On November 12, 2015, the United States Court of Appeals for the Third Circuit in Hanover 3201 Realty, LLC v. Village Supermarkets, Inc. affirmed in part and vacated in part the lower court’s determination that the plaintiff lacked standing to pursue Sherman Act Section 2 claims in markets for which it was neither a consumer nor competitor of the defendants.
Some commentators have suggested that the ruling either is, or will facilitate, a significant expansion of the types of plaintiffs able to avail themselves of federal antitrust remedies.The Third Circuit’s decision inHanover is far from novel, however, comporting fully with the Supreme Court’s decades-old and undisturbed holding in Blue Shield of Virginia v. McCready, which held that a plaintiff whose injury was “inextricably intertwined” with harm caused by an anticompetitive scheme had standing to sue under the federal antitrust laws, notwithstanding whether or not the plaintiff was a participant in the relevant antitrust market.
ShopRite’s Alleged Exclusionary Scheme and Hanover’s Claims
In July of 2012, Hanover Realty, a real estate developer, entered into a lease and site-development agreement with Wegmans, a major grocery chain, for the purpose of constructing a “full-service supermarket,” which contrasts with standard supermarkets by offering “one-stop shopping” amenities such as prepared foods, on-site dining, wine and liquor, specialty products, pharmacies, banks, and at times even fitness centers. Under the agreement, Wegmans had the right to walk away from the deal if Hanover Realty failed to secure certain permits within two years. When ShopRite—which operates 26 supermarket locations throughout New Jersey, including one in close proximity to the proposed Wegmans’ site—learned of Wegmans’ plan, it allegedly “launched a petitioning campaign, designed to block Hanover Realty from obtaining the permits and approvals it needed to proceed with the project.” Although frustrating Hanover Realty’s business relationship with Wegmans and forcing Hanover Realty to defend against ShopRite’s multi-faceted petitioning campaign was the means by which ShopRite carried out its alleged exclusionary scheme, it was claimed that its overarching aim and goal was to preclude ShopRite’s competitor, Wegmans, from entering the local full-service supermarket market.
- First, after Hanover Realty had received a flood hazard area permit from the New Jersey Department of Environmental Protection (“Env. Deparment.”), ShopRite submitted an appeal to the Env. Department requesting a hearing and order vacating the permit on the ground that ShopRite would be “‘detrimentally impacted’ by the competition from Wegmans.” The Env. Department rejected the request on standing grounds and on the merits.
- Second, Hanover Realty sought a wetlands permit from the Env. Department. ShopRite hired an ecological consulting firm to challenge the permit on the ground that the Wegmans site may be a habitat for an endangered species. ShopRite’s challenge strongly urged the Env. Department to not act with “haste” in issuing its decision. ShopRite also submitted a complaint to the U.S. Fish and Wildlife Service, despite the fact that the wetlands at issue were not federally regulated waters. Each of ShopRite’s challenges was unsuccessful on the merits, although they delayed the issuance of the permit.
- Third, ShopRite uncovered an agreement between Hanover Realty and the New Jersey Department of Transportation (“DOT”) that purported to require certain expensive improvements to the roadways surrounding the proposed Wegmans site. Although ShopRite was successful in arguing that the agreement would require the improvements, the DOT ultimately concluded that “the improvements may no longer be appropriate or feasible,” and invited Hanover Realty to negotiate a modification to its agreement with the DOT.
- Fourth, a year after Hanover Realty applied to rezone the proposed Wegmans site, and shortly after its approval, ShopRite filed suit in New Jersey Superior Court to nullify the approval. Subsequently, ShopRite amended its complaint three times (allegedly for the purpose of delay). The New Jersey Superior Court dismissed the action on standing grounds and on the merits.
Following ShopRite’s failed legal challenges, Hanover Realty sued ShopRite and certain affiliated entities in federal court alleging antitrust claims under Section 2 of the Sherman Act. Wegmans did not join the suit or file its own lawsuit. Hanover Realty’s complaint included one count of attempted monopolization of the local full-service supermarket market (in which Hanover Realty was neither a consumer nor a competitor), and a second count alleging the same claims with respect to the supermarket rental space market (in which Hanover Realty was a participant).
Hanover’s Precedentially Sound Antitrust Injury Holding
Hanover’s antitrust claims in the market in which it did not participate were upheld, while its claims in the market in which it did participate were not. Despite this apparent facial inconsistency, the reasoning underlying both holdings is firmly rooted in undisturbed Supreme Court precedent and comports with decisions from a number of the federal circuit courts.
The Full-Service Market for Supermarkets
Hanover Realty’s first count alleged attempted monopolization of the full-service supermarket market, a market in which it conceded it was neither a competitor nor consumer. Instead, Hanover Realty urged that it fit within McCready’s “inextricably intertwined” doctrine because its harm was a necessary component of ShopRite’s scheme to block Wegmans from the local full-service supermarket market. Relying onMcCready’s rule that “the class of plaintiffs capable of satisfying the antitrust-injury requirement is limited to consumers and competitors in the restrained market . . . and to those whose injuries are the means by which the defendants seek to achieve their anticompetitive ends,” a divided Third Circuit panel concluded that—for this count—Hanover Realty’s injuries were inextricably intertwined with the ShopRite’s scheme to exclude Wegmans despite Hanover Realty’s lack of market participation.
The panel majority reasoned that ShopRite “sought to impose costs not on their competitor, but on Hanover Realty” in order to “keep Wegmans out of the market.” Absent the relationship between Hanover Realty and Wegmans, ShopRite’s conduct “would have been without purpose of effect.” ShopRite would succeed either by inflicting high enough costs on Hanover Realty that it would abandon the project or by delaying the project long enough that Wegmans would back out of the deal. In either scenario, injuring Hanover Realty was the very means by which ShopRite would block competition from Wegmans. By way of analogy, the panel majority noted that had Wegmans simply purchased the property from Hanover Realty, it would indisputably qualify as a proper antitrust plaintiff—that “the parties’ lease shifted these costs to Hanover Realty” should not immunize otherwise quintessential antitrust injury.
The Full-Service Supermarket Shopping Center Market
Hanover Realty’s second count alleged attempted monopolization of the full-service supermarket shopping center rental space market. For this claim, Hanover Realty did not rely on McCready’s inextricably intertwined doctrine, claiming instead that it directly competed with H&H Development, a company that owned the land that certain ShopRite locations resided on. While it was true that Hanover Realty participated in this alleged market, the Third Circuit ruled that H&H Development did not. Essentially, the Third Circuit concluded that H&H Development was a wholly-owned subdivision of ShopRite that did not actively “rent” land to anyone besides ShopRite (if H&H’s agreement with ShopRite could even be characterized as a “rental”).
Hanover Wholly Comports with McCready and its Progeny
One need look no further than McCready to undermine any suggestions that Hanover carved out a new or unprecedented expansion of the inextricably intertwined doctrine. In McCready, the Supreme Court considered an employee covered by a group health plan purchased from the defendant Blue Shield. Under that plan, Blue Shield, would reimburse the plaintiff employee for services provided by psychiatrists, but not psychologists. McCready, a consumer, was denied reimbursement, and sued Blue Shield alleging a scheme to exclude psychologists. Though she was a consumer in the psychotherapy market, the Third Circuit observed that the “Supreme Court’s explanation of why she suffered antitrust injury emphasized not her status as a market participant, bur rather that she was directly targeted for harm by parties ultimately wishing to inflict a derivative harm on a competitor.” Denying McCready reimbursement was the “means” by which Blue Shield achieved its claimed illegal ends.
To illustrate and “underscor[e] that its reasoning was not limited to consumers,” the Supreme Court inMcCready advanced a hypothetical: “If a group of psychiatrists conspired to boycott a bank until the bank ceased making loans to psychologists, the bank would no doubt be able to recover the injuries suffered as a consequence of the physiatrists’ actions.” The Supreme Court declared this to be true even though the ultimate targets of the anticompetitive scheme in the hypothetical was psychologists, not the bank, and the hypothetical bank was neither a consumer nor competitor in the psychology market. Despite not being a market participant, the bank’s injury was necessary to the anticompetitive scheme, rather than entirely derivative of it. “Similar reasoning applie[d]” to ShopRite’s scheme to block competition from Wegmans by harming Hanover Realty. That Hanover Realty’s injuries are directly analogous to those of the hypothetical bank in McCready should be clear. And while it is invoked less frequently than consumer or competitor standing, inextricably intertwined standing is no novelty.
For example, the Southern District of New York in In re Aluminum Warehousing Antitrust Litig., recently held that a class of direct purchasers of physical aluminum could pursue antitrust claims against defendants “notwithstanding that defendants do not sell [physical] aluminum and could not, strictly speaking, fix its price.” Instead, the defendants, seeking to profit off of certain trading positions, caused supplies of aluminum stored in warehouses “to increase dramatically,” which in turn generated a “premium” on physical aluminum sales. Though the plaintiffs and defendants did not participate in the same markets, the plaintiffs could recover because, “as in McCready,” it was a question of whether “the injury alleged is so integral an aspect of the conspiracy alleged, there can be no question but that the loss was precisely the type of loss that the claimed violations . . . would be likely to cause.” In short, the direct purchasers’ harm was “inextricably intertwined with the competitive landscape in which defendants’ alleged scheme ultimately played out.” Analogous decisions abound.
And these cases are not a new development. Since at least 1983, the Second Circuit has appliedMcCready’s inextricably intertwined doctrine to support a finding of antitrust standing in situations analogous to Hanover. For example, in Crimpers Promotions, Inc. v. Home Box Office, Inc., a trade show organizer aledgedly was boycotted by HBO, with the alleged aim of monopolizing the pay-cable programming market. Crimper’s was neither a competitor nor consumer in that market, but rather profited by bringing together those that were. By organizing the boycott, however, HBO aledgedly benefited by squashing the organization and association of actual or would-be competitors at the trade show, a clearly anticompetitive aim. Accordingly, the Second Circuit ruled that the trade show had antitrust standing to recover its lost profits despite not being a participant in the monopolized pay-cable television market. The Sixth Circuit has endorsed the same principle at least as far back as 1986 and the Tenth Circuit since 1990. True, two federal circuit courts have not read McCready so broadly,but the conclusions of these courts is difficult to reconcile with the sweeping scope of McCready’s bank hypothetical. And they do little to undermine the plain facts that Hanover’s rational aligns perfectly withMcCready.
Noerr-Pennington Immunity and the Sham Litigation Exception
The panel majority next considered ShopRite’s Noerr-Pennington immunity defense, which provides immunity for government-related petitioning activity, including civil lawsuits. In rejecting the doctrine’s applicability, the Third Circuit joined the Second, Fourth and Ninth Circuits in holding that a series of alleged sham petitions is subject to greater antitrust scrutiny than a single alleged sham petition. The former situation is governed by the Supreme Court’s decision in California Motor Transportation Co. v. Trucking Unlimited, and “the question is not whether any one [of the petitions] has some merit—some may turn out to, just as a matter of chance—but whether they are brought pursuant to a policy of starting legal proceedings without regard to the merits and for the purpose of injuring a market rival.” More specifically, the inquiry asks whether the lawsuits are part of a pattern or practice of successive filings undertaken for the purpose of harassment; if so, immunity is unavailable. Comparatively, in the latter situation, guided by the Supreme Court’s decision in Professional Real Estate Developers, Inc. v. Columbia Pictures Industries, Inc., the petition must be completely and objectively baseless, such that even the most marginal success would trigger antitrust immunity.
Though Hanover breaks no new ground, it has already encouraged at least one plaintiff that might not otherwise have pursued antitrust remedies to turn to the federal courts. While Hanover may encourage more of these types of plaintiffs to bring antitrust suits, one thing seems clear: their access to such remedies is neither novel nor new and should not be controversial.