In re Initial Public Offering Antitrust Litigation

Decision Date03 November 2003
Docket NumberNo. 01 Civ.2014(WHP), 01 Civ.11420(WHP).,01 Civ.2014(WHP), 01 Civ.11420(WHP).
Citation287 F.Supp.2d 497
CourtU.S. District Court — Southern District of New York

Christopher Lovell, Lovell Stewart Halebian LLP, New York, New York, for Plaintiffs.

Melvyn I. Weiss, Ariana J. Tadler, Milberg Weiss Bershad Hynes & Lerach LLP, New York, New York, for the Sherman Act Plaintiffs.

Russel H. Beatie, Beatie and Osborn LLP, New York, New York, for the Robinson-Patman Act Plaintiffs.

Richard A. Cirillo, King & Spalding, New York, New York, for Defendant Credit Suisse First Boston.

Gandolfo V. DiBlasi, Sullivan & Cromwell, New York, New York, for Defendant The Goldman Sachs Group, Inc.

Moses Silverman, Paul, Weiss, Rifkind, Wharton & Garrison, New York, New York, for Defendant Lehman Brothers, Inc.

James Benedict, Jon Roellke, Clifford Chance Rogers & Wells LLP, New York, New York, for Defendant Merrill Lynch, Pierce, Fenner & Smith, Inc.

Steven G. Bradbury, Kirkland & Ellis, Washington, D.C., for Defendant Morgan Stanley Dean Witter & Co.

Andrew J. Frackman, O'Melveny & Myers LLP, New York, New York, for Defendant Robertson Stephens, Inc.

Robert B. McCaw, Wilmer, Cutler & Pickering, New York, New York, for Defendant Salomon Smith Barney, Inc.

Barry R. Ostrager, David W. Ichel, Simpson Thacher & Bartlett, New York, New York, for Defendant J.P. Morgan Securities Inc. Randy M. Mastro, John A. Herfort, Gibson, Dunn & Crutcher LLP, New York, New York, for Defendant Bear, Stearns & Co., Inc.

Joel M. Mitnick, Sidley Austin Brown & Wood LLP, New York, New York, for Defendant Deutsche Bank Securities Inc.

John D. Donovan, Ropes & Gray, Boston, Massachusetts, for Defendants Fidelity Distributors Corp. Fidelity Brokerage Services LLP Fidelity Investments Institutional.

W. Hans Kobelt, Pollack & Kaminsky, New York, New York, for Defendant Janus Capital Corp.

Scott E. Mortman, Mayer, Brown & Platt, New York, New York, for Defendant Comerica, Inc. d/b/a Munder Capital Management.

Kevin C. Logue, Paul, Hastings, Janofsky & Walker LLP, New York, New York, for Defendants Van Wagoner Capital Management, Inc. Van Wagoner Funds, Inc.


PAULEY, District Judge.

In this consolidated class action, two putative classes of plaintiffs seek redress for alleged antitrust injuries suffered as a result of purchasing initial public offering ("IPO") shares of certain technology-related securities (the "Class Securities") at artificially-inflated prices during the "dotcom boom" of the late 1990s. The first putative class (the "Sherman Act Plaintiffs") alleges violations of the Sherman Act, 15 U.S.C. § 1 et seq., and various state antitrust laws, by ten investment banks that underwrote the majority of the technology-related IPOs during this period.1 The second putative class (the "Robinson-Patman Act Plaintiffs") alleges that these same practices, as well as those favoring long-term investors, constitute commercial bribery under Section 2(c) of the Robinson-Patman Act, 15 U.S.C. § 13(c).

Currently pending before this Court is the Underwriter Defendants' consolidated motion, pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure, to dismiss this action. For the reasons set forth below, their motion is granted on the ground that the conduct alleged by the Sherman Act Plaintiffs and the Robinson-Patman Act Plaintiffs is impliedly immune from antitrust scrutiny. Any other result would force the defendants to navigate the Scylla of securities regulation and Charybdis of antitrust law.

I. The Sherman Act Allegations

The gravamen of the Sherman Act Plaintiffs' Consolidated Amended Class Action Complaint (the "Sherman Act Complaint" or "Sherman Act Compl.") is that the Underwriter Defendants conspired to inflate the aftermarket prices of the Class Securities by using the fixed price equity underwriting system (the "syndicate system") to foist anticompetitive charges, as well as impermissible aftermarket "laddering" and "tie-in" arrangements, on direct purchasers of IPO shares in violation of federal and state antitrust laws. (Sherman Act Compl. ¶ 1.)

Specifically, the Sherman Act Plaintiffs allege that the Underwriter Defendants: (1) "required customers to pay ... the IPO price for the relevant Class Security plus additional anticompetitive charges" (Sherman Act Compl. ¶ 4(a)); (2) "required customers to agree, in order to obtain IPO shares of Class Securities, to make `tie-in purchases' of such Class Securities in the aftermarket at levels above the respective IPO prices," a process known as "laddering," in order to artificially inflate the aftermarket prices of the IPOs (Sherman Act Compl. ¶¶ 4(b), 6-7); and (3) utilized the preexisting syndicate system to implement and further their antitrust conspiracy, through, inter alia, "road shows"2 and other information sharing activity (Sherman Act Compl. ¶ 5). The anticompetitive activity alleged includes, inter alia, "non-competitively determined commissions on the purchase and sale of other securities, purchases of an issuer's shares in the follow-up or `secondary' public offerings (for which the underwriters would earn underwriting discounts), commitments to purchase other, less attractive securities, or the laddered purchases." (Sherman Act Compl. ¶ 6.)

According to the Sherman Act Plaintiffs, the purpose and effect of this conspiracy was to: (1) increase the consideration that aftermarket purchasers paid for the Class Securities above the levels that would have existed in a competitive market (Sherman Act Compl. ¶¶ 7-8, 70-74); and (2) create artificial demand for the Class Securities, thereby inflating their price with a con-comitant increase in underwriting charges, commissions, and investment banking fees. (Sherman Act Compl. ¶¶ 70-74.) The Sherman Act Plaintiffs also allege violations of various state antitrust laws based on the same conduct. (Sherman Act Compl. ¶¶ 84-109.)

II. The Robinson-Patman Act Allegations

The Robinson-Patman Act Plaintiffs allege violations of Section 2(c) of the Robinson-Patman Act, 15 U.S.C. § 13(c), by most of the Underwriter Defendants, as well as certain institutional investors.3 In their complaint (the "Robinson-Patman Act Complaint" or "Robinson-Patman Act Compl."), the Robinson-Patman Act Plaintiffs allege the same conduct as the Sherman Act Plaintiffs (Robinson-Patman Act Compl. ¶¶ 56-63, 90, 107-115), but add allegations that the Underwriter Defendants favored long-term investors over "flippers"4 when allocating "hot issue" IPO shares. (Robinson-Patman Act Compl. ¶¶ 64-71, 74-89.) According to the Robinson-Patman Act Plaintiffs, this preferential treatment "tends to assure an excess of purchasers over sellers and to drive the market price of the securities upward." (Robinson-Patman Act Compl. ¶ 67.) The Robinson-Patman Act Plaintiffs further allege that the Institutional Defendants agreed not to "flip" their shares in exchange for favorable IPO allocations, and paid or received money for such allocations. (Robinson-Patman Act Compl. ¶¶ 24-35, 74-89, 116-26.) According to the Robinson-Patman Act Plaintiffs, these combined actions violate the commercial bribery prohibitions of Section 2(c) of the Robinson-Patman Act, 15 U.S.C. § 13(c).


The Underwriter Defendants move to dismiss both the Sherman Act Complaint and Robinson-Patman Act Complaint on the grounds that: (1) the conduct alleged is immune from attack under federal and state antitrust laws; (2) plaintiffs lack antitrust standing; (3) plaintiffs' conclusory allegations of conspiracy are insufficient to state a valid claim; (4) plaintiffs fail to allege a relevant market; and (5) plaintiffs' state law claims are fatally defective. This Court's inquiry begins and ends with the doctrine of implied immunity.

I. Standards For A Motion To Dismiss

On a motion to dismiss, a court must accept the material facts alleged in the complaint as true and construe all reasonable inferences in a plaintiff's favor.5 Official Comm. of Unsecured Creditors of Color Tile, Inc. v. Coopers & Lybrand, LLP, 322 F.3d 147, 158 (2d Cir.2003). A court should not dismiss a complaint for failure to state a claim unless "it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957); accord Jaghory v. New York State Dep't of Educ., 131 F.3d 326, 329 (2d Cir.1997).

"This generous approach to pleading applies in the antitrust context." Hamilton Chapter of Alpha Delta Phi, Inc. v. Hamilton Coll., 128 F.3d 59, 63 (2d Cir.1997). Indeed, "[i]n antitrust cases in particular, the Supreme Court has stated that `dismissals prior to giving the plaintiff ample opportunity for discovery should be granted very sparingly.'" George Haug Co. v. Rolls Royce Motor Cars, Inc., 148 F.3d 136, 139 (2d Cir.1998) (quoting Hosp. Bldg. Co. v. Trs. of Rex Hosp., 425 U.S. 738, 746, 96 S.Ct. 1848, 48 L.Ed.2d 338 (1976)). However, a Court must not "assume that the [plaintiff] can prove facts that it has not alleged or that the defendants have violated the antitrust laws in ways that have not been alleged." Associated Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 526, 103 S.Ct. 897, 74 L.Ed.2d 723 (1983).

"Finally, a complaint can be dismissed for failure to state a claim pursuant to a Rule 12(b)(6) motion raising an affirmative defense `if the defense appears on the face of the complaint.'" Color Tile, 322 F.3d at 158 (quoting Pani v. Empire Blue Cross Blue Shield, 152 F.3d 67, 74 (2d Cir.1998)). Defendants' assertion of implied immunity is an affirmative defense that appears on the face of the complaint, and as such is properly addressed at the motion to dismiss stage. In re Stock Exch. Options Trading Antitrust Litig., 317 F.3d 134, 150-53 (2d Cir.2003) ("Stock Exchanges Options") ("Although the doctrine of...

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