Antitrust Law Daily Wrap Up, ANTITRUST—N.D. Cal.: Arbitration required for certain direct purchase claims in flat panel display price-fixing litigation, (Apr 11, 2014)

By Edward L. Puzzo, J.D.

Gateway, a purchaser of flat panel displays which was a plaintiff in antitrust litigation against display manufacturers, was required to arbitrate claims against the NEC defendants arising from direct purchases made during the four-year term of its agreement, the federal district court in San Francisco has ruled (In re: TFT-LCD (Flat Panel) Antitrust Litigation, April 10, 2014, Illston, S.). However, the portion of the agreement that limited special damages in arbitration was unenforceable.

The order in this matter followed prior orders in this multi-district litigation against various manufacturers of thin-film transistor liquid crystal display (TFT-LCD) flat-panel displays for participating in a global price fixing conspiracy.

In February 1998, plaintiff Gateway, Inc. had entered into a purchase agreement with a predecessor of NDSA, one of the five NEC defendants, which required all disputes to be submitted to arbitration. Presently, the NEC defendants moved to compel arbitration. In response, Gateway conceded that the agreement remained in effect during the period of February 1998 through February 2002, but argued that the applicability of the arbitration provision was limited.

Time period of agreement. Gateway argued that claims arising from purchases outside the February 1998 to February 2002 effective period of the agreement were not subject to arbitration. NEC argued that the agreement covered all purchases Gateway made from NEC at any time. The court agreed with Gateway. It found that the arbitration provision referred to disputes “under this agreement” and the agreement was only in effect during the specified four-year period, so only disputes arising during that period must be arbitrated, the court ruled.

Scope of agreement. Gateway argued that, even during the effective period of the agreement, only direct purchases were covered by the arbitration agreement. NEC argued that all claims, including those of indirect purchasers and co-conspirator liability, should be subject to the arbitration requirement, and that the question of which claims were arbitrable should be determined by the arbitrator.

The court found that the agreement was silent regarding the parties’ intent to arbitrate arbitrability of particular claims. Therefore, the court must make that determination. The court found that only claims arising out of the parties’ business relationship—that is, direct purchases—must be submitted to arbitration. Indirect purchaser claims or co-conspirator liability were not subject to arbitration, the court ruled.

Acer and eMachines. Plaintiff Acer was the parent of plaintiff Gateway, and Gateway was the successor-in-interest to eMachines. NEC argued that all three entities were related and should be bound by the agreement. Gateway countered that Acer and eMachines were not signatories to the agreement and should not be bound by it. The court noted that Gateway did not acquire eMachines until 2004, two years after the agreement’s termination, and Acer did not purchase Gateway until 2007, five years after the agreement’s termination. It would be inequitable to require Acer and eMachines to be bound to a contract to which they never agreed and under which they never operated, the court determined.

Arbitration enforcement by other NEC defendants. Plaintiffs argued that only NDSA, and not the other NEC-related co-defendants, could enforce the agreement. The court found that the relationship between the five NEC defendants (NEC Corporation, NEC LCD Technologies, NEC Display Solutions of America, NEC Electronics America, and NEC Corporation) was sufficiently close, and the relationship between the non-signatory NEC defendants’ alleged wrongs and the arbitration agreement was sufficiently intertwined. Thus, Gateway could be compelled to arbitrate against all five NEC defendants.

Limitation of liability clause. The court agreed with previous rulings that a party may not waive its right to treble damages in the antitrust context through a contractual limitation on recoverable damages. Therefore, the portion of the agreement’s arbitration provision that limited special damages in arbitration was unenforceable, and ruled that it must be severed from the otherwise-enforceable arbitration provision of the agreement.

The case is No. C 13-3349 SI (MDL No. 1827).

Attorneys: David Bedford Esau (Carlton Fields, PA) and Hsiang James H Lin (TechKnowledge Law Group LLP) for ACER America Corp., Gateway, Inc., and Gateway U.S. Retail, Inc. George Dominic Niespolo (Duane Morris LLP) for NEC Corp.

Companies: Acer America Corp.; Gateway, Inc.; Gateway U.S. Retail, Inc.; NEC Corp.

Cases: Antitrust CaliforniaNews