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Kleen Products, LLC, et al v. Packaging Corporation of ) America

April 8, 2011


The opinion of the court was delivered by: Milton I. Shadur SeniorUnited States District Judge


This action is the outgrowth of a number of class actions that had been brought against Packaging Corporation of America ("Packaging"), International Paper Company ("International Paper"), Cascades Canada, Inc. ("Cascades"), Norampac Holdings U.S., Inc. ("Norampac"), Weyerhaeuser Company ("Weyerhaeuser"), Geogia-Pacific, LLC ("Georgia-Pacific"), Temple-Inland, Inc. ("Temple") and Smurfit-Stone Container Corporation ("Smurfit-Stone"),*fn1 charging violations of Sherman Act §1 ("Section 1," 15 U.S.C. §1). As a result of the sequence of events described in the next paragraph, the present action is the only one pending, with the individual plaintiffs (also serving as the putative class representatives) comprising Kleen Products, LLC, R.P.R. Enterprises, Inc., Mighty Pac, Inc., Ferraro Food, Inc., Ferraro Foods of North Carolina, LLC, Distributors Packaging Group, LLC, RHE Hatco, Inc. and Chandler Packaging Group.*fn2

This Court originally received, via random assignment, Kleen Prods., LLC v. Packaging Corp. of Am., 10 C 5711, the first-filed among a number of prospective class actions brought in this District Court. Four of those later-filed cases*fn3 were then reassigned to this Court's calendar on grounds of relatedness under this District Court's LR 40.4.

This Court then required Plaintiffs to file a Consolidated and Amended Complaint ("Complaint") under the original case number (Dkt. 51) and dismissed all the other cases without prejudice (Dkt. 69). As it has in a number of other cases, this Court followed a sealed bid procedure to rule on the designation of class counsel (Dkt. 145).

During that rather lengthy procedural sequence, Defendants jointly filed a Fed. R. Civ. P. ("Rule") 12(b)(6) motion to dismiss the Complaint with prejudice. After settling the class counsel issue, this Court ordered a response by Plaintiffs and a reply by Defendants to complete the briefing process. For the reasons set out below, Defendants' motion is denied.

Rule 12(b)(6) Standard

Under Rule 12(b)(6) a party may move for dismissal of a complaint on the grounds of "failure to state a claim upon which relief can be granted." Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) did away with the Rule 12(b)(6) formulation first announced in Conley v. Gibson, 355 U.S. 41, 45-46 (1957) "that a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." As Twombly, id. at 562-63 put it:

Conley's "no set of facts" language has been questioned, criticized, and explained away long enough.

To be fair to the Conley Court, the passage should be understood in light of the opinion's preceding summary of the complaint's concrete allegations, which the Court quite reasonably understood as amply stating a claim for relief. But the passage so often quoted fails to mention this understanding on the part of the Court, and after puzzling the profession for 50 years, this famous observation has earned its retirement.

Twombly, id. at 570 held that to survive a Rule 12(b)(6) motion a complaint must provide "only enough facts to state a claim to relief that is plausible on its face." Or put otherwise, "[f]actual allegations must be enough to raise a right to relief above the speculative level" (id. at 555).

But almost immediately thereafter the Supreme Court issued another opinion that seemed to cabin the Twombly opinion somewhat. Airborne Beepers & Video, Inc. v. AT&T Mobility LLC, 499 F.3d 663, 667 (7th Cir. 2007) has described the two opinions this way:

In Bell Atlantic Corp. v. Twombly, [550 U.S. 544,] 127 S.Ct. 1955 (2007), the Supreme Court wrote that "[w]hile a complaint attacked by a Rule 12(b)(6) motion to dismiss does not need detailed factual allegations, ...a plaintiff's obligation to provide the 'grounds' of his 'entitle[ment] to relief' requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do...." Id. at 1964-65 (citations omitted). Two weeks later the Court clarified that Twombly did not signal a switch to fact-pleading in the federal courts. See Erickson v. Pardus, [551 U.S. 89,] 127 S.Ct. 2197 (2007). To the contrary, Erickson reaffirmed that under Rule 8 "[s]pecific facts are not necessary; the statement need only 'give the defendant fair notice of what the...claim is and the grounds upon which it rests.'" 127 S.Ct. at 2200, quoting Twombly, [551 U.S. at 93,] 127 S.Ct. at 1964. Taking Erickson and Twombly together, we understand the Court to be saying only that at some point the factual detail in a complaint may be so sketchy that the complaint does not provide the type of notice of the claim to which the defendant is entitled under Rule 8.

Since then Ashcroft v. Iqbal, 129 S.Ct. 1937 (2009) has shed further light on the principles articulated in Twombly, so that the ensuing caselaw tendency has been to treat the pair of cases like a two-horse entry (1 and 1A) in the jurisprudential sweepstakes. But because this case like Twombly involves the antitrust canon, this opinion will look more to Twombly for application of the concept of "plausibility" in the present context.

Section 1 Standard

Twombly, 550 U.S. at 553-54 (ellipses and brackets in original, but internal quotation marks and citations omitted) also set out the applicable substantive requirements of a Section 1 claim:

Because §1 of the Sherman Act does not prohibit [all] unreasonable restraints of trade...but only restraints effected by a contract, combination, or conspiracy,

[t]he crucial question is whether the challenged anticompetitive conduct stem[s] from independent decision or from an agreement, tacit or express. While a showing of parallel business behavior is admissible circumstantial evidence from which the fact finder may infer agreement, it falls short of conclusively establish[ing] agreement or...itself constitut[ing] a Sherman Act offense. Even conscious parallelism, a common reaction of firms in a concentrated market [that] recogniz[e] their shared economic interests and their interdependence with respect to price and output decisions is not in itself unlawful.

Twombly, id. at 557 made it clear that Plaintiffs must place such an allegation of conscious parallelism "in a context that raises a suggestion of a preceding agreement, not merely parallel conduct that could just as well be independent action."

In constructing its plausibility standard, Twombly, id. at 556 (internal footnote and quotation marks omitted) did not require any determination of probability:

Asking for plausible grounds to infer an agreement does not impose a probability requirement at the pleading stage; it simply calls for enough fact to raise a reasonable expectation that discovery will reveal evidence of illegal agreement. And, of course, a well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof of the facts alleged is improbable, and that a recovery is very remote and unlikely.

And In re Text Messaging Antitrust Litig., 630 F.3d 622, 629 (7th Cir. 2010) has further clarified the distinction between probability and plausibility in the Section 1 context:

Probability runs the gamut from a zero likelihood to a certainty. What is impossible has a zero likelihood of occurring and what is plausible has a moderately high likelihood of occurring. The fact that the allegations undergirding a claim could be true is no longer enough to save a complaint from being dismissed; the complaint must establish a nonnegligible probability that the claim is valid; but the probability need not be as great as such terms as "preponderance of the evidence" connote.

Put another way, what Plaintiffs must do is to "nudge[ ] their claims across the line from conceivable to plausible" (Twombly, 550 U.S. at 570).

Factual Background

Countless industrial and consumer products are manufactured from containerboard, the principal raw material used to manufacture corrugated products such as linerboard and corrugated boxes (¶36*fn4 ). That being so, the prices of those corrugated products are of course tied directly to the price of containerboard (¶40).

During the class period the containerboard industry was heavily consolidated (¶39). Significant barriers to entry in the form of capital-intensive startup costs and high transportation costs make that industry susceptible to an oligopolistic structure (¶41). Containerboard industry firms share a cost structure because of those barriers to entry and the degree of consolidation in the industry (¶¶47-48). Because there are no close substitutes for containerboard, the demand for the product is inelastic (¶¶50-51). While the containerboard industry is consolidated, no single firm has sufficient market power to control the supply and price of the product (¶52).

There are a number of important industry groups and trade associations in the containerboard industry (ΒΆΒΆ53-56). Most Defendants belong to one or both of two prominent organizations: the Fibre Box Association ("FBA") and ...

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