Second Circuit Clarifies Summary Judgment Standards in Antitrust Conspiracy Case

The U.S. Court of Appeals for the Second Circuit affirmed a grant of summary judgment on July 19, 2018, in favor of defendants in a nearly decade-old case alleging an unlawful conspiracy in the single-copy magazine industry. The decision clarifies the application of the Supreme Court’s Matsushita opinion in antitrust conspiracy cases, including with respect to how record and expert evidence is analyzed under the Matsushita standard.¹ This Dechert OnPoint provides background on the case, briefly summarizes the Second Circuit’s decision, and offers key takeaways from the Dechert lawyers that worked on the case. 

Case Background 

Anderson News involved an alleged conspiracy in the single-copy magazine industry. “Single-copy” refers to magazines sold by retailers, rather than through subscriptions. The single-copy magazine industry consists of publishers (who create the magazines), national distributors (who provide marketing and billing services to publishers), wholesalers (who buy magazines from publishers and re-sell them to retailers) and retailers (who sell the magazines to customers). 

Plaintiff Anderson News L.L.C. (Anderson) was one of the nation’s largest magazine wholesalers. In January 2009, Anderson announced that it would charge each publisher a surcharge for each of that publisher’s magazines that Anderson delivered to retailers, and that it would be shifting other costs to publishers as well.² Anderson made it clear that after February 1, 2009, it would refuse to ship magazines for any publishers that did not agree to its demand.³ Ultimately, almost all publishers refused to pay the surcharge, and many stopped shipping magazines to Anderson. Shortly thereafter, Anderson ceased operations.⁴

In March 2009, Anderson filed a Complaint in U.S. District Court for the Southern District of New York against a number of publishers, distributors and other wholesalers.⁵ The core allegation was that the defendants had engaged in an unlawful “group boycott” under Section 1 of the Sherman Act — in essence, a common scheme to refuse to deal with Anderson and thereby reduce competition by putting Anderson out of business.⁶ 

Initially, the district judge granted defendants’ motion to dismiss Anderson’s claims, concluding that it was “implausible that magazine publishers would conspire to deny retailers access to their own products” and “completely plausible” that defendants’ response to the surcharge was “unchoreographed behavior, a common response to a common stimulus.”⁷ The Second Circuit reversed, holding that Anderson’s allegations were “sufficient to suggest that the cessation of shipments to Anderson resulted not from isolated parent-subsidiary agreements but rather from a lattice-work of horizontal and vertical agreements to boycott Anderson.”⁸ 

After two years of discovery, the district court granted summary judgment in favor of the defendants.⁹ Again concluding that the alleged conspiracy was implausible, the district judge explained that it had been Anderson’s “own ill-conceived and badly executed plan [that] led to its downfall” and held that Anderson had failed to offer sufficient direct or circumstantial evidence to survive summary judgment. 

The Second Circuit Decision 

In a 3-0 decision, the Second Circuit affirmed, holding that Anderson had failed to offer sufficient evidence of its alleged conspiracy to survive summary judgment. The court observed that Anderson offered evidence that was consistent with, and suggestive of, a conspiracy, including emails, testimony and phone records demonstrating communications among the defendants regarding Anderson’s announcement. But the court emphasized that, under Matsushita, such evidence was not enough to survive summary judgment because the defendants’ conduct was just as consistent with unilateral action. The court explained that “if the evidence is in equipoise, then summary judgment must be granted against the plaintiff.”¹⁰

The panel first considered the economic plausibility of the alleged conspiracy. The district court had concluded that the alleged conspiracy was implausible, reasoning that the defendants would be worse off if they drove Anderson out of business because they would be left with fewer competitive options for wholesaling services.¹¹ The Second Circuit was not as dismissive. The court noted that the plaintiffs’ theory — that publishers benefited from the alleged conspiracy because the remaining wholesalers would have been able to increase price to retailers, taking pressure off of the publishers — was not “completely indefensible.” Ultimately, however, it concluded that, although Anderson had provided an expert opinion in support of this theory, the expert failed to offer sufficient record evidence demonstrating that the alleged conspiracy would benefit the defendants.¹²

The Second Circuit then turned to evidence of the alleged conspiracy itself. As the court explained, Anderson had offered three kinds of circumstantial evidence for the existence of the conspiracy: so-called “parallel conduct,” “incriminating communications” and other “plus-factors” (essentially, circumstances in addition to parallel conduct that may provide circumstantial evidence of conspiracy).¹³ The court explained that the evidence relating to defendants’ conduct and communications had to be evaluated with the “overall picture” in mind. In context, the court found none of plaintiffs’ evidence persuasive.¹⁴ 

First, the court explained that “defendants’ conduct was not, in fact, parallel.”¹⁵ Instead, although each of the defendants ultimately rejected the surcharge, the evidentiary record showed that defendants had responded to Anderson’s demand differently.¹⁶

Second, the court held that defendants’ communications regarding Anderson’s demand, even among themselves, were reasonable and consistent with independent action, given the need to monitor and gather information before deciding how to respond to Anderson’s demand.¹⁷ The court held that the evidence relating to communications among competitors demonstrated conduct that was “as consistent with permissible activities . . . as with an unlawful conspiracy.”¹⁸

Finally, the Second Circuit rejected the notion that other “plus factors” provided a sufficient basis from which to infer the existence of a conspiracy.¹⁹ The court held that the evidence did not support a finding that the defendants had a motive to conspire because, among other things, the alleged conspiracy actually risked harming the defendants by reducing wholesaler competition.²⁰ The court also held that the evidence did not support Anderson’s argument that the defendants’ conduct was contrary to their independent self-interest. Although Anderson’s expert economist pointed to some evidence of a potential short-term gain from accepting Anderson’s demand, neither Anderson nor its expert had provided any “evidence regarding the long-term costs or benefits of acceding to the proposed surcharge and continuing to ship to Anderson.”²¹

In sum, the court observed that, viewing the record as a whole, a jury could permissibly infer either an “illegal agreement to boycott Anderson” or “legal, independent business decisions to reject Anderson’s higher cost Program in favor low lower cost alternatives.”²² However, the court explained, “[a] jury’s choice between the two equally likely explanations for defendants’ conduct, one legal and one illegal, would amount to ‘mere speculation.’”²³ As a result, it affirmed summary judgment in favor of the defendants.²⁴ 

Key Takeaways 

1. The Second Circuit applied the Matsushita standard to all of the evidence, not just the evidence of allegedly parallel conduct.
   
   It is well-established that evidence of “parallel conduct” is insufficient on its own to allow plaintiffs to survive summary judgment in an antitrust conspiracy case. Instead, under Matsushita, plaintiffs must “present direct or circumstantial evidence that ‘tends to exclude the possibility that the alleged conspirators acted independently.’”²⁵ Courts in antitrust conspiracy cases often pay lip service to this standard, applying it only to evidence of parallel conduct, but not to other evidence related to so-called “plus factors.” That is, courts too rarely rigorously examine whether or not the “plus factor” evidence is ambiguous, i.e., just as consistent with independent action as with the alleged conspiracy.
   
   In Anderson News, the Second Circuit explained that the Matsushita standard requires evaluating all of the evidence in the case -- including alleged communications among competitors -- to assess whether the evidence is “sufficient ‘to allow a reasonable fact finder to infer that the conspiratorial explanation is more likely than not.’”²⁶ For example, citing an email where one defendant wrote that “[t]his will all work out if we can keep everyone together,” the court explained: “To be sure, these statements could suggest that [certain publishers] were checking in to make sure that everyone was following through on an illegal agreement to boycott Anderson. But the statements are equally consistent with legitimate efforts to monitor [defendant’s] response to the Anderson [surcharge] in order to determine the likelihood that [a] distributor . . . would need to switch to another wholesaler-and secure retailers’ approval for that wholesaler.”²⁷ 
   
   
2. Even under Matsushita, defense counsel must contextualize the evidence.
   
   The crux of the Court’s decision was its acceptance of the defendants’ explanation of how the evidence in the case, when viewed in context, was at least as consistent with an overarching pattern of lawful, independent business conduct as with the alleged conspiracy. Anderson’s case was built in part on documents and emails from numerous defendants, culled from millions of pages of discovery. In such a voluminous discovery record, there will likely be statements that have nothing to do with a conspiracy that nonetheless may sound suspicious when taken out of context. It is critical that defense counsel go beyond just trying to explain each individual statement, but rather also put them into a broader over-arching context that explains how they are consistent with independent decision-making. 
   
   
3. The “plausibility” of the conspiracy has substantial evidentiary implications.
   
   The Second Circuit concluded early in the opinion that Anderson had failed to demonstrate the basic plausibility of the alleged conspiracy — essentially, that defendants had no rational motive to do what Anderson alleged they were trying to do. As a result, the Court emphasized that Anderson had to meet a higher evidentiary burden to survive summary judgment. Anderson’s inability to clearly articulate (and support with evidence) the motivation for the alleged conspiracy framed the Court’s entire treatment of the evidence. 
   
   
4. Plaintiff experts need more than economic theory to survive summary judgment.
   
   Although parties frequently litigate over the methodology and reliability of expert testimony, Anderson News highlights the critical importance of having expert witnesses support their contentions with a rigorous analysis based on concrete record evidence. The court accepted that Anderson’s expert economist had offered plausible economic theories to explain (a) why the alleged conspiracy was plausible; and (b) why defendants’ actions were inconsistent with their independent self-interest (a critical “plus factor” supporting the finding of a conspiracy). What was missing, however, was a rigorous application of those theories to the record evidence demonstrating that they actually applied in this case.
   

Footnotes

_{1) Matsushita Elec. Indus. Co, v. Zenith Radio Corp., 475 U.S. 574 (1986).
2) Slip Op. at 9.
3) Slip Op. at 10.
4) Slip Op. at 13-14.
5) The publisher defendants were Time, Inc. (“Time”); American Media, Inc. (“AMI”); Bauer Publishing Co., LP (“Bauer”); Rodale, Inc. (“Rodale”); and Hachette Filipacchi Media, U.S., Inc. (“Hachette”). The national distributor defendants were Curtis Circulation Co. (“Curtis”); Time/Warner Retail Sales & Marketing, Inc. (“TWR”); and Kable Distribution Services, Inc. (“Kable”). The wholesaler defendants were The News Group, LP (“TNG”) and Hudson News Distributors LLC (“Hudson”). Anderson dropped its claims against TNG soon after filing its Complaint and subsequently settled with Hudson. (Slip. 14).
6) Slip Op. at 18. Anderson also alleged state law tortious interference and civil conspiracy claims.
7) Anderson News, L.L.C. V. American Media, Inc., 732 F. Supp. 2d 389 (S.D.N.Y. 2010).
8) Anderson News, L.L.C. V. American Media, Inc., 680 F.3d 162 (2d Cir. 2012)
9) Anderson News, L.L.C. v. American Media, Inc., 123 F. 15 Supp. 3d 478 (S.D.N.Y. 2015).
10) Slip Op. at 19.
11) Slip Op. at 22.
12) Slip Op. at 23.
13) Slip Op. at 30-32.
14) Slip Op. at 31.
15) Slip. Op. at 32.
16) Slip. Op. at 32-33.
17) Slip Op. at 33-34.
18) Slip. Op. at 47-48.
19) Slip Op. at 44. Although it looked at evidence of plus factors, the Court questioned whether such plus factors could demonstrate the existence of a conspiracy in light of its earlier finding that there had not actually been parallel conduct. See Slip Op. at 45 (“Without ‘parallel acts’ to be reviewed ‘in conjunction with’ the circumstantial evidence . . . evidence supporting the presence of certain plus factors in the single-copy magazine industry can provide little support for a finding of unlawful conspiracy.”) (internal citations omitted).
20) Slip Op. at 45-46.
21) Slip Op. at 46-47 (emphasis added).
22) Slip Op. at 31.
23) (Id.)
24) The Second Circuit summarily affirmed the district court’s grant of summary judgment on Anderson’s state law claims. (Slip Op. at 48-49). The Second Circuit also affirmed the district court’s grant of summary judgment in Anderson’s favor against counterclaims filed by AMI, Hearst, and Time. (Slip Op. at 49-53).
25) Slip Op. at 19 (quoting Matsushita Elec. Indus. Co, v. Zenith Radio Corp., 475 U.S. 574, 588 (1986)).
26) Slip Op. at 19 (quoting In re Publ’n Paper Antitrust Litig.), 690 F.3d 51, 63 (2d Cir. 2012).
27) Slip Op. at 40.}