THIS DOCUMENT RELATES TO ALL DIRECT-PURCHASER PLAINTIFF CASES
ORDER AND REASONS
SARAH S. VANCE, District Judge.
All of the defendants move to dismiss the direct purchaser plaintiffs' claims of a per se illegal horizontal conspiracy and fraudulent concealment.
This is an antitrust case that direct-purchaser plaintiffs (DPPs) and indirect-purchaser plaintiffs (IPPs) filed against Pool and Manufacturer Defendants. Pool is the country's largest distributor of products used for the construction and maintenance of swimming pools ("Pool Products").
DPPs initially alleged (1) that Pool monopolized and attempted to monopolize the Pool Products distribution market in the United States in violation of Section 2 of the Sherman Act by acquiring rival distributors and by entering into agreements with manufacturers to exclude Pool's rivals; (2) that Pool and the Manufacturer Defendants violated Section 1 of the Sherman Act by engaging in an unlawful conspiracy to exclude Pool's competitors; and (3) that defendants fraudulently concealed their illegal conduct and thus are liable for damages outside of the statutory limitations
The Court issued an earlier order dismissing certain of plaintiffs' claims.
DPPs thereafter sought leave to file an amended complaint.
The SCAC is substantially similar to the DPPs' original complaint in all but two respects: (1) the SCAC does not contain a Section 2 monopolization claim; and (2) the SCAC contains more extensive allegations of horizontal agreements among the Manufacturer Defendants and of "secret" agreements among all defendants. DPPs contend that the latter allegations suffice to state a claim for both a per se Section 1 violation and fraudulent concealment. In accordance with Pretrial Order # 18, defendants have limited the arguments in their motions to dismiss to the issues of per se liability and fraudulent concealment.
A. Allegations of a Horizontal Conspiracy
DPPs contend that "Manufacturer Defendants communicated directly with each other and also with PoolCorp" in order to facilitate an antitrust conspiracy that "protected PoolCorp's market share and margins and the prices that PoolCorp charged
Specifically, DPPs allege that defendants conspired to raise prices for Pool Products and to eliminate Pool's competitors through a scheme in which Pool conditioned access to its distribution network on promises by manufacturers not to supply Pool's rivals.
DPPs allege that Pool used its dominance to instigate a conspiracy among the Manufacturer Defendants and Pool "to raise the prices of Pool Products to other distributors" and sometimes to refuse to sell to other distributors altogether.
DPPs newly describe two specific types of allegedly conspiratorial conduct on the part of the Manufacturer Defendants, one concerning free freight minimums and one concerning buying groups. Otherwise, the SCAC's horizontal conspiracy allegations are the same as those in DPPs' original complaint, which the Court has found insufficient to state a per se claim. Accordingly, the Court will limit its analysis to these two specific categories of horizontal conspiracy allegations.
1. Free Freight Minimums
DPPs allege that, in 2007, Manufacturer Defendants each raised the required dollar purchase amount for an order to qualify for free freight from $10,000 to $20,000 in the course of a three-month period.
On November 30, 2007, Pool's CEO told other Pool executives that Pentair, Hayward, and Zodiac had "all agreed to the $20,000 freight minimum with NO exceptions."
2. Buying Groups
DPPs also allege that the Manufacturer Defendants and Pool conspired to place restrictions on "buying groups," collectives that Dealers formed to "try to leverage their collective volume of purchases to negotiate directly with manufacturers of Pool Products, thus bypassing PoolCorp" and "avoid[ing] PoolCorp's monopoly pricing."
Pool was strongly opposed to the presence of buying groups in the market.
According to DPPs, the Manufacturer Defendants agreed with Pool and with each other "to impose terms of sales upon buying groups that were more onerous than they otherwise would have been."
Specifically, DPPs allege that, in late 2009, "Pentair imposed onerous terms on members of Carecraft, one of the largest buying groups ... to participate in its `Early Buy' Program."
Several months later, in March 2010, Dave Murray of Pentair sent an e-mail to Manny Perez of Pool regarding buying groups.
Below that message, Murray copied the e-mail he had sent to Pentair's RSMs. The e-mail discussed Murray's dislike of buying groups, specifically the buying group Aquatech. Murray had several "issues" with Aquatech:
Murray was particularly concerned with the buying groups' potential to erode the distribution channel. Distribution, Murray wrote, "is 90% of our business — they turn our lights on everyday."
Perez responded to Murray's email with a message stating that Pool would "do [its] utmost to ensure that Hayward and Zodiac move in the same direction to support distribution as their preferred channel to market."
In April 2010, Bruce Fisher of Hayward received a phone call from Perez.
Then, in June 2010, Pool allegedly met with Hayward and Zodiac to discuss pricing terms for buying groups.
On August 21, 2010, the Manufacturer Defendants all allegedly attended a "Pool-Corp Senior Management Meeting, where they discussed price increases, among other things."
DPPs allege that manufacturers did not favor direct distribution to dealers because of the attendant costs, because of their lack of expertise in distribution, and because the manufacturers that did not sell full lines of Pool Products had difficulty obtaining products to distribute from competing manufacturers.
B. Allegations of Fraudulent Concealment
DPPs allege that they "did not discover, and could not discover through the exercise of reasonable diligence, the existence of Defendants' unlawful conspiracy and anticompetitive conduct ... until November 21, 2011 when the Federal Trade Commission (FTC) first made public its investigation [of Pool for allegedly anticompetitive practices] and related consent decree."
DPPs admit, however, that "certain would-be rivals of PoolCorp may have learned that PoolCorp was engaged in exclusionary conduct."
II. THE SUFFICIENCY OF PLAINTIFFS'
PER SE CLAIM
Per Se Claims Under the Sherman Act
Section 1 of the Sherman Act prohibits "every contract, combination ... or conspiracy, in restraint of trade or commerce among the several states." 15 U.S.C. § 1. It has long been recognized that this provision prohibits only "unreasonable" restraints of trade. Nat'l Collegiate, Athletic Ass'n v. Bd. of Regents, 468 U.S. 85, 98, 104 S.Ct. 2948, 82 L.Ed.2d 70 (1984). When a business "practice facially appears to be one that would always or almost always tend to restrict competition and decrease output," or a "naked restrain[t] of trade with no purpose except stifling of competition," it is deemed per se unreasonable — and thus per se illegal — under Section 1, and condemned without further analysis. Broad. Music, Inc. v. Columbia Broad. Sys., Inc., 441 U.S. 1, 19-20, 99 S.Ct. 1551, 60 L.Ed.2d 1 (1979) (internal quotation marks omitted) (alteration in original); see also Leegin Creative Leather Prods, v. PSKS, Inc., 551 U.S. 877, 886, 127 S.Ct. 2705, 168 L.Ed.2d 623 (2007) ("The per se rule, treating categories of restraints as necessarily illegal, eliminates the need to study the reasonableness
DPPs have alleged that defendants engaged in a conspiracy to disadvantage Pool's rivals, which they contend is a per se violation of Section 1.
In order to prove an agreement for antitrust purposes, the plaintiff must present direct or circumstantial evidence of a "conscious commitment to a common scheme" that "tends to exclude the possibility of independent action." Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S. 752, 768, 104 S.Ct. 1464, 79 L.Ed.2d 775 (1984). "`[C]onscious 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.'" Bell Atl. Corp. v. Twombly, 550 U.S. 544, 553-54, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (second and third alterations in original) (quoting Brooke Grp. Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 227, 113 S.Ct. 2578, 125 L.Ed.2d 168 (1993)).
The question at issue here is whether DPPs have pled sufficient facts in support of their claim of a horizontal antitrust agreement among the Manufacturer Defendants to survive defendants' Rule 12(b)(6) motion to dismiss DPPs' per se claim. Before focusing on the merits of this issue, the Court must address a preliminary procedural matter.
B. Consideration of Documents Outside the Complaint
Manufacturer Defendants ask that the Court consider certain documents referred to in the SCAC in resolving this motion.
In considering a motion to dismiss for failure to state a claim, a court must typically limit itself to the contents of the pleadings, including their attachments. Fed.R.Civ.P. 12(d); Collins v. Morgan Stanley Dean Witter, 224 F.3d 496, 498 (5th Cir.2000). But a court deciding a Rule 12(b)(6) motion may "consider documents
DPPs do not dispute that the documents attached to Manufacturer Defendants' motion to dismiss are in fact the documents that DPPs relied on in drafting the complaint. Instead, the DPPs object to the Court's consideration of these documents on three other grounds: (1) the documents are not "central" to the SCAC's claims; (2) DPPs have additional documents supporting those claims; and (3) Manufacturer Defendants have asked the Court to draw inferences from the documents adverse to DPPs.
Manufacturer Defendants have the better of this argument. DPPs represented to the Court that, after filing their first amended complaint, they "discovered information demonstrating communications between Defendants — including communications among the Manufacturer Defendants themselves — that persuasively support a per se Section 1 claim and Defendants' fraudulent concealment of their misconduct."
Although DPPs cite Scanlan v. Tex. A & M Univ., 343 F.3d 533 (5th Cir.2003), in support of their argument that the documents are not "central" to their claims, that case is distinguishable. In Scanlan, the Fifth Circuit held that the district court should not have considered the Final Report of a commission convened to investigate an accident at a bonfire because (1) the Final Report was not attached to the defendants' motion to dismiss; (2) "the plaintiffs did not accept the Final Report as true"; and (3) the document was "much more central to the [defendants'] defenses" than to the plaintiffs' claims. Id. at 536-37. Here, in contrast, the documents in question were referred to (in some cases, directly quoted) in the SCAC and attached to Manufacturer Defendants' motion to dismiss; DPPs do not challenge the documents' authenticity; and the documents form the basis of DPPs' per se illegality and fraudulent concealment claims. Accordingly,
The DPPs' latter concerns are misplaced. The Court will construe both DPPs' factual allegations and the documents in question in the light most favorable to DPPs. See Scanlan, 343 F.3d at 537. As is always the case at the motion to dismiss stage, the Court will draw all reasonable inferences in favor of the plaintiffs.
C. Legal Standard
Federal Rule of Civil Procedure 8(a)(2) provides that a plaintiff's complaint must provide "a short and plain statement of the claim showing that the pleader is entitled to relief." In Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007), the Supreme Court explained at length the requirements of Rule 8 in the context of a horizontal conspiracy claim under Section 1 of the Sherman Act. Twombly held that, in order to survive a Rule 12(b)(6) motion to dismiss, a plaintiff must provide "enough factual matter (taken as true) to suggest that an agreement was made," or, in other words, "enough fact to raise a reasonable expectation that discovery will reveal evidence of illegal agreement." Id. at 556, 127 S.Ct. 1955.
The Court made clear that, in a complaint alleging a horizontal conspiracy under Section 1 of the Sherman Act, "an allegation of parallel conduct and a bare assertion of conspiracy will not suffice." Id.; see also id. at 555, 127 S.Ct. 1955 ("[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 ...." (internal quotation marks omitted) (second alteration in original)). Yet the Court stressed that it was not "impos[ing] a probability requirement at the pleading stage"; rather, it was simply requiring that the plaintiff state "plausible grounds to infer an agreement." Id. at 556, 127 S.Ct. 1955. Indeed, "a well-pleaded complaint may proceed even if it strikes a savvy judge that actual proof of those facts is improbable, and `that a recovery is very remote and unlikely.'" Id.
Applying this standard to the facts before it, the Twombly Court held that the plaintiff had failed to state a Section 1 claim because the complaint contained only descriptions of parallel conduct and conclusory assertions of agreement. Id. at 564, 127 S.Ct. 1955. The allegations of agreement were "merely legal conclusions" not entitled to a presumption of truth, id., and the parallel conduct described in the complaint was not indicative of conspiracy because there was nothing alleged to suggest that the conduct was "anything more than the natural, unilateral" action of each defendant. Id. at 566-68, 127 S.Ct. 1955. Accordingly, "the plaintiffs [had] not nudged their claims across the line from conceivable to plausible," which meant that their complaint must be dismissed. Id. at 570, 127 S.Ct. 1955.
In Ashcroft v. Iqbal, 556 U.S. 662, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009), the Court reaffirmed and further elaborated on the pleading standard set forth in Twombly. It held that "[t]o survive a motion to dismiss, a complaint must contain sufficient factual matter, taken as true, to `state a claim to relief that is plausible on its face.'" Id. at 678, 129 S.Ct. 1937
In considering conspiracy claims based on allegations of parallel conduct, courts also consider whether the plaintiff has pled facts in addition to parallelism that support an inference of concerted action — so-called "plus factors." 2 Phillip Areeda & Herbert Hovenkamp, Antitrust Law ¶ 307 (3d ed.2010). "[E]xistence of these plus factors tends to ensure that courts punish `concerted action' — an actual agreement — instead of the `unilateral, independent conduct of competitors.'" In re Flat Glass Antitrust Litig., 385 F.3d 350, 360 (3d Cir.2004). Plus factors identified by courts and commentators include (1) actions that would be against the defendants' self-interest if the defendants were acting independently, but consistent with their self-interest if they were acting in concert; (2) a motive to conspire; (3) an opportunity to conspire; (4) market concentration and structure conducive to collusion; (5) pretextual explanations for anticompetitive conduct; (6) sharing of price information; (7) signaling; and (8) involvement in other conspiracies. ABA Section of Antitrust Law, Proof of Conspiracy Under Federal Antitrust Laws 69-91 (2010) [hereinafter "Proof of Conspiracy"] (collecting cases). There is no finite or exhaustive list of plus factors, and different courts articulate the relevant factors in different ways. Id. at 69; see also Burtch v. Milberg Factors, 662 F.3d 212, 227 (3d Cir.2011) ("[W]e have identified at least three types of facts, often referred to as `plus factors,' that tend to demonstrate the existence of an agreement: `(1) evidence that the defendant had a motive to enter into a price fixing conspiracy; (2) evidence that the defendant acted contrary to its interests; and (3) evidence implying a traditional conspiracy.'"). A plausible allegation that the parallel conduct was not in the alleged conspirators' independent self-interest absent an agreement is generally considered the most important "plus factor." Proof of Conspiracy, supra, at 70 (collecting cases); see also In re Travel Agent Comm'n Antitrust Litig., 583 F.3d 896, 907 (6th Cir.2009) (noting that, "[o]rdinarily," this plus factor "will consistently tend to exclude the likelihood, of independent conduct" (quoting Re/Max Int'l, Inc. v. Realty One, Inc., 173 F.3d 995, 1009 (6th Cir.1999))); Merck-Medco Managed Care, LLC v. Rite Aid Corp., 201 F.3d 436, 1999 WL 691840, at *10 (4th Cir.1999) (unpublished) ("Evidence of acts contrary to an alleged conspirator's economic interest is perhaps the strongest plus factor indicative of conspiracy."). When, as here, the plaintiff relies on circumstantial evidence that the defendants engaged in concerted action, plus factors are generally necessary in order to plead a plausible Section 1 claim. See, e.g., Burtch, 662 F.3d at 227; In re Ins. Brokerage Antitrust Litig., 618 F.3d 300, 323 n. 22 (3d Cir.2010) (noting that, because Twombly rejected the proposition
Following the dictates of Iqbal and Twombly, the Court must first identify and discard any conclusions of law "couched as factual allegation[s]" contained in the SCAC. These include conclusory assertions that the Manufacturer Defendants "agreed with each other" or "conspired together" in order to effectuate the alleged boycott of Pool's Rivals. See Twombly, 550 U.S. at 564 & n. 9, 127 S.Ct. 1955 (noting that allegations that the defendants entered into a "conspiracy" or an "agreement" are "merely legal conclusions" not entitled to a presumption of truth); Mayor & Council of Baltimore, Md. v. Citigroup, Inc., 709 F.3d 129, 135-36 (2d Cir.2013) ("The ultimate existence of an `agreement' under antitrust law ... is a legal conclusion, not a factual allegation.").
Once these "legal conclusions" are removed from the analysis, DPPs' claims of a horizontal conspiracy rest on two primary bases: the allegations of an agreement to raise free freight limits and the allegations of agreements concerning onerous minimum purchase requirements for buying groups. The Court will address each in turn. Ultimately, the Court finds that DPPs have adequately pled a horizontal conspiracy to raise free freight limits, but they have not sufficiently alleged a horizontal agreement to impose disadvantageous terms on buying groups.
1. Allegations of Agreements Concerning Free Freight
As an initial matter, the SCAC clearly alleges parallel conduct: The Manufacturer Defendants raised the free freight minimums by an identical amount within a three-month period. But the DPPs' complaint goes well beyond that in several respects and sufficiently "nudge[s] [plaintiffs'] claims across the line from conceivable to plausible," Twombly, 550 U.S. at 570, 127 S.Ct. 1955.
a. Parallel Action Against Independent Self-Interest
First, and most importantly, the SCAC plausibly alleges that Manufacturer Defendants' parallel conduct was contrary to their independent self-interest. DPPs are clearly correct that the raised freight minimums were, in effect, price increases for Pool's smaller rivals that could not afford to buy $20,000 worth of goods at a time.
Each Manufacturer Defendant had a reason not to raise their prices to Pool's rivals unilaterally. Absent parallel action by the other Manufacturer Defendants,
It is true, of course, that the Manufacturer Defendants raised the free freight minimums after Pool's "bitter" complaints that the minimums were too low.
But "[t]he question at the pleading stage is not whether there is a plausible alternative to the plaintiff's theory; the question is whether there are sufficient factual allegations to make the complaint's claim plausible." Evergreen Partnering Grp., Inc. v. Pactiv Corp., 720 F.3d 33, 45 (1st Cir.2013) (quoting Anderson News, L.L.C. v. American Media, Inc., 680 F.3d at 189-90 (2d Cir.2012)). "The choice between two plausible alternative inferences that may be drawn from factual allegations is not a choice to be made by the court on a Rule 12(b)(6) motion." Anderson News, 680 F.3d at 185. Instead, the Court must accept the plaintiff's version of events, so long as that version is plausible, and it may not dismiss the complaint "merely because [it] finds a different version more plausible." Id.
Toys "R" Us is instructive in this regard. There, the Seventh Circuit affirmed the FTC's finding of a per se illegal group boycott when the evidence indicated that Toys "R" Us had acted as the coordinator of a horizontal agreement among a number of toy manufacturers to restrict output to warehouse club stores. There was no direct evidence that the manufacturers agreed with each other to engage in the scheme, but the Seventh Circuit held that
So it is here. The SCAC plausibly alleges that each Manufacturer Defendant would not have had an incentive to raise their free freight minimums absent assurance that the others would do the same. This factor weighs strongly in favor of the sufficiency of the SCAC's allegation of a horizontal conspiracy to raise free freight minimums.
b. Opportunity to Conspire
The SCAC also plausibly alleges that the defendants had an opportunity to form a horizontal conspiracy. After two of the Manufacturer Defendants (Hayward and Pentair) implemented identical free freight increases within a day of each other, executives of Hayward and Zodiac met, and thus had an opportunity to conspire about the freight limits. Manufacturer Defendants contend that DPPs mischaracterized the substance of this meeting as relating to "internal business matters," when in fact it concerned "only Zodiac's internal staffing level."
Of course, an allegation of an opportunity to conspire, standing alone, is insufficient to raise an inference of conspiracy. Cosmetic Gallery, Inc. v. Schoeneman Corp., 495 F.3d 46, 53 (3d Cir.2007); Bolt v. Halifax Hosp. Med. Ctr., 891 F.2d 810, 827 (11th Cir.1990) (collecting cases). But, when added to the SCAC's allegations that the parallel conduct was against the Manufacturer Defendants' individual self-interest, the existence of an opportunity to effectuate the alleged conspiracy takes on additional weight. See In re WellPoint, Out-of-Network UCR Rates Litig., 865 F.Supp.2d 1002, 1026 (C.D.Cal.2011) (allegations of opportunities to conspire "demonstrate how and when Defendants had opportunities to exchange information or make agreements," and can give rise to plausible inference of conspiracy when joined with allegations of other plus factors (alteration in original)).
c. Industry Conditions
DPPs do not include any specific allegations in the SCAC suggesting that conditions in the Pool Products industry were ripe for collusion. But the e-mail from Bruce Fisher described above states that, at the time the freight minimum increases were occurring, business was "weak" and he was overstaffed.
d. Pool E-mail
In the SCAC, DPPs quote an e-mail from Pool's CEO to Pool executives stating that "Pentair, Hayward and Jandy [Zodiac] have all agreed to the $20,000 freight minimum with NO exceptions."
Plaintiffs' interpretation is plausible. The e-mail could mean that the Manufacturer Defendants "agreed" with each other and with Pool to raise the freight limits, particularly in light of the other plus factors the Court described above. That defendants' interpretation of the document may also be plausible does not foreclose plaintiffs' interpretation at this stage. Anderson News, 680 F.3d at 185, 190 (choice of inferences to be drawn from ambiguous evidence "is a question for the factfinder"); see also Evergreen Partnering Grp., 720 F.3d at 45-46. Further, the language of the document (Manufacturer Defendants "have all agreed") was chosen by Pool. The use of the word "agreed" is not a conclusion plaintiffs have interposed in a pleading drafted after the fact.
e. Who, What, When, and Where
Pool Defendants contend that the SCAC falls short of stating a claim for conspiracy to fix free freight minimums because it does not state who made the agreement, or where and when it was made.
In sum, the Court finds that the SCAC, viewed as a whole, plausibly alleges parallel conduct "in a context that raises a suggestion of a preceding agreement," Twombly, 550 U.S. at 557, 127 S.Ct. 1955; see also Cont'l Ore Co. v. Union Carbide & Carbon Corp., 370 U.S. 690, 698-99, 82 S.Ct. 1404, 8 L.Ed.2d 777 (1962) (courts considering a conspiracy claim must evaluate the alleged conspiracy as a whole, "without tightly compartmentalizing the various factual components and wiping the slate clean after scrutiny of each"). The plus factors described above — allegations that the parallel conduct was against the defendants' self-interest absent similar action on the part of the other defendants, allegations of opportunities to conspire, and evidence that demand was falling while the parallel price increases were occurring — in conjunction with arguably direct evidence of agreement render the SCAC sufficient under Twombly. Cf. Evergreen Partnering Grp., 720 F.3d at 47-50 (plaintiff had sufficiently pled a per se illegal group boycott because it alleged (1) parallel actions taken by the defendants after a meeting at which they were all present; (2) "circumstantial evidence to establish a context for plausible agreement in the form of industry information and facilitating practices"; and (3) facts plausibly suggesting that the parallel conduct was contrary to the defendants' independent business interests); In re Text Messaging Antitrust Litig., 630 F.3d 622, 627 (7th Cir.2010) (affirming district court's refusal to dismiss complaint alleging a horizontal conspiracy because the complaint "allege[d] a mixture of parallel behaviors, details of industry structure, and industry practices, that facilitate collusion").
To be sure, the plaintiffs' allegations do not establish the existence of a horizontal conspiracy, or even that it is more likely than not that such a conspiracy occurred. There are alternative explanations for virtually every fact alleged in the SCAC. But DPPs' allegations do give rise to a plausible inference of a horizontal conspiracy, and under Rule 8 and Twombly, that is sufficient. The SCAC's claim of a per se illegal conspiracy among the Manufacturer Defendants and Pool to fix free freight minimums may go forward.
2. Allegations of Agreements Concerning Buying Groups
DPPs have not adequately alleged that the Manufacturer Defendants conspired with each other to disadvantage buying groups. This is true for two primary reasons. First, the SCAC does not plausibly allege that such conduct would be contrary to the Manufacturer Defendants' independent self-interest. Second, the SCAC's factual allegations purporting to show a conspiracy to impose onerous terms on buying groups are impermissibly vague, and at times inconsistent with the proposition that the Manufacturer Defendants colluded regarding the terms upon which they dealt with buying groups.
a. Parallel Actions Against Independent Self-Interest
Buying groups consisted of dealers, not wholesale distributors. Significantly, the SCAC alleges that "the wholesale distribution network is the most efficient way for
This account is corroborated by Pentair's own reasoning in adopting restrictions on buying group sales beginning in 2009. (The complaint does not allege that Pentair acted in concert with the other Manufacturer Defendants in imposing these 2009 restrictions.) Pentair imposed a $70,000 minimum purchase requirement on members of Carecraft, one of the largest buying groups.
Murray was particularly exasperated with one buying group, Aquatech, that had been buying from Pentair and then reselling Pentair's Pool Products to Dealers at Pentair's "base" price level.
Pentair clearly did not want to favor buying groups with the same terms as those offered to distributors, whether or not the other Manufacturer Defendants did. Indeed, Murray wrote that "Hayward and Zodiac are burning the candle at both ends [that is, by trying to appease both distributors and buying groups].... Pentair will not operate this way. We always must look out for the best interests of Pentair and our business."
Importantly, plaintiffs do not allege that the Manufacturer Defendants cut off buying groups completely, but rather that they required the buying groups to make substantial minimum purchases. Minimum purchase requirements made good business sense for manufacturers of Pool Products, because the requirements minimized transaction costs associated with shipments. Cf. Barr Labs., Inc. v. Abbott
To summarize, the minimum purchase requirements, far from being contrary to the Manufacturer Defendants' independent self-interest, benefitted them in two ways. First, the requirements encouraged Dealers to buy through the manufacturers' preferred channel to market — distributors. Second, the requirements ensured that, if the Dealers did choose to buy through the groups, they would purchase in sufficiently large volumes to avoid causing the manufacturers shipping headaches.
DPPs do suggest in a general way that at least one Manufacturer Defendant, Hayward, wanted to expand its business with buying groups.
Moreover, Pool clearly made it known to the Manufacturer Defendants that it wanted them to stop treating buying groups favorably.
Given these alleged facts, it is not plausible that the Manufacturer Defendants' treatment of buying groups stemmed from anything but their perception of their own best interests. First, this ensured that the Manufacturer Defendants' preferred channel to market would not be undermined and that they could continue to deal in large quantities of Pool Products.
This is the key difference between the SCAC's allegations of a conspiracy to increase free freight minimums and its allegations of a conspiracy to impose minimum purchase requirements on buying groups. True, the freight minimums applied to buying groups, and they tended to incentivize Dealers to buy through distribution rather than through the groups.
As noted above, allegations plausibly suggesting that parallel conduct was contrary to the defendants' independent self-interest are one of the most important components of a valid Section 1 complaint. The absence of such allegations here is damaging to plaintiffs' effort to plead a horizontal conspiracy to impose minimum purchase requirements on buying groups. See Twombly, 550 U.S. at 568, 127 S.Ct. 1955 (dismissing allegations of conspiracy in part because "the complaint itself g[ave] reasons to believe" that the alleged conspirators would have unilaterally chosen to adopt the challenged course of action). Indeed, in each of the three primary cases upon which DPPs rely in their opposition to the motions to dismiss, the court found an inference of conspiracy plausible only when the alleged parallel conduct was contrary to the defendants' independent self-interest absent agreement to engage in the conduct. See Evergreen Partnering Grp., 720 F.3d at 48; Anderson News, 680 F.3d at 171; Toys "R" Us, 221 F.3d at 932.
b. Vague and Inconsistent Allegations
The factual allegations concerning buying groups are implausible for another reason: they are impermissibly vague, and at times inconsistent with the proposition that the defendants colluded regarding buying group terms. The Court is unable to infer from these allegations the "general contours" of when the alleged agreement was made or even what, precisely, the agreement was. True, the SCAC's allegations suggest that the Manufacturer Defendants engaged in somewhat similar conduct in changing the terms on which they dealt with buying groups. But the SCAC does not state that those changes were the same, and the timeline of events belies the contention that the changes were the product of collusion.
Pentair increased its minimum purchase requirements for Carecraft, one of the largest buying groups, in late 2009.
Perez responded to Murray's e-mail by stating that Pool would "do [its] utmost to ensure that Hayward and Zodiac move in the same direction to support distribution as their preferred channel to market."
Fisher's e-mail makes clear that, as of April 2010, Zodiac and Pentair were already beginning to change the terms upon which they dealt with buying groups, and the changes were not the same. Moreover, Hayward did not already know about these changes — it had to be apprised of them by Pool.
In June and July 2010, Dave Cook of Pool serially met with representatives of Hayward, Zodiac, and Pentair.
It was still later that Zodiac and Hayward allegedly altered their minimum purchase
The Court is unable to discern from the foregoing what, precisely, the Manufacturer Defendants are alleged to have agreed upon with respect to buying groups, or when the alleged agreement occurred. Pentair started making changes to its buying group programs long before any meetings between the defendants are alleged to have occurred. As of April 2010, Pentair and Zodiac each had different plans in place concerning buying groups, plans about which Hayward knew nothing until its conversation with Pool. In the summer of 2010, more changes in buying group programs followed — but the substance of those changes is unclear, save that they all involved minimum purchase requirements. It is implausible that these changes were the result of collusion, given that at least two of the Manufacturer Defendants had begun putting buying groups at a disadvantage, independently of one another, much earlier.
In sum, whereas the substance of the alleged free freight agreement is clear, and the timeline of events consistent with the allegation of conspiracy, the buying group allegations are murky and internally inconsistent. Such vague conspiracy claims rarely pass muster under Rule 8 and Twombly. See Kendall v. Visa U.S.A., Inc., 518 F.3d 1042, 1048 (9th Cir. 2008) (affirming dismissal of antitrust conspiracy allegations because the complaint did "not answer the basic questions: who, did what, to whom (or with whom), where, and when?"); Total Benefits Planning Agency, Inc. v. Anthem Blue Cross & Blue Shield, 552 F.3d 430, 436 (6th Cir.2008) (affirming dismissal of complaint that defendants conspired to defame and libel plaintiffs because allegations offered "no factual description of the substance of the statements or who made the statements that `defamed and libeled,' `coerced and threatened,' and `blacklisted' Plaintiffs"); Credit Bureau Servs., Inc. v. Experian Info. Solutions, Inc., No. 12-2146, 2013 WL 3337676, at *8 (C.D.Cal. June 28, 2013) (noting that, based on a survey of the cases decided since Twombly, "a `distinguishing factor between the [viability of antitrust complaints before the courts] has been the inclusion of specific allegations concerning time, place, and person versus general allusions to "secret meetings," "communications," or "agreements"'" (alterations in original) (quoting In re Hawaiian & Guamanian Cabotage Antitrust Litig., 647 F.Supp.2d 1250, 1256-57 (W.D.Wash.2009))); Proof of Conspiracy, supra, at 172 (noting that, since Twombly, most courts have required antitrust plaintiffs to state "detailed specific facts of the who, what, where, when, and how of the conspiracy"). A complaint must be sufficiently detailed that the defendant will "know what to answer." Twombly, 550 U.S. at 565, 127 S.Ct. 1955. The SCAC's buying group allegations do not meet this standard.
At best, the SCAC plausibly alleges that defendants had opportunities to conspire
In sum, DPPs have failed to allege facts that plausibly suggest a horizontal conspiracy among the Manufacturer Defendants to raise minimum purchase amounts for buying groups.
III. THE SUFFICIENCY OF PLAINTIFFS' FRAUDULENT CONCEALMENT ALLEGATIONS
A federal antitrust action must be brought within four years from the date on which it accrues. See 15 U.S.C. § 15b. In this case, DPPs seek damages for injuries allegedly suffered before the four-year limitations period, contending that defendants fraudulently concealed their illegal conduct and that plaintiffs did not discover the scheme until 2011 when the FTC investigation and consent decree were made public.
A. Legal Standard
At the pleading stage, a plaintiff must allege fraudulent concealment with the particularity required by Rule 9(b) of the Federal Rules of Civil Procedure. Fed.R.Civ.P. 9(b) ("In alleging fraud or mistake, a party must state with particularity the circumstances constituting fraud or mistake."); Shushany v. Allwaste, Inc., 992 F.2d 517, 521 (5th Cir. 1993) (noting that "allegations of fraud must meet a higher, or more strict, standard than the basic notice pleading required by Rule 8."); see also Summerhill v. Terminix, Inc., 637 F.3d 877, 880 (8th Cir.2011) ("Under Rule 9(b)'s heightened pleading standard, allegations of ... fraudulent concealment for tolling purposes, must be pleaded with particularity."); Summer v. Land & Leisure, Inc., 664 F.2d 965, 970-71 (5th Cir.1981) (same). The Fifth Circuit "interprets Rule 9(b) strictly, requiring the plaintiff to specify the statements contended to be fraudulent, identify the speaker, state when and where the statements were made, and explain why the statements were fraudulent." Flaherty & Crumrine Preferred Income Fund, Inc. v. TXU Corp., 565 F.3d 200, 207 (5th Cir.2009) (internal quotation marks omitted). In other words, "Rule 9(b) requires `the who, what, when, where, and how' to be laid out." Benchmark Elecs., Inc. v. J.M. Huber Corp., 343 F.3d 719, 724 (5th Cir.2003). Moreover, a complaint
The doctrine of fraudulent concealment has two elements: first, that the defendants concealed the conduct alleged, and second, that the plaintiffs failed, despite the exercise of due diligence, to discover the facts that form the basis of the claims. State of Tex. v. Allan Const. Co., Inc., 851 F.2d 1526, 1528 (5th Cir.1988). The first element is satisfied "only if the defendant has engaged in affirmative acts of concealment." Id. at 1528-29. Concealment by silence is not enough; "the defendant `must be guilty of some trick or contrivance tending to exclude suspicion and prevent inquiry.'" Id. at 1529; accord Rx.com v. Medco Health Solutions, 322 Fed.Appx. 394, 398 (5th Cir.2009). "[G]enerally speaking, denial of wrongdoing is no more an act of concealment than is silence." Allan Const., 851 F.2d at 1532.
When the antitrust violation is of such a character as to conceal itself, fraudulent concealment can be alleged without a showing of affirmative acts of concealment. See Allan Const., 851 F.2d at 1528-31 (accepting the D.C. Circuit's definition of a "self concealing" conspiracy as "one in which deception is an essential element for some purpose other than merely to cover up the [wrongful] act"). Further, in pleading fraudulent concealment, it is not necessary for the "acts that demonstrate fraudulent concealment ... [to] be wholly separate from the acts underlying the wrong itself." Id. at 1531.
The section of the SCAC entitled "Fraudulent Concealment" is identical to the corresponding section of the DPP's first amended complaint, except that the following sentences were added to the SCAC:
The Court finds the SCAC's fraudulent concealment allegations deficient for the following reasons.
1. The Attempted Monopolization and Unlawful Vertical Agreement Claims
Plaintiffs have alleged that Pool attempted to monopolize the Pool Products distribution market by acquiring rival distributors and entering into agreements with manufacturers to exclude Pool's rivals. The SCAC also alleges that Pool's vertical agreements with each Manufacturer Defendant violated Section 1 of the Sherman Act. The SCAC does not plausibly allege that defendants fraudulently concealed these offenses, for three reasons.
First, as the Court noted in its earlier order, and as DPPs admit in the first addition to the SCAC listed above, other allegations in the complaint indicate that the restrictive dealing agreements among manufacturers and Pool were not secret. For example, DPPs allege that the Manufacturer Defendants told Hilton, a nascent rival of Pool, they could not sell to the rivals "because of pressure from Pool-Corp."
Second, there are no specific allegations of who participated in the allegedly secret and/or fraudulent communications that purportedly concealed Pool's exclusionary conduct, where and when the communications took place, or what was actually communicated. Indeed, nearly all of the allegations of fraud and "secret agreements" contained in the SCAC are completely conclusory. The one arguable exception is the allegation that Pool "reached secret agreements with manufacturers" to offset price increases for Pool Products, even though Pool was citing those increases as a reason to raise the prices Pool charged to Dealers.
Third, DPPs have impermissibly grouped the defendants together in their allegations of fraud. See Boutain v. Radiator Specialty Co., No. 11-1907, 2011 WL 6130754, at *7-8 (E.D.La. Dec. 8, 2011) (noting that "[p]laintiffs must plead specific facts as to each defendant for each of the Rule 9(b) requirements" and rejecting fraud claim because the plaintiffs failed to differentiate claims against the various defendants). A blanket allegation that all of the Manufacturer Defendants communicated with Pool in secret to cover up the alleged wrongdoing is insufficient under Rule 9(b).
The SCAC's allegations also make clear that the alleged attempted monopolization and illegal vertical agreements were not self-concealing, such that plaintiffs need not allege affirmative acts of concealment. That is, deception was obviously not an "essential element" in the conduct at issue, because the conduct was allegedly disclosed to myriad other market participants. Cf. Allan Const, 851 F.2d at 1530.
2. The Horizontal Conspiracy Claim
The Court also finds that DPPs have not adequately alleged that defendants fraudulently concealed the alleged horizontal conspiracy to increase the free freight minimums. The section of the SCAC describing the free freight increases contains no allegations that the agreement was meant to be secret, much less that the defendants affirmatively concealed it.
3. Defendants' Request to Relax the Rule 9(b) Standard
DPPs contend that the Rule 9(b) standard should be relaxed here because the facts of the alleged fraud are "peculiarly within the perpetrator's knowledge." While it is true that fraud may be pled on information and belief in these circumstances, the plaintiff must still "set forth the factual basis for his belief." United States ex rel. Russell v. Epic Healthcare Mgmt. Grp., 193 F.3d 304, 308 (5th Cir. 1999), overruled on other grounds by United States ex rel. Eisenstein v. New York, 556 U.S. 928, 129 S.Ct. 2230, 173 L.Ed.2d 1255 (2009). Relaxation of the Rule 9(b) requirements "must not be mistaken for license to base claims of fraud on speculation and conclusory allegations." United States ex rel. Thompson v. Columbia/HCA Healthcare Corp., 125 F.3d 899, 903 (5th Cir.1997). Yet conclusory statements are all that DPPs have offered in support of their allegation of fraudulent concealment. They have not alleged, even on information and belief, particularized allegations of fraud with respect to any of the defendants. Their complaint is thus deficient under Rule 9(b). See United States ex rel. Hebert v. Dizney, 295 Fed.Appx. 717, 723 (5th Cir.2008) ("Pleading on information and belief does not otherwise relieve a ... plaintiff from the requirements of Rule 9(b)."). This conclusion is buttressed by the fact that, in drafting the SCAC, DPPs had the benefit of discovery of millions of documents, including all of those that defendants produced to the FTC, as well as depositions of some of defendants' personnel. They thus had somewhat of a window into the corporate mind.
Accordingly, the SCAC's claim of fraudulent concealment must be dismissed. Plaintiffs will be able to recover only those damages inflicted during the four-year limitations period.
For the reasons above, the Court GRANTS IN PART and DENIES IN PART defendants' motions to dismiss DPPs' claims of a horizontal conspiracy and fraudulent concealment. DPPs' claim of a horizontal conspiracy to raise free freight minimums may go forward, but plaintiffs' claim of a horizontal conspiracy to impose onerous terms on buying groups is dismissed. The SCAC's fraudulent concealment allegation is dismissed.