138 F. Supp.2d 25 (2001) | Cited 0 times | D. Maine | March 28, 2001


How much evidence of an illegal agreement must antitrust plaintiffsplead to avoid dismissal for failure to state a claim? By the time oftrial or summary judgment, Monsanto Co. v. Spray-Rite Service Corp.,465 U.S. 752 (1984), requires the plaintiffs to have evidence that tendsto exclude the possibility of merely unilateral conduct. But I concludethat they are not required to plead that evidence in their complaints.Ordinary notice pleading is still the standard against which to measurean antitrust complaint, and the amended complaints here are adequate. Onthe other hand, the plaintiffs do not adequately allege facts to supportfraudulent concealment and thereby extend the statute of limitations. Thedefendants' motions to dismiss are therefore DENIED except with respectto the fraudulent concealment claim.


There are two amended complaints in this multi-district litigation: oneby State Attorneys General, and one by private consumer plaintiffs. Onlythe private plaintiffs seek to extend the statute of limitations on thebasis of fraudulent concealment. There are also two categories ofdefendant: C.D. distributors and C.D. retailers. Both categories ofdefendants have moved to dismiss both complaints. As I have said inprevious Orders, the lawsuit accuses the defendants of unlawfully fixingC.D. prices, largely through using Minimum Advertised Price (MAP)policies. The defendants assert that the plaintiffs are complaining aboutlawful, unilateral decisions by the various distributors and retailersand that the lawsuit should be brought to a halt now before further timeand money are wasted.


The plaintiffs assert that C.D. prices started to go down in the early1990s when the discount retailers started selling CDs at a lower price.Private Compl. ¶¶ 31-32; State Compl. ¶¶ 4, 13, 38. Then, theysay, the traditional retailers complained to the distributors, whooperate in a highly concentrated industry, and requested action tostabilize the prices. Private Compl. ¶ 33; State Compl. ¶¶ 35,43-47. The distributors also were concerned because of the downwardpressure on wholesale prices. Private Compl. ¶ 34; State Compl.¶ 39. At trade association meetings, there was explicit discussion ofremedies such as "retailer, distributor and music company partnerships."State Compl. ¶ 45. The distributors agreed to the retailers'requests and established or strengthened MAP policies. Private Compl.¶¶ 35-36; State Compl. ¶¶ 5, 48, 69. The policies worked, thediscount retailers unwillingly agreed to them and the traditionalretailers thankedthe distributors, and assisted in reporting violations. Private Compl.¶¶ 39-41, 43; State Comp. ¶¶ 60-63. The prices stabilized orincreased, notwithstanding dramatic declines in the costs of producingCDs. Private Compl. ¶¶ 43-44; State Compl. ¶¶ 68, 70, 72.

The State Complaint alleges separate agreements between particularretailers and particular distributors. The Private Complaint alleges anagreement generally among distributors as well as among retailers. Theprivate complaint also alleges fraudulent concealment of the scheme in twoways: (1) the scheme was "self concealing"; and (2) the distributorsaffirmatively and fraudulently concealed the scheme. Private Compl.¶¶ 51-54. The defendants complain that all these assertions are toovague to justify proceeding with the lawsuit and seek dismissal.


A. The Sherman Act Claims

Ultimately, at summary judgment or at trial, Monsanto Co. v. Spray-RiteService Corp., 465 U.S. 752 (1984), will require the plaintiffs toprovide evidence of an agreement-or "evidence that tends to exclude thepossibility of independent action by the [particular defendants]. Thatis, there must be direct or circumstantial evidence that reasonably tendsto prove that the [defendants] had a conscious commitment to a commonscheme designed to achieve an unlawful objective." Id. at 768.Harassment and threats in themselves are not enough, but if they resultedin an agreement to raise or fix prices, that is enough. See Isaksen v.Vermont Castings, Inc., 825 F.2d 1158, 1162-63 (7th Cir. 1987). Whetherthe plaintiffs will ultimately have enough evidence to withstand summaryjudgment and persuade a jury that there was in fact a voluntary orcoerced agreement remains to be seen.

The question here, however, is whether they have alleged enough tosurvive the motions to dismiss. Yes, the FTC has previously conducted aninvestigation and the State Attorneys General have had access to some ofthe results, but that does not justify testing these amended complaintsagainst more demanding pleading rules. These still are motions todismiss at the beginning of discovery; the liberal notice pleading rulestherefore apply: "all the Rules require is `a short and plain statementof the claim' that will give the defendant fair notice of what theplaintiff's claim is and the grounds upon which it rests." Conley v.Gibson, 355 U.S. 41, 47 (1957)(footnote omitted). The First Circuit hassaid that "the demands on the pleader are minimal." Cooperman v.Individual, Inc., 171 F.3d 43, 47 (1st Cir. 1999).1 These amendedcomplaints meet those requirements. The Supreme Court has reminded usthat heightened pleading standards are not appropriate outside of Rule9(b). Leatherman v. Tarrant County Narcotics Intelligence andCoordination Unit, 507 U.S. 163, 168 (1993).2

DM Research, Inc. v. College of American Pathologists, 170 F.3d 53 (1stCir. 1999), and Cooperman yield no different conclusion, and could not,given the Supreme Court's pronouncements.3 In an antitrust case, theplaintiff "need not include evidentiary detail." DM Research, 170 F.3d at55. What is required is "a factual predicate concrete enough to warrantfurther proceedings . . . . Conclusory allegations in a complaint, ifthey stand alone, are a danger sign that the plaintiff is engaged in afishing expedition." DM Research, 170 F.3d at 55 (second emphasisadded). Here, the conclusory allegations do not stand alone; a factualpredicate is provided.4 When a plaintiff's case depends uponinference, the test is "`when the suggested inference rises to whatexperience indicates is an acceptable level of probability.'" Cooperman,171 F.3d at 47-48 (quoting Dartmouth Review v. Dartmouth Coll.,889 F.2d 13, 16 (1st Cir. 1989) in a securities case). Although thealleged agreements here do rest largely on inference, the pattern ofactivity alleged meets the "acceptable level of probability" test at thispleading stage.

My conclusion applies to the vertical agreement (whether voluntary orcoerced) alleged in both complaints and to the horizontal agreementsalleged in the Private Complaint, although the latter are a much closercall. Nevertheless, in light of the alleged parallel behavior creatingand enforcing MAPs, and the resulting return of prices to a higher andstabilized level, I find the allegations adequate for pleading purposes(an acceptable level of probability for inferring agreements).Cooperman, 171 F.3d at 47-48.

B. The State Law Claims

The outcome for the state law claims is the same. (The defendants do notargue that any different analysis applies to the state claims.)

C. The Fraudulent Concealment Claims (Private Plaintiffs Only)

For fraudulent concealment (and extension of the statute oflimitations), the private plaintiffs must plead (and later prove) "(1)wrongful concealment of their actions by the defendants; (2) failure ofthe plaintiff[s] to discover the operative facts that are the basis of[their] cause of action within the limitations period; and (3)plaintiff[s'] due diligence until discovery of the facts." Berkson v. DelMonte Corp., 743 F.2d 53, 55 (1st Cir. 1984)(internal quotation marks andcitation omitted). Here, the heightened requirements of Rule 9(b) doapply: "the circumstancesconstituting fraud . . . shall be stated with particularity." See J.Geils Band Empl. Benefit Plan v. Smith Barney Shearson, Inc., 76 F.3d 1245,1255 (1st Cir. 1996); Varney v. R.J. Reynolds Tobacco, Inc.,118 F. Supp.2d 63, 68 (D.Mass. 2000).

I focus on the third requirement. The private plaintiffs must allegefacts that show that they exercised due diligence in discovering thedefendants' alleged price-fixing conspiracy and reasonably relied on thedefendants' affirmative acts of concealment. See Berkson at 56; Rutledgev. Boston Woven Hose & Rubber Co., 576 F.2d 248, 250 (9th Cir.1978)(noting that plaintiff's reliance must be reasonable). The PrivateComplaint fails to allege any steps the private plaintiffs took toexercise due diligence or how they reasonably relied on the allegedaffirmative acts of concealment.

The private plaintiffs' only assertion of due diligence is that the"[p]laintiffs could not have discovered any of the violations before [thefiling of the class action complaint] by the exercise of due diligencebecause of the fraudulent and affirmative concealment of the combinationor conspiracy by Defendants and their Co-Conspirators." Private Compl.¶ 54. This is wholly conclusory. They do not mention anyinvestigation or other efforts to discover any antitrust violations bythe defendants. "Conclusory allegations of due diligence are notsufficient." Berkson, 743 F.2d at 56; see also DM Research, 170 F.3d at55 (requiring a "factual predicate concrete enough to warrant furtherproceedings"). Because the private plaintiffs have utterly failed to makeany allegations of due diligence, the private plaintiffs cannot claimthat their price-fixing conspiracy claim was fraudulently concealed.Berkson, 743 F.2d at 56.

The private plaintiffs try to excuse their failure to investigate byasserting that the defendants denied any wrongdoing in the FTCinvestigations and the private antitrust suits brought by retailers, butthey do not allege that they reasonably relied on these denials. PrivateCompl. ¶¶ 53, 54. In order for the defendants' denial of antitrustviolations to amount to fraudulent concealment, the private plaintiffsmust allege that they reasonably relied on that denial. See Berkson, 743F.2d at 56. Accord Rutledge, 576 F.2d at 250 (noting that denyingwrongdoing is not fraudulent concealment unless the plaintiffs' relianceis reasonable).5

Without alleging with particularity any due diligence or reasonablereliance on the defendants' concealment, the private plaintiffs have nofactual predicate for their claim of fraudulent concealment. Therefore,the private plaintiffs' second cause of action for fraudulent concealmentis DISMISSED.


1. The Federal Rules of Civil Procedure give us Form 9 as an exampleof an appropriate negligence complaint under notice pleading. For anautomobile accident, it gives date, place and some details of theresulting injury, but the only allegation about the defendant's behavioris that the defendant "negligently drove a motor vehicle againstplaintiff"-no evidentiary detail about what was negligent. See alsoLangadinos v. Am. Airlines, Inc., 199 F.3d 68, 72 n. 5 (1st Cir.2000)(citing Form 9 with approval). If that is enough to give adefendant notice of a claim of negligence and withstand a motion todismiss, then what the plaintiffs have provided here is alsoadequate.

2. Notwithstanding Leatherman, the First Circuit admits that it has"demanded greater factual detail in a complaint in a few specificcategories"-Rule 9(b), discrimination, RICO, and standing. Langadinos,199 F.3d at 73. Antitrust is not listed. Id.

3. See Hosp. Bldg. Co. v. Trs. of Rex Hosp., 425 U.S. 738, 746(1976)("[I]n antitrust cases, where `the proof is largely in the hands ofthe alleged conspirators,' dismissals prior to giving the plaintiff ampleopportunity for discovery should be granted very sparingly.")(citationomitted). The Supreme Court does allow trial judges discretion "toinsist upon some specificity in pleading before allowing a potentiallymassive factual controversy to proceed." Associated Gen. Contractors ofCal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 528 n. 17(1983).

4. DM Research upheld dismissal of an antitrust complaint, but thatcomplaint alleged conscious parallel behavior by two defendants undercircumstances where it was implausible and irrational that they wouldagree, then asserted in a conclusory manner that there was nevertheless aconspiracy between them. 170 F.3d at 56-57. Here, by contrast, it isnot irrational or implausible to infer agreement from the factsalleged.

5. In fact, the allegations on the face of the complaint negate anyreliance, reasonable or otherwise, by the plaintiffs: the privateplaintiffs allege that there were news reports concerning the FTCinvestigation and the private civil antitrust actions. Private Compl.¶ 53; see also Dayco Corp. v. Goodyear Tire & Rubber Co., 523 F.2d 389,394 (6th Cir. 1975)(finding no fraudulent concealment where industry-widepublicity of FTC suit should have aroused the plaintiffs' suspicions). Inlight of these allegations, the defendants' denial of antitrustviolations in defending against these claims does not give rise to aclaim of fraudulent concealment.

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