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Private Litigation

Section 1 Claims Dismissed in LIBOR, TIBOR Class Action

by McDermott Will & Emery | Apr 15, 2014 | Private Litigation

On March 28, 2014, Judge Daniels of the Southern District of New York dismissed antitrust and unjust enrichment claims against over 20 banks accused of manipulating prices in the Euroyen interbank lending market by submitting false rate quotes to Yen-LIBOR and Euroyen TIBOR rate-setting organizations. Laydon v. Mizuho Bank, Ltd., No. 12-cv-3419 (S.D.N.Y. Mar. 28, 2014). The plaintiff, a short purchaser of Euroyen TIBOR futures contracts, also brought claims under the Commodities Exchange Act, which the court allowed to go forward.

The court based its dismissal of the price-fixing claim on lack of antitrust standing and failure to allege a restraint of trade. The plaintiff lacked antitrust standing for two reasons: (1) failure to plead antitrust injury and (2) the indirect, remote and speculative nature of his alleged injury—while the alleged misconduct involved manipulating present-day interbank lending rates, the alleged injury was suffered in the futures market. Although the plaintiff alleged that prices were distorted, he failed to allege that the distortion resulted from a reduction in competition. The ruling was partially based on the unique nature of the rate-setting process, which is neither supposed to be competitive nor collaborative. Instead, “each bank was supposed to independently contribute its submission to be evaluated collectively with other bank submissions.”

In holding that the plaintiff failed to allege a restraint of trade, the court noted, “Plaintiff merely alleges that prices may have been different. Plaintiff does not, however, allege that trades in Euroyen TIBOR futures contracts were in any way restrained by the alleged misconduct.” The court analyzed the alleged misconduct under the rule of reason and found that the plaintiff had failed to plead any anticompetitive effects. “There are no allegations that banks competed less, or were forced out of any of these markets. Nor is there any allegation that output of Euroyen futures contracts was eliminated or diminished. Absent any such allegations, Plaintiffs’ claim does not sufficiently plead a violation of the Sherman Act.”

FTAIA and Foreign Sales: Seventh Circuit Limits Extraterritorial Reach of U.S. Antitrust Law in Motorola Mobility v. AU Optronics

by McDermott Will & Emery | Apr 8, 2014 | Private Litigation

On March 27, 2014, in Motorola Mobility LLC v. AU Optronics Corp., the Seventh Circuit set precedent in the growing body of law interpreting the Foreign Trade Antitrust Improvements Act (FTAIA). Judge Posner held that the FTAIA bars antitrust suits over restraints in foreign markets for parts (inputs) used abroad to manufacture products later imported into the United States. The court held that such price fixing fails the FTAIA’s “direct effects” test, as well as the FTAIA requirement that the effect of the defendant’s conduct “gives rise to” an antitrust claim in the United States.

Read the full article.

Non-Direct Competitors May Sue Under the Lanham Act, Doctrine of Prudential Standing Eliminated

by McDermott Will & Emery, John J. Dabney and McDermott Will & Emery | Apr 3, 2014 | IP Antitrust, Private Litigation

The Supreme Court of the United States swept away the different standards for Lanham Act prudential standing previously applied by the courts of appeals, and expressly discarded the amorphous concept of prudential standing in all federal statutory cases.

Read the full article.

NCAA Compensation Cartel Allegations Take Center Court

by Young Cynn | Mar 18, 2014 | Private Litigation

On March 17, 2014, a class action lawsuit was filed against the National Collegiate Athletics Association (NCAA), alleging that capping compensation to college athletes violates Sherman Act Section 1.

The lawsuit was filed on behalf of all Division I college football and men’s basketball players, and named five major conferences within the NCAA as co-defendants: the Atlantic Coast (ACC), Big Ten, Big 12, Pacific-12, and Southeastern (SEC). The suit alleges that “Defendants have entered into what amounts to cartel agreements with the avowed purpose and effect of placing a ceiling on the compensation that may be paid to these athletes for their services.” Currently under NCAA rules, colleges may only compensate student athletes with a “full grant-in-aid” (the amount of tuition, room and board, and textbooks).

The complaint goes on to state that the NCAA “rules constitute horizontal agreements” among the defendants who drafted and agreed upon the rules, yet “compete with each other for the services of top-tier college football and men’s basketball players.” In addition to monetary damages, the plaintiffs are seeking injunctive relief that would allow colleges to freely negotiate with and compensate student athletes. The case is filed in the U.S. District Court of New Jersey.

Antitrust Class Action Against Graco Inc. Dismissed

by Emily Townsend | Mar 13, 2014 | Private Litigation

On March 11, 2014, Judge Ann Montgomery of the District of Minnesota dismissed a putative antitrust class action against Graco Inc. and its distributors that accused Graco of buying two of its closest competitors in the spray foam equipment market for the purposes of raising prices and reducing product options. Insulate SB Inc. v. Abrasive Products & Equipment et al., case number 0:13-cv-02664. The plaintiff alleged that after Graco purchased its rivals, it conspired with its distributors to boycott competitors. The lawsuit followed Graco’s FTC settlement which bars it from pressuring distributors into not carrying its competitors’ equipment products. The court held that the plaintiff’s allegations, which occurred four years prior to filing the suit, were barred by the statute of limitations, and that even if the claims were not time-barred, the plaintiff’s allegations were speculative and conclusory. The court also dismissed the plaintiff’s request for injunctive relief, finding the remedy drastic for the situation and stating that “Graco’s acquisition occurred over five years ago, and divestiture would impose obvious hardship on Graco employees and distributors.”

Cathay Pacific Airlines Settles Freight Shipping Price-Fixing Class Action

by Emily Townsend | Feb 14, 2014 | Private Litigation

On February 12, 2014, Cathay Pacific Airlines Ltd. settled a freight shipping price-fixing multidistrict class action litigation in the Eastern District of New York. In re Air Cargo Shipping Services Air Cargo Antitrust Litigation, case number 1:06-md-01775. The Hong Kong-based airline agreed to pay consumers of air-freight shipping services $65 million in the settlement. After the U.S. Department of Justice and European Commission initiated investigations of the air freight industry, purchasers of shipping services brought price-fixing actions against air cargo companies from two dozen countries in 2006. The Department of Justice claimed that these air cargo companies conspired to set the rate at which they charged for certain routes. These airlines then held subsequent meetings to ensure that these rates were enforced. To date, 20 defendant groups have paid $758 million in settlements with eight defendant groups still remaining in the class action. Cathay Pacific previously paid $1.44 million to the Canadian Competition Bureau and $60 million to the Department of Justice for pleading guilty to violations of Canadian and United States competition and antitrust laws, respectively.

Supreme Court: Parens Patriae Suits Not “Mass Actions” under CAFA

by McDermott Will & Emery | Jan 22, 2014 | Private Litigation

On January 14, 2014, the Supreme Court ruled in a unanimous opinion that parens patriae suits brought by states on behalf of their citizens do not constitute “mass actions” under the Class Action Fairness Act (CAFA). Miss. ex rel. Hood v. AU Optronics Corp., No. 12-1036 (U.S. Jan. 14, 2014). Enacted in 2005, CAFA lowered the bar for diversity jurisdiction in class action and mass action lawsuits, thereby bestowing federal jurisdiction on defendants in these cases. A suit is not a “mass action” under CAFA unless it involves 100 or more claimants, in addition to other requirements.

In AU Optronics, Mississippi sued defendant LCD manufacturers in state court, alleging that the defendant’s participation in an international price-fixing cartel violated state antitrust and consumer protection laws. The defendants attempted to remove the case to federal court under CAFA. The district court and Fifth Circuit both held that the case was a “mass action” despite there being only one named plaintiff, but the Supreme Court disagreed. Writing for the majority, Justice Sotomayor rejected this interpretation of CAFA as unsupported by the text or Congressional intent. After Au Optronics, defendants in suits brought on behalf of state citizens will be stuck defending their cases in state court.

Sixth Circuit Vacates Class Certification in Detroit Nurses Antitrust Case

by McDermott Will & Emery | Jan 17, 2014 | Private Litigation

On January 6, 2014, the Sixth Circuit vacated a class certification order for reconsideration in light of the Supreme Court’s 2013 decision in Comcast v. Behrend, 133 S. Ct. 1426 (2013). In re VHS of Michigan, Inc., No. 13-0013 (6th Cir. Jan. 6, 2014). In Comcast, the Supreme Court reversed a grant of class certification on the ground that the plaintiffs had failed to demonstrate that damages could be proven on a classwide basis because their damages model was inconsistent with their theory of liability.

Pre-Comcast, the plaintiffs in VHS filed a class action complaint alleging two theories of liability under the Sherman Act: (1) a “per se” claim that the defendant hospitals conspired to depress the wages of the plaintiff nurses, and (2) a “rule-of-reason” claim that the defendants exchanged information about nurse wages in order to reduce competition. Subsequently, the district court granted the defendants’ motion for summary judgment on the per se claim.

Post-Comcast, the defendants moved to exclude the plaintiffs’ expert witness’s testimony, which was based on the assumption that the plaintiffs could prove both of their claims, and the district court denied the defendants’ motion without considering the potential impact of Comcast on its decision. The district court later certified the class on the rule-of-reason claim, and the defendants appealed. Because the district court did not take Comcast into account in its certification decision, and because the parties failed to analyze the issue before the district court, the Sixth Circuit held that it would be premature to accept an appeal. Instead, it vacated the district court’s order and directed the court to reconsider its certification decision in light of Comcast.

Keeping Third Party Communications Protected by the Attorney-Client Privilege

by Emily Townsend | Dec 23, 2013 | Private Litigation

A recent Pennsylvania federal court decision highlights the difficulty in keeping third party communications privileged. (King Drug Co. of Florence, Inc. v. Cephalon, Inc., No. 06-CV-1797, 2013 WL 4836752 (E.D. Pa. Sept. 11, 2013)). In Cephalon, the court found third party communications privileged because the third party performed a role for Cephalon substantially identical to that of Cephalon employees. The Federal Trade Commission (FTC) had sought an order requiring Cephalon to produce documents shared with or created by its third party consultants in connection with work the consultants performed for Cephalon that Cephalon withheld or redacted based upon the attorney-client privilege.

In keeping the documents protected, the court followed other courts and adopted the broader “functional equivalent” approach to third party communications. According to the court, this approach “reflects the reality that corporations increasingly conduct their business not merely through regular employees but also through a variety of independent contractors retained for specific purposes.” Cephalon, 2013 WL 4836752, at *7. The broader “functional equivalent” analysis looks at the following factors. First, third party consultants must perform a role substantially identical to that of an employee. For example, in Cephalon, the consultants worked closely with employees by providing managerial support, strategic advice, and participating in making preservations to senior management. The consultants also had dedicated office space and were subject to confidentiality agreements. Second, the documents or communications must be kept confidential. And, third, the documents or communications must be made for the purpose of providing or obtaining legal advice.

However, not all courts agree with this broader approach. Other courts have adopted a narrower “functional equivalent” test. The main differences with the narrower approach are that consultants must be incorporated into the staff to perform a corporate function that is necessary in the content of actual or anticipated litigation, and possess information needed by attorneys in rendering legal advice. See In re Bristol-Myers Squibb Sec. Litig., No. 00-1990, 2003 WL 25962198, at *4 (D.N.J. June 25, 2003).

The varying scope of the functional equivalent test highlights that the most important factor in keeping third party communications privileged is to know your jurisdiction’s viewpoint. Other considerations include making certain that consultants are the functional equivalent of employees, and that the communications are kept confidential and created for the purpose of obtaining or providing legal advice.

Court Certifies Class in Hospital Merger Antitrust Lawsuit

by Emily Townsend | Dec 19, 2013 | Mergers & Acquisitions, Monopolization/Abuse of Dominance, Private Litigation

On December 10, 2013, Judge Edmond Chang of the Northern District of Illinois certified a class of plaintiffs who filed a proposed class action against NorthShore University Health System (formerly Evanston Northwestern Healthcare) on behalf of all end-payors who purchased inpatient and outpatient healthcare services directly from NorthShore.

In 2000, Evanston Northwestern acquired rival Highland Park Hospital. The FTC successfully challenged the consummated merger in 2004, but did not order divestiture because the hospitals had already been merged and was functioning as a single entity for several years. After the FTC’s decision, the plaintiffs brought their class action, alleging that NorthShore illegally monopolized the market and caused the plaintiffs and the putative class to pay artificially inflated prices for healthcare services.

A previously assigned judge denied the plaintiffs’ motion for class certification, holding that the plaintiffs had failed to satisfy the Rule 23(b)(3) “predominance” prerequisite to class certification – i.e., that there are questions of law or fact common to class members that predominate. Fed. R. Civ. P. 23(b). On interlocutory appeal, the Seventh Circuit held that the plaintiffs did satisfy predominance, then vacated the district court’s order and remanded.

On remand, Judge Chang held that the only remaining issue as to class certification was whether the plaintiffs had satisfied the Rule 23(b)(3) “superiority” prerequisite to class certification, i.e., that a class action must be “superior to other available methods for fairly and efficiently adjudicating the controversy.” Fed. R. Civ. P. 23(b)(3). NorthShore argued that the plaintiffs failed to satisfy the superiority prerequisite because: 1) arbitration is superior to class action litigation (with respect to the payors who NorthShore alleged are bound by arbitration provisions in the payor contracts); 2) managed care organizations have an interest in individually controlling any claim against NorthShore; and 3) class certification would be unmanageable because a trial would require “hundreds of mini-trials analyzing many individual [NorthShore contracts with payors]”. Judge Chang disagreed, finding, among other things, that the parties disagreed as to whether all of NorthShore’s contracts with payors even contained arbitration provisions. Moreover, Judge Chang noted that the payors had not yet taken a position as to whether they wanted to exercise their individual right to control the litigation, despite ample opportunity to do so. Finally, Judge Chang commented that the “Seventh Circuit credited the ability of the plaintiffs’ expert . . . to use common evidence to show that all of the class members suffered some antitrust impact,” which would eliminate the need for hundreds of mini-trials on liability. Accordingly, Judge Chang found that the plaintiffs had satisfied the superiority prerequisite and certified the class.

This is a unique case because most hospital mergers are challenged pre-consummation, where an injunction is the only remedy available to plaintiffs. In fact, this is the first private antitrust class action related to a hospital merger.

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