Midwestern Machinery v. Northwest Airlines

Decision Date07 December 2004
Docket NumberNo. 03-1664.,03-1664.
Citation392 F.3d 265
PartiesMIDWESTERN MACHINERY CO., INC.; Brian F. Gagan; Sharon Tolbert Glover; Charles M. Koosmann; Laurie I. Laner; Jack Reuler; Nigel Linden; Daniel L. Jongeling; Industrial Rubber Products, Inc.; Daniel O. Burkes, Appellants, v. NORTHWEST AIRLINES, INC., Appellee.
CourtU.S. Court of Appeals — Eighth Circuit

Richard Ihrig of Minneapolis, Minnesota (Michael Olafson, Mark A. Jacobson, Brooks F. Poley, Darrell E. Graham, Lewis A. Remele, Jr., and Christopher Morris on the brief), for appellant.

Thomas W. Tinkham, argued, Minneapolis, Minnesota (Peter W. Carter, Andre Hanson, and Parker C. Folse, III on the brief), for appellee.

Before MORRIS SHEPPARD ARNOLD, JOHN R. GIBSON, and RILEY, Circuit Judges.

MORRIS SHEPARD ARNOLD, Circuit Judge.

The plaintiffs (referred to collectively as Midwestern) appeal from a summary judgment entered against them in their action against Northwest Airlines under § 7 of the Clayton Act, see 15 U.S.C. § 18. For the reasons stated below, we affirm the judgment of the district court.1

I.

Northwest Airlines merged with Republic Airlines in 1986. Before the merger, Northwest was the eighth largest airline in the United States, and Republic was the ninth largest. Both had a significant presence at the Minneapolis-St. Paul Airport (MSP). The merger was sanctioned by the Department of Transportation but was not granted antitrust immunity.

In 1997, eleven years after the merger, Midwestern filed suit claiming that the merger violated § 7 of the Clayton Act. The district court dismissed the complaint, holding that the merger could not be the subject of a § 7 claim because the acquired entity's stock had ceased to exist. We reversed that dismissal in Midwestern Machinery, Inc. v. Northwest Airlines, Inc., 167 F.3d 439 (8th Cir.1999). On remand, the district court allowed Midwestern to certify a class of plaintiffs, but notification of the class was postponed while the district court considered Northwest's motion for summary judgment on the ground that the statute of limitations had run. When the district court granted the motion, Midwestern appealed.

Section 7 of the Clayton Act prohibits acquisitions that serve "substantially to lessen competition, or to tend to create a monopoly," 15 U.S.C. § 18, and contains a four-year statute of limitations for private actions, 15 U.S.C. § 15b. Section 7 exists primarily to arrest, at their incipiency, mergers that could produce anti-competitive results. Concord Boat Corp. v. Brunswick Corp., 207 F.3d 1039, 1050 (8th Cir.2000), cert. denied, 531 U.S. 979, 121 S.Ct. 428, 148 L.Ed.2d 436 (2000). Generally, a "Section 7 action challenging the initial acquisition of another company's stocks or assets accrues at the time of the merger or acquisition." Id. Midwestern maintains, however, that there are three reasons why its suit, though it was filed eleven years after the merger, nevertheless survives Northwest's motion for summary judgment on limitations grounds. Midwestern also argues that its action is not barred by laches.

II.

Midwestern asserts first that Northwest's "continuing violations" of the Clayton Act will allow it to avoid the bar of the statute of limitations. Specifically, it points to Northwest's "hub premium" for flights through its MSP hub and Northwest's actions to prevent successful entry into MSP by low-cost carriers as overt acts that restart the statute.

Under the so-called continuing-violation theory "`each overt act that is part of the violation and that injures the plaintiff... starts the statutory period running again, regardless of the plaintiff's knowledge of the alleged illegality at much earlier times.'" Klehr v. A.O. Smith Corp., 521 U.S. 179, 189, 117 S.Ct. 1984, 138 L.Ed.2d 373 (1997) (quoting 2 P. Areeda & H. Hovenkamp, Antitrust Law ¶ 338b (rev. ed.1995)). Midwestern, however, cites no appellate decisions applying this principle to § 7 claims. Rather, it attempts to analogize this case to other areas of antitrust law where such a theory has in fact been recognized.

The typical antitrust continuing violation occurs in a price-fixing conspiracy, actionable under § 1 of the Sherman Act, see 15 U.S.C. § 1, when conspirators continue to meet to fine-tune their cartel agreement. See Pennsylvania Dental Ass'n v. Medical Serv. Ass'n of Pa., 815 F.2d 270, 278 (3d Cir.1987), cert. denied, 484 U.S. 851, 108 S.Ct. 153, 98 L.Ed.2d 109 (1987). These meetings are overt acts that begin a new statute of limitations because they serve to further the objectives of the conspiracy. Cf. Zenith Radio Corp. v. Hazeltine Research, 401 U.S. 321, 338, 91 S.Ct. 795, 28 L.Ed.2d 77 (1971).

But "[c]ontinuing violations have not been found outside the RICO or Sherman Act conspiracy context ... because acts that `simply reflect or implement a prior refusal to deal or acts that are merely unabated inertial consequences (of a single act) do not restart the statute of limitations.'" Concord Boat, 207 F.3d at 1052 (quoting DXS, Inc. v. Siemens Med. Sys., Inc., 100 F.3d 462, 467-68 (6th Cir.1996) (citations and internal quotations omitted)). In other words, to apply the continuing violation theory to non-conspiratorial conduct, new overt acts must be more than the unabated inertial consequences of the initial violation.

Looking at how courts have applied the continuing violation theory to claims brought under § 2 of the Sherman Act sheds light on why that theory does not apply to Clayton Act claims. In Hanover Shoe, Inc. v. United Shoe Mach. Corp., 392 U.S. 481, 483-84, 88 S.Ct. 2224, 20 L.Ed.2d 1231 (1968), United, a manufacturer and distributor of shoe machinery, was sued by one of its customers, Hanover, for monopolizing the shoe machinery industry in violation of § 2 of the Sherman Act. United leased but refused to sell its machinery to Hanover, causing Hanover to pay more for use of the machines over time. United's lease-only policy first adversely affected Hanover in 1912, but suit was not filed until 1955. The Court held that United's continued adherence to the policy was part of its maintenance of its monopoly. The Court stated:

We are not dealing with a violation which, if it occurs at all, must occur within some specific and limited time span.... Rather, we are dealing with conduct which constituted a continuing violation of the Sherman Act and which inflicted continuing and accumulating harm on Hanover. Although Hanover could have sued in 1912 for the injury then being inflicted, it was equally entitled to sue in 1955.

392 U.S. at 502 n. 15, 88 S.Ct. 2224. The Court thus endorsed the Third Circuit's reasoning that United's conduct "went beyond a mere continuation of the refusal to sell; it collected rentals on leases and entered into new leases when old machinery was no longer in working condition and required replacement." Hanover Shoe, Inc. v. United Shoe Machinery Corp., 377 F.2d 776, 794 (3d Cir.1967), aff'd in part and rev'd in part, 392 U.S. 481, 88 S.Ct. 2224, 20 L.Ed.2d 1231 (1968).

While United engaged in a continuing violation by actively using the lease-only policy to maintain its monopoly, cf. National Souvenir Ctr., Inc. v. Historic Figures, Inc., 728 F.2d 503, 513-14 (D.C.Cir.1984), cert. denied, 469 U.S. 825, 105 S.Ct. 103, 83 L.Ed.2d 48 (1984), the statute of limitations begins to run from the initial violation where defendants are accused of attempting to monopolize by passively implementing anti-competitive policies, such as a refusal to deal, see Garelick v. Goerlich's, Inc., 323 F.2d 854, 856 (6th Cir.1963) (per curiam), or maintaining an action to enforce a restrictive covenant, see Pace Indus. v. Three Phoenix Co., 813 F.2d 234, 236-37 (9th Cir.1987). Existing competitors must act when a rival initiates anti-competitive policies that do not require additional anti-competitive action to implement. See 2 P. Areeda & H. Hovenkamp, Antitrust Law ¶ 320c4 (2d ed.2000). In such circumstances, implementation is only a reaffirmation of the policy's adoption, and the statute begins to run as soon as the competitor suffers injury. DXS, 100 F.3d at 467-68; see also Concord Boat, 207 F.3d at 1051 (citing Klehr, 521 U.S. at 190-91, 117 S.Ct. 1984).

Only where the monopolist actively reinitiates the anti-competitive policy and enjoys benefits from that action can the continuing violation theory apply. This distinction between "new and independent act[s] [that] inflict new and accumulating injury on the plaintiff" (which restart the statute of limitations), Pace, 813 F.2d at 238, and unabated inertial consequences of previous acts (which do not) allows the statute of limitations to have effect and discourages private parties from sleeping on their rights.

Applying this rationale to mergers makes no sense. If the initial violation was the merger itself, none of the "continuing violations" Midwestern alleges can justify restarting the statute of limitations because these acts were not undertaken to further an illegal policy of merger or to maintain the merger. Otherwise, every business decision could qualify as a continuing violation to restart the statute of limitations as long as the firm continued to desire to be merged. Once the merger is completed, the plan to merge is completed and no overt acts can be undertaken to further that plan.

Unlike a conspiracy or the maintaining of a monopoly, a merger is a discrete act, not an ongoing scheme. A continuing violation theory based on overt acts that further the objectives of an antitrust conspiracy in violation of § 1 of the Sherman Act or that are designed to promote a monopoly in violation of § 2 of that act cannot apply to mergers under § 7 of the Clayton Act. Even if the initial merger violated § 7, it makes little sense to hold that policies were pursued to effectuate the illegal merger as we might in a case involving a conspiracy...

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