Antitrust Law Daily Conspiracy to boycott claim against Caterpillar and Komatsu survives
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Friday, October 11, 2019

Conspiracy to boycott claim against Caterpillar and Komatsu survives

By Robert B. Barnett Jr., J.D.

In what was once alleged to be a wide-ranging antitrust conspiracy, various rulings have left only a single restraint of trade claim and only against Caterpillar and Komatsu.

International Construction Products (ICP) adequately stated a restraint of trade claim under §1 of the Sherman Act against Caterpillar Inc. and Komatsu America Corp. by alleging that Caterpillar organized a conspiracy to exclude ICP from the market for new heavy construction equipment by having co-conspirators refuse to supply IronPlanet, an online marketplace, with used heavy construction until IronPlanet breached an agreement with ICP to provide a market for ICP to sell new equipment, the federal district court in Wilmington, Delaware, has ruled. The court also agreed to (1) dismiss all out-of-state Caterpillar dealers for lack of personal jurisdiction, (2) dismiss all claims against Associated Auction Services, and (3) dismiss all state law claims against all defendants, including Caterpillar and Komatsu. The facts in this case differed from the standard restraint of trade claim in two potentially important ways. First, the conspiracy to boycott was directed not at the plaintiff but at a third party. Second, the conspiracy to boycott targeted one market (used equipment) to allegedly restrain trade in a different market (new equipment) (International Construction Products LLC v. Caterpillar Inc., October 10, 2019, Andrew, R.).

Background. ICP imports into the U.S. and distributes new foreign-made heavy construction equipment. Two of its competitors in the U.S. are Caterpillar and Komatsu, both of whom manufacture new heavy construction equipment. While most new heavy construction equipment in the U.S. is sold through dealerships, ICP sought to sell its new equipment through online marketplaces, which previously sold only used heavy construction equipment. The online marketplaces for used heavy construction equipment are Associated Auction Services, IronPlanet, Ritchie Brothers, and EquipmentOne, with IronPlanet being the largest. Associated Auction Services is partly owned by Caterpillar and some of its equipment dealers. Some Caterpillar dealers, Caterpillar, and Komatsu were also minority owners of IronPlanet.

In 2013, ICP entered into a contract with a Chinese manufacturer to sell that manufacturer’s new heavy construction equipment through a new online portal to be called ICPDirect.com, which would be hosted and supported by IronPlanet. Caterpillar reportedly was unhappy with this new development. Before the ICP deal with IronPlanet could be announced, Associated Auction Services announced a merger with IronPlanet.

According to ICP, Caterpillar then undertook a conspiracy to block ICP as a competitor by forcing IronPlanet to discontinue its relationship with ICP. The alleged conspiracy involved Caterpillar dealers promising to withhold used heavy construction equipment from IronPlanet unless it ended its business relationship with ICP, which it ultimately agreed to do. In addition, Caterpillar allegedly threatened to use its influence to undo the merger, which IronPlanet did not want to happen.

ICP sued Caterpillar, Komatsu, Volvo Construction Equipment North America, LLC, and Associated Auction Services in Delaware federal court.

The original complaint alleged claims under §1 and §2 of the Sherman Act, as well as claims under §3 and §7 of the Clayton Act and various state law claims. All claims were dismissed, with the Sherman Act §2 claim and the Clayton Act §7 claim being dismissed with prejudice. After ICP refiled its complaint, the court dismissed the remaining claims under the Sherman and Clayton Acts, except for a single group boycott claim under Sherman Act §1. ICP was later given leave to amend its complaint again, this time dropping Volvo as a defendant but adding three Caterpillar dealers that had sent letters to IronPlanet threatening to withhold their used equipment. All of the current defendants filed a motion to dismiss the amended complaint.

Antitrust claim. The court concluded that the complaint’s Sherman Act claim satisfied both pleading requirements by alleging in detail a concerted action among the co-conspirators and an unreasonable restraint on trade. As for the concerted action, after examining the evidence in detail, the court concluded that ICP failed to establish the concerted action by direct evidence. It did, however, sufficiently establish the concerted action through circumstantial evidence, which included allegations of parallel conduct and "plus factors." Parallel conduct was established for both the manufacturers and the dealers by evidence that each of them communicated the same threat to IronPlanet within days of one another. Plus factors were established by evidence that (1) they had a motive to conspire because excluding ICP would have helped their businesses, (2) they acted against their self-interest by withholding potential sales from IronPlanet, and (3) the complaint contained factual allegations implying a traditional conspiracy.

The conclusion about the existence of a conspiracy differed for Associated Auction Services, however, in the absence of any parallel conduct. The gist of the conspiracy allegation was that the parties threatened to withhold used heavy equipment. Obviously, Associated Auction Services, as a provider of online auction services, could not threaten to withhold equipment. Because the complaint never alleged directly or circumstantially that Associated Auction Services agreed to boycott IronPlanet, all antitrust claims against it were dismissed.

Having established concerted action, the court turned to whether an unreasonable restraint of trade was properly pleaded. Ultimately, the court could not decide whether to analyze the restraint under the per se or the rule of reason standard. Which standard applies to these facts, the court admitted, was "a close call." The facts that (1) the conspiracy to boycott was directed not at the plaintiff, as it almost always is, but at a third party and (2) the conspiracy to boycott targeted the used heavy equipment market to allegedly restrain trade in the new heavy equipment market meant that the alleged conspiracy did not fit neatly within any analytical framework. Although ICP’s alleged conspiracy did not fit within any of the relevant per se cases, that fact did not necessarily mean that the per se ruled did not apply.

Ultimately, the court said, "I will not decide at this stage of the proceedings whether the per se standard or the rule of reason governs ICP’s antitrust claims." It was sufficient for purposes of the motion to dismiss, the court concluded, that the amended complaint alleged activities that plausibly placed an unreasonable restraint on trade. The motion to dismiss filed on behalf of Caterpillar and Komatsu, as the only two remaining antitrust defendants, therefore, was denied.

Personal jurisdiction. One of the reasons that Caterpillar and Komatsu were the only two remaining antitrust defendants was that the court concluded that it lacked subject matter jurisdiction over the dealers. The three dealer defendants were from Minnesota, Florida, and Alabama. Under Delaware law, the element that ICP could not satisfy for these three entities was that a "a substantial act or substantial effect in furtherance of the conspiracy occurred in the forum state" (instituto Bancario Italiano SpA v. Hunter Eng’g Co., 449 A.2d 210, 225 (Del. 1981)). The only act related to the conspiracy that occurred in Delaware was the merger between Associated Auction Services and IronPlanet. That act, however, was not an essential step. In any event, the merger happened well after the conspiracy achieved its objective when IronPlanet repudiated its IPC contract. As a result, the three dealerships were dismissed from the suit for lack of personal jurisdiction.

State law claims. The state law claims for tortious interference with contract, tortious interference with prospective business relations, civil conspiracy, and aiding and abetting were all dismissed without prejudice for pleading insufficiencies. ICP merely referenced the antitrust allegations and then stated that those acts constituted a violation of each of the relevant state laws. Furthermore, the allegations never referenced which state law applied. Such bare-bones pleading was insufficient.

The court, therefore, made the following rulings: (1) the three out-of-state dealers’ motion to dismiss was granted for lack of personal jurisdiction, but all claims were dismissed without prejudice for possible refiling in the appropriate courts, (2) Associated Auction Service’s motion to dismiss was granted, with prejudice for the antitrust claims but without prejudice for the state law claims, and (3) Caterpillar and Komatsu’s motion to dismiss was denied as to the antitrust claim but granted without prejudice as to the state law claims.

This Case is No. 1:15-cv-00108-RGA-SRF.

Attorneys: John W. Shaw (Shaw Keller LLP) and David Boies (Boies Schiller Flexner LLP) for International Construction Products LLC. David J. Baldwin (Potter Anderson & Corroon LLP) and Robert G. Abrams (Baker & Hostetler LLP) for Caterpillar Inc. Henry E. Gallagher, Jr. (Connolly Gallagher, LLP) and Quentin R. Wittrock (Gray Plant Mooty) for Associated Auction Services, LLC and Ziegler Inc. Denise S. Kraft (DLA Piper LLP) for Komatsu America Corp.

Companies: International Construction Products LLC; Caterpillar Inc.; Associated Auction Services, LLC; Ziegler Inc.; Komatsu America Corp.

MainStory: TopStory Antitrust DelawareNews

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