Seventh Circuit Affirms District Court’s Grant Of Summary Judgment Of Class Action Case Alleging Price-Fixing In Containerboard Market
On December 7, 2018, the United Stated Court of Appeals for the Seventh Circuit, in an opinion by Chief Judge Diane P. Wood, affirmed a district court’s decision to grant summary judgment in favor of two defendants remaining in a class action alleging price-fixing by manufacturers of containerboard. Kleen Products LLC, et al. v. Georgia-Pacific LLC, et al., No. 17-2808 (7th Cir. Dec. 7, 2018). The Court rejected plaintiffs’ contention that the existence of an anticompetitive agreement between manufacturers could be inferred based primarily on allegedly correlated price increases and reductions in supply.
In September 2010, plaintiffs filed a class action lawsuit alleging that manufacturers of containerboard engaged in price-fixing in violation of Section 1 of the Sherman Act. The district court certified the class, and the Seventh Circuit affirmed that decision in an interlocutory appeal. After the class was certified, the majority of defendants entered into settlements with plaintiffs. Two defendants did not enter into settlements, however, and moved for summary judgment. In August 2017, the district court granted summary judgment in favor of the two remaining defendants. Plaintiffs appealed that decision to the Seventh Circuit.
Plaintiffs did not offer any direct evidence of a conspiracy between the defendants. Instead, plaintiffs asserted the existence of a conspiracy primarily based on three types of circumstantial evidence: (1) a large number of allegedly correlated price increases by defendants during the relevant period; (2) alleged coordinated reductions in supply during the relevant period; and (3) meetings and statements allegedly indicating the existence of a conspiracy. The Seventh Circuit found that this circumstantial evidence was insufficient to exclude the possibility of independent action by defendants, and thus affirmed the district court’s dismissal.
To try to prove a conspiracy, plaintiffs pointed to fifteen price hikes that occurred during the relevant time period. The Court, however, cautioned against drawing inferences of a conspiracy from parallel price increases, particularly in the case of concentrated markets. Here, the Court viewed such an inference as particularly inappropriate when the record showed that different competitors (including non-defendants) led the price increases and that certain competitors waited over a month to increase their prices. Furthermore, the Court found evidence that the price increases “failed” approximately 40 percent of the time, and that high failure rate undermined the inference of a conspiracy because conspirators typically have an enforcement measure to punish “cheaters” who might cause price increases to fail.
The Court similarly rejected plaintiffs’ second type of circumstantial evidence, which was premised on decreases in supply of containerboard. In particular, plaintiffs offered evidence showing that the supply of containerboard available in the North America market fell precipitously during the relevant period and the defendants closed nineteen mills. However, defendants reduced their supply by underutilizing their equipment, rather than selling equipment or closing entire mills. Courts and scholars have noted that this type of flexible reduction in supply can be in the economic self-interest of firms operating independently, and therefore the Court found the evidence offered by plaintiffs insufficient to support an inference that defendants participated in a conspiracy.
Finally, plaintiffs pointed to meetings between competitors and statements made by employees as indicative of the existence of a conspiracy. However, the Court noted that mere opportunities to conspire, in the absence of actual evidence indicating that prices or supply were agreed upon, are not sufficient to create an inference of concerted behavior. The Court found that, in any event, none of the statements cited by plaintiffs implicated either of the two remaining defendants, even if they potentially supported an inference of a conspiracy between the settling defendants.
The Seventh Circuit’s decision in Kleen Products reflects that even if a class is certified, and even if several defendants settle, non-settling defendants can still be successful in challenging the merits of the antitrust claims on summary judgment. The decision also highlights the difficulties faced by antitrust plaintiffs that bring claims involving concentrated markets, as price increases or decreases in supply in such markets are equally consistent with unilateral behavior. In practice, plaintiffs must often present more evidence, or perhaps even direct evidence, to prove a conspiracy at summary judgment when they are alleging an antitrust violation in a concentrated market.