Smith v. Philip Morris Cos.
| Decision Date | 18 July 2014 |
| Docket Number | 108,491. |
| Citation | 335 P.3d 644,50 Kan.App.2d 535 |
| Court | Kansas Court of Appeals |
| Parties | Daric SMITH, on behalf of himself, and all others similarly situated, Appellants/Cross-appellees, v. PHILIP MORRIS COMPANIES, INC.; Philip Morris Incorporated; Philip Morris International Inc.; R.J. Reynolds Tobacco Company; British American Tobacco Co. Ltd. ; Brown & Williamson Tobacco Corp.; Lorillard Tobacco Co.; Liggett Group, Inc.; and Brooke Group, Ltd., Appellees/Cross-appellants. |
Rex A. Sharp and Barbara C. Frankland, of Gunderson, Sharp & Walke, L.L.P., of Prairie Village, Kerry McQueen, of Sharp McQueen PA, of Liberal, and Isaac L. Diel, of Sharp McQueen PA, of Overland Park, for appellants/cross-appellees.
Todd N. Thompson, of Thompson Ramsdell & Qualseth, P.A., of Lawrence, and Kenneth J. Parsigian, of Latham & Watkins, of Boston, Massachusetts, for appellee/cross-appellant Philip Morris International Inc.
Kenneth L. Chernof, of Arnold & Porter LLP, of Washington, D.C., and J. Eugene Balloun, of Shook, Hardy & Bacon L.L.P., of Kansas City, Missouri, for appellees/cross-appellants Philip Morris USA, Inc. and Altria Group, Inc.
Michael J. Norton, of Foulston Siefkin LLP, of Wichita, for appellee/cross-appellant Liggett Group, LLC.
Daniel H. Diepenbrock, of Law Office of Daniel H. Diepenbrock, P.A., of Liberal, and Thomas Demitrack, of Jones Day, of Cleveland, Ohio, for appellees/cross-appellants R.J. Reynolds Tobacco Company and Brown & Williamson Tobacco Corporation.
Scott Martin and Irving Scher, of Greenberg Traurig, LLP, of New York, New York, and Daniel H. Diepenbrock, of Law Office of Daniel H. Diepenbrock, P.A., of Liberal, for appellee/cross-appellant Lorillard Tobacco Company.
James A. Walker, of Triplett, Woolf & Garretson, LLC, of Wichita, and Benjamin Rubinstein and Allison M. Alcasabas, of Herbert Smith Freehills New York LLP, of New York, New York, for appellee/cross-appellant British American Tobacco (Investments) Limited.
Before McANANY, P.J., ARNOLD–BURGER and POWELL, JJ.
In February 2000, Daric Smith, seeking to represent a class of Kansas retail purchasers of cigarettes (Plaintiffs), commenced this action against several tobacco companies (Defendants) in the Seward County District Court, alleging they conspired to fix the wholesale price of cigarettes in violation of the Kansas Restraint of Trade Act (KRTA), K.S.A. 50–101 et seq. Defendants are: Altria Group, Inc., formerly Philip Morris Companies, Inc. (Altria); Philip Morris USA, Inc., a subsidiary of Altria (PM–USA); Philip Morris International, Inc., a subsidiary of Altria until 2008(PMI); R.J. Reynolds Tobacco Company (RJR); Lorillard Tobacco Company (Lorillard); Brown & Williamson Tobacco Corporation (B & W); Liggett Group, Inc. (Liggett); and British American Tobacco (Investments) Ltd. (BATCo).
The district court certified the class with Smith as its representative. After 12 years of litigation and extensive discovery, the district court entered summary judgment for Defendants. The court found Plaintiffs failed to come forward with direct evidence or sufficient circumstantial evidence from which a jury could draw a reasonable inference of collusive behavior in fixing the wholesale price of cigarettes in Kansas. Moreover, the court found Plaintiffs' theory economically untenable. Plaintiffs appeal.
Upon de novo review, and based upon the claims and the facts established during discovery in this case, we conclude the district court did not err in entering summary judgment in favor of Defendants. As we shall see in our discussion of the court's decision in United States v. Philip Morris USA, Inc., 449 F.Supp.2d 1, 28 (D.D.C.2006), aff'd in part and vacated in part by 566 F.3d 1095 (D.C.Cir.2009), cert. denied ––– U.S. ––––, 130 S.Ct. 3502, 177 L.Ed.2d 1090, reh. denied ––– U.S. ––––, 131 S.Ct. 57, 177 L.Ed.2d 1142 (2010), which we refer to in this opinion as the RICO case, the tobacco industry has many things to answer for to the consumers of its products. But based upon the facts before us, a conspiracy among these Defendants to fix the wholesale prices of cigarettes in Kansas in violation of the KRTA is not one of them.
The tobacco industry is a classic example of an oligopoly, with a small number of companies controlling the majority of the market. Defendants PM–USA, RJR, B & W, Lorillard, and Liggett (Manufacturing Defendants) collectively manufactured more than 97% of the cigarettes sold in the United States during the relevant time period. The Manufacturing Defendants sell to wholesalers at list prices, which are published to wholesalers on a regular basis. The wholesalers independently set their own prices to retailers, and the retailers then set their own prices for consumers. But the ultimate price to the consumer is affected by a wide variety of discounts, promotions, and rebates to wholesalers provided by Manufacturing Defendants. See Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 239, 113 S.Ct. 2578, 125 L.Ed.2d 168 (1993) ; RICO case, 449 F.Supp.2d at 948.
Plaintiffs contend, at a minimum, that Defendants, pursuant to a conspiracy to fix the wholesale prices of cigarettes in the United States, engaged in lock-step price increases beginning on November 1, 1993, following a 7–month period of vigorous price competition. Before we further explore the breadth of Plaintiffs' conspiracy claim or claims, which is a key source of contention on appeal, we briefly consider the circumstances of the cigarette market leading up to that point.
By 1980, the demand for cigarettes in the United States was in decline, resulting in substantial excess capacity among the various manufacturers. Liggett, whose market share declined over the years from over 20% to barely 2%, responded by introducing in 1980 generic cigarettes at a list price of about 30% less than the regular brands. As the sale of Liggett's generics increased, RJR responded in 1983 with its own generic brand, and B & W followed suit in the spring of 1984. Throughout the 1980's and early 1990's, the discount segment of the cigarette market grew dramatically, taking market share away from premium brands, such as PM–USA's flagship brand Marlboro. By 1993, discount cigarettes accounted for 38.9% of industry shipments.
The growing discount segment had a particularly negative effect on PM–USA, with Marlboro losing market share at an accelerated rate for the first time in decades. For Marlboro to remain competitive, PM–USA concluded it needed to narrow the gap between the price of Marlboro and the lowest priced discount brands.
Thus, on April 2, 1993, a day which came to be known as “Marlboro Friday,” PM–USA announced a nationwide Marlboro retail promotion that reduced retail prices by an average of 40 cents per pack, or approximately 20%. Four months later, PM–USA followed this retail promotion with national wholesale list price reductions on all of its premium and discount brands.
These moves successfully reduced the price gap between Marlboro and the discount brands, resulting in Marlboro regaining its market share. The other Manufacturing Defendants followed PM–USA's price moves. Plaintiffs contend these price moves were the result of an illegal combination or conspiracy to fix prices. On the other hand, Defendants contend they made these pricing moves independent of one another. As support, they point to uncontroverted evidence that they argue is inconsistent with the notion of these pricing moves being the product of an agreement among competing suppliers.
The scope of Plaintiffs' claim or claims against Defendants became a key source of contention in the district court and remains so in this appeal. The case is now before us because the district court found Plaintiffs stated only a claim for a wholesale price-fixing conspiracy and granted Defendants summary judgment on that claim.
Plaintiffs' contentions on appeal center on two points. First, they insist the district court too narrowly interpreted the scope of their restraint-of-trade claim. Second, they contend that even if we find otherwise, summary judgment on a wholesale price-fixing claim is improper under Kansas law.
Standard of review
In our de novo review of Defendants' motions for summary judgment, we apply the same summary judgment standards as those applied by the district court. Those standards dictate that summary judgment is appropriate only when the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. We resolve all facts and inferences that may reasonably be drawn from the evidence in favor of Plaintiffs, the party against whom the summary judgment was sought. We must deny Defendants' summary judgment motions if reasonable minds could differ as to the conclusions drawn from the evidence. See O'Brien v. Leegin Creative Leather Products, Inc., 294 Kan. 318, 330, 277 P.3d 1062 (2012) (O'Brien I ).
Defendants tell us this is one of many antitrust cases filed across the country involving the same claim against some of them for conspiring to fix the wholesale prices of cigarettes following Marlboro Friday. All of those other cases have now been either voluntarily dismissed or ended in summary judgment for the tobacco companies. See, e.g., Holiday Wholesale Grocery v. Philip Morris Inc., 231 F.Supp.2d 1253, 1329 (N.D.Ga.2002), aff'd sub nom. Williamson Oil Co., Inc. v. Philip Morris USA, 346 F.3d 1287 (11th Cir.2003) (); Romero v. Philip Morris Inc., 148 N.M. 713, 729–32, 242 P.3d 280 (2010) (...
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