Third Time’s Not A Charm: California District Court Dismisses Consolidated Class Action Against German Automakers
11/03/2020On October 23, 2020, District Judge Charles Breyer of the United States District Court for the Northern District of California dismissed with prejudice Sherman Act claims in two consolidated complaints brought by consumers (indirect purchasers or IPPs) and auto-dealers (direct purchasers or DPPs) (together Plaintiffs). The complaints alleged anticompetitive standardization of diesel emissions control systems and price-fixing by the five leading German car manufacturers in the United States—Audi AG, BMW AG, Daimler AG, Porsche AG, and Volkswagen AG (Defendants) for models made between 2006 through 2016. In re: German Automotive Manufacturers Antitrust Litigation, MDL No. 2796 CRB (JSC) (N.D.Cal. Oct. 23, 2020). Ultimately, the Court found that Plaintiffs failed to allege a "relevant market" and that Defendants had power within that market. The Court had granted Defendants’ motions against the same Plaintiffs on two prior occasions and thus granted the present motion with prejudice so that Plaintiffs would not get a fourth bite at the apple.
Plaintiffs relied heavily in this, and prior pleadings, on the efforts of the European Commission Competition department (ECC) and German Federal Cartel Office to investigate collusion among Germany’s major car manufacturers. In their initial Complaints, Plaintiffs alleged, based on the reports of these bodies and related proffers by Volkswagen and Daimler, that Defendants shared competitively sensitive information and reached illegal agreements that “reduced innovation” by limiting the size of fuel tanks and speed that convertible car tops could open. The Court disagreed and dismissed these claims as related to two small, “niche” vehicle features rather than a “whole car conspiracy” to reduce innovation. Both IPPs and DPPs then filed Amended Complaints. IPPs filed new allegations regarding a “decade-long” conspiracy about diesel emissions control features, and DPPs added allegations relating a conspiracy not to meaningfully invest in electric vehicles, among other things. The Court again dismissed these complaints, this time finding that Defendants’ agreements were not unreasonable restraints of trade, and when applying the rule of reason, that Plaintiffs had failed to plead a relevant submarket or allege that Defendants had relevant market power in that submarket. Specifically, Plaintiffs failed to provide evidence that their two defined sub-markets, “German Diesel Vehicles” and “German Luxury Vehicles” matched consumption and crossover patterns in the United States. These rulings would inform the Court’s analysis in the instant matter when Plaintiffs returned, yet again, with allegations mirroring their previous complaints.
In the present case, Plaintiffs’ Second Amended Complaints each further augmented their prior arguments in an unsuccessful effort to survive a third motion to dismiss: (1) IPPs alleged that Defendants’ collusion regarding diesel emission systems covered the entire emissions systems and was not aimed at improving product quality or permitted standard setting; and (2) DPPs claimed that Defendants engaged in a steel price-fixing conspiracy and passed all costs along to customers.
The Court found that IPPs did not satisfy their burden to allege conduct that was per se anticompetitive or anticompetitive under the rule of reason because they again failed to define a relevant market. First, the Court found that despite additional allegations, IPPs’ core evidence of anticompetitive conduct was the same recitation of facts from prior pleadings. IPPs also failed to show how their newly defined market, “diesel passenger vehicles” were a relevant market in the United States. IPPs did not address “obvious economic substitutes” and “customer crossover” including competition from other passenger vehicles powered by different fuel sources or passenger vehicles manufactured in other countries and sold to the same consumers in the United States. The evidence IPPs did identify to support their market analysis, namely news articles defining the “diesel segment,” and a customer survey conducted by IPPs was insufficient. In fact, the Court found that “beyond bare allegations and ‘empirical evidence’ of no value, IPPs have alleged nothing to contradict the commonsense inference that diesel passenger vehicles compete with other passenger vehicles and do not constitute a relevant submarket.”
The Court also found that DPPs did not allege sufficient facts about a steel price-fixing conspiracy to have antitrust standing. The Court reminded DPPs that in addition to their burden to demonstrate Article III standing—which they met—Plaintiffs also needed to allege plausible facts sufficient to show Defendants’ actions increased market prices and that Defendants passed through costs to DPPs. But DPPs’ only evidence of these facts were inferences that it would be economically irrational to not pass on inflated steel costs. Any number of rational reasons could exist as to why Defendants would or would not pass on increases in steel prices and thus the Court found this fact alone was insufficient to meet the higher burden of antitrust standing under the Sherman Act.
In dismissing the third round of complaints, the District Court reminded Plaintiffs of the need to allege plausible facts to establish a Sherman Act claim. In particular, Plaintiffs must clearly define a relevant market or submarket and allege a clear connection between market definition and theory of harm, as well as at least plausible proof of the anticompetitive effects of that behavior in the market.
Counsel for Plaintiffs have already indicated that they will be appealing the decision to the Ninth Circuit.