Ramsey v. Nat'l Ass'n of Music Merchants, Inc. (In re Musical Instruments & Equip. Antitrust Litig.)

• Decision Date: 25 August 2015
• Docket Number: No. 12–56674.,12–56674.
• Parties: In re MUSICAL INSTRUMENTS AND EQUIPMENT ANTITRUST LITIGATION. Joshua Ramsey; David Giambusso; Dwayne Wiggins ; Jason Paradise; Kate Macwilliamson; Niranjan Parikh; Paula Jennings; Ryan J. Bigg; Mark O'leary ; Cynthia Sepulveda; Russell D. Melton; Jerry Jost; Kevin Gagnepain; Josh Pearson; John Pearson; Mary Pearson; Colby Giles; David Keel; William S. Poff; Allen Hale ; Daniel T. Smith; Gerald Logsdon; Augustin Cervantes; Benn Feltheimer; Bryan Roach ; Brandon Armstrong; Richard Tabas ; Allen Hale ; Kenneth Manyin; Russell D. Melton; Jon Bandish; Mark O'leary ; Alex Teller; Scott Cook; Joshua Seiler; Johan Edward Rigor; Walter Witherspoon; Robert Lesko; Suzanne Ondre; Lisa Pritchett, Plaintiffs–Appellants, v. National Association Of Music Merchants, Inc.; Guitar Center, Inc.; Guitar Center Stores, Inc.; Fender Musical Instruments Corp.; Yamaha Corporation of America; Gibson Guitar Corporation; Hoshino, U.S.A., Inc. ; Kaman Music Corporation, Defendants–Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

798 F.3d 1186

In re MUSICAL INSTRUMENTS AND EQUIPMENT ANTITRUST LITIGATION.Joshua Ramsey; David Giambusso; Dwayne Wiggins ; Jason Paradise; Kate Macwilliamson; Niranjan Parikh; Paula Jennings; Ryan J. Bigg; Mark O'leary ; Cynthia Sepulveda; Russell D. Melton; Jerry Jost; Kevin Gagnepain; Josh Pearson; John Pearson; Mary Pearson; Colby Giles; David Keel; William S. Poff; Allen Hale ; Daniel T. Smith; Gerald Logsdon; Augustin Cervantes; Benn Feltheimer; Bryan Roach ; Brandon Armstrong; Richard Tabas ; Allen Hale ; Kenneth Manyin; Russell D. Melton; Jon Bandish; Mark O'leary ; Alex Teller; Scott Cook; Joshua Seiler; Johan Edward Rigor; Walter Witherspoon; Robert Lesko; Suzanne Ondre; Lisa Pritchett, Plaintiffs–Appellants

v.National Association Of Music Merchants, Inc.; Guitar Center, Inc.; Guitar Center Stores, Inc.; Fender Musical Instruments Corp.; Yamaha Corporation of America; Gibson Guitar Corporation; Hoshino, U.S.A., Inc. ; Kaman Music Corporation, Defendants–Appellees.

No. 12–56674.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Oct. 6, 2014.

Filed Aug. 25, 2015.

Daniel C. Girard, Elizabeth C. Pritzker, Amanda Steiner, Scott M. Grzenczyk (argued), Girard Gibbs LLP, San Francisco, CA, for Plaintiffs–Appellants.

Margaret M. Zwisler (argued), J. Scott Ballenger, Latham & Watkins LLP, Washington, D.C.; Christopher S. Yates, Latham & Watkins LLP, San Francisco, CA, for Defendant–Appellee Guitar Center, Inc.

Daniel A. Sasse, Chahira Solh, Crowell & Moring LLP, Irvine, CA, for Defendant–Appellee Yamaha Corporation of America.

Paul C. Cuomo, Stephen Weissman, Baker Botts LLP, Washington, D.C.; Robert G. Abrams, Baker & Hostetler LLP, Washington, D.C., for Defendant–Appellee National Association of Music Merchants, Inc.

Neil G. Epstein, Keith E. Smith, Eckert Seamans Cherin & Mellott, LLC, Philadelphia, PA; Christopher M. Young, DLA Piper LLP (US), San Diego, CA, for Defendant–Appellee Hoshino (U.S.A.), Inc.Lawrence G. Scarborough, J. Alex Grimsley, Bryan Cave LLP, Phoenix, AZ, for Defendants–Appellees Fender Musical Instruments Corporation and Kaman Music Corp.

Tim Harvey, Riley Warnock & Jacobson, PLC, Nashville, TN, for Defendant–Appellee Gibson Guitar Corp. DBA Gibson U.S.A.

Appeal from the United States District Court for the Southern District of California, Larry A. Burns, District Judge, Presiding. D.C. No. 3:09–md–02121–LAB–DHB.

Before: HARRY PREGERSON, RICHARD C. TALLMAN, and CARLOS T. BEA, Circuit Judges.

Opinion by Judge BEA

; Dissent by Judge PREGERSON.

OPINION

BEA, Circuit Judge:

Where a large musical-instrument retailer pressures individual guitar manufacturers to set the lowest prices at which the manufacturers will permit any retailer to advertise the manufacturers' products—and each manufacturer acquiesces—can we infer the manufacturers conspired among themselves to fix prices?

Plaintiffs ask us to answer this question in the affirmative. They claim it is plausible to infer a price-fixing conspiracy based only on allegations that certain guitar manufacturers each adopted similar advertising policies (“parallel conduct”) under circumstances that suggest the manufacturers agreed among themselves to adopt those policies (“plus factors”). But plaintiffs' plus factors are no more consistent with an illegal agreement than with rational and competitive business strategies, independently adopted by firms acting within an interdependent market. Plaintiffs' allegations of “merely parallel conduct that could just as well be independent action” are insufficient to state a claim under § 1 of the Sherman Act, 15 U.S.C. § 1. Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 557, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007). And because plaintiffs' plus factors add nothing, we affirm the judgment of the district court dismissing plaintiffs' § 1 claim.

I

Plaintiffs, a putative class, purchased guitars and guitar amplifiers from defendant Guitar Center, Inc. (“Guitar Center”), the largest retail seller of musical instruments in the United States.¹ The guitars and amplifiers were manufactured by five major manufacturers, defendants Fender Music Instruments Corp., Gibson Guitar Corp., Yamaha Corp. of America, Hoshino U.S.A., Inc., and Kaman Music Corp. (“manufacturer defendants”). In their present complaint, plaintiffs allege that between 2004 and 2009, Guitar Center and the manufacturer defendants—along with defendant trade association National Association of Music Merchants (NAMM)—conspired to implement and enforce minimum-advertised-price policies (“MAP policies”) that fixed the minimum price at which any retailer could advertise the manufacturers' guitars and guitar amplifiers. According to plaintiffs, these MAP policies tended to raise retail prices and restrain competition. Plaintiffs allege that each manufacturer agreed with Guitar Center to adopt MAP policies and that the manufacturers agreed among themselves to adopt the MAP policies proposed by Guitar Center. Plaintiffs claim this collection of agreements violates § 1 of the Sherman Act and the antitrust laws of Massachusetts and California.

Prior Federal Trade Commission Investigation and Settlement

In 2007, before plaintiffs filed any of the cases that now constitute this consolidated litigation, the Federal Trade Commission (FTC) initiated a nonpublic investigation into price fixing in the music-products industry. The FTC alleged that

[b]etween 2005 and 2007, NAMM organized various meetings and programs at which competing retailers of musical instruments were permitted and encouraged to discuss strategies for implementing minimum advertised price policies, the restriction of retail price competition, and the need for higher retail prices.... At these NAMM-sponsored events, competitors discussed the adoption, implementation, and enforcement of minimum advertised price policies; the details and workings of such policies; appropriate and optimal retail prices and margins; and other competitively sensitive issues.

Complaint, In re National Association of Music Merchants, Inc., No. C–4255, at ¶ 5. The FTC further alleged that the exchange of information among NAMM members (which include Guitar Center and the manufacturer defendants) “served no legitimate business purpose” and “had the purpose, tendency, and capacity to facilitate collusion and to restrain competition unreasonably.” Id. at ¶¶ 6–7. Neither Guitar Center nor the manufacturer defendants were parties to this FTC proceeding.

The FTC and NAMM resolved the dispute through a consent decree. In the consent decree, the FTC ordered NAMM to cease and desist from “urging, encouraging, advocating, suggesting, coordinating, participating in, or facilitating in any manner the exchange of information between or among Musical Product Manufacturers or Musical Product Dealers relating to ... Price Terms, margins, profits, or pricing policies, including but not limited to Minimum Advertised Price Policies.” Decision and Order, In re National Association of Music Merchants, Inc., No. C–4255, at *4. NAMM must also file periodic compliance reports and make a statement before each NAMM trade show informing members of the organization's and members' obligations under the antitrust laws. Id. at *5–7. NAMM neither admitted nor denied the FTC's allegations, and the FTC did not levy any monetary fine.

Proceedings Below

After the FTC issued its consent decree, numerous plaintiffs filed complaints alleging that defendants agreed to fix the retail prices of musical instruments in violation of § 1 of the Sherman Act and state antitrust laws. The Judicial Panel on Multidistrict Litigation centralized twenty-eight of these cases in the Southern District of California.

Defendants moved to dismiss plaintiffs' first consolidated class-action complaint under Federal Rule of Civil Procedure 12(b)(6). Defendants argued that plaintiffs' allegations were insufficiently detailed to satisfy the requirements of specificity and plausibility that the Supreme Court had recently outlined in Twombly. The district court granted the motion to dismiss in part but permitted plaintiffs to amend their complaint. The district court found that plaintiffs failed to identify in their complaint “who is alleged to have conspired with whom, what exactly they agreed to, and how the alleged conspiracy was organized and carried out.” Nor did plaintiffs “plead enough of the [MAP policies'] terms to show how they restrained competition.” The district court gave plaintiffs a chance to remedy these problems by permitting some discovery. But because the district court agreed with defendants that “remarks at open panel discussions attended by many people at trade shows cannot reasonably constitute the terms of an illegal agreement in these circumstances,” the court “limited [discovery] to who attended or participated in meetings alleged in the amended consolidated complaint and what was said or agreed to there.”²

Following this limited discovery, plaintiffs filed the operative complaint. Defendants again moved to dismiss the complaint for its failure to state a claim. The district court granted defendants' motion and dismissed plaintiffs' § 1 claim with prejudice for failure to satisfy the pleading standard set forth in Twombly. Plaintiffs timely appealed.

II

We exercise appellate jurisdiction under 28 U.S.C. § 1291. We review de novo the district court's dismissal of a complaint for failure to state a claim. See Ecological Rights Found. v. Pac. Gas & Elec. Co., 713 F.3d 502, 507 (9th Cir.2013). When conducting this review, we accept as true all nonconclusory factual allegations in the complaint. Id. (citing Rowe v. Educ. Credit Mgmt. Corp., 559 F.3d 1028, 1029–30 (9th Cir.2009) ).

III

A

The antitrust laws of the United States aim to protect consumers by maintaining competitive markets. To that end, § 1 of the Sherman Act prohibits agreements that unreasonably restrain trade by restricting production, raising prices, or otherwise manipulating markets to the detriment of...