Holiday Wholesale Grocery v. Philip Morris Inc.
| Decision Date | 11 July 2002 |
| Docket Number | No. 1:00-CV-0447-JOF.,1:00-CV-0447-JOF. |
| Parties | HOLIDAY WHOLESALE GROCERY CO., et al., Plaintiffs, v. PHILIP MORRIS, INC., et al., Defendants. |
| Court | U.S. District Court — Northern District of Georgia |
Alexander Jackson Simmons, Jr., Jason Wayne Graham, Schreeder Wheeler & Flint, Atlanta, GA, for Movant.
Martin D. Chitwood, Nikole M. Davenport, Atlanta, GA, Dianne M. Nast, phv, Roda & Nast, Lancaster, PA, Stanley M. Chesley, phv, Waite Schneider Bayless & Chesley, Cincinnati, OH, for Plaintiffs.
W. Ray Persons, Matthew James Calvert, Hunton & Williams, Atlanta, GA, Ann Moriarty Galvani, phv, Robert Jeffey Dwyer, phv, Boies Schiller & Flexner, Armonk, NY, Kenneth L. Chernof, phv, Monica P. Medina, phv, Heller Ehrman White & McAuliffe, Washington, DC, Michael T. Williams, phv, Carlos Solis, phv, Darryl L. Snider, phv, Heller Ehrman White & McAuliffe, Los Angeles, CA, David J. Bailey, Jones Day Reavis & Pogue, Atlanta, GA, Joseph Bernard Haynes, Cheri A. Grosvenor, King & Spalding, Antlanta, GA, Barack S. Echols, phv, Colin R. Kass, Kirkland & Ellis, Chicago, IL, Emmet J. Bondurant, II, Edward Bryan Krugman, Timothy S. Rigsbb, Bondurant Mixson & Elmore, Atlanta, GA, for Defendants.
This matter is before the court on Defendant R.J. Reynolds' motion for summary judgment [170-1]; Defendant Brown & Williamson's motion for summary judgment [171-1]; Defendant Lorillard Tobacco Company's motion for summary judgment [173-1]; and Defendant Philip Morris' motion for summary judgment [174-1].
Plaintiffs are wholesalers and/or distributors that purchase cigarettes directly from Defendants Philip Morris, Inc. ("Philip Morris"), R.J. Reynolds Tobacco Co. ("RJR"), Brown & Williamson Tobacco Corp. ("B & W"), and Lorillard Tobacco Co. ("Lorillard"). In 1994, B & W acquired most of the brands of American Tobacco Co. For the purposes of this litigation, the court refers to both as "B & W." Although not named as a Defendant in this litigation, Plaintiffs allege that Liggett Group, Inc., also participated with Defendants in the alleged conspiracy. See Second Amended Complaint, ¶ 27. Named Plaintiffs are Buffalo Tobacco Products, Inc.; F & F Vending Service, Inc.; Holiday Wholesale Grocery Co.; Amsterdam Tobacco Corp.; Boro Park Tobacco; Sunrise Candy & Tobacco Corp.; I. Goldshlack Company; Suwanee Swifty Stores, Inc. D.I.P.; Marcus Distributors, Inc.; Hartz Foods; and Wichita Tobacco and Candy Co.1 Plaintiffs' complaint alleges that from a period beginning as early as November 1, 1993, Defendants engaged in a conspiracy to raise, fix, stabilize, and maintain the price of cigarettes in the United States at artificially high and non-competitive levels.
On February 18, 2000, a lawsuit was filed in this court alleging antitrust violations against several tobacco companies. After several additional suits were filed, the Judicial Panel on Multidistrict Litigation transferred four additional similar actions to this court. Plaintiffs filed an amended consolidated class action complaint on June 28, 2000 ("First Amended Complaint"). In sum, the First Amended Complaint alleged that Defendants conspired illegally to fix the wholesale prices of cigarettes in the United States during the period from November 1, 1993, to the present. Plaintiffs based the First Amended Complaint on section 4 and section 16 of the Clayton Act, and the alleged conspiracy was said to violate section 1 of the Sherman Act. The First Amended Complaint also asserted that Defendants fraudulently concealed their price-fixing conspiracy, thereby tolling the four-year statute of limitations generally applicable to federal antitrust actions.
Thereafter, Defendants moved to dismiss Plaintiffs' allegations of fraudulent concealment. In an order dated November 29, 2000, the court dismissed without prejudice Plaintiffs' allegations of fraudulent concealment for failure to satisfy the pleading requirements. The court also struck from the complaint as "evidence pleading" Plaintiffs' foreign market allegations pursuant to Federal Rule of Civil Procedure 12(f). Finally, the court dismissed Plaintiffs' allegations of non-price collusion to the extent they occurred prior to the initiation of the instant conspiracy.
On January 23, 2001, the court granted Plaintiffs' motion for class certification for the following class:
All persons in the United States (excluding federal, state and local government entities and political subdivisions, and Defendants and their co-conspirators and their respective parents, subsidiaries and affiliates) that purchased cigarettes directly from one or more of the Defendants, or any parent, subsidiary or affiliate thereof, at any time from February 8, 1996 to February 8, 2000.
Order, January 23, 2001, at 13.
On February 22, 2001, the court granted Plaintiffs' motion for leave to file an amended complaint, the "Second Amended Complaint." Defendants again moved to dismiss Plaintiffs' allegations of fraudulent concealment and any claims for relief outside the four-year limitations period. The court dismissed those of Plaintiffs' claims in the Second Amended Complaint barred by the four-year limitations period. See Order, June 20, 2001. On February 8, 2002, all Defendants filed motions for summary judgment. The court heard oral arguments on Defendants' motions for summary judgment on April 23, 2002, and permitted the parties additional, limited briefing after oral argument.
Defendants sell cigarettes to direct customers, most often wholesalers, who then sell them to retail outlets. Facts, ¶ 7. Defendants' wholesale price lists are published to direct customers and are quickly a matter of public knowledge. Id., ¶ 8. Wholesalers set the prices for their sales of cigarettes to retailers, and retailers set the prices for their sales of cigarettes to consumers. Id., ¶ 9 and Resp., ¶ 9.
Generally, there are several "tiers" of cigarettes sold in the United States, including premium and discount cigarettes. See Expert Report (Defendants') of Dr. Kenneth G. Elzinga ("Elzinga Report"), at 30.3 Discount cigarettes are priced below premium brands. Id. Cigarette companies also manufacture "deep discount" cigarettes, including private label or generic cigarettes, which are priced lower than discount cigarettes. Id. Prior to the beginning of 1993, the market share of discount and deep discount cigarettes increased from less than 1% of all cigarettes sold in the United States in 1980 to 33.0% in late 1992 and early 1993. Facts, ¶ 10. In particular, the market share of Marlboro, Philip Morris' premium brand, dropped from 27% in the middle of 1992 to 24% at the end of the same year. Marlboro's share further declined to 21% at the beginning of 1993. Id., ¶ 11. On April 2, 1993, Philip Morris announced a nationwide promotion on Marlboro cigarettes that reduced prices at retail by approximately 40¢ per pack. Id., ¶ 13. This announcement became known in the industry as "Marlboro Friday." Id. RJR, B & W, and Lorillard responded by initiating similar promotions. Id., ¶ 14. Philip Morris announced further decreases in price to take effect on August 9, 1993. Id., ¶ 15 and Resp., ¶ 15. As a result of Philip Morris' price decreases, the "price gap" between its premium and discount brands was reduced. Id., ¶ 17. RJR matched Philip Morris' August 1993 price reductions and eliminated the price differential between its 85 millimeter and 100 millimeter cigarettes. Id., ¶ 16 and Resp., ¶ 16. B & W and Lorillard instituted similar list price decreases. Id., ¶ 18.
Thereafter, during the time of alleged conspiracy, the following price increases took place:
Date of First Announcement Amount of Increase
November 8, 1993 $ 2.00 per thousand (4¢ per pack)
May 4, 1995 $ 1.50 per thousand (3¢ per pack)
April 8, 1996 $ 2.00 per thousand (4¢ per pack)
March 6-20, 19974 $ 2.50 per thousand (5¢ per pack)
August 29, 1997 $ 3.50 per thousand (7¢ per pack)
January 23, 1998 $ 1.25 per thousand (2.5¢ per pack)
April 3, 1998 $ 2.50 per thousand (5¢ per pack)
May 8, 1998 $ 2.50 per thousand (5¢ per pack)
July 31, 1998 $ 3.00 per thousand (6¢ per pack)
November 23, 1998 $22.50 per thousand (45¢ per pack)
August 27, 1999 $ 9.00 per thousand (18¢ per pack)
January 14, 2000 $ 6.50 per thousand (13¢ per pack)
Plaintiffs assert that the "economic market structure of the cigarette industry is highly conducive to collusion" because four companies control 95% of the market and cigarettes are fungible and highly inelastic. Plaintiffs also contend that the industry has faced the "increasingly-desperate" times in the past several decades. Plaintiffs' Response to Defendants' Motions for Summary Judgment ( ) at 67. With this context in mind, Plaintiffs note that the popularity of discount cigarettes rose in the early 1990s, resulting in RJR and B & W gaining market share by focusing on the discount market.
In response, Philip Morris drastically reduced the prices of its cigarettes on Marlboro Friday in April 1993. Plaintiffs contend this reduction was taken in order to "restructure the market to make it more conducive to a collusive arrangement." Id. Plaintiffs assert that the remaining Defendants ultimately decided to end the price war and agree to increase all prices. Plaintiffs argue that the most significant anti-competitive acts occurred during the...
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