Class representatives and their counsel in the Vitamin C Antitrust Litigation have won another initial round in their suit alleging that Chinese vitamin C manufacturers conspired to fix prices and to limit the output of vitamin C exported to the United States.

Federal Judge Brian Cogan of the Eastern District of New York has rejected all but one of defendants’ arguments seeking disqualification of class representatives and class counsel in Animal Science Products, Inc., et al. v. Hebei Welcome Pharmaceutical Co., Ltd. et al., 2012 WL 251909 (E.D.N.Y. 2012).  Judge Cogan had previously denied defendants’ motions to dismiss on foreign sovereign compulsion and related comity grounds.

The four main defendants are Hebei Welcome Pharmaceutical Co. Ltd.; Jiangsu Jiangshan Pharmaceutical Co. Ltd.; Northeast Pharmaceutical Co. Ltd.; and Weisheng Pharmaceutical Co. Ltd.  Plaintiffs The Ranis Company and Magno–Humphries Laboratories, Inc. (“MHL”) moved for class certification on behalf of a group of direct purchasers seeking treble damages against all defendants except Northeast Pharmaceutical Co. Ltd.  Plaintiff Animal Science Products, Inc. moved separately for certification of a class of direct and indirect purchasers seeking injunctive relief against all defendants, including Northeast.

Judge Cogan granted class certification on behalf of a damages class represented by Ranis, but concluded that MHL could not serve as class representative because it is not a member of the class it seeks to represent.  The court also granted certification of an injunction class represented by Animal Science.

In certifying representatives for a damage class under Federal Rule of Civil Procedure 23(b)(3) and an injunctive relief class under Rule 23(b)(2), Judge Cogan made three key rulings:  (1) the “own and control” exemption to the ban on indirect-purchaser damage claims under the rule of Illinois Brick v. Illinois, 431 U.S. 720 (1977), does not permit a plaintiff to sue a defendant based on purchases from a subsidiary; (2) a plaintiff whose claim was assigned and had no actual purchases from a defendant could serve as a class representative; and (3) a wholesale direct purchaser had no conflict of interest in representing a class containing retail direct purchasers, even though a wholesale purchaser might favor higher retail prices.

While Judge Cogan rejected most of defendants’ challenges to the plaintiffs’ representative status, the court did deny class representative status to MHL, a purchaser from a defendant’s subsidiary.  Judge Cogan held that under Illinois Brick, MHL could not represent the direct purchaser class since MHL had only purchased from a subsidiary of a defendant.

Judge Cogan rejected defendants’ argument that plaintiff Ranis could not be a class representative because it only had an assigned claim from a direct purchaser and had not itself purchased any vitamin C from defendants.  Defendants had claimed that there is a “rule” prohibiting assignment of a class membership.  Judge Cogan held that no such rule existed.

Similarly, Judge Cogan rejected defendants’ argument that Ranis, as an assignee of a wholesale purchaser, had a conflict of interest with many class members who were retail purchasers, and thus should be disqualified as a class representative.  The court disagreed that there was any conflict, holding that “Ranis and the rest of the class, including the end-users, have precisely the same goal in this case: to demonstrate that the defendants’ alleged antitrust violations caused each plaintiff to purchase vitamin C at an artificially inflated price.”

Judge Cogan also held that that inclusion of indirect purchasers in the injunctive class did not create a conflict of interest between direct and indirect purchasers.  Moreover, inclusion of indirect purchasers in the Rule 23(b)(2) injunctive class did not demonstrate that class counsel had prejudiced the state law claims of the indirect purchasers – making them inappropriate as counsel to the class – because inclusion of indirect purchasers in a Rule 23(b)(2) settlement should not extinguish their subsequent state-law claims, if any, on res judicata grounds.

A federal judge in Oregon has certified a class of fishermen in an antitrust lawsuit against Pacific Seafood Group, the nation’s largest seafood company.

The plaintiffs in Whaley et al. v. Pacific Seafood Group, et al. claim that defendants, Pacific Seafood and Ocean Gold Seafoods, Inc., used market shares of 50 to 70 percent to monopolize the Dungeness crab, Oregon coldwater shrimp, groundfish, and whiting seafood markets, and conspired to pay plaintiffs below-market prices for fish.

U.S. District Judge Owen M. Panner’s grant of class certification is a significant victory for plaintiffs alleging that commercial fishing vessel owners and fishermen were damaged by alleged anticompetitive practices of Pacific Seafood and Ocean Gold.

The defendants had argued that the numerosity requirement was not met and that there was insufficient harm alleged.  However, the attorneys for Pacific Seafood and Ocean Gold were unable to convince Judge Panner that the lawsuit did not merit class action status.

Included in the certified class are commercial vessel owners as well as fishermen who do not own vessels.  But Judge Panner decided against the inclusion of a subclass of fishermen who delivered Pacific whiting for onshore processing, stating that the proposed subclass was too small to satisfy the numerosity requirement of class certification.

The lawsuit stems from a 2006 agreement between Pacific Seafood and Ocean Gold.  Both companies claim that their partnership and practices only benefit the fleet, and that no matter how much market share they may command in the West Coast fishery, the companies are helping, not harming, the plaintiffs.

Alleging direct evidence of price fixing, plaintiffs argued that Pacific Seafood and Ocean Gold used their collective buying power to fix prices for fish and intimidate competitors who might otherwise offer more competitive prices to the plaintiffs.

In addition to seeking more than $500 million in damages, the plaintiffs are asking the court to break Pacific Seafood into smaller parts, sell off many of its assets in the processing industry, and nullify the contract between Pacific Seafood and Ocean Gold.

The FTC has approved the final order resolving claims that Pool Corporation, Inc. (“PoolCorp”) acted anticompetitively in violation of Section 5 of the Federal Trade Commission Act. 

PoolCorp is a major distributor of commercial and residential swimming pool supplies, products, and equipment.  According to the FTC complaint in In the Matter of Pool Corporation, PoolCorp is the “largest nationwide buyer of pool products, commonly representing 30 to 50 percent of a manufacturer’s total sales.”  In local markets, PoolCorp allegedly has had “a market share of approximately 80 percent or higher for at least the past five years.”    

The FTC alleged that PoolCorp “unlawfully maintained its monopoly power by threatening to refuse to deal with any manufacturer that sells its pool products to a new distributor entering the market, thereby foreclosing potential rivals from an input necessary to compete.”  The Statement provided by Commissioners Julie Brill, Jon Leibowitz and Edith Ramirez in support of the Complaint and Order highlights a lack of independent business reasons or efficiency justifications for the alleged conduct. 

Commissioner J. Thomas Rosch provided a Dissenting Statement in which he claimed there was a lack of evidence of any violation.  In particular, Commissioner Rosch noted that “no entrants were actually excluded” from the markets at issue and that there was “no consumer injury” in this case.  Moreover, Commissioner Rosch found “legitimate reasons” for manufacturers not to sell to new entrants, such as a new entrant’s failure to demonstrate that it offers “adequate facilities, a history of successful operations, and a favorable credit history ….” 

PoolCorp has executed a Consent Agreement requiring particular conduct and reporting practices.

The Federal Trade Commission (“FTC”) has filed a complaint alleging price fixing against the three largest U.S. suppliers of ductile iron pipe fittings – Star Pipe Products, Ltd., McWane, Inc., and Sigma Corp.

The FTC alleges that these three competitors violated Section 5 of the Federal Trade Commission Act (“FTCA”) by conspiring to fix prices for ductile iron pipe fittings, which are used in municipal water systems around the United States.  The FTC’s complaint also charges McWane with illegally maintaining monopoly power in the market for domestically-produced pipe fittings.   Sigma has settled its claims via a consent decree, which does not include an admission of liability or monetary penalties. 

According to the FTC, “McWane invited Sigma and Star to collude with it” in 2008 by outlining a plan to raise and fix prices for imported iron pipe fittings.  The FTC alleges that the companies agreed, exchanged information through a trade association called the Ductile Iron Fittings Research Association (DIFRA), and subsequently raised their prices in January and June of 2008.

The FTC also alleges that McWane and Sigma entered into a separate anticompetitive agreement to restrain trade in the market for domestic pipe fittings.  In 2009, as part of the Stimulus Act, Congress allocated more than $6 billion to water infrastructure projects, with a mandate that only domestic materials – including pipe fittings – could be purchased with the stimulus dollars.  The FTC alleges that McWane illegally maintained monopoly power in this market for domestically-produced pipe fittings by successfully persuading Sigma to “abandon” its efforts to enter the market, agreeing instead to act as a distributor for such materials for McWane.

The proposed settlement order against Sigma would prohibit Sigma from a variety of anticompetitive activities relating to ductile iron pipe fittings, including: (1) participating in or maintaining any conspiracy to fix, raise, or stabilize the prices of these pipe fittings; (2) allocating or dividing markets, customers, or business opportunities for these pipe fittings; and (3) participating in or facilitating any agreement between competitors to exchange sales information or other competitively sensitive information relating to the price of these pipe fittings.  The proposed settlement order will be subject to public comment for 30 days, after which the FTC will decide whether to make the settlement order final.  The FTC is scheduled to make its final decision on February 6, 2012.

Although price fixing cases are more commonly prosecuted as criminal violations of the Sherman Act by the U.S. Department of Justice, Section 5 of the FTCA also provides the FTC with the power to bring such cases.  Although uncommon, there is some history of the FTC pursuing price fixing cases, such as the 2001 case against AOL Time Warner and Vivendi Universal for conspiring to fix prices of audio and video recordings of the “Three Tenors” concerts.

King Pharmaceuticals Inc. begins the new year with another antitrust headache caused by a class action complaint brought in federal court in the Eastern District of Tennessee by two pharmacies alleging that it has unlawfully conspired to suppress competition to its muscle relaxant, Skelaxin.

According to the complaint in Johnson’s Village Pharmacy, Inc. et al. v. King Pharmaceuticals, Inc., King Pharmaceuticals (which was acquired by Pfizer in 2010) restrained trade in violation of the Tennessee Trade Practices Act and common law by entering into a reverse-payment agreement in 2005 with Mutual Pharmaceutical Company.  In the agreement, Mutual agreed to delay selling a generic version of the drug in exchange for an up-front payment of $35 million and a 10%-30% annual share of King Pharmaceuticals’ sales of Skelaxin.

The plaintiffs, Johnson’s Village Pharmacy Inc. and Russell’s Mr. Discount Drugs Inc., allege that this agreement forced a class of thousands of businesses that have purchased Skelaxin for resale to overpay by millions of dollars.

The complaint follows an earlier antitrust action brought under the federal Sherman Act by SigmaPharm Inc. against both King Pharmaceuticals and Mutual.  In that case, SigmaPharm alleged that the King-Mutual agreement eliminated sales of a generic version of Skelaxin to the detriment of SigmaPharm, which had a development agreement with Mutual.

The SigmaPharm action was dismissed last year because the federal district court found that SigmaPharm did not qualify as a consumer or competitor that could bring suit under the Sherman Act.  The United States Court of Appeals for the Third Circuit affirmed that ruling in December.

The Eleventh Circuit recently affirmed the decision of the U.S. District Court for the Middle District of Georgia to dismiss the FTC’s antitrust challenge to the proposed acquisition of Palmyra Park Hospital, Inc. (“Palmyra”) and the subsequent lease of Palmyra to Phoebe Putney Health System, Inc. (“PPHS”) or one of its subsidiaries.  As the district court did, the Eleventh Circuit predicated its decision on the state-action doctrine.

A subsidiary of PPHS currently leases Phoebe Putney Memorial Hospital (“Memorial”), a 443-bed hospital in Albany, Georgia that offers “inpatient general acute-care services.”  Memorial’s “only real competitor”—in the words of the Eleventh Circuit—is Palmyra, a 248-bed hospital offering similar services.  In its opinion, the Eleventh Circuit stated that “Memorial controls 75 percent and Palmyra 11 percent of their geographic market.”

In December 2010, PPHS announced a plan to have a political subdivision, the Hospital Authority of Albany-Dougherty County (“Hospital Authority”), purchase Palmyra and lease Palmyra’s assets to PPHS or one of its subsidiaries.  The City of Albany and Dougherty County authorities created the Hospital Authority in 1941 pursuant to Georgia’s Hospital Authorities Law, in order to address public health needs of the area. 

In April 2011, the FTC brought a federal action to preliminarily enjoin the acquisition pending resolution of the FTC’s related administrative proceeding.  In its complaint for a preliminary injunction, the FTC alleged that the proposed acquisition was practically a “merger to monopoly” that “threaten[ed] substantial harm to competition in the relevant market for inpatient general acute-care hospital services sold to commercial health plans.” 

Defendants took the position that the state-action doctrine immunized the acquisition and planned operation of the hospitals from antitrust scrutiny.  On this point, the FTC alleged that the Hospital Authority was merely a straw-man that was included in the transaction for the sole purpose of shielding the transaction from antitrust scrutiny.  

The district court agreed with the defendants, finding that the state-action doctrine applied and therefore that the defendants were immunized from antitrust scrutiny.  Accordingly, the district court dismissed the complaint with prejudice.  The FTC appealed. 

On de novo review, the Eleventh Circuit agreed with the FTC that “the joint operation of Memorial and Palmyra would substantially lessen competition or tend to create, if not create, a monopoly.”  However, the court affirmed dismissal on the grounds of state-action immunity. 

The court began its analysis of the state-action doctrine by citing the seminal case of Parker v. Brown, 317 U.S. 341 (1943) and the doctrine’s emphasis on principles of federalism.  The court acknowledged that state-action immunity does not automatically extend to municipalities or political subdivisions.  To resolve whether the Hospital Authority, the political subdivision at issue, was entitled to state-action immunity, the court applied the rule announced in FTC v. Hosp. Bd. Of Dirs. Of Lee Cnty., 38 F.3d 1184, 1187-88 (11th Cir. 1994) (citing Town of Hallie v. City of Eau Claire, 471 U.S. 34 (1985)) that “a political subdivision … enjoys state-action immunity if it shows that, ‘through statues, the state generally authorizes [it] to perform the challenged action’ and that, ‘through statutes, the state has clearly articulated a state policy authorizing anticompetitive conduct.’”  Of interest, particularly given the FTC’s straw-man argument, the Eleventh Circuit did not cite or address the “active supervision” element of California Retail Liquor Dealers Ass’n v. Midcal Aluminum, Inc., 445 U.S. 97 (1980) and its progeny, presumably due to the statement in Town of Hallie v. City of Eau Claire, 471 U.S. 34, 46 (1985) that “the active state supervision requirement should not be imposed in cases in which the actor is a municipality.”  

Finding first, that Georgia’s Hospital Authorities Law contemplated the anticompetitive effects and conduct alleged in the complaint; second, that the state legislature granted hospital authorities the power to purchase or lease “projects” (i.e., hospitals); and third, that the state legislature “must have anticipated anticompetitive harm when it authorized hospital acquisitions by the authorities,” the court held that state-action immunity protects the proposed plan. 

The appellate court rejected the FTC’s argument that the Hospital Authority acted as a mere straw-man by citing City of Columbia v. Omni Outdoor Advertising, Inc., 499 U.S. 365, 379 (1991) for the proposition that a court cannot scrutinize governmental actions to attempt to uncover “perceived conspiracies to restrain trade.” (internal quotes omitted).

The case is Federal Trade Commission v. Phoebe Putney Health System, Inc., No. 11-12906, in the United States Court of Appeals for the Eleventh Circuit.

On December 9, Chief Judge Christina Reiss of the District of Vermont denied the plaintiff dairy farmers’ motion for class certification in Allen v. Dairy Farmers of America, Inc., 2011 WL 6148678 (D. Vt. Dec. 9, 2011).  However, Judge Reiss invited plaintiffs to renew their motion after addressing issues with their expert report. 

Plaintiffs are New York and Vermont dairy farmers.  Defendants are Dairy Farmers of America, Inc. (DFA) and Dairy Marketing Services LLC (DMS).  (Dean Foods was originally a defendant but it settled in May for $30 million.)  DFA is the largest dairy cooperative in the United States, and it not only produces, but also processes, markets and distributes raw Grade A milk.  DMS is a milk marketing agency allegedly created, owned and controlled by DFA and certain other cooperatives.  Some of the plaintiffs are members of DFA.  All of the plaintiffs have, at some point since 2002, sold their milk to processors through DMS. 

Plaintiffs sued DFA and DMS in October 2009 on behalf of all similarly situated dairy farmers in New York, Vermont and ten other Northeast states – an area designated by the USDA as “Federal Milk Market Order 1.”  Order 1 also is the relevant geographic market alleged by plaintiffs. 

Plaintiffs claim that defendants have conspired to fix and suppress the prices plaintiffs receive from cooperatives and processors for their raw Grade A milk, in violation of Sections 1 and 2 of the Sherman Act.  As damages, plaintiffs seek the amount they have been underpaid.  As injunctive relief, they seek to enjoin the alleged conduct and require divestiture of defendants’ processing plants.  

Judge Reiss evaluated plaintiffs’ motion under In re IPO, 471 F.3d 24 (2d Cir. 2006), which requires a “rigorous analysis” of the Rule 23 requirements and “enough evidence” that each of them has been met.  Where plaintiffs lost the motion was on Rule 23(a)(2)’s commonality requirement, specifically as to impact.  Commonality was satisfied as to “the formation, duration and implementation of the alleged conspiracy.”  However, as to adverse impact, Judge Reiss said there was “a clear failure of proof” with respect to plaintiffs’ expert report:  (1) adherence to opinions that plaintiffs had conceded were incorrect; (2) apparent use of incorrect prices in calculating damages; and (3) failure to consider the existence of either non-conspirator processing plants or class members who benefited or broke even from the alleged conduct. 

However, Judge Reiss also said that the expert analysis “may ultimately prove to be an acceptable means of analyzing causation and damages in this case,” though it is not “presently sufficient to perform this task because too many uncertainties remain . . . .”  Her other findings also indicate potential for success: Rule 23(a)(1) numerosity was satisfied, with 9,000 class members dispersed throughout several states.  Rule 23(a)(3) typicality was satisfied to the same extent as commonality, i.e., as to formation, duration and implementation but not adverse impact, for the same reasons as commonality.  And the 23(a)(4) adequacy of the named plaintiffs could be satisfied with subclasses represented by separate counsel, which would overcome the potential conflicts.  Given that prerequisite to certification, Judge Reiss declined to reach 23(a)(4)’s adequacy of class counsel.  She also declined to reach Rule 23(b)’s predominance requirement.

In light of the invitation to renew the class motion, defendants sought to extend their time to serve expert reports from December 16 until whenever plaintiffs serve their new report(s) (if they do).  Judge Reiss denied that motion, finding “no good cause to further delay the provision of expert reports in this ongoing litigation.”  No deadline has been set to renew the class motion.

Health insurance giant Aetna, Inc. has filed a complaint in a Michigan federal district court claiming that Blue Cross Blue Shield of Michigan has engaged in a scheme to force Aetna to pay more for hospital services as part of a campaign to limit or reduce Aetna’s presence in Michigan.  The complaint, filed on December 6, 2011, comes just over a year after the U.S. Department of Justice and the state of Michigan commenced a civil antitrust lawsuit against Blue Cross containing similar allegations.

Aetna claims that Blue Cross, the largest insurer in Michigan, has used most-favored nation clauses in deals it has with hospitals to force those hospitals to charge Aetna up to 39 percent more, and in other instances, to require Aetna to raise its rates until they are as high as those charged by Blue Cross.  According to the DOJ’s complaint, roughly half of Michigan’s general acute care hospitals have most-favored nation clauses in their contracts with Blue Cross. 

Blue Cross has denied doing anything wrong, and its Vice President of Corporate Communications, Andy Hetzel, called the complaint “sour grapes from a major national insurance company” trying to take advantage of the DOJ lawsuit.

The DOJ complaint was filed on October 18, 2010.  It has already survived Blue Cross’ motion to dismiss, though Blue Cross has appealed that decision to the Sixth Circuit Court of Appeals.  Trial has been scheduled for February 2013.

Horizon Lines Inc., one of the largest ocean shipping companies in the United States, has entered into a $13.75 million settlement agreement with a group of shippers who had opted out of a class action against the company.

The shippers alleged that Horizon entered into a conspiracy with other carriers, including Sea Star Line, Crowley Maritime Corp. and Trailer Bridge Inc., to fix prices by increasing their rates to supracompetitive levels and by uniformly setting fuel surcharges for freight services between Puerto Rico and the U.S., which are largely controlled by the defendant carriers.

The case is In re: Puerto Rican Cabotage Antitrust Litigation, which was filed in 2008 in the United States District Court for the District of Puerto Rico.

Judge Daniel Dominguez dismissed the claims against Trailer Bridge, holding there was no evidence that it was involved in the price fixing conspiracy.  Horizon and the remaining carriers entered into a settlement with the class in 2009 for $52.25 million, which received final approval in September 2011. 

Several other shippers that had opted out of the class, including Home Depot and Wal-Mart, settled with Horizon earlier this year.

The settlement follows years of civil and criminal litigation.  In February, Horizon pled guilty to conspiring to fix prices and agreed to pay a $45 million fine which was lowered to $15 million to save the company from bankruptcy.  Sea Star agreed to pay a $14.2 million criminal fine in November.  Two former executives of Sea Star and three from Horizon also incurred fines and prison sentences.

Federal Judge James Ware of the Northern District of California has certified a class of iPod purchasers, allowing an antitrust class action to proceed against Apple Computer, Inc. (“Apple”). 

The plaintiffs in The Apple iPod iTunes Antitrust Litigation contend that Apple violated state and federal antitrust laws by monopolizing markets for digital music downloads and portable digital media players, excluding competing portable digital media devices, and charging supracompetitive prices for iPods. 

The amended consolidated class action complaint, filed on January 26, 2010, charges that Apple engaged in these alleged suppressions of competition by: (1) offering protected music files encoded with FairPlay, Apple’s proprietary software, thereby rendering music files sold by iTunes inoperable on competitors’ portable digital media devices; and (2) making Apple’s portable digital media devices (e.g., iPod) incapable of playing protected music content sold by competing digital music stores.

On May 19, 2011, the court granted summary judgment for Apple on plaintiffs’ claims relating to iTunes 4.7 and denied summary judgment for Apple on plaintiffs’ claims relating to iTunes 7.0. 

The court’s certification order dealt with the issue of whether to certify a putative class consisting of “[a]ll persons or entities in the United States (excluding [certain individuals and entities]) who purchased an iPod directly from Apple between September 12, 2006 and March 31, 2009.”  Specific models of iPods covered by the class definition are provided in the court’s November 22, 2011 Order and include iPod Standard, Classic, and Special Models; iPod shuffle Models; iPod touch Models; and iPod nano Models. 

Quoting the recent Supreme Court opinion in Wal-Mart Stores, Inc. v. Dukes, 131 S. Ct. 2541 (2011), Judge Ware applied the applicable – albeit ambiguous – standard for deciding a motion for class certification: “A trial court’s ‘rigorous analysis’ under Rule 23 will frequently ‘entail some overlap with the merits of the plaintiff’s underlying claim.’”  Judge Ware held that the court’s earlier decisions that the plaintiffs met the certification requirements of Rules 23(a) and 23(b)(3) still stand.  Therefore, the balance of the certification order focused on two issues: (1) whether the plaintiffs provided sufficient evidence to establish that antitrust impact and damages may be shown through accepted class-wide methodologies; and (2) whether resellers—as opposed to end-user consumers—should be included in the class.  

First, with respect to the plaintiffs’ methodologies to prove impact and damages on a class-wide basis, the court considered whether the plaintiffs intended to use “generalized proof common to the class” and whether the common issues would “predominate.”  The court relied on its previous determination that the plaintiffs offered an adequate method of proof and, in particular, found the three methodologies offered by plaintiffs sufficient, at least for class certification purposes. 

Second, with respect to the inclusion of resellers, the court was persuaded by plaintiffs’ arguments that resellers should be included in the certified class.  The court relied on Meijer, Inc. v. Abbot Labs., 251 F.R.D. 431, 433 (N.D. Cal. 2008) and Hanover Shoe, Inc. v. United Shoe Mach. Corp., 392 U.S. 481, 489-92 (1968) for the proposition that a reseller’s ability to raise prices and effectively pass the overcharge to its customers is irrelevant as to whether the reseller suffered an injury.  Since the possibility that resellers may pass on any overcharge was found to be irrelevant to the issue of injury, the court included resellers in the class.