Flovac, Inc. v. Airvac, Inc.

817 F.3d 849

FLOVAC, INC., Plaintiff, Appellant,

v.AIRVAC, INC. and Mark Jones, Defendants, Appellees.

No. 15–1571.

United States Court of Appeals, First Circuit.

April 4, 2016.

Roberto Ruiz Comas, with whom RC Legal & Litigation Services, P.S.C. was on brief, for appellant.

Zachary A. Madonia, with whom David M. Schiffman, Courtney A. Hoffmann, Sidley Austin LLP, Rafael Escalera Rodriguez, and Reichard & Escalera were on brief, for appellees.

Before LYNCH, SELYA and LIPEZ, Circuit Judges.

SELYA, Circuit Judge.

That an antitrust case may turn on the definition of the relevant market is a common-sense proposition. In this instance, the summary judgment record disclosed a relevant market much broader than the plaintiff claimed—a market in which the defendant lacked any semblance of market dominance. Finding the plaintiff's antitrust claims wanting and its companion claims equally impuissant, the district court entered summary judgment in favor of the defendant. After careful consideration, we affirm.

I. BACKGROUND

Plaintiff-appellant Flovac, Inc. (Flovac) and defendant-appellee Airvac, Inc. (Airvac) both fabricate vacuum sewer systems.

Such systems are among the options available to transfer sewage from various sources to wastewater treatment facilities. There is money to be made in providing this essential infrastructure to governmental units (especially municipalities) and to developers.

In May of 2012, Flovac filed suit against Airvac and Airvac's president, Mark Jones, in the United States District Court for the District of Puerto Rico. Flovac sought relief under both federal and Puerto Rico antitrust laws, see 15 U.S.C. §§ 1 –2 ; P.R. Laws Ann. tit. 10, §§ 258, 260, alleging that Airvac's conduct in marketing its vacuum sewer systems was anticompetitive. The specifics of the challenged behavior are irrelevant here; for present purposes, it suffices to say that the alleged anticompetitive conduct occurred in the course of Airvac's solicitation of municipalities interested in installing new sewer systems. According to Flovac, Airvac lobbied those prospective customers both to choose vacuum systems and to impose project specifications favorable to its proprietary wares.

Flovac's complaint also contained claims of tortious interference with advantageous economic relations, brought against Airvac and Jones under Puerto Rico law. See P.R. Laws Ann. tit. 31, § 5141. These claims focused on a specific vacuum sewer system installation in Toa Baja, Puerto Rico (the Ingenio Project). Both Flovac and Airvac competed for that project; and though the Puerto Rico Aqueduct and Sewer Authority (PRASA) solicited bids for a vacuum sewer system with specifications modeled on Airvac's system, the general contractor who won the bid chose Flovac to provide the vacuum system components.

Airvac did not go quietly into this bleak night. The Ingenio Project was funded in part through the American Recovery and Reinvestment Act of 2009 (ARRA), Pub. L. No. 111–5, 123 Stat. 115, which contained certain "Buy American" provisions, mandating that funded projects use only materials produced in the United States, see id. § 1605. Jones—noting both the ARRA's mandate and the stipulation in the project requirements that the component parts for the system had to be purchased from a single manufacturer—wrote to PRASA in May of 2010 questioning the manufacturing process for Flovac's system. PRASA halted Flovac's work temporarily, but replied in June that it was satisfied that Flovac's system complied with both the ARRA and the applicable project requirements.

Airvac then raised the ARRA compliance issue in a letter to the Environmental Protection Agency (EPA)—the agency tasked with overseeing the "Buy American" requirements for the Ingenio Project. EPA investigated the complaint and recommended that Flovac implement some modifications to its manufacturing process. Flovac complied. It thereafter completed the project, but not without protracted delays (allegedly attributable to Airvac's meddling).

After a series of discovery squabbles (not relevant here), Airvac moved for summary judgment. See Fed.R.Civ.P. 56(a). Flovac opposed the motion. In a thoughtful rescript, the district court granted summary judgment in Airvac's favor on all claims. See Flovac, Inc. v. Airvac, Inc., 84 F.Supp.3d 95, 107 (D.P.R.2015). This timely appeal followed.

II. ANALYSIS

Our standard of review is de novo, which requires us to take the facts in the light most agreeable to the summary judgment loser and to draw all reasonable inferences from those facts in that party's favor. See Tropigas de P.R., Inc. v. Certain Underwriters at Lloyd's of London, 637 F.3d 53, 56 (1st Cir.2011). Summary judgment is permissible only when examination of the record in that light reveals "no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(a).

A party moving for summary judgment must identify for the district court the portions of the record that show the absence of any genuine issue of material fact. See Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Once such a showing is made, "the burden shifts to the nonmoving party, who must, with respect to each issue on which [it] would bear the burden of proof at trial, demonstrate that a trier of fact could reasonably resolve that issue in [its] favor." Borges ex rel. S.M.B.W. v. Serrano–Isern, 605 F.3d 1, 5 (1st Cir.2010). This demonstration must be accomplished by reference to materials of evidentiary quality, see Garside v. Osco Drug, Inc., 895 F.2d 46, 49 (1st Cir.1990), and that evidence must be more than "merely colorable," Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). At a bare minimum, the evidence must be "significantly probative." Id. at 249–50, 106 S.Ct. 2505. The nonmovant's failure to adduce such a quantum of evidence entitles the moving party to summary judgment. See Tobin v. Fed. Express Corp., 775 F.3d 448, 450–51 (1st Cir.2014).

A. Antitrust Claims.

Flovac has asserted claims under two separate provisions of the Sherman Act: Section 1, which forbids conspiracies in restraint of trade, and Section 2, which bars monopolization or attempted monopolization of a particular area of commerce. See 15 U.S.C. §§ 1 –2. Since Flovac's Section 1 claim is explicitly limited to the rule of reason, see, e.g., Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877, 885–87, 127 S.Ct. 2705, 168 L.Ed.2d 623 (2007), all of its antitrust claims require proof that Airvac exercises or could exercise a threshold degree of market power, see Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 456, 113 S.Ct. 884, 122 L.Ed.2d 247 (1993) ; E. Food Servs., Inc. v. Pontifical Catholic Univ. Servs. Ass'n, Inc., 357 F.3d 1, 5 (1st Cir.2004) ; Coastal Fuels of P.R., Inc. v. Caribbean Petroleum Corp., 79 F.3d 182, 195 (1st Cir.1996).¹ This analysis demands consideration of the defendant's market power, that is, its power to lessen or eliminate competition in the relevant market. See Spectrum Sports, 506 U.S. at 456, 113 S.Ct. 884 ; E. Food Servs., 357 F.3d at 5 ; Coastal Fuels, 79 F.3d at 196.

The definition of the relevant market is ordinarily a question of fact, and the plaintiff bears the burden of adducing enough evidence to permit a reasonable factfinder to define the relevant market. See Coastal Fuels, 79 F.3d at 197. The relevant market has two components: the relevant geographic market and the relevant product market. See Spectrum Sports, 506 U.S. at 459, 113 S.Ct. 884 ; E. Food Servs., 357 F.3d at 5–6.

The first part of the relevant market inquiry is not controversial here. The parties agree that the relevant geographic market is the continental United States and Puerto Rico. Consequently, the inquiry in this case reduces to what the evidence shows—or fails to show—about the scope of the relevant product market.

Determining the scope of a product market begins with examining the universe of products that are considered "reasonably interchangeable by consumers for the same purposes." United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 395, 76 S.Ct. 994, 100 L.Ed. 1264 (1956). The market is established by examining both the substitutes that a consumer might employ and "the extent to which consumers will change their consumption of one product in response to a price change in another, i.e., the ‘cross-elasticity of demand.’ " Eastman Kodak Co. v. Image Tech. Servs., Inc., 504 U.S. 451, 469, 112 S.Ct. 2072, 119 L.Ed.2d 265 (1992) (quoting du Pont, 351 U.S. at 400, 76 S.Ct. 994 ).

These abecedarian principles are sufficient to resolve the case at hand. In the court below, Flovac offered only a single definition of the relevant product market: a product market restricted to vacuum sewer systems. Airvac argued, however, that the relevant product market is composed of all sewer systems (including both vacuum and non-vacuum varieties). This disparity is significant because Airvac's market share within the narrower market envisioned by Flovac is around 87%, while its share of the broader market is closer to 2%. An 87% market share would almost certainly be a clear indication of market dominance, but a 2% market share would be too puny to provide any semblance of market power. See, e.g., Grappone, Inc. v. Subaru of New England, Inc., 858 F.2d 792, 797 (1st Cir.1988) (concluding that market share of 5.6% does not demonstrate market power).

To establish the lack of any material fact dispute about the relevant product market, Airvac cites to uncontested evidence that there is a variety of sewer system options that all serve the same basic purpose; that prospective customers routinely consider those other systems (along with vacuum systems) when deciding what system to purchase; and that, in virtually every instance in which Airvac bid for a project, it competed against these alternatives. See Flovac, 84 F.Supp.3d at 101....