No “Sham,” No Foul: Mattress Companies’ Agency Petitions Immune From Antitrust Liability, Finds District Of Utah
06/02/2022On May 23, 2022, Judge David Barlow of the District of Utah dismissed claims against a group of mattress manufacturers who had filed antidumping petitions with federal regulators. CVB, Inc. v. Corsicana Mattress Company, et al., No. 1:20-cv-00144 (D. Utah 2022). Plaintiff alleged that defendants engaged in anticompetitive conduct including price fixing and interference with plaintiff’s business relationships in violation of the Sherman Act and the Utah Antitrust Act, in addition to Lanham Act and state common law claims. The Court dismissed all claims, and in particular dismissed with prejudice those claims relating to defendants’ antidumping petitions, which it found protected under the Noerr-Pennington doctrine.
Defendants are U.S.-based mattress manufacturers who filed two antidumping petitions before the Department of Commerce and the U.S. International Trade Commission. These petitions alleged that imported foreign mattresses were being “dumped” in the United States—that is, sold, or likely to be sold, at less than fair market value, thereby harming the domestic mattress market.
The Court first addressed Noerr immunity, which protects a party’s legitimate First Amendment activities in petitioning the government from antitrust liability. A carveout from Noerr immunity is the “sham petition,” which is determined by a two-step test: (1) whether the petitioning activity is “objectively baseless” such that “no reasonable litigant” could expect success; and (2) whether the petition conceals “an attempt to interfere directly with the business relationships of a competitor” using the petitioning “process . . . as an anticompetitive weapon.” Id. at 6.
Under Supreme Court precedent, a successful petition is by definition not a sham petition. Here, plaintiff’s complaint alleged that defendants’ petitions were successful; both government agencies accepted defendants’ claims, finding at the preliminary and final determination stages that imported mattresses were sold at less than fair market value. The Court rejected plaintiff’s argument that agencies must accept every proposition in the petitions to pass the “sham petition” test and for Noerr immunity to apply. Id. at 9. Separately, plaintiff argued that no immunity should apply to defendants because the agency determinations were based on defendants’ fraudulent misrepresentations. Given the “complexity and thorough nature” of the agencies’ investigations, id. at 8, the Court found this argument implausible and also noted that the proper venue for redress would be reconsideration from the government agencies, not courts.
Nonetheless, the Court acknowledged that several other circuits and the FTC have discussed this kind of “fraud exception” to Noerr immunity, even if it has been rarely applied. Id. at 12-14. In entertaining the concept of a narrowly construed fraud exception for this circuit, the Court determined that “a plaintiff essentially would need to plead something like the following: (1) knowingly false statements or fraudulent conduct; (2) that changed the outcome of the proceedings.” Id. at 16. In pleading such, plaintiff must meet the heightened pleading standard for fraud rather than the plausibility standard ordinarily used on a motion to dismiss. Here, the Court found plaintiff’s pleadings to fall short. The alleged misrepresentations by defendants concerned a multitude of statements, ranging from the magnitude of dumping margins to facts about harm to the domestic market. But plaintiff had not shown that any of these alleged misrepresentations changed the petitions’ outcome because agencies conducted their own independent investigations into these issues. Id. at 22. As such, the Court found defendants’ conduct was entitled to Noerr immunity and dismissed with prejudice all the antidumping claims.
As for plaintiff’s additional antitrust claims that do not relate to the antidumping petitions (i.e., alleged price fixing and interference with plaintiff’s business relationships), the Court dismissed them without prejudice. First, on alleged price fixing, the Court found that plaintiff had neither brought sufficient evidence of a conspiracy nor had shown it had standing to bring an antitrust claim. Plaintiff’s “few stray statements” about an alleged agreement to fix prices were legal conclusions, and any allegedly coordinated price changes seen in the market were merely evidence of parallel conduct, which is not enough to violate the antitrust laws. Second, on the business interference claim, plaintiff alleged that defendants together monopolized the market to the detriment of plaintiff. The Court again found the pleadings insufficient for this claim under either a Sherman § 1 theory (conspiracy) or § 2 theory (monopolization). Plaintiff had pled two separate and independent agreements where a defendant-manufacturer and a retailer had agreed to feature certain retail products at the expense of plaintiff’s products, but presented no facts “connecting these two events” to show a conspiracy plausibly existed. Id. at 45. Further, plaintiff had only pled the market power element but not the exclusionary conduct element necessary for monopolization. The Court accordingly dismissed these claims without prejudice. Id. at 42.
This case illustrates how antitrust laws continue to interact with other legal regimes, such as First Amendment protections, in judicial and administrative venues. The case also serves as a reminder of the need for plaintiffs to robustly plead an antitrust claims. Allegations that span a wide breadth of legal claims may be found to be deficient if they fail to include details for each element of each claim.