S.Ct. 1126; United States v. Heffernan, 43 F.3d 1144, 1145-46 (7th Cir.1994); Palmer v. BRG of Georgia, Inc., 498 U.S. 46, 49, 111 S.Ct. 401, 112 L.Ed.2d 349 (1990). Such horizontal market allocation agreements can be contrasted against vertical combinations of entities at different levels, such as suppliers and distributors, designed to control the marketing of a certain brand of product. See Topco, 405 U.S. at 608, 92 S.Ct. 1126; GTE Sylvania, 433 U.S. at 57-59, 97 S.Ct. 2549; Business Electronics Corp. v. Sharp Electronics Corp., 485 U.S. 717, 727-28, 108 S.Ct. 1515, 99 L.Ed.2d 808 (1988). In Continental T.V. v. GTE Sylvania, Inc., the Supreme Court considered a challenge to a manufacturer's exclusive territorial and marketing agreements, which limited the number of franchises granted for any given area and required each franchisee to sell manufacturer's products only from the location(s) at which it was franchised. See 433 U.S. at 38, 97 S.Ct. 2549. The Court held that the agreement could not be condemned as per se illegal, observing that the reduction of intrabrand competition through vertical territorial restrictions allowed suppliers to achieve certain efficiencies in the distribution of their products, thereby stimulating
Plaintiffs conflation of the zone contracts with horizontal market allocation agreements falls flat. It is undisputed that the zone contracts were implemented by Noranda, Falconbridge's exclusive sales agent, to reduce intrabrand competition among distributors selling Falconbridge sulfuric acid. See Falconbridge SOF ¶ 65. While Noranda stands as a horizontal competitor with Defendants during illegal agreements to limit industry output, it stands in vertical relationships with them insofar as the sale of its own acid is concerned, whether from Noranda or Falconbridge sources. If the zone contracts had restricted competing producers from selling their own sulfuric acid in certain territorial locations, that would undoubtedly be a per se violation. But the zoning policy had no power over how producers handled their own acid; they only divided the U.S. into territories in which a limited number of prequalified resellers were permitted to bid for Falconbridge acid sales contracts. See Falconbridge SOF ¶ 60. Even then, the zone contracts did not prevent the resellers from marketing Falconbridge sulfuric acid in any geographic location that the reseller wished. See Falconbridge SOF ¶ 66.
The zoning policy was essentially a non-restrictive system relied upon by Noranda Sales to geographically diversify buyers of Falconbridge acid.
Joint ventures are typically judged under the rule of reason because they require extensive cooperation by nature and "hold the promise of increasing a firm's efficiency and enabling it to compete more effectively." Copperweld, 467 U.S. at 768, 104 S.Ct. 2731; Polk Bros., 776 F.2d at 188. Restraints imposed by a joint venture may nevertheless come under the per se rule in two situations. In the first, a joint venture may receive per se treatment if it amounts to a sham lacking any reasonable prospect of efficiency-enhancing benefit to society. See Topco, 405 U.S. at 608-09, 92 S.Ct. 1126 (holding that district court erred in applying rule of reason to a joint venture's market division agreement for developing, producing, and selling a common brand); United States v. Sealy, Inc., 388 U.S. 350, 353, 87 S.Ct. 1847, 18 L.Ed.2d 1238 (1967) (in finding that challenged enterprise was not a "separate entity, but . . . an instrumentality of the individual manufacturers" subject to per se treatment, the Court was moved by "identity of the persons who act, rather than the label of their hats"); Timken Roller Bearing Co. v. U.S., 341 U.S. 593, 595, 598, 71 S.Ct. 971, 95 L.Ed. 1199 (1951) (failing to "find any support in reason or authority for the proposition that agreements between legally separate persons and companies to suppress competition among themselves and others can be justified by labeling the project a `joint venture.' Perhaps every agreement and combination to restrain trade could be so labeled."), overruled on other grounds by Copperweld, 467 U.S. at 764-65, 104 S.Ct. 2731 (ending application of intra-enterprise doctrine in antitrust lawsuits, but noting that Timken court's reliance on the doctrine was not necessary to the result).
The per se rule thus remains available to Plaintiffs if: (1) the record permits a reasonable juror to conclude that the joint venture was merely a sham label attached to per se illegal conduct, or (2) the challenged practice is collateral to the "core activity" of the joint venture and a naked restraint on competition. Plaintiffs allege that, under the guise of a sham joint venture, Noranda, Falconbridge, and DuPont conspired to set common prices and reduce output as means of balancing supply and demand in the sulfuric acid market. They further compare DuPont's output reductions to naked restraints. Defendants counter that Noranda and Falconbridge entered into the direct sales joint venture with DuPont to eliminate Noranda's need to sell through multiple intermediaries and achieve numerous market efficiencies, including the opportunity to generate savings on freight costs that could be passed on to consumers, and offering a more dependable supply of sulfuric acid to an expanded network of end users. Defendants assert that controlling the output of the joint venturers was ancillary to the achievement of these efficiencies.
Defendants argue that Texaco v. Dagher controls this case. In Dagher, two oil companies formed a production and marketing joint venture under the name of Equilon Enterprises. The Supreme Court held that Equilon's decision to sell separately-branded gasoline at the same price was not per se illegal price fixing because the constituent oil companies were, for antitrust purposes, no longer horizontal competitors. The Court reasoned, "[w]hen persons who would otherwise be competitors pool their capital and share the risks of loss as well as the opportunities for profit . . . such joint ventures [are] regarded as a single firm competing with other sellers in the market." Id. at 6 (internal quotation marks and citation omitted). In reaching its conclusion, the Dagher Court "presume[d] for purposes of these cases that Equilon is a lawful joint venture. Its formation has been approved by federal and state regulators, and there is no contention here that it is a sham." Id. at 6 n. 1, 126 S.Ct. 1276.
The indicia of legitimacy and integration so compelling in Dagher are not to be found in the instant case.
Certainly, Plaintiffs' chances of prevailing on their "sham" claim diminish with the accumulation of evidence pointing to real integration between the joint venturers. See Maricopa, 457 U.S. at 356, 102 S.Ct. 2466 (applying per se rule to consortium of competing doctors because the collaboration was "not analogous to . . . joint arrangements in which persons who would otherwise be competitors pool their capital and share the risks of loss as well as the opportunities for profit."); Topco, 405 U.S., at 609, 92 S.Ct. 1126 (applying per se rule to joint venture because "[e]ach of the member chains operates independently; there is no pooling of earnings, profits, capital, management, or advertising resources. . . . The association does not itself own any manufacturing, processing, or warehousing facilities . . . ."); Dagher, 547 U.S. at 7, 126 S.Ct. 1276 ("The significant integration of assets itself suggests that Defendants intended Equilon and Motiva to function as true joint ventures, rather than covers for price fixing."). But while evidence that assets or personnel have been contributed to a jointly-owned entity goes far to support a claim of genuine integration, it does not necessarily settle the issue. In Citizen Publishing Company v. United States, 394 U.S. 131, 134, 89 S.Ct. 927, 22 L.Ed.2d 148 (1969), Arizona's only two daily newspapers had pooled distribution and production operations into a jointly-owned entity, through which they collectively set subscription and advertising prices and divvied up profits. Id. at 133-134, 89 S.Ct. 927. Despite the fact that the combination of the "circulation, advertising, and production departments has resulted in substantial cost savings," the joint venture was found liable for per se violations of § 1, including price fixing, horizontal market allocation, and profit pooling at an inflexible ratio. Id. at 135-36, 89 S.Ct. 927.
Prior to the formation of the Joint Venture, the record indicates that Noranda pressured DuPont to curtail its virgin acid production, and that DuPont may have complied. In a 1996 communication to Noranda's Vice President regarding resale contract negotiations, DuPont's Product Manager warned, "[w]e believe that [Noranda's] pricing at these levels encourages suppliers with sulfur burners to increase production . . . . We can burn sulfur and deliver acid . . . at significantly lower prices than you are asking us to pay. In other words, the proposed pricing encourages us to burn sulfur while Noranda has been steadily inquiring about ways to encourage us NOT to burn sulfur at our plants. We both know this is not in the long term best interest of both parties." Pl. Ex. 82. This sentiment arguably builds on a history of prior collusion. See Pl. Ex. 28 at 2 (Noranda memo) (referencing "our confidential discussions with DuPont relative to the eventual . . . closing of the Grasselli sulphur burner and hence the elimination of this 200,000 mt of acid production from the market."); Pl. Ex. 14 at 2, 8 (Noranda report) ("Successful negotiations with . . . DuPont . . . have demonstrated the feasibility of replacing sulphur burned acid with smelted acid") ("[Du Pont h]as expressed a much stronger interest in scaling down production at [the Grasselli] facility by as much as 50-100,000 STPY."); Pl. Ex. 27 at 1 (Noranda memo) ("Grasselli Terms: DuPont shall permanently cease production of acid and oleum at Grasselli prior to commencement of shipments by Noranda.").
Such evidence tends to exclude the possibility that Noranda and DuPont consistently acted in an independent and legitimate manner. See Matsushita, 475 U.S. at 588, 106 S.Ct. 1348. Plaintiffs essentially argue that the Joint Venture was an
The Joint Venture's chief financial officer stated that the "primary goal" of the joint venture was "to make sure we never shut a smelter down." Pl. Ex. 89, Kopko Dep. 139:21-140:7. In early 1999, the Joint Venture suffered a short-term inventory bubble due to an oversupply of acid in the marketplace, among other factors. Norfalco SOF ¶ 72. To avoid smelter shutdowns at Noranda, DuPont scaled back production and burned sulfur at minimum levels for two months. Pl. Ex. 119. at 2 (DuPont email); Pl. Ex. 120 at 2 (DuPont email); Pl. Ex. 121 at ND94778 (Noranda DuPont presentation); Pl. Ex. 122 at 2 (Noranda DuPont fax); Pl. Ex. 123 at ND118186 (Noranda DuPont presentation).
Finally, the Court is unable to conclusively determine the level at which Noranda, DuPont, and Falconbridge integrated under the Joint Venture. To Defendants' credit, Plaintiffs' fixation on the Joint Venture's lack of manufacturing assets is largely misdirected. While "there were no capitalizable assets on the books of the joint venture ... there was accounts receivable, inventory, and assigned leases.' (Pl. Ex. 104, Hamma Dep. 152:17-153:11.) Noranda and DuPont further contributed cash and seconded personnel to the Joint Venture. Norfalco SOF ¶ 29, 38, 43-45.
In the end, dispute over the central nature and purpose of the Noranda DuPont Joint Venture clouds inquiry into whether, at the time of its inception, it plausibly enhanced competition and efficiency in the sulfuric acid market. Certainly, the market efficiencies praised by Defendants might arise if the Joint Venture was as legitimate and integrated as claimed. Moreover, as Defendants also argue, it may well be that Plaintiffs have vastly overstated the evidence, which is comprised primarily of emails, notes, and slideshow presentations. But the weight of the evidence is for a juror, not the Court, to decide. When viewing the record in the light most favorable to Plaintiffs, a reasonable juror might conclude that, underneath the elaborate trappings of a joint venture, Noranda and DuPont maintained a relatively unintegrated sales relationship that enabled them to limit market output whenever supply threatened to overshadow demand. The joint activity described in the latter scenario has no prospects for procompetitive effects and would therefore remain vulnerable to per se condemnation.
Defending the Joint Venture's actions as ancillary to a legitimate business purpose does not produce a different result. In Dagher, the Supreme Court expressly forbade the application of the ancillary restraints doctrine to the pricing of goods sold by a joint venture, because price setting was a function of that joint venture's "core activity." See Dagher, 547 U.S. at 7, 126 S.Ct. 1276. Similarly, the pricing of Noranda DuPont's jointly distributed sulfuric acid is a function of its purported core activity. It bears noting, however, that Noranda DuPont was only responsible for transporting and selling sulfuric acid, not producing it. Thus, restricting the output of contributing companies arguably lies outside the "core activity" of the Joint Venture. Yet, whether DuPont's output reductions were necessary to support a legitimate, productivity-enhancing venture is precisely what is at issue here. The Court cannot embark on ancillary restraints analysis without first making a fact determination as to the nature of Defendants' greater collaborative activity.
In light of the lack of clarity on this issue, this Court cannot find that the Joint Venture was so clearly of a legitimate nature as to negate evidence justifying per se treatment, or make all anticompetitive
Defendants Falconbridge, Noranda, and Boliden argue that they are incapable of conspiring with each other in violation of § 1 because they essentially form a single entity. The Sherman Act makes a "basic distinction between concerted and independent action." Copperweld, 467 U.S. at 767, 104 S.Ct. 2731. While Section 1 can only be violated by concerted action undertaken by horizontal competitors, the anticompetitive decisions of single firms are governed by § 2 of the Sherman Act. Id. at 767, 104 S.Ct. 2731.
In Copperweld Corporation v. Independence Tube Corporation, the Supreme Court held that the coordinated activity of a parent and its wholly owned subsidiary must be viewed as that of a "single enterprise" for purposes of section 1 of the Sherman Act. The Court based its holding on the rationale that "a parent and its wholly owned subsidiary have a complete unity of interest.... [T]heir general corporate actions are guided or determined not by two separate corporate consciousnesses, but one." 467 U.S. at 753, 104 S.Ct. 2731. In contrast, in American Needle, Inc. v. National Football League ("NFL"), the Supreme Court held that neither the NFL, nor a corporation established by the NFL to exclusively license the teams' trademarks, were "single entities" for antitrust purposes. The Court explained:
The NFL was not considered a "single entity" because the league's independently-operating teams retained competitive interests and did not resemble components of a single firm seeking to maximize the firm's profits. Id. In other words, if an agreement joins together "independent centers of decisionmaking," it qualifies as concerted action under the purview of § 1. See id. at 2212 (quoting Copperweld, 467 U.S. at 769, 104 S.Ct. 2731).
It is undisputed that Trelleborg owned 100% of Boliden Intertrade. From 1989 until June 1994, Trelleborg also owned 50% of Falconbridge, while Noranda owned the other half. In 1994, Trelleborg sold a large percentage of its Falconbridge
All parties agree that, under Copperweld, any agreements between Trelleborg and its wholly owned subsidiary, Boliden, cannot be considered concerted action in violation of § 1 of the Sherman Act. However, Copperweld's guidance ends there. See Copperweld, 467 U.S. at 767, 104 S.Ct. 2731 (limiting inquiry to "whether a parent and its wholly owned subsidiary are capable of conspiring in violation of § 1 of the Sherman Act"). Copperweld has no bearing on agreements between wholly owned subsidiaries (e.g. Boliden) and a company of which its parent is a joint owner (e.g. Falconbridge), or agreements between a joint or majority corporate owner (e.g. Noranda) and its subsidiary (e.g. Falconbridge). Surprisingly, Defendants only devote two sentences and an inapposite citation to the dispositive issue of whether per se treatment remains available in cases involving coordinated action between joint or majority corporate shareholders, partially-owned subsidiaries, and sister subsidiaries who are not wholly owned. See Falconbridge Br. at 14 (citing U.S. v. Citizens & S. Nat'l Bank, 422 U.S. 86, 95 S.Ct. 2099, 45 L.Ed.2d 41 (1975) (holding that a national bank's agreements with banks in which it held 5% stock did not violate the Sherman Act because the 5% banks fell within the terms of the grandfather provision in the Bank Holding Company Act)). Plaintiffs do not address the matter at all. The Court therefore undertakes this analysis on its own initiative.
Although the Supreme Court has not addressed the aforementioned issue, lower courts have found that similarly related entities can conspire with each other. See, e.g., Sonitrol of Fresno, Inc. v. AT & T, 1986 WL 953 (D.D.C. April 30, 1986) (holding that AT & T can conspire with corporations in which it holds a 32.6% and 23.9% interest and exerts de facto control). The reasoning behind Copperweld, elaborated on by American Needle, supports that conclusion. Under American Needle, the formal or legal assignation of parties to an agreement is not determinative of the "single entity" question. 130 S.Ct. at 2212. So long as a conspiracy joins together "separate economic actors pursuing separate economic interests," it constitutes concerted action covered by § 1 of the Sherman Act. Id. (quoting Copperweld, 467 U.S. at 768, 104 S.Ct. 2731). Defendants point to the shares of Falconbridge under Noranda control, the presence of Noranda members on the Falconbridge Board of Directors, the consolidation of both company's financial statements, and the eventual integration of business units, to argue that Noranda and Falconbridge form essentially the same "corporate consciousness." Defendants thus depict the relationship between Noranda and Falconbridge as comparable to that of a parent company and its wholly owned subsidiary.
The degree to which Noranda exerted de facto control over Falconbridge is disputed, however. Plaintiffs present evidence contradicting the perception of a "complete unity of interest" between Noranda and Falconbridge. Copperweld, 467 U.S. at 753, 104 S.Ct. 2731; see, e.g., Pl. Ex. 110 (Noranda memo) ("Falconbridge has indicated its desire on several occasions to forego synergies with Noranda and to pursue its own interests even at the
Noranda and Falconbridge further argue that they cannot conspire to engage in concerted action under § 1 because they share an agency relationship. In April 1991, Falconbridge appointed Noranda as its sole sales agent responsible for the sales, marketing and distribution of its sulfuric acid. Noranda handled the sales and marketing of Falconbridge's sulfuric acid until the agency relationship for the sale of acid in the United States terminated in 1998 with the formation of the Noranda DuPont Joint Venture.
Defendants inaccurately cite Day v. Taylor, 400 F.3d 1272 (2005) for the broad proposition that companies in an agency relationship cannot conspire to commit violations of § 1 of the Sherman Act. Day merely teaches that "`genuine contracts of agency' do not constitute resale price maintenance because the `owner of an article' is permitted to `fix [] the price by which his agents transfer the title from him directly to the consumer.'" 400 F.3d at 1276 (quoting United States v. General Electric Co., 272 U.S. 476, 488, 47 S.Ct. 192, 71 L.Ed. 362 (1926)). Day would be relevant if Plaintiffs had challenged Noranda's pricing of Falconbridge's acid as a violation of the Sherman Act in and of itself. However, Plaintiffs do not question Noranda and Falconbridge's agency relationship
According to Plaintiffs' allegations, Noranda's role as sales agent merely streamlined the process by which the two Canadian companies delivered smelter acid to co-conspirators. In that case, the agency relationship does not insulate Noranda and Falconbridge from liability under the Sherman Act. In any event, Falconbridge may still be liable for per se violations of the Sherman Act if its agent Noranda acted with actual or apparent authority to commit the illegal acts at issue. See American Soc. of Mechanical Engineers, Inc., v. Hydrolevel Corp., 456 U.S. 556, 565, 102 S.Ct. 1935, 72 L.Ed.2d 330 (1982). Falconbridge is also charged with the alleged collusive activity underlying the Noranda DuPont Joint Venture, which occurred after the termination of the agency relationship. See Falconbridge SOF ¶ 38.
The Court finally addresses Defendants' contention that Boliden, Noranda, and Falconbridge should collectively enjoy "single entity" status because Falconbridge was purportedly a joint venture between the two others. As an initial matter, the Court rejects the suggestion that Falconbridge was a joint venture between Boliden and Noranda. More accurately, Falconbridge was a joint venture between Trelleborg and Noranda. The fact that a wholly owned subsidiary and its parent company are considered a single entity for purposes of § 1 liability does not mean that the two are interchangeable in all regards. At any rate, Defendants cite no authority for the proposition that two companies engaging in a joint venture cannot violate antitrust laws by entering in an anticompetitive conspiracy separate and apart from that joint venture.
Defendants' argument that Noranda and Boliden must be considered a single entity in all aspects simply because Falconbridge is unified draws language from case law wherein joint ventures or their actions are themselves challenged as infringements of the Sherman Act. See, e.g., Dagher, 547 U.S. at 3, 126 S.Ct. 1276; Chicago Professional Sports Ltd. Partnership v. National Basketball Assoc., 95 F.3d 593, 595 (7th Cir.1996). Such precedent is inapposite to the case at hand. Plaintiffs do not challenge the legitimacy of Falconbridge as they do the Noranda DuPont Joint Venture. They readily concede that Falconbridge's decisions amount to the unilateral decisions of a single entity. They simply accuse that single entity of conspiring with other firms in violation of the Sherman Act. Even if the Court were to treat Falconbridge as a joint venture, the per se rule could still apply to its actions; Falconbridge's alleged efforts to limit industry output, for which sufficient evidence exists to persuade a factfinder, could constitute a naked, collateral, and thereby per se illegal
At this point, Plaintiffs have raised enough issues of contested material fact to preclude both summary judgment on the merits and determination of the appropriate legal standard for this case. Plaintiffs claim that Defendants were in a competitive situation, were confronted by a jarring change to the market, and coordinated their production and distribution to stabilize that market. There is, of course, a lack of clarity as to whether Defendants in fact acted as Plaintiffs allege, but there is complete clarity that, if they did, it would amount to a per se violation of the Sherman Act and carry with it anticompetitive effects.
Defendant GAC stands apart from co-Defendants due to a lack of evidence tending to exclude the possibility of independent action on its part. Plaintiffs' horizontal market allocation claims based on Defendants' zone contracts are likewise unavailing, as vertical nonprice restraints are properly judged under the rule of reason. Having eschewed rule of reason analysis, Plaintiffs have failed to raise a triable issue of fact as to Defendants' liability under the per se doctrine for the anticompetitive nature of the zone contracts.
For the foregoing reasons, the Court GRANTS Defendant GAC's motion for summary judgment. The Court DENIES the motions submitted by Defendants Noranda, Boliden, PVS, Norfalco, and Koch. Defendant Falconbridge's motion is DENIED in part. Falconbridge's request for summary judgment on the issue of Defendants' zone contracts is GRANTED.