United States Court of Appeals
For the First Circuit
No. 07-1990
IN RE: NEW MOTOR VEHICLES
CANADIAN EXPORT ANTITRUST LITIGATION,
BARRY COHEN; SARAH EPSTEIN; PHINEAS A. ADLER,
Plaintiffs,
SURI SKORSKI; ELI ELBAZ; SEAN GREGOR AND ASSOC., CO., L.P.A.,
Plaintiffs, Appellants,
v.
GENERAL MOTORS CORPORATION; FORD MOTOR COMPANY; AMERICAN HONDA
MOTOR COMPANY INC.; DAIMLERCHRYSLER CORPORATION; DAIMLERCHRYSLER
MOTORS CO., LLC; MERCEDES-BENZ USA, LLC; GMAC LLC;
DAIMLERCHRYSLER FINANCIAL SERVICES AMERICAS LLC,
Defendants, Appellees,
NATIONAL AUTOMOBILE DEALERS ASSOCIATION; BASS FINEBURG LEASING
INC.; GENERAL MOTORS ACCEPTANCE CORP.,
Defendants.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MAINE
[Hon. D. Brock Hornby, U.S. District Judge]
Before
Lynch, Chief Judge,
Cudahy,* Senior Circuit Judge,
and Torruella, Circuit Judge.
*
Of the Seventh Circuit, sitting by designation.
Mark Schlachet for appellants.
William J. Kayatta, Jr., with whom Clifford H. Ruprecht,
Pierce Atwood LLP, James C. Egan, Jr., Kirsten A. Lockhart,
Carrie M. Anderson, and Weil Gotshal & Manges were on brief for
appellees Chrysler LLC, Chrysler Motors LLC, DaimlerChrysler
Financial Services Americas LLC, and Mercedes-Benz USA, LLC.
John H. Rich III, Perkins & Thompson, P.A., Robert A. Van
Nest, Ragesh K. Tangri, Rachael E. Meny, Daniel Purcell, and
Keker & Van Nest, LLP were on brief for appellee American Honda
Motor Co., Inc.
Margaret M. Zwisler, William R. Sherman, and Latham &
Watkins LLP were on brief for appellee Ford Motor Company.
Richard C. Godfrey, David J. Zott, Daniel E. Laytin, and
Kirkland & Ellis LLP were on brief for appellees General Motors
Corp. and GMAC LLC.
June 30, 2008
LYNCH, Chief Judge. Plaintiffs, lessees of new cars
produced by defendant manufacturers, appeal the dismissal of their
putative class action lawsuit in which they seek antitrust damages
under section 1 of the Sherman Act, 15 U.S.C. § 1, and section 4 of
the Clayton Act, 15 U.S.C. § 15. See In re New Motor Vehicles
Canadian Exp. Antitrust Litig. (Motor Vehicles II), 490 F. Supp. 2d
13 (D. Me. 2007). Plaintiffs allege that defendant manufacturers
conspired to restrict the flow of cheaper Canadian cars into the
U.S. market (when the U.S. dollar enjoyed a favorable exchange
rate), resulting in artificially high rental payments under
plaintiffs' lease agreements in the United States. Because
plaintiffs are indirect purchasers, they lack standing to sue under
section 4 of the Clayton Act and their suit was correctly dismissed
under the rule of Illinois Brick Co. v. Illinois, 431 U.S. 720
(1977), and Kansas v. UtiliCorp United, Inc., 497 U.S. 199 (1990).
I.
This case arises out of the same multi-district
litigation ("MDL") as another case recently before this court. See
In re New Motor Vehicles Canadian Exp. Antitrust Litig. (Motor
Vehicles III), 522 F.3d 6 (1st Cir. 2008), from which the
background facts can be gleaned. See id. at 9-11.
Briefly, appellants assert that Canadian and U.S. car
manufacturers conspired to prevent cheaper Canadian cars from
entering the U.S. market during a time when the U.S. dollar was
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much stronger than the Canadian dollar (roughly 2001 to 2003).
This allegedly allowed the manufacturers and their captive leasing
companies, two of which are also named as defendants, to maintain
artificially high prices for new cars in the United States.
The district court held in an earlier decision that a
putative MDL plaintiff class containing both purchasers and lessees
of new cars could not seek antitrust damages under federal law
because they were indirect purchasers under the rule of Illinois
Brick. In re New Motor Vehicles Canadian Exp. Antitrust Litig.
(Motor Vehicles I), 307 F. Supp. 2d 136, 137 (D. Me. 2004). At
that time, the district court noted that future plaintiffs could
potentially avoid the Illinois Brick bar by "join[ing] as named
defendants the dealers from whom they purchased or leased and
prov[ing] that those dealers joined in the conspiracy." Id. In
the cases now before us (which were more recently transferred from
Ohio to the district court), plaintiffs are all lessees, not
purchasers. They rely on that distinction in an attempt to
circumvent the Illinois Brick hurdle. The district court found
this effort unavailing and dismissed their claim, holding that they
were also indirect purchasers. Motor Vehicles II, 490 F. Supp. 2d
at 17.
Our review of dismissals under Rule 12(b)(6) is de novo.
Morales-Tañon v. P.R. Elec. Power Auth., 524 F.3d 15, 18 (1st Cir.
2008). We describe the Supreme Court law on indirect purchasers
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before turning to the mechanics of automobile leasing arrangements
and their implications for plaintiffs' standing to sue under the
Clayton Act. The plaintiffs rely heavily on an inapposite district
court opinion and also attempt to recharacterize what they pled in
their complaint. Both efforts fail.
II.
In Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392
U.S. 481 (1968), a manufacturer sued United Shoe, the lessor of its
manufacturing equipment, under section 4 of the Clayton Act.
United Shoe, in turn, asserted a "passing-on" defense, arguing that
Hanover Shoe would have passed some of the alleged overcharge on to
its customers and thus should not be allowed to recover the full
amount of the antitrust injury. Id. at 487-88. The Court rejected
that argument because of the impracticality of apportioning the
damages between direct purchasers (like Hanover Shoe) and any
subsequent, "indirect" purchasers (like Hanover Shoe's customers).
Id. at 492-93. The Court also articulated a concern that allowing
apportionment would dilute the incentive for any one plaintiff to
bring suit, weakening the effectiveness of private antitrust
enforcement under section 4. Id. at 494.
The Court reaffirmed this rule in Illinois Brick and
expanded it to cover plaintiffs as well: if defendants could not
rely on passing-on defenses, purchasers could not seek to recover
when their injury depended upon passing-on theories. Ill. Brick,
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431 U.S. at 735, 737. In other words, indirect purchasers cannot
recover damages under section 4 of the Clayton Act. This bright-
line rule was necessary, the Court reasoned, to prevent multiple
recoveries (by both direct and indirect purchasers) and to avoid
the complexity and difficulty of apportioning damages. Id. at 730-
32, 737. While recognizing that "these difficulties and
uncertainties will be less substantial in some contexts than in
others," the Court refused to create exceptions to the rule for
particular types of markets. Id. at 743-44.
UtiliCorp put teeth into the Court's refusal to carve out
exceptions to the Illinois Brick rule. Confronted by a situation
where plaintiffs alleged that the direct purchaser would pass all
of the illegal overcharge on to its consumers, the Court still
refused to allow the indirect purchasers to seek antitrust damages.
UtiliCorp, 497 U.S. at 208. The Court determined that assuming a
complete passing-on by the direct purchaser was inappropriate
because a direct purchaser could potentially have raised prices
irrespective of the overcharge. Id. at 209-10. The Court also
pointed out other ways in which the direct purchaser could be hurt
by the antitrust activity, such as by a delay in implementing the
price increases. See id. at 210. Further, the UtiliCorp
litigation itself demonstrated that determining when an Illinois
Brick exception is truly justified would generate the type of
complicated and costly litigation that the Illinois Brick rule was
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meant to avoid. Id. at 216-17. For this reason, the Court
concluded, "even assuming that any economic assumptions underlying
the Illinois Brick rule might be disproved in a specific case, we
think it an unwarranted and counterproductive exercise to litigate
a series of exceptions." Id. at 217.
III.
Given this bright-line rule, plaintiffs' case depends on
establishing that they are direct rather than indirect purchasers.
Plaintiffs assert vigorously that their case is almost identical to
that of In re Mercedes-Benz Antitrust Litigation, 364 F. Supp. 2d
468 (D.N.J. 2005), in which the district court declined to dismiss
a class action brought by lessees against a car manufacturer and
its dealers because the court determined that the lessees were
direct purchasers under Illinois Brick. Whether or not we would
reach the same conclusion as was reached in that case, it is easily
distinguishable. To understand why, one must understand the
mechanics of automobile leasing arrangements.
Generally in leasing arrangements, dealers buy the car
from the manufacturer, negotiate the purchase price and contract
terms directly with the lessee, and execute the lease. Id. at 472-
73. A leasing company then pays the full purchase price of the car
to the dealer in exchange for the lease, and thereafter the lessee
makes monthly payments to the leasing company. Id. at 473.
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The lessee does not deal directly with the leasing
company until after the lease is executed and the leasing company
has paid the purchase price to the dealer. Id. at 473, 481. While
leasing companies do set certain parameters for lease arrangements
depending on the brand and model of car, dealers maneuver around
the effects of those set rates by negotiating lower purchase
prices, adding options at no additional cost, or agreeing to allow
more than market value for a trade-in vehicle. Id. at 471-72.
There is thus "no substantive difference" between a negotiation for
the direct purchase of a car and the negotiation of a lease. Id.
at 474.
In Mercedes-Benz, plaintiff-lessees alleged that a car
manufacturer (Mercedes-Benz) directly conspired with its dealers in
the greater New York City area to set the price of cars sold to
customers. Id. at 469. The defendants in that case included both
the manufacturer and individual dealers. Because plaintiffs
alleged a vertical conspiracy involving both the dealers and the
manufacturers, the court concluded that the dealers' customers were
direct purchasers and had standing to sue for antitrust injuries
under the Clayton Act. Id. at 482.
The court's concern in that case was the risk of double
recovery. Because leasing companies were paying the full
(inflated) purchase price of the cars to the defendant dealers,
they, too, could be considered direct purchasers. Id. at 478. The
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Mercedes-Benz court concluded, however, that the lessees and the
leasing companies suffered distinct injuries -- higher monthly
payments for the use of the cars for lessees versus higher purchase
prices for the ownership of the cars for the leasing companies --
so that even if both sets of direct purchasers were to sue, they
would recover different damages. Id. at 480, 482; see also id. at
479 (discussing Blue Shield of Va. v. McCready, 457 U.S. 465, 475
(1982)).
There is a significant difference between Mercedes-Benz
and this case: plaintiffs here did not join dealers as defendants,
nor did they plead sufficiently or argue consistently that dealers
were part of the conspiracy. Instead, plaintiffs' complaints
describe a horizontal conspiracy among the manufacturers that
adversely affected dealers as well as the ultimate consumers.
Plaintiffs alleged in their complaints -- and repeat in their
appellate brief -- that because of the manufacturers' conspiracy,
dealers paid higher prices for their inventory. Because dealers
negotiate price and lease terms directly with lessees, any higher
prices paid by dealers to manufacturers would have trickled down
into the lease terms for plaintiff lessees; the leasing companies,
co-conspirators or not, had limited influence on the amount of the
lessees' monthly payments.1 The dealers in the case before us were
1
Thus joining a few leasing companies, even if those
lessors were alleged to be part of the conspiracy, does not solve
the problem.
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the direct purchasers; they were "the immediate buyers from the
alleged antitrust violators," not the lessees. UtiliCorp, 497 U.S.
at 207.
Before this court, plaintiffs' arguments take on
qualities reminiscent of Lewis Carroll's Through the Looking Glass.
Plaintiffs try to re-frame their allegations as one of "vertical
conspiracy," claiming that "[t]he dealers did not pay an overcharge
to manufacturers and pass it on to the consumers" and that
"[c]onsumers do not claim that they suffered damage because the
dealers passed-on any anti-competitive pricing or other overcharges
from the wholesale to the retail level." This approach contradicts
their fact-pleading.
In their complaints, plaintiffs do refer at times to
dealers as members of the conspiracy, but these references were
primarily to Canadian dealers, not to the U.S. dealers who actually
negotiated the leases. More importantly, those passing and general
allusions are contradicted and outweighed by plaintiffs' clear
allegations in the complaints that dealers also paid higher prices
due to the conspiracy. Examples from their complaints include that
the defendant manufacturers "charged their dealers in the United
States 10-30% more for their motor vehicles than they charge[d]
their Canadian dealers," and, in the very first paragraph of both
complaints, that "dealers were charged noncompetitive prices by the
Automobile Companies and passed that extra charge to [plaintiffs]."
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Plaintiffs try to distance themselves from their own
complaints by explaining that they copied the "passing-on" language
from the briefs of other MDL plaintiffs, but that explanation
carries no legal significance. What matters here is what
plaintiffs pled in their complaints, and the facts alleged in those
complaints contradict the existence of a vertical conspiracy. See,
e.g., Global NAPs, Inc. v. Fed. Ins. Co., 336 F.3d 59, 66 (1st Cir.
2003) ("[W]e cannot credit a theory of [recovery] that flatly
contradicts facts and assertions made explicit in the complaint.");
Carroll v. Xerox Corp., 294 F.3d 231, 242 (1st Cir. 2002)
(similar).2
Further, even were we to consider this argument, failure
to join the dealers in this case would risk duplicative recovery.
Any finding of a vertical conspiracy between manufacturers and
dealers in this case would not preclude the dealers from initiating
their own suit claiming that they were victims of the
manufacturers' conspiracy and seeking recovery as direct purchasers
under Illinois Brick. See P. Areeda et al., IIA Antitrust Law
¶ 346h, at 175-76 (3d ed. 2007); see also Motor Vehicles I, 307 F.
Supp. 2d at 141 & n.5.
2
Plaintiffs claim that the district court accepted by
implication their motion to amend their complaint, made without any
further elaboration in a footnote in their response to defendants'
motion to dismiss. This argument is without merit.
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In connection with their attempted recasting of their
claim as one of vertical conspiracy, plaintiffs compare their case
to other cases involving resale price maintenance theories, but to
no avail. Plaintiffs simply did not plead in their complaints that
manufacturers and dealers conspired to set the prices used in the
lease agreements between dealers and lessees. See Bell Atl. Corp.
v. Twombly, ___ U.S. ___, 127 S. Ct. 1955, 1965 (2007) (stating a
claim under section 1 of the Sherman Act, as plaintiffs attempt to
do here, "requires a complaint with enough factual matters (taken
as true) to suggest that an agreement was made"); cf. Leegin
Creative Leather Prods., Inc. v. PSKS, Inc., ___ U.S. ___, 127 S.
Ct. 2705, 2725 (2007) (refusing in a resale price maintenance case
to consider a horizontal conspiracy theory not alleged before the
lower courts).3
In trying a different tack, plaintiffs put too much
weight on the distinction drawn in Mercedes-Benz between use and
purchase. First, Mercedes-Benz is not binding authority on this
court, and we do not necessarily adopt that distinction. Second,
that distinction simply does not matter here. Both lessees and
lessors are indirect purchasers in this scenario. Whatever the
distinction between purchase and use, the cost of both is increased
3
Plaintiffs appear to confuse what they plead in their
complaints with what they argue in their briefs before this court
and the court below. As already noted, it is the fact-pleading in
the complaints that controls.
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when the dealer's invoice price is increased, and the overcharge
allegedly suffered by lessees is at least in part due to these
higher costs imposed on the dealers.4
In a final effort to salvage their complaints, plaintiffs
argue that there is no risk of double recovery here because the
statute of limitations has run, barring the dealers from filing
their own suit against the manufacturers. There are many
problematic aspects to this assertion, but it suffices here simply
to point out that plaintiffs failed to raise this argument before
the district court and thus have waived it.5 Teamsters Local No.
59 v. Superline Transp. Co., 953 F.2d 17, 21 (1st Cir. 1992)
("[L]egal theories not raised squarely in the lower court cannot be
broached for the first time on appeal.").
In sum, these complaints on their face do not allege a
scenario in which plaintiffs could be direct purchasers. See
4
Similarly, Mercedes-Benz does not suggest that there is
anything inherent about leasing arrangements that makes lessees'
alleged injuries distinct from the injuries of the dealers. For
example, plaintiffs are adamant that the dealers could not recover
duplicative damages because the dealers do not pay the overcharges
in the monthly lease payments, or because the dealers never paid
for the "use" of the cars. That, however, is equivalent to arguing
that a dealer who does not pay a purchaser's monthly car payments
has no claim for antitrust damages against the manufacturer that
overcharged the dealer for the car in the first place. These are
both indirect purchaser situations.
5
Plaintiffs did note before the district court that the
statute of limitations might have run on the dealers, but they did
not argue that its expiration had any legal significance, as they
attempt to do here.
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Morales-Tañon, 524 F.3d at 18 (to survive a Rule 12(b)(6) motion to
dismiss, a complaint must plead "more than labels and conclusions,"
and its factual allegations must be sufficient to "raise a right to
relief above the speculative level" (quoting Bell Atl., 127 S. Ct.
at 1965) (internal quotation marks omitted)).
IV.
Under the facts alleged, plaintiffs are indirect
purchasers under the rule of Illinois Brick. They have thus not
stated a claim for which relief can be granted. The order of
dismissal is affirmed.
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