Keating v. Philip Morris, Inc.

• Decision Date: 22 December 1987
• Docket Number: No. C6-87-1385,C6-87-1385
• Citation: 417 N.W.2d 132
• Parties: 1987-2 Trade Cases P 67,801 James J. KEATING, d.b.a. Jim Keating I.C.O. on behalf of himself and others similarly situated, Appellant, v. PHILIP MORRIS, INC., American Brands, Inc. d.b.a. The American Tobacco Company, Brown & Williamson Tobacco Corp., Liggett & Myers, Inc., Lorillard, Inc., R.J. Reynolds Industries, Inc., d.b.a. R.J. Reynolds Tobacco Co., Respondents.
• Court: Minnesota Court of Appeals

Page 132

417 N.W.2d 132

1987-2 Trade Cases P 67,801

James J. KEATING, d.b.a. Jim Keating I.C.O. on behalf of himself and others similarly situated, Appellant, v. PHILIP MORRIS, INC., American Brands, Inc. d.b.a. The American Tobacco Company, Brown & Williamson Tobacco Corp. Liggett & Myers, Inc., Lorillard, Inc., R.J. Reynolds Industries, Inc., d.b.a. R.J. Reynolds Tobacco Co. Respondents.

No. C6-87-1385.

Court of Appeals of Minnesota.

Dec. 22, 1987.

Syllabus by the Court

1. The trial court erred in concluding appellant's complaint covered only the years 1974-1979.

2. Prior to 1984, appellant's claims were barred by the Illinois Brick doctrine.

3. The trial court did not abuse its discretion in denying class certification.

John A. Cochrane, John E. Thomas, Brian N. Toder, Cochrane & Bresnahan, P.A., St. Paul, for appellant.

Robert A. Schwartzbauer, Dorsey & Whitney, Minneapolis, Melvin Spaeth, Kenneth A. Letzler, Arnold & Porter, Washington, D.C., Harold D. Field, Byron E. Starns, Gregory C. Brown, Leonard, Street and Deinard, Minneapolis, Paul G. Pennoyer, Jr., Daniel J. O'Neill, Jerome C. Katz, Chadbourne & Parke, New York City, John D. French, John F. Beukema, Faegre & Benson, Elliot S. Kaplan, Deborah J. Palmer, Robins, Zelle, Larson & Kaplan, Minneapolis, William H. Hogeland, Bruce Topman, Webster & Sheffield, New York City, Joe A. Walters, Thomas R. Sheran, O'Connor & Hannan, Minneapolis, Joseph W. Gelb, David D. Leitch, Weil, Gotshal & Manges, New York City, Eugene M. Warlich, Alan I. Silver, Doherty, Rumble & Butler, for respondents.

Heard, considered and decided by NORTON, P.J., and IVERSON and LOMMEN, JJ. ^*

OPINION

NORTON, Judge.

Appellant James Keating filed a class action complaint on July 30, 1979, alleging a conspiracy among respondent cigarette manufacturers to fix cigarette prices, in violation of Minn.Stat. Secs. 325D.49-325D.66 (Minnesota Antitrust Law of 1971).

In 1985, appellant received a form notice that the case would be dismissed for failure to prosecute if it was not ready for trial in one year. On November 13, 1985, appellant moved for class certification, which was denied on August 21, 1986.

On February 12, 1987, respondents' motion for summary judgment was heard. On April 6, 1987, this motion was granted on the ground that appellant, as an indirect purchaser, had no cause of action under the Minnesota Antitrust Act during the period covered by the complaint. This period was determined to be from 1974 until the filing of the complaint in 1979.

Keating appeals from the trial court's grant of summary judgment; he also challenges the denial of class certification. Respondents have cross-appealed from the trial court's denial of their motion to dismiss for failure to prosecute. We affirm in part, reverse in part and remand for trial of appellant's post-1984 claims.

FACTS

Appellant owns several gas stations at which cigarettes are sold at the retail level. Respondents are the six largest cigarette manufacturers in the country.

In 1979, appellant filed a complaint alleging that respondents had engaged in a conspiracy in restraint of trade in cigarettes. Appellant further alleged that he and other cigarette retailers had been injured by this conspiracy.

Respondents sell cigarettes directly to certain chain store retailers who possess Minnesota "tax stamping" licenses. The vast majority of retailers, including appellant, do not buy directly from respondents. Instead, respondents sell to distributors who sell either directly to retailers or to subjobbers who, in turn, sell to retailers.

The prices charged by distributors or subjobbers to retailers vary widely. Prices varied depending on whether a discount was given, and if so, how much; quantity purchased; prices offered by other wholesalers; whether delivery was required; and whether the retailer paid cash or required credit. Discounts came in a variety of forms: refunds for merchandise; free merchandise, such as candy or gum; credit for advertising allowances or damaged merchandise; free special delivery service; and free warehouse storage of ordered goods. The agency charged with enforcing the Minnesota Unfair Cigarette Sales Act has concluded that nonuniform discounts were being offered by most wholesalers, in violation of the Act. See Minn.Stat. Secs. 325D.30-325D.42.

Respondents deposed appellant on three occasions, covering a total of ten days, in March and April of 1980. By court order, all discovery was limited to issues of class certification. No discovery has been permitted on the merits. The order limiting discovery was granted pursuant to respondents' motion.

In November of 1985, appellant moved for certification of a class consisting of "[a]ll persons, firms, corporations or other entities in Minnesota or any sub-part thereof, who purchased cigarettes manufactured by the Defendants at prices affected by the activities complained of, for resale to consumers." This motion was the first action on the case since the complaint was amended on August 23, 1979. Respondents brought a motion to dismiss for failure to prosecute.

The motions were heard on March 7, 1986, and both appellant's motion and respondents' motion were denied on August 21, 1986. The trial court found that issues of law or fact common to the class members did not predominate over questions affecting only individuals, and that because of the lack of any formula for calculating damages, the case would be unmanageable as a class action. As to respondents' motion, the court concluded that respondents had failed to establish any prejudice as a result of the delay. By order of November 25, 1986, the trial court refused to reconsider its prior action.

Following the November 25 order, respondents moved for summary judgment on two grounds: first, the Minnesota antitrust law does not accord an indirect purchaser a cause of action, and second, appellant cannot show any actual damages as required by the Minnesota antitrust statute. This motion was granted on April 4, 1987, based on only the first ground. This appeal followed.

ISSUES

1. Did the trial court err in determining that appellant's complaint covered only the years 1974-1979?

2. Did the trial court err in determining that appellant's claim under Minnesota antitrust law was barred by the Illinois Brick doctrine?

3. Did the trial court abuse its discretion in denying appellant's motion for class certification?

4. Did the trial court abuse its discretion in denying respondents' motion to dismiss for failure to prosecute?

ANALYSIS

I. Time Covered by Appellant's Complaint.

In finding that the complaint covered the years 1974-1979, the trial court relied on paragraph 15 of the complaint. The trial court, in a footnote, found the following language determinative:

Beginning at least as early as 1974, and probably prior thereto, the exact beginning date being unknown to the plaintiff at this time, and continuing thereafter up to and including the date of filing of this Complaint * * *.

Because the complaint was filed July 30, 1979, the trial court, based on the portion of the complaint quoted above, determined: "the Complaint deals with a time frame ending on July 30, 1979." This ignores the remainder of paragraph 15, which goes on to say:

the defendants and co-conspirators have engaged in a contract, combination or conspiracy in restraint of the above-described trade and commerce in cigarettes in violation of the Minnesota Antitrust Law of 1971, and other laws. Said violations may continue or recur unless the relief hereinafter prayed for is granted.

(Emphasis added.) The relief prayed for included an injunction prohibiting the respondents from "continuing, maintaining or renewing the contract, combination or conspiracy hereinbefore alleged." We conclude this complaint alleged an on-going conspiracy that continued after the filing of the complaint.

II. The Illinois Brick Doctrine.

A. The Pass-On theory.

"Pass-on" refers to the theory that someone who buys and then resells an allegedly price-fixed product suffers no loss if the product can be sold at a price sufficient to pass on the cost increase to buyers further down the chain of distribution. The United States Supreme Court has rejected the theory for both plaintiffs and defendants. Illinois Brick Co. v. Illinois, 431 U.S. 720, 97 S.Ct. 2061, 52 L.Ed.2d 707 (1977); Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392 U.S. 481, 88 S.Ct. 2224, 20 L.Ed.2d 1231 (1968).

In Illinois Brick, the Court was faced with a situation in which indirect purchasers were attempting to use the pass-on theory offensively. The indirect purchasers in Illinois Brick were the State of Illinois and 700 local governmental entities. These parties sued the manufacturers and distributors of concrete block in the Greater Chicago area, alleging a combination and conspiracy to fix the prices of concrete block.

The concrete block manufacturers in Illinois Brick sold directly to masonry contractors. The masonry contractors in turn submitted bids to general contractors. The general contractors then submitted bids to customers, such as the plaintiffs, for construction projects. The suit alleged the amounts paid for these construction projects were over $3 million higher than they would have been in the absence of the price-fixing conspiracy. "The only way in which the antitrust violation alleged could have injured respondents is if all or part of the overcharge was passed on by the masonry and general contractors to respondents, rather than being absorbed at the first two levels of distribution." Illinois Brick, 431 U.S. at 727, 97 S.Ct. at 2065. The plaintiffs in Illinois Brick were thus as far removed in the chain of distribution from the manufacturers as appellant is from respondents.

In concluding that indirect purchasers had no cause of action under federal antitrust law, the Court applied a two-step analysis. First, it determined that any rule relating to the...