16 June 2010
In the last issue of the Antitrust & Competition Review, we explored the implications of a decision of the US Court of Appeals for the Ninth Circuit that reinstated claims under Section 1 of the Sherman Act that were based solely on the aggregate competitive effects of non-conspiratorial parallel conduct, in William O. Gilley Enterprises, Inc. v. Atlantic Richfield, Co., 561 F.3d 1004 (9th Cir. 2009).1 On December 2, 2009, as the last issue went to press, the Ninth Circuit withdrew its decision and issued a per curiam opinion reaching the opposite result.2 The court has since denied rehearing, and the time to petition the US Supreme Court has expired, so the revised decision will remain in place.
The new decision affirms the district court’s dismissal of an action alleging that nine petroleum refiners violated the Sherman Act by entering into a series of bilateral exchange agreements involving gasoline that meets the standards of the California Air Resources Board. The new opinion removes many of the troubling aspects of the withdrawn opinion discussed in the earlier article. Because it does not permit the plaintiff to rely on unpleaded theories to sustain a complaint that is insufficient on its face, the new opinion is in considerably less tension with the pleading standards set forth in the US Supreme Court’s recent decisions in Twombly and Iqbal.3 And the revised decision does not provide direct authority for the notion that a plaintiff may show market power by aggregating the volume of commerce in contracts among different defendants not acting in concert. But it does suggest that such claims might be valid.
The Ninth Circuit now agrees with the district court that the complaint’s “broad allegations encompass conspiracy claims that are precluded by” an earlier state court decision rejecting similar conspiracy claims.4 Departing from its earlier decision, the Ninth Circuit viewed the complaint as asserting, “not … that the bilateral agreements, in themselves, restrain trade, but that they facilitate or make it easier for the defendants to coordinate their actions to restrain trade.”5 That is, the complaint pleaded only a “network of exchange agreements that arguably allowed the defendants to unlawfully coordinate their production and output.”6
The new opinion, however, also asserts that the plaintiffs could have proceeded on a rule of reason claim, at least in theory, if they had sufficiently pleaded that the bilateral exchange agreements themselves had actual anticompetitive effects “when aggregated.”7 The Ninth Circuit held, however, that the amended complaint did not give the defendants fair notice of this claim under the standards of Twombly.8 In the absence of any allegations that each agreement had a discrete effect on competition that could be viewed together with the separate effects of other exchange agreements, the mere fact that defendants entered into these agreements was not enough to sustain a claim. The court further held that aggregating the agreements to show market power would not show that the defendants’ changes in production resulted from anything but independent, self-interested efforts to maximize profits.9
Thus, the decision includes language that could be cited to support new theories attempting to aggregate the competitive effects of parallel conduct. But unlike the withdrawn opinion, the revised decision reinforces Twombly’s holding that allegations of parallel conduct alone are insufficient to allege an antitrust violation.
In one significant change, the new decision no longer addresses whether a district court can screen a pleaded theory for economic common sense at the pleading stage. In the withdrawn opinion, the panel majority rejected the notion that the trial court could assess the economic plausibility of the allegations in an antitrust complaint, notwithstanding the Supreme Court’s recognition that the sufficiency of a complaint “turns on the suggestions raised by [the alleged] conduct when viewed in the light of common economic experience.”10 The change leaves district courts in the Ninth Circuit free to construe and apply Twombly directly when evaluating antitrust complaints. It remains for another panel, on another appeal, to articulate how much economic common sense can enter into that evaluation.
1. Donald M. Falk & Tai Lui Tan, Rescuing a Rule of Reason Claim by Aggregating the Effects of Noncollusive, Noncoercive Agreements—A New Litigation Threat for Industry Standard Contracting Practices? Mayer Brown Antitrust & Competition Review 24 (Issue 2, December 2009).
2. See 588 F.3d 659 (9th Cir. 2009).
3. Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007); Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009).
4. 588 F.3d at 667.
5. Id. at 668.
6. Id. at 669.
7. Id. at 665.
8. Id. at 667, 669.
9. Id. at 669.
10. Twombly, 550 U.S. at 565.