Alert > Antitrust and Trade Regulation
In Gilley v. Atlantic Richfield, Ninth Circuit Reaffirms That Twombly Has Teeth
On December 2, 2009, in William O. Gilley Enterprises, Inc. v. Atlantic Richfield Co., 2009 WL 4282914 (9th Cir., 2009) (“Gilley”), the Ninth Circuit affirmed the Rule 12(b)(6) dismissal of a price-fixing class action brought under Section 1 of the Sherman Act, holding that vague allegations that a network of exchange agreements facilitated collusion among defendant oil producers were insufficient as a matter of law. In so doing, the court reiterated its position that in order to bring a Section 1 Sherman Act claim, plaintiffs must meet the Twombly pleading standard and clearly allege not just ultimate facts, but rather evidentiary facts supporting each of the required elements.
Background
Plaintiffs filed this class action in 1998 against major oil producers on behalf of wholesaler purchasers of California Air Resources Board (CARB) gasoline, alleging the producers violated the Sherman Act by entering into a conspiracy to limit the supply and raise the price of CARB gas.1 The case was stayed pending resolution of another class action, Aguilar v. Atlantic Richfield Co., 25 Cal.4th 826 (2001), which involved the same defendants, same plaintiffs’ counsel and similar claims, but was filed in California state court on behalf of retailer purchasers of CARB gas. The state trial court, later affirmed by the California Supreme Court, granted defendants summary judgment in Aguilar on the ground that plaintiffs failed to meet their burden to produce evidence of a conspiracy.
Because there was overlap between the plaintiff classes of the two cases, the district court in Gilley held plaintiffs were precluded from re-litigating the issue of whether a conspiracy existed, and dismissed the per se horizontal price-fixing claims. Plaintiffs then submitted an amended complaint alleging “rule of reason” claims that defendants’ bilateral exchange agreements, when aggregated together, resulted in anticompetitive effects. The district court again dismissed the claims, holding aggregation was improper and that plaintiffs’ allegations both lacked requisite particularity and relied upon a precluded theory of conspiracy.
On appeal, the Ninth Circuit reversed and remanded, holding plaintiffs should be permitted an opportunity to amend to cure identified deficiencies, and that precedent did not necessarily preclude aggregation. Plaintiffs’ Second Amended Complaint (SAC) alleged defendants had entered into a number of sales/exchange agreements for the delivery of CARB gas for the purpose of limiting the refining capacity for CARB gas and/or to keep it out of the spot market and away from unbranded marketers. The SAC further alleged these agreements had the effect of raising prices above competitive levels.
Ninth Circuit Enforces a Strict Pleading Standard for Section 1 Sherman Act Claims
The Ninth Circuit affirmed the district’s court’s dismissal, finding the SAC alleged that defendants had used “a network of exchange agreements” to facilitate coordinated action that unlawfully restrained trade, not that the contracts themselves had a discrete anticompetitive effect. This finding was fatal to the SAC on three different fronts:
First, the SAC failed due to issue preclusion. Although plaintiffs did not expressly allege the existence of a conspiracy, the claims clearly were premised upon alleged coordinated action between the defendants to use the network of purchase/exchange agreements in an anticompetitive manner. Because such an allegation of conspiracy was precluded under Aguilar, the claim could not stand.
Second, the SAC failed because it did not allege evidentiary facts meeting the required elements of a Section 1 claim. As the Ninth Circuit stated in Kendall v. Visa U.S.A., Inc., a Section 1 claim must allege “not just ultimate facts. . .but evidentiary facts which, if true, will prove: (1) a contract, combination or conspiracy among two or more persons or distinct business entities, (2) by which the persons or entities intended to harm or restrain trade or commerce. . .(3) which actually injures competition.” Gilley, 2009 WL 4282914, 8 (9th Cir., 2009) (quoting Kendall v. Visa U.S.A., Inc., 518 F. 3d 1042, 1047 (9th Cir. 2008)). Plaintiffs were precluded from alleging a conspiracy existed — thus, the only remaining theory was an allegation that “the bilateral exchange agreements are themselves impermissible restraints of trade.” The Ninth Circuit held plaintiffs failed to make such a claim because it was unclear from the SAC “which individual agreement or agreements constitute in themselves a ‘contract. . .by which the persons or entities intended to harm or restrain trade.’” Id.
Third, and related to the points above, the SAC failed because it was overly broad and vague and did not put the defendants on notice of a viable claim. The court found that “the breadth of the SAC is inconsistent with the spirit of Twombly,” which sets forth the pleading requirements in the antitrust context. See Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007). Under Twombly, a complaint must allege “more than labels and conclusions, and a formulaic recitation of a cause of action’s elements will not do.” Id. at 545. More specifically, a Section 1 claim can only pass muster under Twombly if its allegations rise “above the speculative level” and provide enough factual matter “plausibly suggesting” an illegal restraint of trade. Id.2 Reviewing the allegations under Twombly, the Ninth Circuit found that “because the SAC does not provide the defendants fair notice” of a claim that “the individual agreements in themselves constitute a restraint on trade,” nor “the grounds upon which” such a claim would rest, defendants were not put on notice of a viable claim.
Given that plaintiffs had already been given multiple chances to cure the deficiencies of their complaint, the Ninth Circuit affirmed the district court’s denial of leave to amend. The Court cited Twombly’s guidance that deficient complaints should be identified as expeditiously as possible to prevent “a plaintiff with a largely groundless claim from taking up the time of a number of other people” and/or forcing an unfair settlement.3
Considerations for Antitrust Litigants
Gilley provides another example of the Ninth Circuit’s application of Twombly to bar claims lacking necessary evidentiary facts or sufficient clarity. The Gilley plaintiffs did not identify a specific conspiracy, but instead vaguely alleged that a network of (unrelated) agreements facilitated improper coordination. Those allegations, according to the Ninth Circuit, were both foreclosed by Aguilar and insufficiently pled to withstand a Rule 12(b)(6) motion. Gilley also underscores how litigants may leverage prior, related litigation victories to bar follow-on or otherwise associated claims. Finally, the Ninth Circuit reinforced an important concept from Twombly that may be useful for certain antitrust defendants: allegations of parallel conduct (here, alleged adjustments of CARB production) cannot alone support a claim where it is just as likely that the conduct resulted from “independent efforts to maximize profits.”
This alert was prepared by Bingham counsel Brian Rocca and associate Tracey Berger of the Antitrust and Trade Regulation Group. For more information, please contact any of the lawyers listed below:
William Berkowitz, Co-chair, Antitrust and Trade Regulation Group
bill.berkowitz@bingham.com, 617.951.8375
Holly House, Co-chair, Antitrust and Trade Regulation Group
holly.house@bingham.com, 415.393.2535
Brian Rocca, Counsel, Antitrust and Trade Regulation Group
brian.rocca@bingham.com, 415.393.2394
1 Since 1996, CARB gas, a cleaner-burning fuel, has been the only kind of gas that may be sold in California.
2 Recently, in Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009), the Supreme Court affirmed that this pleading standard applies to all civil actions.
3 The court also noted that, even if the theory had been properly alleged, “aggregation” of the separate bilateral agreements “does not save the SAC because it does not show that the defendants’ adjustments of CARB production were part of any agreement or conspiracy, rather than independent efforts to maximize profits.” (citing Twombly, 550 U.S. at 566).
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