Romero v. Philip Morris Inc.

IN THE SUPREME COURT OF THE STATE OF NEW MEXICO

Opinion Number: 2010-NMSC-035

Filing Date: June 25, 2010

Docket No. 31,433

BEATRICE C. ROMERO and MICHAEL FERREE,
on behalf of themselves and all others similarly situated,

Plaintiffs-Respondents,

v.

PHILIP MORRIS INCORPORATED, R.J. REYNOLDS
TOBACCO COMPANY, BROWN & WILLIAMSON TOBACCO
CORPORATION,

Defendants-Petitioners.

ORIGINAL PROCEEDING ON CERTIORARI
James A. Hall, District Judge

Montgomery & Andrews, P.A.
Sarah M. Singleton
Walter J. Melendres
Victor R. Ortega
Santa Fe, NM

Arnold & Porter, L.L.P.
Kenneth L. Chernof
Washington, DC

Boies, Schiller & Flexner, L.L.P.
David Boies
Armonk, NY

Jack G. Stern
New York, NY

Amy J. Mauser
Washington, DC

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for Petitioner Philip Morris Incorporated

Rodey, Dickason, Sloan, Akin & Robb, P.A.
Andrew G. Schultz
Albuquerque, NM

Jones Day
Edwin L. Fountain
Washington, DC

Thomas Demitrack
Cleveland, OH

for Petitioners R.J. Reynolds Tobacco Company
and Brown & Williamson Tobacco Corporation

Youtz & Valdez, P.C.
Shane C. Youtz
Albuquerque, NM

Ball & Scott Law Offices
Gordon Ball
Knoxville, TN

Cuneo Gilbert & Laduca, L.L.P.
Jonathan W. Cuneo
Daniel Cohen
Washington, DC

Hausfeld, L.L.P.
Michael D. Hausfeld
Megan E. Jones
Washington, DC

for Respondents

OPINION

CHÁVEZ, Justice.

{1} In this class action lawsuit, Plaintiffs allege that Defendants engaged in an agreement
to fix the price of cigarettes from 1993 to 2000. The district court granted summary
judgment in favor of Defendants, because although Plaintiffs offered evidence of parallel
pricing, they failed to establish a genuine issue of material fact regarding whether any

2
evidence, in addition to the parallel pricing, tended to exclude independent conduct on
Defendants’ part, as required by federal substantive law. On appeal, the Court of Appeals
rejected the federal “plus factor” approach, and instead held that Plaintiffs could prove a
conspiracy by parallel conduct alone, as long as independent conduct was an implausible
explanation. Romero v. Philip Morris, Inc., 2009-NMCA-022, ¶¶ 24, 44, 145 N.M. 658, 203
P.3d 873. The Court of Appeals also concluded that when looking at the evidence in the
light most favorable to Plaintiffs, a genuine issue of material fact existed, therefore
precluding summary judgment. Id. ¶¶ 43-44. Romero v. Philip Morris Inc., 2009-
NMCERT-002, 145 N.M. 704, 204 P.3d 29.

{2} We granted Defendants’ petition for writ of certiorari to consider two issues. First,
we consider whether the Court of Appeals applied the incorrect standard for summary
judgment. Second, we consider whether the Court of Appeals correctly applied federal
substantive law regarding alleged agreements to fix prices. Although we agree with the
summary judgment standard applied by the Court of Appeals, we hold that the Court of
Appeals did not correctly apply federal substantive law as required by NMSA 1978, Section
57-1-15 (1979). Under federal substantive antitrust law, 15 U.S.C. § 1 (2006), evidence of
parallel price increases alone is not sufficient in the context of an oligopoly to prove an
agreement to fix prices. Such evidence is always ambiguous, and therefore plaintiffs who
allege a price-fixing agreement must also provide evidence that tends to exclude the
possibility that parallel price increases were the result of independent conduct. Because
federal law limits the inferences available to a jury to those that are reasonable, plaintiffs
relying upon circumstantial evidence cannot survive summary judgment, as a matter of law,
unless the evidence tends to exclude the possibility that the alleged conspirators acted
independently. Independent conduct is also referred to in case law as “conscious
parallelism,” “tacit collusion,” or “legal independent conduct.” We therefore affirm the
district court’s grant of summary judgment and reverse the Court of Appeals.

BACKGROUND

{3} The following facts are undisputed. Plaintiffs are “[p]ersons in the State of New
Mexico . . . who purchased cigarettes indirectly from Defendants, or any parent, subsidiary
or affiliate thereof, at any time from November 1, 1993 to the date of the filing of this action
[April 10, 2000].” The original Defendants were Philip Morris, R.J. Reynolds (“RJR”),
Brown & Williamson (“B&W”), Lorillard, and Liggett. The events leading up to this
lawsuit were set in motion in response to a Philip Morris strategy beginning with an event
known as “Marlboro Friday.”1 Prior to Marlboro Friday, Philip Morris, the market leader,
had been steadily losing market share to discount and deep discount cigarettes since 1980,
when Liggett pioneered the development of generic cigarettes. See Brooke Group Ltd. v.

1
We adopt the Court of Appeals recitation of the facts of the pre-Marlboro Friday
events. See Romero v. Philip Morris, Inc., 2009-NMCA-022, ¶¶ 4-10, 145 N.M. 658, 203
P.3d 873.

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Brown & Williamson Tobacco Corp., 509 U.S. 209, 212 (1993). In an attempt to regain
market share, Philip Morris announced Marlboro Friday on April 2, 1993, “a nationwide
promotion on Marlboro that reduced prices at retail by approximately 20 percent, an average
of 40¢ per pack.” In response, RJR and B&W instituted similar promotions. As part of its
strategy, Philip Morris announced on July 20, 1993, that there would be a similar reduction
on all premium brands, discount brands, and deep discount brands starting on August 9,
1993. Defendants RJR and B&W also followed these price reductions. After these
decreases, Defendants began to increase their wholesale list prices on premium and discount
cigarettes in near lock-step fashion. Some increases were due to settlements with the 50
states, some because of increases in federal excise taxes, and others were simply planned.
Even with these increases, wholesale list prices did not exceed pre-Marlboro Friday levels
until August 3, 1998, or when adjusted for inflation, ongoing settlement costs, and federal
excise taxes, the list prices did not surpass pre-Marlboro Friday amounts until August 1999.
During the time period of the alleged agreement to fix prices, 1993 to 2000, Defendants were
engaged in competition with one another regarding promotions at the retail level, resulting
in a direct reduction of the retail prices of cigarettes.

{4} Plaintiffs filed this class action lawsuit on April 10, 2000, alleging violations of New
Mexico antitrust and consumer protection laws. See NMSA 1978, §§ 57-1-1 to -15 (1979,
as amended through 1987); NMSA 1978, §§ 57-12-1 to -22 (1967, as amended through
1999). Defendants filed motions for summary judgment. In granting the motion for
summary judgment, the district court held that Plaintiffs had met their initial burden of
showing a pattern of parallel behavior, but failed to meet their second burden of showing the
existence of plus factors that would tend to exclude the possibility that the alleged
conspirators acted independently. Plaintiffs argued that the following were plus factors that
tended to exclude Defendants’ independent conduct: (1) the economics of the marketplace;
(2) Defendants’ strong motivation to conspire; (3) the fact that Defendants condensed the
price tiers to facilitate their conspiracy; (4) Defendants acted contrary to their own self-
interests; (5) alleged conspiratorial meetings in foreign markets; (6) Defendants had engaged
in past conspiracies, such as misrepresenting the health consequences of smoking; (7)
Defendants monitored their conspiracy through monthly factory shipment data reports
prepared by Management Science Associates (“MSA”); (8) opportunities to conspire,
including inter-firm communications and meetings; and (9) pricing decisions were made by
those in high-level positions. However, the district court relied on the Eleventh Circuit case
of Williamson Oil Co. v. Philip Morris USA, 346 F.3d 1287, 1300 (11th Cir. 2003), to reject
Plaintiffs’ plus factors. The district court also held that even with the presentation of plus
factors, “there still exists the opportunity for the defendant[s] to rebut the inference of
collusion by presenting evidence establishing that no reasonable fact-finder could conclude
that they entered into a price-fixing conspiracy.” Plaintiffs appealed.

{5} On appeal, the Court of Appeals acknowledged that “Marlboro Friday and the
industry-wide price reductions that occurred afterward represented the triumph of
competition over oligopolistic price coordination.” Romero, 2009-NMCA-022, ¶ 27; see
also id. ¶ 44. Although the Court affirmed summary judgment in favor of Lorillard and

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Liggett because the evidence showed that they had merely acted “consistent with conscious
parallelism,” id. ¶ 46, the Court reversed summary judgment in favor of Philip Morris, RJR,
and B&W because “[a]pplying Brooke Group, and relying on the opinions of Plaintiffs’
expert, Dr. [Keith] Leffler, we think that a reasonable factfinder could view conscious
parallelism as a relatively implausible explanation for the anticompetitive scenario that
played out following Marlboro Friday,” Romero, 2009-NMCA-022, ¶ 44. The Court
acknowledged that New Mexico follows “federal case law interpreting Section 1 of the
Sherman Act for substantive rules defining the scope of liability under [the New Mexico
Antitrust Act] NMAA Section 1.” Id. ¶ 18. It held that “behavior of market participants
characterizable as mere conscious parallelism does not satisfy the conspiracy element
requirement of NMAA Section 1,” id. ¶ 22, and noted that federal courts have recognized
the “doctrine of conscious parallelism as a substantive principle of antitrust law,” id. ¶ 23.
The Court also noted that federal law requires plaintiffs to present evidence of “plus factors”
that tend to exclude the possibility of independent conduct. Id. ¶¶ 23-24. However, it did
not follow federal precedent regarding plus factors, but held that “the sounder approach for
a New Mexico court is to engage in an independent and rigorous evaluation of the evidence
in deciding whether or not the plaintiffs’ evidence tends to suggest a degree of coordination
that exceeds the parallelism that could be accomplished through lawful conscious
parallelism.” Id. ¶ 24 (emphasis added). In addition, the Court held that “[t]he non-
existence of conscious parallelism is not a separate element of the plaintiff’s case.” Id. ¶ 25.

If the plaintiff comes forward with evidence that would allow a reasonable
factfinder to exclude lawful conscious parallelism as the most likely
explanation for the parallelism proved by the plaintiff, then the plaintiff has
made out a prima facie case that would defeat summary judgment. At trial,
then, the burden of negating the exculpatory inference of lawful conscious
parallelism simply merges into the plaintiff’s ultimate burden of convincing
the factfinder that the parallelism proved by the plaintiff was more likely than
not the result of a conspiracy.

Id. The Court of Appeals then constructed a hypothetical situation in which the jury could
find that Defendants entered into an agreement to fix prices. Id. ¶¶ 27-30. Although
rejecting the concept of plus factors, the Court held that

[t]estimony by a qualified economics expert that the character or degree of
parallelism actually exhibited by prices exceeds the parallelism that
economic theory predicts would result from independent competitive
behavior is precisely the type of evidence that tends to exclude the possibility
that the defendants acted independently . . . [and] constitutes an extremely
forceful “plus factor” . . . .

Id. ¶ 32. The Court also held that “Dr. Leffler’s testimony is sufficient to meet Plaintiffs’
burden of production,” id., and that “conscious parallelism in a complex, multi-variable
industry is ‘improbable,’” id. ¶ 35 (citation omitted). In its conclusion, the Court of Appeals

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noted numerous ways in which the parallelism cited by Plaintiffs could not reasonably have
been the result of Defendants’ independent conduct. Id. ¶¶ 44-45.

{6} As stated previously, we granted certiorari to determine whether the Court
misapplied the summary judgment standard and whether the Court failed to follow
substantive federal antitrust law. We reverse the Court of Appeals and affirm the district
court’s grant of summary judgment.

SUMMARY JUDGMENT

{7} Defendants argue that the Court of Appeals applied the incorrect summary judgment
standard by referring to the “traditional stringent standard that a movant must meet.” Id. ¶
15. The standard, as articulated by the Court of Appeals, is to “view the facts in a light most
favorable to the party opposing summary judgment and draw all reasonable inferences in
support of a trial on the merits.” Id. ¶ 17 (internal quotation marks and citation omitted).
This was a correct statement of the standard for summary judgment in New Mexico:

Summary judgment is appropriate where there are no genuine issues of
material fact and the movant is entitled to judgment as a matter of law.
Where reasonable minds will not differ as to an issue of material fact, the
court may properly grant summary judgment. All reasonable inferences are
construed in favor of the non-moving party.

Montgomery v. Lomos Altos, Inc., 2007-NMSC-002, ¶ 16, 141 N.M. 21, 150 P.3d 971 (filed
2006) (internal quotation marks and citations omitted). “Summary judgment is reviewed on
appeal de novo.” Juneau v. Intel Corp., 2006-NMSC-002, ¶ 8, 139 N.M. 12, 127 P.3d 548
(filed 2005).

{8} New Mexico courts, unlike federal courts, view summary judgment with disfavor,
preferring a trial on the merits. Compare Handmaker v. Henney, 1999-NMSC-043, ¶ 21,
128 N.M. 328, 992 P.2d 879 (noting that “the policy in New Mexico disfavor[s] summary
judgment”), and Pharmaseal Labs., Inc. v. Goffe, 90 N.M. 753, 756, 568 P.2d 589, 592
(1977) (“Summary judgment is a drastic remedy to be used with great caution.”), with
Celotex Corp. v. Catrett, 477 U.S. 317, 327 (1986) (“Summary judgment procedure is
properly regarded not as a disfavored procedural shortcut, but rather as an integral part of
the Federal Rules as a whole . . . .”), and 11 James William Moore, Moore’s Federal
Practice § 56.03[1] (3d ed. 2007) (discussing the trend in the federal courts to use summary
judgment as a means of case management and resolution). Federal courts, on the other hand,
following the “Celotex trilogy,”2 have become more inclined to grant summary judgment and

2
Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (1986), Anderson
v. Liberty Lobby, Inc., 477 U.S. 242 (1986), and Celotex Corp. v. Catrett, 477 U.S. 317
(1986).

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“substantially increased the availability of summary judgment and encouraged greater use
of the motion by trial courts.” 11 Moore, supra § 56.03[1], at 56-23. The Celotex trilogy
favored greater use of summary judgment and “gave strong rhetorical support to summary
judgment as a means of case management and resolution.” 11 Moore, supra § 56.03[1], at
56-23; see also § 56.03[2][c], at 56-28 (noting that Matsushita abrogated “big case” and
“defendant motive and state of mind” exceptions to summary judgment and allowing
summary judgment where it traditionally had not been allowed (internal quotation marks
omitted)); § 56.03[3], at 56-30 (noting that Anderson requires the courts to consider the
substantive evidentiary burden at the summary judgment stage, thus creating a heightened
evidentiary burden for those opposing summary judgment); § 56.03[5], at 56-36 (noting that
Celotex held that movant for summary judgment could meet burden by demonstrating
absence of support for essential element of claim and not just affidavits).

{9} We continue to refuse to loosen the reins of summary judgment, as doing so would
“turn what is a summary proceeding into a full-blown paper trial on the merits.” Bartlett v.
Mirabal, 2000-NMCA-036, ¶ 32, 128 N.M. 830, 999 P.2d 1062 (internal quotation marks
and citation omitted). We do not wish to grant trial courts greater authority to grant
summary judgment than has been traditionally available in New Mexico. See id. ¶¶ 37-38.
“Permitting trial courts a license to quantify or analyze the evidence in a given case under
whatever standard may apply . . . would adversely impact our jury system and infringe on
the jury’s function as the trier of fact and the true arbiter of the credibility of witnesses.” Id.
¶ 38. By our refusal to align our state’s approach with that of the federal courts, we do not
intend to imply that summary judgment is never appropriate.

{10} In New Mexico, summary judgment may be proper when the moving party has met
its initial burden of establishing a prima facie case for summary judgment. See Roth v.
Thompson, 113 N.M. 331, 334-35, 825 P.2d 1241, 1244-45 (1992). “By a prima facie
showing is meant such evidence as is sufficient in law to raise a presumption of fact or
establish the fact in question unless rebutted.” Goodman v. Brock, 83 N.M. 789, 792-93, 498
P.2d 676, 679-80 (1972) (citations omitted). Once this prima facie showing has been made,
the burden shifts to the non-movant “to demonstrate the existence of specific evidentiary
facts which would require trial on the merits.” Roth, 113 N.M. at 335, 825 P.2d at 1245. “A
party may not simply argue that such [evidentiary] facts might exist, nor may it rest upon the
allegations of the complaint.” See Dow v. Chilili Coop. Ass’n, 105 N.M. 52, 55, 728 P.2d
462, 465 (1986). Rather, “[t]he party opposing the summary judgment motion must adduce
evidence to justify a trial on the issues.” Clough v. Adventist Health Sys., Inc., 108 N.M.
801, 803, 780 P.2d 627, 629 (1989) (citation omitted). Such evidence adduced must result
in reasonable inferences. See Montgomery, 2007-NMSC-002, ¶ 16. “An inference is not a
supposition or a conjecture, but is a logical deduction from facts proved and guess work is
not a substitute therefor.” Stambaugh v. Hayes, 44 N.M. 443, 451, 103 P.2d 640, 645 (1940)
(citation omitted). When disputed facts do not support reasonable inferences, they cannot
serve as a basis for denying summary judgment. Only when the inferences are reasonable
is summary judgment inappropriate.

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{11} In addition to requiring reasonable inferences, New Mexico law requires that the
alleged facts at issue be material to survive summary judgment. To determine which facts
are material, the court must “look to the substantive law governing the dispute,” Farmington
Police Officers Ass’n v. City of Farmington, 2006-NMCA-077, ¶ 17, 139 N.M. 750, 137
P.3d 1204. The inquiry’s focus should be on whether, under substantive law, the fact is
“necessary to give rise to a claim.” Eoff v. Forrest, 109 N.M. 695, 702, 789 P.2d 1262, 1269
(1990); see also Martin v. Franklin Capital Corp., 2008-NMCA-152, ¶ 6, 145 N.M. 179,
195 P.3d 24 (“An issue of fact is ‘material’ if the existence (or non-existence) of the fact is
of consequence under the substantive rules of law governing the parties’ dispute.”); Parker
v. E.I. Du Pont de Nemours & Co., 121 N.M. 120, 124, 909 P.2d 1, 5 (Ct. App. 1995) (“A
fact is material for the purpose of determining whether a motion for summary judgment is
meritorious if it will affect the outcome of the case.”). In this case, substantive federal
antitrust law is the filter through which we must determine whether genuine issues of
material fact exist. See § 57-1-15.

FEDERAL SUBSTANTIVE ANTITRUST LAW: PROVING THE CONSPIRACY

{12} As substantive law is the filter through which we apply summary judgment, and to
construe our law in harmony with federal law, see § 57-1-15, we must first undertake an
analysis of substantive federal antitrust law. To establish a violation of Section 1 of the
Sherman Act, a plaintiff “must be able to show: (1) concerted action, (2) by two or more
persons, (3) which unreasonably restrains interstate or foreign trade or commerce.” In re
Med. X-ray Film Antitrust Litig., 946 F. Supp. 209, 215 (E.D.N.Y. 1996); see also 15 U.S.C.
§ 1. It is important to note that Section 1 is not violated when the alleged conspirators act
independently. See Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S. 752, 761 (1984)
(“Independent action is not proscribed.”).

The essence of a Section 1 claim is the existence of an agreement.
Unilateral action simply does not support liability; there must be a unity of
purpose or a common design and understanding or a meeting of the minds in
an unlawful agreement. Concerted action is established where two or more
distinct entities have agreed to take action against the plaintiff.

Gordon v. Lewistown Hosp., 423 F.3d 184, 207 (3d Cir. 2005) (internal quotation marks and
citations omitted). Contrary to most markets, it is not always obvious whether firms in an
oligopoly have acted independently. See In re Wireless Tel. Servs. Antitrust Litig., 385 F.
Supp. 2d 403, 420 n.24 (S.D.N.Y. 2005) (defining oligopoly as “control or domination of
a market by a few large sellers, creating high prices and low output similar to those found
in a monopoly” (internal quotation marks and citation omitted)). “[F]irms in a concentrated
market might in effect share monopoly power, setting their prices at a profit-maximizing,
supracompetitive level by recognizing their shared economic interests and their
interdependence with respect to price and output decisions.” Brooke Group Ltd., 509 U.S.
at 227.

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 [A]n oligopolist’s price and output decisions will have a noticeable impact
on the market and on its rivals. . . . [For example,] in a market served by
three large companies, each firm must know that if it reduces its price and
increases its sales at the expense of its rivals, they will notice the sales loss,
identify the cause, and probably respond. . . . Because of their mutual
awareness, oligopolists’ decisions may be interdependent although arrived
at independently.

VI Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law: An Analysis of Antitrust
Principles and Their Application ¶ 1429a (2d ed. 2003). To summarize, where there are
very few sellers (firms) within a market, the actions of one seller will have a noticeable
effect on the actions taken by the other sellers. The other sellers may perform a cost-benefit
analysis and react to the actions of the leader, producing results similar to an unlawful price-
fixing agreement, but actually resulting from lawful, independent action. This “[t]acit
collusion [or independent conduct] . . . describes the process, not in itself unlawful, by which
firms in a concentrated market might in effect share monopoly power, setting their prices at
a profit-maximizing, supracompetitive level by recognizing their shared economic interests
and their interdependence with respect to price and output decisions.” Brooke Group Ltd.,
509 U.S. at 227 (emphasis added). In an oligopolistic setting, the distinction between lawful,
independent conduct and illegal conduct is most at issue when circumstantial evidence is
used to prove the existence of an agreement to fix prices.

{13} To prove a violation of Section 1 of the Sherman Act, plaintiffs can produce direct
or circumstantial evidence of an illegal agreement to fix prices. See Monsanto Co., 465 U.S.
at 764. Direct evidence of such an agreement is “explicit and requires no inferences to
establish the proposition or conclusion being asserted.” In re Baby Food Antitrust Litig., 166
F.3d 112, 118 (3d Cir. 1999). In contrast, circumstantial evidence necessarily requires that
inferences be drawn. See Williamson Oil Co., 346 F.3d at 1300 (“The problem with this
reliance on circumstantial evidence, however, is that such evidence is by its nature
ambiguous, and necessarily requires the drawing of one or more inferences in order to
substantiate claims of illegal conspiracy.”). “While direct evidence, the proverbial
‘smoking-gun,’ is generally the most compelling means by which a plaintiff can make out
his or her claim, it is also frequently difficult for antitrust plaintiffs to come by.” Rossi v.
Standard Roofing, Inc., 156 F.3d 452, 465 (3d Cir. 1998).

{14} As a result of the need to draw inferences from circumstantial evidence and the
likelihood that parallel conduct in an oligopoly stems from lawful, independent conduct,
federal courts require antitrust plaintiffs to present evidence “that tends to exclude the
possibility that the alleged conspirators acted independently.” Matsushita Elec. Indus. Co.
v. Zenith Radio Corp., 475 U.S. 574, 588 (1986) (internal quotation marks and citation
omitted); see also Monsanto Co., 465 U.S. at 763 (noting that “it is of considerable
importance that independent action by the manufacturer, and concerted action on nonprice
restrictions, be distinguished from price-fixing agreements”); Williamson Oil Co., 346 F.3d
at 1300 (holding that evidence tending to exclude independent conduct is necessary only

9
when the plaintiff relies on circumstantial evidence to prove a conspiracy). Without
requiring such a showing, pro-competitive conduct, the conduct that the antitrust laws are
designed to protect, may be deterred. See Matsushita Elec. Indus. Co., 475 U.S. at 593-94.
“[C]onduct as consistent with permissible competition as with illegal conspiracy does not,
standing alone, support an inference of antitrust conspiracy . . . [and plaintiffs] must show
that the inference of conspiracy is reasonable in light of the competing inferences of
independent action or collusive action that could not have harmed [them].” Id. at 588
(citations omitted).

{15} As a result of the limited inferences that can be drawn from circumstantial evidence
and the interdependent nature of an oligopoly, the plaintiffs must present more than evidence
of parallel pricing to prove the existence of an agreement between the defendants to fix
prices. Although “parallel business behavior is admissible circumstantial evidence from
which the fact finder may infer agreement, it falls short of conclusively establish[ing]
agreement or . . . itself constitut[ing] a Sherman Act offense.” Bell Atl. Corp. v. Twombly,
550 U.S. 544, 553 (2007) (internal quotation marks and citation omitted) (alterations in
original); see also In re Baby Food Antitrust Litig., 166 F.3d at 122 (“[N]o conspiracy should
be inferred from ambiguous evidence or from mere parallelism when defendants’ conduct
can be explained by independent business reasons.”). Evidence of parallel pricing without
more is inherently ambiguous in the oligopolistic setting because there are so many different
means, lawful and unlawful, by which parallel pricing can be achieved. See VI Areeda &
Hovenkamp, supra ¶ 1431b (discussing the numerous explanations for parallel pricing,
including “imperfect express collusion, merely interdependent behavior, and fairly
independent and non-interdependent conduct”).

{16} It is the judge’s duty to review the evidence presented by the plaintiffs and make a
threshold legal determination as to whether it tends to exclude the possibility that the
defendants acted independently. See Williamson Oil Co., 346 F.3d at 1304 (holding that the
judge does not act as fact-finder, but only makes a determination of the “reasonableness of
the inferences that c[an] be drawn from the evidence, [which are] threshold legal
determinations that appropriately [are] made by the district court”). If the evidence offered
by the plaintiff is ambiguous and can equally lead to the conclusion that the alleged conduct
was the result of independent action as opposed to illegal conduct, the plaintiff has failed to
establish a genuine issue of material fact that there was a conspiracy. See Monsanto Co., 465
U.S. at 763; Blauwkamp v. Univ. of N.M. Hosp., 114 N.M. 228, 232, 836 P.2d 1249, 1253
(Ct. App. 1992) (holding that failure to establish an essential element of plaintiff’s claim is
sufficient grounds for summary judgment); see also In re Baby Food Antitrust Litig., 166
F.3d at 118 (noting that plaintiffs must “meet [a] demanding standard of proof required in
the context of an antitrust case”); Bell Atl. Corp., 550 U.S. at 554 (recognizing “proof of a
§ 1 conspiracy must include evidence tending to exclude the possibility of independent
action”).

{17} To assist in determining which evidence would tend to exclude independent action,
federal courts have created “plus factors.” “[A]ny showing . . . that ‘tend[s] to exclude the

10
possibility of independent action’ can qualify as a ‘plus factor.’” Williamson Oil Co., 346
F.3d at 1301 (citation omitted). These “‘plus factors’ . . . remove [the plaintiff’s] evidence
from the realm of equipoise and render that evidence more probative of conspiracy than of
conscious parallelism.” Id. In determining whether evidence constitutes a plus factor, i.e.,
tends to exclude independent conduct, the court should consider the following: “[I]f a
benign explanation for the action is equally or more plausible than a collusive explanation,
the action cannot constitute a plus factor,” id. at 1310; the evidence presented by the
plaintiffs must be economically sensible or plaintiffs must “come forward with more
persuasive evidence to support their claim,” Matsushita Elec. Indus. Co., 475 U.S. at 587;
see also In re Vitamins Antitrust Litig., 320 F. Supp. 2d 1, 12 (D.D.C. 2004) (“[I]n the face
of economic factors dictating that the nonmoving party’s theory is irrational, that party must
submit evidence to establish that the theory remains practical and genuine despite economic
evidence to the contrary.”). In addition, “a showing that the defendants’ behavior would not
be reasonable or explicable (i.e. not in their legitimate economic self-interest) if they were
not conspiring to fix prices or otherwise restrain trade” also constitutes a plus factor.
Williamson Oil Co., 346 F.3d at 1301 (internal quotation marks and citation omitted). The
requirement of tending to exclude independent conduct necessarily requires that the court
view the plaintiffs’ evidence in light of the defendants’ evidence to determine whether the
plaintiffs’ evidence tends to exclude the possibility that defendants were acting
independently. See Rule 1-056(C) NMRA (stating that the judge must review “the
pleadings, depositions, answers to interrogatories and admissions on file, together with the
affidavits”); see also Clough, 108 N.M. at 804-05, 780 P.2d at 630-31 (determining that
plaintiff’s antitrust conspiracy claim should not survive summary judgment by considering
plaintiff’s evidence in light of evidence presented by defendants). The phrase “‘plus factors’
refers simply to the additional facts or factors required to be proved as a prerequisite to
finding that parallel action amounts to a conspiracy.” VI Areeda & Hovenkamp, supra ¶
1433e. Whether the courts want to call them plus factors or not, the requirement that the
plaintiffs tend to exclude independent conduct does not change.

NEW MEXICO ANTITRUST PLAINTIFFS MUST PRESENT EVIDENCE
TENDING TO EXCLUDE THE POSSIBILITY THAT DEFENDANTS ACTED
INDEPENDENTLY

{18} Plaintiffs allege that Defendants violated the New Mexico Antitrust Act, which states
that “[e]very contract, agreement, combination or conspiracy in restraint of trade or
commerce, any part of which trade or commerce is within this state, is unlawful.” Section
§ 57-1-1. To prove a cause of action under the Antitrust Act the Legislature requires that
“the Antitrust Act shall be construed in harmony with judicial interpretations of the federal
antitrust laws. This construction shall be made to achieve uniform application of the state
and federal laws prohibiting restraints of trade and monopolistic practices.” Section 57-1-15
(emphasis added). It is therefore the duty of the courts to ensure that New Mexico antitrust
law does not deviate substantially from federal interpretations of antitrust law. See State v.
Guerra, 2001-NMCA-031, ¶ 14, 130 N.M. 302, 24 P.3d 334 (“The word ‘shall’ as used in
a statute is generally construed to be mandatory.”).

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{19} Federal substantive law as it relates to oligopolies controls in this case. There is no
doubt that the tobacco industry, in which five companies manufacture more than 97% of the
cigarettes sold in the United States, is a classic oligopoly. See Williamson Oil Co., 346 F.3d
at 1291. Because the cigarette industry is an oligopoly, it is likely that when one tobacco
company (i.e., Philip Morris) acts in a certain manner (i.e., Marlboro Friday and subsequent
price increases), the other firms (RJR, B&W, Lorillard, and Liggett) will determine whether
it is in their best interest to follow the leader’s actions. As we will discuss below, when
Philip Morris began raising prices after Marlboro Friday, RJR’s and B&W’s conduct in
following subsequent price increases was just as likely due to their own independent analysis
of what was in their best interests as it was the result of an illegal price-fixing agreement.
Therefore, Plaintiffs must present evidence that tends to exclude the possibility that
Defendants acted independently or they can not meet their burden of establishing a genuine
issue of material fact. Because Plaintiffs rely on circumstantial evidence to prove the
existence of a price-fixing agreement, see Romero, 2009-NMCA-022, ¶ 20, if they have not
presented evidence that tends to exclude the possibility that Defendants acted independently,
they have not met their burden of establishing a genuine issue of material fact.

{20} Material facts are those “necessary to give rise to a claim,” Eoff, 109 N.M. at 702,
789 P.2d at 1269, and to give rise to a Section 1 claim, evidence that tends to exclude
independent action by the defendants is necessary to show that there was an unlawful
agreement. See Bell Atl. Corp., 550 U.S. at 557 (“An allegation of parallel conduct is thus
much like a naked assertion of conspiracy in a § 1 [Sherman Act] complaint: it gets the
complaint close to stating a claim, but without some further factual enhancement it stops
short of the line between possibility and plausibility of ‘entitle[ment] to relief.’”); see also
Monsanto Co., 465 U.S. at 763 (“On a claim of concerted price-fixing, the antitrust plaintiff
must present evidence sufficient to carry its burden of proving that there was such an
agreement.”). The United States Supreme Court has explicitly stated that “when allegations
of parallel conduct are set out in order to make a § 1 claim, they must be placed in a context
that raises a suggestion of a preceding agreement, not merely parallel conduct that could just
as well be independent action.” Bell Atl. Corp., 550 U.S. at 557. Without this showing, an
essential element of the conspiracy claim is absent and there can be no issue of material fact.

{21} In rejecting the plus factor approach used by the federal courts and holding that
parallel conduct can be enough to prove a conspiracy, the Court of Appeals fails to construe
the New Mexico Antitrust Act in harmony with judicial interpretations of federal antitrust
law required by Section 57-1-15. See Romero, 2009-NMCA-022, ¶ 24. This ignores the
United States Supreme Court’s holding that “[t]he inadequacy of showing parallel conduct
or interdependence, without more, mirrors the ambiguity of the behavior: consistent with
conspiracy, but just as much in line with a wide swath of rational and competitive business
strategy unilaterally prompted by common perceptions of the market,” Bell Atl. Corp., 550
U.S. at 554, and that plus factors are the tool for reviewing the evidence presented, see VI
Areeda & Hovenkamp, supra ¶ 1432a (“We conclude that the Sherman Act § 1 requirement
of a contract, combination, or conspiracy is not satisfied by uniform anticompetitive pricing
that results merely from recognized interdependence without the addition of any

12
facilitators.”). Contrary to the holding of the Court of Appeals that proof tending to exclude
independent conduct is not a separate element of Plaintiffs’ case, Romero, 2009-NMCA-022,
¶ 25, we hold that the requirement that only reasonable inferences can be drawn from
ambiguous evidence is a substantive component of federal antitrust law, and that Plaintiffs
must present evidence tending to exclude independent conduct to ensure uniform application
of federal and state laws. See § 57-1-15.

{22} In reversing the district court and holding that an agreement to fix prices can be
shown only with parallel conduct, the Court of Appeals requires a different quantum of proof
than the federal court and, as a result, fails to construe our law in harmony with federal law.
The Court of Appeals assumes that a jury could find a conspiracy, see Romero, 2009-
NMCA-022, ¶¶ 27-30, without discussing Defendants’ evidence that the in-tandem
increases, shifts in market share, and supposed behavior contrary to self-interest were just
as likely the result of independent, rational business decisions made to maximize profits,
rather than an agreement to fix prices, because any alternative other than following the price
increases was a losing option. In its hypothesis, the Court of Appeals errs in accepting
certain plus factors with no discussion of whether they actually tend to exclude independent
conduct. Id. ¶ 29 (discussing signaling and clandestine communications). Additionally, in
assuming the jury could find a conspiracy based solely on parallel behavior, the Court allows
an inference that is per se unreasonable. Id. Rather than reviewing Plaintiffs’ evidence in
light of all of the evidence presented, the Court asserts that it just upheld its “obligation to
view the evidence in the light most favorable to the non-movant and to allow the non-movant
the benefit of any reasonable inferences supported by the evidence . . . .” Id. ¶ 31. The
Court fails to use substantive federal antitrust law as the filter to first determine whether
genuine issues of material fact exist in favor of summary judgment. Instead, the Court
employs New Mexico’s summary judgment standard to overcome the strict requirements of
substantive law. This is exactly the rationale rejected in Matsushita. See 475 U.S. at 587-88
(“Respondents correctly note that ‘[o]n summary judgment the inferences to be drawn from
the underlying facts . . . must be viewed in the light most favorable to the party opposing the
motion.’ But antitrust law limits the range of permissible inferences from ambiguous
evidence in a § 1 case.” (citation omitted)).

{23} We also disagree with the Court of Appeals in Romero that both Dr. Leffler’s opinion
and Brooke Group set forth “major points of departure” from the plus factor approach
discussed in Williamson Oil. The Court noted that Dr. Leffler stated that “[t]he economic
evidence indicates that it is highly unlikely that independent competitive behavior explains
the price restructuring and price changes for cigarettes during the alleged conspiracy period.”
Id. ¶ 32 (internal quotation marks omitted). The Court also held that “Dr. Leffler’s opinion
testimony, if believed, would permit a reasonable factfinder to exclude lawful parallelism
as the most likely explanation for the parallelism demonstrated by cigarette prices during the
class period.” Id. Although the Court held that it was “not inclined to appoint [itself an]
amateur econo[mist] and attempt to second guess Dr. Leffler’s reasoning,” id. ¶ 39, it did not
give consideration to the fact that there were several ambiguities in Dr. Leffler’s opinion that
were drawn out in his deposition. While Dr. Leffler opined that the parallel price increases

13
were not the result of lawful parallelism, he also agreed that the factors he used to determine
the existence of a price-fixing conspiracy could not “tell you one way or the other whether
you have conscious parallelism or you’ve got something beyond conscious parallelism like
a price fixing agreement.” He also offered the opinion that an explicit agreement was a
violation of Section 1 of the Sherman Act as opposed to oligopolistic coordination and there
was no explicit agreement in this case. Dr. Leffler stated that rational oligopolists would act
to maximize profits, rational oligopolists would have matched the Marlboro Friday price
reduction, and RJR and B&W were most likely acting to maximize their profits by failing
to re-widen the price gap. Dr. Leffler even went so far as to acknowledge that the cigarette
industry “responded as I would have expected them to respond . . . [t]o match the price cut
and then to anticipate future price increases, to extend the oligopoly cooperation to the
discount sector.”

{24} In general, Dr. Leffler’s report concludes that following Marlboro Friday,
Defendants’ actions amounted to illegal price-fixing. However, his statements and responses
in his deposition demonstrate that he actually thought it was just as likely that Defendants
would have behaved in the same manner if they were acting independently and not under an
illegal price-fixing agreement, because to act any other way would have been less profitable
and, as such, against their economic interest.

{25} Without becoming amateur economists, the Court of Appeals could have easily
recognized inconsistencies between Dr. Leffler’s report and his deposition. Based on these
ambiguities in the evidence, it would have been necessary under substantive antitrust law to
hold that the evidence did not tend to exclude independent conduct because it was also
consistent with independent conduct. See Holiday Wholesale Grocery Co. v. Philip Morris,
Inc., 231 F. Supp. 2d 1253, 1270 (N.D. Ga. 2002) (“If, when considered in its entirety, [the
evidence] is totally ambiguous or to the opposite effect, it is not relevant and may not be
relied upon by the jury.”). By holding that such ambiguous evidence tended to exclude
independent conduct and would allow the jury to reach a reasonable inference, the Court of
Appeals failed to ensure uniform application of state and federal antitrust law.

{26} The Court of Appeals also relied heavily on several facets of the United States
Supreme Court’s analysis in Brooke Group to bolster both its reliance on Dr. Leffler’s
opinion and its conclusion that independent action was an unlikely explanation for the
parallel pricing observed during the period of the alleged agreement to fix prices. Romero,
2009-NMCA-022, ¶¶ 33-37, 40. In each instance, however, reliance on Brooke Group is
premised on a misreading of the Supreme Court’s analysis. While the Court of Appeals
correctly observed that Brooke Group recognizes the “inherent limitations” of independent
conduct and that it is an “improbable” explanation for “multivariable coordination,” that
conclusion was based on an analysis of “the net price in the market” or retail pricing, not on
list or wholesale prices, which underlie the basis of the claim in the instant case. Brooke
Group Ltd., 509 U.S. at 239. Similarly, while Brooke Group did analyze “the likelihood that
tacit collusion could result in industry-wide, in-tandem increases in the prices of both generic
and premium cigarettes,” Romero, 2009-NMCA-022, ¶ 40, it did so only in the context of

14
retail pricing.

{27} Retail pricing is influenced by so many variables that the cigarette oligopoly cannot
exert collective control over it through independent conduct. See Brooke Group Ltd., 509
U.S. at 239 (noting that retail prices are determined in part by “list prices, but also by a wide
variety of discounts and promotions to consumers and by rebates to wholesalers”). Cigarette
wholesalers, who buy direct from cigarette manufacturers at wholesale list prices, set prices
for retailers, who then set retail prices for consumers. All levels of pricing are affected by
various manufacturer discounts and promotions. Therefore, “to coordinate in an effective
manner [at the retail level] . . . the cigarette companies would have been required, without
communicating, to establish parallel practices with respect to each of these variables, many
of which, like consumer stickers or coupons, were difficult to monitor.” Id. at 239. This
complexity explains why independent conduct is an improbable means of coordinating
parallel retail pricing and why Brooke Group suggests that independent conduct should be
rejected as a likely explanation in that circumstance. Id. This conclusion, however, cannot
be logically extended to wholesale list prices, which are simply determined by the
manufacturers. Brooke Group is very clear that “it would be unreasonable to draw
conclusions about the existence of tacit coordination or supracompetitive pricing from data
that reflect only list prices,” because “in an oligopoly setting . . . price competition is most
likely to take place through less observable and less regulable means than list prices.” Id.
at 236 (emphasis added).

{28} Despite these significant distinctions between Brooke Group and the instant case, the
Court of Appeals nonetheless suggests that “Defendants’ theory of the present case seems
. . . easily as complex as the recoupment theory rejected in Brooke Group.” Romero, 2009-
NMCA-022, ¶ 36. The Court holds that only a “single-tier market” can be effectively
controlled by legal oligopolistic coordination, because a two-tier wholesale market is too
complex and has too many variables, making independent conduct an implausible
explanation for parallel pricing. Id. ¶ 40 (“The present case does not involve the type of
simple price leadership in a single-tier market that characterized the tobacco industry prior
to the introduction of generic cigarettes.”). Finding the two-tier system complex, the Court
of Appeals rejects independent conduct as a plausible explanation for the observed list
pricing. Id. ¶ 37 (“[L]awful oligopolistic coordination was incapable of containing the
competition from non-premium cigarettes.”).

{29} The point of Marlboro Friday and subsequent price reductions, however, was to
simplify the wholesale pricing scheme, collapsing the market from ten pricing tiers to two,
so there would be a less complex pricing system. Due to the interdependent nature of an
oligopoly, “oligopolistic rationality” can “provide for price increases through . . . price
leadership[]” if the other firms believe that following the pricing leader will maximize their
profits. VI Areeda & Hovenkamp, supra ¶ 1429a-b (internal quotation marks omitted)
(discussing interdependent decision-making and how the actions of one firm may result in
the independent decision of other firms to follow if doing so will maximize profits). To stem
the flow of market share into the discount sector, Philip Morris realized the need to close the

15
price gap between premium and discount cigarettes, and set about undertaking this task with
Marlboro Friday and the subsequent price reductions in the premium and discount sectors.
With the price gap closed and only two price tiers remaining, Philip Morris was able to take
advantage of the expected “oligopolistic rationality” when prices began to ascend to pre-
Marlboro Friday levels. Dr. Leffler opined that RJR and B&W were acting as rational
oligopolists by following Philip Morris in subsequent price increases to prevent further price
cuts similar to Marlboro Friday. Compliance was ensured by the looming threat of
continued revenue losses should Philip Morris institute a second Marlboro Friday.3 By
relying on “oligopolistic rationality” and having condensed the ten-tier system to two tiers,
Philip Morris used its dominant market position and the inherent interdependencies of the
cigarette oligopoly to force the other manufacturers to comply with its subsequent price
increases in both pricing tiers. These strategic moves were all part of Philip Morris’s
strategy to “box in its competitors” and advance its own competitive position.

{30} Prior to Marlboro Friday, Philip Morris attempted to box in its competitors and
reduce the discount-premium price gap by independently raising generic and discount
cigarette prices. However, this attempt failed. Romero, 2009-NMCA-022, ¶ 37. No
discount cigarette manufacturers responded because with ten pricing tiers and the large price
gap between discount and premium cigarettes, discount cigarettes could continue to grow
revenue by cannibalizing the premium cigarette market share; it was not in their interest at
that point to follow Philip Morris’s price leadership, and they had no incentive to do so.
Contrary to the Court of Appeals’s conclusion that “[t]his evidence [supports] Dr. Leffler’s
opinion that by itself, lawful oligopolistic coordination was incapable of containing the
competition from non-premium cigarettes,” Romero, 2009-NMCA-022, ¶ 37, this initial
failure to control discount list prices simply explains Philip Morris’s rationale and
motivation for both Marlboro Friday and its subsequent pricing strategy. Philip Morris
needed to simplify the pricing structure and exert its market influence before the oligopoly
would respond to its price leadership.

{31} Nothing about the cigarette oligopoly’s coordination of the wholesale two-tier market
is multi-variable or complex as described in Brooke Group. Retail pricing, not list pricing,
is multi-variable and complex and makes independent conduct an improbable explanation
for parallel pricing. See Brooke Group Ltd., 509 U.S. at 239. Therefore, simultaneous
coordinated pricing in both tiers does not, by itself, tend to exclude independent conduct due
to complexity. Rather the opposite is true. It is undisputed by Plaintiffs that Philip Morris’s
Marlboro Friday was the initiation of a highly competitive strategy. That strategy did not
end on Marlboro Friday, but persisted throughout the alleged conspiracy as Philip Morris
worked to maintain a narrow price gap between discount and premium cigarettes and worked

3
Declaration of RJR CEO: “[B]ased on Marlboro Friday, RJR believed that [Philip
Morris] would not allow a competitor to take market share away from Marlboro by cutting
prices. Thus, RJR believed, any further price reduction would be futile and would result in
lower profits.”

16
to raise prices in both tiers. With this strategy, Philip Morris maintained its newly-acquired
market share and increased its revenue, while manufacturers that depended on the discount
sector lost market share and revenue. Philip Morris sought to regain market share it had lost
to the discount sector prior to Marlboro Friday, and over a roughly six-year period, it
increased wholesale prices to regain the status quo prior to Marlboro Friday.

{32} The result of Philip Morris’s market dominance was that premium cigarettes and
discount cigarettes became subject to interdependent conduct, whereas prior to Marlboro
Friday only premium cigarettes were subject to such oligopolistic control. Plaintiffs’ expert,
Dr. Leffler, stated that Marlboro Friday “caused a restructuring in the industry and a change
in the competitive relationships.” As a result of this restructuring, oligopolistic functioning
and rationale extended to the discount sector where there had been no such functioning prior
to Marlboro Friday. Indeed, Dr. Leffler even acknowledged in his deposition that the
industry merely “extend[ed] the oligopoly cooperation to the discount sector.” As
oligopolistic control is lawful in the premium price tier, there is no rationale for arguing that
it is illegal in the discount price tier. For these reasons, the Court of Appeals’s reliance on
Brooke Group was misplaced.

{33} Thus, we must determine whether Plaintiffs’ proffered evidence of plus factors tends
to exclude the possibility that Defendants acted independently. Plaintiffs cite to the
following plus factors, in addition to parallel pricing, as tending to exclude the possibility
that Defendants acted independently: (1) the economies of the marketplace, such as a highly
concentrated market, cigarette fungibility, high barriers to entry in the industry, absence of
close substitutes, and a history of collusion; (2) a strong motivation to conspire, resulting
from the desperate times facing the cigarette industry, including “a dramatic decline in its
sales as a result of . . . increased public awareness of the detrimental health effects of
smoking”; (3) the condensation of price tiers to facilitate the conspiracy; (4) actions contrary
to self-interest, including Philip Morris’s pre-announcing its price reductions and
Defendants’ failure to attempt to re-widen the price gap by reducing discount prices; (5)
conspiratorial meetings in other markets; (6) a smoking and health conspiracy; (7) the
manner in which Defendants monitored the conspiracy through Management Science
Associates (“MSA”)4; (8) opportunities to conspire; and (9) pricing decisions made at high
levels. Although the ambiguities in Dr. Leffler’s opinion have previously been discussed,
see supra, ¶¶ 23-25, we will further review the evidence presented by Dr. Leffler, since this
is the only plus factor cited by the Court of Appeals.

{34} We reject Plaintiffs’ plus factors for reasons similar to those set forth in Williamson

4
“[MSA] provides data collection, processing, and storage services to numerous
Fortune 500 companies, including American Express, MCI, Coca-Cola, and Michelin Tires.”
“MSA Inc. shipment-to-wholesale data are aggregated, historical data on manufacturer
shipments of cigarettes to wholesalers that manufacturers provide to MSA Inc. for
processing, and do not contain any cigarette pricing information.”

17
Oil Co. because Defendants’ conduct is just as consistent with lawful, independent action
as it is with price fixing, and therefore it does not tend to exclude independent conduct. We
briefly discuss Plaintiffs’ plus factors to address why they do not tend to exclude the
possibility of independent conduct by Defendants. (1) The majority of the economies of the
marketplace to which Plaintiffs cite are nothing more than inherent characteristics of an
oligopoly and cannot tend to exclude independent action. See Holiday Wholesale Grocery
Co., 231 F. Supp. 2d at 1305. In fact, Plaintiffs’ expert agreed that these factors are
“conducive to collusion, whether it be in the form of tacit collusion [independent conduct]
or some kind of explicit agreement fixing prices,” and that “looking at [these] structural
factors alone, just like prices, does not allow you . . . to distinguish between whether the
prices in this industry are the result of price fixing conspiracy on the one hand or conscious
parallelism on the other hand.” In addition, the history of collusion cited by Plaintiffs is
based on a 1946 violation of the Sherman Act. See Am. Tobacco Co. v. United States, 328
U.S. 781 (1946). However, Plaintiffs do not explain how a case from more than fifty years
ago is indicative of a present day price-fixing agreement, especially when only one of the
current Defendants, RJR, was a defendant in the 1946 case. See Williamson Oil Co., 346
F.3d at 1317-18. (2) The motivation to conspire cited by Plaintiffs cannot serve as tending
to exclude independent conduct because “[p]rofit is a legitimate motive in pricing decisions,
and something more is required before a court can conclude that competitors conspired to
fix pricing in violation of the Sherman Act.” In re Baby Food Antitrust Litig., 166 F.3d at
134-35. (3) When Philip Morris took action to condense the price tiers, it is just as likely
that they did so to reduce the price gap and maximize profits as to facilitate a price fixing
agreement, and thus this does not tend to exclude independent conduct. (4) Plaintiffs argue
that Defendants took actions contrary to self-interest by pre-announcing price decisions and
failing to re-widen the price gap. Philip Morris argues that the June 20, 1993 pre-
announcement of a price decrease to take effect twenty days later was not a signal to the
other cigarette manufacturers, but was made to allow wholesalers and retailers to avoid an
immediate reduction in the value of their inventory and to accommodate the burden of
implementing a price reduction. See id. at 133 (holding that advance price announcements
can serve an important purpose in the industry). In addition, failure to re-widen the price gap
does not tend to exclude independent conduct. Plaintiffs’ expert testified that RJR and B&W
were acting as rational oligopolists in following Philip Morris’s price reduction, and that
RJR and B&W made rational business decisions not to re-widen the price gap because they
would not have made more money doing so. See VI Areeda &Hovenkamp, supra ¶ 1429b
(discussing that other firms in an oligopoly will follow the price leader “when they believe
that it will maximize industry profits”). (5) The alleged conspiratorial meetings in other
markets cannot serve as tending to exclude independent conduct because Plaintiffs offered
no support to connect the actions in foreign markets with the actions in the United States.
In addition, Plaintiffs’ expert testified that he knew of no such connection and price changes
in the United States were independent of those in the international market. (6) Similarly,
concluding that an alleged smoking and health conspiracy facilitated coordination of a
conspiracy in this case would require the jury to engage in speculation, and therefore it does
not tend to exclude independent conduct. See Williamson Oil Co., 346 F.3d at 1316-17;
Matsushita Elec. Indus. Co., 475 U.S. at 595. (7) The manner in which Defendants

18
monitored the conspiracy through MSA is not evidence tending to exclude independent
conduct because there is an equally rational legal explanation for this such as to “devise
competitive strategies, gauge the success of their promotions, monitor the impact of new
styles or packing on the market, and determine whether increased promotional spending was
needed in certain geographic areas to compete with competitors’ programs.” In addition, Dr.
Leffler acknowledged under oath that the information exchanged was not pricing
information. As this information is ambiguous at best, it can not be seen as tending to
exclude independent conduct. See Williamson Oil Co., 346 F.3d at 1315. (8) Plaintiffs
allege that Defendants had many opportunities to conspire because high- ranking officials
from each manufacturer met on numerous occasions. However, the fact that Defendants may
have met does not reasonably lead to the inference that they conspired to discuss price
fixing. “[M]ere contacts and communications, or the mere opportunity to conspire, among
antitrust defendants is insufficient evidence from which to infer an anticompetitive
conspiracy . . . .” Clough, 108 N.M. at 804, 780 P.2d at 630 (internal quotation marks and
citation omitted); see also Williamson Oil Co., 346 F.3d at 1319. (9) Finally, pricing
decisions made at high levels do not tend to exclude independent conduct as “[f]irms
routinely consolidate decisionmaking authority in high ranking officers for a multitude of
wholly legitimate reasons.” Williamson Oil Co., 346 F.3d at 1319. In light of the ambiguous
nature of Plaintiffs’ plus factors, we hold that they do not tend to exclude independent
conduct.

{35} We also affirm the district court’s ruling that “even after going through the plus
factors, there still exists the opportunity for the defendant to rebut the inference of collusion
by presenting evidence establishing that no reasonable fact-finder could conclude that they
entered into a price-fixing conspiracy.” Plaintiffs and the Court of Appeals erred in failing
to acknowledge any legitimate rational explanations for the actions taken by Defendants.
Plaintiffs ignore both retail competition and the effect that competition had on the “actual
‘transaction’ prices.” Defendants competed “vigorously” on retail pricing, spending a
combined total of over $25 billion. This competition led to RJR and B&W filing a lawsuit
against Philip Morris alleging violations of the Sherman Act and unfair competition for
conduct that occurred in the midst of the alleged conspiracy. See R. J. Reynolds Tobacco
Co. v. Philip Morris Inc., 199 F. Supp. 2d 362 (M.D.N.C. 2002). RJR and B&W argued that
Philip Morris “designed and executed Retail Leaders to monopolize and restrain trade in the
United States cigarette market by paying retailers for advantageous display and signage
space which Plaintiffs say restricts information needed by consumers, disrupts the
price-setting mechanism of the market, and limits Plaintiffs’ abilities to promote their
products.” Id. at 365. It would be unreasonable to infer that companies who fiercely
competed at the retail level to the extent of suing one another would at the same time agree
to fix prices.

{36} Plaintiffs also fail to explain the economic rationale for Defendants competing so
fiercely on retail promotions that would undermine any benefit they may have been receiving
from a price-fixing conspiracy at the wholesale level. See Williamson Oil Co., 346 F.3d at
1321 (“[I]f prices are fixed . . . there is no rational reason to undertake extremely significant

19
and expanding retail promotional expenditures, which are a paradigmatically competitive
activity.”). From 1994 to 1999, Philip Morris’s increased spending on retail promotions
increased by $1.651 billion, which equaled 60% of its operating income. From 1993 to
1999, RJR’s increased spending on retail promotions increased by $570 million, which was
141.6% of its operating income. B&W increased its spending on retail promotions from
1992 to 1998 by $492.5 million. This retail competition caused retail prices to vary, “even
among brands that were priced identically at list.”

{37} In addition, market shares did not remain static but shifted and resulted in clear
winners, such as Philip Morris, and clear losers, such as RJR and B&W. Philip Morris
walked away a winner by ensuring that the price gap remained at a desirable level, while
RJR and B&W, both of which had relied heavily on discount cigarettes, lost market share.
During the period of the alleged conspiracy, Philip Morris’s market share grew from 42.2%
to 50.5%; RJR’s share shrunk from 30.6% to 23.0%; and B&W’s share declined from 16.6%
to 11.7%. These shifts in market share also resulted in substantial revenue adjustments,
further highlighting the winners and losers. For example, “in 1999 alone [Philip Morris]
realized an additional $2.9 billion in revenues as a result of its cumulative increase in market
share since 1993.” In 1999, RJR was down approximately $3 billion in annual revenues
compared to 1993, and B&W lost $1.3 billion in annual revenues from 1993 to 1999.
Plaintiffs offer no evidence to explain why RJR and B&W would participate in a conspiracy
that would result in lost market share and revenue. Rather, it is more likely that RJR and
B&W acted as they did because it was the best option for them to follow out of a number of
bad options. Philip Morris argued that each price increase subsequent to Marlboro Friday
was for legitimate business reasons and independently made. Philip Morris stated that
Plaintiffs had produced no evidence to support the allegation that the pricing actions taken
were “intended to accomplish anything other than to advance [Philip Morris’s] economic
self-interest.” There is no doubt that Marlboro Friday was a competitive act. In fact,
Plaintiffs’ economic expert stated that RJR and B&W were acting to maximize their profits
in the way they reacted to Marlboro Friday and that any other options, such as attempting
to reduce the price gap, would have led to inferior profits. In other words, Defendants had
no choice but to follow the lead of Philip Morris and Plaintiffs failed to present evidence
showing otherwise.

{38} Defendants made a prima facie case supporting summary judgment by providing
evidence of fierce retail competition that undermined the plausibility of a price-fixing
agreement, demonstrating that wholesale prices remained lower than pre-Marlboro Friday
levels and did not exceed pre-Marlboro Friday levels until almost five years later, and by
highlighting the ambiguities in Dr. Leffler’s opinion. This evidence showed that Defendants
“‘had no rational economic motive to conspire, and . . . their conduct is consistent with other,
equally plausible explanations.’” Clough, 108 N.M. at 804, 780 P.2d at 630 (quoting
Matsushita Elec. Indus. Co., 475 U.S. at 596-97). In reviewing Plaintiffs’ plus factors, we
find that the district court properly granted summary judgment.

CONCLUSION

20
{39} Failing to produce evidence tending to exclude independent action, Plaintiffs have
not raised a genuine issue of material fact that there was an agreement between Defendants
to fix the prices of cigarettes. Therefore, we reverse the Court of Appeals and affirm
summary judgment in favor of all Defendants.

{40} IT IS SO ORDERED.

____________________________________
EDWARD L. CHÁVEZ, Justice

WE CONCUR:

____________________________________
CHARLES W. DANIELS, Chief Justice

____________________________________
PATRICIO M. SERNA, Justice

____________________________________
PETRA JIMENEZ MAES, Justice

____________________________________
RICHARD C. BOSSON, Justice

Topic Index for Romero v. Philip Morris, Docket No. 31,433

CM COMMERCIAL LAW
CM-AN Antitrust
CM-UP Unfair Practices Act

CO CIVIL PROCEDURE
CP-SJ Summary Judgment

EV EVIDENCE
EV-CV Circumstantial Evidence

FL FEDERAL LAW
FL-AN Antitrust

MS MISCELLANEOUS STATUTES
MS-AN Antitrust Act
MS-UP Unfair Practices Act

21