The U. S. Court of Appeals for the Sixth Circuit has rejected, as implausible, claims that Morton Salt Inc. and Cargill Inc. engaged in sham bidding for government contracts as part of a conspiracy to divide the Northern Ohio market for rock salt.
The Sixth Circuit affirmed the dismissal of the complaint in Erie County, Ohio et al. v. Morton Salt Inc. et al., an antitrust class action in the U.S. District Court for the Northern District of Ohio brought by Erie County on behalf of 54 other Ohio counties. The antitrust claims of market allocation and collusive bidding were brought under Ohio’s state antitrust law, the Valentine Act, which follows federal antitrust law.
The lawsuit was based on a 2011 Ohio Inspector General’s report that found Morton and Cargill sold rock salt to the Northern Ohio counties at increasingly higher prices for a decade. The Inspector General found the companies maintained a duopoly by manipulating the “Buy Ohio” law, which awards state contracts to companies manufacturing in Ohio even if a bid providing local products is more expensive.
The plaintiffs alleged that because the rule locked other companies out of being considered for a contract, Morton and Cargill were able to manipulate the bidding process by each intentionally submitting losing bids for contracts previously won by the other company.
The district court dismissed Erie County’s complaint for failure to allege sufficient evidence of collusion. While the Sixth Circuit found that the district court had failed to adequately distinguish between the antitrust standards applicable on summary judgment and those that apply to a motion to dismiss, the appellate court concluded that plaintiffs failed to meet even the lesser standard applicable to a motion to dismiss.
The Sixth Circuit cited the leading United States Supreme Court decision in Bell Atlantic Corporation v. Twombly, 550 U.S. 544 (2007), for the proper standard on a motion to dismiss: “Do the factual allegations point to nothing more than parallel conduct of the sort that is the product of independent action, or do they plausibly raise an inference of unlawful agreement?”
The Sixth Circuit held that the plaintiffs had failed to allege sufficient facts to raise a plausible inference of a conspiracy to restrain trade. The court noted that “the theory of sham bidding makes sense only in a market subject to the lockout interpretation of the Buy Ohio law.”
During the appeal process, however, Erie County admitted that as municipalities, the plaintiffs were not bound by the “Buy Ohio” law, which governs purchases by the state. The Sixth Circuit concluded that this meant that any sham bidding by the defendants would have been “an exercise in futility.” “The conspiracy claim, in other words, would be implausible in a market that is not subject to the Buy Ohio law.”
Categories: Antitrust Litigation