Insulate SB, Inc. v. Advanced Finishing Sys., Inc.

797 F.3d 538

INSULATE SB, INC., Plaintiff–Appellant

v.ADVANCED FINISHING SYSTEMS, INC.; Airtech Spray Systems; Barnhardt Manufacturing Company; C.H. Reed, Inc.; C.J. Spray ; Coast Industrial Systems, Inc. ; Coatings Holdings, Ltd. ; Demilec (USA), LLC; Dove Equipment Co., Inc.; Endisys Fluid Delivery Systems ; Golden State Paint Corporation ; Graco Inc.; Graco Minnesota Inc.; Jack DeMita, in his individual capacity; Intech Equipment & Supply, LLC; Marco Group International, Inc.; MCC Equipment & Service Center; Specialty Products, Inc.; Spray Foam Nation, (registered under Energy Independence Inc.); Spray Foam Systems, LLC; Spray–Quip, Inc.; Ultimate Linings, Ltd., Defendants–Appellees.

No. 14–2561.

United States Court of Appeals, Eighth Circuit.

Submitted: May 12, 2015.

Filed: Aug. 13, 2015.

Rehearing and Rehearing En Banc Denied Sept. 25, 2015.

Joshua P. Davis, argued, San Francisco, CA, (Richard Allen Lockridge, Karen Riebel, Kate M. Baxter–Kauf, Minneapolis, MN, Joseph R. Saveri, Ryan McEwan, John F. McLean, Patrick M. Ryan, Sean R. McTigue, San Francisco, CA, on the brief), for Plaintiff–Appellant.

Stephen Paul Safranski, argued, Minneapolis, MN, (Anne Michele Lockner, George Donald Carroll, Thomas Berndt, Christopher R. Morris, Kay Nord Hunt, Lewis Albert Remele, Jr., Minneapolis, MN, Kellie C. Lerner, New York, N.Y., Jeanne Welch Sopher, Pittsburgh, PA, on the brief), for Defendants–Appellees.

Before RILEY, Chief Judge, MURPHY and MELLOY, Circuit Judges.

Opinion

RILEY, Chief Judge.

Insulate SB, Inc., a purchaser of fast-set spray foam equipment (FSE), filed this antitrust class action alleging FSE manufacturer Graco Inc. and its subsidiary Graco Minnesota Inc. (Graco) and a number of FSE distributors (Distributors) (collectively, appellees) conspired to restrain trade in violation of federal antitrust law, see 15 U.S.C. § 1, et seq., and numerous state antitrust and consumer protection laws. Insulate claims these conspiracies kept Graco's competitors out of the market, allowing Graco and the Distributors to charge artificially high prices. The district court¹ dismissed the action on the pleadings, and with appellate jurisdiction under 28 U.S.C. § 1291, we affirm.

I. BACKGROUND²

Graco manufactures FSE and sells it to distributors, who then resell on the open market to consumers like Insulate. Because there is no direct market for FSE, distributors are key to its sale. Insulate purchased FSE from defendant distributor Intech Equipment & Supply, L.L.C. and claims Graco's anticompetitive practices forced it to pay an artificially high price. In 2005, Graco purchased a competing FSE manufacturer, Gusmer Corp., thus achieving a 65% share of the North American FSE market, and in 2008, Graco purchased competitor GlasCraft, Inc., raising its market share “to above 90%.”

Insulate alleges at some point “Graco agreed with its Distributors individually and collectively to enter into exclusive dealing arrangements for the purpose of keeping new and potential entrants out of the FSE market.” Insulate further alleges “key Distributors” assisted Graco in advancing its anticompetitive scheme. In October 2007, Graco sent a letter to its distributors citing the “best efforts” clause in its distributor agreements and expressing its preference that distributors refrain from adding non-Graco products. The letter stated:

It is our opinion that taking on an additional competitive product line may significantly reduce the “best efforts” of a Graco distributor to sell our Graco and Gusmer product lines. Graco realizes that a business owner must make independent decisions regarding product lines competitive to Graco and Gusmer product offerings....

Should a distributor add a competitive product line, it will result in an immediate review of our business relationship and may impact access to specific products, changes in addendum status or possible elimination of our distributor agreement....

This position has been adopted by us unilaterally.

Insulate contends these distributor agreements kept potential competitor Gama Machinery USA, Inc. from entering the FSE market. In January 2009, Foampak, Inc.—a Graco distributor not named as a defendant—considered carrying Gama products but chose not to after Graco executives met with Foampak's president and threatened to end its distributorship. “Considering it a better decision for its business, Foampak acquiesced.” In February 2012, Graco sent a letter to its distributors “reminding” them to not carry Gama products. Insulate alleges exclusive dealing agreements allowed Distributors to “charge Contractors anticompetitive prices for [FSE] and control geographic distribution areas and exclude new distributors from such areas.”

In March 2008, Graco sued Gama alleging, among other things, theft of trade secrets, and Gama counterclaimed alleging, among other things, Graco had unilaterally monopolized the FSE market in violation of Sherman Act Section 2, 15 U.S.C. § 2.

In 2013, the United States Federal Trade Commission (FTC) also drafted a complaint against Graco accusing Graco of unlawfully acquiring its competitors in violation of Clayton Act Section 7, id. § 18. Graco and the FTC entered a consent agreement which confirmed Graco would not engage in any practice “that has the purpose or effect of achieving Exclusivity with any Distributor.” The consent agreement did “not constitute an admission by [Graco] that the law ha[d] been violated,” and Graco emphasizes “the FTC did not allege” that Graco's activities were unlawful.

On June 14, 2013, after learning of the FTC complaint, Insulate filed the instant suit. Insulate claimed Graco and a collection of FSE distributors, through “agreements in restraint of trade,” conspired to reduce competition in violation of the Sherman Act, the Clayton Act, and numerous states' antitrust and consumer protection laws. The district court granted the appellees' motions to dismiss, finding (1) Insulate's federal claims were barred by the statute of limitations; (2) Insulate had failed to state a claim on its federal causes of action; (3) Insulate, as a California resident, could not bring state law claims for states other than California; and (4) Insulate had not met the California antitrust statute of limitations and failed to state a claim under California's Unfair Competition Law.³ Insulate appeals.

II. DISCUSSION

A. Federal Antitrust Claims

1. Federal Antitrust Standing

“[T]he focus of the doctrine of ‘antitrust standing’ is somewhat different from that of standing as a constitutional doctrine.”Associated Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 519, 535 n. 31, 103 S.Ct. 897, 74 L.Ed.2d 723 (1983) ; cf. NicSand, Inc. v. 3M Co., 507 F.3d 442, 449 (6th Cir.2007) (en banc) (describing the doctrine of antitrust standing as more rigorous than Article III standing and explaining courts “must[ ] reject claims under [Federal Rule of Civil Procedure] 12(b)(6) when antitrust standing is missing”). To bring a federal antitrust claim, “a private plaintiff must demonstrate that he has suffered an ‘antitrust injury’ as a result of the alleged conduct of the defendants.” In re Canadian Import Antitrust Litig., 470 F.3d 785, 791 (8th Cir.2006). An “antitrust injury” is an “injury of the type the antitrust laws were intended to prevent ... that flows from that which makes defendants' acts unlawful.” Brunswick Corp. v. Pueblo Bowl–O–Mat, Inc., 429 U.S. 477, 489, 97 S.Ct. 690, 50 L.Ed.2d 701 (1977). “[T]he Supreme Court [has] held that a remote or ‘indirect’ purchaser was not a person injured” under federal antitrust law. In re Midwest Milk Monopolization Litig., 730 F.2d 528, 529 (8th Cir.1984) (citing Ill. Brick Co. v. Illinois, 431 U.S. 720, 735, 97 S.Ct. 2061, 52 L.Ed.2d 707 (1977) ).

The appellees claim Insulate, as an indirect purchaser of FSE, lacks standing to bring its antitrust claims. Our court has suggested that indirect purchasers may bring an antitrust claim if they allege the direct purchasers are “party to the antitrust violation” and join the direct purchasers as defendants. Campos v. Ticketmaster Corp., 140 F.3d 1166, 1170–71 & nn. 3–4 (8th Cir.1998). We now hold as much. Because Insulate's complaint alleges conspiracies between Graco and the Distributors and names the Distributors as defendants, Insulate has adequately established it has antitrust standing.

2. Failure to State a Claim

The presence of antitrust standing does not answer the distinct question whether Insulate has sufficiently stated a claim under Federal Rule of Civil Procedure 12(b)(6). Cf. Hutterville Hutterian Brethren, Inc. v. Sveen, 776 F.3d 547, 554 (8th Cir.2015).

“We review de novo the district court's grant of a motion to dismiss under Rule 12(b)(6).” Retro Television Network, Inc. v. Luken Commc'ns, LLC, 696 F.3d 766, 768 (8th Cir.2012).⁴ “[A] plaintiff's obligation to provide the grounds of his entitlement to relief requires more than labels and conclusions, and a formulaic recitation of the elements of a cause of action will not do.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) (internal marks omitted).

Given “the unusually high cost of discovery in antitrust cases,” id. at 558, 127 S.Ct. 1955, “the limited ‘success of judicial supervision in checking discovery abuse[,]’ and ‘the threat [that] discovery expense will push cost-conscious defendants to settle even anemic cases ...,’ the federal courts have been reasonably aggressive in weeding out meritless antitrust claims at the pleading stage,” NicSand, 507 F.3d at 450 (second alteration in original) (quotation omitted) (quoting Twombly, 550 U.S. at 559, 127 S.Ct. 1955 ). Cf. In re Text Messaging Antitrust Litig., 630 F.3d 622, 625–26 (7th Cir.2010) ( “When a district court by misapplying the Twombly standard allows a complex case of extremely dubious merit to proceed, it bids fair to immerse the parties in the discovery swamp ... and by doing so create irrevocable as well as...