In White v. R.M. Packer Co., Inc.,[1] the First Circuit affirmed a lower court decision granting summary judgment to a group of gasoline stations sued by residents of Martha’s Vineyard for illegal pricefixing. The court recognized parallel price-fixing between the gas stations, unique features of the gasoline market on Martha’s Vineyard, and troubling interactions among the gasoline stations, all of which could lend itself to an agreement to fix prices, which is per se illegal under Section 1 of the Sherman Act. However, the Sixth Circuit declared that such evidence could equally support mere conscious parallelism, which is a result of oligopolistic markets that is not itself unlawful. Because the court concluded that the plaintiffs had failed to produce evidence that is not only consistent with conspiracy, but also “tends to exclude the possibility of independent action,” they did not meet the pleading standard for horizontal price-fixing suits. Accordingly, the suit was dismissed.

Background

Defendants represent four of the nine gas stations operating on Martha’s Vineyard. Several aspects of the retail gas market in Martha’s Vineyard lend themselves both to the possibility of lawful conscious parallelism or unlawful conspiratorial pricing. First, new gas stations seeking to establish a business on Martha’s Vineyard must first obtain permission from the town Commission. The last successful petition was granted in 1997, creating a significant barrier to entry. Second, the consumer demand for gasoline on the island is inelastic, meaning consumers will continue to buy gasoline from the dealers despite fluctuations in price because there are no alternatives. Third, gasoline prices are posted prominently, making it easy for competing dealers to monitor each other’s pricing and respond to price fluctuations. The price of gasoline at defendants’ stations were on average 56 cents higher than the price of gasoline on Cape Cod during the relevant period. Only 21 cents of this difference can be attributed to higher costs associated with transporting the gasoline.

The District Court Decision

Angered by the high prices, a group of Martha’s Vineyard residents filed suit against the dealers in state court for alleged price-fixing under Massachusetts antitrust law.[2] Defendants removed to federal court and plaintiffs amended their complaint to include federal price-fixing allegations. Defendants moved for summary judgment after limited discovery, and the district court dismissed the suit, finding that plaintiffs’ evidence was as consistent with conscious parallelism as it was with a conspiracy to fix prices. Plaintiffs appealed, arguing in part that the district court applied the wrong legal standard and considered their evidence of so-called “plus” factors individually rather than as a whole.

The First Circuit Decision

The First Circuit began its analysis by considering whether the district court applied too stringent a standard in assessing plaintiffs’ price-fixing claims. The appellate court recognized that under Section 1 of the Sherman Act, “agreements to fix prices are so plainly anticompetitive that they are per se illegal.”[3] However, it stressed that Section 1 “does not reach independent decisions, even if they lead to the same anticompetitive results as an actual agreement among market actors.” Plaintiffs argued that the district court required them to produce evidence that excluded the possibility of independent action, whereas the actual Sherman Act standard only requires evidence that “tends to exclude the possibility that the alleged conspirators acted independently.”[5] The First Circuit disagreed, declaring that “[n]othing in the district court’s opinion suggests that the court required plaintiffs to produce direct evidence of conspiracy as plaintiffs claim.”[6]

Next, the First Circuit considered the nine “plus” factors offered by plaintiffs as a means of satisfying the pleading standard for horizontal price-fixing. The plus factors were intended to help “minimize the risk that legal conduct will be chilled or punished” by requiring plaintiffs to “plead[] and later produc[e] evidence pointing towards conspiracy. . . .”[7] Before analyzing each factor, the First Circuit noted that “many so-called plus factors simply demonstrate that a given market is chronically non-competitive without helping to explain whether agreement or conscious parallelism is the cause.”[8]

Plaintiffs’ first plus factor was the steady price of gasoline at the gasoline stations over time despite a decrease in cost of gasoline during the same time period. The court noted that “changes in pricing patterns and profit levels may be useful in identifying the beginning of a conspiracy.”[9] However, there was no evidence that the prices at the gasoline stations suddenly shifted during the years of the alleged conspiracy. As a result, the steady level of pricing despite a drop in costs only demonstrated that the defendants were operating in an oligopolistic market that allowed them to charge supracompetitive prices, and did not demonstrate that an agreement had been reached.

The court arrived at the same conclusion regarding plaintiffs’ second plus factor, i.e., that the defendants had enjoyed abnormal profits during the applicable time period.

Plaintiffs’ third plus factor was that defendants had a motive to conspire with one another. In response, the First Circuit commented that “evidence showing ‘defendants have a plausible reason to conspire’ does not create a triable issue as to whether there was a conspiracy.” [10]

The fourth and fifth plus factors offered by plaintiffs were the high barriers of entry to the gasoline market on Martha’s Vineyard because the town Commission must approve each new entrant, and that the gasoline market consumer demand was highly inelastic. The court concluded that while “[h]igh barriers to entry and inelastic demand are two hallmarks of oligopolistic markets susceptible to successful parallel pricing practices, [ ] neither helps to distinguish between agreement and mere conscious parallelism as the root cause of those practices.” [11]

A sixth plus factor offered by plaintiffs was that the defendants enjoyed stable market shares over time. Again, the court concluded that while stable market shares could demonstrate the elimination of competition among the participants in the market, it could also be the result of conscious parallelism. Plaintiffs’ expert even recognized that “nearly constant market shares are consistent with both cooperative and non-cooperative pricing behavior.”[12]

Plaintiffs seventh plus factor was the price differential of gasoline between Martha’s Vineyard and Cap Cod. While a comparison of regional pricing might indicate collusion under certain circumstances, the First Circuit was of the view that the previously noted factors provided lawful explanations for the higher gas prices on Martha’s Vineyard.

Plaintiffs’ eighth plus factor was that one of the gas stations had retained a consulting firm to lobby against the town Commission approving permits for new dealerships. The court found that the gas station’s “unilateral retention of a consultant was a legitimate exercise of its right to petition,” and was the type of activity the Supreme Court sought to protect by establishing its antitrust pleading standards.[13]

Finally, plaintiff’s offered evidence of interactions between the defendants. The First Circuit considered this to be the most serious of all of the plaintiffs’ evidence. Two witnesses who attempted to open a gasoline station on Martha’s Vineyard testified about a series of meetings they had with one of the defendants to discuss the possibility of purchasing wholesale gasoline from that defendant for their new station. During the meetings, the defendant’s owner had referenced communications with other defendants implying a close relationship among the owners. The defendant involved apparently also made vague threats about the new entrant not receiving shipments if it purchased from another source. The same owner later denied at a deposition that any such communications took place.

The court noted that communications between parties followed by falsehoods about those communications is “traditional conspiracy evidence of the type that helps to distinguish between conscious parallelism and collusion and that is necessary to an inference of agreement.”[14] However, in the Martha’s Vineyard matter, the duel roles the gasoline stations played as both wholesalers and retailers prevented evidence of communications between the parties from rising to evidence sufficient to raise an inference of a price fixing in that market. The court stressed that “[p] roducer actions in the two levels cannot be conflated to produce an antitrust violation when there is no violation in either market alone.”[15] Furthermore, the plaintiffs had not alleged a conspiracy to fix prices in the wholesale gasoline market.

Plaintiffs also offered as evidence of conspiracy inconsistent testimony by defendants regarding how much profit they derived from their businesses. While the First Circuit recognized the apparent discrepancies concerning the evidence, the court concluded that it was insufficient to establish that an illegal agreement had been reached. The court found evidence of an extremely generous loan agreement between two of the defendants equally unconvincing. The court reasoned that since one of the defendants was acting as a wholesaler for the other, there was a legal explanation for why the wholesaler would want to keep his customer in business. The loan by itself did not demonstrate that an agreement had been reached between the two parties to fix retail prices as a condition of obtaining the loan.

Conclusion

The First Circuit’s decision in this case demonstrates the difficult hurdles plaintiffs may face in attempting to plead an illegal price fixing agreement. Parallel pricing alone, coupled with opportunity and motive to conspire, are insufficient to constitute the type of plus factors the courts envision as necessary to demonstrate that a price fixing conspiracy is more likely than independent action. Indeed, highlighting the features of an oligopolistic market worked against the plaintiffs’ efforts in this particular case. Even nine alleged “plus” factors turned out to be anything but in the particular market involved.