Antitrust Law Daily Wrap Up, ANTITRUST—Kan. App.: Dismissal of consumer’s price fixing claims against tobacco companies upheld, (Jul 21, 2014)

By Linda O’Brien, J.D., LL.M.

In a class action by a consumer against several tobacco companies for allegedly engaging in a conspiracy to fix the wholesale prices of cigarettes, the district court decision to dismiss the consumer’s claims and deny leave to file an amended complaint was affirmed by the Kansas Court of Appeals (Smith v. Philip Morris Companies, Inc., July 18, 2014, McAnany, P.).

Daric Smith, a retail purchaser of cigarettes, filed a putative class action suit against several tobacco companies, alleging that the companies conspired to fix the wholesale prices of cigarettes. Smith asserted that the tobacco companies’ agreement not to compete over prices was horizontal price-fixing, in violation of the Kansas Restraint of Trade Act. The district court certified the class with Smith as its representative. Smith then filed an amended complaint. After extensive discovery, the district court granted the tobacco companies’ motion for summary judgment and Smith appealed.

Parallel pricing. The district court properly granted summary judgment because Smith did not present direct or sufficient circumstantial evidence of a wholesale price fixing conspiracy, the appellate court determined. Conscious parallelism—where firms in a concentrated market set prices in recognition of their shared economic interests—is not in itself unlawful, according to the court. An additional factor required to prove wrongful conduct is that the conduct was conscious and not the result of independent business decisions of the competitors.

In rejecting Smith’s contentions of additional factors, the court first noted that the structure of the cigarette market—which included a highly concentrated market, high barriers to entry, absence of close substitutes, and a history of collusion—was a characteristic of an oligopoly and did not exclude the possibility of independent action. Second, a price-fixing conspiracy could not be reasonably inferred from the mere fact that the tobacco companies had numerous opportunities to conspire to fix prices with evidence that the companies actually conspired. Third, the companies’ reciprocal exchange of pricing information did not exclude the possibility of independent pricing decisions, since competitors were entitled to collect and use competitive information in conducting their business.

Additionally, the appellate court found that the evidence of the companies’ conspiracy to suppress the health risks of cigarettes did not reasonably show that the companies entered into a separate conspiracy to fix the wholesale prices of cigarettes in the state. Also, the companies’ price increases made in a parallel manner did not establish collusion where self-interest could have motivated the pricing decisions.

Smith’s contention that the companies agreed to divert supplies of cigarettes to foreign markets, which resulted in decreased domestic supplies and increased domestic wholesale prices, did not show conscious parallelism, since there was no “palpable tie” between the tobacco companies’ foreign activities and domestic pricing actions.

Amended complaint. Finally, there was no error in the district court’s denial of Smith’s motion to file an amended complaint. In waiting more than ten years after filing his first amended complaint, the plaintiff acted with undue delay in seeking to file a second amended complaint. Moreover, since the second amended complaint did not materially alter his claim, Smith was not prejudiced from the denial of his motion, the court concluded.

The case is No. 108,491.

Attorneys: Rex A. Sharp (Gunderson, Sharp & Walke, L.L.P.); and Kerry McQueen and Isaac L. Diel (Sharp McQueen PA) for Daric Smith. Todd N. Thompson (Thompson Ramsdell & Qualseth, P.A.) and Kenneth J. Parsigian (Latham & Watkins) Philip Morris International, Inc. Kenneth L. Chernof (Arnold & Porter LLP) and J. Eugene Balloun (Shook, Hardy & Bacon L.L.P.) for Philip Morris Companies, Inc. Michael J. Norton (Foulston Siefkin LLP) for Liggett Group, Inc. Daniel H. Diepenbrock (Law Office of Daniel H. Diepenbrock) and Thomas Demitrack (Jones Day) for R. J. Reynolds Tobacco Company and Brown & Williamson Tobacco Corp. Scott Martin (Greenberg Traurig, LLP) and Daniel H. Diepenbrock (Law Office of Daniel H. Diepenbrock) for Lorillard Tobacco Company. James A. Walker (Triplett, Woolf & Garretson, LLC) and Benjamin Rubinstein and Allison M. Alcasabas (Herbert Smith Freehills New York LLP) for British American Tobacco Co. Ltd.

Companies: Philip Morris Companies, Inc.; Philip Morris Incorporated; Philip Morris International, Inc.; R.J. Reynolds Tobacco Company; British American Tobacco Co. Ltd.; Brown & Williamson Tobacco Corp.; Lorillard Tobacco Company; Liggett Group, Inc.; Brooke Group, Ltd.

Cases: Antitrust KansasNews