Antitrust Law Daily Auto body shop antitrust claims against insurers fail
Wednesday, March 6, 2019

Auto body shop antitrust claims against insurers fail

By Nicole D. Prysby, J.D.

Eleventh Circuit, sitting en banc, affirms dismissal of price fixing, boycott claims.

Auto body shops failed to plausibly allege per se illegal price fixing or a group boycott claims against insurance companies, the U.S. Court of Appeals in Atlanta has decided in an en banc decision. The body shops claimed that the insurance companies colluded to adopt arbitrary market rates for repairs and engaged in other uniform behavior such as requiring the repair of faulty parts rather than installing replacement parts. The court held that because the complaint alleged that other insurers simply conformed to State Farm’s rates, the situation was merely price leadership, not a conspiracy. And if insurance companies engaged in similar tactics, such as repairing faulty parts rather than installing replacement parts, these tactics are easily explained by a desire to increase profits, not an illegal agreement. Group boycott claims also failed for lack of allegations that the companies used the same language or engaged in other unexpected uniformity. State law unjust enrichment and quantum meruit claims also failed, but the court did hold that the tortious interference claims did not violate the group pleading doctrine (Quality Auto Painting Center of Roselle, Inc. v. State Farm Indemnity Co., March 4, 2019, Anderson, R.).

Background. A group of automobile body shops across Kentucky, Missouri, New Jersey, and Virginia brought suit against insurance companies that collectively control some 65 percent to 85 percent of the private passenger automobile insurance market in each state. State Farm Indemnity Company has the largest market share. The Body Shops alleged that each of the Insurance Companies use a formal agreement system called "direct repair programs" or "DRPs." In exchange for entering into a DRP, the Insurance Companies each agrees to list a shop as a "preferred provider" for its insureds. In return, the shop agrees to certain concessions regarding, among other things, the "market rate" at which they are entitled to be reimbursed for labor costs. State Farm sets its market rate using an electronic survey of the shops in a particular geographic area and advises the Body Shops that they will pay no more than the market rate. The other Insurance Companies advise the Body Shops that they will pay no more than State Farm.

The Body Shops allege that the Insurance Companies have combined or conspired to depress the amounts they pay for replacement parts on damaged vehicles. According to the Body Shops, the Insurance Companies refuse to pay for "original equipment manufacturer" parts, which—because they are designed by the car manufacturer to fit the precise make and model of the damaged car—are more expensive. Rather, the Body Shops are required to use either "aftermarket" parts designed by third-parties or "salvaged" parts from other wrecked vehicles.

Also, the Body Shops alleged that the Insurance Companies discourage their insureds from patronizing a noncompliant repair shop by telling insureds that a particular repair shop: is not on the preferred provider list; has had quality control issues; charges more than other shops in the area (and that they will not pay the excess amount); takes longer than other shops (and that they will not pay for additional car rental days); and does not perform work that can be guaranteed by the Insurance Companies, even though the Insurance Companies never guarantee any repair work.

Those allegations were used by the body shops to support two antitrust claims against the insurance companies: horizontal price-fixing and group boycotting. They also alleged three state law causes of action: unjust enrichment, quantum meruit, and tortious interference. The district court dismissed all claims and on appeal, an Eleventh Circuit panel reversed the district court’s decision, holding that the Body Shops had alleged sufficient allegations to survive a motion to dismiss on all of the claims. That decision was vacated when the court voted to hear the case en banc.

Horizontal price fixing. The Body Shops identified several purported "plus factors" that they argued warranted an inference of a per se horizontal price-fixing conspiracy. The court rejected all arguments. The Body Shops alleged that the Insurance Companies had adopted a uniform price, despite variables that would ordinarily result in divergent prices. However, there was no evidence that other insurers communicated with State Farm in advance—in fact, the complaint alleged that the other insurers simply conformed to State Farm’s rates. And following an example set by a competitor, without an agreement to do so, is merely price leadership. There was also no justification for the Body Shops’ argument that divergent pricing would be expected, given that third-parties set standardized pricing for parts. And without an expectation of divergent pricing, all that remains is an allegation of uniform pricing, which is indicative only of parallel conduct. Although the complaints repeatedly alleged that the insurance companies have agreed and conspired with respect to price, these allegations had no basis in the facts actually alleged.

The court also rejected the Body Shops’ argument that a plus factor exists because there was a similarity of language, terms, or conditions used by the alleged co-conspirators that would be improbable absent collusion. None of the allegations suggested that the language used by the different companies was uniform or scripted. To the extent that the Body Shops argued that the Insurance Companies engaged in similar tactics such as repairing faulty parts rather than installing replacement parts, these tactics were easily explained by a desire to increase profits, not an agreement between the Insurance Companies.

The court rejected the Body Shops’ argument that the Insurance Companies’ adherence to State Farm’s artificial "market rate" and other payment structures is in contradiction to the industry databases, and by implication against their economic self-interest. The Body Shops failed to explain how the Insurance Companies were acting against their own interests and it is hard to imagine how choosing the least costly method of repair, thereby reducing the reimbursement, is contrary to an insurance company’s economic self-interest. Finally, the court rejected the argument that the Insurance Companies had exchanged information relative to the conspiracy, as there were no factual allegations presented in support of the theory.

Group boycott. The court concluded that the group boycott allegations were even weaker than the price-fixing allegations. There were no allegations that the companies used the same language or engaged in other unexpected uniformity. Moreover, even if there were considerable uniformity with respect to those reasons that an insured should not use a particular shop, there could hardly be reasons more expected or more commonly used than those alleged by the Body Shops: that the shop is not on the preferred provider list, that there are quality issues, that it charges more, and/or that it takes longer are reasons that any company would be expected to use in an effort to persuade an insured not to use a particular shop. The alleged boycotting methods are not so idiosyncratic that they suggest conspiracy, the court said.

State law claims. The unjust enrichment claims failed because each Insurance Company advised the Body Shops that it would pay no more than State Farm. Therefore, it clearly was not unjust for the Insurance Company to pay only that amount and no more. Quantum meruit claims failed for similar reasons. The court did reverse the district court’s decision on the tortious interference claims. The lower court concluded that the complaint violated the group pleading doctrine, but the Eleventh Circuit found that the complaint gave fair notice to each defendant of the claim being made against it.

Concurring and dissenting opinions. Judge Jordan (joined by Judge Martin) filed a concurring opinion, stating that the court should not have relied on its own research on how the auto body repair industry operates. Judge Wilson filed a dissenting opinion, stating that the complaint contained allegations showing consciously parallel conduct, as well as plus factors of uniform pricing behavior, uniform failure to follow industry standards and uniform quality, and industry meetings to discuss prices, and facilitating factors relating to market structure and exchange of price information. According to Judge Wilson, the body shops should have been permitted to proceed to discovery.

The case is No. 15-14160.

Attorneys: Mark L. Shurtleff (Shurtleff Law Firm) for Quality Auto Painting Center of Roselle, Inc. Elizabeth Helmer (Alston & Bird, LLP) and Johanna W. Clark (Carlton Fields Jorden Burt, PA) for State Farm Indemnity Co. and State Farm Guaranty Insurance Co. Jeffrey S. Cashdan (King & Spalding, LLP) and Kymberly Kochis (Eversheds Sutherland [US] LLP) for Progressive Freedom Insurance Co. and Progressive Garden State Insurance Co.

Companies: Quality Auto Painting Center of Roselle, Inc.; State Farm Indemnity Co.; State Farm Guaranty Insurance Co.; Progressive Freedom Insurance Co.; Progressive Garden State Insurance Co.

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