Power Conversion, Inc. v. Saft America, Inc.

• Decision Date: 27 October 1987
• Docket Number: Civ. No. Y-87-80.
• Citation: 672 F. Supp. 224
• Parties: POWER CONVERSION, INC. v. SAFT AMERICA, INC., et al.
• Court: U.S. District Court — District of Maryland

672 F. Supp. 224

POWER CONVERSION, INC. v. SAFT AMERICA, INC., et al.

Civ. No. Y-87-80.

United States District Court, D. Maryland.

October 27, 1987.

John Sinclair, Baltimore, Md., for plaintiff.

David McI. Williams, Francis J. Gorman, and Thomas Hoxie, Baltimore, Md., for defendant Saft America, Inc.

G. Stewart Webb, Jr., and Jeffrey J. Peck, Baltimore, Md., for defendant TNR Technical, Inc.

Ronald M. Spritzer, Baltimore, Md., for defendant Robert Calvert.

MEMORANDUM

JOSEPH H. YOUNG, District Judge.

Plaintiff Power Conversion, Inc. ("PCI") filed suit against its competitors Saft America, Inc. ("Saft") and TNR Technical, Inc. ("TNR") and individuals Robert Calvert and Richard Thaw alleging violations of the federal antitrust laws. Specifically, PCI alleges that defendants "and others conspired and agreed by, between and among each other to fix the amounts of the bids which Saft and TNR submitted in connection with certain solicitations by the U.S. Government for LiSO2 battery production contracts, and did so in advance of submitting their bids to the U.S. Government." Complaint ¶ 17. Although plaintiff's claim is based upon Section 1 of the Sherman Act, 15 U.S.C. § 1, plaintiff's theory is that defendants "conspired and agreed to fix the prices submitted by Saft and TNR at unreasonably low prices, or which Saft, TNR, Calvert, and Thaw knew or reasonably should have known that Saft and/or TNR could not earn a reasonable profit or rate of return." Complaint ¶ 19. Plaintiff claims that this alleged conspiracy "has caused injury to PCI and has had anti-competitive effect on the market for the U.S. Government's LiSO2 battery production contracts and procurement program." Complaint ¶ 21.

Defendants Saft and TNR have moved to dismiss the complaint for failure to state a claim upon which relief can be granted, pursuant to Fed.R.Civ.P. 12(b)(6). Defendant Calvert joins that motion and also moves to dismiss for lack of personal jurisdiction, pursuant to Fed.R.Civ.P. 12(b)(2). Since filing this case, PCI and Saft have resolved their differences by a stipulation of dismissal leaving open PCI's claims against TNR and the individual defendants. The Court's doubts concerning the nature of plaintiff's injury as compensable under the antitrust laws shall await resolution upon more adequate briefing of these issues before trial.

PLAINTIFF'S SECTION 1 CLAIM

Plaintiff's claim arises out of a series of contract biddings solicited by the U.S. Army for batteries of LiSO2 electric power storage cells. Plaintiff's other claims relating to patents and trade secrets are the subject of actions consolidated in civil action Y-85-4455, which is proceeding separately in this Court. The antitrust claim at issue here is based upon direct evidence of a conspiracy to underbid PCI on the small business set-aside which applied to several of the solicitations. The affidavit of Anthony Vigliotti, president of defendant TNR during the submission of contract bids, states that defendants Calvert and Thaw, then key employees of Saft and TNR, respectively, admitted to Vigliotti that Saft and TNR had "agreed in advance upon the prices which TNR and Saft would submit as bids to the Government for the H-307 contract.... Therefore, to avoid the appearance of collusion, they determined that Saft and TNR would submit bids that were close in amount, but TNR's bid would be slightly higher than Saft's bid." Vigliotti affidavit at 6-7. From the vice-president of Saft, Vigliotti learned that the "agreement concerning prices to be submitted by Saft and TNR for that bid had been necessary so that they could break into the LiSO2 battery market." Id. at 9.

Plaintiff alleges that defendant's "conspiracy" was intended to take advantage of the small business set-aside program of the Small Business Administration ("SBA"). Certain of the battery contract solicitations on which Saft, TNR, and PCI bid in 1983, allowed for small business set-asides of fifty percent. Chodosh affidavit (Adams Decl.Exh.L). This set-aside allows the lowest bidding "small business" the option of obtaining a separate contract for half of the production solicited, in the event that a "large business" underbids the lowest small business bid. Complaint ¶ 9, Vigliotti's affidavit pertains to contract solicitation # DAAB07-83-B-H307, but plaintiff alleges that the conspiracy involved bidding on similar solicitations — H306, H320, and H360, which were LiSO2 battery contracts bid upon in 1983. Chodosh affidavit; PCI's response at 13. See Adams Decl.Exh. 6.

Defendants Saft, TNR, and Calvert have moved to dismiss PCI's antitrust claims with respect to solicitation H320, because PCI received the contract, and as to solicitation H306 because no small business set-aside was awarded. Defendant's claim that PCI had a full and fair opportunity to litigate claims of bid-rigging as to H307 in the SBA's size protest and appeal proceedings, and that PCI never protested the contract award in H360. See Saft's memorandum, Saft's reply, TNR's motion, and Calvert's memorandum. None of these arguments are persuasive because they misconstrue the nature and import of plaintiff's antitrust claim, which is not the focus of the SBA's size determination process. The argument that the SBA Administrative Law Judge's cursory treatment of conspiracy issues should collaterally estop plaintiff's price-fixing claim regarding solicitation H307 is easily rejected. However defendants' allegedly fraudulent size classification strategy may have been examined in the SBA proceedings, it is not at issue here, nor was the issue "finally decided" by the SBA res judicata with regard to antitrust issues properly presented here.¹ Similarly, the argument that any antitrust claim based upon solicitation H360 is barred by plaintiff's failure to utilize the SBA's protest and appeal process is unfounded.

Defendants' attempt to separate plaintiff's unified claim of price-fixing into "counts" pertaining to individual contract bids also is unpersuasive. Plaintiff has alleged "price-fixing ... including, but not limited to solicitations Nos. 83-B-H307, 83-B-H306, and 83-B-H320." Complaint ¶ 17. Defendants' allegations that contract H320 was awarded to PCI and that H306 was awarded without a small business set-aside do not strip PCI of standing to sue under Section 4 of the Clayton Act because PCI's theory envisions a pattern of agreed-upon actions constituting price-fixing. In supplemental pleadings, PCI has explained that the alleged conspiracy included an "attempt to fix certain of their prices in such a way as to as to sic insure that Saft and TNR would not win certain contracts, and thereby enable defendants to create circumstantial evidence for a `plausible denial' of the fact that there had been price-fixing on some of the contracts." PCI's supplemental memorandum at 2-3. Thus, plaintiff has described a theory of conspiracy, plausibly based upon facts in Vigliotti's affidavit, which does state a claim under the antitrust laws ripe for resolution in federal court.

Defendants argue that plaintiff's theory of price-fixing for the purpose of predatory pricing no longer is actionable under the antitrust laws, in light of the decision in Matsushita Electrical Industrial Company, Ltd. v. Zenith Radio Corporation, 475 U.S. 574, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). They also argue that "below cost bids on government contracts cannot possibly establish a monopoly" and that when predatory pricing allegations are implausible they should not be allowed to go to trial. Saft's reply at 8, 10. This argument misconstrues Matsushita and focusses on the plaintiff's inclusion of a predatory pricing rationale to explain defendants' conspiracy — an element which is extraneous to the proof of a violation of Section 1 of the Sherman Act.

Price-fixing is per se illegal regardless of whether the objective is to raise or lower market prices, whether the agreement is successful or not, and whether the prices were reasonable or not. United States v. Socony-Vacuum Oil Co., Inc., 310 U.S. 150, 223, 60 S.Ct. 811, 844, 84 L.Ed. 1129 (1940). "Even though members of the price-fixing group were in no position to control the market, to the extent that they raised, lowered, or stabilized prices they would be directly interferring with the free play of market forces." Id. at 221, 60 S.Ct. at 843. The per se rule applies to "agreements to raise or lower prices whatever machinery for price-fixing was used." Id. at 222, 60 S.Ct. at 843. It condemns them "whether the concerted activity be wholly nascent or abortive on the one hand, or successful on the other." Id. n. 59 at 225, 60 S.Ct. n. 59 at 845.

Bid-rigging practices in particular have been found to violate Section 1's prohibition on restraints of trade, whether the agreement was to submit higher or lower bids. United States v. Brinkley & Son Construction Co., 783 F.2d 1157, 1161 (4th Cir.1986); 2 Von Kalinowski, Antitrust Laws and Trade Regulation § 6A.023 (1987) (agreements to make fictitious or fraudulent bids). Thus, plaintiff's theory that defendants fixed prices in order to predate their competitor PCI, is unnecessary: proof of agreement to fix prices in a relevant "market" is sufficient. Plaintiff has stated an antitrust claim actionable in federal court.

The Supreme Court's decision in Matsushita cannot be regarded as holding that "judges should not allow implausible predatory pricing allegations to go to trial." Matsushita addressed the standard for granting summary judgment when the plaintiff has presented only circumstantial evidence of conspiracy. In Monsanto Co. v. Spray-Rite Service Corp., 465 U.S. 752, 764, 104 S.Ct. 1464, 1470, 79 L.Ed.2d 775 (1984), the Court had held that "conduct as consistent with permissible competition as with illegal conspiracy does not, standing alone, support an inference of conspiracy." Matsushita, 106 S.Ct. at 1357. In First National Bank of Arizona v. Cities Service Co.,...