Shearman & Sterling LLP | Antitrust Blog | United States Court Of Appeals For The Third Circuit Affirms Summary Judgment For Defendant Based On Plaintiff’s Failure To Show “Plus Factors” That Made Finding Of Conspiracy More Likely Than Not In Oligopolistic Market For The Sale Of Titanium Dioxide<br >  
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  • United States Court Of Appeals For The Third Circuit Affirms Summary Judgment For Defendant Based On Plaintiff’s Failure To Show “Plus Factors” That Made Finding Of Conspiracy More Likely Than Not In Oligopolistic Market For The Sale Of Titanium Dioxide

    On October 2, 2017, a divided panel of the United States Court of Appeals for the Third Circuit released a ruling affirming the decision by U.S. District Judge Richard G. Andrews of the District of Delaware to grant summary judgment to the defendant E. I. Du Pont De Nemours & Co. on a Sherman Act, Section One claim alleging price fixing in the sale of titanium dioxide on the grounds that the plaintiff had not shown sufficient evidence of an “actual agreement to fix prices.” Valspar Corp. v. E. I. Du Pont De Nemours and Co., No. 16-1345 (3d Cir. Sept. 14, 2017).  Writing for the majority, Judge Hardiman rejected much of the plaintiffs’ proffered evidence of conspiracy because it established no more than conscious parallelism and interdependent conduct in an oligopolistic market, and was therefore insufficient to prove the essential element of an agreement as required by Section One.  Also lacking, the Court found, was evidence of a “traditional conspiracy,” i.e., “proof that the defendants got together and exchanged assurances of common action or otherwise adopted a common plan even though no meetings, conversation, or exchanged documents are shown.” Id. at 11-12.  This case illustrates the Third Circuit’s continuing practice of requiring a searching analysis of both the particular evidence and the market context in evaluating ambiguous evidence of conspiracy in Sherman Act cases, and reinforces the importance of carefully examining the relevant Circuit law in making forum choices.  

    Plaintiff Valspar Corporation alleged a twelve-year conspiracy to fix prices among the four major suppliers of titanium dioxide, premised largely on 31 parallel price increases announced by the competing suppliers over that period, supported by evidence that the suppliers recognized and discussed within their respective firms the economic benefits of going along with competitor price increases and not disrupting the market.  The parties agreed that the titanium dioxide was a commodity product with no substitutes and that the market was characterized by high barriers to entry and dominated by a handful of firms, i.e., a classic oligopoly.  

    The key issue on summary judgment was whether the plaintiff had come forward with sufficient evidence of a price-fixing agreement.  The Third Circuit began its analysis by explaining that oligopolies present a “special problem because rational, independent actions taken by oligopolists can be nearly indistinguishable from horizontal price fixing.” Id. at 6.  This is because firms in oligopolistic markets engage in interdependent behavior; they inevitably consider competitors’ likely reactions to their pricing actions and are unlikely to engage in aggressive price competition if they believe that their prices will be promptly matched or beaten and no additional volume will result.  Thus, because proof of parallel behavior will “rarely” create an inference of conspiracy by itself, courts look for “plus factors” – evidence that tends to make an inference of conspiracy more likely than independent action.  In an oligopolistic market, however, some of the traditional plus factors, notably motive and actions that would be against self-interest but for a conspiracy, can be “unhelpfully equivocal” because they are consistent with independent action by a profit-maximizing firm in the oligopoly environment.  Thus, in oligopoly cases, the Third Circuit focuses on whether there is evidence of a “traditional conspiracy,” for example, evidence of assurances of common action or a common plan, often shown by meetings or other direct or indirect communications among competitors.  Applying these standards, the Court found that most of Valspar’s evidence did not meet this test because it showed no more than mere parallel behavior that was as consistent with independent decisions in an oligopolistic market as it was with conspiracy.  The Court then evaluated Valspar’s proffered evidence of traditional conspiracy, including the suppliers’ provision of production and sales data (but not price data) to a trade association that published aggregated, anonymized data; stable market shares; communications with consultants; trade association meetings with no evidence of price discussions; and sales between competing suppliers, but concluded that none of it, evaluated either individually or in total, met the standard to survive summary judgment.

    Finally, the majority addressed Valspar’s argument that the district court erred in not deferring to an earlier decision of a district court in the District of Maryland, which had denied the defense motion for summary judgment in a related class action based on essentially the same record.  Valspar had opted out of the class in the Maryland action and filed its own action in Minnesota, which was in turn transferred to the District of Delaware.  This maneuvering had important substantive effects because the summary judgment standard in conspiracy cases based on circumstantial evidence is different in the Third and Fourth Circuits.  As the majority opinion explained, the standard in the Third Circuit is that a “plaintiff relying on ambiguous evidence alone cannot raise a reasonable inference of conspiracy sufficient to survive summary judgment,” while the Maryland court applied the following standard: “where ‘a plaintiff relies on ambiguous evidence to prove its claim, the existence of a conspiracy must be a reasonable inference that the jury could draw from that evidence.’” Id. at 32 (comparing Valspar Corp. v. E. I. Du Pont De Nemours, 152 F. Supp. 234, 240 (D. Del. 2016) with In re Titanium Dioxide Antitrust Litig., 959 F. Supp. 2d 799, 824 (D. Md. 2013)).  Thus, the Court found the Delaware district court had correctly applied the Third Circuit standard and did not err in declining to follow the Maryland decision.   
    Chief U.S. District Judge Lawrence F. Stengel of the Eastern District of Pennsylvania, sitting by designation, filed a lengthy dissent, arguing that the circumstantial evidence proffered by the plaintiff, taken in total, was enough to allow the case to go to a jury.  The dissent relied heavily on the sheer number of parallel price increases and the theory that the repeated public announcements of wholesale price increases provided in the hope and expectation that others would follow could constitute an agreement, as well as certain emails and other evidence that the majority had either not mentioned or dismissed without extensive discussion.

    This decision illustrates that even where the plaintiff has alleged a coherent economic theory of conspiracy and shown a low level of competition in the marketplace, the evidence still must be sufficient to make the inference of conspiracy more likely than mere conscious parallelism or interdependent behavior.  The lengthy dissent, coupled with a different decision on essentially the same facts in the related class action, also demonstrates that the interpretation and adequacy of ambiguous evidence of conspiracy for purposes of summary judgment in Sherman Act cases is still highly dependent on the judicial officer evaluating such evidence.