INSULATE SB, INC., Plaintiff-Appellant v. ADVANCED FINISHING SYSTEMS, INC.; Airtech Spray Systems; Barnhardt Manufacturing Company; C.H. Reed, Inc.; C.J. Spray; Coast Industrial Systems, Inc.; Coatings Holdings, Ltd.; Demilec (USA), LLC; Dove Equipment Co., Inc.; Endisys Fluid Delivery Systems; Golden State Paint Corporation; Graco Inc.; Graco Minnesota Inc.; Jack DeMita, in his individual capacity; Intech Equipment & Supply, LLC; Marco Group International, Inc.; MCC Equipment & Service Center; Specialty Products, Inc.; Spray Foam Nation, (registered under Energy Independence Inc.); Spray Foam Systems, LLC; Spray-Quip, Inc.; Ultimate Linings, Ltd., Defendants-Appellees.
No. 14-2561
United States Court of Appeals, Eighth Circuit
Submitted: May 12, 2015. Filed: Aug. 13, 2015.
Rehearing and Rehearing En Banc Denied Sept. 25, 2015.
797 F.3d 538
Stephen Paul Safranski, argued, Minneapolis, MN, (Anne Michele Lockner, George Donald Carroll, Thomas Berndt, Christopher R. Morris, Kay Nord Hunt, Lewis Albert Remele, Jr., Minneapolis, MN, Kellie C. Lerner, New York, N.Y., Jeanne Welch Sopher, Pittsburgh, PA, on the brief), for Defendants-Appellees.
Before RILEY, Chief Judge, MURPHY and MELLOY, Circuit Judges.
RILEY, Chief Judge.
Insulate SB, Inc., a purchaser of fast-set spray foam equipment (FSE), filed this antitrust class action alleging FSE manufacturer Graco Inc. and its subsidiary Graco Minnesota Inc. (Graco) and a number of FSE distributors (Distributors) (collectively, appellees) conspired to restrain trade in violation of federal antitrust law, see
I. BACKGROUND2
Graco manufactures FSE and sells it to distributors, who then resell on the open market to consumers like Insulate. Because there is no direct market for FSE, distributors are key to its sale. Insulate purchased FSE from defendant distributor Intech Equipment & Supply, L.L.C. and claims Graco‘s anticompetitive practices forced it to pay an artificially high price. In 2005, Graco purchased a competing FSE manufacturer, Gusmer Corp., thus achieving a 65% share of the North American FSE market, and in 2008, Graco purchased competitor GlasCraft, Inc., raising its market share “to above 90%.”
Insulate alleges at some point “Graco agreed with its Distributors individually and collectively to enter into exclusive dealing arrangements for the purpose of keeping new and potential entrants out of the FSE market.” Insulate further alleges “key Distributors” assisted Graco in advancing its anticompetitive scheme. In October 2007, Graco sent a letter to its distributors citing the “best efforts” clause in its distributor agreements and expressing its preference that distributors refrain from adding non-Graco products. The letter stated:
It is our opinion that taking on an additional competitive product line may significantly reduce the “best efforts” of a Graco distributor to sell our Graco and Gusmer product lines. Graco realizes that a business owner must make independent decisions regarding product lines competitive to Graco and Gusmer product offerings....
Should a distributor add a competitive product line, it will result in an immediate review of our business relationship and may impact access to specific products, changes in addendum status or possible elimination of our distributor agreement....
This position has been adopted by us unilaterally.
Insulate contends these distributor agreements kept potential competitor Gama Machinery USA, Inc. from entering the FSE market. In January 2009, Foampak, Inc.—a Graco distributor not named as a defendant—considered carrying Gama products but chose not to after Graco executives met with Foampak‘s president and threatened to end its distributorship. “Considering it a better decision for its business, Foampak acquiesced.” In February 2012, Graco sent a letter to its distributors “reminding” them to not carry Gama products. Insulate alleges exclusive dealing agreements allowed Distributors to “charge Contractors anticompetitive prices for [FSE] and control geographic distribution areas and exclude new distributors from such areas.”
In March 2008, Graco sued Gama alleging, among other things, theft of trade secrets, and Gama counterclaimed alleging, among other things, Graco had unilaterally monopolized the FSE market in violation of Sherman Act Section 2,
In 2013, the United States Federal Trade Commission (FTC) also drafted a complaint against Graco accusing Graco of unlawfully acquiring its competitors in vio-
On June 14, 2013, after learning of the FTC complaint, Insulate filed the instant suit. Insulate claimed Graco and a collection of FSE distributors, through “agreements in restraint of trade,” conspired to reduce competition in violation of the Sherman Act, the Clayton Act, and numerous states’ antitrust and consumer protection laws. The district court granted the appellees’ motions to dismiss, finding (1) Insulate‘s federal claims were barred by the statute of limitations; (2) Insulate had failed to state a claim on its federal causes of action; (3) Insulate, as a California resident, could not bring state law claims for states other than California; and (4) Insulate had not met the California antitrust statute of limitations and failed to state a claim under California‘s Unfair Competition Law.3 Insulate appeals.
II. DISCUSSION
A. Federal Antitrust Claims
1. Federal Antitrust Standing
“[T]he focus of the doctrine of ‘antitrust standing’ is somewhat different from that of standing as a constitutional doctrine.” Associated Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 535 n. 31 (1983); cf. NicSand, Inc. v. 3M Co., 507 F.3d 442, 449 (6th Cir.2007) (en banc) (describing the doctrine of antitrust standing as more rigorous than Article III standing and explaining courts “must[] reject claims under [Federal Rule of Civil Procedure] 12(b)(6) when antitrust standing is missing“). To bring a federal antitrust claim, “a private plaintiff must demonstrate that he has suffered an ‘antitrust injury’ as a result of the alleged conduct of the defendants.” In re Canadian Import Antitrust Litig., 470 F.3d 785, 791 (8th Cir.2006). An “antitrust injury” is an “injury of the type the antitrust laws were intended to prevent ... that flows from that which makes defendants’ acts unlawful.” Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489 (1977). “[T]he Supreme Court [has] held that a remote or ‘indirect’ purchaser was not a person injured” under federal antitrust law. In re Midwest Milk Monopolization Litig., 730 F.2d 528, 529 (8th Cir.1984) (citing Ill. Brick Co. v. Illinois, 431 U.S. 720, 735 (1977)).
The appellees claim Insulate, as an indirect purchaser of FSE, lacks standing to bring its antitrust claims. Our court has suggested that indirect purchasers may bring an antitrust claim if they allege the direct purchasers are “party to the antitrust violation” and join the direct purchasers as defendants. Campos v. Ticketmaster Corp., 140 F.3d 1166, 1170–71 & nn. 3-4 (8th Cir.1998). We now hold as much. Because Insulate‘s complaint alleges conspiracies between Graco and the Distributors and names the Distributors as defendants, Insulate has adequately established it has antitrust standing.
2. Failure to State a Claim
The presence of antitrust standing does not answer the distinct question whether
“We review de novo the district court‘s grant of a motion to dismiss under
Given “the unusually high cost of discovery in antitrust cases,” id. at 558, “the limited ‘success of judicial supervision in checking discovery abuse[,] and ‘the threat [that] discovery expense will push cost-conscious defendants to settle even anemic cases ...,’ the federal courts have been reasonably aggressive in weeding out meritless antitrust claims at the pleading stage,” NicSand, 507 F.3d at 450 (second alteration in original) (quoting Twombly, 550 U.S. at 559). Cf. In re Text Messaging Antitrust Litig., 630 F.3d 622, 625-26 (7th Cir.2010) (“When a district court by misapplying the Twombly standard allows a complex case of extremely dubious merit to proceed, it bids fair to immerse the parties in the discovery swamp ... and by doing so create irrevocable as well as unjustifiable harm to the defendant.“).
On appeal, Insulate challenges the dismissal of three federal antitrust claims: (1) conspiracy to restrain trade through the use of exclusionary agreements in violation of
Insulate can satisfy the concerted action requirement by showing “two or more persons entered into either an express or implied agreement.” Impro, 715 F.2d at 1273 (discussing Sherman Act claims); see also In re Wholesale Grocery Prods. Antitrust Litig., 752 F.3d 728, 734 (8th Cir.2014); Roland Mach. Co. v. Dresser Indus., Inc., 749 F.2d 380, 392 (7th Cir.1984) (“In order to prevail on its [Clayton Act] section 3 claim, [the plaintiff] will have to show ... that there was an agreement, though not necessarily an explicit agreement.“). Insulate claims to have pled the existence of both express anticompetitive contracts and implied exclusivity agreements. After a thorough review of the complaint, we conclude Insulate has not pled “enough factual matter (taken as true) to suggest that an agreement was made,” Twombly, 550 U.S. at 556.
a. Written Exclusivity Agreements
Insulate, quoting Insignia Sys., Inc. v. News Am. Mktg. In-Store, Inc., 661 F.Supp.2d 1039, 1062 (D.Minn.2009), argues the “Appellees entered into written exclusive dealing contracts” that are “‘sufficient to establish a contract or conspiracy for the purposes of ... exclusive dealing claims.‘” (Alteration in original). The complaint does not support this argument. Insulate appears to rely on Graco‘s 2007 letter as evidence of these “written exclusive dealing contracts.” Because the complaint does not allege the Distributors signed any agreement consenting to the letter‘s terms or otherwise expressly agreed to its terms, there was no “‘meeting of the minds,‘” Impro, 715 F.2d at 1273 (quoting Am. Tobacco, 328 U.S. at 810), so the letter alone cannot constitute a written exclusive-dealing contract.
Insulate additionally suggests Graco and the Distributors’ preexisting distributorship contracts are express contracts not to compete because, in its 2007 letter, Graco referenced the contracts’ “best efforts clause.” Graco‘s unilateral announcement of its decision not to supply distributors who also sell competing products did not transform a prior innocuous distributor agreement into a contract for exclusive dealing. See, e.g., United States v. Colgate & Co., 250 U.S. 300, 307 (1919) (determining a manufacturer‘s later request that its products not be sold below certain prices did not transform preexisting sales agreements between the manufacturer and its distributors into agreements not to compete); Concord Boat Corp. v. Brunswick Corp., 207 F.3d 1039, 1058 (8th Cir.2000) (explaining, although defendant‘s discount program may have created “de facto exclusive dealing arrangements,” the discount agreements themselves “were not exclusive contracts“).
Even though the complaint contains several conclusory references to a contract, the alleged facts do not suggest Graco entered into explicit exclusivity agreements with any of the Distributors. See Twombly, 550 U.S. at 555 (“[A] plaintiff‘s obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions.” (internal marks omitted)).
b. Implied Agreements
Insulate, pointing to Graco‘s 2007 and 2012 letters and some distributors’ resulting compliance, proposes the “Appellees’ conduct provides ... circumstantial
The federal antitrust laws “do[] not restrict the long recognized right of [a] manufacturer engaged in an entirely private business, freely to exercise his own independent discretion as to parties with whom he will deal; and, of course, he may announce in advance the circumstances under which he will refuse to sell.” Colgate, 250 U.S. at 307. Under the ”Colgate doctrine,” “[a] manufacturer ... generally has a right to deal, or refuse to deal, with whomever it likes, as long as it does so independently.” Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S. 752, 761-63 (1984) (citing Colgate, 250 U.S. at 307); accord Corner Pocket of Sioux Falls, Inc. v. Video Lottery Techs., Inc., 123 F.3d 1107, 1111-12 (8th Cir.1997). Indeed, a “manufacturer can announce its [policy] in advance and refuse to deal with those who fail to comply. And a distributor is free to acquiesce in the manufacturer‘s demand in order to avoid termination.” Monsanto, 465 U.S. at 761.
To allege the existence of a conspiracy adequately, Insulate must present something beyond the mere fact that Graco stated its policy and the Distributors complied. In United States v. Parke, Davis & Co., 362 U.S. 29, 44 (1960), the Supreme Court explained that plaintiffs can prove concerted action by showing a manufacturer took some action “beyond mere announcement of his policy and the simple refusal to deal[ and] employ[ed] other means which effect adherence to his” policies. Id.; see, e.g., Monsanto, 465 U.S. at 765 (holding defendant‘s attempts to force its distributors to comply with its resale price policy went beyond the Colgate doctrine‘s limits); Parke, Davis, 362 U.S. at 33-36, 45 (deciding a company that policed the implementation of its resale price policy and individually met with each of its wholesalers and retailers to ensure compliance exceeded Colgate). Yet Colgate protects a manufacturer who communicates a policy and then terminates distribution agreements with those who violate that policy. See Colgate, 250 U.S. at 307; Roland, 749 F.2d at 393 (“The mere announcement of [an exclusive-dealing] policy, and the carrying out of it by canceling [a] noncomplying dealer, would not establish an agreement.“); see also, e.g., Lovett v. Gen. Motors Corp., 998 F.2d 575, 577, 579 (8th Cir.1993) (explaining the plaintiff‘s evidence that a manufacturer decreased its supply to a noncompliant distributor and told the distributor to “reconsider” its noncompliant activities was not sufficient to support the jury‘s finding of a conspiracy and reversing the district court‘s denial of judgment as a matter of law to the manufacturer).
Attempting to distinguish Colgate, Insulate maintains the appellees took actions to enforce their agreements that went “beyond [the] mere announcement of [a] policy and the simple refusal to deal,” quoting Parke, Davis, 362 U.S. at 44. But the complaint does not describe any conduct suggesting an agreement between Graco and the Distributors. While
The only allegations in the complaint that come close to suggesting a conspiracy are those concerning Foampak. The complaint avers Graco, after learning Foampak was considering taking on a competitive product line, flew two “top executives” to Foampak‘s headquarters to meet with Foampak executives. At this meeting, Graco threatened to end Foampak‘s distributorship, so Foampak chose not to carry a competitive product. Insulate compares Graco‘s actions here to similar behavior in Monsanto, which the Supreme Court found exceeded the Colgate doctrine‘s limits. See Monsanto, 465 U.S. at 765 (explaining Monsanto‘s multiple attempts to force distributor compliance with its resale price policy by threatening termination and “complain[ing] to [a] distributor‘s parent company” were sufficient to support the jury‘s finding of an agreement).
Assuming Insulate‘s complaint sufficiently alleges an agreement between Foampak and Graco, Insulate cannot challenge this conspiracy because it has not named Foampak as a defendant. See Campos, 140 F.3d at 1170–71 & nn. 3-4. The complaint does allege Foampak had “communications with fellow Distributors,” broadly implying these other distributors may have been part of the alleged Graco-Foampak conspiracy. But again Insulate does not identify any other distributor by name, suggest when these communications occurred, or provide any other specific factual allegation that would create an inference that an agreement was made.7
Ultimately, Insulate‘s complaint fails sufficiently to allege concerted action. The complaint repeatedly asserts Graco and an unnamed set of distributors generally conspired to restrain trade, but these assertions are not enough. “[A] naked assertion of conspiracy ... gets the complaint close to stating a claim, but without some further factual enhancement it stops short of the line between possibility and
B. State Law Claim
1. Minnesota Antitrust Claim
Insulate appeals the dismissal of its claim under the Minnesota Antitrust Law of 1971,
2. California Claims
Insulate appeals the dismissal of its California antitrust and unfair competition claims.
As with its Minnesota claim, Insulate has failed to state a claim under California‘s Cartwright Antitrust Act,
Insulate similarly has failed to state a claim under California‘s Unfair Competition Law (UCL),
As discussed above, Insulate has not sufficiently pled the appellees violated any antitrust law and thus has no claim under the UCL‘s unlawful prong. See Davis v. HSBC Bank Nev., N.A., 691 F.3d 1152, 1168, 1171 (9th Cir.2012) (explaining “[t]o be ‘unlawful’ under the UCL, the [defendant‘s] advertisements must violate another ‘borrowed’ law” and affirming the dismissal of the plaintiff‘s UCL claim because he failed to plead adequately a violation of California‘s False Advertising Law (quoting Cel-Tech Commc‘ns, Inc. v. Los Angeles Cellular Tele. Co., 20 Cal.4th 163, 83 Cal.Rptr.2d 548, 973 P.2d 527, 539-40 (1999))).
III. CONCLUSION
While “it is one thing to be cautious before dismissing an antitrust complaint in advance of discovery, [it is] quite another to forget that proceeding to antitrust discovery can be expensive.” Twombly, 550 U.S. at 558 (internal citation omitted). Insulate has not pled sufficient facts to allow its case to proceed to discovery. We affirm the dismissal of Insulate‘s claims.
Notes
Insulate‘s motion to supplement the record is denied.