E-BRIEFS, NEWS AND NOTES: October 2022

By Cheryl Johnson

In Arrington v. Burger King Worldwide, Inc., Case No. 20-13561, —F.4^th—, 2022 WL 3931471 (11th Cir. Aug. 31, 2022),  Burger King (BK) and some 7,000 independent BK franchisees executed “No-Hire Agreements,” under which each agreed not to hire any BK employee for at least six months after he or she left employment at another BK restaurant. 2022 WL 3931471, at *2. A complaint was filed alleging that these agreements were collusive and depressed the employment opportunities of BK employees in violation of Sherman Act Section 1. A Florida district court dismissed the complaint, holding that BK and its franchisees constituted a single economic enterprise and were not capable of conspiring under the Sherman Act. Id. at *4. The Eleventh Circuit reversed, concluding that BK and its independent franchisees were plausibly alleged to have undertaken “concerted action” for purposes of Section 1 of the Sherman Act.

In concluding that “concerted action” was plausible, the Circuit analyzed the relationships between the franchisees and BK to determine if their arrangement “joins together separate decision-makers” and thus deprived “the marketplace of independent centers of decision making.” Id. at *5. Citing American Needle, Inc. v. Nat’l Football League, the Circuit Court noted that “this concerted action inquiry focuses not on whether the actors engaged in concerted activity for all purposes, but only on whether the decision or decisions in question involved concerted action.” Id. at *5.

While the BK and its franchisees had many economic interests in common, each separately pursued its own interests when hiring and recruiting employees. Id. at *7. Since each franchisee was solely responsible for recruiting, hiring, and establishing wages, benefits, and employment policies, each was “an independent center of decision-making” as to employee agreements. Id. at *7. Hence, their no-poach, no-hire agreements removed the ability of individual franchisees to make competitive hiring decisions and qualified as concerted conduct for Sherman Act purposes. Id.

By Katherine Van Horn, (2^nd Year), University of the Pacific, McGeorge School of Law

In In Re Namenda Indirect Purchaser Antitrust Litigation, Judge McMahon (SDNY) denied Defendant’s motion to decertify the Indirect Purchaser Plaintiff Class before trial on due process and manageability grounds.  Defendants design, manufacture, and distribute Namenda (used to treat Alzheimer’s disease through its active ingredient memantine). Class Plaintiff Sergeants Benevolent Association Health & Welfare Fund (“SBA”) acted as a third-party payor that indirectly purchased Namenda by providing individual consumers with reimbursements in 29 states and the District of Columbia (D.C.).   The Indirect Purchaser Class alleged that Defendants participated in reverse payment settlements to delay entry of generic Namenda into the market and that these reverse payments constituted anticompetitive “pay-for-delay” schemes.  Defendants sought to decertify the Indirect Purchaser Class on due process (failed damage model) and manageability (application of varying state antitrust protections) grounds.     

First, according to Defendants, the Plaintiff Class’s expert’s class wide damages model violated due process when it failed to consider subsidies, premium “pass-ons,” or rebates and discounts. The Court ruled that due process was satisfied because Defendants could cross-examine the Indirect Purchaser’s expert at trial regarding the damages model. The Court further found that regardless of individual class member transactions, they all aggregate to form the class-wide damages and that the expert used appropriate methodologies to determine the class-wide damages.  

Second, in addressing Defendants’ manageability argument based on the application of numerous and varied state antitrust laws to apportion damages, the Court ruled that special verdict forms are specifically designed to manage such varying claims. Additionally, the fact that the Plaintiff Class will seek damages based on varying state laws does not detract from predominance on the liability issue.  Predominance was based on the fact that the Defendants’ actions forced all of indirect purchasers to pay supracompetitive prices for the active ingredient meantime when Defendants delayed the generic introduction into the market.  The Court found that the varying state antitrust laws may prove how much each class member will receive and are insufficient to decertify the class on liability.

By Caroline Corbitt

In Carbone v. Brown University, 2022 WL 3357249 (N.D. Ill. Aug. 15, 2022), Judge Matthew F. Kennelly denied three motions to dismiss filed by Defendants (17 major universities in the “568 Presidents Group”).  The 568 Presidents Group is an affiliation of colleges and universities who purport to admit students on a need-blind basis.  Under Section 568 of the 1994 Improving America’s Schools Act, universities can collaborate in setting financial aid formulas only as long as none of them consider applicants’ financial need in their admissions decisions.  Plaintiffs (Defendants’ alumni) allege that Defendants violated antitrust law by coordinating with each other in setting financial aid packages while also making admissions decisions that factor in the financial circumstances of prospective students. Defendants “participated and are participating in a price-fixing cartel that is designed to reduce or eliminate financial aid as a locus of competition, and that in fact has artificially inflated the net price of attendance for students receiving financial aid,” in violation of Section I of the Sherman Act. 2022 WL 3357249, at *1.

Joint Motion to Dismiss

The Court first considered, and rejected, the defendants’ collective motion to dismiss the case.  First, the Court rejected Defendants’ argument that all their actions fell into the 586 Exemption, which pertains to agreements between “2 or more institutions of higher education at which all students are admitted on a need-blind basis.” Id. (quoting 15 U.S.C. § 1).  Second, the Court considered both the meaning of the statutory language “need-blind without regard to the financial circumstances of the student involved or the student’s family” and the parties’ differing interpretation.  Id. at *3. Even under defendants’ proposed interpretation, the Court found that plaintiffs had sufficiently alleged that the defendants consider some applicants’ need for financial aid in their admissions decisions, particularly as to waitlisted or transfer applicants and the children of wealthy donors. Id.at *4-5. Plaintiffs’ allegations that defendants engage in “enrollment management” to constrain the number of financial aid applicants in accordance with the “financial and budgetary objectives” of their universities were also found to be plausible. Id. at *5.   Third,  the Court found that Plaintiffs had plausibly alleged that none of the defendant universities were protected under the 568 Exemption and held that plaintiffs only needed to allege that one member of the conspiracy failed to engage in need-blind admissions under antitrust law. Id.at *6. 

Finally, the Court deferred determining whether the Rule of Reason or the per se standard applied to plaintiffs’ claims, noting that plaintiffs satisfied even a Rule of Reason standard in pleading that defendants’ actions had an anticompetitive effect in the market for elite private universities. Id. at *7-8. The Court also rejected defendants’ remaining arguments (failure to plausibly allege antitrust injury or antitrust standing and barred by the statute of limitations.)  Id. at *8-10.

The Motion to Dismiss of Brown, Emory, Chicago, and Johns Hopkins

Brown, Emory, Chicago, and Johns Hopkins filed a separate motion to dismiss arguing that plaintiffs’ claims against them should be dismissed because they either withdrew from the 568 Group more than four years before the filing of plaintiffs’ action (prior to the statute-of-limitations period) or joined the 568 Group only recently. The Court found that the burden to show withdrawal from a conspiracy falls on defendants, and that there was no evidence that Brown, Emory, and Chicago had withdrawn from the conspiracy. Id. at *10-11 (citing United States v. Nagelvoort, 856 F.3d 1117, 1128–29 (7th Cir. 2017) (a withdrawal defense requires the conspirator to both inform co-conspirators of his withdrawal and disavow the criminal objectives of the conspiracy). The Court also held that “‘a co-conspirator who joins a conspiracy with knowledge of what has gone on before and with an intent to pursue the same objectives may, in the antitrust context, be charged with the preceding acts of its co-conspirators.’” Id. at *11 (quoting Havoco of Am., Ltd. v. Shell Oil Co., 626 F.2d 549, 554 (7th Cir. 1980)).

Yale’s Motion to Dismiss

The Court rejected Yale’s argument that plaintiffs had conceded that Yale did not use the same “Consensus Methodology” as the other defendants in setting financial aid packages. Id. at 11.

OTHER NOTABLE CASES
By E-Brief Editors

To link to all Antitrust Division, DOJ press releases, click here.

To link to all Antitrust Division, DOJ press releases, go to:  https://www.justice.gov/atr/press-releases. Highlights include the following:

• Tijuana Man Pleads Guilty to “Double-Broker” Scheme Targeting San Diego Truckers
  
  Tijuana resident pleaded guilty in federal court to criminal charges stemming from his scheme to defraud interstate carriers and brokers operating in the trucking industry.   According to the plea agreement, defendant conducted a “double-broker” scheme. As a part of the scheme, Padilla stole the identity of a Spring Valley interstate carrier and agreed to make deliveries using the company’s stolen identity. Rather than delivering the loads, Padilla posed as a shipper and re-brokered the same loads to other carriers who delivered the freight.  Padilla then collected the payments for the completed deliveries but did not pay the carriers who actually delivered the loads and were unaware of the double-broker scheme.  
  
• Second Guilty Plea in Ongoing Investigation at the California Department of Transportation (Caltrans)
  
  A former construction contractor became the second person to plead guilty for participating in a bid-rigging and bribery scheme involving California Department of Transportation (Caltrans) improvement and repair contracts.   The contractor engaged in a conspiracy, from early 2015 through at least as late as August 2018, to thwart the competitive bidding process for Caltrans contracts to ensure that companies controlled by co-conspirators or himself submitted the winning bid and would be awarded the contract.
  
  The Department of Justice created the Procurement Collusion Strike Force (PCSF), a joint law enforcement effort to combat antitrust crimes and related fraudulent schemes that impact government procurement, grant and program funding at all levels of government – federal, state and local. To learn more about the PCSF, or to report information on market allocation, price fixing, bid rigging and other anticompetitive conduct related to federal government contracts, go to https://www.justice.gov/procurement-collusion-strike-force.
  

• Proposed Deal Would Combine Two of the Three Largest Competitors in Residential Door Hardware, Further Concentrating U.S. Markets
  
  The U.S. Department of Justice filed a civil antitrust lawsuit to block ASSA ABLOY AB’s (ASSA ABLOY) proposed $4.3 billion acquisition of the Hardware and Home Improvement division of its rival, Spectrum Brands Holdings Inc (Spectrum). ASSA ABLOY and Spectrum are two of the three largest producers of residential door hardware in the concentrated, $2.4 billion U.S. industry.  The complaint, filed in the U.S. District Court for the District of Columbia, alleges that the merger would eliminate important head-to-head competition between ASSA ABLOY and Spectrum, risking higher prices, lower quality, reduced innovation and poorer service in the sale of at least two types of residential door hardware: premium mechanical door hardware and smart locks.

To link to all FTC press release, click here.

• FTC Wins Court Order Putting an End to Deceptive Insulation Claims Made by Building Paints Marketer FGI

Georgia-based defendants must cease misrepresenting their “insulating” paint products

October 11, 2022

The Federal Trade Commission won a court order against F & G International Group Holdings, LLC, FG International, LLC, (FGI) and their principal J. Glenn Davis after suing the company and its CEO for deceptively claiming their paint insulates, when it does not. The order from the U.S. Court for the Southern District of Georgia permanently bans FGI from making deceptive claims and prohibits them from supporting similar deception from other companies.

• FTC and State Partners Sue Pesticide Giants Syngenta and Corteva for Using Illegal Pay-to-Block Scheme to Inflate Prices for Farmers

Complaint alleges that manufacturers pay distributors to exclude competitors’ more affordable generic options for essential farming products

September 29, 2022

The Federal Trade Commission and a bipartisan coalition of ten state attorneys general have filed a complaint in federal court against pesticide manufacturers Syngenta Crop Protection and Corteva, Inc. for allegedly paying distributors to block competitors from selling their cheaper generic products to farmers. The complaint alleges that these big pesticide firms run so-called “loyalty programs” in which distributors only get paid if they limit business with competing manufacturers. It further alleges that cutting off competition has allowed the defendants to inflate their prices and force American farmers to spend millions of dollars more for their products. The complaint seeks to shut down this pay-to-block scheme and restore competition to affected markets.

To link to All California Department of Justice press releases, click here.

• Attorney General Bonta Announces Lawsuit Against Amazon for Blocking Price Competition

September 14, 2022

California Attorney General Rob Bonta announced a lawsuit against Amazon alleging that the company stifled competition and caused increased prices across California through anticompetitive contracting practices in violation of California’s Unfair Competition Law and Cartwright Act. In order to avoid competing on prices with other online e-commerce sites, Amazon requires merchants to enter into agreements that severely penalize them if their products are offered for a lower price off-Amazon. In today’s lawsuit, Attorney General Bonta alleges that these agreements thwart the ability of other online retailers to compete, contributing to Amazon’s dominance in the online retail marketplace and harming merchants and consumers through inflated fees and higher prices.See https://oag.ca.gov/news/press-releases/attorney-general-bonta-announces-lawsuit-against-amazon-blocking-price