Third Circuit Sets High Bar for Proof of Price-Fixing, Affirms Dismissal on Summary Judgment Based on Twombly
The Third Circuit’s July 27, 2012, opinion in Superior Offshore International, Inc. v. Bristow Group, Inc., confirms that an antitrust plaintiff relying on circumstantial evidence of price-fixing must demonstrate something more than merely parallel behavior, not only to survive a motion to dismiss, as the Supreme Court held in Bell Atlantic Corp. v. Twombly, but also to defeat summary judgment. Thus, unless a plaintiff can present record evidence that is plausibly suggestive of, and not just consistent with, an illegal agreement to fix prices, a defendant moving for summary judgment should prevail. Indeed, without evidence of a manifest agreement not to compete, Superior Offshore International (“SOI”) suggests that courts will not infer an illegal price-fixing arrangement even where participants in an oligopoly market raise prices despite a weakening of demand for their services.
SOI alleged that defendants — a group of helicopter operators that collectively have a 90 percent share of the market for providing air transportation to Gulf of Mexico-based oil and gas industries — conspired to raise prices by 50 percent between early 2001 and late 2005, including by 30 percent in the first half of 2001 alone, despite softening demand. The District Court dismissed SOI’s initial putative class action complaint, holding that the allegations of concerted activity — including the close-knit nature of the industry, a five-year investigation of the industry by DOJ’s Antitrust Division (which ended fourteen months after this action was commenced with no action taken), and an unattributed quote in a trade magazine suggestive of a coordinated rate hike — were insufficient to state a claim under the Sherman Act. SOI then amended its complaint to add allegations based on a confidential witness who supposedly overheard a conversation between sales executives at two of the defendant companies about raising prices in unison at their companies and at a third defendant company. After the District Court limited discovery to these new allegations, and the confidential witness, at his deposition, had difficulty recalling aspects of the conversation and testified that certain details in the amended complaint were incorrect, defendants moved for summary judgment, which SOI opposed with a request for full discovery pursuant to Fed. R. Civ. P. 56(d). The District Court denied SOI’s Rule 56(d) application, on the grounds that SOI failed to show how additional discovery would preclude summary judgment and had not been diligent in requesting such discovery previously, and awarded summary judgment to the defendants. The Third Circuit affirmed.
In affirming the summary judgment award, the Third Circuit focused on the “concerted action” element of a valid Section 1 price-fixing claim, which can be proven either by direct evidence or by showing that defendants engaged in parallel conduct in the face of certain “plus factors” making an inference of concerted action more plausible. Because a plaintiff proceeding by way of direct evidence of concerted action carries a lighter burden relative to one who must rely on circumstantial evidence, a proffer of direct evidence, the Court observed, must be closely scrutinized to determine whether the evidence in fact qualifies as direct evidence of a conspiracy. The Court held that the confidential witness’s deposition testimony was too vague and subjective to qualify as direct evidence of price-fixing.
Having determined that the record evidence was at best circumstantial, the Court proceeded to analyze the evidence under the rubric of parallel conduct with “plus factors.” “Plus factors,” according to the Court, are circumstances in which the inference of rational independent choice is “less attractive” than that of concerted action. Here, the Court concluded, like the District Court, that rational independent choice could just as easily explain the parallel price increases as could a preceding agreement: the price increases could have been the result of price leadership in this oligopoly market, as opposed to price fixing, or alternatively, each defendant could have assessed the softening market on its own and chosen to raise prices to compensate for lower volume. In light of these independent business rationales — the second of which is especially noteworthy — the Court found insufficient evidence to create a triable issue of fact as to whether defendants conspired to fix prices. And, absent concerted action, the Court did not reach the issue of whether the alleged conduct imposed an unreasonable restraint on trade.
Predicated on an extension of Twombly to the summary judgment context and, perhaps more significantly, the seemingly anomalous observation that a mismatch between price and demand does not constitute sufficient circumstantial evidence of price-fixing, the Third Circuit’s opinion in SOI is an additional arrow in the antitrust defense bar’s quiver.