Sep

15

Posted by : Matthew Wild | On : September 15, 2011

In antitrust litigation, defendants routinely resist discovery pending a motion to dismiss.  They rely on Bell Atlantic Corp. v. Twombly, arguing that they should not be put through the expense of discovery until the Court decides whether the claims are plausible.  On September 8, 2011, the United States District for the District of Colorado rejected such tactics.  SOLIDFX, LLC v. Jeppesen Sanderson, Inc., 11-CV-01468-WJM-BNB, 2011 WL 4018207 (D. Colo. Sept. 8, 2011).  The Court held that Twombly “does not erect an automatic, blanket prohibition on any and all discovery before an antitrust plaintiff’s complaint survives a motion to dismiss.”  (citation omitted).  It explained that “[w]hen the discovery would not be so burdensome, a closer question is presented, a question calling for the exercise of discretion and the balancing of competing factors.” (citation omitted).  The Court noted that “[a] party seeking a protective order under Rule 26(c) has the burden of demonstrating good cause and cannot sustain that burden simply by offering conclusory statements.  Accordingly, the party moving for a protective order must make a particular and specific demonstration of fact in support of its request.”  The Court denied the stay because the defendant did not make a factual showing of burden.

Plaintiffs would be well advised to press for at least targeted discovery, such as documents produced in government investigations.  To extent that no genuine burden exists, such discovery should be obtainable pending a motion to dismiss regardless of its strength.

Jan

14

Posted by : Matthew Wild | On : January 14, 2011

The Seventh Circuit accepted an interlocutory appeal on a certified question arising from the district court’s denial of a motion to dismiss the second amended complaint in In re Text Messaging Antitrust Litig., No.10-8037, 2010 WL 5367383 (7th Cir. Dec. 29, 2010).  Judge Posner held that the sufficiency of a complaint’s allegations to state a claim was a controlling question of law within the meaning of 28 U.S.C. section 1292(b).  Judge Posner then affirmed the denial of the motion to dismiss because:

“The second amended complaint alleges a mixture of parallel behaviors, details of industry structure, and industry practices, that facilitate collusion. There is nothing incongruous about such a mixture. If parties agree to fix prices, one expects that as a result they will not compete in price-that’s the purpose of price fixing. Parallel behavior of a sort anomalous in a competitive market is thus a symptom of price fixing, though standing alone it is not proof of it; and an industry structure that facilitates collusion constitutes supporting evidence of collusion. An accusation that the thousands of children who set up makeshift lemonade stands all over the country on hot summer days were fixing prices would be laughed out of court because the retail sale of lemonade from lemonade stands constitutes so dispersed and heterogeneous and uncommercial a market as to make a nationwide conspiracy of the sellers utterly implausible. But the complaint in this case alleges that the four defendants sell 90 percent of U.S. text messaging services, and it would not be difficult for such a small group to agree on prices and to be able to detect “cheating” (underselling the agreed price by a member of the group) without having to create elaborate mechanisms, such as an exclusive sales agency, that could not escape discovery by the antitrust authorities.

Of note is the allegation in the complaint that the defendants belonged to a trade association and exchanged price information directly at association meetings. This allegation identifies a practice, not illegal in itself, that facilitates price fixing that would be difficult for the authorities to detect. The complaint further alleges that the defendants, along with two other large sellers of text messaging services, constituted and met with each other in an elite “leadership council” within the association-and the leadership council’s stated mission was to urge its members to substitute “co-opetition” for competition.

The complaint also alleges that in the face of steeply falling costs, the defendants increased their prices. This is anomalous behavior because falling costs increase a seller’s profit margin at the existing price, motivating him, in the absence of agreement, to reduce his price slightly in order to take business from his competitors, and certainly not to increase his price. And there is more: there is an allegation that all at once the defendants changed their pricing structures, which were heterogeneous and complex, to a uniform pricing structure, and then simultaneously jacked up their prices by a third. The change in the industry’s pricing structure was so rapid, the complaint suggests, that it could not have been accomplished without agreement on the details of the new structure, the timing of its adoption, and the specific uniform price increase that would ensue on its adoption.”

As this case indicates, Twombly should not be overly difficult to satisfy even in the absence of a governmental investigation to support the conspiracy allegations.  It is also noteworthy that the although the court entertained an interlocutory appeal by permission, such an approach is the exception, not the rule.  Indeed, even in this case, the court expedited the appeal by not accepting additional briefing and not hearing oral argument.