Second Circuit Reverses Award of Summary Judgment in Price-Fixing Action, Based on Clarification of Matsushita and Examination of Antitrust Causation
On August 6, 2012, ten days after the Third Circuit issued its opinion in Superior Offshore International, Inc. v. Bristow Group, Inc. — the subject of a prior blog entry — the Second Circuit decided In re Publication Paper Antitrust Litigation, which sheds additional light on the proof required to sustain a claim for horizontal price-fixing under Section 1 of the Sherman Act. Recognizing, but not relying on, the evidentiary distinction between direct and circumstantial evidence discussed in Superior Offshore International, the Court instead assessed the totality of the evidence to determine whether it supported a reasonable inference of an illegal agreement. Importantly, the Court made clear that although an antitrust plaintiff must point to record evidence giving rise to such an inference in order to defeat summary judgment, it need not also disprove the possibility of non-conspiratorial conduct. In addition, the Court held, a plaintiff must show that the illegal agreement was both a material and a but-for cause of the alleged price increase.
Publication Paper stemmed from a criminal antitrust investigation into alleged price-fixing in the market for magazine and catalog paper. Soon after this investigation became public, individual direct purchasers sued makers of publication paper, claiming that collusion among the manufacturers drove the price of publication paper to supracompetitive levels. The District Court awarded summary judgment to defendants Stora Enso North America Corporation (“SENA”) and its parent, more than three years after the criminal trial that grew out of the DOJ probe resulted in their acquittal. The District Court found that plaintiffs’ evidence — including three coordinated price increases in the 2002-03 timeframe — neither sufficiently excluded the possibility that SENA acted independently in raising its prices nor demonstrated that the supposed conspiracy caused plaintiffs’ losses. The Second Circuit reversed.
The Second Circuit determined that the District Court’s application of Matsushita Electric Industrial Co. v. Zenith Radio Corp., in which the U.S. Supreme Court observed that “[t]o survive a motion for summary judgment . . . a plaintiff seeking damages for a violation of § 1 must present evidence that ‘tends to exclude the possibility’ that the alleged conspirators acted independently,” was flawed. Matsushita, the Court held, does not require a plaintiff to exclude or dispel the possibility of independent action. To the contrary, evidence from which a factfinder could reasonably infer an illegal conspiracy is sufficient to satisfy the “tends to exclude” standard, even if such an inference is not the sole inference to which that evidence gives rise. Thus, where a plaintiff’s theory of recovery is plausible — because a price-fixing conspiracy is economically sensible for the alleged conspirators or the challenged activities cannot reasonably be perceived as procompetitive — the “tends to exclude” standard is readily met, as the Second Circuit found. Conversely, where the inference of conspiracy is less plausible, the plaintiff has to produce strong direct or circumstantial evidence to satisfy the standard. In Publication Paper, the totality of the evidence suggested the existence of an illegal conspiracy between SENA and its purported competitor: the nature of the market (i.e., small number of participants and high barriers to entry), coupled with excess capacity and historically low prices, made collusion attractive, while private phone calls and meetings between SENA’s president and his counterpart at another defendant constituted evidence of opportunity to collude. Moreover, the testimony of SENA’s president at the criminal trial about reaching an agreement with his competitor to follow a third party’s price increase, the Court noted, was precisely the type of strong evidence that would satisfy the Matsushita standard even if the inference of conspiracy had not been plausible.
The Court also concluded that the question of causation was one for the jury. In the antitrust context, proof of causation requires a two-part showing that (1) the defendant’s conduct was a substantial or materially contributing factor in producing the alleged injury, which (2) would not have occurred but for the defendant’s supposed antitrust violation. SENA contended that proof of causation was lacking because it would have increased its prices without an agreement to do so. The Second Circuit rejected SENA’s argument, finding that, because price-fixing agreements are presumed to be illegal by virtue of their “pernicious effect on competition,” establishing the existence of an agreement typically suffices to establish causation. For the reasons discussed above, the Court was persuaded that plaintiffs had carried their burden on causation by providing sufficient evidence of an agreement to raise prices.
Read together, the opinions in Publication Paper and Superior Offshore International provide useful guidance in terms of adducing, and challenging the sufficiency of, proof in horizontal price-fixing litigations. Both opinions underscore the central role that competing inferences — of concerted action versus independent choice — can play in resolving such cases. The fact that their holdings diverge shows just how fact-dependent antitrust outcomes usually are.