Reprinted with permission from the June 2000 issue of The Metropolitan Corporate Counsel.
In a decision that should interest any producer or manufacturer in price-sensitive markets where "conscious parallelism" occurs, the Eighth Circuit Court of Appeals, sitting , reversed a prior decision of a panel of that same Court, and threw out class claims for illegal conspiracy under § 1 of the Sherman Act. In the full panel of the Eighth Circuit affirmed the district court's grant of summary judgment against a class of plaintiffs alleging potash producers conspired to fix prices. 203 F.3d 1028 (8th Cir. 2000). The majority provoked a sharp dissent by five circuit judges that accused the majority of requiring "direct evidence to withstand summary judgment in an antitrust case." The underlying facts of , coupled with the strong dissent, call into question whether this decision sounds the death knell of circumstantial proof of so-called "plus factors" as evidence of illegal conspiracy, or should more appropriately be viewed as a product of weak evidence of conspiracy given legitimate market conditions.
Potash, a mineral, is an essential fertilizer ingredient. Demand for potash is inelastic, meaning potash consumers will neither buy less if the price rises, nor buy more if the price drops. Thus, a producer who sells for more than the rest of the market risks loss of market share.
The North American potash industry is an oligopoly, essentially consisting of a small number of mostly Canadian producers. Until 1989, the government owned the largest Canadian potash producer, Potash Corporation of Saskatchewan Inc. ("PCS"). The majority noted that PCS held 38% of the North American production capacity, and, as a governmental entity, "had no mandate to maximize profits, and was not accountable to private owners," seeking instead to maintain employment and boost the local economy. The lack of profit motive spelled disaster for PCS and other producers: PCS suffered "huge" losses, causing the price of potash to fall to historic lows in the 1980s. PCS was privatized in 1989, at which time it reduced output and raised its prices.
Of similar interest was a 1986 complaint filed by American potash producers with the U.S. Department of Commerce, in which Canadians producers were accused of "dumping" potash in the United States. In 1987, the Commerce Department ordered the Canadian companies to post bonds, but in 1988, it negotiated a Suspension Agreement with the Canadian producers. The agreement, still in effect when the majority rendered its opinion, set a minimum price at which each Canadian producer could sell potash in the United States. After the agreement, PCS raised its prices and market prices rose to levels "markedly" higher than in the 1980s.
The issue splitting the Blomkest court revolved around what showing a party must make to survive a summary judgment motion in an antitrust case. In the mid-1980s, two U.S. Supreme Court decisions provided the standard for evaluating Sherman Act § 1 antitrust violations in the summary judgment context. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (1986); Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S. 752, 764 (1984). These decisions held that conduct consistent with both permissible competition as well as illegal conspiracy does not, standing alone, support an inference of antitrust conspiracy. Rather, in cases where a party opposing summary judgment (usually the plaintiff) offers circumstantial evidence of an antitrust conspiracy, it "must present evidence that 'tends to exclude the possibility' that the alleged conspirators acted independently." If the plaintiff fails to present such evidence, the court should enter summary judgment in the defendant's favor.
The class in Potash relied on the theory of conscious parallelism to support its antitrust conspiracy claim. But only in cases where certain "plus factors" exist will a court infer an improper anticompetitive agreement. The class offered three plus factors: (1) interfirm communications between the producers; (2) acts by the producers allegedly against their self-interest; and (3) an expert report purporting to show the price of potash would have been substantially lower absent collusion.
The majority, however, found the evidence "far too ambiguous" to support an inference of conspiracy. First, the price verifications between the firms concerned completed sales, rather than future market prices. Second, the possibility of independent action could not be excluded, considering the oligopolistic market in which the producers operated. Third, the class had only presented several dozen price-verification communications between the firms for the seven-year period in question, although tens of thousands of transactions would have occurred.
The court quickly dispatched the other two plus factors. It noted the actions alleged to be against the producers' self-interest could also be explained by an independent business justification. For instance, the uniform participation in the Suspension Agreement with the Commerce Department reduced uncertainty, eliminated the need to post substantial bonds, and resulted in higher prices. As to the third plus factor, the court discounted the expert testimony because the expert failed to take into account the PCS privatization and the anti-dumping proceeding. Without any plus factors, the court concluded the class failed to present evidence of collusion between the potash producers.
The dissent, on the other hand, believed "the class has adduced abundant evidence" of plus factors, most importantly, "significant evidence of solicitations to enter a price-fixing agreement." The dissent noted the exchange of price information between potash producers often occurred between high-level executives responsible for pricing decisions. The dissent also found persuasive the class's allegation that disclosing price information in an oligopoly was against the producers' self-interest because the practice of "shading" prices for individual consumers to capture sales from a competitor relies on secrecy to avoid retaliation. Exchanging price information about completed sales could, therefore, serve the important purpose of catching "cheaters" in a oligopolistic market conspiracy. In fact, the class had presented a potash executive's notes that used the term "cheating" in connection with a "market correction" program which the dissent inferred was a method of disciplining producers who breached an earlier agreement. The dissent also criticized the majority for glossing over the fact that prices rose dramatically after the alleged cartel began operating and instead focusing on the slight decrease in prices, which the dissent posited might be the result of cheating.
Although the dissent accused the majority of rejecting circumstantial evidence of conspiracy and requiring direct evidence to withstand summary judgment, the majority provided no such express statement, presumably leaving intact the availability of resort to circumstantial evidence for proof of illegal conspiracy. Thus, the Blomkest majority's decision places two principles in tension. On the one hand, a plaintiff may rely on circumstantial evidence to prove an illegal conspiracy; on the other, the court appeared to assess the weight of the evidence - the quantum of proof as opposed to the existence of a genuine issue of material fact. This tension is relieved, however, when the evidence presented is considered in light of Monsanto's admonition that it must "tend to exclude" the possibility of independent action, and the actual market conditions existing before the alleged collusive activity.
Clearly, the majority was unpersuaded that the evidence of plus factors urged by the class tended to exclude the possibility of independent action. For example, it gave no weight to the "smoking gun" memo relied upon by the class, noting that while dozens of "high ranking officials" were deposed , the memo had been used as an exhibit only once - with the witness testifying that he did not receive it. Similarly, other evidence did not exclude the possibility of independent action: the economic expert's report failed to address the two most critical market factors, privatization and dumping; the interfirm communications were infitesimal compared to the total volume of transactions; and market forces the dissent viewed as setting the stage for conspiracy prices were viewed implicitly by the majority as a result of factors leading to unrealistically low prices during the 1980s.
In the final analysis, perhaps Blomkest is best read in light of two recent conscious parallelism decisions in which the Third and Ninth Circuit threw out the plaintiffs' antitrust claims that were supported only by circumstantial evidence of collusion. In re Baby Food Antitrust Litig., 166 F.3d 112 (3d Cir. 1999); In re Citric Acid Litig., 191 F.3d 1090 (9th Cir. 1999). Unquestionably, courts appear more willing to dispose of conscious parallelism allegations without a trial if they are satisfied the evidence shows independent pricing decisions. Accordingly, parties should consider this increased willingness when litigating conscious parallelism cases.
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