177 F.3d 1228
11th Cir.
1999

Doug LOWELL, Mackey Nolte, et al., Plaintiffs-Appellants, v. AMERICAN CYANAMID COMPANY, a Corporation, Defendant-Appellee.

No. 98-6194.

United States Court of Appeals, Eleventh Circuit.

June 9, 1999.

Appeal from the United States District Court for the Southern District of Alabama. (No. 97-0581-BH-M), W.B. Hand, Judge. Before EDMONDSON and BLACK, Circuit Judges, and RESTANI*, Judge.

EDMONDSON, Circuit Judge:

Plaintiffs, five Alabama farmers, have appealed a district court order dismissing an antitrust complaint fоr failure to join middlemen dealers as defendants pursuant to . We conclude that has no application in a vertical conspiracy with no allegations of “pass-on.” The district court decision is vacated, and the case is remanded.

Background

Between 1989 and 1995, the defendant, American Cyanamid Company (“American Cyanamid“), maintained two similar rebate programs for its independent retail dealers nationwide. Under the programs, American Cyanamid entered into written contracts with its dealers whereby American Cyanamid would give the dealer a rebate on each sale of designated crop-protection products but only if the deаler sold the product at or above American Cyanamid‘s suggested resale price; the programs allegedly established a minimum resale price. Under these contracts, the specified resale price was equal to the wholesale prices paid by the dealer. American Cyanamid‘s dealеrs overwhelmingly responded by selling the product at or above the specified minimum resale price.1

In 1997, Plaintiffs filed a complaint, on behalf of themselves and all others similarly situated, alleging American Cyanamid had violated section one of the Sherman Act (15 U.S.C. § 1) and section four of the Clayton Act (15 U.S.C. § 15). Plaintiffs later amended their complaint, but at no time did thеy join any of the estimated 2,500 American Cyanamid distributors. American Cyanamid filed a motion to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). The district court granted the motion with prejudice, holding that the independent dealers, as direct purchasers, must be parties to the action under the doctrine of . Otherwise, Plaintiffs, according to the district court, lacked standing to maintain the suit. Plaintiffs appealed.

Discussion

We review de novo a district court order dismissing a complaint for failure to state a claim, construing the allegations in the complaint as true and in the light most favorable to the plaintiff. See .

Plaintiffs’ complaint alleges that American Cyanamid engaged in a vertical price-fixing conspiracy with the independent dealers in violation of section one of the Sherman Act and section four of the Clayton Act. Plaintiffs claim that the district court erred in applying to bar this complaint from proceeding directly against American Cyanamid without joining the independent dealers.

, so Plaintiffs’ argument gоes, does not apply to a vertical price-fixing scheme where (1) a plaintiff buys directly from a dealer who combined with a manufacturer to fix the prices and (2) no allegations are made of “pass-on.” In other words, Plaintiffs claim they are not indirect purchasers at all under , but are direct purchasers from a conspiring party.

American Cyanamid counters that the rule of —that indirect purchasers сannot maintain a suit without joining the appropriate middlemen—is on point and that the present case falls within neither of its two enumerated exceptions.2 American Cyanamid also points out that ‍​‌​‌‌‌​​‌‌​​​‌​​‌​‌​​​​‌​​‌‌​‌​‌​‌‌‌‌​‌‌​‌‌​‌​‌‌‍the former Fifth Circuit applied to bar claims somewhat similar to this one in .

We agree with the Plaintiffs. has no application in this case.

was an extension of the Court‘s earlier prohibition against the defensive use of passing on in .3 In concluding that the indirect government purchasers of a product may not sue distant manufacturers, cited two underlying rationales. The first of these was that “allowing offensive but not defensive use of pass-on would create a serious risk of multiple liability for defendants. Even though an indirect purchaser had already recovered for all or part of an overcharge passed on to it, the direct purchaser would still recover automatically the full amount of the overcharge that the indirect purchaser had shown to be passed on[.]” , . Second, as in , the Court was worried about the “uncertainties and difficulties in analyzing price and out-put decisions ‘in the real economic world rather than an economist‘s hypothetical model,’ and of the costs to the judicial system and the efficient enforcement of the antitrust laws of attempting to reconstruct those decisions in the courtroom.” , (quoting , ) (citations omitted).

Neither of the rationales apрlies to the very different case of vertical conspiracy with no allegations of passing on:

does not limit suits by consumers against a manufacturer who illegally contracted with its dealers to set the latter‘s resale price. The consumer plaintiff is a direct purchaser from the dealer who, by hypothesis, has conspired illegally with the manufacturer with respect to the very price paid by the consumer. There is no problem of duplication or apportionment because the consumer is the only party who has paid any overcharge. Although the manufacturer did not sell directly to the consumer, he is a fellow conspirator with the direct-selling dealer and therefore jointly and severally liable with the dealer for the consumer‘s injury.

2 Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law 264 (rev. ed.1995) (footnotes omitted).

This case presents no problems of double recovery because only one illegal act (the vertical conspirаcy)4 is present and likely only one set of potential plaintiffs (the farmers) exists.5 Although Plaintiffs may sue American Cyanamid alone for the full cost of the conspiracy with the dealers, that is the way antitrust conspiracy liability works and does not go to the kind of duplicative recovery with which was concerned.6

Second, the economic and legal complexities outlined in are absent here as well. For the plaintiffs in a case like this one, proving what price would have existed in the absence of the unlawful agreement is difficult; but it is no more difficult than the proof necessary in any vertical conspiracy case. Furthermore, the task pales in comparison to the complexities contemplatеd in :7 tracing the pass-on through many steps in the production process and determining how much was absorbed, how much was passed on, and by whom; moreover, all of the calculations would have to be made without any of the intermediary parties asserting their interests, but merely with the aid of “elasticity studies introduced by expert witnesses[.]” , .

The complexities involved were legal ones as well. “[P]otential plaintiffs at each level in the distribution chain are in a position to assert conflicting claims to a common fund the amount of the alleged overcharge by contending that the entire overcharge was absorbed at that particular level in the chain.” , . This creates the need for either ‍​‌​‌‌‌​​‌‌​​​‌​​‌​‌​​​​‌​​‌‌​‌​‌​‌‌‌‌​‌‌​‌‌​‌​‌‌‍statutory interpleader under 28 U.S.C. § 1335 or compulsory joinder under Rule 19(a). See , . And such efforts would create as many problems as they would solve. See , .

But here, we have no such legal complexities. In all likelihood, the full extent of this litigation will be a class-action suit by Plaintiffs against American Cyanamid. That is it. Plaintiffs do not want to join the dealers, and American Cyanamid will have no incentive to bring the dealers in because it cannot seek contribution. See (holding no right of contribution under Clayton and Sherman Acts). Also, suits, if any, by the dealers against American Cyanamid (which seem unlikely)8 could be handled separately as “the damage criteria are quite distinct and not overlapping for the dealer and the consumer.” 7 Phillip E. Areeda, Antitrust Law 183 (1986).

Today‘s vacation of the district court‘s decision to dismiss makes no new law. The inapplicability of to vertical conspiracies with no allegations of pass-on (what some have called the “vertical conspiracy exception“) has long been recognized. See ; ; ; ; ; Areeda, supra, at 182 (“[O]ther courts have correctly seen that has nо bearing on [vertical price fixing.]“); Herbert Hovenkamp, Commentary, The Indirect-Purchaser Rule and Cost-Plus Sales, 103 Harv. L.Rev. 1717, 1719 (1990) (“Some courts ... have held that will not bar an indirect-purchaser action if ... the dealer itself participated in the conspiracy.“).

And the facts of the cases cited by American Cyanamid are materially different. In , upon which American Cyanamid relies most heavily, the complaint alleged a horizontal conspiracy between 25 retail food chains. On appeal, the plaintiffs (cattlemen, ranchers and feeders) also said that the district court erred in not allowing them to amend their complaint to allege a vertical conspiracy between the retail chains and the middlemen (meat packers and slaughterhouses).

The district court‘s refusal to allow amendments—a decision that is reviewed only for abuse of discretion—was upheld on the basis of undue delay on the plaintiffs’ part in moving to amend. “Absent any apparent justification for this dеlay, we cannot hold that the district court abused its discretion.” . We went on to say that the decision not allowing amendments was “supportable” on grounds of futility as well; in that paragraph, we observed that the proposed amendments did not fit the “control” exception to . Then we added another paragrаph in which we said that we did not “think” that the allegation of vertical conspiracy in would get around and its prohibition against double liability.

In context, the discussion of looks like dicta, given that the standard of review was abuse of discretion and that the court had already decided to affirm the denial ‍​‌​‌‌‌​​‌‌​​​‌​​‌​‌​​​​‌​​‌‌​‌​‌​‌‌‌‌​‌‌​‌‌​‌​‌‌‍of the amendments. But even supposing that the paragraph is binding in materially similar cases, it would have no impact here, because here—unlike —there is no allegation of both a vertical conspiracy as well as a horizontal conspiracy one step removed from the plaintiffs. Put another way, is consistent with the rule we announce today. Not every vertical conspiracy allegation will get аround the doctrine. An alleged vertical conspiracy on top of a horizontal conspiracy—like the situation in —does not, as the plaintiffs in had hoped, “save” the overall conspiracy claims. Instead, the doctrine might apply even more strongly in a case like .

is not some formulaic “remoteness” doctrine wherein a plaintiff who proves he purchased from a conspiring party—any conspiring party—automatically escapes the bar. Instead, is a decision based on avoiding risks; and the same risks that were inherent in a garden-variety horizontal conspiracy case with pass-on apply to a case like : the risks of (1) double liability; and (2) economic and legal complexity. The diffеrence between and the ordinary horizontal conspiracy is that takes all the same risks of the typical horizontal conspiracy and compounds them by including another conspiracy (the vertical one) with a separate set of proofs and a separate set of problems.

Second, , is not on point either. That case involved non-Blue Cross patients suing Blue Cross for overcharging by hospitals. The plaintiffs did not allege vertical price-fixing between Blue Cross and the hospitals for non-Blue Cross patients; Blue Cross was not even in the plaintiffs’ chain of distribution. The plaintiffs only alleged that Blue Cross had a special deal with the hospitals for Blue Cross patients. Beсause of what was, in effect, a lower rate charged to these patients, the hospitals—the plaintiffs alleged—shifted the costs on to their non-Blue Cross patients.

The opinion set out several explanations for the court‘s decision that the non-Blue Cross patients lacked standing to maintain the lawsuit. See . At lеast two of those reasons were independent of the others. See (observing that, apart from , “[b]oth causation and antitrust injury[, which were not proved,] are essential elements of antitrust standing.“). The reasoning was therefore likely not critical to the decision in the case. Moreover, “[t]here is, of course, an important differenсe between the holding in a case ‍​‌​‌‌‌​​‌‌​​​‌​​‌​‌​​​​‌​​‌‌​‌​‌​‌‌‌‌​‌‌​‌‌​‌​‌‌‍and the reasoning that supports that holding.” .

But, even faithfully adhering to the section of the opinion, we cannot say that it contradicts today‘s decision. To the contrary, it too fits within the rule announced today: does not apply to a single vertical conspiracy where the plaintiff has purchased directly from а conspiring party in the chain of distribution. We can accept that prohibited the non-Blue Cross plaintiffs in from suing Blue Cross directly when the claims were purely derivative through the hospitals’ alleged “cost-shifting.” Those facts are not the facts of this case, however: Plaintiffs’ claims are not derivative or reliant on cost-shifting theories. The claims are directly against a conspiring party in the chain of distribution.

Moreover, , and , do not bear on our decision. First, is distinguishable for the same reasons as and . Second, that the Supreme Court refused to carve out another exception to the doctrine in —a case where the facts seemed ripe for an exception—is unremarkable. Plaintiffs here, unlike in , are not looking for an exception to based on the facts of a particular market; simply does not apply to this kind of conspiracy.

Conclusion

We conclude that is inapplicable to the present case whеre the complaint alleges a vertical conspiracy with no pass-on. In such a case, Plaintiffs have standing to assert a claim against American Cyanamid directly under the antitrust laws. The district court decision to dismiss the complaint must be vacated. The case is remanded for further proceedings.

VACATED AND REMANDED.

Notes

1
Although this aсt may be, by itself, unexceptional (as it is the only way to turn a profit on the individual product), we will assume, due to the procedural posture of this case, that Plaintiffs have shown a vertical price-fixing conspiracy.
2
The two exceptions—neither of which apply here—are where there is a preexisting cost-plus contract or where the direct purchaser is owned or controlled by its customer. See , .
3
Hanover Shoe said that a manufacturer cannot assert a “passing-on” defense (that is, the defense that the plaintiff has no damages when he passed the overcharge on down the production linе) against a direct purchaser of its product. , .
4
Considering the loose nature of notice pleadings, a potential plaintiff might allege only a vertical conspiracy when there is in fact a horizontal conspiracy as well or some other kind of illegal conduct (for example, tying or monopоlistic behavior). By so doing, some clever plaintiff could elude a defendant‘s 12(b)(6) motion but then later recover in the lawsuit for the pass-on injury of a horizontal conspiracy—the kind of injury for which a middleman could also recover. This circumstance could present the double-recovery problem. So, courts must be attentive in holding plaintiffs to their pleadings or, if plaintiffs seek to amend their pleadings to add a kind of conduct from which pass-on could be claimed, in forcing the plaintiffs to join the middlemen as well. Cf. (holding suit against somewhat distant defendant permissible where plaintiffs changed their theory of recovery to onе that does not involve pass-on).
5
Two other kinds of potential plaintiffs—intermediaries who could sue the manufacturer either (1) for coerced participation in an unlawful scheme or (2) termination for refusing to adhere—may exist given the occurrences alleged in this case. But these kinds of potential plaintiffs do not change the rule about the need to join intermediaries in the case before us now. Such suits would result in a different measure of damages: the damages would not be pass-on and would not factor into Plaintiffs’ recovery. In the event that a manufacturer might have to pay two sets of damages, it only meаns he committed two different injuries; this circumstance is not the double recovery of .
6
faced the prospect of distant government plaintiffs and intermediate supplier-plaintiffs or dealer-plaintiffs recovering repeatedly from the manufacturers for the same pass-on injury resulting from the same horizontal сonspiracy.
7
See (“While such a calculation [of the price that would have prevailed in a non-pass-on case] would appear ‍​‌​‌‌‌​​‌‌​​​‌​​‌​‌​​​​‌​​‌‌​‌​‌​‌‌‌‌​‌‌​‌‌​‌​‌‌‍to be a simple one, even if it is complex it would not be the type of complexity that the Court was concerned with.“).
8
In this case, no dealers had sued American Cyanamid at the time of the appeal even though the statute of limitations was running out.