Jessica N. Leal
Freitas Angell & Weinberg LLP
On June 12, 2017, the Supreme Court answered “no” to the question whether federal courts of appeals have jurisdiction under 35 U.S.C. section 1291 to review orders denying class certification after the named plaintiffs have voluntarily dismissed their claims with prejudice. Microsoft Corp. v. Baker, 137 S. Ct. 1702 (2017). Courts of appeals had split on this question. See Berger v. Home Depot USA, Inc., 741 F.3d 1061, 1065 (9th Cir. 2014); Gary Plastic Packaging Corp. v. Merrill Lynch, 903 F.2d 176, 179 (2d Cir. 1990); Camesi v. University of Pittsburgh Medical Center, 729 F.3d 239, 245-47 (3d Cir. 2013); Rhodes v. E.I. du Pont de Nemours & Co., 636 F.3d 88, 100 (4th Cir. 2011). Justice Ginsburg delivered the opinion of the Court, in which Justices Kennedy, Breyer, Sotomayor, and Kagan joined.
Some historical background is helpful. “From the very foundation of our judicial system,” the general rule has been that “the whole case and every matter in controversy in it [must be] decided in a single appeal.” McLish v. Roff, 141 U.S. 661, 665-66 (1891). Section 1291 codified this final-judgment rule, giving the federal courts of appeals jurisdiction over “all final decisions of the district courts of the United States.” 28 U.S.C. § 1291. The statute “preserves the proper balance between trial and appellate courts, minimizes the harassment and delay that would result from repeated interlocutory appeals, and promotes the efficient administration of justice.” 137 S. Ct. at 1712. The Interlocutory Appeals Act of 1958, 28 U.S.C. section 1292(b), created a bi-level “screening procedure” for establishing appellate jurisdiction to review non-final orders. Id. at 1708. “For a party to obtain review under § 1292(b), the district court must certify that the interlocutory order ‘involves a controlling question of law as to which there is substantial ground for difference of opinion and that an immediate appeal from the order may materially advance the ultimate termination of the litigation.’” Id. Only then may the court of appeals “in its discretion, permit an appeal to be taken from such order.” Id.
Before 1978, some courts of appeals were considering class certification denials as appealable final orders under section 1291. These courts applied the “death-knell” doctrine, rationalizing that the refusal to certify a class would “end a lawsuit for all practical purposes because the value of the named plaintiff’s individual claim made it ‘economically imprudent to pursue his lawsuit to a final judgment and [only] then seek appellate review of [the] adverse class determination.’” Id. at 1707. The Supreme Court held in Coopers & Lybrand v. Livesay, 437 U.S. 463 (1978), that the fact an interlocutory order may induce a party to abandon his or her claim before final judgment is not a sufficient reason for considering the order a “final decision” within the meaning of section 1291. Id. at 1708.
Seen as a response to the Coopers & Lybrand decision, Federal Rule of Civil Procedure 23(f) was approved in 1998. Id. at 1709. Rule 23(f) authorized “permissive interlocutory appeal” from adverse class certification orders in the discretion of the court of appeals. “Rule 23(f) ‘departs from the § 1292(b) model,’ for it requires neither district court certification nor adherence to § 1292(b)’s other ‘limiting requirements.’” Id. at 1709. Rule 23(f) did not, however, provide for an appeal as a matter of right. The decision whether to permit interlocutory appeal from an adverse decision was committed to “the sole discretion of the court of appeals.” “Permission is most likely to be granted,” the Committee Note states, “when the certification decision turns on a novel or unsettled question of law,” or when “the decision on certification is likely dispositive of the litigation,” as in a death-knell or reverse death-knell situation. Committee Note on Rule 23(f).
Fast forward to 2007. Microsoft Corporation is sued for an alleged product defect of its Xbox 360 video-game console. Id. at 1710. The Xbox-owner plaintiffs seek class certification in May 2009. In re Microsoft Xbox 360 Scratched Disc Litig., No. C07-1121-JCC, 2009 WL 10219350, at *2 (W.D. Wash. Oct. 5, 2009). The plaintiffs alleged the Xbox devices destroyed game discs during normal playing conditions. Id. at *1. The district court denied class certification, holding that individual issues of damages and causation predominated over common issues. Id. at *6–*7. The plaintiffs petitioned the Ninth Circuit under Rule 23(f) for leave to appeal the class-certification denial, but the Ninth Circuit denied the request. Baker v. Microsoft Corp., 851 F. Supp. 2d 1274, 1276 (W.D. Wash. 2012). Thereafter, the plaintiffs settled their claims individually.
A new lawsuit was filed in the same court in 2011 alleging the same Xbox design defect. Id. at 1275-76. The new plaintiffs argued the class-certification analysis in the earlier case did not control because an intervening change in law overcame the previous certification denial. Id. at 1277-78. The district court disagreed and struck the class allegations. Id. at 1280-81. The plaintiffs petitioned the Ninth Circuit under Rule 23(f) for leave to appeal, arguing interlocutory review was appropriate because the order would “effectively kil[l] the case” as the claims made it “economically irrational to bear the cost of litigating th[e] case to final judgment.” Id. at 1711. The Ninth Circuit denied the petition.
Different options as next steps existed for the plaintiffs at this time. First, the plaintiffs could proceed to litigate their case to final judgment and then appeal. Id. at 1711. Second, the plaintiffs could proceed to litigate their case in hopes the district court would later reverse course and certify the proposed class. Id. Third, the plaintiffs could petition the district court to certify an interlocutory order for appeal pursuant to section 1292(b). Id. Fourth, the plaintiffs could settle their individual claims. Id.
Instead of exercising one of these options, the plaintiffs stipulated to a voluntary dismissal of their claims “with prejudice,” but reserved the right to revive their claims should the district court’s certification denial be reversed. Maintaining that the defendants would have “no right to appeal,” Microsoft stipulated to the dismissal. Id. The district court granted the stipulated dismissal. The plaintiffs thereafter appealed the district court’s interlocutory order striking their class allegations – not the dismissal order – to the Ninth Circuit under section 1291. Id.
On appeal, the Ninth Circuit rejected Microsoft’s argument that the plaintiffs’ dismissal impermissibly circumvented Rule 23(f). Id. at 1711-12. The Ninth Circuit ultimately held the district court had misapplied the comity doctrine and remanded on the question whether a class should be certified. Baker v. Microsoft Corp., 797 F.3d 607, 610 (9th Cir. 2015). Thereafter the Supreme Court granted Microsoft’s petition for a writ of certiorari.
Because the plaintiffs’ voluntary dismissal “subverts the final-judgment rule and the process Congress has established for refining that rule and for determining when non-final orders may be immediately appealed,” the Supreme Court held the tactic “does not give rise to a ‘final decisio[n]’ under §1291.” Id. at 1712-13. The Supreme Court highlighted its recognition that “finality is to be given a practical rather than a technical construction.” Id. at 1712 (quoting Eisen v. Carlisle & Jacquelin, 417 U. S. 156, 170, 171 (1974)). “Repeatedly we have resisted efforts to stretch §1291 to permit appeals of right that would erode the finality principle and disserve its objectives.” Id.
The Court went on to describe the “voluntary-dismissal tactic” as inviting “protracted litigation and piecemeal appeals,” even more so than the death-knell doctrine. Id. at 1713. “Under the death-knell doctrine, a court of appeals could decline to hear an appeal if it determined that the plaintiff ‘ha[d] adequate incentive to continue’ despite the denial of class certification. Appellate courts lack even that authority under [the plaintiffs’] theory. Instead, the decision whether an immediate appeal will lie resides exclusively with the plaintiff; she need only dismiss her claims with prejudice, whereupon she may appeal the district court’s order denying class certification. And, as under the death-knell doctrine, she may exercise that option more than once, stopping and starting the district court proceedings with repeated interlocutory appeals.” Id. (citations omitted).
Rule 23(f) was crafted carefully by rule makers, the Supreme Court said, leaving the sole discretion to the courts of appeals. Id. at 1714. That careful crafting “warrants the Judiciary’s full respect.” Id. (quoting Swint v. Chambers County Comm’n, 514 U. S. 35, 48 (1995)). [E]ven plaintiffs who altogether bypass Rule 23(f) may force an appeal by dismissing their claims with prejudice,” under the plaintiffs’ logic. Id. If such logic were embraced, the Supreme Court said, “Congress[‘] final decision rule would end up a pretty puny one.” Id. at 1715 (quoting Digital Equipment Corp. v. Desktop Direct, Inc., 511 U. S. 863, 872 (1994)).
Because the Court held section 1291 does not provide jurisdiction over the plaintiffs’ attempted appeal, it did not reach the related question of whether courts of appeals have jurisdiction under Article III of the Constitution to review an order denying class certification after the named plaintiffs have voluntarily dismissed their claims with prejudice. Justice Thomas, with whom the Chief Justice and Justice Alito joined, filed an opinion concurring in the judgment because, although he disagreed with the Court’s reading of section 1291, he agreed “that the plaintiffs could not appeal in these circumstances.” Id. at 1716. In Justice Thomas’s view, the plaintiffs “could not appeal because the Court of Appeals lacked jurisdiction under Article III of the Constitution. Whether a dismissal with prejudice is ‘final’ depends on the meaning of §1291, not Rule 23(f). Rule 23(f) says nothing about finality, much less about the finality of an order dismissing individual claims with prejudice.” Id.
Jonathan Y. Mincer
Thomas M. Cramer
Simpson Thacher & Bartlett LLP
On May 30, 2017, the Federal Trade Commission (“FTC”) filed an administrative complaint against the Louisiana Real Estate Appraisers Board, alleging that the Board violated Section 5 of the FTC Act by unreasonably restraining price competition for real estate appraisal services in Louisiana. In re La. Real Estate Appraisers Bd., Docket No. 9374, available at https://www.ftc.gov/system/files/documents/cases/d09374louisianareappraiserscomplaint.pdf. The complaint alleges that the Board cannot rely on the state action doctrine to avoid liability because it is controlled by active market participants, there is no active state supervision, and no federal or state statute requires the Board to act as it did. This complaint attempts to build on the FTC’s recent state-action win against a North Carolina board in the Supreme Court. See N. C. State Bd. of Dental Exam’rs v. FTC, 135 S. Ct. 1101 (2015)(“N.C. Dental”).
The State Action Doctrine and N.C. Dental
The state action doctrine, established by the Supreme Court in Parker v. Brown, 317 U.S. 341 (1943), immunizes certain state action from federal antitrust law. “The doctrine is grounded in and derived from principles of federalism and state sovereignty.” Crosby v. Hosp. Auth. of Valdosta & Lowndes Cty., 93 F.3d 1515, 1521 (11th Cir. 1996). The actions of a state legislature or state supreme court are immune, without further analysis, from federal antitrust law. Hoover v. Ronwin, 466 U.S. 558, 567-68 (1984). A municipality has immunity when it acts pursuant to a clearly articulated state policy. Town of Hallie v. City of Eau Claire, 471 U.S. 34, 40 (1985). And when a state delegates authority to private parties, the private parties’ action is immune only if it is both (1) pursuant to a clearly articulated state policy and (2) actively supervised by the state. Cal. Liquor Dealers Ass’n v. Midcal Aluminum, Inc., 445 U.S. 97, 105 (1980).
In N.C. Dental, the Supreme Court considered whether the actions of the North Carolina State Board of Dental Examiners, which was controlled by active participants in the market it regulated, were required to meet the active supervision requirement—like those of a private party, but unlike those of a municipality. The Court held that active supervision is required. N.C. Dental, 135 S. Ct. at 1110. The Court explained that, although the North Carolina Board is a state agency, “the need for supervision turns not on the formal designation given by States to regulators but on the risk that active market participants will pursue private interests in restraining trade.” Id. at 1114. Since active participants controlled the North Carolina Board, such a risk was present, and active supervision was needed to ensure the board’s actions were pursuant to state policy. Id.
The Court then found that the actions of the Board did not satisfy the active supervision requirement—an issue the Board had not contested. Id. at 1116. The Court explained that active supervision requires that the supervisor not itself be an active market participant, that it “review the substance of the anticompetitive decision, not merely the procedures followed to produce it,” and that it “have the power to veto or modify particular decisions to ensure they accord with state policy.” Id. at 1116-17. In N.C. Dental, Board had prevented non-dentists from providing teeth-whitening services, arguing that this constituted the unlicensed practice of dentistry. Id. at 1108. The Supreme Court concluded that the state statute authorizing the Board to regulate the practice of dentistry did not address teeth whitening, and the state had not otherwise reviewed or concurred with the Board’s actions. Id. at 1116.
The FTC’s Allegations Against the Louisiana Real Estate Appraisers Board
The FTC’s recent complaint in In re Louisiana Real Estate Appraisers Board follows N.C. Dental by challenging the promulgation and enforcement of a November 2013 rule requiring appraisal management companies (“AMCs”) to pay a “‘customary and reasonable’ fee for real estate appraisal services” determined by certain set methods, rather than through market competition. Compl. ¶¶ 1-2. The FTC alleges that the Board’s actions violate federal antitrust law and are not entitled to immunity: the Board is alleged to be controlled by active market participants in the field it regulates, not acting pursuant to federal or state policy, and not actively supervised by the state.
The Louisiana Real Estate Appraisers Board is a state agency that regulates and licenses both appraisers and AMCs. Id. ¶¶ 9, 27. “AMCs act as agents for lenders in arranging for real estate appraisals” provided by appraisers. Id. ¶ 1. The FTC alleges that active market participants control the Board because, by state statute, eight of the Board’s ten members must be licensed appraisers (the other two must be representatives of the lending industry). Id. ¶¶ 10-11, 53.
The FTC also alleges that the Board is not acting pursuant to a clearly articulated state policy or a federal or state statute. The federal Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank”) requires real estate lenders and their agents to compensate appraisers “at a rate that is customary and reasonable for appraisal services performed in the market area of the property being appraised.” Id. ¶ 19. Dodd-Frank contains an antitrust savings clause providing that it does not “modify, impair, or supersede the operation of any of the antitrust laws.” Id. ¶ 20. In 2012, the Louisiana legislature amended its statute governing AMCs to require AMCs to compensate appraisers at a customary and reasonable rate, as provided by Dodd-Frank. Id. ¶ 28. The state statute allegedly “does not require the Board to impose standards for customary and reasonable fee requirements beyond what federal law provides, or to set customary and reasonable fees at any particular level.” Id. And, the FTC alleges, neither Congress nor the Louisiana legislature has otherwise articulated an intention to displace competition in the setting of appraisal fees. Id. ¶¶ 51, 52, 54.
The FTC alleges that the actions of the Board fail the active supervision requirement for state-action immunity because “[i]ndependent state officials have not supervised” its actions. Id. ¶¶ 7, 53.
Finally, the FTC alleges, the Board’s actions violate federal antitrust law. Specifically, the Board—“driven by its apparent dissatisfaction with the free market”—adopted a regulation called Rule 31101, “which specifies how AMCs must comply with the customary and reasonable fee requirement.” Id. ¶ 30. Rule 31101 requires AMCs to pay appraisers rates based only on one of three sources: (1) “third-party fee schedules, studies, or surveys of fees paid by lenders;” (2) “a fee schedule formally adopted by the Board;” or (3) recent rates in the local market, adjusted by (i) the type of property, (ii) the scope of work, (iii) the time in which the appraisal must be performed, (iv) the appraiser’s qualifications, (v) the appraiser’s experience and professional record, and (vi) the appraiser’s work quality. Id. ¶¶ 23, 31.
The FTC alleges that “by its express terms, the Board’s fee regulation unreasonably restrains competition by displacing a marketplace determination of appraisal fees.” Id. ¶ 3. Further, the FTC alleges, the Board’s enforcement of Rule 31101 has unlawfully restrained competition. The Board allegedly commissioned reports “identifying median appraisal fees” in each geographic region of the state, and it has treated these median fees as “a floor for appraisal fees that AMCs must pay appraisers.” Id. ¶¶ 35-36. The Board has fined and suspended licenses of AMCs not paying fees at or above the median fees found in the reports. Id. ¶¶ 37-41.
This complaint marks the FTC’s first enforcement action against a state board since N.C. Dental and is part of the FTC’s new initiative to address anticompetitive local and state occupational licensing regulations. The administrative trial is set to begin on January 30, 2018.
David M. Goldstein
Orrick, Herrington & Sutcliffe LLP
On June 12, 2017, the Ninth Circuit held that the collateral-order doctrine does not allow an immediate interlocutory appeal of an order denying a motion to dismiss based on state-action immunity. SolarCity Corp. v. Salt River Project Agricultural Improvement and Power District, 2017 WL 2508992 (9th Cir. June 12, 2017). In so holding, however, the Ninth Circuit acknowledged a split among the courts of appeals, which could provide the Power District with a basis for a petition for a writ of certiorari.
SolarCity sells and leases rooftop solar-energy panels, which allow customers to reduce the amount of energy they buy from suppliers, including the Power District. SolarCity alleges that, to prevent SolarCity from installing more panels, the Power District adopted a new pricing structure under which any customer who obtains power from his or her own system must pay a prohibitively large penalty. SolarCity alleges that after the new rates took effect, solar panel retailers received 96% fewer applications for new solar-panel systems in the Power District’s territory.
Solar City sued the Power District, asserting that it violated the Sherman Act and the Clayton Act by attempting to maintain a monopoly over the supply of electrical power in its territory. Based on the fact that it is a political subdivision of Arizona, the Power District moved to dismiss under Rule 12(b)(6) arguing, among other things, that it is immune from liability under the federal antitrust laws based on state-action immunity. The district court denied the motion and declined to certify an interlocutory appeal, but the Power District appealed nonetheless.
The Ninth Circuit’s Analysis
The Power District argued that an order denying state-action immunity is immediately appealable under the collateral-order doctrine. The Ninth Circuit briefly summarized the state-action doctrine established in Parker v. Brown, 317 U.S. 341 (1943), explaining that it “counsels against reading the federal antitrust laws to restrict the States’ sovereign capacity to regulate their economies and provide services to their citizens” and that it “also protects local governmental entities if they act pursuant to a clearly articulated and affirmatively expressed state policy to displace competition.” 2017 WL 2508992, at *3 (citing FTC v. Phoebe Putney Health Systems, Inc., 133 S. Ct. 1003, 1007 (2013)).
The Ninth Circuit explained that under the collateral-order doctrine, an interlocutory order—such as an order denying a motion to dismiss—can only be appealed (1) if it “conclusive,” (2) it addresses a question that is “separate from the merits” of the underlying case, and (3) that separate question raises “some particular value of a high order” and evades effective review if not considered immediately. All three requirements must be satisfied for the ruling to be immediately appealable. “The Supreme Court has repeatedly emphasized that these requirements are stringent and that the collateral-order doctrine must remain a narrow exception. Id. at *2 (citations omitted).
The Power District argued that the denial of a motion to dismiss based on state-action immunity is immediately appealable in the same way that the collateral-order doctrine permits an immediate appeal of a denial of a motion to dismiss based on other immunities (e.g., Eleventh Amendment immunity and foreign sovereign immunity, among others). The Ninth Circuit disagreed, reasoning that other immunities that are immediately appealable are immunities from being sued, not immunities from liability. The Court then explained that both it “and the Supreme Court have described state-action immunity as an immunity from liability.” Id. at *4 (citations omitted). Accordingly, an order addressing state-action immunity is analogous to orders denying motions to dismiss under the Noerr-Pennington doctrine and statutory preemption, neither of which is immediately appealable. “In sum, because the state-action doctrine is a defense to liability and not an immunity from suit, the collateral-order doctrine does not give us jurisdiction here.” Id. at *5 (footnotes and citations omitted).
The Court then rejected the Power District’s two counterarguments. The Power District argued that because state-action immunity has constitutional origins, an order denying its application is immediately appealable. The court disagreed, explaining that, for example, Noerr-Pennington immunity is grounded in the First Amendment but an order denying its application is not immediately appealable. Id. at *5. The Power District also argued that an immediate appeal was necessary to avoid litigation that would distract government officials. The court rejected this argument based primarily on Will v. Hallock, 546 U.S. 345 (2006), in which the Supreme Court held that federal agents in a Bivens case could not immediately appeal an order denying their motion to dismiss on the ground that review was necessary to prevent distraction to the government: “the possibility of mere distraction or inconvenience to the Power District does not give us jurisdiction here.” Id. at *6 (footnote omitted).
The Circuit Split
The last section of the Ninth Circuit’s decision—approximately one-fourth of its entire opinion—addresses an acknowledged Circuit split. The Fourth and Sixth Circuits have held that an unsuccessful assertion of state-action immunity fails the second and third parts of the collateral-order test outlined above, and therefore is not immediately appealable. But the Fifth and Eleventh Circuits have held that an unsuccessful assertion of state-action immunity is comparable to an unsuccessful assertion of qualified immunity for government officials or of Eleventh Amendment immunity, both of which are immediately appealable. The Ninth Circuit found the analysis in the Fourth and Sixth Circuit decisions to be more “persuasively and thoroughly reasoned” in light of “the Supreme Court’s “persistent emphasis that the collateral-order doctrine must remain narrow.” Id. at *7 (citations omitted).
On June 20, the Power District filed a motion to stay issuance of the mandate for 90 days so it can file a petition for a writ of certiorari.
Kayla A. Odom
Freitas Angell & Weinberg LLP
Judge Andrew L. Carter of the United States District Court for the Southern District of New York dismissed complaints against a number of Brent crude oil producers, refiners, traders, and affiliates in an order dated June 8, 2017. In re N. Sea Brent Crude Oil Futures Litig., No. 13-md-02475 (ALC), 2017 U.S. Dist. LEXIS 88246, at *11-12 (S.D.N.Y. June 8, 2017). The plaintiffs, representatives of a putative class of futures and derivatives traders (“Trader Plaintiffs”) and a putative class of the owners of landholding and lease-holding interests in United States oil-producing property (“Landowner Plaintiff”), alleged that the defendants conspired to manipulate Brent crude oil prices and the prices for Brent crude oil futures and derivatives contracts traded on the New York Mercantile Exchange (“NYMEX”) and the Intercontinental Exchange (“ICE Futures Europe”) in violation of the Commodity Exchange Act, the Sherman Act, and various state laws. Id. The plaintiffs alleged that the defendants “monopolized the Brent Crude Oil market and entered into unlawful combinations, agreements, and conspiracies to fix and restrain trade in, and intentionally manipulate Brent Crude Oil prices and the prices of Brent Crude Oil futures and derivative contracts.” Id. at *12. Judge Carter dismissed all claims, finding that the plaintiffs failed to state a claim under the Commodities Exchange Act, failed to allege that they suffered any antitrust injury under the Sherman Act, and similarly failed to allege state and common law claims.
Brent crude oil is a variety of light, sweet oil pulled from the North Sea region of Europe, and serves as a benchmark for two-thirds of the world’s internationally-traded crude oil supplies. Id. at *13. Brent crude oil benchmarking is done through methodology employed by price reporting agencies, including the so-called Market-On-Close (“MOC”) methodology by Platts (based in London), where the analysis of market-pricing data is limited to transactions occurring during a half-hour window at the end of the trading day. Information is collected during this period on trades, bids, and offers for contracts for Brent crude oil, and that information is analyzed to determine an assessment of market value. Id. at *14-15. The plaintiffs contended that the pricing assessments for Brent crude oil “are directly linked” to Brent crude oil futures and other derivative contract prices, and thus manipulation of the pricing assessment “has effects that ripple throughout the Brent Crude Oil and futures market.” Id. at *15. The Landowner Plaintiff also alleged that Brent crude oil influences the price of West Texas Intermediate, the other light, sweet crude oil that serves as a major benchmark for the world’s oil prices. Id. at *18.
The plaintiffs alleged that the defendants “conspired to manipulate the Brent crude oil market, including the market for Brent futures and derivatives contracts, by engaging in manipulative conduct and fraudulent physical trades and then deliberately and systematically submitting information about those trades to Platts during the MOC window.” Id. at *18-19. They alleged that manipulative physical trades and reporting manipulated the Platts pricing assessment, and “has effects that ripple throughout the Brent Crude Oil and futures market, impacting a wide variety of derivative and futures contracts on NYMEX and ICE.” Id. at *19. The defendants moved to dismiss the complaints. Id. at *21.
The court agreed with the defendants that the Trader Plaintiffs’ Commodity Exchange Act (“CEA”) claims exceeded the territorial limitations of the statute. Id. at *23. To determine whether the plaintiffs’ CEA claims may be applied extraterritorially, the court applied the two-part test laid out by the Supreme Court in Morrison v. Nat’l Australia Bank Ltd., 561 U.S. 247 (2010), as amplified by the Second Circuit in Absolute Activist Value Master Fund Ltd. v. Ficeto, 677 F.3d 60 (2d Cir. 2012). In re N. Sea Brent Crude Oil Futures Litig., 2017 U.S. Dist. LEXIS 88246, at *24-27.
First, the court found that the CEA “does not contain any statements suggesting that Congress intended the reach of the law to extend to foreign conduct.” Id. at *28. Next, the court examined whether the “focus of congressional concern” in the CEA suggests that extraterritorial application is appropriate—i.e., whether the commodities transaction occurred on a domestic exchange, or if the transaction itself is domestic. Id. at *29 (citing Morrison, 561 U.S. at 267). The court concluded that “while the Trader Plaintiffs may have purchased or sold Brent futures and derivatives on domestic exchanges or otherwise entered into domestic commodities transactions, the crux of their complaints against Defendants does not touch the United States.” Id. at *32. “The Trader Plaintiffs’ claims are based on Defendants’ allegedly manipulative and misleading reporting to Platts in London about physical Brent crude oil transactions conducted entirely outside of the United States that indirectly affected the price of Brent futures and derivatives contracts traded on exchanges.” Id. In addition, the Brent crude oil assessment published by Platts (which the plaintiffs argue was allegedly inaccurate due to the defendants’ manipulative reporting), does not serve as a reference point for pricing of the futures and derivatives contracts available on NYMEX and ICE Futures Europe. Id. at *33. Thus, the court held the Trader Plaintiffs had failed to state a claim under the CEA. Id.
As to the plaintiffs’ Sherman Act claims, the Court answered the threshold question of whether the plaintiffs had antitrust standing. A private antitrust plaintiff is required to demonstrate antitrust standing (in addition to constitutional standing), by showing that it (1) has suffered an antitrust injury and (2) is an “efficient enforcer” of the antitrust laws. Id. at *34-35 (citing Associated Gen. Contractors of Calif., Inc. v. Calif. State Council of Carpenters, 459 U.S. 519, 535 n.31 (1983) and Gelboim v. Bank of Am. Corp., 823 F.3d 759, 770-772 (2d Cir. 2016)). The court did not reach the “efficient enforcer” inquiry as the plaintiffs failed to demonstrate that they suffered “antitrust injury,” that is injury “of the type the antitrust laws were intended to prevent and that flows from that which makes defendants’ acts unlawful.” Id. (quoting Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489 (1977)).
The court reiterated the rule that generally, only market participants can be said to have suffered antitrust injury, but recognized the narrow exception for parties whose injuries are “inextricably intertwined” with the injuries of market participants such that the “defendant’s anticompetitive scheme hinges on harm to the plaintiff or the plaintiff’s market.” In re N. Sea Brent Crude Oil Futures Litig., 2017 U.S. Dist. LEXIS 88246, at *35 (citing Blue Shield of Virginia v. McCready, 457 U.S. 465, 479-80 (1982) and In re Aluminum Warehousing Antitrust Litig.,833 F.3d 151, 159 (2d Cir. 2016)). The court explained that “sometimes the defendant will corrupt a separate market in order to achieve its illegal ends, in which case the injury suffered can be said to be ‘inextricably intertwined’ with the injury of the ultimate target.” Id. at *36 (quoting In re Aluminum Warehousing Antitrust Litig.,833 F.3d at 161).
The plaintiffs alleged that the defendants conspired to manipulate the price of Brent crude oil by engaging in a variety of “misleading conduct and sham transactions” in the physical oil market and then reporting those transactions to Platts during the MOC window. Id. at *39-40. The defendants did so, the plaintiffs alleged, because the Brent oil producer, refiner, and seller defendants might want to drive up the price of Brent to increase their profits, and because the Platts assessment is incorporated into certain futures and derivatives products traded on NYMEX and ICE Futures Europe (where certain defendants and Trader Plaintiffs trade) and closely correlates with the “ICE Brent Index,” which serves as a benchmark for other Brent products traded on NYMEX and ICE Futures Europe. Id. at *40. While the plaintiffs and defendants offered both broad and narrow definitions of the relevant market, the relevant markets for purposes of the antitrust standing analysis were determined to be “the physical Brent crude oil market and the market for any derivative instrument that directly incorporates Dated Brent as benchmark or pricing element.” Id. at *40-41.
The Landowner Plaintiff did not demonstrate that he participated in a restrained market, either by participating in the physical Brent crude oil market with the defendants, or by virtue of the defendants’ manipulation of the benchmark relevant to his crude oil interests. Id. at *42. The Trader Plaintiffs, while they identified a handful of derivative contracts traded on NYMEX and ICE Futures Europe that incorporated the Platts pricing assessment for Brent crude oil, did not allege that they bought or sold any of the particular derivative contracts. Id. at *43. “This is fatal to their claim.” Id. “Merely participating in the Brent derivatives market, generally, does not give rise to an antitrust injury here because the Trader Plaintiffs have not alleged facts showing anticompetitive harm to the derivatives market as a whole.” Id. at *43-44. For the NYMEX and ICE Futures Europe derivative contracts that did not incorporate the Platts pricing assessment for Brent crude oil, the Trader Plaintiffs could not demonstrate that their injuries are inextricably intertwined with the harm to the defendants’ market participants or “the very means by which” the defendants affected their anticompetitive scheme in the physical Brent crude oil market. Id. at *45-46. This would be “contrary to the Trader Plaintiffs’ theory,” which asserted that the defendants manipulated the price of Brent crude oil by engaging in manipulative and misleading physical oil trades among themselves that would impact the price of certain derivatives. Id. at *46.
The Trader Plaintiffs also failed to allege a claim for unjust enrichment. Id. at *47. Under New York law, a plaintiff must allege that the other party was enriched, at the plaintiff’s expense, “that it is against equity and good conscience to permit the other party to retain what is sought to be recovered[,]” and that there is a “sufficiently close relationship” with the defendant that “could have caused reliance or inducement” by the plaintiff. Id. (citing Georgia Malone & Co. v. Rieder, 19 N.Y.3d 511, 516 (2012) and Mandarin Trading Ltd. v. Wildenstein, 16 N.Y.3d 173, 182 (2011)). The court held that the Trader Plaintiffs “failed to allege a relationship of any kind with the Defendants, let alone one that is ‘sufficiently close’ to have caused reliance or inducement.” Id. at *47. The Trader Plaintiffs did not allege that the defendants were their counterparties on any trades involving Brent futures or derivatives, and thus their unjust enrichment claim was dismissed. Id. at *48.
Lastly, the court dismissed the Landowner Plaintiff’s state law antitrust claims. Id. at *49-52. Judge Carter concluded that “[g]iven the similarities between the private rights of action in Louisiana and federal antitrust law, for the same reasons the Court found that the Landowner Plaintiff did not suffer a federal antitrust injury, the Court also dismisses the Landowner Plaintiff’s claim under the Louisiana antitrust statute for lack of antitrust injury.” Id. at *50-51. The court also held that the Landowner Plaintiff’s factual allegations that he suffered losses tied to suppressed West Texas Intermediate crude oil prices did “not support the conclusory assertion that this alleged loss occurred as a result of Defendants’ ‘unfair or deceptive acts or practices’” because the Landowner Plaintiff was “quite clear” that Brent crude oil does not serve as a benchmark for West Texas Intermediate, but that these two crude oil benchmarks merely have moved in tandem over time. Id. at *51-52.
Bori Celia Ha
University of Texas School of Law
In Kelsey K. v. NFL Enterprises, LLC, No. C 17-00496 WHA, 2017 WL 2311312 (N.D. Cal. May 25, 2017), Judge William Alsup of the Northern District of California considered allegations that the National Football League (“NFL”) and its member teams had committed antitrust violations by allegedly conspiring “‘to fix and suppress the compensation of’ and ‘to eliminate competition among them for’ cheerleaders.” Id. at *2. On May 25, 2017, Judge William Alsup dismissed the complaint under Rule 12(b)(6). The court allowed the plaintiff to seek leave to file an amended complaint. On June 15, 2017, the plaintiff filed a motion for leave to file a first amended complaint; the court has yet to rule on the motion.
The plaintiff Kelsey K. is a former employee of the San Francisco 49ers who worked as a cheerleader on the 49ers’ “Gold Rush Girls” dance team. She asserted putative class claims under the Sherman Act and the Cartwright Act against the NFL and its member teams. The court noted that the complaint asserted “only claims for violations of antitrust law. This is not a lawsuit for violation of wage-and-hour or labor laws. Nor is it a complaint for general maltreatment of cheerleaders.” Id. at *4 (citation omitted). The court concluded that the plaintiff had not met the requirements to state a claim under the Sherman Act or the Cartwright Act. Id.
I. No Conspiracy, Only Parallel Conduct
Mere parallel conduct is not enough to suggest a conspiracy. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556-57 (2007). To distinguish between impermissible conspiracy and permissible parallel conduct, a plaintiff must allege “plus factors,” i.e., “economic actions and outcomes that are largely inconsistent with unilateral conduct but largely consistent with explicitly coordinated action,” that would suggest the defendants conspired. See In re Musical Instruments & Equip. Antitrust Litig., 798 F.3d. 1186, 1193-94 (9th Cir. 2015). A plausible claim of unlawful conduct must include allegations tending to exclude the possibility of independent action. Kelsey K. v. NFL, 2017 WL 2311312, at *5.
First, the court addressed the plaintiff’s allegation that the defendants conspired to suppress compensation for cheerleaders in violation of Section 1 of the Sherman Act. Citing Name.Space, Inc. v. Internet Corp. for Assigned Names & Numbers, 795 F.3d 1124, 1129 (9th Cir. 2015), the court stated that “[a] Section 1 claim requires (1) a contract, combination, or conspiracy (2) intended to unreasonably restrain or harm trade (3) that actually injures competition and (4) harms the plaintiff via the anticompetitive conduct.” The plaintiff asserted that the defendants conspired to suppress the earnings of cheerleaders by “(1) paying them ‘a low, flat wage for each game’ and not paying them for rehearsals or community outreach events; (2) refraining from poaching other teams’ cheerleaders; and (3) prohibiting cheerleaders from seeking employment with other professional cheerleading teams and from discussing their earnings with each other.” Kelsey K., 2017 WL 2311312, at *2.
The plaintiff alleged that senior executives of NFL teams attend numerous meetings throughout the year, including “annual NFL owner meetings, the NFL scouting combine, the NFL Draft, the Super Bowl, the Pro Bowl, trade shows, and even conference calls.” The court determined that “this allegation, taken as true, supports no inference of nefarious purpose or unlawful conduct. Attendance at the aforementioned annual events would have been consistent with simply running the business of the NFL and its member teams, a perfectly legitimate endeavor.” Id., at *3. Judge Alsup held in In re Graphics Processing Units Antitrust Litigation that allegation of the mere opportunity to meet and agree to fix prices due to frequent attendance at the same meetings was not sufficient to plead a conspiracy. 527 F. Supp. 2d 1011,1024 (N.D. Cal. 2007). The plaintiff argued that her complaint pleaded more than mere opportunity to conspire, but instead, pleaded “specific meetings where specific (though unnamed) persons expressly agreed to engage in very specific activities in an effort to collectively suppress wages of a specific set of their respective employees.” Kelsey K., 2017 WL 2311312, at *6. The court disagreed with the plaintiff’s characterization, citing a lack of direct evidence of conspiracy or allegation of any specific meeting. Id., at *7 (“[Plaintiff] describes legitimate NFL meetings and events as opportunities to conspire. Both descriptions are rhetorical spin that beg the most important question, namely, whether there was any conspiracy to begin with.”).
The plaintiff alleged that the defendants conspired to suppress cheerleaders’ earnings by paying a low, flat wage for each game and not paying them for rehearsals or community outreach events. The complaint stated that the Raiders, Buccaneers, and Bengals paid their cheerleaders $125, $100, and $90 per game respectively, and the Bills cheerleaders were not paid for games at all. The court held that “these admissions of non-parallel conduct undercut the very theory asserted by the complaint.” Id., at *8. Accordingly, the court concluded, the complaint “either lacks sufficient supporting factual allegations or alleges facts tending to weigh against a finding of conspiracy.” Id. at *9.
The plaintiff also alleged that the defendants refrained from poaching cheerleaders from other NFL member teams as part of an agreement to suppress earnings. However, the complaint did not state whether poaching would occur in the absence of such an agreement, and in the absence of factual allegations of that nature, the absence of poaching was not meaningful. The court similarly dismissed as conclusory the plaintiff’s allegations that the defendants prohibited cheerleaders from seeking employment with other professional cheerleading teams and discussing their earnings with each other. The court found the complaint insufficient for failing to “answer the basic questions of ‘who, did what, to whom (or with whom), where, and when’ as to these prohibitions imposed on cheerleaders.” Id. at *10.
II. No Allegations of Injury to Plaintiff
The court held that the plaintiff failed to plead that she was injured by the defendants’ alleged conduct and thus plead a necessary component of her Section 1 claim. Although the plaintiff alleged that she was “injured in her business or property by reason of the violations alleged,” the court found this statement “utterly conclusory.” Id. at 11.
III. The Cartwright Act and Interstate Commerce
The court also held that the plaintiff failed plausibly to allege a conspiracy under the Cartwright Act because her “federal and state law antitrust claims are predicated on the same allegations of conspiracy.” Id. at *11.
To determine whether granting leave to amend the complaint would be futile, the court considered the California Supreme Court’s decision in Partee v. San Diego Chargers Football Co., 34 Cal. 3d 378, 380, 385 (1983), holding that “the Cartwright Act is not applicable to the interstate activities of professional football” because the “burden on interstate commerce outweighs the state interests in applying state antitrust laws to that structure.” The court concluded that it was not clear whether Partee applied, since the case at hand involved cheerleaders, not football players, and considered different factual allegations. Kelsey K., 2017 WL 2311312, at *12. Because determining whether Partee applied would be a fact-intensive inquiry, the court held that it was not an appropriate question to address at the complaint stage, and granting leave to amend would not necessarily be futile. Id. Therefore, the court granted the plaintiff leave to amend.