MEMORANDUM OPINION AND ORDER
RONNIE GREER, District Judge
This matter is before the Court on the individual defendants' motions for summary judgment, [Docs. 23 and 26]. In the first motion, [Doc. 23], the individual defendants move for summary judgment on all of Bobby Joe Ambrose's ("Joey Ambrose") claims. In the second motion, [Doc. 26], the individual defendants move for summary judgment as to all claims by Billy Joe Ambrose ("Billy Joe Ambrose"). The plaintiffs have responded to the motions, and the matter is ripe for review. For the reasons that follow, both motions are GRANTED.
I. FACTS
This Court notes that the plaintiffs failed to follow the Scheduling Order and did not file a separate response to the defendants' statements of material facts. The plaintiffs also did not set forth any additional facts that should be considered. However, the Court discerns from the arguments contained in the response which facts the plaintiffs dispute.
Billy Joe Ambrose owns two buildings which are connected. They are located at 106 and 108 Union Street in Erwin, Tennessee. Billy Joe Ambrose lives in an apartment at 108 Union Street. Joey Ambrose, Billy Joe Ambrose's son, lived in an apartment at 106 Union Street with his wife and child. Also, Barbara Ambrose, who is Billy Joe Ambrose's ex-wife and Joey Ambrose's mother, lives in an apartment at 106 Union Street. In addition, there is a garage located at 106 Union Street.
Joey Ambrose is now in the custody of the Bureau of Prisons.
On April 23, 2008, the defendants procured a search warrant for 106 Union Street. The defendants executed the search warrant and found evidence that methamphetamine was being manufactured at that address. After the search, Joey Ambrose was arrested and charged with committing several federal crimes relating to methamphetamine and the evidence found at the address. The criminal case number is 2:08-CV-253.
Joey Ambrose was charged and convicted of violating Title 21 United States Code sections 841(a)(1), 843(a)(6), 846, 856(a)(1) and Title 18 United States Code sections 922(g)(1) and 924(c)(1)(A).
In the criminal case, Joey Ambrose moved to suppress the evidence obtained during the search on the basis that the search warrant and its execution were unconstitutional. United States Magistrate Judge Dennis H. Inman conducted a hearing, and the United States and the defense called witnesses, including Tennessee Criminal Court Judge Robert E. Cupp, who had issued the search warrant. Based upon the evidence presented, the magistrate judge filed a Report and Recommendation, [Doc. 176 in case no. 2:08-CR-39], finding the search to be constitutional. United States District Court Judge Leon Jordan entered an Order approving the Report and Recommendation, [Doc. 196 in case no. 2:08-CR-39]. The trial ensued, and Joey Ambrose was convicted on multiple felony counts. On July 9, 2010, Judge Jordan held a sentencing hearing, and the Court entered Judgment on July 13, 2010, imposing a 168-month sentence.
At the time the defendants filed their motions and the plaintiffs responded, Joey Ambrose had not been sentenced.
II. SUMMARY JUDGMENT STANDARD
Summary judgment is proper where "the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue of material fact and that the movant is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). In ruling on a motion for summary judgment, the Court must view the facts contained in the record and all inferences that can be drawn from those facts in the light most favorable to the non-moving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587 (1986); Nat'l Satellite Sports, Inc. v. Eliadis, Inc., 253 F.3d 900, 907 (6th Cir. 2001). The Court cannot weigh the evidence, judge the credibility of witnesses, or determine the truth of any matter in dispute. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249 (1986).
The moving party bears the initial burden of demonstrating that no genuine issue of material fact exists. Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). To refute such a showing, the non-moving party must present some significant, probative evidence indicating the necessity of a trial for resolving a material factual dispute. Id. at 322. A mere scintilla of evidence is not enough. Anderson, 477 U.S. at 252; McClain v. Ontario, Ltd., 244 F.3d 797, 800 (6th Cir. 2000). This Court's role is limited to determining whether the case contains sufficient evidence from which a jury could reasonably find for the non-moving party. Anderson, 477 U.S. at 248-49; Nat'l Satellite Sports, 253 F.3d at 907. If the non-moving party fails to make a sufficient showing on an essential element of its case with respect to which it has the burden of proof, the moving party is entitled to summary judgment. Celotex, 477 U.S. at 323. If this Court concludes that a fair-minded jury could not return a verdict in favor of the non-moving party based on the evidence presented, it may enter a summary judgment. Anderson, 477 U.S. at 251-52; Lansing Dairy, Inc. v. Espy, 39 F.3d 1339, 1347 (6th Cir. 1994).
The party opposing a Rule 56 motion may not simply rest on the mere allegations or denials contained in the party's pleadings. Anderson, 477 U.S. at 256. Instead, an opposing party must affirmatively present competent evidence sufficient to establish a genuine issue of material fact necessitating the trial of that issue. Id. Merely alleging that a factual dispute exists cannot defeat a properly supported motion for summary judgment. Id. A genuine issue for trial is not established by evidence that is "merely colorable," or by factual disputes that are irrelevant or unnecessary. Id. at 248-52.
III. ANALYSIS
As stated, in the first motion, [Doc. 23], the individual defendants move for summary judgment on all of Joey Ambrose's claims. In the second motion, [Doc. 26], the individual defendants move for summary judgment as to all claims by Billy Joe Ambrose. The Court will discuss each motion in turn.
A. Joey Ambrose's Claims and the Heck v. Humphrey Doctrine
The defendants first argue that they are entitled to summary judgment as to Joey Ambrose's claims because Heck v Humphrey, 512 U.S. 477, 486-87 (1994) prevents Joey Ambrose from pursuing a section 1983 action. " Heck bars § 1983 plaintiffs from advancing claims that, if successful, `would necessarily imply the invalidity' of a prior conviction." Cummings v. City of Akron, 418 F.3d 676, 682 (6th Cir. 2005) (quoting Heck v. Humphrey, 512 U.S. 477, 487 (1994)). However, if the plaintiff's actions would not demonstrate invalidity of an outstanding criminal judgment, then the action would not be barred. See id.
Here, Joey Ambrose filed this section 1983 action alleging his Fourth Amendment rights were violated due to an illegal search — i.e., an invalid search warrant. Joey Ambrose argues that his action is not barred by the Heck doctrine because a favorable ruling here will not invalidate his conviction because there was evidence in the criminal trial record sufficient to convict him without the evidence seized in the search. The plaintiff states in his response that this evidence is testimony from "two of the biggest methamphetamine cooks in upper east Tennessee." Joey Ambrose claims that these two witnesses testified at the criminal trial that he was directly involved in the illegal methamphetamine business and that he used a gun to steal chemicals used in the manufacturing process from them.
The plaintiff, however, did not attach evidence of this testimony to his response. He merely makes this unsupported claim in his brief. Federal Rule of Civil Procedure 56(e)(2) states that a party opposing a motion for summary judgment may not rely on allegations or denials in pleadings. Fed.R.Civ.P. 56(e)(2). This Court notes that the transcripts from the criminal trial were filed as document 332, which contains the testimony referred to by the plaintiff. However, even if this Court considered such testimony, it does not affect this Court's ruling.
Clearly, the plaintiff filed this action alleging that his constitutional rights were violated by the illegal search. In the criminal case, the plaintiff moved to suppress the evidence found as a result of the search based upon the alleged unconstitutionality of the search — the same grounds. He was unsuccessful, and his motion to suppress was denied. If this section 1983 claim were to be successful, then it would necessarily imply the invalidity of a prior conviction despite any corroborating evidence from other methamphetamine manufacturers. See Hemphill v. Haglund, No. 02-1025, 2002 WL 31074581, **2 (6th Cir. Sept. 16, 2002) (deciding section 1983 claim barred by Heck doctrine because ruling that search was illegal would necessarily imply the invalidity of his conviction).
Joey Ambrose was convicted of conspiracy to distribute and to possess with the intent to distribute methamphetamine, see 21 U.S.C. §§ 841(a)(1), 846; conspiracy to manufacture methamphetamine, see id.; possessing ingredients used to manufacture methamphetamine, see 21 U.S.C. § 843(a)(6); maintaining a place to manufacture, distribute and use methamphetamine, see 21 U.S.C. § 856(a)(1); and two other related gun offenses, see 18 U.S.C. §§ 922(g)(1), 924(c)(1)(A). Some of the essential elements of these offenses include possessing the methamphetamine, its ingredients, or equipment used to manufacture the drug. In addition, as to the gun offenses, an essential element is that there be a gun. This was the nature of the evidence seized in the search. It is very difficult for this Court to imagine that such evidence would not have had a significant impact in the criminal trial especially in view of the fact that the government's case beyond that was based almost entirely on the word of "two of the biggest methamphetamine cooks in upper east Tennessee." In addition, the plaintiff candidly admitted that he "recognizes that [the search warrant] may have had some bearing on his ultimate conviction." [Doc. 35, ¶ 2].
Accordingly, this Court concludes that the Heck doctrine bars Joey Ambrose's section 1983 action, and the individual defendants' motion is GRANTED. Because the Court has granted the motion on this ground, it need not discuss the alternative grounds for dismissal sought by the defendants.
B. Billy Joe Ambrose's Claims and Qualified Immunity of Defendants
In the second motion, [Doc. 26], the individual defendants move for summary judgment as to all claims by Billy Joe Ambrose. The defendants submit that they are entitled to qualified immunity.
In determining an officer's entitlement to qualified immunity [this Court] follow[s] a two-step inquiry.
Saucier v. Katz, 533 U.S. 194, 201-02,
121 S. Ct. 2151,
150 L. Ed. 2d 272 (2001). First taken in the light most favorable to the plaintiff, [the Court] decide[s] whether the
facts alleged show the officer's conduct violated a constitutional right.
Id. at 201. If no constitutional right would have been violated were the plaintiff's allegations established, there is no need for further inquiry into immunity. If a violation can be made out on a favorable view of the plaintiff's submissions, [the Court] next ask[s] whether the right was clearly established.
Id.
Vakilian v. Shaw, 335 F. 3d 509, 516-17 (6
th Cir. 2003). In general, government officials performing discretionary functions are shielded "from civil damages liability as long as their actions could reasonably have been thought consistent with the rights they are alleged to have violated."
Anderson v. Creighton, 483 U.S. 635, 638 (1987). "[A]ll but the plainly incompetent or those who knowingly violate the law" are protected by qualified immunity.
Malley v. Briggs, 475 U.S. 335, 341 (1986). The relevant question for the Court regarding whether the right was clearly established is not the subjective intent of the defendant, but whether a reasonable officer would have believed the defendant's conduct to be lawful, in light of the clearly established law and information possessed by the defendant.
Anderson, 43 U.S. at 640.
It is undisputed that Billy Joe Ambrose owned the connected building at 106 and 108 Union Street. It is also undisputed that the individual defendants did not search Billy Joe Ambrose's residence. He essentially alleges that his constitutional rights were violated as a result of the search the garage and other areas of the building. In determining whether the individual defendants are entitled to qualified immunity, this Court will, thus, analyze the issue based on the different areas of the premises searched by the defendants. This Court will first examine the issue in terms of the garage and then the common areas — i.e., the hallway of 108 Union Street and the attic and roof of 106 Union Street.
This Court notes that Billy Joe Ambrose concedes that he does not have a constitutional right to privacy in the tenants' apartments. See Doc. 40, page 3; see also Johnson v. Weaver, 248 Fed.Appx. 694, 697 (6th Cir. 2007).
First, the defendants assume for purposes of this motion only that Billy Joe Ambrose had a constitutional right to privacy in the garage. However, despite this right to privacy, they claim that they are still entitled to qualified immunity because the search warrant was constitutional and because a reasonable officer could have believed that the search was constitutional. As the defendants noted, they are not claiming that the decision of the magistrate judge and district judge that the search was constitutional is legally binding upon the plaintiff. Instead, they argue that if the two jurists reviewed the arguments and determined as such, then surely a reasonable law enforcement officer could have believed that the search warrant as to the garage was constitutional.
The plaintiff basically argues that the question is whether a reasonable officer could have believed that the search warrant complied with Tennessee law. This Court agrees with the defendants in that the standard for section 1983 purposes is whether the search complied with the Fourth Amendment. As the magistrate judge explained in his Report and Recommendation, [Doc. 169 in case no. 2:08-CR-39], and as approved by the district judge, this Court agrees, for all the reasons cited in the Report and Recommendation, which is an exhibit hereto, that the search of the garage was constitutional. Thus, this Court finds that there is no genuine issue of material fact that plaintiff's constitutional rights were violated by the search of the garage. As such, the individual defendants are entitled to qualified immunity, and their motion is GRANTED.
Second, this Court will analyze the qualified immunity issue as to the "common areas" of 106 and 108 Union Street. The evidence in the record, namely testimony from the suppression hearing, indicates that the attic was not a common area but was part of Joey Ambrose's apartment, in which Billy Joe Ambrose concedes he does not have a right to privacy. See Doc. 176 in case no. 2:08-CR-39, page 70. Therefore, the motion is GRANTED in this respect because there is no genuine issue of material fact that the plaintiff's constitutional rights were violated as a result of the searching the attic. Also, there is no evidence in the record that individual defendants Michael Hensley, Stacy Wiggand or David Walker were ever present in the hallway. Thus, the motion in that respect as to them is GRANTED. There is, however, evidence that Sheriff Harris and Officer Adkins entered the hallway. Accordingly, this Court will fully analyze the issue as to these two defendants.
Initially, this Court must decide whether Billy Joe Ambrose had a right to privacy in the hallway. If he did not, then no constitutional violation as a result of an alleged illegal search could have occurred. If he did have a right to privacy in the hallway, then the Court must determine whether the defendants' conduct violated Billy Joe Ambrose's constitutional rights.
A person's reasonable expectation of privacy is explained in United States v. Dillard, 438 F.3d 675, 682 (6th Cir. 2006), from the perspective of a criminal defendant. That case states:
A person has an expectation of privacy if he has a subjective expectation of privacy, and if society is prepared to recognize that expectation as objectively reasonable.
See Katz v. United States, 389 U.S. 347, 361 (1967) (Harlan, J., concurring). In analyzing whether a subjective expectation of privacy is objectively reasonable, this court considers a number of factors: (1) whether the defendant was legitimately on the premises; (2) his proprietary or possessory interest in the place to be searched or the item to be seized; (3) whether he had the right to exclude others from the place in question; and (4) whether he had taken normal precautions to maintain his privacy.
See United States v. King, 227 F.3d 732, 744 (6th Cir. 2000).
Id.
There is no Sixth Circuit case law directly on point. The plaintiff cites United States v. Carriger, 541 F.2d 545 (6th Cir. 1976), and McDonald v. United States, 335 U.S. 451 (1948). Carriger is discussed in Dillard, which this Court cited above. All three cases involved a tenant's expectation of privacy, not a landlord's. Nevertheless, the cases are instructive, and this Court concludes from those cases that a landlord would not have a reasonable expectation of privacy in a common hallway that is more or less open to the public because the doors to access the hallway from the outside are always unlocked. See Doc. 176 in case no. 2:08-CR-39, page 76. In addition, in this multi-unit building, which houses apartments and/or "boarding rooms," many people may be expected to enter and leave through the hallway. See Doc. 176 in case no. 2:08-CR-39, page 184. Accordingly, this Court finds that the plaintiff did not have a reasonable expectation of privacy in the common hallway area; thus, his constitutional rights could not be violated as a result of an alleged illegal search of this area. The defendants' motion in this regard is GRANTED.
This Court just concluded that the plaintiff had no expectation of privacy in the common hallway of 108 Union Street, but determining whether he has an expectation of privacy in the roof area of 106 Union Street is a closer question. Before discussing the details, this Court notes that only Officers Hensley and Adkins were present on the roof. As such, the motion as to the other defendants is granted since they were not present in this area.
As to whether Officer Hensley and Adkins are entitled to qualified immunity, it appears from the testimony at the suppression hearing that the door leading to the roof area was not locked, and the roof was accessible. See Doc. 176 in case no. 2:08-CR-39, page 116. Further, unlike in King, where the Sixth Circuit held that there was an expectation of privacy in an unlocked basement of a duplex, this was not a duplex but a multi-unit building. 227 F.3d at 758; see also Dillard, 438 F.3d at 684 (distinguishing King). Further, generators were located on the roof, and one might expect that people other than the landlord and tenants would need access to those generators. In addition, the roof is actually out in the open, exposed for anyone situated at a higher elevation to see. No steps were taken by the plaintiff to ensure that this area would remain private. For those reasons, the Court concludes that the plaintiff did not have an expectation of privacy in the roof. Therefore, the defendants' motion is GRANTED. Furthermore, for the reasons stated in the Report and Recommendation as to Joey Ambrose, even if the plaintiff did have an expectation of privacy in the roof, this Court finds that there was no constitutional violation from a cursory search for people of a building being evacuated due to public safety, considering the evidence that methamphetamine was being manufactured in the building.
Because this Court did not find a constitutional violation regarding the search of the roof, this Court need not proceed further into the inquiry. Nonetheless, this Court will briefly address whether the law is clearly established regarding the plaintiff's expectation of privacy in the roof and the search thereof. In Brosseau v. Haugen, 543 U.S. 194, 199-200 (2004), the Supreme Court set forth two means by which a section 1983 plaintiff may show that a right was clearly established. A plaintiff may establish that a violation "was sufficiently obvious under the general standard of constitutional care that the plaintiff need not show a body of materially similar case law" or prove that an officer "fail[ed] to adhere to a particularized body of precedent that squarely governs the case." Lyons v. City of Xenia, 417 F.3d 565, 579 (6th Cir. 2005) (citing Brosseau, 543 U.S. at 199-200) (internal quotation marks and brackets omitted).
Even if there were a violation, it by no means can be considered obvious. Thus, this Court will determine whether Officers Hensley and Adkins "fail[ed] to adhere to a particularized body of precedent that squarely governs the case." Lyons, 417 F.3d at 579. Here, there is no case law directly on point regarding a landlord's expectation of privacy. Further, the analogous case law by no means "squarely governs the case." Id. The closest case is King, and in that case, it dealt with an unlocked basement in a duplex and not a multi-unit building. 227 F.3d at 750. Therefore, this Court cannot conclude that the officers failed to adhere a body of precedent which squarely governs the case. Therefore, Defendants Hensley and Adkins' motion is GRANTED in this regard.
IV. CONCLUSION
In sum, for the reasons stated above, the individual officers motions, [Docs. 23 and 26], are GRANTED. All claims by Billy Joe Ambrose and Bobby Joe Ambrose against the individual defendants are DISMISSED.
osure The sulfuric acid industry, while idiosyncratic, is not so markedly different from other industries in which the
per se rule has been applied that the Court is prevented from applying the rule here. In the sulfuric acid industry, the commodity can be produced at a much cheaper price by some competitors than others and it must be offloaded through sale. These factors are common in many industries. Moreover, "the argument that the
per se rule must be rejustified for every industry that has not been subject to significant antitrust litigation ignores the rationale for
per se rules, which in part is to avoid `the necessity for an incredibly complicated and prolonged economic investigation into the entire history
of the industry involved, as well as related industries, in an effort to determine at large whether a particular restraint has been unreasonable — an inquiry so often wholly fruitless when undertaken."
Maricopa, 457 U.S. at 350-51;
see also Socony, 310 U.S. at 222 ("Nor has the Act created or authorized the creation of any special exception in favor of the oil industry. Whatever may be its peculiar problems and characteristics, the Sherman Act, so far as price-fixing agreements are concerned, establishes one uniform rule applicable to all industries alike.");
NCAA, 468 U.S. at 99 ("[T]he likelihood that horizontal price
To illustrate the uniqueness of the sulfuric acid industry, Defendants cite a Canadian case holding that voluntary producer's decision to shut down facilities in favor of an exclusive resale contract with a smelter did not violate Canadian antitrust laws. See R. v. Allied Chem. Canada Ltd., 6 W.W.R. 481 [1975]. While legal analysis under Canadian law is irrelevant, it bears noting that the British Columbia Supreme Court's holding was not premised on the uniqueness of the sulfuric acid industry. The court actually based its decision on findings of fact that this Court is prevented from making at summary judgment. The Canadian court observed, "[c]ertainly there are cases where control and diminution of supply may be a weapon to control price. . . . But here the problem was to dispose of an excess of acid, not to dry the source of supply. . . . There was no suggestion that the plan was to shut down [the plant] so [the smelter] could control the price of acid, nor is there any evidence that any overt acts to that end did result." Id. at ¶ 125-26. The court ultimately found that "[t]here was no initial illegal agreement to limit all facilities in the western British Columbia area to those at [the smelter], and there was no ongoing policy to do so, nor any overt action directed to carrying out such a policy." Id. at ¶ 137. By contrast, it remains disputed whether the instant case involves illegal agreements comprising an ongoing conspiracy to reduce output as a means of influencing prices.
and output restrictions are anti-competitive is generally sufficient to justify application of the per se rule without inquiry into the special characteristics of a particular industry.")
This is not a case, as Defendants argue, where reluctance to adopt a per se rule should be observed "in the context of business relationships where the economic impact of certain practices is not immediately obvious." Khan, 522 U.S. at 10. That oft-quoted phrase advises courts to be careful when assessing arrangements substantively different from a typical per se illegal restraint, not industries with rare appearances on the antitrust stage. See, e.g., F.T.C. v. Indiana Federation of Dentists, 476 U.S. 447, 458 (1986) (policy of federation of dentists with respect to its members' dealings with third-party insurers constituting a concerted refusal to deal on particular terms with patients covered by group dental insurance, similar but not identical to practices that had been labeled "group boycotts"); Northwest Wholesale Stationers, Inc. v. Pacific Stationery and Printing Co., 472 U.S. 284, 298 (1985) (system in which nonmember retailers can purchase supplies from nonprofit cooperative buying association at the same price as members, resulting in effectively lower prices to members due to annual distribution of profits to members in the form of a percentage rebate). The restraint at issue is not distinguishable from the sort normally considered under the per se rule simply because it occurs in the context of the sulfuric acid industry. Defendants' argument to that effect is unavailing.
4. Zone Contracts
Plaintiffs challenge Defendants' zone contracts as an attempt at horizontal market allocation and thus a per se violation of § 1. One of the classic examples of a per se violation is an agreement between competitors to allocate territories in order to minimize competition. See Topco, 405 U.S. at 608; United States v. Heffernan, 43 F.3d 1144, 1145-46 (7th Cir. 1994); Palmer v. BRG of Georgia, Inc., 498 U.S. 46, 49 (1990). Such horizontal market allocation agreements can be contrasted against vertical combinations of entities at different levels, such as suppliers and distributors, designed to control the marketing of a certain brand of product. See Topco, 405 U.S. at 608; GTE Sylvania, 433 U.S. at 57-59; Business Electronics Corp. v. Sharp Electronics Corp., 485 U.S. 717, 727-28 (1988). In Continental T.V. v. GTE Sylvania, Inc., the Supreme Court considered a challenge to a manufacturer's exclusive territorial and marketing agreements, which limited the number of franchises granted for any given area and required each franchisee to sell manufacturer's products only from the location(s) at which it was franchised. See 433 U.S. at 38. The Court held that the agreement could not be condemned as per se illegal, observing that the reduction of intrabrand competition through vertical territorial restrictions allowed suppliers to achieve certain efficiencies in the distribution of their products, thereby stimulating interbrand competition. See id. at 54-56, 58; see also Leegin, 554 U.S. at 890. Because territorial restrictions on distributors have the possibility of producing procompetitive as well as anticompetitive effects, they are properly judged under the rule of reason. See Leegin, 551 U.S. at 903 (citations omitted); see also, Copy-Data Sys., Inc. v. Toshiba Am., Inc., 663 F.2d 405, 411 (2d Cir. 1981), cert. denied, 474 U.S. 825 (1985). Moreover, it is well established that antitrust law is primarily concerned with interbrand, rather than intrabrand, competition. GTE Sylvania, Inc., 433 U.S. at 52 n. 19; Leegin, 551 U.S. at 895.
Intrabrand vertical restraints threaten interbrand competition only if the supplier has monopoly power in the relevant market. See O.S.C. Corp. v. Apple Computer, Inc., 601 F. Supp. 1274, 1291 n. 8 (C.D. Cal. 1985), aff'd, 792 F.2d 1464 (9th Cir. 1986). For this reason, the rule of reason is required to assess their legality. Given that vertical restraints can produce market efficiencies, it cannot be stated with any degree of confidence they "always or almost always tend to restrict competition and decrease output," Business Electronics, 472 U.S. at 723. In other words, the possibility of procompetitive effects precludes per se treatment.
Plaintiffs conflation of the zone contracts with horizontal market allocation agreements falls flat. It is undisputed that the zone contracts were implemented by Noranda, Falconbridge's exclusive sales agent, to reduce intrabrand competition among distributors selling Falconbridge sulfuric acid. See Falconbridge SOF ¶ 65. While Noranda stands as a horizontal competitor with Defendants during illegal agreements to limit industry output, it stands in vertical relationships with them insofar as the sale of its own acid is concerned, whether from Noranda or Falconbridge sources. If the zone contracts had restricted competing producers from selling their own sulfuric acid in certain territorial locations, that would undoubtedly be a per se violation. But the zoning policy had no power over how producers handled their own acid; they only divided the U.S. into territories in which a limited number of prequalified resellers were permitted to bid for Falconbridge acid sales contracts. See Falconbridge SOF ¶ 60. Even then, the zone contracts did not prevent the resellers from marketing Falconbridge sulfuric acid in any geographic location that the reseller wished. See Falconbridge SOF ¶ 66.
Although Plaintiffs do not dispute this in their response to Falconbridge's statement of facts, they cursorily suggest in their brief that the contracts restricted the areas in which Falconbridge acid could be resold. In support of this position, Plaintiffs cite without explanation an internal Noranda email. See Pl. Ex. 78. The email describes a request for sulfuric acid from a potential Wisconsin customer. The Noranda employee taking the order writes that "[t]he acid must come from the Horne [Noranda's smelter] because only Marsulex can sell Falconbridge in this zone and Marsulex is not my customer." Pl. Ex. 189; see also Pl. Ex. 77 at NFD197665 (map indicating that Wisconsin was in Marsulex's "zone"). When viewed in the light most favorable to Plaintiffs, this email at most establishes that the zone contracts granted Falconbridge acid distributors an exclusive right to purchase and sell Falconbridge acid in their given zone, while Noranda acid (i.e. from the Horne smelter) could be freely sold to customers outside that pool. The effect of the distinction is minimal. Such a vertical restraint on Falconbridge acid sales would remain subject to the rule of reason under GTE Sylvania, 433 U.S. at 38, 58.
The zoning policy was essentially a non-restrictive system relied upon by Noranda Sales to geographically diversify buyers of Falconbridge acid. Such systems are regularly upheld by courts as legal. See Cranfill v. Scott Fetzer Co., 773 F. Supp. 943, 951 (E.D. Tex. 1991) ("The practice of assigning areas of primary responsibility to distributors has been regularly upheld, especially when, as here, nothing prohibits the distributors from selling outside their areas.")
In contrast to the evidence reasonably tending to prove Defendants' participation in an output limitation conspiracy, Plaintiffs' have failed to submit comparable evidence suggesting the existence of a horizontal market allocation conspiracy. See Monsanto 465 U.S. at 764; Matsushita, 475 U.S. at 588. At best, Plaintiffs' evidence suggests a vertical market allocation arrangement.
(citing cases). Generally, a supplier may select the distributors to whom it sells its own product without risking per se condemnation. See Leegin, 551 U.S. at 902 (citing United States v. Colgate Co., 250 U.S. 300, 307 (1919) (holding that a manufacturer can suggest resale prices and refuse to deal with distributors who do not follow them)). What is at heart an internal system for organizing bids or managing intrabrand competition cannot be characterized as a restraint that "would always or almost always tend to restrict competition and decrease output." BMI., 441 U.S. 1, 19-20 (1979). No reasonable juror could find otherwise. If Plaintiffs wish to challenge Defendants' zone contracts, they must do so under the rule of reason. Since Plaintiffs have eschewed rule of reason analysis, summary judgment on this issue, addressed in Defendant Falconbridge's motion, must be granted.
5. The Noranda DuPont Joint Venture
Joint ventures are typically judged under the rule of reason because they require extensive cooperation by nature and "hold the promise of increasing a firm's efficiency and enabling it to compete more effectively." Copperweld, 467 U.S. at 768; Polk Bros., 776 F.2d at 188. Restraints imposed by a joint venture may nevertheless come under the per se rule in two situations. In the first, a joint venture may receive per se treatment if it amounts to a sham lacking any reasonable prospect of efficiency-enhancing benefit to society. See Topco, 405 U.S. at 608-09 (holding that district court erred in applying rule of reason to a joint venture's market division agreement for developing, producing, and selling a common brand); United States v. Sealy, Inc., 388 U.S. 350, 353 (1967) (in finding that challenged enterprise was not a "separate entity, but . . . an instrumentality of the individual manufacturers" subject to per se treatment, the Court was moved by "identity of the persons who act, rather than the label of their hats"); Timken Roller Bearing Co. v. U.S., 341 U.S. 593, 595, 598 (1951) (failing to "find any support in reason or authority for the proposition that agreements between legally separate persons and companies to suppress competition among themselves and others can be justified by labeling the project a `joint venture.' Perhaps every agreement and combination to restrain trade could be so labeled."), overruled on other grounds by Copperweld, 467 U.S. at 764-65 (ending application of intra-enterprise doctrine in antitrust lawsuits, but noting that Timken court's reliance on the doctrine was not necessary to the result). In the second situation, a challenged restraint may be condemned as a per se violation if it is a naked restraint against competition, that is, it is not ancillary or reasonably necessary to achieve a legitimate joint venture's efficiency-enhancing benefits. See Polk Bros., 776 F.2d at 188-89. The ancillary restraints doctrine cannot be applied to a joint venture's "core activity," though. See Dagher, 547 U.S. at 1280-81 ("[The] doctrine governs the validity of restrictions imposed by a . . . joint venture, on nonventure activities.") (emphasis added).
The Supreme Court frequently looks beyond labels to condemn underlying collusion among competitors as violations of the Sherman Act. See American Needle, 130 S.Ct. at 2209 ("[W]e have repeatedly found instances in which members of a legally single entity violated § 1 when the entity was controlled by a group of competitors and served, in essence, as a vehicle for ongoing concerted activity."); accord United States v. American Tobacco Co., 221 U.S. 106, 187 (1911) (where the trust or holding company device brought together previously independent firms to lessen competition and achieve monopoly power, "the combination was in and of itself" is a restraint of trade); see also Federal Trade Comm'n U.S. Dep't of Justice, Antitrust Guidelines for Collaborations Among Competitors 9 (2000) ("[L]abeling an arrangement a `joint venture' will not protect what is merely a device to raise price or restrict output. . . .").
The per se rule thus remains available to Plaintiffs if: (1) the record permits a reasonable juror to conclude that the joint venture was merely a sham label attached to per se illegal conduct, or (2) the challenged practice is collateral to the "core activity" of the joint venture and a naked restraint on competition. Plaintiffs allege that, under the guise of a sham joint venture, Noranda, Falconbridge, and DuPont conspired to set common prices and reduce output as means of balancing supply and demand in the sulfuric acid market. They further compare DuPont's output reductions to naked restraints. Defendants counter that Noranda and Falconbridge entered into the direct sales joint venture with DuPont to eliminate Noranda's need to sell through multiple intermediaries and achieve numerous market efficiencies, including the opportunity to generate savings on freight costs that could be passed on to consumers, and offering a more dependable supply of sulfuric acid to an expanded network of end users. Defendants assert that controlling the output of the joint venturers was ancillary to the achievement of these efficiencies.
Defendants argue that Texaco v. Dagher controls this case. In Dagher, two oil companies formed a production and marketing joint venture under the name of Equilon Enterprises. The Supreme Court held that Equilon's decision to sell separately-branded gasoline at the same price was not per se illegal price fixing because the constituent oil companies were, for antitrust purposes, no longer horizontal competitors. The Court reasoned, "[w]hen persons who would otherwise be competitors pool their capital and share the risks of loss as well as the opportunities for profit . . . such joint ventures [are] regarded as a single firm competing with other sellers in the market." Id. at 6 (internal quotation marks and citation omitted). In reaching its conclusion, the Dagher Court "presume[d] for purposes of these cases that Equilon is a lawful joint venture. Its formation has been approved by federal and state regulators, and there is no contention here that it is a sham." Id. at 6 n. 1.
In dicta, the Supreme Court speculated that "[h]ad respondents challenged Equilon itself, they would have been required to show that its creation was anticompetitive under the rule of reason." Id. This line cannot be read to mean that whether a joint venture amounts to a sham must be analyzed under the rule of reason. Such an interpretation does not square with existing Supreme Court precedent. See P. Areeda H. Hovenkamp, Antitrust Law ¶ 2132, p. 387 (Supp. 2010) ("[W]e would not read too much into the decision's dicta.").
The indicia of legitimacy and integration so compelling in Dagher are not to be found in the instant case. Specifically, the formation of Equilon was approved by consent decree by the Federal Trade Commission ("FTC"). 547 U.S. at 4. While mandating certain divestments and other modifications to the joint venture, the FTC imposed no restrictions on the pricing of Equilon's products. Id. It was also undisputed that Equilon controlled extensive oil refining and marketing assets, in the form of "numerous refineries, lubricant plants, research laboratories, terminals, thousands of service stations, miles of pipeline, and employees." Id. at 7. In the end, the Dagher plaintiffs could produce no evidence that Defendants sought to conceal or achieve an ulterior anticompetitive purpose or that Equilon was patently anticompetitive. See Dagher v. Saudi Refining, Inc., 2002 WL 34099815, at *11 (C.D. Cal. Aug. 13, 2002). In contrast, the Noranda DuPont arrangement was not approved by federal or state regulators, and Plaintiffs in this case have questioned whether there is any legitimate purpose or independent structure to the joint venture.
Given Equilon's legal pedigree and high level of integration, subsequent applications of the "single entity" principle indicate that Dagher should be interpreted narrowly. See, e.g., American Needle, Inc. v. National Football League, 130 S.Ct. 2201, 2215 (2010) (despite operating under separate management, corporation established by the NFL to exclusively license the teams' trademarks was not a "single entity" for antitrust purposes, since the constituent teams did not function like components of a single firm maximizing the firm's profits); Starr v. Sony BMG Music Entertainment, 592 F.3d 314, 326 (2d Cir. 2010) (holding that Dagher does not apply in a case where plaintiffs challenged joint venture as a sham and the joint venture was not explicitly approved by state or federal regulators); P. Areeda H. Hovenkamp, Antitrust Law ¶ 2132, p. 387 (Supp. 2010) ("[O]ne should not overread the opinion. . . . This particular joint venture came very close to being a full merger of the two firms . . . Other ventures integrate far less.").
Certainly, Plaintiffs' chances of prevailing on their "sham" claim diminish with the accumulation of evidence pointing to real integration between the joint venturers. See Maricopa, 457 U.S. at 356 (applying per se rule to consortium of competing doctors because the collaboration was "not analogous to . . . joint arrangements in which persons who would otherwise be competitors pool their capital and share the risks of loss as well as the opportunities for profit."); Topco, 405 U.S., at 609 (applying per se rule to joint venture because "[e]ach of the member chains operates independently; there is no pooling of earnings, profits, capital, management, or advertising resources. . . . The association does not itself own any manufacturing, processing, or warehousing facilities. . . ."); Dagher, 547 U.S. at 7 ("The significant integration of assets itself suggests that Defendants intended Equilon and Motiva to function as true joint ventures, rather than covers for price fixing."). But while evidence that assets or personnel have been contributed to a jointly-owned entity goes far to support a claim of genuine integration, it does not necessarily settle the issue. In Citizen Publishing Company v. United States, 394 U.S. 131, 134 (1969), Arizona's only two daily newspapers had pooled distribution and production operations into a jointly-owned entity, through which they collectively set subscription and advertising prices and divvied up profits. Id. at 133-134. Despite the fact that the combination of the "circulation, advertising, and production departments has resulted in substantial cost savings," the joint venture was found liable for per se violations of § 1, including price fixing, horizontal market allocation, and profit pooling at an inflexible ratio. Id. at 135-36.
The Supreme Court did not elaborate on the basis for its holding. Most likely, the Court condemned the joint venture as a per se violation because, from the start, it held no reasonable prospect of delivering efficiency-enhancing benefits to society. The Court found that "[t]he purpose of the agreement was to end any business or commercial competition between the two papers," and that defendants lacked a viable defense for their actions. In effect, despite the integration of assets, the joint venture was a sham. Citizen Publishing, 394 U.S. at 134, 136-37.
The existence of "plausible arguments that [the joint venture was] intended to enhance overall efficiency and make markets more competitive" also militates against application of the per se rule. Northwest Wholesale Stationers, Inc. v. Pac. Stationary Printing Co., 472 U.S. 284, 294 (1985); see also Gregory J. Werden, Antitrust Analysis of Joint Ventures: An Overview, 66 Antitrust L.J. 701, 713 (1998) ("Any genuine economic integration that plausibly could confer nontrivial social benefits suffices to take a joint venture outside the purview of the per se rules applied to cartel activity."). Yet, the nature and intended purpose of Defendants' collaboration, and the degree to which the Noranda DuPont Joint Venture integrated the participants' operations, remain issues of disputed fact. To be sure, Defendants have produced ample evidence indicating that, at least on paper, the joint venture aimed to legitimately pair up the complementary strengths of constituent firms in a single entity. Plaintiffs' evidence, on the other hand, is relatively slim. Still, the Court cannot conclusively say that the evidence is insufficient to shake a reasonable juror's faith in Defendants' representations. A factual determination is required to resolve whether the Joint Venture's formal documentation belies the true nature of the relationships among Noranda, DuPont, and Falconbridge.
Defendants suggest that any possibly legitimate venture encompassing the alleged anticompetitive behavior requires that the rule of reason test be applied. However, as this Court interprets the law, it is only plausible connections to legitimate business motivations that urge against applying per se analysis to what would otherwise be clearly anticompetitive behavior. And whether or not Noranda, DuPont, and Falconbridge's collaboration plausibly promoted competition or market efficiency is exactly what is at issue here
Prior to the formation of the Joint Venture, the record indicates that Noranda pressured DuPont to curtail its virgin acid production, and that DuPont may have complied. In a 1996 communication to Noranda's Vice President regarding resale contract negotiations, DuPont's Product Manager warned, "[w]e believe that [Noranda's] pricing at these levels encourages suppliers with sulfur burners to increase production. . . . We can burn sulfur and deliver acid . . . at significantly lower prices than you are asking us to pay. In other words, the proposed pricing encourages us to burn sulfur while Noranda has been steadily inquiring about ways to encourage us NOT to burn sulfur at our plants. We both know this is not in the long term best interest of both parties." Pl. Ex. 82. This sentiment arguably builds on a history of prior collusion. See Pl. Ex. 28 at 2 (Noranda memo) (referencing "our confidential discussions with DuPont relative to the eventual . . . closing of the Grasselli sulphur burner and hence the elimination of this 200,000 mt of acid production from the market."); Pl. Ex. 14 at 2, 8 (Noranda report) ("Successful negotiations with . . . DuPont . . . have demonstrated the feasibility of replacing sulphur burned acid with smelted acid") ("[Du Pont h]as expressed a much stronger interest in scaling down production at [the Grasselli] facility by as much as 50-100,000 STPY."); Pl. Ex. 27 at 1 (Noranda memo) ("Grasselli Terms: DuPont shall permanently cease production of acid and oleum at Grasselli prior to commencement of shipments by Noranda.").
Such evidence tends to exclude the possibility that Noranda and DuPont consistently acted in an independent and legitimate manner. See Matsushita, 475 U.S. at 588. Plaintiffs essentially argue that the Joint Venture was an extension of an existing conspiracy among Defendants. They contend that, due to DuPont's tremendous production capacity, the Joint Venture merely simplified Noranda's industry-wide price fixing scheme by reducing the number of conspirators required to achieve the desired result. Plaintiffs fortify their argument with evidence that the joint venturers were motivated by a desire to avoid a price war and a "ruinous battle for market share." See Pl. Ex. 116 at 116901 (Noranda DuPont presentation); Pl. Ex. 32 at 1 (Noranda notes); Pl. Ex. 135 (Noranda memo). As Defendants point out, there is nothing inherently illegal about wanting to avoid a detrimental price war with a competitor. But a reasonable factfinder could nevertheless infer from these references that the Joint Venture may have been established to suppress horizontal competition and stabilize acid prices.
Overall, Defendants tend to analyze separately evidence in support of anticompetitive deals made with Noranda prior to 1998 and those made with Noranda DuPont, LLC thereafter. The Court declines to decide how long, if at all, the alleged conspiracy lasted, and which specific plant shutdowns it entailed. If the Noranda DuPont joint venture is found to be an extension of existing concerted action, the temporal distinction posed by Defendants may be rendered moot. It is up to a factfinder to determine whether the dealings of Defendants Koch, PVS, and Boliden with Noranda DuPont LLC form part of a conspiracy that existed prior to the formation of the Joint Venture.
The Joint Venture's chief financial officer stated that the "primary goal" of the joint venture was "to make sure we never shut a smelter down." Pl. Ex. 89, Kopko Dep. 139:21-140:7. In early 1999, the Joint Venture suffered a short-term inventory bubble due to an oversupply of acid in the marketplace, among other factors. Norfalco SOF ¶ 72. To avoid smelter shutdowns at Noranda, DuPont scaled back production and burned sulfur at minimum levels for two months. Pl. Ex. 119. at 2 (DuPont email); Pl. Ex. 120 at 2 (DuPont email); Pl. Ex. 121 at ND94778 (Noranda DuPont presentation); Pl. Ex. 122 at 2 (Noranda DuPont fax); Pl. Ex. 123 at ND118186 (Noranda DuPont presentation). Again, there are perfectly legal explanations for this decision. Still, the undisputed facts remain consistent with Plaintiffs' contention that the Joint Venture sought to maintain a balanced market by reducing output to accommodate Noranda's smelter acid.
DuPont claims that its decision to scale back production was unilateral, but the issue is disputed. Plaintiffs have produced evidence implying that DuPont acted at the direction of the Joint Venture. See Pl. Ex. 122, at ND00087153.
Finally, the Court is unable to conclusively determine the level at which Noranda, DuPont, and Falconbridge integrated under the Joint Venture. To Defendants' credit, Plaintiffs' fixation on the Joint Venture's lack of manufacturing assets is largely misdirected. While "there were no capitalizable assets on the books of the joint venture . . . there was accounts receivable, inventory, and assigned leases." (Pl. Ex. 104, Hamma Dep. 152:17-153:11.) Noranda and DuPont further contributed cash and seconded personnel to the Joint Venture. Norfalco SOF ¶ 29, 38, 43-45. The existence of jointly-owned assets lends credibility to Defendants' claims of legitimacy. Nevertheless, a 1998 Falconbridge report detracts somewhat from the import of these assets. When discussing the assignment of transportation contracts to the Joint Venture, the report states that "Noranda wants to assign these agreements to the JV as quickly as possible . . .
The undisputed record also establishes that profits of the Joint Venture were split evenly between Noranda and DuPont, and that both companies shared the Joint Venture's losses. Norfalco SOF ¶ 34. Given the questionable history between the joint venturers in this case, the Court hesitates to read too much into the sharing of profits and risks. "If the fact that potential competitors shared in profits or losses from a venture meant that the venture was immune from § 1, then any cartel `could evade the antitrust law simply by creating a `joint venture' to serve as the exclusive seller of their competing products.'" See American Needle, 130 S.Ct. at 2215 (quoting Major League Baseball Properties, Inc. v. Salvino, Inc., 542 F.3d 290, 335 (2d Cir. 2008) (Sotomayor, J., concurring)).
in order to have assets in the JV so it is perceived as a real as opposed to a shell company." Pl. Ex. 140 at 179709. While this language may have been an innocuous warning from a vigilant legal department, a factfinder could also reasonably infer from it that a genuine level of integration may not have been required or initially desired by the parties to accomplish their true aims. Joint assets aside, the record leaves open the possibility that the Joint Venture only integrated operations to a superficial degree, and that Noranda, DuPont, and Falconbridge continued to function more or less as independent and competing firms entering into an exclusive resale contract as a means of limiting their collective output. See Pl. Ex. 97 (Noranda DuPont Presentation) ("Investment required is just working capital and setup costs"); Pl. Ex. 100 at NFD156050 (Proposed Venture . . . Minimal initial investment — manufacturing remains with partners").
In the end, dispute over the central nature and purpose of the Noranda DuPont Joint Venture clouds inquiry into whether, at the time of its inception, it plausibly enhanced competition and efficiency in the sulfuric acid market. Certainly, the market efficiencies praised by Defendants might arise if the Joint Venture was as legitimate and integrated as claimed. Moreover, as Defendants also argue, it may well be that Plaintiffs have vastly overstated the evidence, which is comprised primarily of emails, notes, and slideshow presentations. But the weight of the evidence is for a juror, not the Court, to decide. When viewing the record in the light most favorable to Plaintiffs, a reasonable juror might conclude that, underneath the elaborate trappings of a joint venture, Noranda and DuPont maintained a relatively unintegrated sales relationship that enabled them to limit market output whenever supply threatened to overshadow demand. The joint activity described in the latter scenario has no prospects for procompetitive effects and would therefore remain vulnerable to per se condemnation.
Defending the Joint Venture's actions as ancillary to a legitimate business purpose does not produce a different result. In Dagher, the Supreme Court expressly forbade the application of the ancillary restraints doctrine to the pricing of goods sold by a joint venture, because price setting was a function of that joint venture's "core activity." See Dagher, 547 U.S. at 1281. Similarly, the pricing of Noranda DuPont's jointly distributed sulfuric acid is a function of its purported core activity. It bears noting, however, that Noranda DuPont was only responsible for transporting and selling sulfuric acid, not producing it. Thus, restricting the output of contributing companies arguably lies outside the "core activity" of the Joint Venture. Yet, whether DuPont's output reductions were necessary to support a legitimate, productivity-enhancing venture is precisely what is at issue here. The Court cannot embark on ancillary restraints analysis without first making a fact determination as to the nature of Defendants' greater collaborative activity.
In light of the lack of clarity on this issue, this Court cannot find that the Joint Venture was so clearly of a legitimate nature as to negate evidence justifying per se treatment, or make all anticompetitive effects merely ancillary to the business venture. The standard governing the legality of the challenged restraints depends on whether the Joint Venture conferred nontrivial economic benefits upon society, or merely served as a "formalistic shell for ongoing concerted action." American Needle, 130 S.Ct. 2201, 2215 (2010) (citing Topco, 405 U.S., at 609; Sealy, 388 U.S., at 352-354). Plaintiffs have submitted evidence that reasonably tends to prove that Noranda, Falconbridge, and DuPont consciously entered an output limitation conspiracy under the artful guise of a joint venture. Accord Monsanto 465 U.S. at 764; Matsushita, 475 U.S. at 588. Because a factfinder is required to decide the Joint Venture's legitimacy, summary
judgment must be denied.
6. Falconbridge, Noranda, and Boliden as a Single Entity
Defendants Falconbridge, Noranda, and Boliden argue that they are incapable of conspiring with each other in violation of § 1 because they essentially form a single entity. The Sherman Act makes a "basic distinction between concerted and independent action." Copperweld, 467 U.S. at 767. While Section 1 can only be violated by concerted action undertaken by horizontal competitors, the anticompetitive decisions of single firms are governed by § 2 of the Sherman Act. Id. at 767.
In Copperweld Corporation v. Independence Tube Corporation, the Supreme Court held that the coordinated activity of a parent and its wholly owned subsidiary must be viewed as that of a "single enterprise" for purposes of section 1 of the Sherman Act. The Court based its holding on the rationale that "a parent and its wholly owned subsidiary have a complete unity of interest. . . . [T]heir general corporate actions are guided or determined not by two separate corporate consciousnesses, but one." 467 U.S. at 753. In contrast, in American Needle, Inc. v. National Football League ("NFL"), the Supreme Court held that neither the NFL, nor a corporation established by the NFL to exclusively license the teams' trademarks, were "single entities" for antitrust purposes. The Court explained:
We generally treat agreements within a single firm as independent action on the presumption that the components of the firm will act to maximize the firm's profits. But in rare cases, that presumption does not hold. Agreements made within a firm can constitute concerted action covered by § 1 when the parties to the agreement act on interests separate from those of the firm itself, and the intrafirm agreements may simply be a formalistic shell for ongoing concerted action.
130 S.Ct. 2201, 2215 (2010) (citing
Topco Associates, Inc., 405 U.S., at 609;
Sealy, 388 U.S., at 352-354).
The NFL was not considered a "single entity" because the league's independently-operating teams retained competitive interests and did not resemble components of a single firm seeking to maximize the firm's profits. Id. In other words, if an agreement joins together "independent centers of decisionmaking," it qualifies as concerted action under the purview of § 1. See id. at 2212 (quoting Copperweld, 467 U.S. at 769).
It is undisputed that Trelleborg owned 100% of Boliden Intertrade. From 1989 until June 1994, Trelleborg also owned 50% of Falconbridge, while Noranda owned the other half. In 1994, Trelleborg sold a large percentage of its Falconbridge shares to the public, reducing its holdings to 28%, and leaving Noranda as the largest shareholder with 46.4%. Since then, Falconbridge's financials have been fully consolidated in Noranda's consolidated financial statements. Noranda became a majority shareholder in Falconbridge after July 19, 2000, with no other shareholder owning a significant interest from that point on. That year, Noranda and Falconbridge began to integrate a number of departments and business units. The companies eventually merged in 2005, two years after the instant cases were filed.
All parties agree that, under Copperweld, any agreements between Trelleborg and its wholly owned subsidiary, Boliden, cannot be considered concerted action in violation of § 1 of the Sherman Act. However, Copperweld's guidance ends there. See Copperweld, 467 U.S. at 767 (limiting inquiry to "whether a parent and its wholly owned subsidiary are capable of conspiring in violation of § 1 of the Sherman Act"). Copperweld has no bearing on agreements between wholly owned subsidiaries (e.g. Boliden) and a company of which its parent is a joint owner (e.g. Falconbridge), or agreements between a joint or majority corporate owner (e.g. Noranda) and its subsidiary (e.g. Falconbridge). Surprisingly, Defendants only devote two sentences and an inapposite citation to the dispositive issue of whether per se treatment remains available in cases involving coordinated action between joint or majority corporate shareholders, partially-owned subsidiaries, and sister subsidiaries who are not wholly owned. See Falconbridge Br. at 14 (citing U.S. v. Citizens S. Nat'l Bank, 422 U.S. 86 (1975) (holding that a national bank's agreements with banks in which it held 5% stock did not violate the Sherman Act because the 5% banks fell within the terms of the grandfather provision in the Bank Holding Company Act)). Plaintiffs do not address the matter at all. The Court therefore undertakes this analysis on its own initiative.
Although the Supreme Court has not addressed the aforementioned issue, lower courts have found that similarly related entities can conspire with each other. See, e.g., Sonitrol of Fresno, Inc. v. AT T, 1986 WL 953 (D. D.C. April 30, 1986) (holding that AT T can conspire with corporations in which it holds a 32.6% and 23.9% interest and exerts de facto control). The reasoning behind Copperweld, elaborated on by American Needle, supports that conclusion. Under American Needle, the formal or legal assignation of parties to an agreement is not determinative of the "single entity" question. 130 S.Ct. at 2212. So long as a conspiracy joins together "separate economic actors pursuing separate economic interests," it constitutes concerted action covered by § 1 of the Sherman Act. Id. (quoting Copperweld, 467 U.S. at 768). Defendants point to the shares of Falconbridge under Noranda control, the presence of Noranda members on the Falconbridge Board of Directors, the consolidation of both company's financial statements, and the eventual integration of business units, to argue that Noranda and Falconbridge form essentially the same "corporate consciousness." Defendants thus depict the relationship between Noranda and Falconbridge as comparable to that of a parent company and its wholly owned subsidiary.
The degree to which Noranda exerted de facto control over Falconbridge is disputed, however. Plaintiffs present evidence contradicting the perception of a "complete unity of interest" between Noranda and Falconbridge. Copperweld, 467 U.S. at 753; see, e.g., Pl. Ex. 110 (Noranda memo) ("Falconbridge has indicated its desire on several occasions to forego synergies with Noranda and to pursue its own interests even at the expense of Noranda, in an effort to preserve and protect its public shareholders."); Pl. Ex. 109 (Noranda memo) ("[A] similar problem will arise again unless Noranda insists that Falconbridge managers stop focusing on levering more from Noranda and begin to cooperate actively. . . ."); Pl. Ex. 93 at 2 (Noranda memo) ("[I]t makes sense for Falconbridge and Noranda acid to be sold jointly so as to avoid mutually damaging competition, but [Falconbridge] now see themselves as suffering as much damage as if that were taking place."); see also Pl. Ex. 39 at NFD 180494 (Falconbridge memo refuting unity of interest with Boliden) ("Boliden appear to be taking the view that FL has no alternative but to place the surplus with them on their terms. Something has gone awry win these negotiations . . . FL needs better deal out of Boliden."). Moreover, while Noranda appointed the President of Falconbridge, and Defendants' witnesses have testified that Noranda generally controlled the board, none of Defendants' evidence specifies a year in which Noranda held a controlling bloc, if any. Meanwhile, Falconbridge's annual reports covering 1994 to 1998 and 2000 indicate that Noranda never had more than four members on a board of ten or eleven directors. See Pl. Ex. 190 at NF/EX 014067, 014159, 014271, 014333, 014490, 014665 (Falconbridge annual reports); see also Sonitrol of Fresno, Inc. v. AT T, 1986 WL 953, at *5 (D. D.C. April 30, 1986) (in spite of AT T's de facto control of partially-owned subsidiaries, "[a]s long as [the subsidiaries' boards of directors] had the legal ability to determine the course of business activity for their corporation independently of AT T, they were capable of conspiring
with AT T in violation of § 1 of the Sherman Act."). Varieties of share ownership notwithstanding, whether Noranda and Falconbridge were so unified as to benefit from the "single entity" doctrine remains a triable issue of fact. Accordingly, a per se illegal conspiracy may yet be found to have existed among them, depending on how a factfinder favors the evidence.
Noranda and Falconbridge further argue that they cannot conspire to engage in concerted action under § 1 because they share an agency relationship. In April 1991, Falconbridge appointed Noranda as its sole sales agent responsible for the sales, marketing and distribution of its sulfuric acid. Noranda handled the sales and marketing of Falconbridge's sulfuric acid until the agency relationship for the sale of acid in the United States terminated in 1998 with the formation of the Noranda DuPont Joint Venture.
Although Noranda acted as Falconbridge's exclusive sales agent for seven years, it appears that, within this relationship, the companies retained competing interests. See Pl. Ex. 272 at NFD172546 ("Falconbridge pointed out that it felt it had a disproportionate allocation of `distant' customers relative to Noranda during the preceding 3 years, and that if Noranda had been pooling with Falconbridge its average freight cost would be lower. . . .").
Defendants inaccurately cite Day v. Taylor, 400 F.3d 1272 (2005) for the broad proposition that companies in an agency relationship cannot conspire to commit violations of § 1 of the Sherman Act. Day merely teaches that "`genuine contracts of agency' do not constitute resale price maintenance because the `owner of an article' is permitted to `fix [] the price by which his agents transfer the title from him directly to the consumer.'" 400 F.3d at 1276 (quoting United States v. General Electric Co., 272 U.S. 476, 488 (1926)). Day would be relevant if Plaintiffs had challenged Noranda's pricing of Falconbridge's acid as a violation of the Sherman Act in and of itself. However, Plaintiffs do not question Noranda and Falconbridge's agency relationship as an illegal price fixing agreement. Rather, Plaintiffs charge Falconbridge with engaging in conduct outside the parameters of their agency relationship, i.e.,
conspiring with voluntary sulfuric acid producers to reduce their output as a means of stabilizing industry prices. See Pl. Ex. 39 at 2 (Falconbridge report) ("Boliden have just recently conceded they will cut back Copperhill by 112,500 MT and move only 50% (112,500 MT) of our tonnage to Florida."); Pl. Ex. 41 at 8 (Falconbridge memo) ("Boliden will reduce their sulphur burning acid production to purchase acid from KCM/FL."); Ex. 14 at 8 (Noranda report) (Sayreville plaint "is extremely expensive to operate and CIL may consider closing it provided it can secure a satisfactory supply agreement from another producer."); Pl. Ex. 64 (contract between CIL and Falconbridge); Pl. Ex. 28 at 1-2 (Noranda memo) (indicating that Noranda, as "sales agent" and "joint owners" of Falconbridge, responds to proposals "strongly request[ed]" or "urge[d]" by Falconbridge).
According to Plaintiffs' allegations, Noranda's role as sales agent merely streamlined the process by which the two Canadian companies delivered smelter acid to co-conspirators. In that case, the agency relationship does not insulate Noranda and Falconbridge from liability under the Sherman Act. In any event, Falconbridge may still be liable for per se violations of the Sherman Act if its agent Noranda acted with actual or apparent authority to commit the illegal acts at issue. See American Soc. Of Mechanical Engineers, Inc., v. Hydrolevel Corp., 456 U.S. 556, 565 (1982). Falconbridge is also charged with the alleged collusive activity underlying the Noranda DuPont Joint Venture, which occurred after the termination of the agency relationship. See Falconbridge SOF ¶ 38.
The Court finally addresses Defendants' contention that Boliden, Noranda, and Falconbridge should collectively enjoy "single entity" status because Falconbridge was purportedly a joint venture between the two others. As an initial matter, the Court rejects the suggestion that Falconbridge was a joint venture between Boliden and Noranda. More accurately, Falconbridge was a joint venture between Trelleborg and Noranda. The fact that a wholly owned subsidiary and its parent company are considered a single entity for purposes of § 1 liability does not mean that the two are interchangeable in all regards. At any rate, Defendants cite no authority for the proposition that two companies engaging in a joint venture cannot violate antitrust laws by entering in an anticompetitive conspiracy separate and apart from that joint venture.
Defendants' argument that Noranda and Boliden must be considered a single entity in all aspects simply because Falconbridge is unified draws language from case law wherein joint ventures or their actions are themselves challenged as infringements of the Sherman Act. See, e.g., Dagher, 574 U.S. at 3; Chicago Professional Sports Ltd. Partnership v. National Basketball Assoc., 95 F.3d 593, 595 (7th Cir. 1996). Such precedent is inapposite to the case at hand. Plaintiffs do not challenge the legitimacy of Falconbridge as they do the Noranda DuPont Joint Venture. They readily concede that Falconbridge's decisions amount to the unilateral decisions of a single entity. They simply accuse that single entity of conspiring with other firms in violation of the Sherman Act. Even if the Court were to treat Falconbridge as a joint venture, the per se rule could still apply to its actions; Falconbridge's alleged efforts to limit industry output, for which sufficient evidence exists to persuade a factfinder, could constitute a naked, collateral, and thereby per se illegal restraint on competition. See, e.g., Pl. Ex. 39 at 2 (Falconbridge report); Pl. Ex. 40 at 2; Pl. Ex. 41 at 8 (Falconbridge memo); Pl. Ex. 64 (contract between CIL and Falconbridge). In sum, Noranda, Boliden, and Falconbridge do not enjoy "single entity" status for all conduct separately undertaken by the companies, simply because Falconbridge was, for a time, the legitimate joint venture of Noranda and Trelleborg. Noranda, Falconbridge, and Boliden qualify as separate entities capable of conspiring under § 1 of the Sherman Act.
CONCLUSION
At this point, Plaintiffs have raised enough issues of contested material fact to preclude both summary judgment on the merits and determination of the appropriate legal standard for this case. Plaintiffs claim that Defendants were in a competitive situation, were confronted by a jarring change to the market, and coordinated their production and distribution to stabilize that market. There is, of course, a lack of clarity as to whether Defendants in fact acted as Plaintiffs allege, but there is complete clarity that, if they did, it would amount to a per se violation of the Sherman Act and carry with it anticompetitive effects.
Defendant GAC stands apart from co-Defendants due to a lack of evidence tending to exclude the possibility of independent action on its part. Plaintiffs' horizontal market allocation claims based on Defendants' zone contracts are likewise unavailing, as vertical nonprice restraints are properly judged under the rule of reason. Having eschewed rule of reason analysis, Plaintiffs have failed to raise a triable issue of fact as to Defendants' liability under the per se doctrine for the anticompetitive nature of the zone contracts.
For the foregoing reasons, the Court GRANTS Defendant GAC's motion for summary judgment. The Court DENIES the motions submitted by Defendants Noranda, Boliden, PVS, Norfalco, and Koch. Defendant Falconbridge's motion is DENIED in part. Falconbridge's request for summary judgment on the issue of Defendants' zone contracts is GRANTED.
Dated: September 24, 2010