SARAH S. VANCE, District Judge.
Before the Court are defendants'
This is an antitrust case that direct-purchaser plaintiffs (DPPs) and indirect-purchaser plaintiffs (IPPs) filed against PoolCorp and the Manufacturer Defendants. PoolCorp is the country's largest distributor of Pool Products. The Manufacturer Defendants are Hayward Industries, Inc., Pentair Water Pool and Spa, Inc., and Zodiac Pool Systems, Inc., which plaintiffs allege are the three largest manufacturers of Pool Products in the U.S. As defined in DPPs' complaint, Pool Products are the equipment, products, parts and materials used for the construction, renovation, maintenance, repair, and service of residential and commercial swimming pools. Pool Products include pumps, filters, covers, drains, fittings, rails, diving boards, and chemicals, among other goods. Pool buys Pool Products from manufacturers, including the three Manufacturer Defendants. DPPs are pool builders, pool retail stores, and pool service and repair companies (collectively "Pool Dealers") that buy Pool Products from distributors and sell them to owners of residential and commercial pools. On November 21, 2011, the Federal Trade Commission (FTC) announced that it had conducted an investigation into unfair methods of competition by Pool and had entered a consent decree with Pool resolving the matter. Shortly after the FTC's announcement, the plaintiffs in this case filed the suits against Pool that have been consolidated for pretrial purposes in this court. Plaintiffs later added claims against the Manufacturer Defendants.
Plaintiffs allege that Pool monopolized and attempted to monopolize the Pool Products distribution market in the U.S. in violation of Section 2 of the Sherman Act by acquiring rival distributors and by entering into agreements with manufacturers to exclude Pool's rivals. Plaintiffs also allege that PoolCorp and the Manufacturer Defendants violated Section 1 of the Sherman Act by engaging in an unlawful conspiracy to exclude Pool's competitors. Plaintiffs allege that PoolCorp entered agreements with Manufacturer Defendants that prevented them from selling to new and existing PoolCorp rivals, with the purpose of raising their rivals' costs, preventing them from competing with Pool, and increasing prices for Pool Products. Plaintiffs claim to have suffered damages from defendants' conduct in the form of overcharges they paid as a result of defendants' conduct. They assert claims on behalf of a class of direct purchasers, defined as "[a]ll persons or entities that purchased Pool Products in the United States directly from PoolCorp ... at anytime between August 1, 2002 and the present."
Plaintiffs allege that Pool pursued a deliberate strategy to restrain trade and monopolize through the acquisition of competitors and through the foreclosure of actual and potential competition by conditioning access to its distribution network on promises by manufacturers not to supply Pool's rivals. They allege that PoolCorp is the world's largest Pool Products distributor with roughly $1.8 billion in net sales revenue in 2011 and the only Pool Products distributor that operates nationwide.
Plaintiffs generally allege that the Manufacturer Defendants, the only full-line Pool Products vendors, agreed with Pool Defendants to eliminate existing distribution competitors and prevent new entrants from obtaining the products necessary to compete. Plaintiffs allege that the Manufacturer Defendants collectively represent more than 50 percent of sales of Pool Products at the wholesale distribution level and that as the only Manufacturers carrying a full line of pool products, they are "must have" inputs for wholesale distributors.
Plaintiffs allege that Pool eliminated competition by acquiring rivals. Specifically, the complaint describes 13 instances from 1995 to 2009 when Pool purchased all or some of the assets of existing Pool Products distributors or suppliers in the U.S.
Plaintiffs also allege that Pool entered into exclusionary agreements with manufacturers. Pool allegedly "often represent[s] 30 to 50 percent of a manufacturer's total sales."
Plaintiffs allege that Pool tended to target new entrants into the Pool Products distribution industry because new entrants "represented a unique threat to PoolCorp because they were more likely to compete aggressively on price to earn new business."
Plaintiff's also specifically allege that, in the mid-2000s, Mareva, a manufacturer of specialty chemicals in Florida, entered into an agreement to sell exclusively to Pool-Corp and not to any other Pool Products distributor.
The complaint alleges that Pool's agreements with preferred vendors generally included a most favored nation (MFN) clause, by which the supplier agreed to give PoolCorp prices and terms that were at least as favorable as any provided to other purchasers with the same or similar volume levels as those of PoolCorp.
Finally, plaintiffs allege that the conduct of Pool and the Manufacturer Defendants "substantially impaired and foreclosed competition from PoolCorp's rivals in the relevant market, ... raised barriers to entry for potential rivals," "enabled Pool-Corp to establish and maintain artificially high, supra-competitive prices," and reduced product output and choice.
To survive a Rule 12(b)(6) motion to dismiss, the plaintiff must plead "enough facts to state a claim to relief that is plausible on its face." Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 1960, 173 L.Ed.2d 868 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 547, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). A claim is facially plausible when the plaintiff pleads facts that allow the court to "draw the reasonable inference that the defendant is liable for the misconduct alleged." Iqbal, 129 S.Ct. at 1940. A court must accept all well-pleaded facts as true and must draw all reasonable inferences in favor of the plaintiff. Lormand v. U.S. Unwired,
A legally sufficient complaint must establish more than a "sheer possibility" that the plaintiff's claim is true. Id. It need not contain detailed factual allegations, but it must go beyond labels, legal conclusions, or formulaic recitations of the elements of a cause of action. Twombly, 550 U.S. at 555, 127 S.Ct. 1955. In other words, the face of the complaint must contain enough factual matter to raise a reasonable expectation that discovery will reveal evidence of each element of the plaintiff's claim. Lormand, 565 F.3d at 256. If there are insufficient factual allegations to raise a right to relief above the speculative level, Twombly, 550 U.S. at 555, 127 S.Ct. 1955, or if it is apparent from the face of the complaint that there is an insuperable bar to relief, Jones v. Bock, 549 U.S. 199, 215, 127 S.Ct. 910, 166 L.Ed.2d 798 (2007); Carbe v. Lappin, 492 F.3d 325, 328 n. 9 (5th Cir.2007), the claim must be dismissed.
Section 2 of the Sherman Act forbids monopolization and attempts to monopolize. 15 U.S.C. § 2. The offense of monopolization requires both the possession of monopoly power in a relevant market and "the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident." United States v. Grinnell Corp., 384 U.S. 563, 570-71, 86 S.Ct. 1698, 16 L.Ed.2d 778 (1966). As the United States Supreme Court made clear in Verizon Commc'ns, Inc. v. Law Offices of Curtis v. Trinko, LLP, 540 U.S. 398, 124 S.Ct. 872, 157 L.Ed.2d 823 (2004), "the possession of monopoly power will not be found unlawful unless it is accompanied by an element of anticompetitive conduct." 540 U.S. at 407, 124 S.Ct. 872 (emphasis in the original).
Plaintiffs' claim of monopolization under Section 2 of the Sherman Act requires allegations of a relevant market. Spectrum Sports v. McQuillan, 506 U.S. 447, 458, 113 S.Ct. 884, 122 L.Ed.2d 247 (1993). Without a definition of a relevant market, there is no way to measure a defendant's ability to lessen or destroy competition. Walker Process Equip. v. Food Mach. & Chem. Corp., 382 U.S. 172, 177, 86 S.Ct. 347, 15 L.Ed.2d 247 (1965); Republic Tobacco Co. v. N. Atl. Trading Co., 381 F.3d 717, 737 (7th Cir.2004) (rejecting "direct evidence of anticompetitive effects" as substitute for market definition; plaintiff must provide "at least a rough definition of a product and geographic market").
A relevant market has both product and geographic dimensions. Brown Shoe Co. v. United States, 370 U.S. 294, 324, 82 S.Ct. 1502, 8 L.Ed.2d 510 (1962); Surgical Care Ctr. of Hammond, L.C. v. Hosp. Service Dist. No. 1 of Tangipahoa Parish, 309 F.3d 836, 839-40 (5th Cir.2002) (affirming dismissal for failure to provide evidence sufficient to demonstrate relevant geographic market). Plaintiffs must plead facts sufficient to support this element to survive a motion to dismiss. TV Commc'ns Network, Inc. v. Turner Network Television, Inc., 964 F.2d 1022, 1025 (10th Cir.1992); see Spanish Broad. Sys. of Fla., Inc. v. Clear Channel Commc'ns, Inc., 376 F.3d 1065, 1077-78 (11th Cir. 2004) (plaintiffs must allege facts in support
The relevant product market must include all products, the use of which is reasonably interchangeable. See R.D. Imports Ryno Indus. v. Mazda Distribs., 807 F.2d 1222, 1225 (5th Cir. 1987), cert. denied, 484 U.S. 818, 108 S.Ct. 75, 98 L.Ed.2d 38 (1987) ("The antitrust plaintiff is required to define the relevant product market in terms of goods that are "reasonably interchangeable" with the goods at issue."). Products that consumers view as substitutes for other products can be said to be in competition with each other. Id. at 1225. Whether one product is reasonably interchangeable for another depends both on the ease and speed with which customers can substitute it and the desirability of doing so, and on the cross-elasticity of suppliers' production facilities. See F.T.C. v. Whole Foods Mkt., Inc., 548 F.3d 1028, 1037 (D.C.Cir.2008); Brown Shoe, 370 U.S. at 325 n. 42, 82 S.Ct. 1502. The boundaries of a product market are determined by eliminating from the market all products that are not reasonably interchangeable substitutes for the product manufactured or sold by the defendants. United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 394-404, 76 S.Ct. 994. 100 L.Ed. 1234 (1956). A broad market may also contain relevant submarkets which themselves "constitute product markets for antitrust purposes." Brown Shoe, 370 U.S. at 325, 82 S.Ct. 1502, 8 L.Ed.2d 510. "The boundaries of such a submarket may be determined by examining such practical indicia as industry or public recognition of the submarket as a separate economic entity, the product's peculiar characteristics and uses, unique production facilities, distinct customers, distinct prices, sensitivity to price changes, and specialized vendors." Id.
The relevant geographic market is the "area of effective competition ... in which the seller operated, and to which the purchaser can practically turn for supplies." United States v. Philadelphia Nat'l Bank, 374 U.S. 321, 359, 83 S.Ct. 1715, 10 L.Ed.2d 915 (1963) (quoting Tampa Elec. v. Nashville Coal Co., 365 U.S. 320, 327, 81 S.Ct. 623, 5 L.Ed.2d 580 (1961)). As with the relevant product market, courts analyze the relevant geographic market with reference to the cross-elasticity of demand. See, e.g., Heerwagen v. Clear Channel Commc'ns, 435 F.3d 219, 227-34 (2d Cir. 2006). For example, if an increase in price in one region leads suppliers in another region to increase supply, the two regions are likely in the same relevant geographic market. Id. Because it is difficult to measure elasticity directly, courts look at several related indicators in determining whether a particular geographic area can be characterized as a relevant geographic market. As the Supreme Court explained in Brown Shoe:
370 U.S. at 336-37, 82 S.Ct. 1502 (citations and quotations omitted).
The definition of the relevant market is ordinarily a fact question left to the jury. Bell v. Dow Chemical Co., 847 F.2d 1179, 1184 (5th Cir.1988). However, the Fifth Circuit has made clear that a plaintiff's failure to allege a relevant market properly is grounds for dismissal of an antitrust claim for which market definition is required. PSKS, Inc. v. Leegin Creative Leather Products, Inc., 615 F.3d 412, 418 (5th Cir.2010).
Id. (quoting Apani Sw., Inc. v. Coca-Cola Enter., Inc., 300 F.3d 620, 628 (5th Cir. 2002)). Nevertheless, dismissal of an antitrust claim at the motion to dismiss stage for failure to plead the relevant market adequately should not be done lightly because market definition is a fact-intensive inquiry. See E.I. du Pont de Nemours & Co. v. Kolon Indus., Inc., 637 F.3d 435, 443 (4th Cir.2011) ("Because market definition is a deeply fact-intensive inquiry, courts hesitate to grant motions to dismiss for failure to plead a relevant product market").
The Second Circuit identified two types of cases in which courts find dismissal at the pleading state appropriate for insufficient market definition:
Todd v. Exxon Corp., 275 F.3d 191, 199-200 (2d Cir.2001) (citations omitted).
Pool Defendants first contend that the DPPs have failed to define a plausible product market. Specifically, defendants challenge the complaint's definition of Pool Products as a relevant product market because of the number and diversity of products it includes.
Plaintiffs allege that "Pool Products are designed and manufactured specifically for residential and commercial swimming pools," and that "there are no close substitutes for Pool Products" that would significantly constrain their pricing.
Pool Defendants also argue that by limiting the market definition to Pool Products sold by distributors, plaintiffs have alleged a product market that is too narrow. They argue that Pool faces competition for Pool Product sales, not only from other distributors, "but also from mass-market retailers (e.g. Wal-Mart, Home Depot and Lowe's)," large pool supply retailers with internal distribution networks, buying groups, grocery stores, hardware stores, and online retailers.
Significantly, plaintiffs allege that market participants view the wholesaling of Pool Products as a distinct channel of distribution. The complaint alleges that Pool Product manufacturers consider wholesale distributors such as PoolCorp to be a "unique and essential channel for the efficient distribution of their products," because it would be expensive for manufacturers to directly access Pool Dealers and other customers.
Again, Staples is instructive. There, the FTC defined the relevant market as "the sale of consumable office supplies through office superstores, with `consumable' meaning products that customers buy recurrently, i.e. items which get used up or discarded." Staples, 970 F.Supp. at 1073. The defendants in Staples argued that the alleged product market was contrived, and the appropriate market was the overall sale of office products. Id. The court found that although the products were the same whether they were sold through superstores or other types of retailers, products sold by office superstores nonetheless made up the relevant market. Id. at 1074-76. The court relied on evidence that "office superstore prices [were] affected primarily by other office superstores and not by non-superstore competitors." Id. at 1076-77. The Court also cited differences between office superstores and other outlets, as well as special characteristics of office superstores' customers. Id. at 1078-80.
Here the plaintiffs similarly allege facts that suffice to make it plausible that sales of pool products by distributors are distinct from sales of Pool Products through other means in economically significant ways. Plaintiffs allege that Pool Dealers — the direct purchasers of Pool Products from distributors — favor distributors because of the diversity of offerings and fast delivery that distributors provide and the willingness of distributors to extend credit. The more manufacturers' lines carried by a distributor, the better able the distributor is to satisfy dealer demands.
The Fifth Circuit's decision in Leegin, 615 F.3d at 418, does not require the Court to find plaintiff's proposed product market implausible. In Leegin, the court rejected a proposed market definition of the "wholesale sale of brand-name women's accessories to independent retailers." Id. The court said that "`wholesale sale' does not adequately define the relevant market, because the relevant market definition must focus on the product rather than the distribution level." Id. The Court found "women's accessories" too broad and vague a relevant product market and that PSKS failed to allege why brand-name goods were not interchangeable with non-brand-name products. Id. Unlike PSKS,
Defendants next challenge DPPs allegations of a relevant geographic market. Plaintiffs allege that the relevant geographic market is the United States. For the following reasons, the Court finds that plaintiffs have alleged sufficient commercial facts to make a national market for Pool Products plausible.
Plaintiffs allege that Pool Products are homogenous, such that there is no significant difference in the distribution of Pool Products across the country.
In Grinnell, the Supreme Court found a national market for central station home and commercial alarm and watch services even though the activities of individual stations were local, ordinarily servicing an area within a radius of 25 miles. 384 U.S. at 575, 86 S.Ct. 1698. In finding a national market, the Supreme Court relied on its conclusions that the central station business was operated on a national level with national planning, commercial agreements spanning many states, coverage by national insurers, and a national pricing system that could be varied to meet local conditions. Id. Taking plaintiffs' factual allegations as true, as in Grinnell, Pool operates individual service centers in particular local markets, "but the broader national market ... reflects the reality of the way in which [it] built and conduct[ed] [its] business." Id. at 576, 86 S.Ct. 1698; see also Republic Tobacco v. N. Atl. Trading, 381 F.3d 717 (7th Cir.2004) (finding national market for roll-your-own cigarette paper supply because suppliers sold to national wholesalers and published national price lists); Nat'l Athletic Trainers' Ass'n, Inc. v. Am. Physical Therapy Ass'n, CIV A 3:08-CV-0158-G, 2008 WL 4146022 at *12 (N.D.Tex. Sept. 9, 2008) (the nationwide relevant geographic market for physical therapy was sufficiently alleged because "the alleged anticompetitive conduct takes place on a national scale, and, to the extent it can be proven, stands to affect [athletic trainers] across the country"). Defendants have not shown that plaintiffs' allegations
Although DPPs' complaint contains allegations of a relevant market, plaintiffs' claim of monopolization under Section 2 of the Sherman Act fails because plaintiffs have not plausibly alleged that Pool possesses monopoly power in the relevant market. Plaintiffs must plead facts sufficient to support this element to survive a motion to dismiss. Spanish Broad. Sys., 376 F.3d at 1077-78.
A nonconclusory allegation that a defendant holds a predominant share of the relevant market will usually satisfy the monopoly power element of a monopolization claim. Grinnell, 384 U.S. at 571, 86 S.Ct. 1698; U.S. Anchor Mfg. Inc. v. Rule Indus., Inc., 7 F.3d 986, 999 (11th Cir. 1993) (principal measure of monopoly power is market share). The precise market share a defendant must control before it has monopoly power remains undefined, but, the case law supports the conclusion that a market share of more than 70 percent is generally sufficient to support an inference of monopoly power. See, e.g., Eastman Kodak Co. v. Image Technical Serv., Inc., 504 U.S. 451, 481, 112 S.Ct. 2072, 119 L.Ed.2d 265 (1992) (factfinder can infer monopoly power from an 80 percent market share); Morgenstern v. Wilson, 29 F.3d 1291, 1296 n. 3 (8th Cir.1994) (share of more than 80 percent sufficient); Heatransfer Corp. v. Volkswagenwerk, A.G., 553 F.2d 964, 981 (5th Cir.1977) (71-76 percent share sufficient); Int'l Audiotext Network v. Am. Tel. & Tel. Co., 893 F.Supp. 1207, 1217-18 (S.D.N.Y.1994) (70 percent market share generally adequate at the pleading stage); see also ABA Section of Antitrust Law, Antitrust Law Developments 230-31 (7th ed. 2012) (collecting cases).
In contrast, courts almost never find monopoly power when market share is less than about 50 percent. American Telephone & Telegraph Co. v. Delta Commc'ns Corp., 408 F.Supp. 1075, 1107 (S.D.Miss. 1976), aff'd per curiam, 579 F.2d 972 (5th Cir.1978) (adopting district court opinion), modified on other grounds, 590 F.2d 100 (5th Cir.1979) (41% share of local prime time television market insufficient to subject television network to Section 2 monopolization scrutiny); Bailey v. Allgas, Inc., 284 F.3d 1237, 1250 (11th Cir.2002) ("market share at or less than 50% is inadequate as a matter of law to constitute monopoly power"); Blue Cross & Blue Shield United of Wisconsin v. Marshfield Clinic, 65 F.3d 1406, 1411 (7th Cir.1995) ("Fifty percent is below any accepted benchmark for inferring monopoly power from market share"). The Fifth Circuit adheres to Judge Learned Hand's widely accepted rule of thumb that "while a 90 percent market share definitely is enough to constitute monopolization, `it is doubtful whether 60 or 64 percent would be enough; and certainly, 33 percent is not.'" Domed Stadium Hotel, Inc. v. Holiday Inns, Inc., 732 F.2d 480, 489 (5th Cir.1984) (citing United States v. Aluminum Co. of America, 148 F.2d 416 (2d Cir.1945), approved and adopted, American Tobacco Co. v. United States, 328 U.S. 781, 811-14, 66 S.Ct. 1125, 90 L.Ed. 1575 (1946)).
Leading scholars concur that "it would be rare indeed to find that a firm with half of a market could individually control price over any significant period." 3 Areeda & Hovenkamp ¶ 532c, at 250 (2007). The Department of Justice agrees that "as a practical matter, a market share of greater than fifty percent has been necessary for courts to find the existence of monopoly power." Department of Justice Guide/Report,
Nowhere in the complaint do plaintiffs allege that Pool Defendants possess any specific share of the Pool Products Distribution Market. But the facts indicative of market share that are included in the complaint suggest a market share less than 50 percent. Plaintiffs allege that, according to Zacks Investment Research, "PoolCorp has a dominant position, by reason of its market share, in the distribution of Pool Products sold to Pool Dealers."
The Zacks report that plaintiffs refer to in the complaint provides the only explicit estimate of Pool's national market share, stating that PoolCorp "controls approximately one-third of the pure-pool domestic market share sold through distribution."
Because the complaint includes no specific allegations of a dominant market share and no allegations that allow such an inference, the Court turns to the plaintiffs' argument that they have pleaded direct evidence of Pool's monopoly power. Plaintiffs are correct that evidence that a defendant has actually set prices or excluded
3 Areeda & Hovenkamp ¶ 520 at 206 (2006).
Plaintiffs do not cite any authority that requires the Court to find their conduct allegations sufficient to establish monopoly power. Indeed, in Dimmitt Agri Indus., Inc. v. CPC Int'l Inc., 679 F.2d 516, 530-31 (5th Cir.1982), the Fifth Circuit found that the defendant exercised a significant degree of control over price during 1971-72, yet concluded that the conduct alone was insufficient to overcome the presumption against monopoly power implied by its market shares of 17 and 24 percent in the relevant markets. In sum, plaintiffs' conduct allegations are insufficient for the Court to find monopoly power in the face of a market share in the neighborhood of 33 percent, which is suggested by the complaint and the Zacks Report. The Court must therefore dismiss the Section 2 monopolization claim.
In addition to prohibiting monopolization, Section 2 of the Sherman Act forbids attempts to monopolize. 15 U.S.C. § 2. "The traditional claim for attempted monopolization arises when the danger of monopolization is clear and present, but before a full blown monopolization has necessarily been accomplished." Alaska Airlines, Inc. v. United Airlines, Inc., 948 F.2d 536, 541-42 (9th Cir.1991). The elements of attempted monopolization are that the defendant (1) engaged in predatory or anticompetitive conduct, (2) with the specific intent to monopolize, and (3) with "a dangerous probability" of achieving monopoly power. Spectrum Sports, 506 U.S. at 456, 113 S.Ct. 884.
Plaintiffs' claim of attempted monopolization requires a showing that the defendant has a dangerous probability of successfully lessening or destroying competition in a relevant market. Id. Because an attempted monopolization claim cannot survive when the market in question is not vulnerable to monopolization, the Court
In appraising whether there is a dangerous probability of success, courts focus principally on the defendant's share of the relevant market. See, e.g., Pastore v. Bell Tel. Co., 24 F.3d 508, 513 (3d Cir. 1994). Market definition is a necessary component of this analysis. "Defining a market for an attempted monopolization claim involves the same steps as defining a market for a monopoly maintenance claim." Microsoft, 253 F.3d at 81. For the reasons discussed in detail in the monopolization section of this opinion, plaintiffs' allegations of a relevant market suffice to survive a motion to dismiss.
The Fifth Circuit has held that a market share below ten percent, absent a showing of special market conditions, is insufficient as a matter of law to establish an attempted monopolization claim. Domed Stadium, 732 F.2d at 491. However, the market share required for an attempted monopolization claim is not as high as that required for a claim of maintenance of monopoly power. See, e.g., McGahee v. Northern Propane Gas Co., 858 F.2d 1487, 1505 (11th Cir.1988) ("Determining whether a defendant possesses sufficient market power to be dangerously close to achieving a monopoly requires analysis and proof of the same character, but not the same quantum, as would be necessary to establish monopoly power for an actual monopolization claim."). Although a share of less than fifty percent is insufficient for actual monopolization, it "may support a claim for attempted monopolization if other factors such as concentration of market, high barriers to entry, consumer demand, strength of the competition, or consolidation trend in the market are present." Domed Stadium, 732 F.2d at 490-91 (citing cases).
Pool argues that plaintiffs' market share allegations are not sufficient to meet the dangerous probability of monopolization element of attempted monopolization. Although plaintiffs do not specifically allege a specific market share in the complaint, they refer to and rely on a Zacks Investment Research report which estimates that Pool "controls approximately one-third of the pure-pool domestic market share sold through distribution."
A market share of 33 percent can be sufficient to establish a dangerous probability of monopolization when other market factors are present and when a defendant's conduct suggests that actual monopolization is likely. See M & M Med. Supplies & Serv., Inc. v. Pleasant Valley Hosp., Inc., 981 F.2d 160, 168 (4th Cir. 1992) (attempted monopolization claim survived motion for summary judgment). The M & M court described a set of
M & M, 981 F.2d at 168 (citing 3 Areeda & Turner ¶ 835c, at 350). The Fifth Circuit agrees that a market share of less than 50 percent can support an attempt claim if other circumstances are present. See Dimmitt, 679 F.2d at 532. With the complaint supporting a market share of 33 percent, the Court must look holistically at the market characteristics and Pool's conduct to determine whether plaintiffs have alleged an attempted monopolization claim.
First, plaintiffs have alleged a pattern of acquisitions that suggest that Pool's market share has been increasing. The complaint describes 13 instances from 1995 to 2009 when Pool purchased all or some of the assets of existing Pool Products distributors or suppliers in the U.S.
Courts have also looked at the strength of competitors as an important indicator of whether a defendant has a dangerous probability of monopolization. See Domed Stadium, 732 F.2d at 490-91. Plaintiffs have alleged that Pool is the largest buyer of Pool Products and is the only distributor with national reach.
Plaintiffs also allege that Pool's exclusionary agreements with manufacturers have created an entry barrier in the distribution market.
Although a 33 percent market share is on the low end of the range of market shares found sufficient by the case law, together with market factors and Pool's conduct, the court finds that plaintiffs have pled a dangerous probability of monopolization. The allegations of Pool's position as the only national distributor, with more than four times as many service centers as its biggest remaining competitor (after acquiring the previous second place competitor in 2002), and its market-wide use of restrictive agreements with manufacturers give rise to the reasonable inference that Pool is dangerously likely to achieve monopoly. Further, its alleged establishment of an artificial barrier to entry is the type of "invidious conduct" that can elevate a firm with a market share of less than 50% to a dangerous probability of monopolization. M & M, 981 F.2d at 168 (citing 3 Areeda & Turner ¶ 835c, at 350).
The next requirement of an attempted monopolization claim is that the defendant engaged in exclusionary or anticompetitive conduct. Plaintiffs challenge Pool's initiation of vertical restraints by which it prevented manufacturers from supplying its rivals. Plaintiffs allege that Pool used its PVP to get "virtually" all Pool Products manufacturers to agree to cut off sales to rival distributors when asked.
The same principles apply to determining whether conduct is anticompetitive, regardless of whether it is in the monopolization context or the attempted monopolization context. See Id. In its discussion of the actual monopolization claim, the Court did not address whether the exclusionary conduct element was met because the Court found that Pool's lack of monopoly power doomed the claim. The Court now addresses this requirement.
Courts have struggled to define a clear test of whether conduct is of the competitive type — which the law seeks to promote — or the anticompetitive type — which the law seeks to prohibit. See Spectrum Sports, 506 U.S. at 458-59, 113 S.Ct. 884 ("It is sometimes difficult to distinguish robust competition from conduct with long-term anticompetitive effects."). The guiding principle is that "[t]he law directs itself not against conduct which is competitive, even severely so, but against conduct which unfairly tends to destroy competition itself." Id at 458, 113 S.Ct. 884 (citations omitted). To be condemned as exclusionary, an act "must have an `anticompetitive effect'[;] [t]hat is, it must harm the competitive process and thereby harm consumers." Microsoft, 253 F.3d at 58-59. "In contrast, harm to one or more competitors will not suffice." Id.
Vertical restrictions limiting competitors access to supplies have sometimes, but not always, qualified as exclusionary conduct to which Section 2 of the Sherman Act applies. See W. Penn Allegheny Health Sys., Inc. v. UPMC, 627 F.3d 85, 108 (3d Cir.2010) ("a firm engages in anticompetitive conduct when it attempts to exclude rivals on some basis other than efficiency... or the merits." (citing Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, 605, 105 S.Ct. 2847, 86 L.Ed.2d 467 (1985); LePage's Inc. v. 3M, 324 F.3d 141, 162 (3d. Cir.2003))). In Lorain Journal Co. v. United States, 342 U.S. 143, 72 S.Ct. 181, 96 L.Ed. 162 (1951), the Supreme Court held that a newspaper publisher's attempt to monopolize the market for local advertising dollars by forcing advertisers to boycott the newspaper's only real rival, a competing radio station, violated Section 2. In Lorain Journal, the defendant could not offer any business
Although Lorain Journal, Dentsply, and other cases have found vertical restraints to violate Section 2 when their impact was on interbrand competition, no court has held that they constitute per se illegal conduct. NYNEX Corp. v. Discon, Inc., 525 U.S. 128, 119 S.Ct. 493, 142 L.Ed.2d 510 (1998). To the contrary, courts are unlikely to find a Section 2 violation when the allegedly exclusive conduct has offsetting procompetitive benefits or when a restriction is unlikely to foreclose competition in a substantial share of the relevant market. See, e.g., Dentsply Int'l, 399 F.3d at 196; Tampa Elec. Co. v. Nashville Coal Co., 365 U.S. 320, 327-28, 81 S.Ct. 623, 5 L.Ed.2d 580 (1961). In Continental T. V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 97 S.Ct. 2549, 53 L.Ed.2d 568 (1977), the Supreme Court held that vertical non-price restrictions may "promote interbrand competition by allowing the manufacturer to achieve certain efficiencies in the distribution of his products" and that "[t]he market impact of vertical restrictions is complex because of their potential for simultaneous reduction of intrabrand competition and stimulation of interbrand competition." 433 U.S. at 54, 51, 97 S.Ct. 2549.
Based on the complaint's allegations that Pool provided PVP members with marketing and product support, Pool argues that the PVP promoted interbrand competition by providing manufacturers with services that increased the value of their products. At first glance, the argument makes sense — individual manufacturer might desire a restrictive dealing arrangement to induce a distributor to engage in promotional activities or to provide service and repair facilities necessary to the efficient marketing of its product. See GTE Sylvania Inc., 433 U.S. at 55, 97 S.Ct. 2549 (explaining, "[b]ecause of market imperfections such as the so-called "free rider" effect, these services might not be provided by retailers in a purely competitive situation, despite the fact that each retailer's benefit would be greater if all provided the services than if none did."). Inducing a distributor to provide these services could add value to a product making it more competitive with products marketed by other manufacturers. However, the complaint contains plausible indications that the promotion of interbrand competition would not justify the allegedly exclusionary arrangements.
First, plaintiffs' allege that manufacturers would have preferred to have two or more distributors selling their product in each local geographic market in order to ensure competitive service and prices.
A similar situation led the Seventh Circuit to discredit a procompetitive explanation of vertical restrictive dealing agreements in Toys "R" Us, Inc. v. F.T.C., 221 F.3d 928 (7th Cir.2000). In that case, Toys "R" Us entered into agreements requiring that toy manufacturers not sell certain items to warehouse club stores, which had been cutting into Toy "R" Us' sales. Toys "R" Us argued that its policy was a legitimate response to combat free riding by the club stores. Id. at 937. It argued that manufacturers benefitted because Toys "R" Us provided amenities, such as full line stocking, attractive premises, and trained sales people, which were jeopardized by the club stores' sales of the same toys without the amenities. In rejecting this theory, the court relied on evidence showing that "the manufacturers wanted a business strategy under which they distributed their toys to as many different kinds of outlets as would accept them." Id. at 938. This showed that the restrictive agreements did not serve the purpose of keeping down manufacturers' costs, which would promote consumer interests, but were instead an anticompetitive means to hurt competitors of Toys "R" Us. Id.; See also Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877, 893-94, 127 S.Ct. 2705, 168 L.Ed.2d 623 (2007) (discussing how a dominant distributor could abuse vertical price restrictions when a manufacturer was pressured into accepting the restraints to maintain access to the defendant's distribution network).
Next, plaintiffs allege that Pool had restrictive agreements with "a substantial share of manufacturers."
3 Areeda & Hovenkamp ¶ 1604, at 62-63. With Pool allegedly providing the same promotional and product support services to the three largest manufacturers as well as many others, the arrangements were not likely to increase differentiation and interbrand competition among products of different manufacturers. See Warren S. Grimes, The Path Forward After Leegin: Seeking Consensus Reform of the Antitrust Law of Vertical Restraints, 75 Antitrust L.J. 467, 484-85 (2008-2009). Professor Grimes explains that when "a restraint is widely employed, no supplier may benefit from its use;" "the collective interest of suppliers might be for all suppliers to abandon the vertical restraints, but no supplier may be willing to act unilaterally because of a concern with loss of market share if rivals do not follow."
The complaint plausibly alleges that Pool's exclusionary agreements had anticompetitive effects without counterbalancing procompetitive benefits.
The final element of an attempted monopolization claim is satisfied when a defendant "had a specific intent to destroy competition or build a monopoly." Times-Picayune Pub. Co. v. United States, 345 U.S. 594, 626, 73 S.Ct. 872, 97 L.Ed. 1277 (1953). Specific intent may be shown by inference from evidence that a defendant engaged in anticompetitive conduct. Aspen Skiing, 472 U.S. at 603, 105 S.Ct. 2847 ("Improper exclusion (exclusion not the result of superior efficiency) is always deliberately intended"), (quoting Bork at 160); E.I. du Pont de Nemours & Co. v. Kolon Indus., Inc., 637 F.3d 435, 453 (4th Cir. 2011) (finding specific intent to monopolize based on inference from evidence of defendant's anticompetitive conduct). Because plaintiffs have plausibly alleged anticompetitive agreements, the Court finds that plaintiffs have plausibly alleged that Pool had a specific intent to monopolize. For the foregoing reasons, the Court finds that plaintiffs have adequately pleaded their attempted
DPPs also allege that Pool and Manufacturer Defendants engaged in an unlawful combination and conspiracy in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1. A Section 1 claim has the following elements: (1) a contract, combination, or conspiracy among two or more separate entities that (2) unreasonably restrains trade in a particular market and (3) affects interstate or foreign commerce. Stewart Glass & Mirror, Inc. v. U.S. Auto Glass Disc. Centers, Inc., 200 F.3d 307, 312 (5th Cir.2000). In addition, plaintiffs must suffer antitrust injury from the violation, which is to say "injury of the type the antitrust laws were intended to prevent and that flows from that which makes defendants' acts unlawful." Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489, 97 S.Ct. 690, 50 L.Ed.2d 701 (1977).
The Supreme Court has determined that when a "practice facially appears to be one that would always or almost always tend to restrict competition and decrease output," rather than "one designed to increase economic efficiency and render markets more, rather than less, competitive," it is considered "per se illegal" and may be condemned without further analysis. Broad. Music, Inc. v. CBS, 441 U.S. 1, 19-20, 99 S.Ct. 1551, 60 L.Ed.2d 1 (1979) (internal quotation omitted). Plaintiffs argue that they have alleged a group boycott, which is per se illegal under the antitrust laws.
Supreme Court precedent makes clear that for a boycott claim to merit consideration under the per se rule, there must be a horizontal agreement among competitors. As the Supreme Court stated in NYNEX Corp. v. Discon., Inc., 525 U.S. 128, 135, 119 S.Ct. 493, 142 L.Ed.2d 510 (1998), "[P]recedent limits the per se rule in the boycott context to cases involving horizontal agreements among direct competitors." See also Tunica Web Adver. v. Tunica Casino Operators Ass'n, Inc., 496 F.3d 403, 412 (5th Cir.2007) (following NYNEX). A horizontal agreement is one made by competitors at the same level of distribution. To bring its Section 1 claim within the per se rule, then, plaintiffs must point to a horizontal conspiracy, "in other words, a conspiracy between competitors," rather than several vertical conspiracies between firms at different levels of distribution. Spectators' Commc'n Network Inc. v. Colonial Country Club, 253 F.3d 215, 223 (5th Cir.2001).
Plaintiffs have not done so. They argue that they have alleged a per se illegal group boycott in which the manufacturers, through Pool, agreed to exclude or restrict sales to certain of Pool's rivals. But the complaint lacks any allegation that manufacturers colluded with each other. Indeed, the complaint does not specifically allege any contacts among or between manufacturers. See Twombly, 550 U.S. at 564-70, 127 S.Ct. 1955 (dismissing Sherman Act Section 1 claim when no plausible allegations of a horizontal conspiracy).
Further, the cases relied on by plaintiffs are inapposite or distinguishable. Several of the cases concern Section 2 violations. See, e.g., United States v. Grinnell Corp., 384 U.S. 563, 86 S.Ct. 1698, 16 L.Ed.2d 778 (1966) (restrictive agreements and pricing practices along with monopoly power led to § 2 violation in central station alarm service market); Standard Oil Co. of New Jersey v. United States, 221 U.S. 1, 31 S.Ct. 502, 55 L.Ed. 619 (1911) (anticompetitive exercise of monopoly power led to § 2 violation). Section 2 claims do not require
The closest case to this one, Toys "R" Us, Inc. v. F.T.C., 221 F.3d 928 (7th Cir. 2000), is likewise distinguishable. In Toys "R" Us, the Seventh Circuit affirmed the FTC's finding of a per se illegal group boycott when the evidence indicated that Toys "R" Us had acted as the coordinator of a horizontal agreement among a number of toy manufacturers to restrict output to warehouse club stores. There was no direct evidence that the manufacturers agreed with each other to engage in the scheme. Instead, the Seventh Circuit held that a horizontal agreement had been established based on evidence that the manufacturers abruptly shifted their practice of selling to the warehouse clubs; that there was direct evidence of communication among the manufacturers; and there was evidence that they agreed to Toys "R" Us' demands only on the condition that their competitors also agreed to go along with it. Id. at 932-33, 935-36. Plaintiffs have alleged no similar facts suggestive of a horizontal agreement. See PepsiCo, Inc. v. Coca-Cola Co., 315 F.3d 101, 111 (2d Cir. 2002) (viewing Toys "R" Us as representing a minimum evidentiary threshold for a horizontal agreement). This case is more like Pepsico in which the Second Circuit refused to find a per se Section 1 violation when Coca-Cola Co. secured vertical agreements from its independent food service distributors (IFDs) not to also sell Pepsi. Id. at 110. There, the court observed: "PepsiCo offered no evidence of direct communications among the IFDs; its `offer of proof' of an agreement was simply that Coca-Cola assured the IFDs that the loyalty policy would be uniformly enforced and encouraged them to report violations." Id.
Nor can the plaintiffs escape the horizontal agreement requirement by labeling the scheme a hub-and-spoke conspiracy. As demonstrated by PSKS, Inc. v. Leegin Creative Leather Products, Inc., allegations of horizontal agreements — or a "wheel" connecting the conspirators — is required in order to plead a per se illegal Section 1 violation. 615 F.3d 412, 420 (5th Cir.2010). In Leegin, the plaintiffs attempted to establish a hub and spoke conspiracy based upon a manufacturer's agreements with retailers that they follow the manufacturer's pricing recommendations. Id. The Fifth Circuit held that plaintiff's attempt to characterize the arrangement as a per se illegal hub-and-spoke
Section 1 claims under the rule of reason, like per se claims, require plausible allegations of an agreement. 15 U.S.C. § 1. In addition to arguing that plaintiffs have failed to allege a horizontal agreement, the defendants contend that the complaint fails to allege a plausible vertical conspiracy or agreement.
Applying this standard in Monsanto, the Supreme Court concluded that Monsanto's termination of a distributor was pursuant to a price-fixing agreement with a rival distributor. Before the manufacturer terminated the distributor, the rival distributor had complained about plaintiff's discounting of agricultural chemicals. The Court held that although the complaints alone could not establish an agreement, along with additional circumstantial evidence, there was sufficient evidence to permit a jury to infer an agreement. 465 U.S. at 765-68, 104 S.Ct. 1464 (other evidence included testimony that one distributor told Monsanto it would maintain its prices after Monsanto threatened to withhold supplies unless it lowered prices; testimony that another distributor was terminated after not raising its prices in response to explicit threats; and a newsletter from one distributor with language that the court interpreted as referring to a price maintenance agreement).
The Supreme Court in Monsanto also considered whether a plaintiff's acquiescence in a course of conduct that a defendant imposes might itself constitute an agreement that satisfied Section 1's concerted action requirement. Id. at 761, 104 S.Ct. 1464. The Court found that acquiescence alone would not be sufficient unless the manufacturer had requested and received assurances of such acquiescence.
Here, plaintiffs have alleged that "Pool has foreclosed competition ... through various agreements with manufacturers, including the Manufacturer Defendants."
Pool Defendants argue that these allegations are insufficient to demonstrate an agreement under Section 1.
The Court now addresses whether plaintiffs have alleged facts, which accepted as true, make it plausible that the agreements between Pool and each Manufacturer Defendant, considered individually, involved unreasonable restraints of trade. Cont'l Airlines, 277 F.3d at 508. Vertical restraints are tested by the rule of reason. Leegin, 551 U.S. at 907, 127 S.Ct. 2705 (overruling Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373, 31 S.Ct. 376, 55 L.Ed. 502 (1911), and extending application of rule of reason to all vertical restraints). Under the rule of reason, "the reasonableness of a restraint is evaluated based on its impact on competition as a whole within the relevant market." Dickson v. Microsoft, 309 F.3d at 206. Justice Brandeis explained the rule of reason in Chicago Bd. of Trade v. United States:
246 U.S. 231, 238, 38 S.Ct. 242, 62 L.Ed. 683 (1918). This analysis requires a showing of "anticompetitive effect" resulting from the challenged agreement. To have an "anticompetitive effect," conduct "must
An inquiry into the lawfulness of the restraint begins "by identifying the ways in which a challenged restraint might possibly impair competition." 3 Areeda & Hovenkamp ¶ 1503a, at 390. After identifying the type of possible harm to competition alleged, the Court must proceed "to determine whether that harm is not only possible but likely and significant," which requires "examination of market circumstances," including market power and share. 7 id. ¶¶ 1503a, 1503b, at 374-77.
Plaintiffs allege that Pool's agreements with the Manufacturer Defendants foreclosed rival distributors from buying Pool Products directly from the major manufacturers, which raised rivals costs and allowed for supracompetitive pricing in the Pool Products distribution market. The question at this stage, is whether plaintiffs have alleged enough facts to give rise to the reasonable inference that those impairments of competition occurred, were substantial, and were not outweighed by procompetitive justifications. Deciding whether plaintiffs have plausibly alleged that the three vertical agreements at issue, considered individually, caused substantial anti-competitive harm, requires an analysis of the defendants' role in the relevant market. See Dickson v. Microsoft, 309 F.3d at 207.
Under the rule of reason, plaintiffs must plausibly allege that defendants have sufficient market power to restrain competition substantially in a relevant market. See Leegin, 615 F.3d at 417-19. Plaintiffs have alleged facts sufficient to create a reasonable inference of Pool's market power in the relevant Pool Products distribution market. The inquiry into market power begins with the definition of a relevant product and geographic market. For the reasons discussed in detail in the monopolization section, plaintiffs' allegations of a relevant market suffice to survive the motion to dismiss stage. The starting point for finding market power in the relevant market is market share. Flegel v. Christian Hosp., Ne.-Nw., 4 F.3d 682, 689 (8th Cir. 1993). The Court has already found that plaintiffs have alleged that Pool had sufficient market share for an attempted monopolization claim. For the same reasons, plaintiffs have adequately alleged that Pool has sufficient market power for a Section 1 violation. As discussed earlier, the complaint and supporting materials suggest Pool has a market share of about 33 percent which,
In addition to plausibly alleging Pool's market power, plaintiffs plead factual content that allows the Court to draw the reasonable inference that the three Manufacturer Defendants had substantial clout in the industry. In a Section 1 case, a plaintiff must plead facts which allow the reasonable inference that an agreement has a substantial impact on the market, not just that one participant has market power. See Dickson v. Microsoft, 309 F.3d at 208. In Dickson, the plaintiff had alleged the market power of Microsoft in the relevant software markets but had not alleged facts about the market power of the computer manufacturers with which Microsoft formed allegedly anticompetitive agreements. Id. at 207-209. The Fourth Circuit held that without allegations of each conspirator's market power, it could not find that the agreements foreclosed a substantial share of the software market. Id.; see also Spectators' Commc'n Network, 253 F.3d at 225 (noting that the issue is "whether the combination or conspiracy, not each individual conspirator, has the [market] power to hurt competition in the relevant market."); FTC v. Ind. Fed'n of Dentists, 476 U.S. 447, 460, 106 S.Ct. 2009, 90 L.Ed.2d 445 (1986) ("[T]he purpose of the inquiries into market definition and market power is to determine whether an arrangement has the potential for genuine adverse effects on competition." (emphasis added)).
Unlike in Dickson, plaintiffs have specifically alleged that the three Manufacturer Defendants were the largest in the industry.
In sum, the allegations are sufficient to permit the Court to continue to the question
As noted, the Supreme Court has recognized that the antitrust laws are designed to protect competition, not competitors. Spectrum Sports, 506 U.S. at 458, 113 S.Ct. 884. Allegations that a challenged practice affected a rival firm's business are insufficient to plead an unreasonable restraint, absent plausible allegations that this effect also substantially impairs competition market wide. NYNEX, 525 U.S. at 139, 119 S.Ct. 493 (1998) (allegation that firm was harmed "does not automatically show injury to competition"). Further, having found that the complaint alleges three separate conspiracies between Pool and each of the Manufacturer Defendants, only acts taken in furtherance of each alleged conspiracy "are appropriately considered in determining the adverse effects of the claimed restraints on trade, not acts of one conspirator taken in furtherance of other possible conspiracies." Dickson v. Microsoft, 309 F.3d at 211 ("likewise, it is untrue that Compaq and Dell, as alleged co-conspirators of Microsoft, are responsible for all of Microsoft's unilateral acts with other OEMs [original equipment manufacturers] who were not members of the alleged conspiracies."). Thus, to state a viable Section 1 claim, plaintiffs must make plausible allegations that each Manufacturer Defendant's individual agreements with Pool were likely to result in an anticompetitive effect. Id.
Plaintiffs' allegations suffice to make it plausible that the three vertical restraints at issue harmed competition. As discussed above, the complaint alleges an agreement between Pool and each manufacturer to exclude rivals of Pool. Courts have recognized this type of agreement as anticompetitive in the absence of counter-weighing procompetitive benefits. See W. Penn Allegheny Health Sys., 627 F.3d at 108 ("a firm engages in anticompetitive conduct when it attempts to exclude rivals on some basis other than efficiency ... or the merits.") (quotations omitted). Plaintiffs have alleged facts, including that Pool imposed the agreements on the manufacturers, which otherwise would have allowed any credit-worthy distributor with a physical warehouse and knowledgeable personnel to sell their products, which suggest that a counterbalancing procompetitive benefit is unlikely. The agreements allegedly resulted in the reduction of output by each manufacturer and denials of needed supplies to Pool's competition. Considering the structure of the market and the characteristics of the three vertical agreements, the allegations in the complaint are sufficient to state a plausible Section 1 claim against Pool and each Manufacturer Defendant.
In order to recover for an antitrust violation, a plaintiff must suffer injuries caused by the violation "of the type that the antitrust laws were intended to prevent," namely, injury to the market as a whole. Pueblo Bowl-O-Mat, 429 U.S. at 489, 97 S.Ct. 690. Allegations of antitrust injury must appear in the complaint. See, e.g., Mahone v. Addicks Util. Dist. of Harris County, 836 F.2d 921, 939 (5th Cir. 1988) ("In pleading an antitrust claim for damages under section 4 of the Clayton Act ... a plaintiff must allege, either directly or inferentially, that he has suffered an anticompetitive injury as a result of the defendants' antitrust violation"). Here, plaintiffs have plausibly alleged antitrust injury by alleging that defendants' anticompetitive conduct led to a decrease in output and the charging of supracompetitive prices for Pool Products. Plaintiffs
An antitrust action must be brought within four years from the date on which it accrues. See Clayton Act § 4B, 15 U.S.C.A. § 15b. An antitrust cause of action generally accrues, and the statute of limitations 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); see also Bell, 847 F.2d at 1186-87. Generally, a plaintiff may recover for losses suffered in the four year limitations period. See Zenith, 401 U.S. at 338, 91 S.Ct. 795; Berkey Photo v. Eastman Kodak Co., 603 F.2d 263, 295 (2d Cir.1979); See also Rx. com v. Medco Health Solutions, Inc., 322 Fed.Appx. 394, 396-98 (5th Cir.2009). In this case, plaintiffs have alleged overt anticompetitive acts and resulting injury to plaintiffs in the form of overcharges for Pool Products within the limitations period. For example, plaintiffs allege that in 2009, the Manufacturer Defendants agreed with Pool not to sell to Gulf Coast Pool Supply in Naples, Florida, which drove Gulf Coast out of business.
Plaintiffs also seek damages for injuries suffered before the four-year limitations period by alleging fraudulent concealment. They argue that they should receive damages for the entire duration of the illegal practices because defendants fraudulently concealed their illegal conduct, and plaintiffs did not discover the scheme until 2011 when the FTC investigation and consent decree were made public.
At the pleading stage, a plaintiff must allege fraudulent concealment with the particularity required by Rule 9(b) of the Federal Rules of Civil Procedure. See Fed.R.Civ.P. 9(b) ("In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake."); Shushany v. Allwaste, Inc., 992 F.2d 517, 521 (5th Cir.1993) (noting that "allegations of fraud must meet a higher, or more strict, standard than the basic notice pleading required by Rule 8."); Summerhill v. Terminix, Inc., 637 F.3d 877, 880 (8th Cir.2011) ("Under Rule 9(b)'s heightened pleading standard, allegations of ... fraudulent concealment for tolling purposes, must be pleaded with particularity."). Plaintiffs complaint has no such specific allegations of fraudulent concealment.
The doctrine of fraudulent concealment has two elements: first, that the defendants concealed the conduct complained of, and second, that the plaintiffs failed, despite the exercise of due diligence, to discover the facts that form the
Plaintiffs urge the Court to conclude that the restrictive dealing agreements between Pool and Manufacturer Defendants were a "secret quid pro quo."
Further, plaintiffs argue that defendants committed acts of concealment by not publicly disclosing the restrictive dealing conditions of the PVP. But even ignoring the allegations that defendants did in fact disclose their agreements, failure to self disclose anticompetitive conduct does not
Plaintiffs also argue that the defendants committed overt acts of concealment by holding themselves out as bona fide competitors when they were in fact participants in illegal agreements. But the Fifth Circuit has rejected the argument that a defendant is subject to fraudulent concealment when it engages in conduct that "purports to be competitive when in fact it is collusive." Allan Const., 851 F.2d at 1531. "Any price charged for a product... purports to be competitive at least insofar as it purports to be lawful," and "Congress, in writing the ... statute of limitation, could [not] have intended for the fraudulent concealment doctrine to apply to every price fixing case." Id.
Nor have plaintiffs alleged an antitrust violation that is self-concealing, such that they need not allege affirmative acts of concealment. The Fifth Circuit defines self-concealing as a wrong "in which deception is an essential element for some purpose other than merely to cover up the act." Id. at 1530. Plaintiffs have not alleged an agreement of which deception was an essential element. Instead, the allegations in the complaint indicate that the PVP and the alleged agreements between Pool and manufacturers were disclosed to Pools rivals. Plaintiffs' allegations that defendants did not keep their agreements secret belie their arguments that defendants took actions to conceal their anticompetitive conduct and that their conduct was of a self-concealing nature. Plaintiffs are therefore limited to damages inflicted within the four-year limitations period.
For the reasons above, the motion to dismiss DPPs' claims is granted in part and denied in part. The Court grants defendants' motion to dismiss plaintiffs' Sherman Act Section 2 monopolization claim and plaintiffs' claim that defendants engaged in a per se illegal group boycott under Section 1 of the Sherman Act. The Court denies the motion to dismiss plaintiffs' Sherman Act Section 2 attempted monopolization claim and plaintiffs' Sherman Act Section 1 claims under the rule of reason. The Court also dismisses plaintiffs' claim that defendants fraudulently concealed their antitrust offenses.
