Romero v. Philip Morris, Inc.

Certiorari Granted, No. 31,433, February 27, 2009

IN THE COURT OF APPEALS OF THE STATE OF NEW MEXICO

Opinion Number: 2009-NMCA-022

Filing Date: November 18, 2008

Docket No. 26,993

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

Plaintiffs-Appellants,

v.

PHILIP MORRIS INC.;
R.J. REYNOLDS TOBACCO CO.;
BROWN & WILLIAMSON TOBACCO CORP.;
LORILLARD TOBACCO CO.;
LIGGETT GROUP, INC.; and
BROOKE GROUP, LTD.,

Defendants-Appellees.

APPEAL FROM THE DISTRICT COURT OF SANTA FE COUNTY
James A. Hall, District Judge

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

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

Law Offices of Gordon Ball
Gordon Ball
Knoxville, TN

Cohen, Milstein, Hausfeld & Toll, P.L.L.C.

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Megan Jones
Michael D. Hausfeld
Paul Gallagher
Washington, DC

for Appellants

Montgomery & Andrews, P.A.
Sarah M. Singleton
Andrew S. Montgomery
Kenneth Chernof
Santa Fe, NM

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

Wiggins, Williams & Wiggins, P.C.
Patricia G. Williams
Albuquerque, NM

Brownstein, Hyatt & Farber, P.C.
Eric R. Burris
Amy J. Diaz
Albuquerque, NM

Edwin L. Fountain
William V. O’Reilly
Thomas F. Cullen, Jr.
Washington, DC

Kirkland & Ellis, L.L.P.
Colin R. Kass
Washington, DC
Weil, Gotshal & Manges, L.L.P.
Irving Scher
New York, NY

Boies, Schiller & Flexner, L.L.P.
David Boies
Jack O. Stern
Amy J. Mauser
New York, NY

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Kirkland & Ellis, L.L.P.
Stephen R. Patton
Andrew R. McGaan
Barack S. Echols
Chicago, IL

Weil, Gotshal & Manges, L.L.P.
Holly E. Loiseau
Cleveland Lawrence III
Peter D. Isakoff
Washington, DC

Arnold & Porter, L.L.P.
James F. Speyer
Los Angeles, CA

Kasowitz, Benson, Torres & Friedman, L.L.P.
Leonard A. Fiewus
Julie R. Fischer
New York, NY

for Appellees
OPINION

ALARID, Judge.

{1} This is an appeal from the district court’s grant of summary judgment in favor of
Defendants on Plaintiffs’ claim that Defendants engaged in an unlawful conspiracy to fix the
prices of cigarettes sold in New Mexico. We affirm the summary judgment in favor of
Defendants Liggett and Lorillard; we reverse the summary judgment in favor of Defendants
Philip Morris, Brown & Williamson, and R.J. Reynolds.

BACKGROUND

{2} Plaintiffs-Appellants are a statewide class of retail customers who purchased
cigarettes manufactured by Defendants during an approximately seven-year period
commencing in 1993. Defendants-Appellees are five leading domestic manufacturers of
cigarettes: Philip Morris, Incorporated (Philip Morris), R.J. Reynolds Tobacco Company
(R.J. Reynolds), Brown & Williamson Tobacco Corporation (Brown & Williamson),
Lorillard Tobacco Company (Lorillard), and Liggett Group, Incorporated (Liggett).

{3} The American tobacco industry is a textbook example of an oligopoly: an industry
in which production is concentrated in a handful of manufacturers. See generally Brooke
Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 213-15 (1993); Walter

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Adams & James W. Brock, Tobacco: Predation and Persistent Market Power, in Market
Dominance: How Firms Gain, Hold, or Lose It and the Impact on Economic Performance
39 (David I. Rosenbaum ed. (1998)) (hereinafter Market Dominance). “[T]he cigarette
industry is one of the most concentrated industries in the United States and has been so
throughout the postwar [World War II] period.” Walter Adams & James W. Brock, The
Structure of American Industry 52 (11th ed. 2005) (hereinafter Structure of American
Industry).

{4} There were two major outbreaks of price competition within the domestic tobacco
industry during the 20th century. The first outbreak occurred during the Great Depression
of the 1930s, with the introduction of cheaply priced “ten-cent brands.” Market Dominance
at 44. “To contain this outbreak of competition, the oligopoly responded with a lethal price-
cost predation squeeze.” Id. The industry’s response was both effective in suppressing the
competition from ten-cent brands—and illegal. The United States brought criminal charges
against three of the major domestic cigarette manufacturers of the time, charging that the
defendants restrained and monopolized the cigarette industry in violation of the Sherman
Antitrust Act. Id. at 45. The three defendants were convicted by a jury, and the convictions
ultimately were upheld by the Supreme Court. Am. Tobacco Co. v. United States, 328 U.S.
781 (1946).

{5} The second major outbreak of price competition occurred in 1980, when Liggett
became the first major cigarette manufacturer to promote generic cigarettes. Liggett Group,
Inc. v. Brown & Williamson Tobacco Corp., 748 F. Supp. 344, 349 (M.D. N.C. 1990). At
one time Liggett had been one of the larger manufacturers of branded cigarettes,1 enjoying
market shares of over 20 percent; however, by 1980, Liggett’s market share had declined to
slightly over 2 percent, and Liggett was on the verge of going out of business. Id. “Out of
desperation” Liggett turned to a strategy of promoting generic cigarettes. Id. In contrast to
branded cigarettes, which have distinctive packaging, are advertised heavily, and are sold
at full price, id. n.8, Liggett’s generic cigarettes were sold in plain packages mimicking the
packaging of generic groceries, id. n.9. The principal competitive advantage of generic
cigarettes was their lower price. Brooke Group, 509 U.S. at 214. Liggett’s innovation was
a success, and by 1984, generic cigarettes accounted for about 4 percent of domestic
cigarettes, with Liggett’s generic cigarettes accounting for 97 percent of the generic segment.
Liggett Group, 748 F. Supp. at 349.

{6} Brown & Williamson, recognizing that it was losing a proportionally greater market
share to Liggett than were other manufacturers, decided to wrest leadership of the generic
segment from Liggett. Brooke Group, 509 U.S. at 214-15. Beginning in late May 1984 and
continuing until the end of 1985, Liggett found itself embroiled in a fierce price war in the

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Am. Tobacco, 328 U.S. at 794-96 (setting out market data demonstrating that Liggett,
along with American Tobacco Company and R.J. Reynolds, were the “Big Three”
tobacco manufacturers during the 1930s).

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wholesale cigarette market initiated by Brown & Williamson. Liggett Group, 748 F. Supp.
at 349-50 (describing “rebate war” between Liggett and Brown & Williamson). In addition
to vigorously competing in the marketplace, Liggett responded by suing Brown &
Williamson in federal court, alleging, inter alia, that Brown & Williamson had engaged in
unlawful predatory pricing by reducing the prices for its generic cigarettes below its average
variable costs in order to pressure Liggett to raise its list prices for generic cigarettes.
Brooke Group, 509 U.S. at 217. Liggett claimed that “[t]he resulting reduction in the list
price gap . . . would restrain the growth of the economy segment and preserve Brown &
Williamson’s supracompetitive profits on its branded cigarettes.” Id.

{7} After a lengthy trial, a jury found in Liggett’s favor and awarded Liggett $49.6
million in actual damages, which the trial court trebled, resulting in an award of nearly $150
million. Liggett Group, 748 F. Supp. at 348. Brown & Williamson filed various post-trial
motions, including a motion for judgment notwithstanding the verdict pursuant to Rule 50(b)
of the Federal Rules of Civil Procedure. Id. Liggett’s case ultimately foundered due to key
failures of proof. Liggett’s expert had assumed that there was “an alignment of interest”
among cigarette manufacturers in protecting the profits generated by premium cigarettes that
would lead Brown & Williamson’s competitors to join with Brown & Williamson in raising
the prices of generic cigarettes so as to narrow the price gap between generic and premium
cigarettes (thereby reducing the competitive advantage enjoyed by generic cigarettes and
slowing the growth of the generic segment). Id. at 357. The trial court concluded that “[n]o
substantial record evidence supports [Liggett’s expert’s] alignment of interest theory.” Id.
The trial court emphasized evidence establishing that very early in the development of
generic cigarettes, R.J. Reynolds had entered and vigorously promoted the generic segment,
that both R.J. Reynolds and Liggett had resisted Brown & Williamson’s attempt to raise the
prices of generic cigarettes, and that, by the time of trial, five of the six major manufacturers
were selling some type of generic cigarettes. Id.

{8} The trial court entered judgment in Brown & Williamson’s favor. Id. at 366. Liggett
appealed. The Court of Appeals affirmed the trial court, Liggett Group, Inc. v. Brown &
Williamson Tobacco Corp., 964 F.2d 335 (4th Cir. 1992), and the United States Supreme
Court affirmed the Court of Appeals, Brooke Group, 509 U.S. at 242. Overwhelmed by its
rivals and denied protection under federal law, Liggett lost and never recovered leadership
of the generic segment. Market Dominance at 48. During the period that the Liggett-Brown
& Williamson predatory-pricing litigation was proceeding in the federal court system, the
market share of generic and other discount cigarettes2 continued to grow. The trend favoring

2
Generic “black and white” cigarettes were supplemented by other varieties of discount
cigarettes, including branded discount cigarettes such as R.J. Reynolds’s “Doral,” and
“Value-25s” (a 25-cigarette pack sold at the same price of a conventional 20-cigarette
pack). In the late 1980s, Liggett introduced subgeneric (or deep discount) cigarettes
priced even lower than discount cigarettes. The industry often refers to discount and
deep discount cigarettes as “value for money” or “VFM” products.

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the discount segment cigarettes continued into the next decade, so that by 1993 discount and
deep discount cigarettes had captured 40 percent of the United States cigarette market.
Williamson Oil Co. v. Philip Morris USA, 346 F.3d 1287, 1292 (11th Cir. 2003). However,
rather than growing the overall market for cigarettes, the growth of the discount segment
depended upon cannibalizing sales of premium cigarettes. Brooke Group, 509 U.S. at 214.
Accordingly, the growth of the discount segment was “extremely undesirable from the
perspective of premium-intensive manufacturers like [Philip Morris] and Lorillard.”
Williamson Oil Co., 346 F.3d at 1292. In an internal document, Philip Morris estimated that
each percentage point of market share claimed by the discount segment cost the cigarette
industry $150 million per month in income. The industry faced what Philip Morris later
described as a “cycle of despair”:

Ironically, each manufacturer worked independently to create a self-
reinforcing “cycle of despair.” . . . [M]anufacturers compensated for the
income impact of weakening premium volumes and mix by raising premium
prices. These funds were reinvested to grow the Discount category to replace
the los[t] volume. In essence they were fueling the very situation they were
trying to counteract.

{9} In April 1992, Philip Morris attempted to lead an industry-wide increase in the prices
of non-premium cigarettes in an effort to reduce the price advantage that non-premium
cigarettes enjoyed over premium brands. Williamson Oil Co., 346 F.3d at 1292. Philip
Morris was forced to retract its price increases when R.J. Reynolds, Brown & Williamson,
and Lorillard did not follow suit with parallel increases. Id. An attempt by Philip Morris
to raise the price of deep discount cigarettes in March 1993 was similarly rebuffed by Philip
Morris’s rivals. Id.

{10} Having failed to reduce the price gap between discount and premium cigarettes from
the bottom up, Philip Morris settled on a dramatic alternative: reducing the price gap from
the top down by cutting the retail price of its Marlboro premium brand—the best selling
brand of cigarettes in the United States—by 40 cents per pack. Id. April 2, 1993, the day
Philip Morris announced its price cut, came to be known as “Marlboro Friday.” Id. Soon
after, Brown & Williamson, R.J. Reynolds, and Lorillard matched Philip Morris’s price
reductions. Id. “[O]n July 20, 1993, [Philip Morris] announced that its Marlboro Friday
price reduction would be made permanent and [would be] expanded to all of [Philip
Morris’s] premium brands, e.g., Parliament and Virginia Slims. Williamson Oil Co., 346
F.3d at 1293. Philip Morris also “lowered the wholesale price of its discount cigarettes and
raised the wholesale price of its deep discount brands by 10 cents per pack,” thereby
consolidating discount and deep discount cigarettes into a single price tier. Id. Philip
Morris’s rivals promptly followed Philip Morris’s lead, consolidating their own discount and
deep discount cigarettes into a single price tier. Id. Next, R.J. Reynolds announced that it
was consolidating regular length and extra long premium cigarettes into a single price tier.
Id. Philip Morris, Brown & Williamson, and Lorillard “quickly followed suit.” Id. As a
result of these maneuvers, a cigarette market that previously had included ten price tiers had

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been reduced to two. Id.

{11} On November 8, 1993, R.J. Reynolds announced an increase of 4 cents per pack for
both premium and discount cigarettes. By November 22, 1993, Philip Morris, Brown &
Williamson, and Lorillard had matched the increases. Id. at 1294. These initial in-tandem
increases in the prices of premium and discount cigarettes were followed by eleven more in-
tandem increases in the prices of discount and premium cigarettes during the class period.
Holiday Wholesale Grocery Co. v. Philip Morris, Inc., 231 F. Supp.2d 1253, 1264 (N.D. Ga
2002). During the class period, the market shares of the premium-intensive manufacturers
such as Philip Morris rose significantly; the market shares of R.J. Reynolds and Brown &
Williamson, who had focused on developing the discount market segment, declined.
Williamson Oil Co., 346 F.3d at 1295.

ANALYSIS

Summary Judgment Standards

{12} Rule 1-056(C) NMRA, states that summary judgment is appropriate where “there is
no genuine issue as to any material fact and . . . the moving party is entitled to a judgment
as a matter of law.” An issue of fact is “genuine” if the evidence before the court
considering a motion for summary judgment would allow a hypothetical fair-minded
factfinder to return a verdict favorable to the non-movant on that particular issue of fact.
Goradia v. Hahn Co., 111 N.M. 779, 782, 810 P.2d 798, 801 (1991). 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. See Farmington Police Officers
Ass’n v. City of Farmington, 2006-NMCA-077, ¶ 17, 139 N.M. 750, 137 P.3d 1204
(discussing materiality in the context of a dispute over the interpretation of a collective
bargaining agreement).

{13} In urging us to affirm the district court, Defendants emphasize the fact that Plaintiffs’
allegations of an industry-wide price-fixing conspiracy previously were the subject of an
unsuccessful lawsuit brought in the United States District Court for the Northern District of
Georgia in which the plaintiffs, wholesalers and distributors of cigarettes, sued Philip
Morris, Brown & Williamson, R.J. Reynolds, and Lorillard, alleging that the defendants had
engaged in price fixing in violation of the Sherman Antitrust Act. In that case, the trial court
granted summary judgment in the defendants’ favor on the plaintiffs’ federal price-fixing
claim, Holiday Wholesale Grocery Co., 231 F. Supp.2d at 1253, and the Eleventh Circuit
Court of Appeals affirmed, Williamson Oil Co., 346 F.3d at 1291. Defendants point out that
we have previously observed that “federal and our own state’s constructions of summary
judgment do not differ substantively.” Wolford v. Lasater, 1999-NMCA-024, ¶ 11, 126
N.M. 614, 973 P.2d 866. Without formally invoking res judicata, Defendants invite us to
rely on the reasoning of the Eleventh Circuit Court of Appeals. Plaintiffs, citing Bartlett v.
Mirabal, 2000-NMCA-036, 128 N.M. 830, 999 P.2d 1062, argue that federal courts apply
a less rigorous standard in granting summary judgment than do New Mexico courts and

7
argue that the district court erred by following the reasoning of the Eleventh Circuit Court
of Appeals, which necessarily incorporated a less rigorous federal summary judgment
standard.

{14} “Prior to 1986, the [United States] Supreme Court sent mixed messages about the
availability of the [summary judgment] motion. Consequently, most commentators viewed
[federal] courts during the 1938-1986 period as excessively reluctant to grant summary
judgment.” 11 James Wm. Moore, Moore’s Federal Practice ¶ 56.03[1] (3d ed. 2007).
There appears to be general agreement that within the federal court system the now well-
known trio of Supreme Court summary judgment opinions, Matsushita Elect. Industrial 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), “substantially increased the
availability of summary judgment and encouraged greater use of the motion by trial courts.
In addition to establishing doctrine favoring greater use of summary judgment, each case
gave strong rhetorical support to summary judgment as a means of case management and
resolution.” Moore et al., supra, ¶ 56.03[1]; see also 10A Charles Alan Wright et al.,
Federal Practice & Procedure § 2727 at 467-68 (1998).

{15} Rule 1-056(C) derives from the corresponding provision of the Federal Rules of
Civil Procedure. NMSA 1953, § 21-1-1(56)(c), Compiler’s Note (1954). Several reported
New Mexico appellate decisions have cited Anderson or Celotex. McElhannon v. Ford,
2003-NMCA-091, ¶ 7, 134 N.M. 124, 73 P.3d 827 (applying Celotex in determining the
sufficiency of the movant’s prima facie showing in support of motion for summary
judgment); Bartlett, 2000-NMCA-036, ¶¶ 41-45 (Alarid, J., specially concurring) (collecting
cases). Our Supreme Court relied on Matsushita in upholding a grant of summary judgment
in favor of an anti-trust defendant. Clough v. Adventist Health Sys., Inc., 108 N.M. 801, 804,
780 P.2d 627, 630 (1989) (citing and quoting Matsushita for the proposition that “if [the
alleged conspirators] had no rational economic motive to conspire, and if their conduct is
consistent with other, equally plausible explanations, the conduct does not give rise to an
inference of conspiracy” (internal quotation marks omitted)). However, nothing in Clough
suggests that the Supreme Court believed that it was departing from New Mexico’s
traditional summary judgment standards. We at one time expressed the opinion that “federal
and our own state’s constructions of summary judgment do not differ substantively,”
Wolford, 1999-NMCA-024, ¶ 11, but we subsequently undermined that generalization in
Bartlett by expressly rejecting Anderson’s principal holding that a court in ruling on a
defendant’s motion for summary judgment must take into account the heightened burden of
proof the plaintiff non-movant must satisfy at trial. Bartlett, 2000-NMCA-036, ¶ 39.
Although New Mexico courts have continued to assume a general correspondence (except
for the specific exception recognized in Bartlett) between federal and New Mexico summary
judgment standards subsequent to Matsushita, Anderson, and Celotex, New Mexico appellate
decisions have not relaxed the traditional stringent standard that a movant must meet in order
to satisfy a New Mexico court that a dispute as to a material fact is not genuine, e.g. Ocana
v. American Furniture Co., 2004-NMSC-018, ¶ 22, 135 N.M. 539, 91 P.3d 58, and unlike

8
their federal counterparts, New Mexico courts continue to view summary judgment with
disfavor, compare Handmaker v. Henney, 1999-NMSC-043, ¶ 21, 128 N.M. 328, 992 P.2d
879 (noting “the policy in New Mexico disfavoring summary judgment”), with Armstrong
v. City of Dallas, 997 F.2d 62, 66 (5th Cir. 1993) (observing that “[t]he once frequently
repeated characterization of summary judgment as a disfavored procedural shortcut no
longer appertains” (footnote omitted)). Thus, notwithstanding the correspondence between
the operative language of Rule 1-056(C) and Federal Rule 56(c), the ethos of New Mexico
courts is less favorable to disposing of cases through summary judgment than that of federal
courts in the period following Matsushita, Anderson and Celotex. Accordingly, we
recognize that there may be cases where a New Mexico court will allow a case to go to trial
on the same record on which a federal court would grant summary judgment.

{16} In reviewing a grant of summary judgment, “we step into the shoes of the district
court, reviewing the motion, the supporting papers, and the non-movant’s response as if we
were ruling on the motion in the first instance.” Farmington Police Officers Ass’n, 2006-
NMCA-077, ¶ 13. This standard requires us to engage in our own independent review of the
record, and we are not relieved of this responsibility merely because some other court has
granted summary judgment, or upheld a grant of summary judgment, applying analogous
substantive law to a similar record. Therefore, although we have read with considerable
interest the decisions of the federal courts in Holiday Wholesale Grocery Co. and Williamson
Oil Co., our decision in this case represents this Court’s de novo analysis of the record in this
case.

{17} The principles we apply in conducting our de novo analysis are well settled. “We
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.” Ocana, 2004-NMSC-018, ¶ 12
(quoting Rummel v. Lexington Ins. Co., 1997-NMSC-041, ¶ 18, 123 N.M. 752, 945 P.2d
970) (internal quotation marks and brackets omitted). “Judges should not make credibility
determinations or weigh circumstantial evidence at the summary judgment stage.” Juneau
v. Intel Corp., 2006-NMSC-002, ¶ 23, 139 N.M. 12, 127 P.3d 548.

Applicable Principles of Antitrust Law

{18} Section 1 of the New Mexico Antitrust Act (NMAA) provides as follows:

Every contract, agreement, combination or conspiracy in restraint of
trade or commerce, any part of which trade or commerce is within this state,
is unlawful.

NMSA 1978, § 57-1-1 (1987). As our Supreme Court has observed, this language is
patterned after Section 1 of the Sherman Antitrust Act. Smith Machinery Corp. v. Hesston,
Inc., 102 N.M 245, 249, 694 P.2d 501, 505 (1985). The close relationship between the
NMAA and the Sherman Act is reinforced by Section 15 of the NMAA, which directs us to
construe the NMAA “in harmony with judicial interpretations of the federal antitrust laws.”

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NMSA 1978, § 57-1-15 (1979). Accordingly, we draw upon federal case law interpreting
Section 1 of the Sherman Act for substantive rules defining the scope of liability under
NMAA Section 1.

{19} Section 1 of the Sherman Act provides that “[e]very contract, combination in the
form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several
States, or with foreign nations, is declared to be illegal.” 15 U.S.C. § 1 (2000). “[Section]
1 of the Sherman Act does not prohibit [all] unreasonable restraints of trade . . . but only
restraints effected by a contract, combination, or conspiracy.” Bell Atlantic Corp. v.
Twombly, __U.S.__, __, 127 S. Ct. 1955, 1964 (2007) (alteration in original; internal
quotation marks and citation omitted; emphasis added). As a leading authority on federal
antitrust law has observed, “[t]he several statutory terms for combined action are usually
treated interchangeably.” VI Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law: An
Analysis of Antitrust Principles and Their Application, ¶1400 at 1 (2d ed. 2003). In
construing Section 1 of the NMAA, we likewise will treat the several statutory terms,
“contract, agreement, combination or conspiracy,” as interchangeable; and, for the sake of
convenience, we will use the term “conspiracy” to encapsulate the concerted action among
Defendants required to establish liability under Section 1 of the Sherman Act and Section
1 of the NMAA.

{20} Defendants argue that they are entitled to summary judgment because Plaintiffs’
evidence does not create a genuine issue of fact as to the material element of a conspiracy
to fix prices. Each Defendant’s CEO denied having any knowledge of any conspiracy,
combination, or agreement among Defendants to fix prices. Although a jury would be free
to disbelieve the denials of Defendants’ officers, “[a] plaintiff cannot make his case just by
asking the jury to disbelieve the defendant’s witnesses.” In re High Fructose Corn Syrup
Antitrust Litigation, 295 F.3d 651, 655 (7th Cir. 2002). Plaintiffs have not directed our
attention to any direct evidence of a conspiracy such as testimony by a witness who was
present when representatives of Defendants discussed setting prices. Cf. City of Tuscaloosa
v. Harcros Chemicals, Inc., 158 F.3d 548, 557-59, 568 (11th Cir. 1998) (holding inculpatory
statements by an officer of alleged conspirator admissible against his employer-principal;
observing that the trier of fact could find in favor of the plaintiffs and against the employer
based on the admissions of the officer alone).

{21} The absence of eyewitness testimony or smoking-gun documents does not mean that
Plaintiffs’ case necessarily fails. Modern-day antitrust plaintiffs often find direct evidence
of a conspiracy hard to come by:

Judicial decisions that established the Sherman Act’s application to
written and spoken price-fixing arrangements altered firm behavior . . . .
[S]ection 1 drove many cartels underground by forcing participants to take
precautions to avoid detection and curtail the generation of evidence of direct
communications that might be used to establish the common course of action.
The Sherman Act gave firms an incentive to avoid formal contracts or other

10
 written instruments in favor of spoken assurances in secret meetings or covert
conversations involving industry members. Thus, for prospective cartel
participants, the Sherman Act placed a premium on avoiding the generation
of evidence (such as written records) from which a factfinder readily could
determine that an agreement existed.

William E. Kovacic, The Identification and Proof of Horizontal Agreements Under the
Antitrust Laws, 38 Antitrust Bull. 5, 17 (1993). It is well established that antitrust
conspiracies, like other conspiracies, may be proved circumstantially: “Because direct proof
of an illegal agreement is rarely available, an antitrust conspiracy may be proved through the
use of circumstantial evidence alone.” Bldg. Indus. Fund v. Local Union No. 3., Int’l Bhd.
of Elec. Workers, 992 F. Supp. 162, 181 (E.D. N.Y. 1996), aff’d on other grounds by, 141
F.3d 1151 (2d Cir. 1998) (unpublished opinion). Plaintiffs may establish their claim by
presenting circumstantial evidence from which a reasonable factfinder could infer the
existence of a conspiracy to fix prices notwithstanding Defendants’ denials and the absence
of direct evidence of a conspiracy. In re High Fructose Corn Syrup, 295 F.3d at 654-55.

{22} Inferring an antitrust conspiracy from circumstantial evidence is complicated by a
judge-made antitrust doctrine variously known as “conscious parallelism” or “tacit
collusion.” Brooks Group, 509 U.S. at 227. “Since early in the nineteenth century
economists have argued that firms in concentrated markets can increase their prices above
the competitive level without expressly communicating with one another, and certainly
without the need for anything resembling a ‘conspiracy’ or agreement among the parties.”
Herbert Hovenkamp, Federal Antitrust Policy: The Law of Competition and Its Practice §
4.2 at 157 (2d ed. 1999). “[C]ourts and commentators have debated for decades whether
parallel price changes by oligopolists who recognize their interdependence provide a
sufficient basis for a court to infer an unlawful horizontal agreement under Sherman Act §
1, and if not what additional circumstantial evidence is required to prove a conspiracy.”
Johnathan B. Baker, Two Sherman Act Section 1 Dilemmas: Parallel Pricing, the Oligopoly
Problem, and Contemporary Economic Theory, 38 Antitrust Bull. 143, 144 (1993). In a
highly influential law review article, Professor Donald F. Turner3 maintained that

oligopolists who take into account the probable reactions of competitors in
setting their basic prices, without more in the way of ‘agreement’ than is
found in ‘conscious parallelism,’ should not be held unlawful conspirators
under the Sherman Act, even though, as in American Tobacco [Co. v. United

3
“Turner, who had a Ph.D. in economics from Harvard as well as a law degree from Yale,
taught for many years at Harvard Law School and was head of the Justice Department’s
antitrust division for several years during the 1960s. He was the nation’s foremost
antitrust scholar from the mid-1950s to the late 1970s and one of the first to make
economic analysis the lodestar of his approach to antitrust law.” Richard A. Posner,
Antitrust Law 55 n.4 (2d. ed. 2001).

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 States, 328 U.S. 781 (1946)], they refrain from competing in price.

Donald F. Turner, The Definition of Agreement Under the Sherman Act: Conscious
Parallelism and Refusals to Deal, 75 Harv. L. Rev. 655, 671 (1962). Turner’s influence is
reflected in statements such as the following:

Tacit collusion, sometimes called oligopolistic price coordination or
conscious parallelism, 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, 509 U.S. at 227. “Since Matsushita, the courts have essentially settled on
Turner’s approach . . . .” William H. Page, Communication and Concerted Action, 38 Loy.
U. Chi. L.J. 405, 413 (2007). “The courts are nearly unanimous in saying that mere
interdependent parallelism does not establish the contract, combination, or conspiracy
required by Sherman Act § 1.” VI Areeda & Hovenkamp, supra, ¶ 1433a at 236. Following
the lead of federal courts as required by NMAA Section 15, we likewise hold that behavior
of market participants characterizable as mere conscious parallelism does not satisfy the
conspiracy element requirement of NMAA Section 1.

{23} The current general acceptance by federal courts of the doctrine of conscious
parallelism as a substantive principle of antitrust law has important procedural consequences
in a case in which the defendants are oligopolists. Such cases present a risk that the
factfinder—typically a jury composed of laypersons unfamiliar with prevailing economic
theory and antitrust doctrine—may erroneously attribute the presence of supracompetitive
parallelism to a conspiracy, when in fact the parallelism proved by the plaintiff is merely the
parallelism inherent in the structure of an oligopoly. Imposing antitrust liability in such
circumstances would violate substantive antitrust law creating a safe harbor for conscious
parallelism. Under federal antitrust law, a court may not allow a Sherman Act Section 1 case
to go to trial unless the court is persuaded that the evidence, viewed in the light most
favorable to the plaintiff, would allow a reasonable factfinder to rule out legitimate
conscious parallelism as the most likely explanation for the parallelism proved by the
plaintiff: “To survive a motion for summary judgment . . . a plaintiff seeking damages for
a violation of § 1 [of the Sherman Act] must present evidence ‘that tends to exclude the
possibility’ that the alleged conspirators acted independently.” Matsushita, 475 U.S. at 588
(quoting Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S. 752, 764 (1984)).

{24} Federal courts typically characterize the evidence required by Matsushita as “plus
factors.” VI Areeda & Hovenkamp, supra, ¶ 1434 at 241. Unfortunately, the federal plus
factor approach has proven to be more a complication than an analytical tool:

First, [federal] courts rarely attempt to rank plus factors according to their

12
 probative value or to specify the minimum critical mass of plus factors that
must be established to sustain an inference that the observed market behavior
resulted from concerted conduct rather than from “consciously parallel”
choices. Nor have courts generally devoted extensive effort to evaluating the
likely competitive effect of each plus factor. This condition makes
judgments about the disposition of future cases unpredictable and imparts an
impressionistic quality to judicial decision making in agreement-related
disputes. . . .

Second, the variation in judicial analysis of plus factors suggests that
the outcome in many cases depends upon the court’s unarticulated intuition
about the likely cause of observed parallel behavior. Judges appear to vary
in their acceptance of the proposition . . . that conscious parallelism does not
necessarily bespeak concerted behavior. Judges who regard pricing
uniformity as a sign of collaboration and market failure will give lip service
to [the principle that conscious parallelism does not bespeak concerted
behavior] but will expand the range and reduce the quantum of conduct that,
when added to parallel behavior, can support a finding of agreement. Thus,
some decisions go to great lengths to characterize proof as hinting of
collective activity.

On the other hand, judges who see parallelism as a desirable, natural
manifestation of rivalry implicitly will hold the plaintiff to more rigorous
standards of proof. Where these judges control the panel or court in question,
their decisions are likely to display a greater reluctance to give effect to
asserted plus factors and a greater willingness to entertain [the] defendants’
explanations about why such plus factors implicate conduct that is either
procompetitive or essentially benign.

Kovcic, supra, at 35-37 (footnotes omitted). In our view, the plus factor approach adds an
additional layer of labels without materially advancing the analysis required by Matsushita.
Rather than deferring to federal precedent accepting or rejecting a given circumstance as a
plus factor, we think 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
plaintiff’s evidence tends to suggest a degree of coordination that exceeds the parallelism
that could be accomplished through lawful conscious parallelism. See, e.g., VI Areeda &
Hovenkamp, supra, ¶ 1434c at 243-244 (critically examining commonly-cited plus factors
of “conspiratorial motivation” and “acts against self-interest”).

{25} We summarize our understanding of conscious parallelism as follows: federal courts,
drawing on economic theory, assume that some background level of supracompetitive
parallelism in prices is inherent in an oligopoly such as the tobacco industry even in the
absence of express coordination of prices. The non-existence of conscious parallelism is not
a separate element of the plaintiff’s case; rather, the doctrine of conscious parallelism merely

13
supports an alternative, exculpatory inference that may be drawn from the parallelism proved
by the plaintiff: i.e., the parallelism proved by the plaintiff is nothing more than the
parallelism resulting from lawful conscious parallelism. 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.

{26} We set out below Plaintiffs’ theory of their case as stated in their brief in opposition
to summary judgment filed in the district court:

[I]t is important to keep in mind that [P]laintiffs have not alleged a textbook
functioning collusion that eliminated all competition in the market, and they
have not alleged a simple market sharing or price fixing cartel. Rather the
alleged conspiracy concerns the actions taken by the industry to control the
competition that arose in the discount segment of the market in order to
extend the “oligopolistic coordination” of the premium segment to the
discount segments. This could only be done on an industry-wide basis and it
required a major restructuring in the established ways of pricing product.

{27} Consistent with our obligation to view the record in the light most favorable to
Plaintiffs’ theory of their case, we conclude that a factfinder could reason as follows:
Marlboro Friday and the industry-wide price reductions that occurred afterward represented
the triumph of competition over oligopolistic price coordination. As the result of
competitive pressure from the discount segment, the list prices of premium cigarettes
substantially declined for the first time in decades. Oligopolistic coordination, which
previously had allowed Defendants to increase prices irrespective of the rate of inflation,
changes in the costs of production, or shifts in consumer demand, had broken down under
the pressure of competition.

{28} Defendants were desperate to regain the enormous profits previously generated by
premium cigarettes sold at the highly supracompetive prices in effect prior to Marlboro
Friday. Philip Morris, the instigator of Marlboro Friday, was itself experiencing a staggering
reduction in operating income as a consequence of the post-Marlboro Friday depression in
the prices of premium cigarettes. However, no Defendant could raise the prices of its
premium cigarettes without losing market share unless the remaining Defendants, including
Philip Morris, joined in the increase. Philip Morris could not be expected to raise prices of
its premium cigarettes unless it could do so without losing further market share to non-
premium cigarettes.

{29} Relying on oligopolistic coordination to restore market stability and supracompetive
profits would have required Defendants to accept an indeterminate period of depressed

14
profits. Moreover, because Defendants had divergent interests and because Defendants had
limited information about each other’s intentions, it would not have been clear to Defendants
that lawful oligopolistic coordination would promptly lead to a global solution acceptable
to the major manufacturers. Marlboro Friday was itself a demonstration of how badly the
oligopolistic coordination that had characterized the industry prior to the introduction of
generics had failed in containing the generic segment. Defendants began exchanging signals,
possibly supplemented by clandestine communications, knowing and intending that these
signals and communications would shape the market, resulting in conditions that would
allow prices to immediately begin rising back to pre-Marlboro Friday levels: Philip Morris
would relax its stranglehold on the prices of premium cigarettes and allow prices to
gradually return to pre-Marlboro Friday supracompetitive levels; and, in return, each of the
remaining Defendants—most crucially Brown & Williamson and R.J. Reynolds—would
significantly reduce the competition from generic cigarettes, which would reverse the
cannibalization of the premium cigarette segment. Defendants settled upon the following
method to carry out their anticompetitive scheme: each increase in the prices of premium
cigarettes would be matched by a corresponding increase in the prices of discount cigarettes;
increases would be spread out over several years to minimize consumer resistance;4 as prices
of discount and premium cigarettes serially rose in tandem, discount cigarettes’ sole
competitive advantage—proportionally lower prices—gradually would be reduced;5 and as
discount cigarettes gradually lost their competitive advantage, the cannibalization of the
premium segment would be reversed.

{30} The terms of this hypothetical agreement were not necessarily the product of free
assent and did not necessarily impose equal burdens on the conspirators. Philip Morris, as
the largest and economically most powerful manufacturer, insisted on terms that favored
manufacturers with a large presence in the premium segment, such as Philip Morris itself,
who would regain market share primarily at the expense of manufacturers heavily invested
in the discount segment. Even so, this hypothetical agreement would not have been a lose-
lose proposition from the standpoint of any conspirator. First, a conspiracy allowed

4
Our understanding of Plaintiffs’ theory of the case does not necessarily require that each
subsequent increase have been expressly coordinated by the conspirators. Once an
agreement to raise prices of discount and premium cigarettes in tandem was in place, the
decision to implement subsequent increases could be left to traditional price leadership.
5
Assume, by way of example, that discount cigarettes sell at retail for $1.00 per pack and
that premium cigarettes sell for $2.00 per pack. At this point, a pack of discount
cigarettes has a two to one price advantage over a pack of premiums. Assume that the
industry adopts a $.50 increase in the price of each type of cigarette and that discount
cigarettes now sell at retail for $1.50 per pack and that premium cigarettes sell for $2.50
per pack. The absolute price difference between discount and premium cigarettes
remains $1.00, but the proportional price advantage of discount cigarettes has been
reduced.

15
immediate relief from the depression in the prices of premium cigarettes. Second, because
a conspiracy would result in higher prices for discount cigarettes, not just premium
cigarettes, losses in the discount market segment would be offset by higher profits per pack
on both discount and premium cigarettes.6 The alleged conspiracy was in place by
November 1993, when the first in-tandem increase in the prices of premium and discount
cigarettes occurred.

{31} Bearing in mind our 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, we conclude that Plaintiffs’ theory of their case is economically
plausible. It accounts for the in-tandem increases in the prices of generic and premium
cigarettes beginning in November 1993, as well as the shifts in market share that occurred
as the competitive advantage enjoyed by discount cigarettes eroded over time. It explains
why those Defendants who were heavily invested in the discount market segment acted
against their apparent interest in agreeing to a scheme that reduced their respective market
shares. Further, it does not depend on a showing that there was no competition at all within
the cigarette industry.7

{32} We next consider whether Plaintiffs have come forward with evidence that would
permit a reasonable factfinder to rule out conscious parallelism as the most likely
explanation for the parallelism exhibited by the tobacco industry subsequent to Marlboro
Friday. As previously noted, the judicial doctrine of conscious parallelism is grounded in
economic theory about the functioning of concentrated markets. Testimony 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 in our view, it constitutes an extremely forceful
“plus factor” because, as evidence derived from economics, it directly engages the
assumptions on which the judicial doctrine of conscious parallelism depends. In the present
case, Plaintiffs’ expert, Keith Leffler, Ph.D., stated in his opinion 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.”
Dr. Leffler’s opinion is backed up by his detailed analysis of the cigarette industry. 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. We hold that Dr. Leffler’s testimony is sufficient

6
Because the conspiracy contemplated supracompetitive profits from both premium and
generic cigarettes, pre-Marlboro Friday profits would be realized even before the prices
of premium cigarettes reached pre-Marlboro Friday levels.
7
In other words, the competition that occurred in the course of the conspiracy was among
products all of which were priced supracompetitively as a consequence of the conspiracy.

16
to meet Plaintiffs’ burden of production under Matsushita.

{33} Furthermore, Dr. Leffler’s conclusion is supported by existing Supreme Court
precedent. Although the United States Supreme Court appears to have accepted conscious
parallelism as a plausible explanation for the simple parallelism in prices demonstrated by
premium cigarettes in the post-World War II era prior to the introduction of discount
cigarettes, Brooke Group, 509 U.S. at 213 (implying that the Court did not view lockstep,
twice-yearly increases in prices of premium cigarettes in the decades prior to the
introduction of generic cigarettes as the product of unlawful price fixing), the Supreme Court
clearly was much less willing to accept conscious parallelism as a plausible explanation for
more complex, “multi-variable,” parallel pricing scenarios, id. at 239 (observing that “the
inherent limitations of tacit collusion suggest that such multi-variable coordination is
improbable”).

{34} In Brooke Group, Liggett did not allege a conspiracy, as Plaintiffs have done in the
present case. Rather, Liggett alleged that Brown & Williamson had “cut prices on generic
cigarettes below cost and offered discriminatory volume rebates to wholesalers to force
Liggett to raise its own generic cigarette prices and introduce oligopoly pricing in the
economy [cigarette] segment” Id. at 212. In order to prove its theory, Liggett had to
demonstrate that there was a likelihood that the predatory scheme would result in Brown &
Williamson’s being able to recoup the losses it incurred in implementing the scheme. Id. at
225. Liggett theorized that Brown & Williamson sought to recoup by preserving
supracompetitive profits on premium cigarettes by way of conscious parallelism. Id. at 227.
In other words, Brown & Williamson relied on the idea that all cigarette manufacturers
would independently decide to follow Brown & Williamson’s lead in pricing and that the
ultimate result would be preservation of supracompetitive pricing.

{35} The Supreme Court concluded that such conscious parallelism would have been
“unmanageable” in light of the large number of cigarette types and pricing variables that
existed in the industry at the time. Id. at 238-39.

The Court expressed great skepticism about [Liggett’s] claim of a
complex chain of causes and effects under which [Brown & Williamson]
would first enter the market with its generic in competition with Liggett at
the same list prices but with large rebates, thereby realizing net prices below
its costs; Liggett would offer similar rebates, suffer serious losses, and yield
to this predation by raising its list prices; thereafter, all firms producing
generics would reach tacit consensus on price; the price gap between
branded cigarettes and generics would then decrease, and both would
stabilize at oligopoly levels.

III Areeda & Hovenkamp, supra, ¶ 726 at 316 (emphasis added). As Brooke Group
demonstrates, there are limits to the Supreme Court’s willingness to accept conscious
parallelism as a plausible explanation for complex types of parallelism. Although conscious

17
parallelism in Brooke Group was part of the plaintiff’s theory in that case, while it is
Defendants’ primary defense theory in the present case, the Supreme Court’s analysis is
equally applicable in both cases: conscious parallelism in a complex, multi-variable industry
is “improbable.” 509 U.S. at 239.

{36} Defendants’ theory of the present case seems to us to be easily as complex as the
recoupment theory rejected in Brooke Group. The lesson we draw from Brooke Group is
that the exculpatory inference arising from the doctrine of conscious parallelism becomes
weaker as the chain of causes and effects it is offered to explain becomes more complex and
as the economic interests of the participants in the market diverge. Id. at 239-40. Indeed,
Defendants’ reliance on conscious parallelism to explain the extraordinary parallelism
exhibited by the cigarette prices following Marlboro Friday is reminiscent of the “alignment
of interest” theory, Liggett Group, 748 F. Supp. at 357, unsuccessfully advanced by Liggett
in Liggett Group and Brooke Group.

{37} Further, we have the benefit of several years of history subsequent to the events
recounted in Brooke Group. As noted in Brooke Group, during the latter half of the 1980s,
list prices of generics began to mimic the lockstep, twice-a-year price increases of premium
cigarettes, 509 U.S. at 218, a pattern suggesting that the price competition from generic
cigarettes had been co-opted by oligopolistic price coordination. However, Liggett once
again stepped into the competitive breach, this time introducing “subgeneric”(also called
“deep discount”) cigarettes, priced even lower than generic cigarettes. Id. at 236. Deep
discount cigarettes provided an important competitive check on the prices of premium
cigarettes. Most notably, a decrease in the wholesale prices of deep discount cigarettes in
February to June 1992 was followed by a corresponding decrease in the wholesale prices of
discount cigarettes beginning in June 1992. Structure of American Industry, Fig. 3-6 at 59.
The decrease in the prices of discount cigarettes broke the previously established pattern of
in-tandem increases in the prices of discount and premium cigarettes, reopening the price
gap between discount and premium cigarettes. Id. Competition—this time in the form of
deep discount cigarettes—trumped oligopolistic price coordination. Further, when Philip
Morris attempted to lead increases in the prices of discount cigarettes in 1992 and 1993,
Brown & Williamson and R.J. Reynolds did not follow its lead and Philip Morris was forced
to retract each of the increases. Id. This evidence reinforces Dr. Leffler’s opinion that by
itself, lawful oligopolistic coordination was incapable of containing the competition from
non-premium cigarettes.

{38} Although we are not bound by the Eleventh Circuit Court of Appeals’ decision, we
believe that it will be helpful to the parties, and to the readers of this opinion, if we explain
some of the major points of departure between our reasoning and that of the federal courts
in Holiday Wholesale Grocery Co. and Williamson Oil Co.

{39} First, and most significantly, we have Dr. Leffler’s opinion. Dr. Leffler’s report was
not in the record before the federal courts. We are not inclined to appoint ourselves amateur
economists and attempt to second guess Dr. Leffler’s reasoning, nor are we inclined to

18
engage in a sua sponte evaluation of the admissibility under Rule 11-702 NMRA of Dr.
Leffler’s opinions.8 See Chavez v. Ronquillo, 94 N.M. 442, 445, 612 P.2d 234, 237 (Ct. App.
1980) (observing that party objecting to trial court’s consideration of evidence in ruling on
motion for summary judgment bears the burden of moving to exclude such evidence; in the
absence of an objection, the trial court may consider such evidence in ruling on a summary
judgment motion).

{40} Second, our reading of Brooke Group indicates to us that we should be cautious in
accepting conscious parallelism as an explanation for complex, multi-variable, multi-price-
tier parallelism. The federal courts in Holiday Wholesale Grocery Co. and Williamson Oil
Co. may have fallen into the error of giving the Supreme Court’s dicta—i.e., “[t]acit
collusion . . . describes the process, not in itself unlawful”—which comes handily packaged
in quotable form, more consideration than the Supreme Court’s actual analysis of the
likelihood that tacit collusion could result in industry-wide, in-tandem increases in the prices
of both generic and premium cigarettes. Brooke Group, 509 U.S. at 227. 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.

{41} Third, we have some concern that the Eleventh Circuit Court of Appeals
misinterpreted Matsushita so as to place an undue burden on antitrust plaintiffs alleging
horizontal price fixing. Williamson Oil Co., 346 F.3d at 1300. When the Supreme Court in
Matsushita referred to the costs of “mistaken inferences” that “chill the very conduct the
antitrust laws are designed to protect,” 475 U.S. at 594, it was speaking in the specific
context of allegations of predatory pricing, which requires the factfinder to find an
anticompetitive conspiracy in the face of evidence that the defendants set prices below a
competitive level. A mistaken inference of conspiracy in such a case punishes the
defendants for engaging in cut-to-the-bone competition—truly the very type of behavior that
antitrust laws are designed to protect. See In re Flat Glass Antitrust Litigation, 385 F.3d
350, 357 (3d Cir. 2004) (distinguishing Matsushita). The conduct at issue in the present
case— supracompetitive pricing—is conduct that at best is tolerated by antitrust law.
“[W]hile predatory pricing threats like the one in Matsushita always risk chilling
procompetitive behavior, no comparable policy reasons justif[y] reluctance about going after
a naked price fixing conspiracy,” such as the conspiracy alleged in the present case. II
Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law: An Analysis of Antitrust Principles
and Their Application ¶ 308 at 147 (3d ed. 2006). We therefore have the same concern—no
more, no less—that we have for any other class of defendants in protecting Defendants from
mistaken inferences of culpable conduct.

{42} Moreover, the predatory pricing claim in Matsushita was economically implausible
on its face: “Matsushita spoke in the context of an alleged highly implausible decades-long

8
Indeed, at this point it is not entirely clear whether Dr. Leffler’s opinions are being
offered as scientific or as non-scientific expert opinion evidence.

19
predatory pricing conspiracy and found a severe proof requirement in such cases.” II Areeda
& Hovenkamp, supra, ¶ 308c3 at 137-38. Where a claim is plausible and does not implicate
facially procompetitive behavior, “more liberal inferences from the evidence should be
permitted than in Matsushita because the attendant dangers from drawing inferences
recognized in Matsushita are not present.” In re Flat Glass Antitrust Litigation, 385 F.3d
at 358 (quoting Petruzzi’s IGA v. Darling-Delaware Co., 998 F.2d 1224 (3d Cir. 1993)
(internal quotation marks omitted). “[I]n a case in which conspiracy is deemed quite
plausible, perhaps by virtue of the industry’s structure and past attempts at collusion, then
a broader range of inferences can be drawn from ambiguous evidence.” II Areeda &
Hovenkamp, supra, 308c3 at 139. In the present case, the alleged conspiracy among
Defendants is plausible, especially given the improbability that the pricing that occurred was
the result of conscious parallelism. See Brooke Group, 509 U.S. at 239 (observing that “the
inherent limitations of tacit collusion suggest that such multivariable coordination is
improbable”).

{43} Lastly, consistent with New Mexico summary judgment standards, we have taken
seriously our obligation to construe the record in the light most favorable to Plaintiffs and
to allow Plaintiffs the benefit of any reasonable inferences. Thus, for example, we have
recognized that certain Defendants may have been reluctant participants, joining in the
conspiracy because they lacked the financial resources to resist Philip Morris. See VI Areeda
& Hovenkamp (2d ed. 2003), supra, ¶ 1408c at 46-47 (concluding that a competitor who
reluctantly participates in a cartel under economic duress may be held liable as a
conspirator). Similarly, we have viewed changes in market share during the class period as
consistent with a conspiracy in which Philip Morris, as the most powerful conspirator,
insisted on terms favorable to manufacturers of premium brands such as Philip Morris itself.
We have been mindful of Plaintiffs’ theory of their case, which does not involve an
allegation that Defendants conspired to eliminate all competition; rather, Defendants were
willing to compete as long as they were competing over supracompetitive profits.

CONCLUSION

{44} To summarize, Plaintiffs have come forward with evidence that during the class
period the tobacco industry exhibited an unprecedented degree of parallelism, beginning
with the July 1993 consolidation of what had previously been ten price tiers into two price
tiers, and continuing through twelve in-tandem increases in the prices of both premium and
discount cigarettes. This multi-variable, multi-price-tier parallelism goes well beyond the
price leadership within a single-tier market demonstrated by the cigarette industry prior to
the introduction of generic cigarettes. Further, the parallelism in the present case involves
parallelism among market tiers which formerly had been in vigorous competition, resulting
in a significant differential between the list prices of the cheapest cigarettes and the most
expensive cigarettes. Attempts by Philip Morris in 1992 and 1993 to lead increases in the
prices of non-premium cigarettes failed. The spectacular growth curve of the non-premium
segment suggests that the demand among consumers for competitively priced cigarettes had
not peaked as of Marlboro Friday. Indeed, as previously noted, Marlboro Friday represents

20
the triumph of competition over oligopolistic price coordination, suggesting that as of
Marlboro Friday, competition was thriving within the tobacco industry. Applying Brooke
Group, and relying on the opinions of Dr. 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.

{45} We certainly do not mean to suggest that Plaintiffs’ evidence requires a reasonable
factfinder to accept unlawful concerted action as the most likely explanation for the
parallelism demonstrated by cigarette prices: a reasonable factfinder might reject Dr.
Leffler’s opinions or accept as truthful the testimony of Defendants’ CEOs denying
participation in a conspiracy. We hold merely that Plaintiffs’ evidence allows a reasonable
factfinder to reject conscious parallelism as a plausible explanation, thereby leaving the
competing inference of conspiracy as the most likely explanation for the parallelism proven
by Plaintiffs.

Lorillard & Liggett

{46} In its answer brief, Lorillard points out that Plaintiffs’ expert, Dr. Leffler, testified
during his deposition that he was unaware of any conduct by Lorillard during the class
period that was not “completely consistent with conscious parallelism.” In their reply brief,
Plaintiffs have not addressed this crucial point. Plaintiffs’ case against Liggett suffers from
the same deficiency as their case against Lorillard: Dr. Leffler testified that he is unaware
of any conduct by Liggett that is not either procompetitive or consistent with conscious
parallelism. In view of Dr. Leffler’s concessions, we conclude that Plaintiffs have not
satisfied their burden under Matsushita of coming forward with evidence that would allow
a reasonable juror to exclude lawful conscious parallelism as the most likely explanation for
Lorillard’s and Liggett’s adoption of parallel price increases. Accordingly, we affirm the
grant of summary judgment as to these two Defendants. We reverse the summary judgment
in favor of Defendants Philip Morris, Brown & Williamson, and R.J. Reynolds.

{47} IT IS SO ORDERED.

A. JOSEPH ALARID, Judge

WE CONCUR:

CYNTHIA A. FRY, Judge

RODERICK T. KENNEDY, Judge

21
Topic Index for Romero v. Philip Morris, Inc., No. 26,993

AE Appeal and Error
AE-SR Standard of Review

CM Commercial Law
CM-AN Antitrust

FL Federal Law
FL-PR Procedure

22