Monday, April 13, 2009

Motions to Dismiss Antitrust Cases Against Chocolate Manufacturers Denied; Interlocutory Appeal Certified

Motions to dismiss were denied in the pending antitrust lawsuits against Chocolate manufacturers for allegedly conspiring to fix prices, as the court found that the Plaintiffs’ complaints alleged sufficient facts to plausibly suggest that the defendants had entered into an anti-competitive agreement.

Twombly Standard - The current standard governing motions to dismiss in antitrust cases was announced by the Supreme Court in 2007 in Bell Atlantic v. Twombly, 550 U.S. 544 (2007). The Twombly decision made it more difficult to survive a motion to dismiss, requiring that plaintiffs allege sufficient facts that, if true, demonstrate a plausible right to relief. This replaced the prior standard, which required that a complaint was not to be dismissed “unless it appear[ed] beyond doubt that the plaintiff c[ould] prove no set of facts in support of his claim which would entitle him to relief.” Conley v. Gibson, 355 U.S. 41, 46-47 (1957).

Plaintiffs’ Allegations - Judge Conner held that Plaintiffs’ allegations met the Twombly standard. Plaintiffs alleged a series of three parallel price increases, and “[t]he complaints depict a prototypical market susceptible to conspiratorial price-fixing.” For example, plaintiffs alleged “formidable entry barriers” in the form of high fixed costs, extensive marketing expenditures for launching new products and building brand loyalty, and a steep curve in acquiring technical expertise. Plaintiffs further alleged that costs remained stable because of futures contracts and placid supply markets, and demand was declining because of consumer trends favoring healthier snack options. In addition, Plaintiffs made more specific allegations regarding Defendants’ conspiratorial conduct in Canada, which the Court found “enhances the plausibility of the alleged U.S. price-fixing conspiracy.”

Interlocutory Appeal - Judge Conner found, however, that there is substantial grounds for difference of opinion as to whether the In re Chocolate allegations meet the requirements of the new test from Twombly. He found that Twombly “communicates ‘multiple linguistic signals’ about the standard of review.” While Twombly superceded Conley and required plausibility, the opinion also expressly rejected a requirement of heightened fact pleading of specifics. Thus, a narrow reading of Twombly “construes it as a formalistic change designed to give voice to a pleading standard that was already commonplace in many courts.” Because of the potential for disagreement, Judge Conner granted a motion to certify an interlocutory appeal of the following question to the Third Circuit:

Does Twombly, as a matter of law, authorize a court in a [15 U.S.C.] § 1 case to
draw an inference of conspiracy from the collective effect of repeated parallel
price increases, averments of anticompetitive activity in closely related
foreign markets, transnational management of corporate subsidiaries, opportunity
for collusion, and descriptions of anti-competitive conduct that are
economically sensible in light of mature market characteristics?

Analysis - I agree with Judge Conner’s decision that the In re Chocolate allegations satisfy the standard under Twombly, and believe that the Twombly decision should be narrowly construed. In antitrust cases, the allegations of conspiracy are often circumstantial, as the conspirators tend to be relatively diligent about covering up direct evidence of the conspiracy. The allegations here provide compelling evidence of a conspiracy, even if the evidence is circumstantial. The absence of specific allegations of an actual agreement reached among the defendants should not bar cases from proceeding to discovery when, as here, the factual circumstances suggest that the defendants conspired.

Related posts: Defendants Seek Dismissal of Price-Fixing Class Actions; Study Shows That Commodity Price Rises Don't Justify Chocolate Price Rises; Chocolate Price Fixing Cases Consolidated; Retail Grocery Chains File Suit Against Chocolate Makers; Investigation of Chocolate Makers Goes Global; Chocolate Makers Allegedly Fixed Prices.


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