Plaintiffs, five Alabama farmers, have appealed a district court order dismissing an antitrust complaint for failure to join middlemen dealers as defendants pursuant to
Illinois Brick Co. v. Illinois,
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 dealer 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 dealers overwhelmingly responded by selling the product at or above the specified minimum resale price. 1
*1229 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 they 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 Illinois Brick. 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 Harper v. Blockbuster Entertainment Corp.,
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 Illinois Brick to bar this complaint from proceeding directly against American Cyanamid without joining the independent dealers.
Illinois Brick, so Plaintiffs’ argument goes, 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 Illinois Brick, but are direct purchasers from a conspiring party.
American Cyanamid counters that the rule of
Illinois
Brick—that indirect purchasers cannot 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
Illinois Brick
to bar claims somewhat similar
to
this one in
In re Beef Industry Antitrust Litigation,
We agree with the Plaintiffs. Illinois Brick has no application in this case.
Illinois Brick
was an extension of the Court’s earlier prohibition against the
defensive
use of passing on in
Hanover Shoe, Inc. v. United Shoe Machinery Corp.,
Neither of the rationales applies to the very different case of vertical conspiracy with no allegations of passing on:
Illinois Brick 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 hable with the dealer for the consumer’s injury.
2 Phillip E. Areeda & Herbert Hoven-kamp, Antitrust Law 264 (rev. ed.1995) (footnotes omitted).
This case presents no problems of double recovery because only one illegal act (the vertical conspiracy) 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 Illinois Brick was concerned. 6
Second, the economic and legal complexities outlined in
Illinois Brick
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 contemplated in
Illinois
Brick:
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
*1231
expert witnesses[.]”
Illinois Brick,
The complexities
Illinois Brick
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.”
Id.
at 737,
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 Texas Industries, Inc. v. Radcliff Materials, Inc.,
Today’s vacation of the district court’s decision to dismiss makes no new law. The inapplicability of
Illinois Brick
to vertical conspiracies with no allegations of pass-on (what some have called the “vertical conspiracy exception”) has long been recognized.
See Shamrock Foods,
And the facts of the cases cited by American Cyanamid are materially different. In In re Beef, 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 delay, we cannot hold that the district court abused its discretion.”
In re Beef,
In context, the discussion of Illinois Brick looks like dicta, given that the standard of review was abuse of discretion and that the In re Beef court had already decided to affirm the denial of the amendments. But even supposing that the Illi *1232 nois Brick paragraph is binding in materially similar cases, it would have no impact here, because here — unlike In re Beef— there is no allegation of both a vertical conspiracy as well as a horizontal conspiracy one step removed from the plaintiffs. Put another way, In re Beef is consistent with the rule we announce today. Not every vertical conspiracy allegation will get around the Illinois Brick doctrine. An alleged vertical conspiracy on top of a horizontal conspiracy — like the situation in In re Beef— does not, as the plaintiffs in In re Beef had hoped, “save” the overall conspiracy claims. Instead, the Illinois Brick doctrine might apply even more strongly in a case like In re Beef.
Illinois Brick is not some formulaic “remoteness” doctrine wherein a plaintiff who proves he purchased from a conspiring party — any conspiring party — automatically escapes the Illinois Brick bar. Instead, Illinois Brick 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 In re Beef: the risks of (1) double liability; and (2) economic and legal complexity. The difference between In re Beef and the ordinary horizontal conspiracy is that In re Beef 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,
Austin v. Blue Cross & Blue Shield,
The
Austin
opinion set out several explanations for the court’s decision that the non-Blue Cross patients lacked standing to maintain the lawsuit.
See id.
at 1393. At least two of those reasons were independent of the others.
See id.
at 1389 (observing that, apart from
Illinois. Brick,
“[b]oth causation and antitrust injury[, which were not proved,] are essential elements of antitrust standing.”). The
Illinois Brick
reasoning was therefore likely not critical to the decision in the case. Moreover, “[t]here is, of course, an important difference between the holding in a case and the reasoning that supports that holding.”
Crawford-El v. Britton,
But, even faithfully adhering to the Illinois Brick section of the Austin opinion, we cannot say that it contradicts today’s decision. To the contrary, it too fits within the rule announced today: Illinois Brick does not apply to a single vertical conspiracy where the plaintiff has purchased directly from a conspiring party in the chain of distribution. We can accept that lili--nois Brick prohibited the non-Blue Cross plaintiffs in Austin from suing Blue Cross directly when the claims are 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,
In re Brand Name Prescription Drugs Antitrust Litigation,
Conclusion
We conclude that Illinois Brick is inapplicable to the present case where 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
. Although this act 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.
. 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 Illinois Brick,
.
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 line) against a direct purchaser of its product.
. 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 monopolistic 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
Illinois Brick
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. Arizona v. Shamrock Foods Co.,
. 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 means he committed two different injuries; this circumstance is not the double recovery of Illinois Brick.
. Illinois Brick 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 conspiracy.
.
See In re Mid-Atlantic Toyota Antitrust Litig.,
. In this case, no dealers had sued American Cyanamid at the time of the appeal even though the statute of limitations was running out.
