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Kleen Products LLC v. International Paper

United States District Court, N.D. Illinois, Eastern Division

August 3, 2017

KLEEN PRODUCTS LLC, et al., Individually and on behalf Of all those similarly situated, Plaintiffs,
v.
INTERNATIONAL PAPER, et al., Defendants.

          MEMORANDUM OPINION AND ORDER

          Harry D. Leinenweber, Judge United States District Court

         Before the Court are the Motions for Summary Judgment filed by Defendants Georgia-Pacific [ECF No. 1086] and Westrock [ECF No. 1088]. For the reasons stated herein, the Court grants the Motions. It therefore denies as moot the parties' cross filings for partial summary judgment on the narrower issue of released and untimely claims [ECF Nos. 1114 and 1138]. Lastly, given that with this opinion the Court has disposed both of the parties' Daubert and summary judgment motions, it denies as moot the requests for hearings on those submissions [ECF Nos. 1272 and 1273].

         I. BACKGROUND

         This case is an antitrust class action in which Plaintiffs accuse Defendants of conspiring to fix prices in violation of Section 1 of the Sherman Act. Plaintiffs were direct purchasers of containerboard products from Defendant paper companies. They allege that, between February 15, 2004 and November 8, 2010 (“the Class Period”), Defendants engaged in a series of agreed-upon actions to raise the price of containerboard products. These include lockstep announcements of price increases and reductions in the supply of containerboard achieved by “cutting capacity, slowing back production, taking downtime, idling plants, and tightly restricting inventory.” Kleen Prods. LLC v. Int'l Paper, 306 F.R.D. 585, 589 (N.D. Ill. 2015) (internal quotation marks omitted).

         All but two Defendants have settled. The settling Defendants include Cascades Canada, Inc., Norampac Holdings U.S., Inc. (collectively “Norampac”), Packaging Corporation of America (“PAC”), International Paper Company, Temple-Inland, Inc., and Weyerhaeuser Company. Defendants International Paper, Temple-Inland, and Weyerhaeuser settled only after filing for summary judgment. Due to their settlement, their Motions have been denied as moot. See, ECF No. 1365.

         The two Defendants that remain in the case are Georgia-Pacific and Westrock (f/k/a/ Smurfit-Stone or RockTenn), and they have continued to press for summary judgment. Defendants' case is simple. They say that Plaintiffs have not carried their burden to show that there was an agreement to fix prices among the alleged conspirators. All of their actions, Defendants claim, are consistent with actions taken in permissible competition. Moreover, Defendants argue that the range of permissible competition allowed them - large firms operating in a concentrated industry - is wide. In particular, they point out that they may lawfully raise prices not only because external market forces call for such price increases, but also because they believe that fellow competitors may find it in their best interest to raise prices as well. According to Defendants, once this range of lawful, consciously parallel behavior is accounted for, Plaintiffs' evidence cannot reasonably show that Defendants conspired.

         Plaintiffs disagree. They contend that the evidence, when viewed in the light most favorable to them, permits a reasonable jury to find that Defendants were not competing but illegally colluding with one another. Plaintiffs offer the following evidence to contest summary judgment. First, they draw attention to the fact that during the six and a half years of the alleged conspiracy, Defendants - a group that includes both the Defendants that have settled and the two moving Defendants, Georgia-Pacific and Westrock, that have not - collectively announced 15 price increases. With one exception, all Defendants joined each price announcement and around the same time; twelve out of the 15 times, Defendants increased prices for identical amounts; and all the increases carried nearly the same effective dates. Second, Plaintiffs show that the price increases came in close temporal proximity to trade association meetings, direct telephone calls, or other communications where Defendants had the opportunity to confer and enter into an agreement with one another. Third, Plaintiffs claim that Defendants reduced their containerboard production strategically, closing mills or otherwise slowing production around the time that they announced their price increases.

         Table 1 summarizes some of this evidence. It shows the 15 price increases during the Class Period and one predating it. The first column lists the date on which a price increase was first announced and the second the amount of the price increase. The columns thereafter list for each Defendant how many days after the first price announcement it joined the price increase by making its own announcement. Where a Defendant announced a different price than what the first-to-announce firm committed to, its own price increase amount is noted. For example, the table shows that International Paper was the first to announce a price increase of $35.00 on March 31, 2003. Georgia-Pacific followed suit three days later, and a day after that (or four days from the initial announcement) Temple-Inland likewise announced that it was increasing its containerboard prices but by $40.00.

         Table 1: Price Increases during the Class Period

Date of First

Price Announcement

Amount of Price Increase

IP

Georgia-Pacific

Temple-Inland

Westrock

Weyerhaeuser

Norampac

PCA

1

March 31, 2003

$35

1st to announce

days

days $40

days

days

days

Within days

2

January 5, 2004

$40

days

days

days

days

1st to announce

days

days

3

April 8, 2004

$50

Within days

Within days

days

days

1st to announce

days

days

4

February 14, 2005*

$50

1st to announce

days

days

days

days

days

days

5

September 6, 2005

$30

days

days

days

1st to announce

days

days $40

days

6

November 28, 2005

$40

days

days

days

days

1st to announce

days

day

7

February 10, 2006

$50

days

1st to announce

Within days

days

days

days

days

8

October 26, 2006*

$40

days

days

$40 to $50

days

days

1st to announce

days

days

9

March 27, 2007*

$40

1st to announce

Customer-specific

price increases

days

Did not announce

Did not announce

Did not announce

days

10

June 22, 2007

$40 to $50

days $40

days

days

days $40

1st to announce

days $40

days

11

February 1, 2008*

$50

days

days

days

1st to announce

days

days

days

12

May 28, 2008

$55

day

1st to announce

days

day

days

days

days

13

August 28, 2008*

$60

1st to announce

days

days

days

1st to announce

days

14

November 23, 2009

$50 to $70

7 days

1st among

Ds to announce

days

days

days $50

days

15

February 22, 2010

$60

1st to announce

days

days

days

days

days

16

June 29, 2010*

$60

day

1st among

Ds to announce

day

days

days

days

         Notes:

         • Except where noted, each Defendant's price increase was for the same amount as the first-to-announce firm's.

         • The first price increase of March 31, 2003 predates the Class Period.

         • Two of the price increases - those announced by Georgia-Pacific on November 23, 2009 and June 29, 2010 - were led by a non-Defendant. Georgia-Pacific was only the first among Defendants to announce these increases.

         • Six of the price increases, marked with asterisks by the date of the first price announcement, failed.

         • Weyerhaeuser did not announce any price increase after the May 28, 2008 announcement. This was presumably due to the fact that the company sold its containerboard business to International Paper on August 4, 2008.

         In addition, Plaintiffs put forth a “conduit theory” to explain how Defendants facilitated their conspiracy. According to Plaintiffs, Defendants used their earnings calls, communications with industry analysts, and other public statements to leak confidential information to their co-conspirators. Plaintiffs assert that such leaks allowed Defendants to coordinate their actions and further their price-fixing scheme. In the same vein, Plaintiffs draw attention to the fact that Defendants traded often among themselves. Plaintiffs contend that such inter-firm trades allowed Defendants to treat each other as customers instead of competitors and so freely exchange information among them.

         Plaintiffs also build a body of expert testimony. One of Plaintiffs' experts, Douglas Zona (“Zona”), opines that Defendants charged supracompetitive prices during the Class Period while depressing production to levels below that of a benchmark group not suspected of conspiracy. Another expert, Michael Harris (“Harris”), contends that Defendants' actions were inconsistent with those of firms in a competitive marketplace. A firm competing for business with its rivals, says Harris, would not cut production during a period of increased demand or raise prices during an economic downturn, as Defendants did. Harris further focuses on Defendants' motive for colluding. He points to the fact that the containerboard industry was dominated by a few firms, had high barriers to entry, faced an inelastic demand for its product, and produced a homogeneous product. Harris opines that, under such circumstances, Defendants would tend to shy away from price competition and attempt to collude to reap profits from artificially inflated prices.

         Defendants do not dispute many of the underlying facts. For example, they do not contest that they made announcements of price increases, closed certain mills, interacted with each other and analysts, engaged in inter-firm trading, and operated in a highly concentrated industry. Instead, they seek to undermine the inference of illicit agreement that Plaintiffs (and their experts) draw by introducing additional factual evidence and competing expert testimonies. For instance, Defendants adduce evidence to show that they independently considered raising prices. They further assert specific business reasons for having attended trade association meetings, made phone calls to each other, publicly disclosed information to analysts, and traded among themselves. Defendants also advance individual defenses. Georgia-Pacific emphasizes its high production levels during the Class Period, while Westrock seeks to extricate itself on the basis that its decisions to announce a price increase and reduce supply were approved while it was in bankruptcy.

         In addition, Defendants point to gaps in Plaintiffs' evidence. They focus on the fact that, after extensive discovery, Plaintiffs found no evidence to shed light on the substance of Defendants' supposedly improper communications during the various industry meetings and phone calls. This is despite Plaintiffs having combed through thousands of pages of Defendants' contemporaneously created records and deposed numerous employees involved in those meetings and calls as well as third parties. As such, Defendants argue that Plaintiffs rely only on speculation to advance the theory that Defendants conspired during these interactions.

         Plaintiffs, in turn, admit the additional facts but argue that their case withstands Defendants' attempt at shading the record. They aim to excuse certain missing pieces of evidence by alluding to Defendants' prior brushes with antitrust lawsuits. Plaintiffs contend that as a result of such exposure, Defendants have learned to conceal their conduct, destroy business records, and generally make it difficult for Plaintiffs to find incriminating evidence.

         Despite the vigorous back-and-forth between the parties and the voluminous record, the general lack of dispute on the underlying facts makes the case ripe for summary judgment.

         II. SUMMARY JUDGMENT STANDARD AND SUBSTANTIVE ANTITRUST LAW

         To survive summary judgment on their Sherman Act conspiracy claim, Plaintiffs “must present evidence ‘that tends to exclude the possibility' that the alleged conspirators acted independently.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 588 (1986); accord Mkt. Force, Inc. v. Wauwatosa Realty Co., 906 F.2d 1167, 1171-72 (7th Cir. 1990).

         Independent actions include, but are not limited to, the behavior of firms operating in perfectly competitive markets - that is, firms doing business in a market where there are many small firms, with each too small for its decisions to affect the market price. See, In re Flat Glass Antitrust Litig., 385 F.3d 350, 359 (3d Cir. 2004) (citing Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law ¶ 429, at 206 (2nd ed. 2000)). In such a market, each firm makes its decisions taking price and its competitors' actions as given. Perfectly competitive firms may “act in similar ways, ” but that is only because they are reacting to a “common stimulus, ” or external market forces unrelated to their own decisions. See, In re Plasma-Derivative Protein Therapies Antitrust Litig., 764 F.Supp.2d 991, 997 (N.D. Ill. 2011) (citing Bell Atl. Corp. v. Twombly, 550 U.S. 544, 554 (2007)). Independent actions, however, are not limited just to perfect competition.

         The concept of independent actions takes on an additional dimension in this case because Defendants are oligopolies, or large firms operating in an industry dominated by few players. See, In re Chocolate Confectionary Antitrust Litig., 801 F.3d 383, 397 n.10 (3d Cir. 2015) (defining an oligopoly as a market “in which a few relatively large sellers account for the bulk of the output”) (quoting Areeda & Hovenkamp, ¶ 404a, at 10 (4th ed. 2014)) (internal quotation marks omitted). As a large firm operating among a select few, each Defendant recognizes that its pricing and output decisions affect its competitors, and depending on how they react, the market as a whole. See, Flat Glass, 385 F.3d at 359. Thus, any Defendant acting rationally and independently takes into account the anticipated reactions of the other firms. See, id.; Plasma-Derivative, 764 F.Supp.2d at 997. Independence in this context does not mean ignoring one's competitors.

         Accordingly, a firm acting independently may choose to raise prices or lower output because it anticipates (or hopes) that its competitors, likewise acting independently and in their best interests, may follow the same course of action. See, In re Text Messaging Antitrust Litig., 782 F.3d 867, 876 (7th Cir. 2015) (noting that a firm may “raise its price, counting on its competitors to do likewise (but without any communication with them on the subject) and fearing the consequences if they do not”). Similarly, a firm may follow a competitor's lead in pricing and production. See, Id. (stating that one can “expect competing firms to keep close track of each other's pricing and other market behavior” and that such firms “often find it in their self-interest to imitate that behavior rather than try to undermine it”). Such oligopolistic competition differs from perfect competition insofar as the interdependent, oligopolistic firms act in similar ways not only because they are reacting to common, external market conditions but also because they are responding to each other. However, it is like perfect competition in that such similar behavior does not evidence coordination.

         The kind of interdependent conduct just described is variously known as conscious parallelism, tacit collusion, follow-the-leader strategy, or interdependent parallelism. However it is referred to, the crucial thing is that such conduct is lawful. See, Twombly, 550 U.S. at 553-54 (quoting Areeda & Hovenkamp, ¶ 1433a, p. 236, for the proposition that “[t]he courts are nearly unanimous in saying that mere interdependent parallelism does not establish the contract, combination, or conspiracy required by Sherman Act § 1”) (internal quotation marks omitted); Brooke Grp. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 227 (1993); Text Messaging, 782 F.3d at 879 (“Tacit collusion . . . does not violate section 1 of the Sherman Act.”); Reserve Supply Corp. v. Owens-Corning Fiberglas Corp., 971 F.2d 37, 50 (7th Cir. 1992) (“[T]he Sherman Act prohibits agreements . . . [but] individual pricing decisions (even when each firm rests its own decision upon its belief that competitors will do the same) do not constitute an unlawful agreement under section 1 of the Sherman Act.”) (quoting Clamp-All Corp. v. Cast Iron Soil Pipe Inst., 851 F.2d 478, 484 (1st Cir. 1988)) (emphasis in original).

         Tacit collusion thus is lawful, and this is despite the fact that it may have the same anticompetitive effects as proscribed express collusion. See, Reserve, 971 F.2d at 50; Plasma-Derivative, 764 F.Supp.2d at 997 (“Section 1 of the Sherman Act . . . reaches only conduct which results from an agreement among firms and not independent action which happens to have an anti-competitive effect.”); In re Fla. Cement & Concrete Antitrust Litig., 746 F.Supp.2d 1291, 1310 n.15 (S.D. Fla. 2010) (“All things being equal, an antitrust policy [such as ours] which permits price following in an oligopoly will result in higher prices and lower supply[.]”). By tacitly colluding, oligopolistic firms “in effect share monopoly power, setting their prices at a profit-maximizing, supracompetitive level.” Brooke, 509 U.S. at 227; see also, Flat Glass, 385 F.3d at 359-60 (explaining at some length how “firms in a concentrated market may maintain their prices at supracompetitive levels, or even raise them to those levels, without engaging in any overt concerted action”). As such, pricing supracompetitively, or above a level justified by competitive conditions, is as consistent with legal oligopolistic behavior as it is with illicit conspiracy.

         The bottom line is that lawful independent actions subsume oligopolistic interdependent behavior. Thus, to prevail at summary judgment, Plaintiffs must offer evidence that tends to rule out both that Defendants acted independently as price-taking firms and that they acted interdependently as oligopolies. See, In re Domestic Drywall Antitrust Litig., 163 F.Supp.3d 175, 189-90 (E.D. Pa. 2016) (“For Plaintiffs to create a fact issue about whether Defendants entered an agreement, Plaintiffs must present evidence tending to exclude the possibility of independent conduct, including interdependent conduct (e.g., conscious parallelism).”). Defendants, on the other hand, may argue for both possibilities, pleading that some of their actions are independent responses to external market conditions and others are interdependent follow-the-leader strategies.

         In sum, the Court applies the following summary judgment standard in this antitrust case. It draws every reasonable inference in favor of non-movant Plaintiffs while keeping in mind that “[c]onduct as consistent with permissible competition as with illegal conspiracy does not, standing alone, support an inference of antitrust conspiracy.” Matsushita, 475 U.S. at 587-88. Moreover, “[e]ven on summary judgment, ” the Court is “not required to draw every requested inference” but only “reasonable ones that are supported by the record.” Omnicare, Inc. v. Unitedhealth Grp., Inc., 629 F.3d 697, 704 (7th Cir. 2011). The Court does not weigh the evidence, since that is the domain of the jury, but it recognizes that for the case the reach the jury, Plaintiffs must show that there is a genuine dispute of material fact. See, Fed. R. Civ. P. 56(a); Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986). This means that Plaintiffs must show that “the inference of conspiracy is reasonable in light of the competing inferences of independent action, ” where independent action should be understood to include oligopolistic interdependent conduct. Matsushita, 475 U.S. at 588.

         III. ANALYSIS

         The Court considers the evidence Plaintiffs bring to contest summary judgment individually and holistically. The evidence is assessed individually against moving Defendants Georgia-Pacific and Westrock to determine whether Plaintiffs have carried their burden as to the specific Defendants. See, Alexander v. Phx. Bond & Indem. Co., 149 F.Supp.2d 989, 1000 (N.D. Ill. 2001) (“We will analyze each defendant individually because, even in a conspiracy case, liability remains individual and is not a matter of mass application.”) (citing Kotteakos v. United States, 328 U.S. 750, 772 (1946)); In re Brand Name Prescription Drugs Antitrust Litig., No. 94 C 897, MDL 997, 1996 U.S. Dist. LEXIS 4335, at *1 (N.D. Ill. Apr. 4, 1996) (denying the motions for summary judgment with respect to one class of defendants while granting them to another). Since the settling Defendants are no longer requesting summary judgment, the evidence Plaintiffs offer against them will be considered only to the extent that it is relevant to the moving Defendants' arguments or a holistic view of Plaintiffs' case.

         As against each moving Defendant, the Court examines the evidence as a whole to see if, viewed in the light most favorable to Plaintiffs, “it was more likely that the defendants had conspired to fix prices than that they had not conspired to fix prices.” In re High Fructose Corn Syrup Antitrust Litig., 295 F.3d 651, 655-56 (7th Cir. 2002); see also, Petruzzi's IGA Supermarkets v. Darling-Del. Co., 998 F.2d 1224, 1230 (3d Cir. 1993) (“[A] court should not tightly compartmentalize the evidence put forward by the nonmovant, but instead should analyze it as a whole to see if together it supports an inference of concerted action.”) (citing Cont'l Ore Co. v. Union Carbide & Carbon Corp., 370 U.S. 690, 699 (1962)). The Court thus avoids looking at each piece of evidence Plaintiffs bring in isolation and concluding that “if no single item of evidence presented by the plaintiff points unequivocally to conspiracy, the evidence as a whole cannot defeat summary judgment.” High Fructose, 295 F.3d at 655-56.

         The Court begins by reviewing the procedural history of this case, which Plaintiffs argue constrains what the Court may do at this stage.

         A. Procedural History

         This case arrives at summary judgment after this Court certified it as a class action and the Seventh Circuit affirmed the decision. Plaintiffs rely heavily on the Seventh Circuit's opinion in arguing why summary judgment is inappropriate here. In particular, they seize on the appellate court's language that “[t]here was a great deal of evidence designed to show that the hypothesis that Defendants had organized a cartel was one that a jury could accept.” Kleen Prods. LLC v. Int'l Paper Co., 831 F.3d 919, 924 (7th Cir. 2016). Since they have now brought this “great deal of evidence, ” Plaintiffs press that the case should go to a jury.

         Plaintiffs' argument proves too much. It suggests that in affirming class certification, the court of appeals decided the merits of Plaintiffs' case, concluding that the case was strong enough to be submitted to a jury and so should bypass not only summary judgment but also a directed verdict. This flies against the Supreme Court's teaching that “courts [have] no license to engage in free-ranging merits inquiries at the certification stage.” Amgen Inc. v. Conn. Ret. Plans & Tr. Funds, 568 U.S. 455, 466 (2013). Since whether Plaintiffs' case is meritorious enough to go to a jury is not “relevant to determining whether the Rule 23 prerequisites for class certification are satisfied, ” had the Seventh Circuit made such a finding, it would have ranged outside the bounds of its authority to review the issue on appeal. Id. (“Merits questions may be considered to the extent - but only to the extent - that they are relevant to determining whether the Rule 23 prerequisites for class certification are satisfied.”); see also, Suchanek v. Sturm Foods, Inc., 764 F.3d 750, 757-58 (7th Cir. 2014) (holding that a class may be certified even if the court would then enter a judgment that exonerates the defendant and thus bifurcating the class certification and merits questions). The Seventh Circuit did not make such an error.

         This can be seen both in what the court said and what it did not say. In its opinion, the court expressly noted that it was “not saying that any of these points [making up Plaintiffs' prima facie case] have been proven” but merely that Plaintiffs' “evidence is enough to support class treatment of the merits.” Kleen Prods., 831 F.3d at 928. The court thus made clear that it was not deciding the merits of Plaintiffs' case, but only that Plaintiffs may attempt to prove the merits not just for themselves but for the class as a whole.

         Furthermore, the Seventh Circuit did not rule that should Plaintiffs bring the type of proof they have now introduced, they may proceed directly to trial. This comes through in what the court simply did not say. The court said little about the substance of antitrust law, except as that body of law relates to class certification issues. It mentioned the Sherman Act just once, at the beginning of the opinion; it did not distinguish between express and tacit collusion, despite the fact that only one of these two types of conduct violates antitrust law; it gave short shrift to what continues to be Defendants' main defense, which is that their behavior was explained by “parallel but independent behavior undertaken by firms in a concentrated market”; and it credited facts that it had elsewhere said do not support an inference of conspiracy. Compare, e.g., Kleen Prods., 831 F.3d at 924 (“Communication among the Defendants was easy, thanks to trade associations.”), with Omnicare, 629 F.3d at 709 (“[C]ourts should not allow plaintiffs to pursue Sherman Act claims merely because conversations concerning business took place between competitors [during legitimate activities].”) (quoting with approval the lower court's opinion). This would be a strange approach to take were the court assessing the strength of Plaintiffs' proffered evidence and measuring it against the substantive requirements of antitrust law. The more sensible conclusion is that the Seventh Circuit simply did not do what Plaintiffs wish it did: take the case outside of the realm where Defendants may succeed on summary judgment.

         The Court thus declines Plaintiffs' invitation to dispose of the current motions based on the Seventh Circuit's class certification opinion alone. Instead, it considers the evidence the parties bring to summary judgment. Plaintiffs concede that they have uncovered no direct evidence of conspiracy. See generally, ECF No. 1230 (Pls.' Br.), at 4 (discussing the various pieces of evidence to support their case and stating that “Plaintiffs present extensive and strong circumstantial evidence”). Therefore, circumstantial evidence decides this case, and such evidence comes in two forms, “economic evidence suggesting that the defendants were not in fact competing, and noneconomic evidence suggesting that they were not competing because they had agreed not to compete.” High Fructose, 295 F.3d at 654-55. The Court examines these two types of evidence in the sections below.

         B. Economic Evidence of Conspiracy

         The Court first tackles the economic evidence. Plaintiffs have amassed four categories of such evidence that they say support an inference that Defendants engaged in a conspiracy. These are: the market structure of the containerboard industry; the lockstep price increases; the accompanying supply reductions; and Defendants' actions purportedly taken against self-interest.

         1. Structure of the Containerboard Industry as Motive to Collude

         Plaintiffs' evidence on the structure of the containerboard industry, while not uncontested, can be treated as establishing that the “containerboard market was conducive to successful collusion.” Kleen Prods., 831 F.3d at 927-28. In particular, Plaintiffs bring evidence to show that Defendants operated in a concentrated industry; that barriers to entry were high; that Defendants sold a standardized, homogeneous product; and that they faced an inelastic demand.

         However, the value of this evidence to show that an actual conspiracy existed is limited. As the Court explained in its Daubert memorandum opinion,

An industry structure is shared by Defendant and non-Defendant firms alike throughout the Class and non-Class Periods. As such, by itself, details of an industry structure cannot show that Defendants conspired during the Class Period any more than they ...

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