In Quality Auto Painting Center of Roselle, Inc. v. State Farm Indemnity Co., 2019 WL 1006973, on March 4, 2019, the Eleventh Circuit, sitting en banc, addressed the sufficiency of five complaints brought under the Sherman Act for price-fixing and group boycotting and state law claims for unjust enrichment, quantum meruit, and tortious interference. The plaintiff auto body shops alleged that insurance companies, who supply the vast majority of the body shops’ revenue, had conspired to ultimately depress the amounts they pay to the body shops for repairs on behalf of their insureds. Roughly 22 lawsuits were filed around the country, and this decision resolved five of them.
First, the body shops alleged that the insurance companies entered “direct repair programs” agreements, agreeing to pay “market rate” to a body shop who becomes a “preferred provider.” The body shops alleged that State Farm used unsound methodology for determining the market rate, contacted body shops demanding lower rates, and threatened to remove them from the preferred provider list if the rates went up. Meanwhile, the body shops alleged, the established “market rate” would then govern the rates for all customers, even those not party to the direct repair programs.
Second, the body shops alleged that the insurance companies combined to depress the amounts they paid for replacement parts on damaged vehicles by refusing to pay for “original equipment manufacturer” parts but only for “aftermarket” or “salvaged” parts, which cost the body shops more labor time and less safety.
Lastly, the body shops alleged that the insurance companies engaged in “steering”—effectively controlling which shop the insured selects by representing that certain providers are not on the preferred list, take a long time to repair, or perform work that cannot be guaranteed.
Examining the illegal price-fixing claims, the Eleventh Circuit observed that the Sherman Act prohibits (1) conspiracies that (2) unreasonably (3) restrain interstate trade.
The body shops argued that they had sufficiently alleged certain “plus factors”—namely, uniformity of price, uniformity of tactics, contrary to economic interest, opportunity to exchange information—that plausibly suggested illegal price-fixing. One by one, the court, in an opinion by Senior Judge Lanier Anderson, found the absence of each “plus factor.”
Uniformity of price can only be invoked where one would otherwise expect divergent pricing. Not so here, said the en banc court. These are standardized parts and repairs. The insurance companies’ refusal to pay more than State Farm was not illegal but a rational and legitimate strategy involving “clearly legal price leadership.”
Uniformity of tactics can suggest price fixing where there is similarity of language, terms, or conditions that would be improbable absent collusion. But the court found that the language actually used in the complaint suggested the opposite. Whatever similar behavior the insurance companies may have had in requiring used parts or offering discounts stemmed from “the most common of corporate stimuli: a desire to increase profits.”
Throughout its opinion, the court noted that it was applying principles that had governed even “[l]ong before [Bell Atlantic Corp. v. ]Twombly.”
The body shops argued that the insurance companies’ adherence to State Farm’s market rate and payment structures contradicted the industry databases and thus their own self-interest. The court made short work of this argument.
The body shops argued that identical labor rates, identical refusal to compensate for the same processes, and identical false excuses showed that the insurance companies had opportunity to exchange information. The court found that the factual allegations did not support this conclusion, and even if they did, the court could not make the leap to infer that the exchange of information was what had caused any identical behavior that was consistent with competitive conduct. The court accordingly dismissed the price-fixing claims.
Turning to the group boycott antitrust claims, the court observed that a boycott consists of pressuring a party by enlisting others to withhold patronage or services from that party. To be per se illegal, it must involve horizontal agreements among direct competitors. The court found these allegations even weaker than the illegal price-fixing allegations. The court also dismissed the quantum meruit and unjust enrichment claims.
In examining the state law tortious interference claim, the court fine-tuned Ashcroft v. Iqbal’s prohibition of group pleading. The gist of the problem with group pleading is the failure to give notice to each named defendant of the claims against it. The court disagreed with the district court that the failure to name a plaintiff or to identify specific defendants or specific customers deprived the defendants of fair notice. “Defendants” explicitly referred to each and every defendant. That was enough. So it remanded to the district court to assess the sufficiency of only the tortious interference claim.
Judge Jordan filed a concurring opinion, joined by Judge Martin, which simply critiqued the majority’s reliance on a book on collision repairs as an improper subject for judicial notice.
Judge Wilson, who was on the original panel, dissented from the majority’s opinion that the plaintiffs had failed to state claims for the Sherman Act claims. Judge Wilson’s spirited dissent diverged from the majority opinion at every turn, finding the complaint “replete with factual allegations showing consciously parallel conduct,” most notably, that the insurance companies routinely and uniformly refused to pay more than State Farm, refused to reimburse body shops for specific sets of repairs, and refused to reimburse shops for new or higher quality parts. Judge Wilson also found plausible inferences of each of the plus factors—uniform pricing, frequent meetings to discuss prices, market structure, exchange of price information—and bemoaned that “never has it been harder for an antitrust plaintiff to proceed to discovery.”