Lowell v. American Cyanamid Co.

• Decision Date: 09 June 1999
• Docket Number: No. 98-6194,98-6194
• Citation: 177 F.3d 1228
• Parties: 1999-1 Trade Cases P 72,545 Doug LOWELL, Mackey Nolte, et al., Plaintiffs-Appellants, v. AMERICAN CYANAMID COMPANY, a Corporation, Defendant-Appellee.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1228

177 F.3d 1228

1999-1 Trade Cases P 72,545

Doug LOWELL, Mackey Nolte, et al., Plaintiffs-Appellants, v. AMERICAN CYANAMID COMPANY, a Corporation, Defendant-Appellee.

No. 98-6194.

United States Court of Appeals, Eleventh Circuit.

June 9, 1999.

Arthur D. Levy, Michael F. Ram, San Francisco, CA, Kenneth S. Canfield, Atlanta, GA, for Plaintiffs-Appellants.

A. Stephen Hut, Jr., James W. Lowe, Washington, DC, Daniel K. Mayers, Wilmer, Cutler & Pickering, Washington, DC, for Defendant-Appellee.

Appeal from the United States District Court for the Southern District of Alabama.

Before EDMONDSON and BLACK, Circuit Judges, and RESTANI ^*, Judge.

EDMONDSON, Circuit Judge:

Plaintiffs, five Alabama farmers, have appealed a district court order dismissing an antitrust complaint for failure to join middlemen dealers as defendants pursuant to Illinois Brick Co. v. Illinois, 431 U.S. 720, 97 S.Ct. 2061, 52 L.Ed.2d 707 (1977). We conclude that Illinois Brick has no application in a vertical conspiracy with no allegations of "pass-on." The district court decision is vacated, and the case is remanded.

Background

Between 1989 and 1995, the defendant, American Cyanamid Company ("American Cyanamid"), maintained two similar rebate programs for its independent retail dealers nationwide. Under the programs, American Cyanamid entered into written contracts with its dealers whereby American Cyanamid would give the dealer a rebate on each sale of designated crop-protection products but only if the dealer sold the product at or above American Cyanamid's suggested resale price; the programs allegedly established a minimum resale price. Under these contracts, the specified resale price was equal to the wholesale prices paid by the dealer. American Cyanamid's dealers overwhelmingly responded by selling the product at or above the specified minimum resale price. ¹

In 1997, Plaintiffs filed a complaint, on behalf of themselves and all others similarly situated, alleging American Cyanamid had violated section one of the Sherman Act (15 U.S.C. § 1) and section four of the Clayton Act (15 U.S.C. § 15). Plaintiffs later amended their complaint, but at no time did they join any of the estimated 2,500 American Cyanamid distributors. American Cyanamid filed a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). The district court granted the motion with prejudice, holding that the independent dealers, as direct purchasers, must be parties to the action under the doctrine of Illinois Brick. Otherwise, Plaintiffs, according to the district court, lacked standing to maintain the suit. Plaintiffs appealed.

Discussion

We review de novo a district court order dismissing a complaint for failure to state a claim, construing the allegations in the complaint as true and in the light most favorable to the plaintiff. See Harper v. Blockbuster Entertainment Corp., 139 F.3d 1385, 1387 (11th Cir.1998).

Plaintiffs' complaint alleges that American Cyanamid engaged in a vertical price-fixing conspiracy with the independent dealers in violation of section one of the Sherman Act and section four of the Clayton Act. Plaintiffs claim that the district court erred in applying Illinois Brick to bar this complaint from proceeding directly against American Cyanamid without joining the independent dealers.

Illinois Brick, so Plaintiffs' argument goes, does not apply to a vertical price-fixing scheme where (1) a plaintiff buys directly from a dealer who combined with a manufacturer to fix the prices and (2) no allegations are made of "pass-on." In other words, Plaintiffs claim they are not indirect purchasers at all under Illinois Brick, but are direct purchasers from a conspiring party.

American Cyanamid counters that the rule of Illinois Brick--that indirect purchasers cannot maintain a suit without joining the appropriate middlemen--is on point and that the present case falls within neither of its two enumerated exceptions. ² American Cyanamid also points out that the former Fifth Circuit applied Illinois Brick to bar claims somewhat similar to this one in In re Beef Industry Antitrust Litigation, 600 F.2d 1148 (5th Cir.1979).

We agree with the Plaintiffs. Illinois Brick has no application in this case.

Illinois Brick was an extension of the Court's earlier prohibition against the defensive use of passing on in Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392 U.S. 481, 491-94, 88 S.Ct. 2224, 20 L.Ed.2d 1231 (1968). ³ In concluding that the indirect government purchasers of a product may not sue distant manufacturers, Illinois Brick cited two underlying rationales. The first of these was that "allowing offensive but not defensive use of pass-on would create a serious risk of multiple liability for defendants. Even though an indirect purchaser had already recovered for all or part of an overcharge passed on to it, the direct purchaser would still recover automatically the full amount of the overcharge that the indirect purchaser had shown to be passed on[.]" Illinois Brick, 431 U.S. at 730, 97 S.Ct. 2061. Second, as in Hanover Shoe, the Court was worried about the "uncertainties and difficulties in analyzing price and out-put decisions 'in the real economic world rather than an economist's hypothetical model,' and of the costs to the judicial system and the efficient enforcement of the antitrust laws of attempting to reconstruct those decisions in the courtroom." Id. at 731-32, 97 S.Ct. 2061 (quoting Hanover Shoe, 392 U.S. at 493, 88 S.Ct. 2224) (citations omitted).

Neither of the rationales applies to the very different case of vertical conspiracy with no allegations of passing on:

Illinois Brick does not limit suits by consumers against a manufacturer who illegally contracted with its dealers to set the latter's resale price. The consumer plaintiff is a direct purchaser from the dealer who, by hypothesis, has conspired illegally with the manufacturer with respect to the very price paid by the consumer. There is no problem of duplication or apportionment because the consumer is the only party who has paid any overcharge. Although the manufacturer did not sell directly to the consumer, he is a fellow conspirator with the direct-selling dealer and therefore jointly and severally liable with the dealer for the consumer's injury.

2 Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law 264 (rev. ed.1995) (footnotes omitted).

This case presents no problems of double recovery because only one illegal act (the vertical conspiracy) ⁴ is present and likely only one set of potential plaintiffs (the farmers) exists. ⁵ Although Plaintiffs may sue American Cyanamid alone for the full cost of the conspiracy with the dealers, that is the way antitrust conspiracy liability works and does not go to the kind of duplicative recovery with which Illinois Brick was concerned. ⁶

Second, the economic and legal complexities outlined in Illinois Brick are absent here as well. For the plaintiffs in a case like this one, proving what price would have existed in the absence of the unlawful agreement is difficult; but it is no more difficult than the proof necessary in any vertical conspiracy case. Furthermore, the task pales in comparison to the complexities contemplated in Illinois Brick: ⁷ tracing the pass-on through many steps in the production process and determining how much was absorbed, how much was passed on, and by whom; moreover, all of the calculations would have to be made without any of the intermediary parties asserting their interests, but merely with the aid of "elasticity studies introduced by expert witnesses[.]" Illinois Brick, 431 U.S. at 742, 97 S.Ct. 2061.

The complexities Illinois Brick involved were legal ones as well. "[P]otential plaintiffs at each level in the distribution chain are in a position to assert conflicting claims to a common fund the amount of the alleged overcharge by contending that the entire overcharge was absorbed at that particular level in the chain." Id. at 737, 97 S.Ct. 2061. This creates the need for either statutory interpleader under 28 U.S.C. § 1335 or compulsory joinder under Rule 19(a). See id. at 738, 97 S.Ct. 2061. And such efforts would create as many problems as they would solve. See id. at 738-41, 97 S.Ct. 2061.

But here, we have no such legal complexities. In all likelihood, the full extent of this litigation will be a class-action suit by Plaintiffs against American Cyanamid. That is it. Plaintiffs do not want to join the dealers, and American Cyanamid will have no incentive to bring the dealers in because it cannot seek contribution. See Texas Industries, Inc., v. Radcliff Materials, Inc., 451 U.S. 630, 101 S.Ct. 2061, 68 L.Ed.2d 500 (1981) (holding no right of contribution under Clayton and Sherman Acts). Also, suits, if any, by the dealers against American Cyanamid (which seem unlikely) ⁸ could be handled separately as "the damage criteria are quite distinct and not overlapping for the dealer and the consumer." 7 Phillip E. Areeda, Antitrust Law 183 (1986).

Today's vacation of the district court's decision to dismiss makes no new law. The inapplicability of Illinois Brick to vertical conspiracies with no allegations of pass-on (what some have called the "vertical conspiracy exception") has long been recognized. See Shamrock Foods, 729 F.2d at 1211-13; Fontana Aviation, Inc. v. Cessna Aircraft Co., 617 F.2d 478, 480-82 (7th Cir.1980); Mid-Atlantic Toyota, 516 F.Supp. at 1294-96; Reiter v. Sonotone Corp., 486 F.Supp. 115, 119-21 (D.Minn.1980); Gas-A-Tron v. American Oil Co., 1977 WL 1519, at * 2-3 (D.Ariz.1977); Areeda, supra, at 182 ("[O]ther courts have correctly seen that Illinois Brick has no bearing on [vertical price fixing.]"); Herbert Hovenkamp, Commentary, The Indirect-Purchaser Rule and Cost-Plus Sales, 103 Harv. L.Rev. 1717, 1719 (1990) ("Some courts ... have held that Illinois Brick will not bar an indirect-purchaser action if ... the dealer itself participated in the...