Antitrust Law Daily Wrap Up, ANTITRUST—M.D. Fla.: State Farm steers clear of another price fixing, illegal boycott suit by repair shops, (Mar 17, 2016)

By Greg Hammond, J.D.

A group of 40 Louisiana automobile repair shops have failed to sufficiently allege the existence of an agreement or a concerted refusal to deal to support price fixing conspiracy and boycott claims against State Farm Mutual Automobile Insurance Co. and 55 other insurers. The federal district court in Orlando consequently dismissed the Section 1 Sherman Act claims with prejudice (Parker Auto Body Inc. v. State Farm Mutual Automobile Insurance Co., March 16, 2016, Presnell, G.).

The plaintiffs alleged that the insurer defendants pay Louisiana auto repair shops essentially the same hourly rates for repairs, painting, and other services. Those rates, however, are purportedly based on market surveys performed by State Farm. The shops further assert that State Farm manipulates or fakes the survey results, producing bogus “market rates” that are below the rates actually prevailing in the marketplace; State Farm insists it is only willing to pay these “bogus market rates”; and other insurers insist on paying no more than State Farm pays. The insurers also were alleged to have boycotted repair shops by steering insureds away from certain shops to “compliant shops.” The defendant insurance companies moved to dismiss the price fixing and boycott claims.

Price fixing conspiracy, conscious parallelism. The court first determined that the shops did not offer any direct evidence that the insurers entered into a price fixing agreement. Instead, the shops relied on allegations of parallel behavior to demonstrate the insurers reached an agreement to control and suppress automobile damage repair costs and auto material repair costs through coercion and intimidation. The actions taken by the defendants, however—such as paying the same labor rates, refusing to pay for the same list of procedures, and requiring the use of lower-quality parts—were not enough, on their own, to constitute a violation of Section 1 of the Sherman Act. The shops were therefore required to demonstrate that the insurers took steps that would otherwise have been against their economic self-interest or that tend to show collusion.

To demonstrate that the insurers have taken actions that would have been against their economic self-interest in the absence of a conspiracy, the plaintiffs argued that, “Only through agreement, by uniting and declaring these actions as the ‘industry standard’ can Defendants’ actions succeed.” The court rejected the argument, however, first noting that the plaintiffs have not alleged that they have been systemically failing to “fully and properly repair” the vehicles of any customers who happen to be insured by one of the insurance companies being sued. In addition, the argument was found to be the “buyer-side version” of the profit-maximizing behavior the auto shops described. The court reasoned that if the oligopoly has market power—such as alleged in the instant action—then it is consistent with that power for its members to observe price parity. The possible eventual loss of customers resulting from such a practice, which the auto shops claim would occur, “is nothing more than speculation,” the court said.

Lastly, none of the various “plus factors” supported a conclusion that the defendants entered into a collusive agreement, the court concluded. Specifically, the court found: (1) mere collective possession of market share is not suggestive of collusion; (2) the mere desire to make a profit cannot constitute a “plus factor” because conscious parallelism is itself a profit-maximizing behavior; (3) participation in trade associations and similar organizations provides no indication of a conspiracy; and (4) there were no allegations that State Farm tried to keep the prices secret. The price fixing claim was therefore dismissed.

Boycott, concerted refusal to deal. The court also dismissed the shops’ claim that the insurers attempted to coerce auto repair shops into going along with the price fixing scheme by multiple forms of illegal boycott activity. Specifically, the court found that there were no allegations that any defendant ever refused to do business with any of the shops. Although there was evidence that a number of defendants attempted to steer one of their insureds away from one of the plaintiff’s shops, none of the efforts were alleged to have involved more than a single defendant and there were no allegations that any of the attempted steering occurred because the repair shop originally chosen by the insured was attempting to obtain a higher reimbursement rate. The shops therefore failed to allege facts suggesting a concerted refusal to deal as required to state a boycott claim under Section 1 of the Sherman Act.

The case is No. 6:14-cv-6004-Orl-31TBS.

Attorneys: Allison P. Fry (Eaves Law Firm) for Parker Auto Body Inc., Auto Body Specialists Inc. and Eagle Auto Body & Paint Service Inc. Elizabeth Helmer (Alston & Bird, LLP) and Hal Kemp Litchford (Baker, Donelson, Bearman, Caldwell & Berkowitz, PC) for State Farm Mutual Automobile Insurance Co., State Farm Fire & Casualty Co. and State Farm General Insurance Co.

Companies: Parker Auto Body Inc.; Auto Body Specialists Inc.; Eagle Auto Body & Paint Service Inc.; State Farm Mutual Automobile Insurance Co.; State Farm Fire & Casualty Co.; State Farm General Insurance Co.

Cases: Antitrust FloridaNews