Antitrust Law Daily Wrap Up, ANTITRUST—2ndCir: Mobile Radio Seller Lacked Standing to Sue Bid Rigging Co-Conspirators After Alleged Termination of Dealership for Defying Scheme, (Feb 15, 2013)

By E. Darius Sturmer, J.D.

A company that had participated in an alleged bid rigging scheme to defraud various New York State and City government agencies in connection with their purchases of mobile radios did not have standing to pursue federal and New York state antitrust claims against alleged co-conspirators to recover damages for losses arising from the termination of its at-will distribution contract for the radios, the U.S. Court of Appeals in New York City has held. (Gatt Communications, Inc. v. PMC Associates, L.L.C., February 14, 2013, Carney, S.).

The company’s asserted injuries did not constitute antitrust injuries and its factual allegations did not demonstrate that it was an “efficient enforcer” of the antitrust laws against the co-conspirators, the court said. Dismissal of the claims was therefore affirmed.

The plaintiff, Gatt Communications, Inc., was a dealer of commercial land mobile radios made and distributed by Vertex Standard USA, Inc. It alleged that the defending company, PMC Associates, L.L.C.—a Vertex dealer that doubled as Gatt’s sales agent in New York state—had not only orchestrated the bid rigging scheme but then, after Gatt broke ranks and bid on a contract it was supposed to refrain from bidding on, had pushed Vertex to cancel Gatt’s Dealer Agreement.

As an initial matter, the court noted, it was not clear that the underlying bid rigging arrangement alleged in the complaint was prohibited by the antitrust laws. Gatt alleged “a conspiracy involving only one brand of commercial land mobile radios and has not pleaded that the brand constitutes a stand-alone market,” the court observed. Although it was possible that intra-brand bid rigging violated New York State procurement law, “inhibitions on intrabrand competition actuated by dealership terminations lie far from the core § 1 violations that are likely to give rise to antitrust injury, the court explained.

However, even if it could be assumed that the scheme was unlawful, it would only be so because of the harm it may have caused—increased prices—to purchasers of Vertex products, the court remarked. Gatt’s lost revenue resulting from the Vertex termination was not an injury that flowed from that which made the bid rigging unlawful. Gatt was not forced to pay higher prices for a product. Instead, its injuries flowed from its participation and then exclusion from a distribution network that allegedly featured intra-brand price fixing—a network in which it had no right ab initio to participate.

Gatt also lacked antitrust standing on the basis that it was plainly not an “efficient enforcer” of the antitrust laws, the court added. Gatt’s purported injuries were not only highly speculative, but “at best an indirect result of the primary asserted antitrust violation: price-fixing through bid-rigging, as perpetuated by termination of the Dealer Agreement.” It did not pay higher prices by virtue of the conspiracy; the court observed. Rather, it “merely lost the right to sell one brand of radio.” The state agencies were more direct victims of the alleged conspiracy. Those better-situated agencies were also potential plaintiffs, the court noted. Conferring standing upon Gatt would additionally create a risk of multiple and duplicative recoveries, the court noted.

More generally, the court admonished, “Gatt’s own behavior seriously undercut[] its claim to be a suitable plaintiff.” Gatt freely admitted that as part of the alleged scheme, it submitted numerous sham bids to government agencies in an effort to steer business to its co-conspirators and obtain business for itself. Further, “[i]t acknowledges obtaining over one hundred contracts as a direct result of the bid-rigging of which it now complains,” the court stated. Plus, testimony strongly suggested that Gatt ceased participating in the scheme only out of its own economic self-interest—not because it recognized the error of its ways, the court concluded.

A separate concurring opinion agreed with the reasoning and conclusions of the majority, but contended that the litigation “represented a paradigmatic case for dismissal under the doctrine of in pari delicto,” an issue on which the majority declined to rule.

The case is Docket No. 11-1111-cv.

Attorneys: Karen F. Neuwirth (Law Office of Martin S. Rapaport) for Gatt Communications, Inc. Michael J. Hahn (Lowenstein Sandler PC) for Philip M. Casciano Associates, Inc., Philip Casciano, Bryan Casciano, and Vesel Ramovic.

Companies: Gatt Communications, Inc.; PMC Associates, L.L.C.

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