When Cheating Is Good and Cooperation Is Bad: Conspiracies and the Continuing Violations Doctrine Under the Sherman Act: In re Pre-filled Propane Tank Antitrust Litig.

• Author: Hills, Brianna S.
• Position: NOTE

1. INTRODUCTION

   Courts have long recognized that statutes of limitation may be equitably adjusted under certain circumstances. (1) In other instances, courts have adjusted the statute of limitations not by making an equitable exception but by changing the definition of when the statute begins to run in the first instance. (2) In the antitrust context, courts have done the latter, occasionally invoking the continuing violations doctrine. (3) This doctrine allows a claimant to restart the limitations period if there is an overt act alone sufficient to be an antitrust violation. (4) The period restarts even if the overt act is performed under a pattern or course of prior violations that may have occurred outside of the limitations period. (5)

   The Eighth Circuit considered the issue in In re Pre-filled Propane Tank Antitrust Litigation in the context of a price-fixing conspiracy among manufacturers of propane tanks. (6) This Note considers the framework employed by the majority and goes on to suggest ways to refine that framework to reduce error costs and protect competition. To do so, an appropriate continuing violations rule must advance two seldom-advised ends: encouraging cheating and discouraging communication.

2. FACTS AND HOLDING

   In the wake of increasing propane costs between 2006 and 2008, the two largest distributors of pre-filled propane tanks reduced the fill level of their tanks from seventeen pounds to fifteen pounds. (7) At the time of the price increase, the two distributors, Ferrellgas and AmeriGas ("Defendants"), made up approximately eighty percent of the American market for pre-filled propane exchange tanks. (8) Pre-filled propane exchange tanks ("propane tanks") are used to power outdoor grills and heaters and can typically be filled with up to twenty pounds of propane. (9) In 2009, a class action was filed on behalf of a group of purchasers of propane tanks from retailers of the Defendants ("2009 Class"). (10) The 2009 Class alleged that Defendants had colluded to reduce the amount of propane in their tanks while maintaining the same price per tank, effectively increasing the price of the tanks. (11) The complaint alleged that colluding to increase prices violated section 1 of the Sherman Act in addition to state antitrust and consumer protection statutes. (12)

   In its amended complaint, the 2009 Class, composed of indirect purchasers, (13) defined their class differently, referring to the class members' commonality as "persons who purchased a [p]ropane [t]ank sold, marketed, or distributed by any Defendant during the applicable limitations period." (14) Settlement negotiations ensued with both Defendants, and the 2009 Class moved for preliminary approval of the resulting settlement agreements in early December 2009. (15) Both settlement agreements defined the class slightly differently. The AmeriGas agreement defined the settlement class as "people who purchased or exchanged one or more of AmeriGas's pre-filled propane gas cylinders in the United States not for resale, between June 15, 2009[,] and November 30, 2009." (16) The Ferrellgas agreement defined the class as "people who purchased or exchanged one or more of Ferrellgas's pre-filled propane gas cylinders in the United States not for resale, between June 15, 2009[,] and the date of Preliminary Approval." (17) The district court (18) granted approval of the settlement agreements. (19)

   Over three years later, the Federal Trade Commission ("FTC") issued a complaint alleging price fixing against the Defendants arising out of the effective price increase on their propane tanks in 2008. After several months, a group of both direct and indirect purchasers filed the suit at issue ("2014 Class"). (20) The complaint again alleged that the Defendants colluded to fix prices in violation of section 1 of the Sherman Act. (21)

   The antitrust claims were all subject to a four-year statute of limitations. (22) The first complaint in this matter was filed in June 2014. (23) However, because the FTC filed an administrative complaint on March 27, 2014, the start of the limitations period was adjusted to March 27, 2010. (24) The district court held that the claims of the 2014 Class were barred by the statute of limitations. (25) The 2014 Class also asserted several equitable tolling theories, but the district court did not find them persuasive. (26) The district court granted Defendants' Motion to Dismiss. (27)

   The 2014 Class, made entirely of retailers that purchased tanks directly from the defendants, appealed. (28) For their sole point on appeal, the 2014 Class argued that the district court erred in dismissing the claims as barred by the statute of limitations, instead alleging that the continuing violations theory applied. (29) It claimed that the continuing violations theory, which says that the statute of limitations should restart after each violation of the statute, would have prevented the dismissal below. (30) The 2014 Class alleged that two types of overt acts by the Defendants suffice to restart the statute of limitations: (1) continued sales at supracompetitive (31) prices to members of the class; and (2) "conspiratorial communications between Defendants" used to maintain and police their collusive agreement to raise prices. (32)

   On appeal, a divided Eighth Circuit panel affirmed the decision of the district court, holding that the claims were barred by the statute of limitations. (33) The panel reasoned that while the continuing violations doctrine was cognizable as a mechanism for extending the statute of limitations under the Sherman Act, the two overt acts asserted by the class did not meet the requirements of the doctrine. (34) The panel majority held that the continuing violations doctrine did not apply unless the plaintiff specifically alleges a novel and overt act that constitutes a repeated invasion of the plaintiff's interests; mere performance or reaffirmation of the prior invasion does not suffice. (35) The Eighth Circuit granted rehearing en banc, vacated the panel decision, and--again divided--reversed. (36)

3. LEGAL BACKGROUND

   The Sherman Act is a broad antitrust statute that prohibits contracts, combinations, and conspiracies in restraint of trade, as well as anticompetitive behavior by monopolists. (37) All claims brought under the Sherman Act, including section 1 claims, have a four-year statute of limitations after which the cause of action is barred. (38) Limitations periods in antitrust serve the same policy goals as in most other areas of law: "to put old liabilities to rest, to relieve courts and parties from 'stale' claims where the best evidence may no longer be available, and to create incentives for those who believe themselves wronged to investigate and bring their claims promptly." (39) Limiting the time period in which suits may be brought may be especially important in antitrust cases, given that many practices subject to antitrust scrutiny are both procompetitive and wrongly condemned in exchange for treble damages. (40)

   The statute of limitations begins to run "when a defendant commits an act that injures a plaintiff's business." (41) When that injury occurs, "a cause of action immediately accrues to [the plaintiff] to recover all damages incurred by that date and all provable damages that will flow in the future" from the acts of the defendant. (42) When there are repeated violations of the statute, a "continuing violation" occurs. (43) Each continuing violation will restart the statute of limitations, and the statute will run from each "overt act" by the defendant. (44) To be an overt act, conduct by the defendant must meet two requirements: (1) the act "must be a new and independent act that is not merely a reaffirmation of a previous act, and (2) it must inflict new and accumulating injury on the plaintiff." (45) Acts that are the "inertial consequences of a single act do not restart the statute of limitations." (46)

   To determine whether an act is an "inertial consequence" or "independent act," courts have considered whether the plaintiff knew or should have known of the initial anticompetitive act. (47) This explains the difference between treatment of two types of antitrust violations: first, conspiratorial behavior such as naked or hidden price fixing, "where courts are quick to extend the statute for ongoing payments or meetings," and second, unilateral or non-conspiratorial arrangements such as refusals to deal, tying, or exclusive dealing, "where the courts show much more reluctance." (48)

   Eighth Circuit precedent largely conforms to this differentiation. First, when the antitrust violation includes colluding to restrain competition or price fixing, a continuing violation can occur "when conspirators... meet to finetune their cartel agreement" (49) or where a monopolist "uses unlawfully acquired market power to charge an elevated price." (50) Second, when the antitrust violation includes use of unilateral, anticompetitive contracts, such as tying or exclusive dealing arrangements, "[p]erformance of the alleged anticompetitive contracts during the limitations period is not sufficient to restart the period." (51) Mergers that violate the antitrust laws would similarly fall into this latter category, where post-merger sales by the merged firm would be inadequate to restart the limitations period. (52)

   1. Acts Sufficient for Antitrust Violations Involving Non-conspiratorial Behavior

      Many courts, including the Eighth Circuit, (53) have taken the position that claims must be predicated on "some injurious act actually occurring during the limitations period, not merely the abatable but unabated inertial consequences of some pre-limitations action." (54) Under this test, "profits, sales, and other benefits accrued as the result of an initial wrongful act are not treated as independent acts" but instead as "ripples caused by the initial injury, not as distinct injuries themselves." (55) This test...