By Nicole D. Prysby, J.D.
Third time’s a charm in auto makers’ effort to win dismissal of claims of conspiracies to restrict competition across diesel emissions systems and to fix steel prices. Motion to dismiss the consumer and auto dealer claims with prejudice granted.
Putative class action claims on behalf of consumers and auto dealers alleging that German auto makers colluded to restrict competition across their vehicles’ diesel emissions systems and participated in a steel price fixing conspiracy were dismissed by the federal district court in San Francisco. Consumer claims failed because they failed to show that the alleged diesel emissions system conspiracy was a per se anticompetitive restraint and failed to plead a relevant market or submarket. Their proposed submarket of "diesel passenger vehicles" was not a relevant submarket because they alleged nothing to contradict the commonsense inference that diesel passenger vehicles compete with other passenger vehicles. Auto dealer claims failed for lack of antitrust standing because they did not allege that the defendants’ agreement to accept steel manufacturers’ prices resulted in higher steel prices, or that the defendants agreed to pass-through increased steel costs. Their claims also failed for lack of a relevant market (In re German Automotive Manufacturers Antitrust Litigation, October 23, 2020, Breyer, C.).
Auto dealers (direct purchaser plaintiffs or DPPs) and consumers (indirect purchaser plaintiffs or IPPs) filed various lawsuits against the five leading German car manufacturers (Audi AG, BMW AG, Daimler AG, Porsche AG, and Volkswagen (VW) AG), alleging a broad conspiracy not to compete with each other. The court previously dismissed the plaintiffs’ original and first amended complaints, and they filed a second amended complaint. The defendants moved to dismiss the claims with prejudice.
Indirect purchasers claims failed. IPPs alleged that the defendants colluded to restrict competition across their vehicles’ diesel emissions systems, causing harm to competition in the market for diesel passenger vehicles in the U.S. The court rejected the argument that the alleged diesel emissions system conspiracy was a per se anticompetitive restraint. IPPs failed to detail any specific collusive agreements relating to diesel emissions system features other than their previous allegations regarding AdBlue dosage rate and tank size (AdBlue is a substance that breaks emissions from diesel engines into less harmful compounds). In addition, any finding by the European Commission Competition department (ECC) that the alleged diesel emissions system agreements lacked procompetitive benefits did not affect whether per se treatment applied: that determination is made based on the category of restraint, not details about the alleged restraint’s actual effect on competition, the court noted. Even if the ECC findings were relevant, IPPs mischaracterized them; ECC’s "preliminary view" that the defendants "may have" entered into collusive agreements relating to AdBlue tank size and dosage rates was not a definitive conclusion that the defendants’ agreements lacked any procompetitive effects.
Analyzing the claim under the rule of reason, the court found that the IPPs failed to plead a relevant market or submarket. They acknowledged that their relevant market, "diesel passenger vehicles," ignored economic substitutes, such as other environmentally friendly vehicles. And their argument that "diesel passenger vehicles" nonetheless constitute a cognizable submarket failed, because they did not plausibly allege a barrier to customer cross-over between diesel passenger vehicles and other passenger vehicles. IPPs asserted new allegations regarding consumer price-sensitivity that, if plausible, could overcome the commonsense inference that diesel passenger vehicles compete with other passenger vehicles. But the allegations lacked plausibility, according to the court. IPPs relied on a consumer survey that applied a price increase based on the cost of engines that go into diesel passenger vehicles, not based on the price of diesel passenger vehicles. IPPs thus applied an insignificant price increase, in the range of 0.2 to 1 percent, to diesel passenger vehicles. As a result, their analysis revealed nothing about whether diesel passenger vehicles were meaningfully shielded from competition with other vehicles. IPPs alleged nothing to contradict the commonsense inference that diesel passenger vehicles compete with other passenger vehicles and did not constitute a relevant submarket.
Direct purchasers claims failed. DPPs alleged that the defendants’ actively participated in a steel price-fixing conspiracy and agreed to pass on all increases in the cost of steel to their customers. Their steel purchase and pass-through claim failed because they did not plausibly allege any injury or an agreement among to pass-through steel surcharges to their customers. The DPPs demonstrated Article III standing, through allegations that the defendants entered into a series of unlawful agreements with steel manufacturers and each other, causing DPPs to pay increased prices and thus suffer financial injury. But they did not plausibly allege antitrust standing because they did not allege either that (1) the defendants’ agreement to accept the steel manufacturers’ prices resulted in higher steel prices, resulting in harm to competition in a relevant market, or (2) the defendants agreed to pass-through increased steel costs to DPPs. The defendants’ decision to accept the prices charged by the steel manufacturers did not mean that the defendants were responsible for an increase in the price of steel.
DPPs also failed to plead a relevant market, the court held. They incorporated IPPs’ argument that diesel passenger vehicles constitute a distinct submarket, which failed for the same reasons as for the IPPs. They also failed to plausibly alleged that the defendants agreed with one another to pass increased steel prices to their customers. Their allegations depended on a faulty inference: that the defendants’ agreement to accept steel surcharges would have been "economically irrational" unless they knew they could offset those surcharges by passing them on to consumers. There were many economically rational reasons why the defendants may have agreed to accept the steel surcharges, including ensuring a stable supply of steel and avoiding frequent renegotiating with the steel manufacturers. Because DPPs did not plausibly allege that the defendants agreed to pass through increased steel cost nor that they were injured by any agreement among the defendants to accept the steel manufacturers’ surcharges, they lacked antitrust standing.
The case is No. 3:17-md-02796-CRB.
Attorneys: Emily Catherine Aldridge (Bleichmar Fonti & Auld LLP) for Steven Lewis and Travis Burton. Daryl DeValerio Andrews (Andrews DeValerio, Attorneys at Law) for Madison Food Corp. Lisa P. Mak (Minami Tamaki LLP) for Marilyn Fong. Christopher Thomas Micheletti (Zelle LLP) and Warren Tavares Burns (Burns Charest LLP) for Audubon Imports, LLC, and Autohaus Acquisition, Inc. Eric L. Chase (Bressler Amery Ross PC) and William A. Kershaw (Kershaw Cook & Talley PC) for Estate Motors, Inc. Belinda S Lee (Latham & Watkins LLP) for BMW AG, BMW North America, LLC. Sharon L. Nelles (Sullivan and Cromwell LLP) for Volkswagen AG, Volkswagen Group of America, Inc. and Audi of America, Inc.
Companies: Madison Food Corp.; Audubon Imports, LLC; Autohaus Acquisition, Inc.; Estate Motors, Inc.; BMW AG; BMW North America, LLC; Volkswagen AG; Volkswagen Group of America, Inc.; Audi of America, Inc.
MainStory: TopStory Antitrust GCNNews CaliforniaNews
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