The opinion of the court was delivered by: Robert W. Gettleman United States District Judge
THIS DOCUMENT RELATED TO: All Actions
Judge Robert W. Gettleman
MEMORANDUM OPINION AND ORDER
In this multi-district litigation, several putative plaintiff classes have alleged that defendants, the leading manufacturers*fn1 of automobile aftermarket filters,*fn2 conducted a single conspiracy to fix filters prices beginning March 1, 1999, and extending to the present. The first proposed class alleges violations of § 1 of the Sherman Act, 15 U.S.C. § 1, and consists of direct purchasers from defendants (the " Direct Purchasers" or "Direct Purchaser Plaintiffs"). The indirect purchaser putative classes consist of a nationwide injunction class (alleging violations of § 1 of the Sherman Act), a nationwide class seeking damages for common law unjust enrichment, and classes asserting claims under the antitrust laws of 28 states and the District of Columbia (together referred to as the "Indirect Purchasers" or the "Indirect Purchaser Plaintiffs")*fn3
Despite detailed allegations of a number of specific instances of price fixing conversations based on an eyewitness, defendants have moved to dismiss the complaints pursuant to Fed. R. Civ. P. 12(b)(6) for failure to state a claim under the standards set by the Supreme Court in Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955 (2007)("Twombly"), as well as asserting a statute of limitations argument. Each of the defendants, with the exception of Champion (which has filed an answer in the direct purchaser case rather than join the motion to dismiss), have advanced separate arguments with respect to the allegations against each of them. The Indirect Purchaser Defendants have joined the Twombly-based motion (the "Twombly Motion") and have also moved to dismiss on a number of other grounds. For the reasons discussed below, the Twombly Motion is denied, and the Indirect Purchaser Defendants' motion is granted in part and denied in part.
(A) The parties and the Complaints*fn4
The Direct and Indirect Purchaser Plaintiffs have filed consolidated complaints that include the following material allegations, which the court finds are more than sufficient to withstand the Twombly motion to dismiss:
(1) The alleged Direct Purchaser Plaintiff class includes warehouse and wholesale distributers, jobbers, automotive parts and mass merchandising retailers, and direct and private label purchasers of filters from defendants. The class does not include automobile manufacturers. The Indirect Purchaser Class includes 36 individuals and four business entities.
(2) The named defendants are the leading manufacturers of filters, and four of the defendants (Honeywell, Purolator, Wix and Champion) control more than 80% of the filter market, which collectively have annual U.S. sales of $1.5 billion (as alleged by the Direct Purchasers) or $2.7 billion (as alleged by the Indirect Purchasers).
(3) The filter market is mature, highly concentrated and difficult to enter. The filters produced by any manufacturer are fungible -- they may be easily substituted by those of a competitor, and are often referred to in the industry as "light sweet crude" because of their substitutability. The demand is relatively inelastic because automobile manufacturers strongly recommend that filters be replaced regularly. There is little brand loyalty by consumers, and price is the most important factor considered by consumers.
(4) Plaintiffs base many of the facts alleged in their complaint on the personal knowledge of William Burch ("Burch"), who in 1999 was the national accounts manager at Purolator. Later that year he left Purolator and joined Champion as its national accounts manager. Burch claims that he witnessed several specific meetings and conversations that culminated in the agreement by the named defendants to participate in a horizontal price fixing conspiracy. He first made these allegations to the Federal Bureau of Investigation on January 13, 2006. The following facts are taken from the complaint based upon Burch's account of defendants' activities, and is a summary of a much lengthier factual recitation contained in the complaint.
(5) The complaints generally allege a conspiracy to fix prices of filters among all of the defendants and other unnamed co-conspirators beginning March 1999 and continuing throughout the "class period" (March 1, 1999 through the present), accomplished by secret meetings, discussions and exchanges of information. After these general allegations, the complaints specifically allege two sets of discussions that illustrate the conspiracy.
(6) The first, in March 1999, began when Marlen Silverii ("Silverii"), a senior vice-president at ArvinMeritor, which had recently acquired Purolator, called a meeting of senior Purolator employees, including Burch, and directed them to contact their counterparts at competitors/defendants to arrange a coordinated rise in prices in order to improve Purolator's profit margins without losing market share. "A number" of those present, including Burch, complied with Silverii's directive. Subsequently, conversations occurred between ArvinMeritor personnel and its competitors to implement the plan to fix prices. The complaints describe a series of meetings at a trade show in May 1999, as well as several meetings by Silverii "and at least one other senior Purolator employee" with senior executives from Honeywell and Champion (including a meeting between Silverii and Champion's President, Tom Mallett) to discuss coordinating and fixing filter prices. In June 1999, at Silverii's direction, Purolator faxed a draft price announcement to the Honeywell employee to whom Silverii had "secretly" spoken at the trade show. The draft price announcement, which had not yet been sent to customers, stated that Purolator intended to implement a price increase effective August 15, 1999, and "pretextually" explained that the increase was due to a rise in the cost of labor, health care, freight and materials. On July 14, 1999, Purolator sent the price announcement, back-dated to July 7, 1999, to its customers, followed shortly thereafter by the "agreed-upon price increase by each of the other defendants," all pursuant to the price fixing agreement between them.
(7) Apparently, the next relevant event directly witnessed by Burch, who had left Purolator to join Champion as its national accounts manager, was a meeting in February 2004 convened by John Evans, then Champion's president, of senior Champion employees, at which he directed them to coordinate a new price increase, as had been done in the past, with the other defendants. After contacts were made by Champion employees, including a contact with Silverii, who was still employed by ArvinMeritor, each defendant agreed to participate in a coordinated price increase, which occurred in April 2004. A second price increase in 2004 occurred in September of that year, led again by Champion. The complaint alleges a specific meeting at a trade show between September 26 and September 28, 2004, at which Champion coordinated a price increase of at least 5% with the other defendants, which they publicly declared to be caused by rising steel costs, even though the defendants were by then using less steel in the manufacture of filters. In December 2004, defendants successfully implemented a third price increase for that year, and in subsequent years defendants continued their unlawful price fixing conspiracy.
In Twombly, the Supreme Court rejected a complaint that attempted to plead an antitrust conspiracy in violation of the Sherman Act based primarily on the defendant "Baby Bell" telephone companies' parallel behavior, consisting of steps to keep out competing start-up telephone competitors. Unlike the instant case, the Twombly plaintiffs did not plead any facts to support an actual agreement among the defendants. "[T]he pleadings mentioned no specific time, place or person involved in the alleged conspiracies . . .[and] proceed[ed] exclusively via allegations of parallel conduct." Twombly, 550 U.S. at 565, n. 10, 11. The Court concluded that, despite the liberal notice pleading requirements of Fed. R. Civ. P. 8(a), this was not enough to plead a Sherman Act violation: "We think nothing contained in the complaint invests either the action or inaction alleged with a plausible suggestion of conspiracy," as required by Rule 8. Id. at 566. "Without more, parallel conduct does not suggest conspiracy, and a conclusory allegation of agreement at some unidentified point does not supply facts adequate to show illegality." Id. at 556-57. Even then, the court acknowledged that the complaint came "close to stating a claim, but without some further factual enhancement it stopped short of the line between possibility and plausibility of `entitle[ment] to relief.'" Id. at 557.
As described above, the complaint in the instant case, unlike Twombly, alleges an actual agreement initiated by specified persons, witnessed in its inception and on several later occasions by an actual participant in the price fixing scheme. Although the series of alleged price fixing arrangements among defendants was followed by parallel rises in prices, the complaint does not rely only on the alleged parallel conduct to imply a conspiracy.
Defendants argue that the single conspiracy alleged in the complaint between 1999 through 2004 and beyond is somehow defeated by the fact that Burch did not directly witness a price fixing conversation between the years 1999 and 2004. Defendants are wrong. The complaint clearly alleges the inception of the conspiracy by Silverii, the methods that he directed to accomplish the price fixing scheme, a specific meeting at which the scheme was discussed, the advance communication of Purolator's price increase to the defendant competitors, and the agreement by defendants to participate. The complaint thus alleges a single conspiracy beginning with the March 1999 agreement, running through the 2004 meetings witnessed by Burch, and continuing to the present. The plausibility of the conspiracy is further buttressed by the allegations concerning the concentration of the filters industry, the maturity of the market, the fungibility of the products, the lack of brand loyalty, and the importance of price in determining consumer purchasing decisions.
Taken as true, as this court must on a motion to dismiss under Rule 12(b)(6), these well pleaded facts are more than sufficient "to suggest that an agreement was made" that violates § 1 of the Sherman Act, and amply "calls for enough fact to raise a reasonable expectation that discovery will reveal [more] evidence of an illegal agreement." Id. at 556. Like all complaints, the court must read the instant complaint in its entirety, and must not "scrutinize each allegation in isolation but [must] assess all of the allegations holistically." See Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308, 325 (2007). In other words, as plaintiffs argue, defendants may not "cherry pick" specific allegations in the complaint that might be insufficient standing alone. Nothing in Twombly or any other case has diminished the application of these general standards to a § 1 Sherman Act claim.
To be sure, discovery in this case will be extensive, costly and time-consuming. Plaintiffs will have to fill in the five year period between the two series of events witnessed by Burch, and identify the people who acted on behalf of the various defendants. Plaintiffs cannot be expected to know or allege such details at this early stage in the case; neither Twombly nor any case decided under that holding suggests otherwise.
Because the instant complaint sufficiently states a claim of a single conspiracy beginning in 1999 and extending through the present, the Twombly motion is denied.
Defendants argue that any claim based on allegations of unlawful conduct prior to March 31, 2004, are barred by the applicable four year statute of limitations set out in ...