Int'l Constr. Prods. LLC v. Caterpillar Inc.

INTERNATIONAL CONSTRUCTION PRODUCTS LLC, Plaintiff; v. CATERPILLAR INC., KOMATSU AMERICA CORP.,VOLVO CONSTRUCTION EQUIPMENT NORTH AMERICA, LLCand ASSOCIATED AUCTION SERVICES, LLC d/b/aCAT AUCTION SERVICES, Defendants.

Civil Action No. 15-108-RGA

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE

January 21, 2016

MEMORANDUM OPINION

John W. Shaw, Esq., Shaw Keller LLP, Wilmington, DE; David Boies, Esq. (argued), Boies, Schiller & Flexner LLP, Armonk, NY; James P. Denvir, Esq., Christopher G. Renner, Esq., Boies, Schiller & Flexner LLP, Washington, DC, attorneys for Plaintiff International Construction Products LLC.

David J. Baldwin, Esq., Janine L. Hochberg, Esq., Potter, Anderson & Corroon LLP, Wilmington, DE; Robert J. Brookhiser, Jr., Esq. (argued), Robert G. Abrams, Esq., Gregory J. Commins, Jr., Esq., Danyll W. Foix, Esq., Baker & Hostetler LLP, Washington, DC, attorneys for Defendant Caterpillar Inc.

M. Duncan Grant, Esq., James H. S. Levine, Esq., Pepper Hamilton LLP, Wilmington, DE; Jeremy Heep, Esq. (argued), Robin P. Sumner, Esq., Melissa Hatch O'Donnell, Esq., Pepper Hamilton LLP, Philadelphia, PA, attorneys for Defendant Volvo Construction Equipment North America, LLC.

Denise S. Kraft, Esq., Brian Biggs, Esq., DLA Piper LLP (US), Wilmington, DE; David H. Bamberger, Esq. (argued), Katherine M. Ruffing, Esq., James F. Reardon, Esq., DLA Piper LLP (US), Washington, DC, attorneys for Defendant Komatsu America Corp.

Edward F. Eaton, Esq., Connolly Gallagher LLP, Wilmington, DE; Quentin R. Wittrock, Esq. (argued), Gray Plant Mooty, Minneapolis, MN, attorneys for Defendant Associated Auction Services LLC d/b/a Cat Auction Services.

January 21, 2016

ANDREWS, U.S. DISTRICT JUDGE:

Presently before the Court are motions to dismiss filed by defendants Caterpillar Inc., Volvo Construction Equipment North America, LLC, Komatsu America Corp., and Associated Auction Services LLC ("AAS"). (D.I. 27, 28, 30, 33). Defendants request dismissal pursuant to Fed. R. Civ. P. 12(b)(6). The issues have been fully briefed. (D.I. 35, 36, 38). Oral argument was held on October 20, 2015. (D.I. 44). For the reasons set forth herein, the motions to dismiss are GRANTED.

I. BACKGROUND

On January 29, 2015, International Construction Products LLC ("ICP") brought this antitrust action against Caterpillar, Volvo, Komatsu, and AAS. (D.I. 1). ICP imports and sells heavy construction equipment. (Id. ¶ 7). Caterpillar, Volvo, and Komatsu (the "Manufacturer Defendants") manufacture heavy construction equipment. (Id. ¶¶ 8-10). AAS facilitates auctions of used heavy construction equipment. (Id. ¶ 11). ICP's claims relate to violations of the Sherman Act, the Clayton Act, and state law. (Id. ¶¶ 113-52). More specifically, ICP alleges a group boycott, exclusive dealing, various monopolization claims, and unlawful merger. (Id.). I will summarize the relevant allegations of the complaint.

ICP alleges that, in the United States, the market for the sale of new heavy construction equipment is highly concentrated. (Id. ¶ 21). Defendant Caterpillar accounts for approximately 40 percent or more of all sales. (Id.). Komatsu accounts for more than 15%. (Id. ¶ 21). Volvo has a market share of more than 5%. (Id. ¶ 44).

Manufacturers of new heavy construction equipment typically sell equipment to local dealers throughout the country, who take title and resell the equipment to end users. (Id. ¶¶ 19, 20, 39). End users rely on these local dealers for service and support and therefore do nottypically purchase new equipment from dealers without an authorized service location within 75 miles. (Id. ¶ 38). This in turn means that prices may vary in different states and regions within states. (Id.).

ICP alleges that the Manufacturer Defendants require exclusivity on the part of their equipment dealers. (Id. ¶ 39). That is, when a dealer takes title to equipment manufactured by one of the Manufacturer Defendants, the dealer is expected not to deal with competing suppliers. (Id.). ICP alleges that these exclusivity requirements foreclose substantial portions of the dealer market to new entrants. (Id. ¶ 42).

Historically, direct sales of new heavy construction equipment to end users have been uncommon. (Id. ¶ 20). ICP sought to change that paradigm by selling foreign (particularly Chinese) heavy construction equipment directly to consumers through the use of the Internet. (Id. ¶¶ 69, 70, 74). ICP planned to use an online entity called IronPlanet to host and support their online store. (Id. ¶ 74). IronPlanet is the largest online marketplace for the sale of used heavy construction equipment. (Id. ¶¶ 56, 57, 58). ICP alleges that the Manufacturer Defendants are among the highest volume sellers of used heavy construction equipment on the IronPlanet platform. (Id. ¶ 94). Through its partnership with IronPlanet, ICP hoped to benefit from the substantial user base of end users already using IronPlanet to purchase used heavy construction equipment. (Id. ¶ 74). ICP alleges that although the Manufacturer Defendants had exclusivity agreements with dealers, the requirements imposed by the Manufacturer Defendants did not extend to the servicing of equipment. (Id. ¶¶ 75, 76). Therefore ICP was able to successfully enter into arrangements with dealers for maintenance and repair of equipment it distributed online. (Id.). With this new business model, ICP could be a "master distributor" for "low priced,high-quality new heavy construction equipment" in a new and efficient distribution channel. (Id. ¶¶ 74, 76).

ICP announced its partnership with IronPlanet on March 3, 2014 at the CONEXPO-CON/AGG industry event. (Id. ¶ 82). This announcement was widely covered in the trade press and generated substantial interest, particularly from Chinese manufacturers seeking to enter into distribution deals with ICP. (Id. ¶¶ 82, 87, 88, 89, 90). ICP alleges that its entry into the market posed a significant competitive threat to the Manufacturer Defendants and that they, in response, conspired to block ICP's entry. (Id. ¶¶ 93, 94). ICP alleges that each of the Manufacturer Defendants communicated "the same or similar threat" to IronPlanet "within days of one another." (Id. ¶ 96). The thrust of the threat, ICP alleges, was that each Manufacturer Defendant would stop selling their used equipment through IronPlanet if IronPlanet continued to deal with ICP. (Id. ¶¶ 95, 96). IronPlanet then informed ICP that it would not perform under the terms of their agreement, and delivered a written notice of termination. (Id. ¶ 102).

ICP alleges that in furtherance of eliminating any potential threat to Caterpillar's business through the use of IronPlanet, Caterpillar sought to merge Cat Auction Services and IronPlanet. (Id. ¶¶ 105, 106). ICP alleges this merger was made possible because Caterpillar owned a minority stake in both companies. (Id. ¶ 105). This merger was effectuated by Caterpillar, ICP alleges, to align the goals of IronPlanet with those of Caterpillar, thus allowing Caterpillar to eliminate the threat of ICP or any other potential market entrants. (Id. ¶¶ 105, 106).

II. LEGAL STANDARD

Rule 8(a) requires "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). When reviewing a motion to dismiss pursuant to Fed. R. Civ. P. 12(b)(6), the court must accept the complaint's factual allegations as true, but maydisregard any legal conclusions. Fowler v. UPMC Shadyside, 578 F.3d 203, 210-11 (3d Cir. 2009). The factual allegations do not have to be detailed, but they must provide more than labels, conclusions, or a "formulaic recitation" of the claim elements. Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555-56 (2007) ("Factual allegations must be enough to raise a right to relief above the speculative level . . . on the assumption that all the allegations in the complaint are true (even if doubtful in fact)."). There must be sufficient factual matter to state a facially plausible claim to relief. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). The facial plausibility standard is satisfied when the complaint's factual content "allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id. ("Where a complaint pleads facts that are merely consistent with a defendant's liability, it stops short of the line between possibility and plausibility of entitlement to relief." (quotation marks omitted)).

III. ANALYSIS

A. Group Boycott Under Sherman Act § 1 (Counts One and Two)

Section 1 of the Sherman Act provides: "Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal." 15 U.S.C. § 1. In order to satisfy the requirement of a "contract, combination . . . or conspiracy," there must be "some form of concerted action." In re Baby Food Antitrust Litig., 166F.3d 112, 117 (3d Cir. 1999). "The existence of an agreement is the hallmark of a Section 1 claim." Id.

In alleging the existence of such an agreement, the plaintiff must state "enough factual matter (taken as true) to suggest that an agreement was made." Bell Atl. Corp. v. Twombly, 550 U.S. 544, 556 (2007). Evidence of parallel conduct is, by itself, not sufficient to show an agreement. In re Ins. Brokerage Antitrust Litig., 618 F.3d 300, 321 (3d Cir. 2010). Whenfactual allegations of parallel conduct are set forth to satisfy the § 1 agreement requirement, the parallel conduct "must be placed in a context that raises a suggestion of a preceding agreement, not merely parallel conduct that could just as well be independent action." Twombly, 550 U.S. at 557. Parallel conduct can support an inference of agreement when it "would probably not result from chance, coincidence, independent responses to common stimuli, or mere interdependence unaided by an advance understanding among the parties." Id. at 556 n.4. The Third Circuit has advised courts...