Romero v. Philip Morris Inc.

• Decision Date: 25 June 2010
• Docket Number: No. 31,433.,31,433.
• Court: New Mexico Supreme Court
• Parties: Beatrice C. ROMERO and Michael Ferree, on behalf of themselves and all others similarly situated, Plaintiffs-Respondents, v. PHILIP MORRIS INCORPORATED, R.J. Reynolds Tobacco Company, Brown & Williamson Tobacco Corporation, Defendants-Petitioners.

242 P.3d 280

148 N.M. 713

2010 -NMSC- 035

Beatrice C. ROMERO and Michael Ferree, on behalf of themselves and all others similarly situated, Plaintiffs-Respondents,

v.PHILIP MORRIS INCORPORATED, R.J. Reynolds Tobacco Company, Brown & Williamson Tobacco Corporation, Defendants-Petitioners.

No. 31,433.

Supreme Court of New Mexico.

June 25, 2010.

Montgomery & Andrews, P.A., Sarah M. Singleton, Walter J. Melendres, Victor R. Ortega, Santa Fe, NM, Arnold & Porter, L.L.P., Kenneth L. Chernof, Washington, DC, Boies, Schiller & Flexner, L.L.P., David Boies, Armonk, NY, Jack G. Stern, New York, NY, Amy J. Mauser, Washington, DC, for Petitioner Philip Morris Incorporated.

Rodey, Dickason, Sloan, Akin & Robb, P.A., Andrew G. Schultz, Albuquerque, NM, Jones Day, Edwin L. Fountain, Washington, DC, Thomas Demitrack, Cleveland, OH, for Petitioners R.J. Reynolds Tobacco Company and Brown & Williamson Tobacco Corporation.

Youtz & Valdez, P.C., Shane C. Youtz, Albuquerque, NM, Ball & Scott Law Offices, Gordon Ball, Knoxville, TN, Cuneo Gilbert & Laduca, L.L.P., Jonathan W. Cuneo, Daniel Cohen, Hausfeld, L.L.P., Michael D. Hausfeld, Megan E. Jones, Washington, DC, for Respondents.

OPINION

CHÁVEZ, Justice.

{1} In this class action lawsuit, Plaintiffs allege that Defendants engaged in an agreement to fix the price of cigarettes from 1993 to 2000. The district court granted summary judgment in favor of Defendants, because although Plaintiffs offered evidence of parallel pricing, they failed to establish a genuine issue of material fact regarding whether any evidence, in addition to the parallel pricing, tended to exclude independent conduct on Defendants' part, as required by federal substantive law. On appeal, the Court of Appeals

[242 P.3d 285, 148 N.M. 718]

rejected the federal "plus factor" approach, and instead held that Plaintiffs could prove a conspiracy by parallel conduct alone, as long as independent conduct was an implausible explanation. Romero v. Philip Morris, Inc., 2009-NMCA-022, ¶¶ 24, 44, 145 N.M. 658, 203 P.3d 873. The Court of Appeals also concluded that when looking at the evidence in the light most favorable to Plaintiffs, a genuine issue of material fact existed, therefore precluding summary judgment. Id. ¶¶ 43-44. Romero v. Philip Morris Inc., 2009-NMCERT-002, 145 N.M. 705, 204 P.3d 30.

{2} We granted Defendants' petition for writ of certiorari to consider two issues. First, we consider whether the Court of Appeals applied the incorrect standard for summary judgment. Second, we consider whether the Court of Appeals correctly applied federal substantive law regarding alleged agreements to fix prices. Although we agree with the summary judgment standard applied by the Court of Appeals, we hold that the Court of Appeals did not correctly apply federal substantive law as required by NMSA 1978, Section 57-1-15 (1979). Under federal substantive antitrust law, 15 U.S.C. § 1 (2006), evidence of parallel price increases alone is not sufficient in the context of an oligopoly to prove an agreement to fix prices. Such evidence is always ambiguous, and therefore plaintiffs who allege a price-fixing agreement must also provide evidence that tends to exclude the possibility that parallel price increases were the result of independent conduct. Because federal law limits the inferences available to a jury to those that are reasonable, plaintiffs relying upon circumstantial evidence cannot survive summary judgment, as a matter of law, unless the evidence tends to exclude the possibility that the alleged conspirators acted independently. Independent conduct is also referred to in case law as "conscious parallelism," "tacit collusion," or "legal independent conduct." We therefore affirm the district court's grant of summary judgment and reverse the Court of Appeals.

BACKGROUND

{3} The following facts are undisputed. Plaintiffs are "[p]ersons in the State of New Mexico ... who purchased cigarettes indirectly from Defendants, or any parent, subsidiary or affiliate thereof, at any time from November 1, 1993 to the date of the filing of this action [April 10, 2000]." The original Defendants were Philip Morris, R.J. Reynolds ("RJR"), Brown & Williamson ("B & W"), Lorillard, and Liggett. The events leading up to this lawsuit were set in motion in response to a Philip Morris strategy beginning with an event known as "Marlboro Friday." ¹ Prior to Marlboro Friday, Philip Morris, the market leader, had been steadily losing market share to discount and deep discount cigarettes since 1980, when Liggett pioneered the development of generic cigarettes. See Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 212, 113 S.Ct. 2578, 125 L.Ed.2d 168 (1993). In an attempt to regain market share, Philip Morris announced Marlboro Friday on April 2, 1993, "a nationwide promotion on Marlboro that reduced prices at retail by approximately 20 percent, an average of 40¢ per pack." In response, RJR and B & W instituted similar promotions. As part of its strategy, Philip Morris announced on July 20, 1993, that there would be a similar reduction on all premium brands, discount brands, and deep discount brands starting on August 9, 1993. Defendants RJR and B & W also followed these price reductions. After these decreases, Defendants began to increase their wholesale list prices on premium and discount cigarettes in near lock-step fashion. Some increases were due to settlements with the 50 states, some because of increases in federal excise taxes, and others were simply planned. Even with these increases, wholesale list prices did not exceed pre-Marlboro Friday levels until August 3, 1998, or when adjusted for inflation, ongoing settlement costs, and federal excise taxes, the list prices did not surpass pre-Marlboro Friday amounts until August 1999. During the time period of the alleged agreement to fix prices, 1993 to 2000, Defendants were engaged in competition with one another regarding promotions at

[148 N.M. 719, 242 P.3d 286]

the retail level, resulting in a direct reduction of the retail prices of cigarettes.

{4} Plaintiffs filed this class action lawsuit on April 10, 2000, alleging violations of New Mexico antitrust and consumer protection laws. See NMSA 1978, §§ 57-1-1 to-15 (1979, as amended through 1987); NMSA 1978, §§ 57-12-1 to -22 (1967, as amended through 1999). Defendants filed motions for summary judgment. In granting the motion for summary judgment, the district court held that Plaintiffs had met their initial burden of showing a pattern of parallel behavior, but failed to meet their second burden of showing the existence of plus factors that would tend to exclude the possibility that the alleged conspirators acted independently. Plaintiffs argued that the following were plus factors that tended to exclude Defendants' independent conduct: (1) the economics of the marketplace; (2) Defendants' strong motivation to conspire; (3) the fact that Defendants condensed the price tiers to facilitate their conspiracy; (4) Defendants acted contrary to their own self-interests; (5) alleged conspiratorial meetings in foreign markets; (6) Defendants had engaged in past conspiracies, such as misrepresenting the health consequences of smoking; (7) Defendants monitored their conspiracy through monthly factory shipment data reports prepared by Management Science Associates ("MSA"); (8) opportunities to conspire, including inter-firm communications and meetings; and (9) pricing decisions were made by those in high-level positions. However, the district court relied on the Eleventh Circuit case of Williamson Oil Co. v. Philip Morris USA, 346 F.3d 1287, 1300 (11th Cir.2003), to reject Plaintiffs' plus factors. The district court also held that even with the presentation of plus factors, "there still exists the opportunity for the defendant[s] to rebut the inference of collusion by presenting evidence establishing that no reasonable fact-finder could conclude that they entered into a price-fixing conspiracy." Plaintiffs appealed.

{5} On appeal, the Court of Appeals acknowledged that "Marlboro Friday and the industry-wide price reductions that occurred afterward represented the triumph of competition over oligopolistic price coordination." Romero, 2009-NMCA-022, ¶ 27, 145 N.M. 658, 203 P.3d 873; see also id. ¶ 44. Although the Court affirmed summary judgment in favor of Lorillard and Liggett because the evidence showed that they had merely acted "consistent with conscious parallelism," id. ¶ 46, the Court reversed summary judgment in favor of Philip Morris, RJR, and B & W because "[a]pplying Brooke Group, and relying on the opinions of Plaintiffs' expert, Dr. [Keith] Leffler, we think that a reasonable factfinder could view conscious parallelism as a relatively implausible explanation for the anticompetitive scenario that played out following Marlboro Friday," Romero, 2009-NMCA-022, ¶ 44, 145 N.M. 658, 203 P.3d 873. The Court acknowledged that New Mexico follows "federal case law interpreting Section 1 of the Sherman Act for substantive rules defining the scope of liability under [the New Mexico Antitrust Act] NMAA Section 1." Id. ¶ 18. It held that "behavior of market participants characterizable as mere conscious parallelism does not satisfy the conspiracy element requirement of NMAA Section 1," id. ¶ 22, and noted that federal courts have recognized the "doctrine of conscious parallelism as a substantive principle of antitrust law," id. ¶ 23. The Court also noted that federal law requires plaintiffs to present evidence of "plus factors" that tend to exclude the possibility of independent conduct. Id. ¶¶ 23-24. However, it did not follow federal precedent regarding plus factors, but held that "the sounder approach for a New Mexico court is to engage in an independent and rigorous evaluation of the evidence in deciding whether or not the plaintiffs' evidence tends to suggest a degree of coordination that exceeds the parallelism that could be accomplished...