Antitrust Law Daily Dismissal of marine service company’s conspiracy to monopolize claim reversed
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Tuesday, October 8, 2019

Dismissal of marine service company’s conspiracy to monopolize claim reversed

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

Antitrust injury alleged to support the conspiracy to monopolize theory, but not Sherman Act, §1 claim.

In an antitrust case alleging that Santa Catalina Island Company and Avalon Freight Services illegally entered into an exclusive agreement preventing Curtin Maritime Corp. or anyone else from competing to deliver freight to Santa Catalina Island, a federal district court erred when it dismissed Curtin’s Sherman Act §2 claim to the extent that it was based on a conspiracy to monopolize theory because Curtin plausibly alleged an illegal conspiracy, an overt act in furtherance of the conspiracy, and an antitrust injury. The U.S. Court of Appeals in San Francisco, however, affirmed the lower court’s dismissal of a §1 claim for an exclusive dealing arrangement in the absence of any proof of an antitrust injury and the dismissal of a §2 claim for unlawful monopolization in the absence of any proof of sufficient monopoly power. The partial dissent would have also reversed the dismissal of the §1 claim on the ground that an antitrust injury is always demonstrated by a party excluded from a collusive agreement that completely precludes any competition in a given market (Curtin Maritime Corp. v. Santa Catalina Island Co., October 7, 2019, Ikuta, S.).

In August 2012, Santa Catalina Island Company and Avalon Freight entered into a 10-year agreement that Avalon Freight would be the sole shipper of freight between Santa Catalina Island and the California mainland. In exchange, Avalon Freight would share its profits with Santa Catalina Island Company. Curtin Maritime, a freight hauler to Santa Catalina Island now shut out from providing such services, sued Santa Catalina Island Company and Avalon Freight in California federal court, alleging claims for (1) exclusive dealing in violation of §1 of the Sherman Act, (2) monopolization in violation of §2 of the Sherman Act, and (3) conspiracy to monopolize in violation of §2 of the Sherman Act. The district court granted a motion to dismiss all three counts. Curtin appealed to the Ninth Circuit.

Exclusive dealing. The Ninth Circuit affirmed the lower court’s determination that, despite three tries in its pleadings, Curtin never established an antitrust injury. Curtin attempted to allege an antitrust injury from the exclusive lease that precluded Curtin from using the Pebbly Beach freight seaport, the only means for delivering freight by barge to the island. The Ninth Circuit concluded that no antitrust injury occurred to Curtin from the exclusive lease because Curtin would have suffered the same injury had Santa Catalina Island Company leased the facility to everyone but Curtin. In effect, no antitrust injury occurred because Curtin could have acquired the exclusive distribution rights had it thought to do so. Its failure to do so was not the result of Avalon Freight’s market power. As a result, the Ninth Circuit concluded that the lower court did not err when it denied Curtin leave to amend yet again.

Monopolization. The Ninth Circuit also affirmed the lower court’s dismissal of the monopolization claim on the ground that Curtin never established that Santa Catalina Island Company had monopoly power by itself, that Avalon Freight had monopoly power by itself, or that the two entities constituted a single entity for purposes of the monopolization claim. The failure to establish evidence of monopoly power is fatal to a monopolization claim.

Conspiracy to monopolize. The Ninth Circuit, however, reversed the lower court’s decision to dismiss the conspiracy to monopolize claim. The Ninth Circuit concluded that Curtin plausibly alleged the elements of a conspiracy to monopolize claim. First, it alleged the existence of the 2012 agreement to give Avalon Freight exclusive shipping rights in exchange for some of the profits. Curtin had also alleged that the agreement was entered into with the specific intent to monopolize this piece of the freight-shipping market. Second, Curtin plausibly alleged that a sham request for proposals by Santa Catalina Island Company that was "won" by Avalon Freight was an overt act in furtherance of the conspiracy. The result was that Avalon Freight was given 100% control of the freight originated by barge. Third, Curtin adequately alleged that the conspiracy caused an antitrust injury to competitors by excluding everyone but Avalon Freight. As a result, Curtin satisfied its pleading requirements, and the claim should not have been dismissed.

Dissent. The dissent agreed that the §2 claim for monopolization should have been dismissed for failure to establish monopoly power. It also agreed that the §2 claim for conspiracy to monopolize should have been reversed because it was adequately pleaded. The dissent took issue, however, with the majority’s finding that the §1 claim should be dismissed for lack of antitrust injury. In the dissent’s opinion, "if two companies enter into a collusive agreement that completely precludes any competition in a particular market, an excluded competitor has suffered an antitrust injury." The dissent also noted that Santa Catalina Island Company and Avalon Freight failed to identify any plausible procompetitive effects of the exclusive lease. At the motion to dismiss stage, therefore, Curtin "has more than adequately alleged an antitrust injury to support its Section 1 claim."

In addressing why the majority and the dissent disagreed on this question, the dissent pointed to what it said was the majority’s misinterpretation of two cases that stand for the proposition that a plaintiff does not suffer an antitrust injury merely because a larger player competes in the market—Brunswick Corp. v. Pueblo Bowl-O-Matic, Inc., 429 U.S. 477 (1977) and Lucas Automotive Engineering, Inc., v. Bridgestone/Firestone, Inc., 140 F.3d 1228 (9th Cir. 1998). The dissent believed that the majority’s reliance on those two cases was misplaced. Curtin alleged an injury not because of Avalon Freight’s comparative competitive strength but because of the exclusive lease. In the absence of any procompetitive aspects of the exclusive lease arrangement, the dissent believed that Curtin had alleged an antitrust injury that should have survived the motion to dismiss.

The Ninth Circuit, therefore, affirmed in part and reversed in part, and it remanded for further proceedings on the conspiracy to monopolize claim.

The case is No. 18-55338.

Attorneys: Dorn G. Bishop (The Law Offices of Dorn G. Bishop) for Curtin Maritime Corp. Christopher D. Dusseault (Gibson, Dunn & Crutcher LLP) for Santa Catalina Island Co. Samuel A. Keesal, Jr. (Keesal, Young & Logan, LLP) for Avalon Freight Services, LLC.

Companies: Curtin Maritime Corp.; Santa Catalina Island Co.; Avalon Freight Services, LLC

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