ORDER
• Before the Court is Defendants’ motion for judgment on the pleadings and to strike allegations in the complaint [114]. For the reasons that follow, the Court will grant Defendants’ motion for judgment on the pleadings and deny as moot Defendants’ motion to strike allegations in the complaint.
A. The Parties
Defendants are holders of convertible senior notes issued by Plaintiff CompuCredit Holdings Corporation (“CompuCredit”) in 2005. Thе notes were issued pursuant to two indentures, and Defendants collectively own approximately seventy percent of the notes issued pursuant to those indentures. The first series of notes will come due in 2025 and the second series of notes will come due in 2085. The Court will hereinafter refer to them as the “2025 notes” and the “2035 notes,” respectively.
B. Related Litigation
This case involves two related lawsuits between the same parties. In the first lawsuit, Defendants sued CompuCredit in the District of Minnesota alleging, inter alia, that CompuCredit was in violation of the Uniform Fraudulent Transfer Act (“UFTA”) because CompuCredit was about to issue a massive dividend even though it was in severe financial distress. Thus, Defendants alleged that CompuCredit had “embarked on a deliberate strategy of stripping itself of assets, distributing those assets to insiders, and disabling itself from meeting its obligations to its creditors.”
On March 24, 2010, the first lawsuit was transferred to this Court for the convenience of the parties. The case was docketed as l:10-cv-844~TCB, and the Court will hereinafter refer to it as the “UFTA litigation.”
The present action is the second lawsuit between these parties, and it was filed in the District of Minnesota only a few weeks after the UFTA litigation was transfеrred to this Court. In this case, CompuCredit has sued Defendants alleging that they have violated the Sherman Act by conspiring to inflate the prices of CompuCredit notes.
On January 18, 2011, the present action was also transferred to this Court in an effort to avoid duplicitous litigation in separate districts. The case has been docketed as l:ll-cv-117-TCB, and the Court will hereinafter refer to it as the “аntitrust litigation.”
While the antitrust litigation was still pending in the District of Minnesota, Defendants moved for judgment on the pleadings and for sanctions under Rule 11. After the case was transferred to this Court, Defendants were granted leave to file updated versions of those motions. The Court now considers Defendants’ renewed motion for judgment on the pleadings [114]. The Court will reserve ruling on Defendants’ renewed motion for sanctions under Rule 11 [115].
C.Factual Background
In December 2009, CompuCredit announced a plan to issue a $25 million dividend to its stockholders. In addition, CompuCredit announced that it was considering a tax-free spinoff of its microloan businesses. Defendants immediately complained about the dividend and the spinoff and demanded that CompuCredit retract its plan to issue the dividend.
Shortly thereafter, Defendants initiated thе UFTA litigation, even though CompuCredit had never missed an interest payment on the notes at issue. In their UFTA complaint, Defendants sought to prevent the planned dividend and contemplated spinoff through a preliminary injunction, but they did not seek to compel CompuCredit to repurchase their notes. In support of their request for relief, Defendants alleged that CompuCredit was
On January 28, 2010, after issuing the dividend, CompuCredit made an offer to repurchase up to $160 million of its outstanding notes at prices purportedly equal to or above market value. As a result of the tender offer, CompuCredit was able to repurchase approximately elevеn percent of its outstanding 2025 notes at fifty percent of face value and approximately ten percent of its outstanding 2035 notes at thirty-five percent of face value. None of Defendants participated in the tender offer, and one of them later indicated that Defendants had agreed not to participate because they believed the price to be too low. CompuCredit contends, however, that the parties who participated in the tender offer were sophisticated and had knowledge of the fair value of CompuCredit notes.
On January 27, 2010, counsel for Defendants sent a letter to CompuCredit’s auditor stating that CompuCredit’s ability to continue as a going concern was subject to “substantial doubt.” Attached to the letter was the report of Defendants’ expert, who had concluded that CompuCredit was pro-forma insolvent. Then, in early February, Defendants wrote a letter to the SEC claiming that CompuCredit was “already insolvent.” The letter did not inform the SEC of the district court’s contrary finding. Finally, in March, Defendants wrote the indenture trustee claiming that CompuCredit had violated the indentures, despite the fаct that they had made no such claim in court. According to CompuCredit, all of these communications worked against Defendants’ economic self-interest. Thus, CompuCredit contends that they must have been for the purpose of coercing CompuCredit to settle the UFTA litigation and repurchase Defendants’ notes at inflated prices.
Prior to the pretrial conference in the UFTA litigation, Defendants demanded that CompuCredit repurchase all of their notes at par. At that time, CompuCredit claims that the 2025 notes were trading at approximately 53.5 percent of par and the 2035 notes were trading at approximately thirty-seven percent of par. A representative of one of the defendants later indicated that Defendants would оnly accept sixty-five to seventy percent of par for their notes.
Since they commenced the UFTA litigation, Defendants have increased their aggregate holdings of CompuCredit notes. CompuCredit contends that Defendants have done so as a part of their conspiracy to artificially inflate the prices of CompuCredit notes. CompuCredit also argues that Defendants’ purchase of additional CompuCredit notes indicates that the UFTA litigation was intended solely to coerce CompuCredit into repurchasing its notes at inflated prices and was not a legitimate attempt to obtain judicial relief.
CompuCredit now alleges that Defendants’ collective actions from December 2009 forward amount to a violation of Section 1 of the Sherman Act. Based on a market that consists solely of CompuCredit notes, both counts allege that Defendants have unreasonably restrained trade by “inflating the price at which CompuCredit can extinguish its debt by purchasing these Notes.” CompuCredit further
In support of Count I of the Complaint CompuCredit points to the following activity as anticompetitive: (1) Defendants’ joint demand that CompuCredit repurchase their notes at par; (2) Defendants’ communications with CompuCredit’s auditor, the SEC and the indenture trustee regarding CompuCredit’s financial condition; (3) Defendants’ purchases of CompuCredit notes after initiating the UFTA litigation; (4) Defendants’ agreement to boycott the January 28, 2010 tender offer; and (5) Defendants’ commencement of the UFTA litigation, which CompuCredit characterizes as a “sham.”
Count II of the complaint omits references to the UFTA litigation and the SEC letter and instead relies on (1) Defendants’ joint demand that CompuCredit repurchase their notes at par; (2) Defendants’ communications with CоmpuCredit’s auditor and the indenture trustee regarding CompuCredit’s financial condition; (3) Defendants’ purchases of CompuCredit notes after initiating the UFTA litigation; and (4) Defendants’ agreement to boycott the January 28, 2010 tender offer.
As a result of Defendants’ actions, CompuCredit seeks (1) a declaratory judgment that Defendants have violated the Sherman Act, and (2) an order requiring Defendants to tеnder all of their notes to CompuCredit at the prices paid in the January 28, 2010 tender offer. In the alternative to such an order, CompuCredit seeks to enjoin Defendants from taking any coordinated action concerning the price of CompuCredit notes or communicating with each other or third parties regarding CompuCredit’s financial condition or breach of any indenturе.
II. Discussion
A. Legal Standard
“After the pleadings are closed — but early enough not to delay trial — a party may move for judgment on the pleadings.” Fed.R.Civ.P. 12(c). Judgment pursuant to Rule 12(c) is appropriate “when there are no material facts in dispute, and judgment may be rendered by considering the substance of the pleadings.” Horsley v. Rivera,
Whеn deciding a motion for judgment on the pleadings, the court accepts factual allegations in the complaint as true and construes all reasonable factual inferences in the plaintiffs favor. Douglas Asphalt Co. v. Qore, Inc.,
B. Analysis
Defendants argue that they are entitled to judgment on the pleadings beсause “the Sherman Act does not prohibit creditors from acting jointly to protect their rights or negotiating jointly to compromise with a
In response, CompuCredit points to two Supreme Court decisions in which the Sherman Act was applied to creditors: Catalano, Inc. v. Target Sales, Inc.,
The Court is convinced that the collusive activity alleged in CompuCredit’s complaint does not violate the Sherman Act. All of the cases on which CompuCredit relies involved creditors who agreed about whether or on what terms to extend credit in the future. While Catalano and Fortner may stand for the general proposition that debtors are sometimes permitted to bring antitrust claims against creditors, neither case involved creditors who acted collectively to maximize their ability to collect on an outstanding debt.
In Catalano, beer wholesalers agreed that they would no longer extend short-term credit to beer retailers. This violated the Sherman Act because it was tantamount to an agreement to eliminate competitive discounts from future contracts.
Although there are few cases that address the present situation of creditors acting collectively to collect outstanding debt, both the Second and Seventh Circuits have rejected antitrust claims in that circumstance, and the Court finds the reasoning of those opinions persuasive.
The Seventh Circuit has recognized that “[competition comes at the time loans are made,” and “cooperation in an effort to collect as much as possible of the amounts due under competitively determined contracts is not the sort of activity with which the antitrust laws are concerned.” United Airlines,
The Second Circuit has gone even further, characterizing a debtor’s antitrust claims against jointly negotiating creditors as “bordering] on the frivolous,” Sharon Steel,
Despite the collective actions taken by the indenture trustees in Sharon Steel, the Second Circuit rejected the antitrust claims. In doing so, the court recognized that joint activity by creditors facing a debtor is not harmful to consumers, because “by reducing both losses to creditors and the transaction costs resulting from bankruрtcy, such activity reduces the costs of borrowing and the costs of doing business, all of which is to the consumer’s advantage.” Id. at 1052. As a result, the concerted activity of the indenture trustees in Sharon Steel had no “anti-competitive purpose or effect injurious to consumer welfare” and could not give rise to an antitrust claim under the Sherman Act. Id.
The present case falls squarely within the princiрles articulated in United Airlines and Sharon Steel. Both counts of CompuCredit’s complaint allege that Defendants’ collective activity has unreasonably restrained trade because it has “the effect of inflating the price at which CompuCredit can extinguish its debt by purchasing these Notes.” In effect, CompuCredit alleges that Defendants have cooperated for the same purpose as the lessors in United Airlines, that is, “in an effort to collect as much as possible of the amounts due under competitively determined contracts.”
Although CompuCredit points out sevеral factual differences between United Airlines, Sharon Steel and the present case, it fails to explain how those differences are of consequence, and the Court finds that they have no bearing on the applicability of the Sherman Act. First, CompuCredit argues that this case is different because CompuCredit has not defaulted on its note obligations. However, in Sharon Steel,
Finally, CompuCredit argues that United Airlines and Sharon Steel are distinguishable because the conspiring parties in those сases were indenture trustees rather than individual note holders. While CompuCredit fails to articulate the significance of this distinction, it presumably relates to the authority of indenture trustees to represent the collective interests of investors under the Trust Indenture Act (“TIA”). Although the TIA created indenture trustees “precisely because individual lenders may be too diffuse to protect their оwn interests,” United Airlines,
Consequently, accepting the factual allegations in the complaint as true and construing all reasonable factual inferences in the CompuCredit’s favor, the Court finds that the Sherman Act is not impliсated by Defendants’ conduct. As a result, it is unnecessary for the Court to reach Defendants’ remaining arguments. The Court will grant Defendants’ motion for judgment on the pleadings, and as a result, Defendants’ motion to strike certain portions of the complaint is moot.
III. Conclusion
Defendants’ Motion for Judgment on the Pleadings and to Strike Allegations in Plaintiffs Complaint [114] is GRANTED IN PART and DENIED IN PART. Defendants’ motion for judgment on the pleadings is GRANTED. Defendants’ motion to strike allegations in the complaint is DENIED as moot. The Clerk is DIRECTED to close the case. The Court retains jurisdiction, however, for the purpose of determining whether CompuCredit and its counsel should be sanctioned under Rule 11, and if so, to what extent.
Notes
. For purposes of this motion, the factual allegations in the complaint are taken as true. Thus, the Court's rendition of the facts reflects the facts set forth in the complaint.