Antitrust Law Daily Wrap Up, ANTITRUST—2d Cir.: Denial of Apple’s efforts to remove current antitrust compliance monitor in e-book case upheld, (May 28, 2015)

By Edward L. Puzzo, J.D.

The district court had not abused its discretion when it ruled against Apple’s motion to disqualify the current court-appointed monitor overseeing the company’s antitrust compliance policies, the U.S. Court of Appeals in New York ruled. Any claims of lower court acquiescence in modifications to the existing injunction were rendered moot by the appellate court’s intervening interpretation of the injunction (United States v. Apple Inc., May 28, 2015, Jacobs, D.).

In 2013, the United States District Court for the Southern District of New York appointed an External Compliance Monitor (ECM) to oversee the company’s antitrust compliance policies as part of a final judgment, which was imposed on Apple after the company was found to have orchestrated a conspiracy among publishers to fix retail prices for electronic books or e-books.

The plaintiffs, including the Department of Justice and 31 states, recommended Michael Bromwich as monitor, and the district court appointed him on October 16, 2013. Soon thereafter, friction developed between Apple and Bromwich as the monitor sought direct access to company directors, and Apple sought to handle the monitor’s inquiries through its outside counsel. Apple also charged that the fees charged by the monitor, an expense Apple was required to pay, were excessive.

The appellate court reviewed the district court’s denial of Apple’s motion to disqualify the appointed monitor, and that court’s modifications to the injunction. The appellate court ruled that the district court did not abuse its discretion in declining to disqualify the monitor. The court further ruled that, in light of its intervening interpretation of the injunction, the terms of the injunction were not currently affected by modifications, if any, made by the district court.

Ex parte communications. Apple’s principal arguments for Bromwich’s disqualification are based on his ex parte communications and collaboration with the plaintiffs. The court noted that commentary under Fed. R. Civ. P. 53(b) discourages any ex parte communication between a court appointee and a party. Nevertheless, the court continued, despite its concerns that certain practices used by Bromwich could raise an appearance of impropriety, it noted that both Rule 53 and the court’s injunction contemplated ex parte communications between the monitor and the plaintiffs. The court concluded that it could not say that the district court abused its discretion when it concluded that Bromwich’s actions did not require disqualification.

Fees. Apple further contended that Bromwich should be disqualified because his high hourly fee created a corrupting incentive to unnecessarily accumulate billable hours. The court viewed the fee dispute as rooted in the terms and operation of an injunction that they lacked the jurisdiction to review on this appeal. Under the terms of the injunction, the court noted, any monitor would be entitled to receive reasonable compensation and Bromwich’s compensation would not distinguish him from any other potential monitor. Thus the district court did not abuse discretion in declining to disqualify him on a basis that would apply to any monitor that might replace him, the court ruled.

Modification of injunction. Apple argued that the injunction had been modified by the lower court’s acceptance of certain actions by the monitor. Regardless of whether the monitor’s conduct and the district court’s acquiescence seemingly modified the injunction, the appellate court had subsequently construed the injunction to impose sharp limits on the monitor’s power. The injunction that presently applies to the parties and the monitor does not permit the troubling consequences that Apple fears the injunction was modified to allow. In addition, there are other statutory and ethical restrictions on the monitor’s behavior. Therefore, notwithstanding any supposed acquiescence by the district court, the monitor is prohibited from trampling rights of counsel and adversarial principles. Accordingly, the injunction has been neither substantially nor consequentially modified and the monitor’s conduct remains appropriately constrained by the injunction and by other powerful restraints of law, the court ruled.

The case is Civil Action Nos. 14-60 and 14-61.

Attorneys: Theodore J. Boutrous, Jr., Cynthia E. Richman and Lawrence J. Zweifach (Gibson, Dunn & Crutcher LLP) for Apple Inc.; Finnuala K. Tessier for William J. Baer, Assistant Attorney General, U.S. Department of Justice, Antitrust Division; Daniel T. Hodge, John Scott, Jonathan F. Mitchell, and Eric Lipman, for Greg Abbott, Attorney General of Texas; W. Joseph Nielsen, for George Jepsen, Attorney General of Connecticut; and Andrew W. Amend, for Eric T. Schneiderman, Attorney General of the State of New York.

Companies: Apple Inc.; Hachette Book Group, Inc.; Harpercollins Publishers LLC; Verlagsgruppe Georg Von Holtzbrinck Gmbh; Holtzbrinck Publishers, LLC, d/b/a Macmillan; The Penguin Group, a division of Pearson Plc; Penguin Group (USA) Inc.; Simon & Schuster, Inc.; Simon & Schuster Digital Sales, Inc.

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