An appellate decision has to be really, really wrong before the same Court will decide that it shouldn’t be treated as the "law of the case." In fact, the wrongness has to be as overpowering as a very old and very dead fish, per the Fourth Circuit’s opinion today in TFWS, Inc. v. Franchot.

The law of the case doctrine says that the decision of an appellate court "must be followed in all subsequent proceedings in the same case."  The doctrine can be avoided if "(1) a subsequent trial produces substantially different evidence, (2) controlling authority has since made a contrary decision of law applicable to the issue, or (3) the prior decision was clearly erroneous and would work manifest injustice."

The TFWS case is the latest decision in a ten year legal battle over whether Maryland’s liquor and wine regulations violate the antitrust laws.  (They do). In today’s decision, the fourth appellate decision in the case, the Court of Appeals rejected the State of Maryland’s argument that the Court wasn’t bound by its first decision in the case.

The State of Maryland argued the "clearly erroneous" exception, offering a new interpretation of its regulatory scheme. Judge Duncan rejected the argument, holding that "[a] prior decision does not qualify for this third exception by being ‘just maybe or probably wrong; it must . . . strike us as wrong with the force of a five-week-old, unrefrigerated dead fish."

The Fourth Circuit held today that the manner in which manufacturers of pest control products sold their products to consumers did not constitute illegal resale price maintenance.  The decision in of Charlotte, Inc. v. Bayer Corprejected Plaintiffs’ argument that an antitrust stalwart, United States v. General Electric Co., 272 U.S. 476 (1926) had been overruled by a recent decision of the Supreme Court, Leegin Creative Leather Products, Inc. v. PSKS, Inc., 127 S.Ct. 2705 (2007).

Both Defendant Bayer Corporation, which sells a termite killer called Premise, and Defendant BASF, with a competing product called Termidor, sold their products through distributors.  The distributors sold Premise and Termidor at prices set by the manufacturers to the "pest management professionals ("PMPs"), who provide pest control services to homeowners and other individual customers."  The Plaintiffs making the antitrust claim were three of the PMPs.

For those who need a refresher on this aspect of antitrust law, which included me, the General Electric case held that a manufacturer selling its product directly to consumers through agents is not liable for vertical price fixing.  The rationale of the decision was that when a manufacturer sells through a genuine agent, there is no "contract, combination" or "conspiracy" to violate Section 1 of the Sherman Act.

In Leegin, the Court overruled Dr. Miles Medical Co. v. John D. Park & Sons Co., 220 U.S. 373 (1911), which had held that resale price maintenance agreements were per se unlawful.  In other words, during the long era during which Dr. Miles held sway, such agreements did not require proof that they unreasonably restrained trade.  They were presumed to do so.  The Leegin decision abolished the per se rule and held that such restraints were subject to the rule of reason, because of "a growing consensus in economic theory that vertical pricing agreements, while sometimes anti-competitive, can often have procompetitive effects."

Plaintiffs in argued that Leegin effectively overruled General Electric, and that Leegin dictated a rule of reason analysis even if there was a true principal-agent relationship between a manufacturer and its distributors.  The Fourth Circuit exterminated that argument, saying that Leegin had presented an entirely different question of the proper analysis to be applied after it had been established that there was in fact a retail price maintenance agreement.  It noted that Leegin had not mentioned the General Electric decision at all, and that the Supreme Court had said in another case that it "does not normally overturn . . . earlier authority sub silentio."

The Fourth Circuit then evaluated the validity of the principal-agent relationships in place between the pesticide manufacturers and their distributors, and found them to be well on the acceptable "General Electric side of the line."  The distributors bore the risk of loss, the agency sales method had been used for legitimate business reasons, and there was no evidence that the agency agreements were the product of coercion. 

The courthouse door in North Carolina is now wide open to antitrust plaintiffs making indirect purchaser claims, after the Court of Appeals’ decision this week in Teague v. Bayer.  That decision reverses the North Carolina Business Court’s dismissal of the case for lack of standing.

For those whose hearts don’t start beating faster when reading about antitrust cases, an "indirect purchaser" is "one who purchases a product from some intermediary party rather than directly from the manufacturer." 

Teague alleges that he purchased garden hoses, roofing materials, and other items which contained ethylene propylene diene monomor alastomers (EPDM) sold by the defendant chemical companies to the manufacturers of those items.  Teague, an indirect purchaser of EPDM, claimed that the manufacturers of EPDM had conspired to fix its price.

Indirect purchasers can’t make claims under the federal antitrust laws after the Supreme Court’s seminal decision in Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977), but these types of claims can be made under state antitrust laws, per Associated General Contractors v. Carpenters, 459 U.S. 519 (1983). North Carolina has allowed such claims since Hyde v. Abbott Laboratories, 123 N.C. App. 572, 473 S.E.2d 680 (1996).

In the lower court ruling, Judge Tennille dismissed the case based on standing grounds, relying on a variation of the factors set out by the Supreme Court in the Associated General Contractors decision for determining standing under the federal antitrust laws.  I summarized the Business Court decision in an earlier post, but this was the gist of what the Business Court considered in dismissing the case nearly two years ago:

the relevant market (it determined that plaintiff was a participant in a collateral market, a factor working against standing), the directness of impact (what the court termed a complex issue involving multiple distribution chains, which weighed against standing), that other indirect purchasers were likely to have been more heavily impacted (having absorbed some or all of the price increase without passing it on to plaintiff), and the daunting and complex nature of the calculation of damages (which the Court found even more complex than the calculation considered in its dismissal of an earlier case, Crouch).

The Court of Appeals reversed, holding that the Associated General Contractors factors don’t apply to antitrust claims by consumers.  It acknowledged the Business Court’s point on the difficulty that plaintiff would have proving his claims, especially as to causation and damages, but said that these matters would be better addressed at the class certification and summary judgment stages.  Here’s the key part of this week’s holding:

Defendants contend that courts would have to isolate the effect of the alleged conspiracy on the price of EPDM and rule out the numerous other factors that could cause a price increase in these products such as inflation, prices of other inputs, transport costs, product demand, and market conditions. Thus, a rigorous economic analysis would be required to determine whether increased prices were the result of the alleged price fixing or the result of some other factor.

The U.S. Court of Appeals for the Ninth Circuit has recognized, "Complex antitrust cases . . . invariably involve complicated questions of causation and damages." Forsyth v. Humana, Inc., 114 F.3d 1467, 1478 (9th Cir. 1997). Even if the present case proves to be no exception, that is not sufficient reason to dismiss for lack of standing. As the trial court found, considering several products containing EPDM adds to the complexity of apportioning damages in this case. The analysis described above would have to be conducted for every product at issue in order to accurately calculate Plaintiff’s damages. Our Court recognized in Hyde that a suit by indirect purchasers under our antitrust laws would be complex. However, "fear of complexity is not a sufficient reason to disallow a suit by an indirect purchaser, given the intent of the General Assembly to ‘establish an effective private cause of action for aggrieved consumers in this State.’" Hyde, 123 N.C. App. at 584, 473 S.E.2d at 687-88 (quoting Marshall, 302 543, 276 S.E.2d at 400). . . .  We therefore hold that Plaintiff has standing to bring this antitrust and consumer fraud action.

The Teague decision also calls into question another Business Court decision, Crouch v. Compton Corp., 2004 NCBC 7 (N.C. Super. Ct. Oct. 26, 2004), in which the Court dismissed an indirect purchaser claim on standing grounds.


The Court found that the Noerr-Pennington doctrine did not apply to the false submission of data to a public agency.  The Court further found this conduct was not entitled to free speech protection under the First Amendment and the North Carolina Constitution.  Nor were the Defendants entitled to state action immunity, or the protection of the filed rate doctrine. 

Full Opinion

The Business Court has mandatory jurisdiction under N.C. Gen. Stat. §7A-45.4 over claims involving "antitrust law, except claims based solely on unfair competition under N.C. Gen. Stat. §75-1.1.

The Court gave a broad reading to its grant of its antitrust jurisdiction in an Order today in Sonic Automotive, Inc. v. Mercedes-Benz USA, LLC, in which it denied an objection to a Notice of Designation of the case as a mandatory complex business case. 

Sonic, which already owned nine Mercedes dealerships, sued Mercedes-Benz for refusing to approve its purchase of another dealership in Charlotte.  According to the Complaint, Mercedes-Benz withheld its approval because of Sonic’s alleged failure to comply with the terms of a letter agreement executed when Sonic had acquired other Mercedes dealerships. 

The case was designated to the Business Court by Mercedes-Benz as being within the Court’s mandatory jurisdiction over antitrust cases and the law governing corporations.  Sonic filed a Motion to Remand objecting to the designation.

There’s no claim in Sonic’s Complaint denominated as an antitrust claim, and the word antitrust isn’t even in the Complaint. 

Mercedes-Benz argued in its Opposition to the Motion to Remand that Sonic’s claim was based on a "contract in restraint of trade," which implicated "antitrust and unfair competition issues squarely within the Business Court’s jurisdiction."  The car manufacturer was helped in its arguments by public statements made by Sonic’s President that Sonic was being "extorted" by Mercedes-Benz and that Mercedes-Benz had "tied" the sale of the Charlotte dealership to Sonic’s compliance with the letter agreement.

Judge Tennille found that the Court’s antitrust jurisdiction was implicated, and also held that its mandatory jurisdiction was appropriate for other reasons presented by Mercedes-Benz in its Opposition:

Plaintiff has asked the Court to remand this action because the case “does not involve any . . . issue” regarding antitrust law or the law governing corporations. (Pl. Br. Supp. Opp’n 1.) The Court disagrees. First, this case potentially involves violations of antitrust law. Section 75-1.1 of the North Carolina General Statutes does not cover simple breach of contract. N.C. Gen. Stat. § 75-1.1 (2007). Thus, the unfair trade practices claim may involve antitrust issues. Second, this case may involve issues with broad ramifications for automobile dealers and manufacture[r]s. Third, this case may also involve the interplay between courts and administrative agencies. These parties and agencies will benefit from a single judge hearing this case. Fourth, this case involves the sale of a business or business assets. Fifth, the case is likely to be motion intensive.

The Court granted Plaintiff’s Motion for Summary Judgment, ruling that the defendants had participated in a conspiracy in restraint of trade with regard to public contracts for the remediation of underground storage tanks. The Court found that the defendants had engaged in an orchestrated effort to submit artificially high bids in response to a solicitation for bids from a state agency. The defendants had done this by submitting an inaccurate survey to the state agency as to what a reasonable rate for their services would be, and by encouraging the members of their organization to quote that rate to the agency, even though they knew that it was inflated.

The Court held that the term "restraint of trade" is broad, and includes the collusive provision of false market data that will be used to set prices. The Court held that as a result, the bidding process for the state contract was not competitive, and that a number of firms would have submitted lower bids but for the conspiracy.

On the point of damages, the Court awarded 10% of the face amount of the contracts awarded, as provided for by N.C.G.S. §133-28(a), which it then trebled, pursuant to N.C.G.S. §75-16. The Court gave defendants a credit against the judgment for payments made by settling defendants.

Full Opinion

The Court, again, considered the issue of indirect purchaser standing. It reiterated the factors it looks to in determining whether there is such standing, as articulated in its opinion in Crouch v. Crompton Corp.

Crouch had involved one product, tires, but this case involved ethylene propylene diene monomer, which the Court observed might be used in hundreds of products. The recovery to individual consumers would therefore be miniscule, and the Court observed that "[t]he funds from these settlements are destined to end up in the hands of the lawyers, a handful of named plaintiffs, and a small number of charities selected by the approving court pursuant to the cy pres doctrine."

The Court considered the relevant market (it determined that plaintiff was a participant in a collateral market, a factor working against standing), the directness of impact (what the court termed a complex issue involving multiple distribution chains, which weighed against standing), that other indirect purchasers were likely to have been more heavily impacted (having absorbed some or all of the price increase without passing it on to plaintiff), and the daunting and complex nature of the calculation of damages (which the Court found even more complex than the calculation necessary in Crouch).

After a full analysis, the Court found that the plaintiffs lacked standing. Other defendants in the case had settled class action claims against them in other states before the Court’s ruling. Plaintiffs moved for the dismissal of these defendants. The Court reviewed the terms of those settlements and ultimately determined, reluctantly, that it would approve the settlements.

The case makes clear the frustration of the Court about multi-state class actions being settled in other states where the benefits of the settlement do not flow in an appropriate way to the injured residents of this State.

Full Opinion

Brief in Support of Motion to Dismiss

Reply Brief in Support of Motion to Dismiss

Plaintiff, a state agency, charged that the defendants had engaged in a conspiracy to fix prices for environmental consulting work. The defendants claimed that they were entitled to immunity under the Noerr-Pennington doctrine. The Court rejected this argument, characterizing defendants’ supposedly protected conduct as involving the submission of false data for the purpose of inflating reimbursement rates. It held that the defendants were using anticompetitive means for the purpose of economic gain, which was not entitled to immunity under Noerr-Pennington or as protected free speech.

The Court further held, in a case of first impression, that some of the defendants were immune from liability under the North Carolina Nonprofit Corporation Act, which provides that directors of nonprofits are immune individually from civil liability for monetary damages, while others were not. Directors of non profits cannot act in bad faith, or engage in intentional misconduct for their own personal gain and then claim immunity under the Act.

The Court also discussed state action immunity and found that it did not apply, and also rejected the filed rate doctrine as a defense. Nor did intracorporate immunity apply, because not all of the persons involved were employed by the same entity.

In a small victory for the defendants, however, the Court dismissed the unfair and deceptive practice claims, determining that the services provided by the defendants were already extensively regulated, and therefore not the type of "regular, day to day" activities that the statute was meant to cover; and also dismissed the damages claims under N.C.G.S. §133-28.

Full Opinion

The Court addressed again the issue of indirect purchaser standing under the North Carolina antitrust laws in these consolidated cases. It held that although such purchasers do have standing, there are limitations on that standing which barred the claims of the plaintiffs and it granted defendants’ motion to dismiss.

In the first case, the plaintiffs were purchasers of automobile tires whose price had been affected by collusion on the price of rubber. In the second, the plaintiffs were credit card holders who claimed they had paid higher prices for goods as a result of illegal tying arrangements by the credit card issuers.

After a thorough discussion of the history of recognition of indirect purchaser claims in North Carolina, the Court determined that it would apply a multifactor test to determine whether plaintiffs had standing, including a consideration of (1) whether the plaintiff is a consumer or competitor in the allegedly restrained market, (2) the directness of the impact on the plaintiff, (3) whether there exist other indirect purchasers in the distribution chain who are more directly impacted by the alleged violatin, (4) the speculative nature of the damage claims, and (5) the risk of duplicative recovery and danger of complex apportionment of damages."

It analyzed each case under this approach and held that neither class of plaintiffs had standing.

Full Opinion

Defendants’ Brief In Support of Motion to Dismiss

Defendants’ Reply Brief in Support of Motion to Dismiss

Defendants’ Supplemental Brief in Support of Motion to Dismiss

Plaintiff’s Supplemental Brief in Opposition to Motion to Dismiss