So Your Suppliers Conspired Against You: an Antitrust Class Action Opt-out Primer

• Publication year: 2014
• Author: By Paula Blizzard, Justina Sessions, and Daniel Gordon

SO YOUR SUPPLIERS CONSPIRED AGAINST YOU: AN ANTITRUST CLASS ACTION OPT-OUT PRIMER

By Paula Blizzard, Justina Sessions, and Daniel Gordon¹

I. INTRODUCTION

You've just learned that one of your company's suppliers has pled guilty to an antitrust violation. A quick internet search reveals that international government antitrust authorities raided several suppliers a few months ago. And hot on the heels of the guilty pleas, a series of civil class action suits are filed against your supplier and others. The class actions may already have been consolidated into a Multi-District Litigation ("MDL"), or consolidation may be imminent. At first it may be difficult to believe. How could trusted and long-term suppliers conspire against a major customer? It may be hard to grasp, but the reality is that it happens. If there have been guilty pleas, then almost certainly your company has been overcharged for products. The question is: what to do about it?

Large companies are generally far more used to being defendants than plaintiffs, and figuring out how to proceed as an antitrust victim can be unchartered territory. At the outset, the company's options and avenues for recovery must be assessed and preserved. One of the most important decisions may be whether and when to opt out of civil class action lawsuits. Large purchasers often opt out of antitrust class actions in favor of pursuing individual recovery. Those who have taken their individual claims to trial have achieved mixed results. Far more commonly, large purchasers pursue their own private resolution with antitrust defendants.

This article discusses practical considerations for large purchasers who are victims of an admitted antitrust conspiracy, and focuses on federal and California-law issues. First, we provide a simple decision-making process for large purchasers comprised of three steps: (1) assess your company's relationship to the suppliers; (2) preserve your claims; and (3) determine whether to remain in the class or pursue your claims independently. Second, we provide a more detailed analysis of two types of antitrust claims for which the application of California or federal law could yield different outcomes: (1) indirect-purchaser claims with a pass-on defense, and (2) antitrust claims that implicate foreign conduct or injury.

II. HOW SHOULD YOU PROCEED? A THREE-STEP PROCESS

A. First, assess what types of claims you might have: are you a direct purchaser, indirect purchaser, or both?

Different rules—including standing, statute of limitations, applicable defenses, and potential for monetary relief—govern claims by direct and indirect purchasers. Thus, it is important to know at the outset what types of claims your company may have. A direct purchaser is one that bought affected goods directly from a cartel member. An indirect purchaser is one that bought affected goods sold by a cartel member, but through an intermediary. Direct purchasers can bring federal and California-law claims for injunctive and monetary relief, whereas indirect purchasers can bring federal claims for injunctive relief and California-law claims for injunctive and monetary relief.

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Once you learn that you may be the victim of an antitrust conspiracy, investigate your purchasing structure and practices to ensure that you understand whether you have direct and/or indirect claims. Keep in mind that companies may be both direct and indirect purchasers; for example, subsidiary A might buy price-fixed steel and manufacture it into a finished product that subsidiary B sells to customers. Or it might be even more complicated: foreign subsidiary A might purchase directly from the cartel, but the product is then shipped to an intermediary that finishes it into a final product, which may be transferred to subsidiary B for import into the U.S. Is the foreign subsidiary a direct purchaser that can bring claims in the U.S.?² Is the product actually sold to the intermediary, or is the intermediary just a contractor? Moreover, you need to figure out the relationship and chain of custody not just for today, but for the life of the conspiracy, which may go back many years.

Unless you are certain that you know the corporate relationships and purchasing history for the entire period of the cartel, and that all your purchases will be considered either direct or indirect by the courts, it is safest to assume that you have both direct and indirect claims.

B. Second, preserve your claims 1. Check the statute(s) of limitations

Before considering your options for participation in litigation and/or private recovery against cartel members, you must first ensure that your company still has claims to bring (or use as negotiating leverage). The statute of limitations for federal antitrust actions for damages is four years. 15 U.S.C. § 15B. California's Cartwright Act has the same four-year statute of limitations as the federal antitrust statute. See Cal. Bus. & Prof. Code § 16750.1 (four-year statute of limitations in civil actions). However, the limitations period generally does not begin to run until the plaintiff discovers or should have discovered the injury. See, e.g., In re Scrap Metal Antitrust Litig., 527 F.3d 517, 536 (6th Cir. 2008); Grisham v. Philip Morris U.S.A., Inc., 40 Cal. 4th 623, 634 (2007). The discovery rule is fact dependent, but a conservative approach assumes that the latest date the statute begins running is when a defendant's plea agreement is announced.³ Thus, your company may have four years from the date of the plea agreement to decide what to do. In individual cases, defendants may try to argue for an earlier date (for instance, the date of the government raids) or you may argue for a later date (for instance, based on tolling of the statute.)

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2. Consider whether government investigations or pending class actions toll the statute

Although the statute of limitations generally begins to run at the time of injury or discovery of that injury, government investigations and civil class actions may toll the limitations period under federal and California law.

The four-year limitations period for federal-law claims is suspended while related antitrust enforcement actions by the United States are pending and for one year thereafter. 15 U.S.C. § 16(i). In order to receive the benefit of this suspension provision, however, a private plaintiff must bring suit within one year of the termination of the enforcement proceeding. Id. The government enforcement period begins when the government files an indictment, criminal information, or complaint for injunctive relief, and continues until litigation against all defendants is completed.⁴ The limitations period is suspended with respect to all conspirators, rather than just those conspirators named in an enforcement action. Zenith Radio Corp. v. Hazeltine Research, Inc., 401 U.S. 321, 335-36 (1971) (holding that the statute of limitations is tolled "against all participants in a conspiracy which is the object of a Government suit, whether or not they are named as defendants or conspirators therein"). This tolling statute does not, however, explicitly apply to California-law claims. Federal courts addressing the issue have generally relied on the parties' agreement that tolling did or did not apply. Compare In re Reformulated Gasoline Antitrust & Patent Litig., No. MLCV 05-1671 CAS, 2006 WL 7123690...