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In re Mercedes-Benz Anti-Trust Litigation

August 9, 2001

IN RE MERCEDES-BENZ ANTI-TRUST LITIGATION.


The opinion of the court was delivered by: Wolin, District Judge.

OPINION

This matter is opened before the Court upon the several motions of defendants, Mercedes-Benz U.S.A., L.L.C., Mercedes-Benz of Manhattan, Sheft Kahn & Co., L.L.P., Beifus Motors, Inc. and the joint motion of all of the remaining defendant Mercedes-Benz dealers to dismiss the complaint against them pursuant to Federal Rule of Civil Procedure 12(b)(6). The motions (referred to alternatively, infra, by the singular "motion") have been decided upon the written submissions of the parties pursuant to Federal Rule of Civil Procedure 78. For the reasons set forth below, the motions will be denied.

BACKGROUND

This lawsuit was brought by several consumers purporting to be acting on behalf of themselves and similarly situated persons who purchased or leased Mercedes-Benz automobiles from dealers in New York City and its environs, including suburban counties in Connecticut, New York State, and New Jersey, from February 1992 through August 1999. The complaint states that these dealers constitute Mercedes-Benz's New York region. The complaint names as defendants all or substantially all of the dealerships in the region. It also names Mercedes-Benz U.S.A., the national distributor of Mercedes-Benz automobiles. Defendant Mercedes-Benz of Manhattan is a wholly-owned subsidiary of Mercedes-Benz U.S.A. The other dealerships are franchises, but have no corporate affiliation with Mercedes-Benz U.S.A.

The complaint purports to allege a horizontal and vertical price-fixing conspiracy, in violation of section one of the Sherman Act. It is alleged that the conspiracy was furthered by several "complimentary" means. The dealerships exchanged financial information, including pricing strategies and historical sales information. Plaintiffs claim that Mercedes-Benz U.S.A. and its accountant, defendant Sheft Kahn, compiled monthly and year-to-date analyses for each dealer stating, inter alia, the average price and gross profit realized by each dealer for each model of car sold. This information was shared by all of the defendants, allegedly for the purpose of policing compliance with the price-fixing conspiracy.

In addition, it is alleged, Sheft Kahn convened meetings of dealership representatives participating in the conspiracy. Plaintiffs claim that at these meetings defendants discussed the dealerships' financial reports and exchanged further pricing information in furtherance of the conspiracy. "Dealers were lectured about the importance of not competing against each other on the basis of price, and any dealer whose monthly reports indicated lower pricing and [lower] gross profit levels than the others was singled out and berated." Complaint at p 35.

Plaintiffs claim that Mercedes-Benz U.S.A. "knew of and facilitated" these meetings, intending with all of the other defendants that the meetings further the goals of the conspiracy to restrict price competition among the dealers. Id. p 34-35. Mercedes-Benz U.S.A. also allegedly communicated directly with dealers, directing them to not to compete on price in violation of the conspiracy and threatening to punish dealers who failed to comply. Id. p 37.

Defendants move now to dismiss the complaint against them for failure to state a claim upon which relief may be granted. Pursuant to this Court's case management Orders, the dealer defendants have moved jointly. Separate movants are Mercedes-Benz U.S.A., the wholly-owned dealer Mercedes-Benz Manhattan, and Sheft Kahn. The defendant-dealer Beifus Motors has been permitted to submit a separate submission to the Court, upon its representation that its situation is not entirely congruent with the other dealers. Not surprisingly, the several briefs raise some common issues, issues central to whether this matter should be permitted to proceed at all. Other issues are raised by and are relevant to only one or another of the parties. This Opinion will address the common issues first, and then those specific to only one or another of the parties.

DISCUSSION

1. The Rule 12(b)(6) Standard

Rule 12(b)(6) of the Federal Rules of Civil Procedure permits a complaint to be dismissed for failure to state a claim upon which relief can be granted. When reviewing a motion to dismiss under Rule 12(b)(6), the Court must accept as true all allegations in the complaint, and must provide the plaintiff with the benefit of all inferences that may be fairly drawn from the complaint. See, e.g., Wilson v. Rackmill, 878 F.2d 772, 775 (3d Cir.1989). A complaint cannot be dismissed unless the court is certain that no set of facts can be proved that would entitle plaintiff to relief. See id.; Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957). "The issue is not whether [the] plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support the claims. Indeed it may appear on the face of the pleadings that a recovery is very remote and unlikely but that is not the test." Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 40 L.Ed.2d 90 (1974), overruled on other grounds, Davis v. Scherer, 468 U.S. 183, 104 S.Ct. 3012, 82 L.Ed.2d 139 (1984). There is no heightened pleading standard in antitrust cases, and the general principles governing Rule 12(b)(6) motions apply. See MCM Partners, Inc. v. Andrews-Bartlett & Assocs., Inc., 62 F.3d 967, 976 (7th Cir.1995).

2. Per Se Violation and Market Definition

Defendants complain that plaintiffs have made no attempt to define either a geographic or product market in which defendants are alleged to have wrongfully conspired to interfere with competition. Defendants argue that this lack dooms the complaint. Plaintiffs respond that their allegations state a per se violation of the Sherman Act. Plaintiffs submit that where a per se violation is pled, as distinct from a violation subject to "rule of reason" analysis, no market definition is required. Plaintiffs are correct on both points.

The Court begins with black-letter law. Speaking generally, harm to competition in a particular market is the gravamen of a Sherman Act violation. "Some types of concerted activity, however, 'because of their pernicious effect on competition and lack of any redeeming virtue,' are treated as per se violations of section 1, without any inquiry into the harm such activity may have caused in the relevant market." Fragale & Sons Beverage Co. v. Dill, 760 F.2d 469, 473 (3d Cir.1985) (quoting Northern Pac. Rwy. Co. v. United States, 356 U.S. 1, 5, 78 S.Ct. 514, 2 L.Ed.2d 545 (1958)). Anti-competitive effect within the relevant market is "conclusively presumed" in a per se case. Rossi v. Standard Roofing, Inc., 156 F.3d 452, 465 (3d Cir.1998).

Defendants do not quibble that price-fixing is a per se antitrust violation. Dealer Defendants' Brief at 6 (citing United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 218, 60 S.Ct. 811, 84 L.Ed. 1129 (1940)). Justice Douglas is often quoted:

Price-fixing agreements may or may not be aimed at complete elimination of price competition. The group making those agreements may or may not have power to control the market. But the fact that the group cannot control the market prices does not necessarily mean that the agreement as to prices has no utility to the members of the combination. The effectiveness of price-fixing agreements is dependent on many factors, such as competitive tactics, position in the industry, the formula underlying pricing policies. Whatever economic justification particular price-fixing agreements may be thought to have, the law does not permit an inquiry into their reasonableness. The are all banned because of their actual or potential threat to the central nervous system of the economy.

Socony-Vacuum, 310 U.S. at 225-26 n. 59, 60 S.Ct. 811; see also Atlantic Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 344, 110 S.Ct. 1884, 109 L.Ed.2d 333 (1990) (horizontal price fixing "perhaps the paradigm of an unreasonable restraint of trade"); Denny's Marina, Inc. v. Renfro Prods., Inc., 8 F.3d 1217, 1221 (7th Cir.1993) (upon proof of horizontal price-fixing conspiracy, no showing of impact on competition in relevant market required).

Defendants instead attack the proposition that plaintiffs have successfully pled a price-fixing conspiracy. Plaintiffs have alleged at most a mere exchange of information, defendants maintain. They argue that information exchanges, particularly in the vertical context (i.e. between the Mercedes-Benz U.S.A. and its dealers), are analyzed under the rule of reason. Defendants rely in part on In re Baby Food Antitrust Litig., 166 F.3d 112 (3d Cir.1999). In rule-of-reason cases, market definition is frequently a critical point of a plaintiff's case.

The Third Circuit's Baby Food opinion affirmed a district court's grant of summary judgment to defendants. The Court of Appeals found that plaintiffs' direct evidence would support only a finding that the defendants had exchanged information, not that they had taken concerted action in furtherance of a conspiracy to restrain trade. Plaintiffs' other evidence of an illegal agreement was circumstantial, primarily a history of parallel price movements between babyfood manufacturers.

Defendants argue that the Baby Food case shows that exchanges of pricing information cannot amount to a per se violation. This cannot win the day for them, however. First, defendants confuse the issue of the type of activity condemned by the Sherman Act with the issue of the type of evidence supporting a plaintiff's case that this activity took place. In the Baby Food case, at the summary judgment stage, plaintiffs' direct proofs only supported a finding of information exchange, not a prospective agreement to fix prices. Because price information may in some instances lead to pro-competitive effects, the Court of Appeals found that the rule of reason was the proper mode of analysis. 166 F.3d at 118 (citing United States v. United States Gypsum Co., 438 U.S. 422, 441 n. 16, 98 S.Ct. 2864, 57 L.Ed.2d 854 (1978)).

Second, defendants' argument that price information exchanges cannot state a claim for price-fixing fails for the simple reason that the complaint and the reasonable inferences to be drawn therefrom allege substantially more than a simple exchange of information. On the contrary, a fair reading of the complaint alleges that the dealers and Mercedes-Benz U.S.A.'s accountant met to formulate prospective, coordinated pricing strategies.*fn1 It is plainly alleged that the information exchange permitted, and was intended to permit, fellow conspirators to identify renegades from the price-fixing agreement. The complaint states that wayward dealers thus identified were berated at the meetings and threatened in direct communications from the national distributor, inferentially acting as a vertical conspirator with the disaffected dealer and as an co-conspirator-agent of the horizontal, dealer conspiracy.

Of course, the evidentiary fulcrum of the holding in the Baby Food case makes the actual result there less than instructive for this case. The courts have given a special gloss to the summary judgment standard in antitrust matters, "limit[ing] the range of permissible inferences from ambiguous evidence in a s 1 case." Baby Food, 166 F.3d at 124 (citing Matsushita Elec. Indus. Corp. v. Zenith Radio Corp., 475 U.S. 574, 588, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986)). To resist a summary judgment motion, the antitrust plaintiff must adduce evidence that would tend to exclude the possibility that competitors acted independently. Id.

In contrast, a 12(b)(6) motion such as this one requires the Court to draw all favorable inferences in favor of the complaint. Those inferences, not to mention the explicit allegations of the complaint, point to a conscious agreement to fix prices between horizontal competitors. It is fairly alleged that the information exchanged was not merely historical, but that the exchange of data also included future pricing plans. In particular, reference in the complaint to discussions of "pricing strategy" clearly suggests that the alleged conspirators were colluding with respect to future pricing and profitability decisions. To the same effect is the allegation that defendants were "lectured about the importance of not competing against each other on the basis of price...." Nor can the Court ignore the allegations that discounters deviating from the alleged agreement were disciplined. The fair inference is that dealers who were not singled out for this treatment understood that the price of peace was participation in the conspiracy.

Defendants' reliance on Queen City Pizza, Inc. v. Domino's Pizza, Inc., 124 F.3d 430 (3d Cir.1997), is not well-placed. Queen City concerned a tying arrangement between the franchiser, Pizza Hut, and its franchisees concerning the purchase of pizza dough and other ingredients. Tying cases are not, however, subject to per se analysis. "[A] particular tying arrangement may have procompetitive justifications, and it is thus inappropriate to condemn such an arrangement without considerable market analysis." Data GeneralCorp. v. Digidyne Corp., 473 U.S. 908, 105 S.Ct. 3534, 3534-35, 87 L.Ed.2d 657 (1985).

In Queen City, the Court of Appeals rejected the plaintiff's argument that the relevant market for section one purposes was Pizza Hut-approved dough and ingredients. 124 F.3d at 437-38. Defendants raise a straw argument, claiming that plaintiffs must rely on the proposition that Mercedes-Benz automobiles constitute a distinct market for section one purposes. Defendants argue that Queen City contradicts this single-brand market definition (which plaintiffs never actually raised). However, the Queen City panel actually found that plaintiffs' proposed market limitation to Pizza Hut dough was a function of the franchisees' contractual obligations under their agreement with the franchiser, Pizza Hut, rather than a distinct market for antitrust analysis. Id. at 438. Therefore, even had plaintiffs' case actually required a market definition limited to Mercedes-Benz automobiles, defendants' Queen City argument would have been beside the point.Mercedes-Benz U.S.A.'s participation does not change the per se character of the allegations. It is true that the courts have been more willing to apply the rule of reason to agreements between manufacturers or suppliers and distributors below them in the chain of supply. Thus, in these so-called "vertical" relationships, non-price restraints are not necessarily subject to per se treatment because the accused restraints may actually enhance inter-brand competition. See Business Elecs. Corp. v. Sharp Elecs. Corp., 485 U.S. 717, 724-25, 108 S.Ct. 1515, 99 L.Ed.2d 808 (1988). The parties have brought no case to the Court's attention that would extend this leniency to vertical, minimum resale price-fixing agreements. But see State Oil Co. v. Khan, 522 U.S. 3, 16, 118 S.Ct. 275, 139 L.Ed.2d 199 (1997) (reaffirming, in dictum, that vertical, minimum price-fixing agreements remain subject to per se analysis); Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S. 752, 761, 104 S.Ct. 1464, 79 L.Ed.2d 775 (1984) (vertical, resale price restraints illegal per se ).

Moreover, the law is settled that where an upstream supplier participates in a conspiracy involving horizontal competitors, it is proper to analyze the entire restraint as one of horizontal price-fixing. Rossi, 156 F.3d at 462 (collecting cases). "The common principle ... is that a conspiracy is horizontal in nature when a number of competitor firms agree with each other and at least one of their common suppliers or manufacturers to eliminate their price-cutting competition...." Id. Thus, in United States v. General Motors Corp., 384 U.S. 127, 86 S.Ct. 1321, 16 L.Ed.2d 415 (1966), the Supreme Court found that a group of horizontal competitors who induced the manufacturer to boycott sales to a price discounter constituted a horizontal group boycott. See also Big Apple BMW, Inc. v. BMW of No. Am., Inc., 974 F.2d 1358 (3d Cir.1992), cert. denied, 507 U.S. 912, 113 S.Ct. 1262, 122 L.Ed.2d 659 (1993).

For the foregoing reasons, the Court finds that plaintiffs have successfully pled a per se violation of section one. Under the liberal pleading standards of the Federal Rules, the allegations and the reasonable inferences to which they give rise sufficiently outline the illegal agreement, the "conscious commitment to a common scheme designed to achieve an unlawful objective," that the law requires to state this type of claim. Edward J. Sweeney & Sons, Inc. v. Texaco, Inc., 637 F.2d 105, 111 (3d Cir.1980), cert. denied, 451 U.S. 911, 101 S.Ct. 1981, 68 L.Ed.2d 300 (1981). An unlawful agreement to fix prices is sufficiently clear from the pleading to state a claim for both horizontal and vertical price-fixing. The Court will not characterize these allegations as strong or weak, nor this motion as close or otherwise. The Court need hold only that the complaint cannot be dismissed at this stage of the litigation.

3. Standing

a. Antitrust Injury

Defendants claim that plaintiffs have failed to allege antitrust injury, because they have failed to claim that there was an actual reduction in marketwide competition or an adverse effect on the marketplace as a whole. Central to these arguments is defendants' repeated claim that the complaint must define the relevant product and geographic markets. Plaintiffs respond that market definition is not necessarily required where a per se, price fixing violation is alleged. Defendants reply that plaintiffs are attempting to exempt themselves from the requirement of showing antitrust injury. The Court believes that defendants have mis-stated both the law and plaintiffs' argument. There are two discrete elements of pleading a private, federal, antitrust cause of action. Obviously, to show a violation of the Sherman Act, the plaintiff must show a contract, combination or conspiracy "in restraint of trade." 15 U.S.C. s 1. To establish standing for a private suit under section four of the Clayton Act, the plaintiff must also allege "antitrust injury," a term of art for considerations going to whether plaintiffs' injury is sufficiently linked to the predicate Sherman Act violation. Cargill, Inc. v. Monfort of Colorado, Inc., 479 U.S. 104, 109-10, 107 S.Ct. 484, 93 L.Ed.2d 427 (1986); Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489, 97 S.Ct. 690, 50 L.Ed.2d 701 (1977). Even in per se cases, the plaintiff must allege antitrust injury. Pace Elecs., Inc. v. Canon Computer Sys., Inc., 213 F.3d 118, 120 (3d Cir.2000).

The Supreme Court in Associated General Contractors of Cal. Inc. v. California State Council of Carpenters, 459 U.S. 519, 535-46, 103 S.Ct. 897, 74 L.Ed.2d 723 (1983) (hereinafter "Associated General "), set forth a detailed analysis for standing in private antitrust suits brought under section four of the Clayton Act, incorporating the concept of antitrust injury. The plaintiff must allege: (1) the causal connection between the antitrust violation and the harm to the plaintiff; (2) whether the plaintiff's alleged injury is of the type that the antitrust laws were intended to redress; (3) the directness of the injury; (4) the existence of more direct victims of the violation; and (5) the potential for duplicative recovery or complex apportionment of damages. Not only did Associated General synthesize a number of competing standing rules that had developed, but it introduced a more flexible, balancing approach to the standing analysis. In re Lower Lake Erie Iron Ore Antitrust Litig., 998 F.2d 1144, 1166 (3d Cir.), cert. dismissed sub nom. Bessemer & Lake Erie R. Co. v. Republic Steel Corp., 510 U.S. 1021, 114 S.Ct. 625, 126 L.Ed.2d 589 (1993).

The Third Circuit has said that the question of antitrust injury is "akin to 'proximate cause' to determine whether a particular injury is too far removed from an alleged violation to warrant a section 4 remedy." Merican, Inc. v. Caterpillar Tractor Co., 713 F.2d 958, 964 (3d Cir.1983), cert. denied, 465 U.S. 1024, 104 S.Ct. 1278, 79 L.Ed.2d 682 (1984). Plainly absent from the factors set forth in Associated General is any bright-line requirement that a particular geographic or product market be alleged.

Of course, defining the relevant market may be relevant to both whether an illegal conspiracy exists and to whether the plaintiff at bar has suffered the requisite antitrust injury. In a tying or monopolization case, determining the defendant's power in the market may be crucial in deciding whether the activity complained of actually would alter the competitive forces sufficiently to constitute a restraint of trade. Once it has been established that a restraint of trade exists, it may be necessary again to refer to the definition of the relevant market to ...


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