Erie Cnty., Ohio v. Morton Salt, Inc.

• Decision Date: 18 December 2012
• Docket Number: No. 11–4153.,11–4153.
• Citation: 702 F.3d 860
• Parties: ERIE COUNTY, OHIO, individually and on behalf of all entities similarly situated, Plaintiff–Appellant, v. MORTON SALT, INC. and Cargill, Inc., Defendants–Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

702 F.3d 860

ERIE COUNTY, OHIO, individually and on behalf of all entities similarly situated, Plaintiff–Appellant,

v.MORTON SALT, INC. and Cargill, Inc., Defendants–Appellees.

No. 11–4153.

United States Court of Appeals,Sixth Circuit.

Argued: Oct. 10, 2012.

Decided and Filed: Dec. 18, 2012.

ARGUED:Dennis E. Murray, Jr., Murray & Murray Co., L.P.A., Sandusky, Ohio, for Appellant. David Marx, Jr., McDermott Will & Emery LLP, Chicago, Illinois, for Appellees. ON BRIEF:Dennis E. Murray, Jr., Charles M. Murray, Margaret M. Murray, Michael J. Stewart, Murray & Murray Co., L.P.A., Sandusky, Ohio, for Appellant. David Marx, Jr., McDermott Will & Emery LLP, Chicago, Illinois, Hugh R. McCombs, Kristin W. Silverman, Mayer Brown LLP, Chicago, Illinois, G. Jack Donson, Jr., John B. Nalbandian, Taft Stettinius & Hollister LLP, Cincinnati, Ohio, Brian J. Wong, Mayer Brown, LLP, Washington, D.C., Richard T. Prasse, Hahn Loeser & Parks LLP, Cleveland, Ohio, for Appellees.

Before: GILMAN, GIBBONS, and ROGERS, Circuit Judges.

OPINION

RONALD LEE GILMAN, Circuit Judge.

This is a purported class action brought by Erie County, Ohio on behalf of itself and other counties in northern Ohio against Morton Salt, Inc. and Cargill, Inc. Erie County claims that Morton and Cargill have conspired to fix the price of rock salt in northern Ohio by geographically dividing the market and excluding competition, in violation of Ohio's Valentine Act (Ohio Revised Code §§ 1331.01–1331.15), a state analogue to the federal antitrust statutes, including the Sherman Act (15 U.S.C. §§ 1–7). The district court granted the defendants' motion to dismiss, finding that the facts alleged in the complaint are just as consistent with lawful parallel conduct as they are with a conspiracy. On appeal, Morton and Cargill defend the court's dismissal of the complaint for failure to state a claim and argue that the court's decision may also be affirmed on the independent basis that Erie County lacks standing to sue. Although we disagree with the analysis of the district court, we AFFIRM its judgment for the reasons set forth below.

I. BACKGROUND

A. Duopoly in the northern Ohio rock-salt market

The following facts are taken from the Second Amended Class Action Complaint (the complaint) and the documents that it relies on, which documents both parties urge us to consider. See Bassett v. Nat'l. Coll. Athletic Ass'n., 528 F.3d 426, 430 (6th Cir.2008) (holding that, on a motion to dismiss, a court “may consider the Complaint and any exhibits attached thereto, public records, items appearing in the record of the case and exhibits attached to defendant's motion to dismiss so long as they are referred to in the Complaint and are central to the claims contained therein”).

Rock salt, also known as road salt, is larger and heavier than table salt. Its size and weight keep it from being easily pushed off the road, and it is used to keep roads and bridges free of snow and ice during wintery weather. The market for rock salt in Ohio has two distinct segments: a market encompassing the 54 northern counties (known as the “Lake [Erie] market”) and a market consisting of the southern 34 counties (known as the “[Ohio] River market”). Rock salt offered in the northern market comes primarily from mines near Lake Erie in Ohio, and rock salt offered in the southern market comes primarily from mines in Louisiana. The Ohio Department of Transportation (ODOT) is the largest purchaser of rock salt in Ohio. Members of the purported class—the northern Ohio counties—are, collectively, the second-largest in-state purchaser. ODOT is required to award contracts by soliciting sealed bids and choosing the lowest bid (subject to preferences for Ohio-mined salt, which will be discussed below). See generallyOhio Rev.Code § 125.11.

Morton and Cargill are the only two companies that operate salt mines located in Ohio. Morton is headquartered in Chicago and operates a salt mine in Fairport, Ohio. Cargill is headquartered in North Olmstead, Ohio and operates a salt mine in Cleveland. Together, the two companies supply at least 60 percent of the rock salt purchased in Ohio. Between 2001 and 2008, they supplied almost all of the rock salt purchased by government entities in northern Ohio.

During the fall and winter of 2008, the price of rock salt purchased by ODOT rose by as much as 300 percent compared to the previous year. (The Ohio Inspector General puts the price rise at between 19 and 236 percent; ODOT reports it as between 50 and 300 percent.) Ohio Governor Ted Strickland asked ODOT to investigate the causes of this dramatic price hike. ODOT responded by preparing a Bid Analysis and Review Team Report (the BART Report), which it submitted to the Governor in December 2008. The BART Report identified several potential causes for the price spike, including increased demand for salt due to a harsh winter; high transportation costs due to increased energy prices; and the structure of the state's contract system, which required suppliers to keep a large quantity of salt off the market and in reserve, thereby “suppress [ing] uncommitted supply” and increasing the price.

More to the point for purposes of the present case, the BART Report found that Morton and Cargill elected not to compete with each other, preferring instead to keep to their own turf. This in effect created “county-by-county monopolies” where higher prices prevailed. Each company “bid in a way that most easily segmented the Ohio market into two monopolies, preventing competition and ensuring that neither firm would end up over-committing its supplies.”

The BART Report also found that the state's “Buy Ohio” law favored Morton and Cargill, the only two companies offering salt mined in Ohio, over out-of-state competitors. According to the BART Report, when two firms offering Ohio-mined salt submitted a bid, ODOT's practice under the Buy Ohio law was to accept one of them—even if out-of-state bidders submitted cheaper bids. This “lockout” effect excluded outside competition and resulted in higher prices.

Prompted by the BART Report, the Ohio Office of the Inspector General initiated its own investigation in February 2009 and issued a report in January 2011 (the OIG Report). The OIG interviewed 27 people in conducting its investigation, including employees of Morton and Cargill, employees of their competitors, and state governmental officials. It also issued 14 subpoenas and other record requests to Morton and Cargill, and received nearly 190,000 pages of documents containing “road salt bidding, pricing, mine sourcing, stockpiling and transportation data” in response. The OIG consulted Dr. James T. McClave, a statistician and founder of Info Tech Inc., a company that the OIG Report described as “one of the nation's premier bid-analysis consulting firms,” to help review and analyze this data. Because the complaint is largely based on the OIG Report, the Report's key findings are set forth below.

The OIG Report found that the exclusion of out-of-state competitors was not due to the Buy Ohio law itself, but was caused by ODOT's erroneous interpretation of the law. Under this law, if two or more companies offering Ohio-mined salt submit a bid on a contract, ODOT is required to award the contract to one of them, even if other bidders offering non-Ohio-mined salt submit cheaper bids— but only if the lowest price for the Ohio-mined salt is no more than five percent above the lowest price for the non-Ohio-mined salt. SeeOhio Rev.Code § 125.11(B); Ohio Admin. Code § 123:5–1–06(C)(3).

From 2001 to 2008, ODOT gave no effect to this “excessive price” caveat. It instead read the law to require awarding the contract to one of two or more companies offering Ohio-mined salt, regardless of the price. Under this reading, if both Morton and Cargill, the only two companies offering Ohio-mined salt, submitted a bid, then all other companies were locked out of the competition, even if their bids were more than five percent lower. This lockout interpretation of the Buy Ohio law helped give rise to a duopoly in which Morton and Cargill ruled the northern Ohio market for state-government contracts in rock salt. “By applying the lockout interpretation when awarding salt contracts instead of the excessive-price interpretation,” concluded the OIG Report, “ODOT has been an enabler in its own victimization.”

But the OIG Report did not lay all the blame for noncompetitive rock-salt prices at ODOT's doorstep. It also found that Morton and Cargill had “engaged in anti-competitive market allocation practices” by “carv[ing] up” the market into two zones, with each company ruling its own zone and failing to mount a competitive challenge in the other's zone.

The OIG Report relied on “five indicators” to support its market-allocation conclusion:

1. Stable market shares. In a competitive market, the market shares of firms would fluctuate as they win and lose in competition with rivals. Between 2000 and 2010, however, the market shares of Morton and Cargill were relatively stable. Morton's share of the northern Ohio market for rock salt was between 18 and 31 percent, and Cargill's was between 68 and 82 percent (a fluctuationof 13–14 percent). By contrast, in the southern Ohio market, Morton's share varied from 2 to 46 percent, and Cargill's from 33 to 98 percent (a fluctuation of 44–65 percent).

2. High incumbency rates. In a competitive market, the rate of “incumbency” (the rate at which a bidder keeps winning the contracts it won last year) is not expected to be high, because business opportunities would attract entrants who seize the prize from the incumbent by offering better or cheaper products. But the 54 counties in the northern Ohio market experienced high incumbency rates: “Since 2000, the percentage of [northern] Ohio counties with incumbent winning vendors has been as high as 98% (2009) and has never dropped below 68% (2008).” In some northern Ohio counties,...