Antitrust Law Daily Wrap Up, TOP STORY—M.D. Fla.: State Farm released from auto repair price fixing, illegal boycott claims, (Mar 8, 2016)

By Greg Hammond, J.D.

Four Tennessee auto repair shops failed to adequately 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 30 other insurers. The federal district court in Orlando therefore dismissed the Section 1 Sherman Act claims with prejudice (Brewer Body Shop, LLC v. State Farm Mutual Automobile Insurance Co., March 7, 2016, Presnell, G.).

According the court, the repair shops alleged that the insurer defendants pay Tennessee auto repair shops essentially the same hourly rates for repairs, painting, and similar services. Those rates, however, are purportedly based on market surveys performed by State Farm Auto Insurance Co. and State Farm Fire and Casualty Co. 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; that State Farm insists it is only willing to pay these “bogus market rates”; and that 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 defendants moved to dismiss the price fixing and boycott claims.

Price fixing conspiracy, participation. The court first noted 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 tends to show collusion.

The “underpaying” alleged by the auto shops, which the plaintiffs claim were harmful to the self-interest of the insurers, was found to be simply 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. In particular, 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. 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-6002-Orl-31TBS.

Attorneys: Allison P. Fry for Brewer Body Shop, LLC, AAA Collision Center, LLC and Icon Collision Services, LLC. Elizabeth Helmer (Alston & Bird, LLP), Hal Kemp Litchford (Baker, Donelson, Bearman, Caldwell & Berkowitz, PC) and Michael L. McCluggage (Eimer Stahl LLP) for State Farm Mutual Automobile Insurance Co. and State Farm Fire and Casualty Co.

Companies: Brewer Body Shop, LLC; AAA Collision Center, LLC; Icon Collision Services, LLC; State Farm Mutual Automobile Insurance Co.; State Farm Fire and Casualty Co.

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