Anderson News, L. L.C. v. Am. Media, Inc., Docket No. 10–4591–cv.

• Citation: 680 F.3d 162,2012 Trade Cases P 77843,40 Media L. Rep. 1585
• Decision Date: 03 April 2012
• Docket Number: Docket No. 10–4591–cv.
• Parties: ANDERSON NEWS, L.L.C., Lloyd T. Whitaker, as the Assignee under an Assignment for the Benefit of Creditors for Anderson Services, L.L.C., Plaintiffs–Appellants, v. AMERICAN MEDIA, INC., Bauer Publishing Co., LP, Curtis Circulation Company, Distribution Services, Inc., Hachette Filipacchi Media, U.S., Hudson News Distributors LLC, Kable Distribution Services, Inc., Rodale, Inc., Time Inc., Time/Warner Retail Sales & Marketing, Inc., Defendants–Appellees, The News Group, LP, Defendant.
• Court: United States Courts of Appeals. United States Court of Appeals (2nd Circuit)

680 F.3d 162

2012-1 Trade Cases P 77,843

40 Media L. Rep. 1585

ANDERSON NEWS, L.L.C., Lloyd T. Whitaker, as the Assignee under an Assignment for the Benefit of Creditors for Anderson Services, L.L.C., Plaintiffs–Appellants,

v. AMERICAN MEDIA, INC., Bauer Publishing Co., LP, Curtis Circulation Company, Distribution Services, Inc., Hachette Filipacchi Media, U.S., Hudson News Distributors LLC, Kable Distribution Services, Inc., Rodale, Inc., Time Inc., Time/Warner Retail Sales & Marketing, Inc., Defendants–Appellees,The News Group, LP, Defendant.

Docket No. 10–4591–cv.

United States Court of Appeals, Second Circuit.

Argued: Oct. 19, 2011.

Decided: April 3, 2012.

Michael K. Kellogg, Washington D.C. (Aaron M. Panner, Kellogg, Huber, Hansen, Todd, Evans & Figel, Washington D.C., Marc Rowin, Thomas P. Lynch, Lynch, Rowin, New York, NY, Marc E. Kasowitz, Kasowitz, Benson, Torres & Friedman, New York, NY, on the brief), for Plaintiffs–Appellants.

David G. Keyko, New York, NY (Pillsbury WinthropShaw Pittman, New York, NY, on the brief), for Defendants–Appellees American Media, Inc., and Distribution Services, Inc.

Barry J. Brett, New York, NY (Daniel N. Anziska, Troutman Sanders, New York, NY, on the brief), for Defendant–Appellee Bauer Publishing Co., LP.

Dechert, New York, NY (George G. Gordon, Joseph F. Donley, New York, NY, of counsel), submitted a brief for Defendant–Appellee Curtis Circulation Company.

Jones Day, New York, NY (Meir Feder, D. Theodore Rave, of counsel), submitted a brief for Defendant–Appellee Hachette Filipacchi Media U.S., Inc.

Gibson Dunn & Crutcher, Washington, D.C. (D. Jarrett Arp, Cynthia E. Richman, of counsel), submitted a brief for Defendant–Appellee Hudson News Distributors L.L.C.

McElroy, Deutsch, Mulvaney & Carpenter, New York, NY (I. Michael Bayda, Jay A. Katz, of counsel), submitted a brief for Defendant–Appellee Kable Distribution Services, Inc.

Winston & Strawn, New York, NY (John M. Hadlock, of counsel), submitted a brief for Defendant–Appellee Rodale, Inc.

Rowan D. Wilson, New York, NY (Thomas G. Rafferty, Margaret E. Lynaugh, Cravath, Swaine & Moore, New York, NY, on the brief), for Defendants–Appellees Time Inc. and Time/Warner Retail Sales & Marketing, Inc.

Before: KEARSE, LEVAL, and CHIN, Circuit Judges.

KEARSE, Circuit Judge:

Plaintiffs Anderson News, L.L.C., and Lloyd T. Whitaker, as assignee for the benefit of creditors for Anderson Services, L.L.C. (collectively “Anderson”), appeal (1) from a judgment of the United States District Court for the Southern District of New York, Paul A. Crotty, Judge, dismissing their complaint alleging that defendants-appellees, who were suppliers and business competitors of Anderson, conspired to drive Anderson out of business, in violation of § 1 of the Sherman Antitrust Act, 15 U.S.C. § 1, and New York law, and (2) from an order denying Anderson's motion for reconsideration and for leave to file a proposed amended complaint. The district court granted the motions of defendants-appellees (“defendants”) to dismiss the complaint under Fed.R.Civ.P. 12(b)(6) for failure to state a claim on which relief can be granted, and denied reconsideration, ruling that the alleged conspiracy was facially implausible under the standards set by Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (“Twombly ”), and Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (“Iqbal ”); the court denied Anderson's request for permission to file an amended complaint, ruling that the defects in the original complaint were incurable and that the proposed new complaint added only allegations that were conclusory. On appeal, Anderson contends principally that its complaint contained sufficient factual allegations to plead an antitrust violation under the standards set by Twombly and Iqbal, and that it should have been allowed to file its proposed amended complaint which contained additional factual allegations. We conclude that even if the original complaint did not meet the Twombly/Iqbal standard, Anderson's proposed amended complaint, which contains additional factual allegations, meets that standard and should have been allowed. Accordingly, we vacate the judgment of dismissal and remand for further proceedings.

I. BACKGROUND

The present action involves the single-copy magazine industry, i.e., the business of selling magazines for purchase by consumers at retail outlets such as newsstands, bookstores, and mass merchandise retailers, as contrasted with the subscription-sales industry which involves shipping magazines directly to consumers. The following description of the single-copy magazine industry (or “magazine industry”) and the events leading to this litigation is taken principally from Anderson's original complaint (“Complaint”) and/or from its proposed amended complaint (or “PAC”), taking as true all material factual “allegations of the ... complaint and proposed ... amended complaint,” and “draw[ing] all reasonable inferences and resolv[ing] all conflicts and ambiguities in favor of plaintiffs,” Papelino v. Albany College of Pharmacy of Union University, 633 F.3d 81, 85 n. 1 (2d Cir.2011).

A. The Parties

Anderson, whose creditors forced it into bankruptcy liquidation proceedings in March 2009, had been a wholesaler in the magazine industry since 1917. Wholesalers are responsible for, inter alia, the delivery of magazines to retailers. As a wholesaler, Anderson purchased magazines from their respective publishers at prices in the range of 50–60 percent of the cover prices and resold the magazines to retailers at 70–80 percent of the cover prices. ( See Complaint ¶ 30; PAC ¶ 33.) Prior to February 2009, Anderson had become the second largest magazine wholesaler in the United States, with a 27–percent market share, servicing 30,000 retail customer locations in 37 states. ( See Complaint ¶¶ 19, 30; PAC ¶¶ 22, 37.)

The 10 defendants are, principally, national magazine publishers and their distribution representatives. The five magazine publisher defendants are:

American Media, Inc. (“AMI”), the fourth largest publisher of consumer magazines, including six of the 15 best-selling weekly newsstand magazines;

Bauer Publishing Co. (“Bauer”), the largest publisher of newsstand magazines;

Hachette Filipacchi Media, U.S. (“Hachette”), publisher of, inter alia, HOME, Car and Driver, Road and Track, Popular Photography, Woman's Day, and ELLE;

Rodale, Inc. (“Rodale”), publisher of, inter alia, Prevention, Men's Health, Women's Health, and Runner's World; and

Time, Inc. (“Time”), the largest publisher of magazines overall in the United States, publishing more than 120 magazines including Time, People, Sports Illustrated, Golf, Fortune, and Money.

Approximately 80 percent of the magazines distributed by Anderson were published by the defendant publishers. ( See, e.g., Complaint ¶ 64; PAC ¶ 84.)

The so-called “distributor[ ]” defendants are companies that “perform no physical distribution activities like warehousing, order assembly, delivery or in-store merchandising” (PAC ¶ 16) but rather are retained by publishers to, inter alia, broker and manage the publishers' relationships with wholesalers ( see, e.g., Complaint ¶ 13; PAC ¶ 16). The four distributor defendants are:

Distribution Services, Inc. (“DSI”), a subsidiary of AMI that provides marketing services to publishers, including AMI, Bauer, Hachette, and Rodale;

Curtis Circulation Co. (“Curtis”), an affiliate of Hachette; the largest national magazine distributor in the United States by volume, representing at least 400 publishers, including Hachette, Rodale, and AMI, with respect to hundreds of national titles;

Kable Distribution Services, Inc. (“Kable”), the second largest national distributor in the United States, representing more than 250 publishers, including Bauer, with respect to more than 650 magazines, annuals, and digests; and

Time/Warner Retail Sales & Marketing, Inc. (“TWR”), a national magazine distributor whose clients include Time, its corporate parent.

Curtis, Kable, and TWR, along with non-party Comag Marketing Group LLC (“Comag”), are the four national distributors in the United States.

The remaining defendant, Hudson News Distributors LLC (“Hudson”), is a major wholesaler. In 2008, four wholesalers accounted for 90 percent of single-copy magazine distribution: Hudson, with a market share of 11 percent; The News Group, LP (“News Group”), with 21 percent; Anderson with 27 percent; and Source Interlink Distribution, L.L.C. (“Source”), with 31 percent. ( See Complaint ¶ 30; PAC ¶ 37.) News Group was originally named a defendant in this action but was shortly dismissed as part of a settlement. ( See PAC ¶ 25.) The Complaint alleged that Source, like Anderson, was a target of defendants' alleged conspiracy, which aimed to eliminate the two largest magazine wholesalers; Source, however, obtained a restraining order, and after “defendants produced documents in discovery, they agreed to enter into settlements with Source for the multi-year supply of magazines.” (PAC ¶ 26.)

B. The Single–Copy Magazine Sales Industry

Magazine wholesalers are responsible not only for delivering the magazines to retailers but also for thereafter picking up from the retailers, tabulating, and destroying any copies that remain unsold. ( See, e.g., Complaint ¶¶ 29–30; PAC ¶ 33.) However, publishers have an incentive to see that each retailer is overstocked, in order to ensure maximum sales and thereby maximize advertising revenues ( see, e.g., Complaint ¶ 31; PAC ¶¶ 34, 41); “[i]ndeed, nearly half of all newsstand magazine titles have a ‘sell-through’ percentage as low as 80%—meaning that, of five magazines distributed by the wholesaler, only one is actually sold to a consumer” (PAC ¶ 41). The cost of such overstocking is borne not by the publishers that desire it, however, but rather by the wholesalers, for wholesalers historically have been compensated only for the copies that...