IN RE MID-ATLANTIC TOYOTA, ETC.

• Decision Date: 30 June 1981
• Docket Number: No. MDL-456.,MDL-456.
• Citation: 516 F. Supp. 1287
• Parties: In re MID-ATLANTIC TOYOTA ANTITRUST LITIGATION.
• Court: U.S. District Court — District of Maryland

516 F. Supp. 1287

In re MID-ATLANTIC TOYOTA ANTITRUST LITIGATION.

No. MDL-456.

United States District Court, D. Maryland.

June 30, 1981.

Stephen H. Sachs, Atty. Gen. for the State of Md., Charles O. Monk, II, and Michael F. Brockmeyer, Asst. Attys. Gen., Baltimore, Md., for plaintiff State of Md.

Chauncey H. Browning, Atty. Gen. for the State of W.Va., and Charles G. Brown, Asst. Atty. Gen., Charleston, W.Va., for plaintiff State of W.Va.

Richard S. Gebelein, Atty. Gen. for the State of Del., and Edward F. Kafader, Asst. Atty. Gen., Wilmington, Del., for plaintiff State of Del Judith W. Rogers, Corp. Counsel, and Timothy J. Shearer, Asst. Corp. Counsel, Washington, D.C., for plaintiff District of Columbia.

Bernard D. Marcus and Linda H. Jones, Pittsburgh, Pa., for Daniel E. Golub.

Raymond W. Bergan, Scott B. Harris and William J. Murphy, Washington, D.C., for defendants.

MEMORANDUM AND ORDER

JOSEPH H. YOUNG, District Judge.

These consolidated lawsuits consist, at present, of four (4) parens patriae¹ and three (3) individual² actions alleging certain violations of the federal antitrust laws, particularly price-fixing. The parens plaintiffs are seeking treble damages, declaratory and injunctive relief, costs and fees from the defendants on behalf of state residents who purchased Toyota automobiles bearing a protective finish and certain accessories jointly referred to for convenience as "polyglycoat." Plaintiffs allege, basically, that the defendants³ conspired with one another to fix an artificially high price for this polyglycoat finish, in violation of § 1 of the Sherman Act, 15 U.S.C. § 1.⁴ The individual actions are similar to the parens cases in most material respects, although the Golub action additionally alleges an illegal tying arrangement and seeks money damages only.⁵ Defendants MAT, Carecraft, and Weisman have moved to dismiss the parens actions insofar as they seek monetary relief, and the Golub action in its entirety, on the ground that they are brought by or on behalf of indirect purchasers barred from financial recovery under Illinois Brick v. Illinois, 431 U.S. 720, 97 S.Ct. 2061, 52 L.Ed.2d 707 (1977).⁶ For reasons discussed at some length below, defendants' Motions will be denied at this time. However, defendants will be permitted to renew their Motions after discovery has been concluded if the facts, in light of the following remarks, so warrant.

1. The Illinois Brick Doctrine

While many lower courts have had occasion to discuss their views of the Illinois Brick doctrine⁷ and its scope, this Court is compelled to reinvent the wheel so that the parties might reap some guidance from this Opinion as they prepare their future litigation strategies. The Illinois Brick rule, in its simplest form, bars damage actions against alleged price-fixers by indirect purchasers. It has its genesis in an earlier Supreme Court case, Hanover Shoe, Inc. v. United States Shoe Machinery Corp., 392 U.S. 481, 88 S.Ct. 2224, 20 L.Ed.2d 1231 (1968), which held that an antitrust defendant could not defend a damage action on the ground that the plaintiff "passed-on" an illegal overcharge to its customers in the form of higher prices.⁸ In Hanover Shoe, the plaintiff, a shoe manufacturer, sued defendant shoe machinery manufacturer on the theory that defendant's practice of leasing rather than selling the machinery violated § 2 of the Sherman Act, 15 U.S.C. § 2. This leasing practice allegedly resulted in costs higher than would have resulted had sales been permitted. The defendant sought to prove at trial that illegal overcharges, if any, had been passed on by the lessee-plaintiff to the plaintiff's customers, and that plaintiff consequently suffered no antitrust injury. The district court and the court of appeals were unimpressed by this argument, as was the Supreme Court which stated 392 U.S. at p. 489, 88 S.Ct. at p. 2229:

we think it sound to hold that when a buyer shows that the price paid by him for materials purchased for use in his business is illegally high and also shows the amount of the overcharge, he had made out a prima facie case of injury and damage within the meaning of § 4 of the Clayton Act, 15 U.S.C. § 15.

The Court in rejecting the defensive use of passing-on emphasized the practical impossibility of tracing an overcharge through the distributive chain, 392 U.S. at 492-3, 88 S.Ct. at 2231, due to the subjective nature of pricing policies and the fluctuation of consumer demand. See Note, Scaling the Illinois Brick Wall: The Future of Indirect Purchasers in Antitrust Litigation, 63 Cornell L.Rev. 309, 315 (1978). The Court was also concerned that private antitrust enforcement would be deterred if the defensive use of passing-on was approved, given that direct purchasers suffer relatively insignificant monetary injury in relation to the direct purchaser and hence have a lesser incentive to litigate.⁹ 392 U.S. at 494, 88 S.Ct. at 2232. The Court did recognize, however, that the ban on defensive passing-on was not necessarily an inflexible one:

we recognize that there might be situations — for instance, when an overcharged buyer has a pre-existing `cost-plus' contract, thus making it easy to prove that he has not been damaged — where the considerations requiring the passing on defense not be permitted in this case would not be present.

Id. The result in Hanover Shoe thus appears to have been dictated by policy considerations; in circumstances where the policy concerns expressed in Hanover Shoe are not present, the defensive use of passing-on would not necessarily be proscribed. In Re Beef Industry Antitrust Litigation, supra, at 1157.

Illinois Brick v. Illinois, 431 U.S. 720, 97 S.Ct. 2061, 52 L.Ed.2d 707 (1977), presented the Supreme Court with the flip-side of Hanover Shoe; offensive rather than defensive passing-on was the issue there. Plaintiffs, the State of Illinois and some 700 local governmental entities, brought suit against defendant concrete block manufacturers on account of alleged horizontal § 1 price-fixing violations. These manufacturers sold their price-fixed concrete blocks to masonry contractors, who used the blocks in structures which were in turn sold to general contractors and incorporated into buildings. The buildings were eventually purchased by the plaintiffs, who were thus at least two steps removed from the defendants in the distributive chain. Plaintiffs sought to recover from the defendants money damages in an amount equal to the overcharge exacted by the manufacturers and passed on through defendants' customers to the indirect purchasers themselves. The Supreme Court in Illinois Brick adopted a "unified mutuality" approach to passing-on problems, In Re Beef Industry Antitrust Litigation, supra, at 1157 and 1159 fn.13, by rejecting its offensive as well as defensive use. Whereas direct purchasers were entitled to sue the block manufacturers on the above facts, the Court explained,¹⁰ indirect purchasers most certainly could not.

Like Hanover Shoe, the Illinois Brick opinion was grounded on policy considerations. The overriding consideration, of course, was symmetry. If a defendant manufacturer or supplier is not permitted to employ a passing-on defense, as Hanover Shoe held, an indirect purchaser plaintiff should not be permitted to recover passed-on damages from that constrained manufacturer or supplier. The Court eschewed adopting a symmetry approach purely for symmetry's sake; instead, it justified the need for symmetry on essentially two bases. First, permitting offensive but not defensive passing-on would subject a defendant to substantial risks of multiple liability. This point is nicely illustrated by the Illinois Brick facts. If the block manufacturers were not permitted to raise the passing-on defense in a suit brought by the masonry contractors, those contractors would be entitled to recover from the manufacturers the whole of the proven overcharge. If, too, the general contractors and/or the ultimate building purchasers were also permitted to recover damages for the passed-on overcharge, multiple recovery (even before trebling) would occur. In a typical manufacturer/retailer/customer triad, the overcharging seller could therefore be subjected to damages six times¹¹ that actually suffered by the direct purchaser and the ultimate consumer. Second, the identical tracing-of-damages difficulties identified in Hanover Shoe would occur in Illinois Brick as well:

the Court's concern in Hanover Shoe to avoid weighing down treble damages actions with the `massive evidence and complicated theories,' 392 U.S. at 493, 88 S.Ct. at 2231, involved in attempting to establish a pass-on defense against a direct purchaser applies a fortiori to the attempt to trace the effect of the overcharge through each step in the distribution chain from the direct purchaser to the ultimate consumer. We are no more inclined than we were in Hanover Shoe to ignore the burdens that such an attempt would impose on the effective enforcement of the antitrust laws.

Illinois Brick, supra, 431 U.S. at 741, 97 S.Ct. at 2072. This unwavering resolve to remove damage calculation complexities from antitrust actions of this sort prompted the Court to state that indirect purchasers should not be permitted to sue under § 4 even if the risks of multiple liability could be avoided:

even if ways could be found to bring all potential plaintiffs together in one huge action thereby avoiding the possibility of inconsistent adjudication and multiple liability, the complexity thereby introduced into treble-damages proceedings argues strongly for retaining the Hanover Shoe rule.

Id. at 731 fn.11, 97 S.Ct. at 2067 fn.11. Thus, of the dual policy considerations arguing for the Illinois Brick doctrine, the tracing difficulties were the most persuasive.

The merits of the need for symmetry between Illinois Brick and Hanover Shoe can be argued ad infinitum; that, however, is not the Court's function here.¹...