Case 2:10-cv-05830-MMM -RC Document 43 Filed 11/12/10 Page 1 of 27 Page ID #:180
1 ANDREW J. FRACKMAN (Pro Hac Vice)
afrackman@omm.com
2 O’MELVENY & MYERS LLP
7 Times Square
3 New York, NY 10036
4 T: (212) 326-2000; F: (212) 326-2061
5 MICHAEL W. HIGGINBOTHAM (Pro Hac Vice)
mwhigginbotham@fedex.com
6 R. JEFFERY KELSEY (Pro Hac Vice)
jkelsey@fedex.com
7 JEANNA M. LITTRELL (Pro Hac Vice)
jmlittrell@fedex.com
8 COLLEEN D. HITCH (Pro Hac Vice)
colleen.hitch@fedex.com
9 FEDERAL EXPRESS CORPORATION
3620 Hacks Cross Road, Building B, 3rd Floor
10 Memphis, TN 38125
11 T: (901) 434-8570; F: (901) 434-9278
12 CHRISTOPHER J. YOST (S.B. #150785)
cjyost@fedex.com
13 FEDERAL EXPRESS CORPORATION
2601 Main Street, Suite 340
14 Irvine, CA 92614
T: (949) 862-4558; F: (949) 862-4605
15
Attorneys for Defendant
16 FEDEX CORPORATION
17
[Additional counsel listed on signature page]
18
UNITED STATES DISTRICT COURT
19
CENTRAL DISTRICT OF CALIFORNIA
20 WESTERN DIVISION
21
AFMS LLC, Case No. 2:10-CV-05830-MMM-RC
22
Plaintiff, DEFENDANT FEDEX CORPORATION’S
23 MEMORANDUM OF POINTS AND
v. AUTHORITIES IN SUPPORT OF
24 MOTION TO DISMISS FIRST
25 UNITED PARCEL SERVICE AMENDED COMPLAINT PURSUANT
CO. and FEDEX TO FED. R. CIV. P. 12(b)(6)
26 CORPORATION,
Hearing Date: January 31, 2011
Defendants. Time: 10:00 a.m.
27 Place: Courtroom 780, Roybal
28 Judge: Hon. Margaret M. Morrow
FEDEX’S MEM. OF P. & A. ISO MOTION TO
DISMISS FIRST AMENDED COMPLAINT
2:10-CV-05830-MMM-RC
Case 2:10-cv-05830-MMM -RC Document 43 Filed 11/12/10 Page 2 of 27 Page ID #:181
1 TABLE OF CONTENTS
2
Page
3 PRELIMINARY STATEMENT ............................................................................... 1
4 ARGUMENT............................................................................................................. 2
5 I. AFMS DOES NOT HAVE STANDING TO ASSERT ITS
CLAIMS................................................................................................ 2
6 A. AFMS Has Not Suffered Antitrust Injury .................................. 2
7 B. AFMS’s Alleged Injury Is Too Remote and Tangential to
Any Harm Caused by the Alleged Antitrust Violation .............. 5
8 II. AFMS’S SHERMAN ACT SECTION 2 CLAIM SHOULD BE
DISMISSED FOR FAILURE TO PLEAD
9 ANTICOMPETITIVE CONDUCT OR THE MAINTENANCE
OR THREAT OF MONOPOLY POWER ........................................... 8
10
III. TWOMBLY MANDATES THE DISMISSAL OF AFMS’S
11 SHERMAN ACT SECTION 1 CLAIM ............................................. 10
12 A. Twombly’s Standards for Pleading an Unlawful
Conspiracy ................................................................................ 10
13 B. The Complaint’s Circumstantial Allegations Are
Insufficient to Plead a Plausible Conspiracy ............................ 12
14 1. The Complaint Fails to Plead Parallel Conduct
15 Sufficient to Give Rise to an Inference of Unlawful
Conduct .......................................................................... 12
16 2. The Complaint Demonstrates an Independent and
Lawful Motivation to Engage in the Challenged
17 Conduct .......................................................................... 14
18 3. The Complaint’s Meager Allegations of
Opportunity to Collude Are Insufficient to Plead a
19 Plausible Conspiracy ...................................................... 19
20
21
22
23
24
25
26
27
28
FEDEX’S MEM. OF P. & A. ISO MOTION TO
i DISMISS FIRST AMENDED COMPLAINT
2:10-CV-05830-MMM-RC
Case 2:10-cv-05830-MMM -RC Document 43 Filed 11/12/10 Page 3 of 27 Page ID #:182
1 TABLE OF AUTHORITIES
2
Page
3 CASES
4 Am. Ad Mgmt., Inc. v. Gen. Tel. Co. of Cal.,
190 F.3d 1051 (9th Cir. 1999) .................................................................. 3, 4, 5, 7
5
Ashcroft v. Iqbal,
6 129 S. Ct. 1937, 173 L. Ed. 2d 868 (2009) ........................................................ 10
7 Aspen Skiing Co. v. Aspen Highlands Skiing Corp.,
472 U.S. 585, 105 S. Ct. 2847, 86 L. Ed. 2d 467 (1985) ..................................... 8
8
Associated Gen. Contractors of Cal., Inc. v. Cal. State Council of
9 Carpenters,
459 U.S. 519, 103 S. Ct. 897, 74 L. Ed. 2d 723 (1983) ...........................1, 5, 6, 7
10
Atl. Richfield Co. v. USA Petroleum Co.,
11 495 U.S. 328, 110 S. Ct. 1884, 109 L. Ed. 2d 333 (1990) ................................... 3
12 Bahn v. NME Hosps., Inc.,
772 F.2d 1467 (9th Cir. 1985) .............................................................................. 3
13
Bailey v. Allgas, Inc.,
14 284 F.3d 1237 (11th Cir. 2002) ............................................................................ 9
15 Barton & Pittinos, Inc. v. Smithkline Beecham Corp.,
118 F.3d 178 (3d Cir. 1997) ................................................................................. 4
16
Bell Atl. Corp. v. Twombly,
17 550 U.S. 544, 127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007) ..........................passim
18 Blue Shield of Va. v. McCready,
457 U.S. 465, 102 S. Ct. 2540, 73 L. Ed. 2d 149 (1982) ..................................... 7
19
Cascade Health Solutions v. PeaceHealth,
20 515 F.3d 883 (9th Cir. 2008) ............................................................................ 8, 9
21 Clegg v. Cult Awareness Network,
18 F.3d 752 (9th Cir. 1994) ................................................................................ 10
22
DM Research, Inc. v. Coll. of Am. Pathologists,
23 170 F.3d 53 (1st Cir. 1999) ................................................................................ 19
24 Eagle v. Star-Kist Foods, Inc.,
812 F.2d 538 (9th Cir. 1987) ................................................................................ 6
25
Harkins Amusement Enters., Inc. v. Gen. Cinema Corp.,
26 850 F.2d 477 (9th Cir. 1988) ................................................................................ 9
27 Ill. Brick Co. v. Illinois,
431 U.S. 720, 97 S. Ct. 2061, 52 L. Ed. 2d 707 (1977) ................................... 7, 8
28
FEDEX’S MEM. OF P. & A. ISO MOTION TO
ii DISMISS FIRST AMENDED COMPLAINT
2:10-CV-05830-MMM-RC
Case 2:10-cv-05830-MMM -RC Document 43 Filed 11/12/10 Page 4 of 27 Page ID #:183
1 TABLE OF AUTHORITIES
2 (continued)
Page
3 In re Baby Food Antitrust Litig.,
166 F.3d 112 (3d Cir. 1999) ......................................................................... 15, 17
4
In re Citric Acid Litig.,
5 191 F.3d 1090 (9th Cir. 1999) ................................................................14, 19, 21
6 In re Elevator Antitrust Litig.,
No. 04-1178, 2006 WL 1470994 (S.D.N.Y. May 30, 2006) ....................... 20, 21
7
In re Late Fee & Over-Limit Fee Litig.,
8 528 F. Supp. 2d 953 (N.D. Cal. 2007)................................................................ 15
9 In re Petroleum Prods. Antitrust Litig.,
906 F.2d 432 (9th Cir. 1990) .............................................................................. 11
10
Int’l Norcent Tech. v. Koninklijke Philips Elecs. N.V.,
11 No. 07-00043, 2007 WL 4976364 (C.D. Cal. Oct. 29, 2007)............................ 12
12 Kendall v. Visa U.S.A., Inc.,
518 F.3d 1042 (9th Cir. 2008) ..........................................................10, 12, 17, 20
13
Legal Econ. Evaluations, Inc. v. Metro. Life Ins. Co.,
14 39 F.3d 951 (9th Cir. 1994) .......................................................................... 3, 4, 5
15 Metro-Goldwyn-Mayer Studios, Inc. v. Grokster, Ltd.,
269 F. Supp. 2d 1213 (C.D. Cal. 2003)............................................................ 4, 6
16
Monsanto Co. v. Spray-Rite Serv. Corp.,
17 465 U.S. 752, 104 S. Ct. 1464, 79 L. Ed. 2d 775 (1984) ..................................... 9
18 Papasan v. Allain,
478 U.S. 265, 106 S. Ct. 2932, 92 L. Ed. 2d 209 (1986) ................................... 10
19
R.C. Dick Geothermal Corp. v. Thermogenics, Inc.,
20 890 F.2d 139 (9th Cir. 1989) ................................................................................ 7
21 Spectrum Sports, Inc. v. McQuillan,
506 U.S. 447, 113 S. Ct. 884, 122 L. Ed. 2d 247 (1993) ..................................... 8
22
United States v. Dentsply Int’l, Inc.,
23 399 F.3d 181 (3d Cir. 2005) ................................................................................. 9
24 Verizon Commc’ns Inc. v. Law Offices of Curtis V. Trinko, LLP,
540 U.S. 398, 124 S. Ct. 872, 157 L. Ed. 2d 823 (2004) ..................................... 8
25
Williamson Oil Co. v. Philip Morris USA,
26 346 F.3d 1287 (11th Cir. 2003) .................................................................... 11, 14
27 Yellow Page Solutions, Inc. v. Bell Atl. Yellow Pages Co.,
No. 00-5663, 2001 WL 1468168 (S.D.N.Y. Nov. 19, 2001) ............................. 17
28
FEDEX’S MEM. OF P. & A. ISO MOTION TO
iii DISMISS FIRST AMENDED COMPLAINT
2:10-CV-05830-MMM-RC
Case 2:10-cv-05830-MMM -RC Document 43 Filed 11/12/10 Page 5 of 27 Page ID #:184
1 TABLE OF AUTHORITIES
2 (continued)
Page
3 Zoslaw v. CBS,
533 F. Supp. 540 (N.D. Cal. 1980), aff’d in part, rev’d in part on
4 other grounds, 693 F.2d 870 (9th Cir. 1982) ..................................................... 19
5 RULES
6 Fed. R. Civ. P. 12(b)(6) ............................................................................................. 2
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
FEDEX’S MEM. OF P. & A. ISO MOTION TO
iv DISMISS FIRST AMENDED COMPLAINT
2:10-CV-05830-MMM-RC
Case 2:10-cv-05830-MMM -RC Document 43 Filed 11/12/10 Page 6 of 27 Page ID #:185
1 MEMORANDUM OF POINTS AND AUTHORITIES
2 PRELIMINARY STATEMENT
3 This case is about whether Plaintiff AFMS, a third-party consultant that
4 provides “small parcel and freight consulting services” to shipping customers of
5 Defendants FedEx and UPS (First Amended Complaint (“Complaint” or “Compl.”)
6 ¶ 3), can use the federal antitrust laws to compel Defendants to give it access to
7 their confidential pricing and contract information. The antitrust laws require no
8 such thing. No third party has a right to gain access to proprietary contract data.
9 There is no requirement that pricing be public. FedEx has the right to insist that the
10 terms of its contracts with its customers be kept confidential. Because AFMS is
11 trying to use the antitrust laws to aid its business, as opposed to competition, the
12 antitrust laws do not cover this claim.
13 First, AFMS lacks standing to assert a claim under either Section 1 or
14 Section 2 of the Sherman Act. AFMS earns revenue by aggregating and using
15 pricing and other data from shipping customers’ past transactions with FedEx and
16 UPS to help those customers negotiate more favorable pricing with FedEx and
17 UPS. (Compl. ¶ 9.) It does not claim to compete with, supply to, or buy from
18 FedEx or UPS itself. It sells its services in a completely different market from the
19 market for the sale of shipping services. Accordingly, AFMS has not suffered
20 antitrust injury of the type cognizable under the Sherman Act. Associated Gen.
21 Contractors of Cal., Inc. v. Cal. State Council of Carpenters (“AGC”), 459 U.S.
22 519, 538-39 (1983). Moreover, because it merely claims as damages a portion of
23 its clients’ alleged lost savings, its alleged injury is indirect and speculative, and
24 barred by well-established precedent. Id. at 540-43.
25 Second, AFMS’s claim that FedEx independently is attempting to
26 monopolize the market in violation of Sherman Act Section 2 makes no sense at all,
27 given the allegations of market concentration. The Complaint alleges that UPS has
28 almost 60 percent of the shipping market to FedEx’s approximately 40 percent. To
FEDEX’S MEM. OF P. & A. ISO MOTION TO
1 DISMISS FIRST AMENDED COMPLAINT
2:10-CV-05830-MMM-RC
Case 2:10-cv-05830-MMM -RC Document 43 Filed 11/12/10 Page 7 of 27 Page ID #:186
1 the extent anything that FedEx does might increase its market share, such conduct
2 is procompetitive because it reduces the risk of monopolization by the market
3 leader, UPS. Furthermore, the Complaint itself shows that the attempted
4 monopolization claim is illogical and implausible. If one of the two Defendants
5 attempted to monopolize through this alleged refusal to deal, and if a customer were
6 unhappy with such a policy, the customer would simply move to the other
7 competitor. Unilateral conduct of the sort alleged here could not succeed as a
8 device to monopolize this market.
9 Third, AFMS’s Sherman Act Section 1 claim fails to meet the requirements
10 of Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555-63 (2007). The Complaint
11 fails to allege even a single fact indicating any agreement between FedEx and UPS.
12 It does not provide the “who, what and when” that Twombly and its progeny
13 mandate. AFMS’s claims of parallel conduct between Defendants likewise fail to
14 plead a plausible conspiracy. The Complaint does not allege facts showing that the
15 inference of collusion is more likely than the inference of independent conduct. In
16 fact, the Complaint shows exactly why both Defendants would have had the lawful
17 and independent motive to engage in the conduct alleged in the Complaint—to
18 protect the confidentiality of their pricing data and their customer relationships.
19 Accordingly, the First Amended Complaint should be dismissed in its
20 entirety pursuant to Federal Rule of Civil Procedure 12(b)(6).
21 ARGUMENT
22 I. AFMS DOES NOT HAVE STANDING TO ASSERT ITS CLAIMS.
23 A. AFMS Has Not Suffered Antitrust Injury.
24 Since AFMS does not compete in the same market as Defendants, it has not
25 suffered antitrust injury and therefore lacks standing. In order to have standing to
26 assert a claim, a plaintiff must first have suffered antitrust injury, i.e., “injury of the
27 type the antitrust laws were intended to prevent and that flows from that which
28 makes defendants’ acts unlawful.” Am. Ad Mgmt., Inc. v. Gen. Tel. Co. of Cal., 190
FEDEX’S MEM. OF P. & A. ISO MOTION TO
2 DISMISS FIRST AMENDED COMPLAINT
2:10-CV-05830-MMM-RC
Case 2:10-cv-05830-MMM -RC Document 43 Filed 11/12/10 Page 8 of 27 Page ID #:187
1 F.3d 1051, 1055 (9th Cir. 1999) (quoting Atl. Richfield Co. v. USA Petroleum Co.,
2 495 U.S. 328, 334 (1990)). To establish antitrust injury, “the injured party [must]
3 be a participant in the same market as the alleged malefactors.” Bahn v. NME
4 Hosps., Inc., 772 F.2d 1467, 1470 (9th Cir. 1985); Am. Ad Mgmt., 190 F.3d at 1057
5 (“Parties whose injuries, though flowing from that which makes the defendant’s
6 conduct unlawful, are experienced in another market do not suffer antitrust
7 injury.”). Market participation is determined by analyzing whether the products or
8 services at issue are reasonably interchangeable or have cross-elastic demand.
9 Bahn, 772 F.2d at 1470-71.
10 AFMS’s allegations are virtually identical to those asserted by the plaintiffs
11 in Legal Economic Evaluations, Inc. v. Metropolitan Life Insurance Co., in which
12 the Ninth Circuit found antitrust injury to be lacking. 39 F.3d 951, 954-56 (9th Cir.
13 1994). In Legal Economic, plaintiffs were consulting firms that advised tort
14 plaintiffs on structured settlements involving annuities. These consultants claimed
15 that the annuity insurers and brokers for tort defendants conspired to drive them out
16 of business, by providing necessary financial information about the annuities only
17 to the defense-side brokers. Id. at 952-53. The Ninth Circuit found that the alleged
18 harm to competition—decreased annuity benefits to tort plaintiffs and increased
19 annuity costs to tort defendants’ liability carriers—occurred in the markets for
20 settling litigation or selling annuities. Id. at 955-56. In contrast, the plaintiff
21 consultants stood to suffer injury in the market for consulting services, through
22 either a more limited choice of clients or reduced fees. Id. at 956. Because the
23 consultants participated in and would have suffered harm in a different market than
24 those potentially harmed by the alleged anticompetitive conduct, the consultants
25 had “failed to show that [their] losses flow from injury to competition in the
26 relevant market” and thus failed to show antitrust injury. Id.
27 Like the plaintiff consultants in Legal Economic, AFMS is not a participant
28 in and did not suffer any alleged injury in the same market in which Defendants
FEDEX’S MEM. OF P. & A. ISO MOTION TO
3 DISMISS FIRST AMENDED COMPLAINT
2:10-CV-05830-MMM-RC
Case 2:10-cv-05830-MMM -RC Document 43 Filed 11/12/10 Page 9 of 27 Page ID #:188
1 operate. FedEx and UPS are engaged in the business of shipping and delivering
2 packages by ground and by air. (Compl. ¶¶ 4-6.) AFMS provides consulting
3 services to shipping customers and therefore is not a participant in this allegedly
4 relevant market for shipping and delivery services, either as a provider of such
5 services, as a customer contracting for its packages to be shipped, or in any other
6 manner. (Compl. ¶¶ 3, 21 (“plaintiff has suffered and will continue to suffer
7 substantial financial injury in its business and property in that it is being deprived of
8 its ability to function as a third party consultant”).) And the shipping services
9 market is not reasonably interchangeable with the market for consulting services.
10 A customer needing to transport a package to a different location cannot meet this
11 need by receiving advice from a consultant, nor would a customer seeking
12 consulting services be satisfied by the mere shipment of its packages.1 As in Legal
13 Economic, AFMS’s alleged injury—to its business as a consultant (Compl. ¶ 21)—
14 occurs in a separate market and does not “flow from” the alleged harm to
15 competition—which occurs in the shipping market (Compl. ¶ 20 (shipping
16 customers forced to pay higher prices and given fewer choices)). Accordingly,
17 AFMS has not and cannot plead antitrust injury.
18 AFMS is going to rely on American Ad Management, 190 F.3d 1051 (9th Cir.
19 1999), but that case is distinguishable because it involved plaintiffs who
20 participated in relevant markets allegedly harmed by anticompetitive conduct. In
21 American Ad Management, the plaintiff sales representative held an agency
22 relationship with the defendant publisher, in which the representative purchased
23
1
24 Participation in a related market is insufficient to demonstrate participation in the
relevant market. See Metro-Goldwyn-Mayer Studios Inc. v. Grokster, Ltd., 269 F.
25 Supp. 2d 1213, 1221 (C.D. Cal. 2003) (finding that “a party does not have standing
26 simply because it has a commercial relationship with a market participant, thereby
giving it an economic interest in avoiding restraint of the relevant market by a third
27 party”); Barton & Pittinos, Inc. v. Smithkline Beecham Corp., 118 F.3d 178, 184
(3d Cir. 1997) (finding marketer of vaccine did not participate in the market for the
28 “package of marketing and distribution of the vaccine”).
FEDEX’S MEM. OF P. & A. ISO MOTION TO
4 DISMISS FIRST AMENDED COMPLAINT
2:10-CV-05830-MMM-RC
Case 2:10-cv-05830-MMM -RC Document 43 Filed 11/12/10 Page 10 of 27 Page ID #:189
1 advertising space directly from the publisher and then resold it to advertisers. Id. at
2 1053-54. The Ninth Circuit found the sales representative to have standing because
3 it “is a participant in the relevant market [for advertisements in telephone
4 directories] and it has suffered an injury in that market.” Id. at 1057. In contrast,
5 here AFMS has not alleged that it purchases shipping and delivery services, nor that
6 it sells or resells such services to shipping customers. AFMS’s business is instead
7 limited to the consulting market, a distinct market from shipping and delivery
8 services.2
9 This case underscores AFMS’s lack of standing. In contrast to the plaintiffs
10 in American Ad Management, AFMS has not alleged that it has any contractual
11 relationship or dealings with FedEx or UPS, nor that it conducts any business or has
12 suffered any injury in the distinct market for shipping and delivery services. If
13 competition were reduced in the market for shipping services, then in theory, prices
14 to shipping customers would rise. (See Compl. ¶ 20(d).) But the price of shipping
15 is unrelated to AFMS’s alleged injury to its third-party consulting business. Just as
16 in Legal Economic, where the consultants’ alleged injuries did not flow from
17 decreased competition in the relevant markets for settling lawsuits or selling
18 annuities, AFMS’s injury—if any—does not flow from any decreased competition
19 in the market for shipping services. See Legal Economic, 39 F.3d at 955-56.
20 B. AFMS’s Alleged Injury Is Too Remote and Tangential to Any
Harm Caused by the Alleged Antitrust Violation.
21
22 AFMS’s connection to Defendants is too remote even if it had suffered
23
2
24 While the Ninth Circuit does not require a plaintiff to participate in the relevant
market specifically as a consumer or a competitor, see American Ad Management,
25 190 F.3d at 1057, this is most often the manner in which a plaintiff with standing
26 will have participated in the relevant market. This stands to reason, as the antitrust
laws are intended to protect competition among participants in specific markets.
27 See, e.g., AGC, 459 U.S. at 538. It is well-established that one must individually
participate in the specific relevant market harmed in order to have suffered antitrust
28 injury. Id. at 538-40; Am. Ad. Mgmt., 190 F.3d at 1057.
FEDEX’S MEM. OF P. & A. ISO MOTION TO
5 DISMISS FIRST AMENDED COMPLAINT
2:10-CV-05830-MMM-RC
Case 2:10-cv-05830-MMM -RC Document 43 Filed 11/12/10 Page 11 of 27 Page ID #:190
1 antitrust injury. AFMS claims no direct contractual dealings with Defendants. It
2 neither buys from nor sells to them, much less buys or sells shipping services.
3 AFMS does not allege that Defendants’ conduct has caused it to pay more for
4 shipping services. Rather, it claims that it would have earned as a bounty a portion
5 of the theoretical savings that Defendants’ customers might have reaped through its
6 consulting services, not unlike a lawyer getting paid through a contingency
7 arrangement. (See Compl. ¶ 9 (third-party shipping consultants, including AFMS,
8 “operate on a basis where their revenue from the shippers depends, at least in
9 material part of the savings achieved”).)
10 But this business model makes it crystal clear that AFMS is not entitled to
11 any funds unless its clients, Defendants’ customers, in fact paid more than they
12 would have but for the challenged conduct. AFMS therefore lacks standing to
13 assert these antitrust claims because its injury, if any, is derivative of any injury
14 suffered by FedEx’s and UPS’s customers, who are allegedly paying higher prices
15 to ship their packages (Compl. ¶ 20(d)). AGC, 459 U.S. at 540-42; Eagle v. Star-
16 Kist Foods, Inc., 812 F.2d 538, 541-42 (9th Cir. 1987) (no standing where “any
17 injury suffered by the [plaintiffs] is derived from any injury suffered by” the
18 “immediate victims”); Metro-Goldwyn-Mayer, 269 F. Supp. 2d at 1222 (rejecting
19 as too remote plaintiff’s claim for damages that was “entirely derivative” of its
20 customer’s alleged injuries, “even if harm to [the customer] is a foreseeable
21 consequence of the conduct alleged”). Here, if any party had a claim for damages
22 (none does), it would be those shipping customers who allegedly are now paying
23 more than they otherwise would have, but for the alleged unlawful conduct.3
24 To prove any damages, AFMS would first have to prove that customers of
25 FedEx and UPS would have paid less for shipping but for the alleged unlawful
26
3
27 FedEx does not suggest that there are any such customers or that any of them
could state a claim for relief, for many of the same reasons as set forth here with
28 respect to AFMS.
FEDEX’S MEM. OF P. & A. ISO MOTION TO
6 DISMISS FIRST AMENDED COMPLAINT
2:10-CV-05830-MMM-RC
Case 2:10-cv-05830-MMM -RC Document 43 Filed 11/12/10 Page 12 of 27 Page ID #:191
1 conduct, and that AFMS was entitled to a portion of those savings. Such
2 allegations are speculative at best. The finder of fact must speculate as to whether
3 AFMS would have entered into consulting agreements with certain of Defendants’
4 customers; whether those agreements would have remained in effect and, if so,
5 under what terms; and whether AFMS would have obtained for the customers more
6 favorable contract terms in negotiations with Defendants. The antitrust laws forbid
7 this type of attenuated injury based on conjecture and speculation. AGC, 459 U.S.
8 at 543; Blue Shield of Va. v. McCready, 457 U.S. 465, 475 n.11 (1982).
9 Such “indirect” claimants do not have standing under the Sherman Act. See
10 Am. Ad Mgmt., 190 F.3d at 1058. AFMS is not only not “close in the chain of
11 causation,” R.C. Dick Geothermal Corp. v. Thermogenics, Inc., 890 F.2d 139, 147
12 (9th Cir. 1989), it is not in the chain of causation at all. It is merely a potential,
13 indirect beneficiary of the alleged lost savings of its clients. The secondhand,
14 derivative injury that AFMS claims to have suffered is exactly the type of alleged
15 injury that courts have found too attenuated and remote from any direct harm to
16 support a finding of standing. See AGC, 459 U.S. at 541-42, see also Ill. Brick Co.
17 v. Illinois, 431 U.S. 720, 741 (1977) (barring suits brought by indirect purchaser
18 plaintiffs remote from defendants). AFMS’s claims are even more remote than
19 those of an indirect purchaser plaintiff, as it has not alleged that it is a purchaser of
20 shipping services or participant in the shipping services market at all.
21 No less importantly, AFMS’s claims create the obvious risk of duplicative
22 recovery, if the customers themselves sued, just like in the more typical indirect
23 purchaser context. See Ill. Brick, 431 U.S. at 730-35 (permitting indirect purchasers
24 to sue would expose defendants to a risk of duplicative liability and make uncertain
25 and complex the task of apportioning damages among parties at different levels of
26 the distribution chain); cf. Blue Shield, 457 U.S. at 475 (no risk of duplicative
27 exaction from defendant where plaintiff had already paid her bill, and her injury
28 consisted of defendant’s failure to reimburse her). If there were a claim here, the
FEDEX’S MEM. OF P. & A. ISO MOTION TO
7 DISMISS FIRST AMENDED COMPLAINT
2:10-CV-05830-MMM-RC
Case 2:10-cv-05830-MMM -RC Document 43 Filed 11/12/10 Page 13 of 27 Page ID #:192
1 customers can sue and obtain from Defendants the lost savings. At most, AFMS is
2 merely entitled to a portion of those alleged lost savings. If AFMS and customers
3 were both permitted to bring these claims, Defendants would face the prospect of
4 paying customers 100 percent of their losses, and then paying AFMS some
5 additional percentage of those losses (AFMS’s contingency fee). This risk is
6 precisely why Illinois Brick makes clear that the Sherman Act bars such indirect
7 claims.
8 II. AFMS’S SHERMAN ACT SECTION 2 CLAIM SHOULD BE
DISMISSED FOR FAILURE TO PLEAD ANTICOMPETITIVE
9 CONDUCT OR THE MAINTENANCE OR THREAT OF
MONOPOLY POWER.
10
11 AFMS alleges that FedEx and UPS each has been independently “engaged in
12 a plan and scheme to achieve or maintain monopoly power in the delivery of time
13 sensitive letters, documents, and packages,” in alleged violation of Section 2 of the
14 Sherman Act. (Compl. ¶ 23.) To properly state a claim under Section 2, Plaintiff
15 must plead facts showing that FedEx (1) engaged in anticompetitive conduct, and
16 (2) as a result of this conduct, either maintains or threatens to obtain a monopoly.
17 See Verizon Commc’ns Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398,
18 407 (2004); Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 456 (1993). AFMS
19 has failed to allege either. AFMS has not—and cannot—plead facts showing that
20 FedEx’s alleged conduct was anticompetitive, or that FedEx possesses or threatens
21 to possess monopoly power.
22 Anticompetitive conduct is “behavior that tends to impair the opportunities of
23 rivals and either does not further competition on the merits or does so in an
24 unnecessarily restrictive way.” Cascade Health Solutions v. PeaceHealth, 515 F.3d
25 883, 894 (9th Cir. 2008) (emphasis added) (citing Aspen Skiing Co. v. Aspen
26 Highlands Skiing Corp., 472 U.S. 585, 605 n.32 (1985)). AFMS alleges two
27 courses of action in support of its monopolization claim: (1) that FedEx refused to
28 deal with third-party consultants as a means of increasing prices, and (2) that FedEx
FEDEX’S MEM. OF P. & A. ISO MOTION TO
8 DISMISS FIRST AMENDED COMPLAINT
2:10-CV-05830-MMM-RC
Case 2:10-cv-05830-MMM -RC Document 43 Filed 11/12/10 Page 14 of 27 Page ID #:193
1 threatened its customers with higher prices if they did not keep FedEx’s contract
2 data confidential from third parties. (Compl. ¶ 24.) But a unilateral refusal to deal
3 with a consultant is not anticompetitive conduct. See Monsanto Co. v. Spray-Rite
4 Serv. Corp., 465 U.S. 752, 761 (1984) (every firm “of course generally has a right
5 to deal, or refuse to deal, with whomever it likes, as long as it does so
6 independently”); Harkins Amusement Enters., Inc. v. Gen. Cinema Corp., 850 F.2d
7 477, 483 (9th Cir. 1988). And raising prices and changing the terms of customer
8 contracts is not anticompetitive here because it would not limit the opportunities of,
9 or harm, FedEx’s rivals (exclusively UPS, according to the Complaint, ¶ 6). The
10 Complaint does not allege that FedEx’s conduct has harmed UPS.
11 Rather than harm UPS, the Complaint asserts that FedEx’s alleged conduct
12 stands to benefit UPS and expand UPS’s opportunities, as customers unhappy with
13 FedEx’s policies might be driven to do business with UPS instead. As the
14 Complaint itself asserts, FedEx “unilaterally terminating its dealings with third
15 party consultants” would give UPS “a huge potential competitive
16 advantage/opportunity.” (Compl. ¶ 14.) Thus, the Complaint’s own allegations
17 make frivolous the claim that FedEx’s conduct creates a “dangerous probability of
18 success” in obtaining monopoly power (Compl. ¶ 25) because conduct that gives
19 rivals an advantage is not “anticompetitive conduct.” Cascade, 515 F.3d at 894.
20 Any claim that FedEx’s purported conduct was anticompetitive is
21 particularly illogical given FedEx’s smaller share of the market. FedEx’s alleged
22 share of 41.2% of the overall market for time-sensitive shipping (Compl. ¶ 7) is too
23 low to give rise to the possibility of monopolization, particularly when a single
24 company, UPS, is alleged to hold the remaining majority share of the market. See
25 Bailey v. Allgas, Inc., 284 F.3d 1237, 1250 (11th Cir. 2002) (holding that market
26 share of less than 50% was insufficient to establish single-firm monopoly power as
27 a matter of law); United States v. Dentsply Int’l, Inc., 399 F.3d 181, 187 (3d Cir.
28 2005) (finding size and strength of competing firms to be a relevant factor in
FEDEX’S MEM. OF P. & A. ISO MOTION TO
9 DISMISS FIRST AMENDED COMPLAINT
2:10-CV-05830-MMM-RC
Case 2:10-cv-05830-MMM -RC Document 43 Filed 11/12/10 Page 15 of 27 Page ID #:194
1 determining whether a firm has monopoly power). FedEx is not the predominant
2 firm surrounded by smaller, struggling competitors; rather, FedEx is itself the
3 smaller player between the two firms alleged to participate in the market. (See
4 Compl. ¶¶ 6-7.) Any claim of attempted monopolization by FedEx makes no sense
5 given the allegations of the Complaint.
6 III. TWOMBLY MANDATES THE DISMISSAL OF AFMS’S SHERMAN
ACT SECTION 1 CLAIM.
7
A. Twombly’s Standards for Pleading an Unlawful Conspiracy.
8
9 Twombly mandates that a complaint must allege “not just ultimate facts (such
10 as a conspiracy), but evidentiary facts which if true, will prove” a conspiracy in
11 order to state a plausible claim under Section 1 of the Sherman Act. Kendall v.
12 Visa U.S.A., Inc., 518 F.3d 1042, 1047 (9th Cir. 2008) (quoting Twombly, 550 U.S.
13 at 555). To meet this requirement, a complaint cannot simply allege legal
14 conclusions masquerading as facts. Both the Supreme Court and the Ninth Circuit
15 have long recognized that courts are “not bound to accept as true a legal conclusion
16 couched as a factual allegation.” Ashcroft v. Iqbal, 129 S. Ct. 1937, 1950 (2009)
17 (internal citation omitted); see also Papasan v. Allain, 478 U.S. 265, 286 (1986);
18 Clegg v. Cult Awareness Network, 18 F.3d 752, 754-55 (9th Cir. 1994) (“[T]he
19 court is not required to accept legal conclusions cast in the form of factual
20 allegations if those conclusions cannot be reasonably drawn from the facts
21 alleged”).
22 AFMS alleges no facts and makes no mention of any express agreement
23 between FedEx and UPS regarding third-party shipping consultants or any other
24 matter. AFMS does not allege when the purported conspiracy began, where
25 Defendants purportedly agreed to join the conspiracy, or what person or persons
26 were involved in orchestrating the alleged conspiracy. See Twombly, 550 U.S. at
27 565 n.10 (requiring facts such as the “specific time, place, or person involved in the
28 alleged conspiracies”); Kendall, 518 F.3d at 1048 (complaint was properly
FEDEX’S MEM. OF P. & A. ISO MOTION TO
10 DISMISS FIRST AMENDED COMPLAINT
2:10-CV-05830-MMM-RC
Case 2:10-cv-05830-MMM -RC Document 43 Filed 11/12/10 Page 16 of 27 Page ID #:195
1 dismissed where it failed to “answer the basic questions: who, did what, to whom
2 (or with whom), where, and when?”).
3 AFMS will likely respond that a conspiracy should be inferred from
4 Defendants’ allegedly parallel conduct. But “an allegation of parallel conduct and a
5 bare assertion of conspiracy will not suffice” to state a claim under the Sherman
6 Act, Section 1. Twombly, 550 U.S. at 556. Such parallel conduct, while
7 “consistent with conspiracy,” can be “just as much in line with a wide swath of
8 rational and competitive business strategy unilaterally prompted by common
9 perceptions of the market.” Id. at 554. Indeed, the accepted teaching of antitrust
10 economics of the past 30 years strongly suggests that parallel conduct relating to
11 pricing would be the expected result in the absence of an agreement. See, e.g.,
12 Williamson Oil Co. v. Philip Morris USA, 346 F.3d 1287, 1305-06 (11th Cir. 2003)
13 (parallel pricing is to be expected in oligopolistic markets); In re Petroleum Prods.
14 Antitrust Litig., 906 F.2d 432, 443 (9th Cir. 1990) (interdependent pricing may
15 occur in a concentrated market, in which the number of competitors is small).
16 The Complaint itself demonstrates that FedEx had an independent motive to
17 discourage its customers from working with third-party consultants—to protect its
18 customer relationships and the confidentiality of its pricing data. And the
19 Complaint indicates that FedEx and UPS did not adopt the policies simultaneously;
20 rather, AFMS recounts a point at which FedEx had already stopped working with
21 consultants, while UPS would be doing the same in the future. (Compl. ¶ 15.) The
22 Complaint’s stray allegations of parallel conduct do not change this fact. When a
23 complaint—as here—includes only conclusory allegations that defendants
24 conspired and the challenged conduct can be just as readily explained by non-
25 collusive behavior, Twombly mandates that the complaint be dismissed. 550 U.S.
26 at 554.4
27
4
Twombly further emphasizes that courts must scrutinize closely the adequacy of
28 allegations of an “agreement” at the pleading stage in a Section 1 case because
FEDEX’S MEM. OF P. & A. ISO MOTION TO
11 DISMISS FIRST AMENDED COMPLAINT
2:10-CV-05830-MMM-RC
Case 2:10-cv-05830-MMM -RC Document 43 Filed 11/12/10 Page 17 of 27 Page ID #:196
1 B. The Complaint’s Circumstantial Allegations Are Insufficient to
Plead a Plausible Conspiracy.
2
1. The Complaint Fails to Plead Parallel Conduct Sufficient to
3 Give Rise to an Inference of Unlawful Conduct.
4 The Complaint conclusorily asserts that FedEx and UPS conspired to exclude
5 consultants “[b]eginning on or about the Fall of 2009.” (Compl. ¶ 18.) But it
6 alleges no facts to support that conclusion. The allegation that FedEx and UPS
7 representatives “announced” the policies at an industry event in October 2009
8 (Compl. ¶ 13) says nothing about when either FedEx or UPS decided to adopt the
9 purported policies, or when either FedEx or UPS began implementing the purported
10 policies. In fact, the Complaint suggests that FedEx and UPS did not adopt the
11 alleged policies at the same time, as AFMS’s managing director was purportedly
12 told by a customer representative that “FedEx is not working with third party
13 consultants and that ‘UPS is going to be doing the same thing soon . . . .’” (Compl.
14 ¶ 15 (emphasis added).) The very allegations of the Complaint therefore suggest
15 that FedEx already had implemented such a policy while UPS had not yet
16 implemented such a policy but would do so in the future. The Court cannot infer an
17 agreement from such scant and inconsistent factual allegations.
18 In its newly amended complaint, AFMS has tried to bolster what it
19 apparently recognized were insufficient allegations, by pointing to internal
20 memoranda published by UPS and FedEx on April 23, 2010. (See Compl. ¶ 13,
21 Exs. 1 and 2.) Yet the Complaint itself indicates that UPS and FedEx had already
22
23 antitrust litigation is unusually costly and burdensome. Id. at 558-59. Noting that
“[i]t is no answer to say” that meritless claims can be weeded out in the discovery
24 process, the Court cautioned that “it is only by taking care to require allegations that
reach the level suggesting conspiracy that we can hope to avoid the potentially
25 enormous expense of discovery” in meritless cases. Id. at 559; see also Kendall,
26 518 F.3d at 1047 (“[D]iscovery in antitrust cases frequently causes substantial
expenditures and gives the plaintiff the opportunity to extort large settlements even
27 where he does not have much of a case.”); accord Int’l Norcent Tech. v. Koninklijke
Philips Elecs. N.V., No. 07-00043, 2007 WL 4976364, at *5 (C.D. Cal. Oct. 29,
28 2007).
FEDEX’S MEM. OF P. & A. ISO MOTION TO
12 DISMISS FIRST AMENDED COMPLAINT
2:10-CV-05830-MMM-RC
Case 2:10-cv-05830-MMM -RC Document 43 Filed 11/12/10 Page 18 of 27 Page ID #:197
1 decided to adopt the purported policies months earlier—no later than October 2009.
2 (Compl. ¶ 13 (UPS and FedEx announced their policies at the October 2009
3 industry event); Compl. ¶ 18 (alleging that FedEx and UPS began excluding
4 consultants “on or about the Fall of 2009.”)) These subsequent, coincidental
5 announcements by themselves are too far removed in time to give rise to an
6 inference of an agreement taking place at least six months earlier.
7 If anything, these memoranda demonstrate that UPS’s and FedEx’s
8 procedures were not the same, and instead varied in significant respects. The UPS
9 Memo does not prevent customers from working with Third Party Negotiators
10 (“3PNs”), and rather sets out “[p]rocedures for interacting with” 3PNs, including
11 the use of non-disclosure agreements signed by the 3PN and customer. (Compl.
12 Ex. 1 (emphasis added).) In contrast, FedEx’s Rules of Engagement prevent sales
13 staff from working with third-party consultants unless “limited exceptions” apply.
14 (Compl. Ex. 2.) The FedEx memorandum also establishes a process for
15 determining if a consultant adds value beyond price negotiation (a “Value Added
16 Provider” or “VAP”) and directs sales staff to respond to VAP consultants and non-
17 VAP consultants differently. (Compl. Ex. 2.) The UPS memo draws no such
18 distinction. (Compl. Ex. 1.) Nor does the UPS memo distinguish between requests
19 from existing versus new customers, or with respect to 3PNs that have worked with
20 UPS in the past versus those that have not. (Compl. Ex. 1). Conversely, the FedEx
21 memo prescribes different treatment for consultants with which it has and has not
22 previously worked (Compl. Ex. 2 at 2 (“If new business, the response is ‘no.’ . . . If
23 FedEx has previously done business with the consultant . . . we will request an
24 exception to submit a bid.”) (emphasis in original)), and with respect to existing
25 FedEx customers and customers that are new to FedEx (Compl. Ex. 2 at 3). These
26 differences undermine AFMS’s assertion that UPS and FedEx acted in parallel
27 pursuant to an unlawful agreement. That UPS and FedEx published these distinct
28 procedures months after they allegedly adopted the third-party consultant policies
FEDEX’S MEM. OF P. & A. ISO MOTION TO
13 DISMISS FIRST AMENDED COMPLAINT
2:10-CV-05830-MMM-RC
Case 2:10-cv-05830-MMM -RC Document 43 Filed 11/12/10 Page 19 of 27 Page ID #:198
1 does not support any inference of an agreement to adopt the policies.
2 Furthermore, AFMS’s allegation that “historically [FedEx and UPS] have
3 announced lock-step price increases annually over a long number of years” (Compl.
4 ¶ 12) undercuts the significance of the alleged parallelism of the third-party
5 consultant policies. The Complaint does not allege that the “historical” parallelism
6 in pricing was the result of unlawful conduct. Notwithstanding the alleged parallel
7 pricing, there have been no lawsuits, nor government enforcement actions,
8 challenging that pricing as unlawful. Such parallelism in an industry as
9 concentrated as the Complaint here alleges is to be expected as a matter of rational
10 economics. See Williamson Oil, 346 F.3d at 1305-06; In re Citric Acid Litig., 191
11 F.3d 1090, 1102 (9th Cir. 1999) (“A section 1 violation cannot . . . be inferred from
12 parallel pricing alone . . . nor from an industry’s follow-the-leader pricing
13 strategy.”). Because the Complaint claims that the purported third-party policies
14 are really a device to conform pricing (Compl. ¶ 11), and because such parallel
15 pricing has been the hallmark of the lawful operation of this market for many years,
16 according to the Complaint, the mere fact that the Defendants acted in an allegedly
17 parallel manner here cannot be a sufficient basis from which to infer unlawful
18 conduct now any more than in the past. AFMS’s own allegation of historical
19 parallelism in the industry thus negates any possible inference that the alleged
20 parallel adoption of the third-party policies did not result from “independent
21 responses to common stimuli, or mere interdependence unaided by an advance
22 understanding among the parties.” Twombly, 550 U.S. at 557 n.4.
23 2. The Complaint Demonstrates an Independent and Lawful
Motivation to Engage in the Challenged Conduct.
24
25 The Complaint fails to provide any factual support for the assertion that
26 FedEx did not have a rational economic motive for acting independently. The
27 allegation that AFMS and other consultants obtained pricing discounts for some
28 clients (Compl. ¶¶ 10-11) hardly supports the contention that FedEx and UPS had a
FEDEX’S MEM. OF P. & A. ISO MOTION TO
14 DISMISS FIRST AMENDED COMPLAINT
2:10-CV-05830-MMM-RC
Case 2:10-cv-05830-MMM -RC Document 43 Filed 11/12/10 Page 20 of 27 Page ID #:199
1 motive to conspire. Twombly rejected as insufficient the very same type of
2 allegations. 550 U.S. at 550-51 (alleging a “compelling common motivation” to
3 thwart the competitive efforts of new market entrants); id. at 566-67 (disregarding
4 allegation because “nothing in the complaint intimates that the resistance to the
5 upstarts was anything more than the natural, unilateral reaction of each [defendant]
6 intent on keeping its regional dominance,” and “there is no reason to infer that the
7 companies had agreed among themselves to do what was only natural anyway”).
8 Even if one were to accept the assertion that the work of the consultants was
9 material to Defendants, such an assertion provides no reason to infer that FedEx
10 and UPS conspired, as both had motivation to increase their revenues and profits
11 independently of each other. In fact, FedEx would stand to benefit more by finding
12 a way to increase its own profits while its competitor, UPS, did not. Inferring a
13 conspiracy from the profit-driven motives of businesses, as AFMS urges, would
14 lead to an absurd result. “If a motive to achieve higher prices were sufficient, every
15 company in every industry could be accused of conspiracy because they all would
16 have such a motive.” In re Late Fee & Over-Limit Fee Litig., 528 F. Supp. 2d 953,
17 964 (N.D. Cal. 2007) (citing In re Baby Food Antitrust Litig., 166 F.3d 112, 133
18 (3d Cir. 1999) (internal quotations omitted)).
19 In short, the Complaint’s assertions about the alleged pricing advantage
20 resulting from eliminating consultants is as consistent with an inference of
21 independent action as it is collusion:
22 If, as alleged, 5.5 percent of customers receive a better price by using a
23 consultant (Compl. ¶ 10), 5 and if AFMS found more than $100,000,000 in
24 5
According to the Complaint, approximately half—49 percent—of those customers
25 that use a consultant enjoy a greater discount than those that do not. (Comp. ¶ 10.)
26 And in 2006, only 11 percent of customers used a consultant. (Compl. ¶ 10.) At
best, this suggests that approximately 5.5 percent (49 percent of 11 percent) of
27 customers obtained better pricing by using shipping consultants. (FedEx does not
agree with these statistics, but is merely repeating what the Complaint alleges for
28 purposes of this motion.)
FEDEX’S MEM. OF P. & A. ISO MOTION TO
15 DISMISS FIRST AMENDED COMPLAINT
2:10-CV-05830-MMM-RC
Case 2:10-cv-05830-MMM -RC Document 43 Filed 11/12/10 Page 21 of 27 Page ID #:200
1 customer savings between FedEx and UPS shipments (Compl. ¶ 12), FedEx would
2 have a strong, independent reason to try to minimize the involvement of
3 consultants. If by eliminating consultants, a shipper could increase prices for some
4 percentage of customers, such a strategy would be rational and attractive, unless the
5 benefit were outweighed by the loss of other customers because of the new policy.
6 But, as discussed below, the Complaint contains no facts suggesting such a
7 downside risk, only AFMS’s naked assertion.
8 FedEx also has substantial motivation to protect the confidentiality of
9 its contract terms and pricing to customers, particularly in a period of economic
10 recession in which shipping is down and prices are under greater pressure. (The
11 Court can take judicial notice of the recession that followed 2007, which resulted in
12 reduced volume and thus increased pressure on Defendants’ pricing.) Preventing
13 its own pricing data with other customers from being used against it in pricing
14 negotiations is itself a sufficient independent justification for FedEx to treat its data
15 as confidential, regardless of any decision by UPS to follow suit. FedEx’s use of
16 confidentiality terms in its contracts with customers—making it more difficult for
17 them to use consultants—is really AFMS’s central complaint in this case.
18 Apart from pricing, FedEx would have an independent interest in
19 eliminating a middleman in its relations with customers. As the Complaint itself
20 indicates, third-party consultants insert themselves into FedEx’s communications
21 with its customers and use their knowledge of past transactions—including FedEx’s
22 own past pricing to other customers—to influence the negotiations and obtain more
23 favorable pricing. (See Compl. ¶ 9.) FedEx, like any service provider, logically
24 would prefer to communicate and promote its products through direct relationships
25 with customers, rather than filtered through a third-party consultant with a different
26 agenda. No antitrust principle requires a company to deal with third-party
27 consultants. And there is no antitrust principle condemning enforcement of
28 confidentiality restrictions in contracts with customers. FedEx’s independent
FEDEX’S MEM. OF P. & A. ISO MOTION TO
16 DISMISS FIRST AMENDED COMPLAINT
2:10-CV-05830-MMM-RC
Case 2:10-cv-05830-MMM -RC Document 43 Filed 11/12/10 Page 22 of 27 Page ID #:201
1 decision to handle its customer accounts directly, particularly under the
2 circumstances alleged in the Complaint, is both reasonable and lawful. See Baby
3 Food, 166 F.3d at 134 (finding that “profit is always a motivating factor in the
4 conduct of a business” and a “legitimate motive”); Yellow Page Solutions, Inc. v.
5 Bell Atl. Yellow Pages Co., No. 00-5663, 2001 WL 1468168, at *14 (S.D.N.Y.
6 Nov. 19, 2001) (finding defendants’ decisions to handle certain accounts internally,
7 rather than utilizing market representatives, insufficient to state a Section 1 claim).
8 AFMS tries to overcome this defect by asserting that “neither company
9 would have dared” terminate dealings with third-party consultants without an
10 understanding that the other company would do the same at the same time.
11 (Compl. ¶ 14.) 6 But such a conclusion cannot withstand dismissal under Twombly
12 because it could be said about any concentrated industry with respect to any policy
13 affecting price. The contention that FedEx would not have done it without UPS
14 doing the same would apply just as equally to price increases, because in both cases
15 the underlying theory is that customers would flee to the other competitor.
16 Twombly unambiguously teaches that such a naked assertion is insufficient by itself
17 to state a claim. Twombly, 550 U.S. at 556-57; Kendall, 518 F.3d at 1049
18 (“Allegations of facts that could just as easily suggest rational, legal business
19 behavior by the defendants as they could suggest an illegal conspiracy are
20 insufficient to plead a violation of the antitrust laws.”).
21 And the assertion here is truly naked. The Complaint does not allege facts
22 that would suggest any particular concern about loss of customers to UPS if FedEx
23 had acted unilaterally. The Complaint’s own allegations establish that the industry
24 is marked by very little customer turnover. Approximately 90 percent of FedEx’s
25
6
26 The Complaint itself refutes the notion that FedEx would not have terminated
dealings with third-party consultants without UPS doing so at the same time.
27 (Compl. ¶ 15 (AFMS manager told by customer representative that FedEx had
already ceased working with third-party consultants, while “UPS is going to be
28 doing the same thing soon.”).)
FEDEX’S MEM. OF P. & A. ISO MOTION TO
17 DISMISS FIRST AMENDED COMPLAINT
2:10-CV-05830-MMM-RC
Case 2:10-cv-05830-MMM -RC Document 43 Filed 11/12/10 Page 23 of 27 Page ID #:202
1 customers do not change shipping companies each year. (Compl. ¶ 10.) Loss to the
2 competitor here is the exception, not the rule, so the Complaint’s suggestion that
3 fear of losing customers to the other required collusion is simply made up. The
4 allegation that FedEx is somehow concerned that a change to its policy regarding
5 consultants would drive a meaningful number of customers to UPS is also
6 unsupported by any facts, since the Complaint alleges that only a small number of
7 shipping customers even use consultants. According to the Complaint, in 2006
8 only 11 percent of customers used a consultant. (Compl. ¶ 10.) If the Court
9 accepts the Complaint’s assertion that 12 percent switched shippers in 2006, that
10 means that only 1.3 percent of those customers that switched also used consultants
11 (11 percent of 12 percent).7 And, the Complaint does not allege that any of the
12 12 percent that switched carriers did so because of price or because of anything that
13 consultants may have done. (Compl. ¶ 10.)
14 Although AFMS itself has customers and claims injury, it has failed to allege
15 that a single one of its customers would have switched carriers had FedEx
16 unilaterally adopted the purported third-party consultant policy, much less identify
17 one by name. AFMS’s lack of facts on this point is understandable. The very
18 Morgan Stanley analyst reports on which the Complaint supposedly relies (Compl.
19 ¶ 10) clearly establish that price is only one factor in a customer’s decision as to
20 which shipping carrier to use, along with perceived quality, customer service, and
21 other determinants. The disconnected statistics alleged in paragraph 10 do not
22 provide a factual basis for inferring that FedEx would have been concerned if UPS
23 had not adopted a similar policy. Twombly demands stronger factual assertions.
24 7
The use of these percentages alone to demonstrate a “substantial” effect on
25 Defendants’ “revenues and profits” of “at least in the low billions per year”
26 (Compl. ¶ 10) is itself misguided. Without some analysis of how these percentages
of customers relate to actual volumes, the services used (overnight delivery vs.
27 delayed delivery), and the prices associated with those various services, these
percentages are an insufficient basis for the conclusion urged by AFMS in
28 paragraph 10.
FEDEX’S MEM. OF P. & A. ISO MOTION TO
18 DISMISS FIRST AMENDED COMPLAINT
2:10-CV-05830-MMM-RC
Case 2:10-cv-05830-MMM -RC Document 43 Filed 11/12/10 Page 24 of 27 Page ID #:203
1 Additionally, AFMS’s allegation that neither FedEx nor UPS “would have
2 dared” to undertake a policy against third-party consultants alone (Compl. ¶ 14)
3 directly conflicts with AFMS’s claims under Section 2 of the Sherman Act, which
4 allege that each company separately undertook a course of action to eliminate third-
5 party consultants and thereby tried to monopolize the delivery of letters, documents,
6 and packages (Compl. ¶¶ 24-25). While AFMS may plead in the alternative, its
7 assertions that Defendants could not have acted independently, and yet that they
8 may have acted independently, are not logically or economically plausible. Where,
9 as here, the allegations do not make sense, the Complaint fails to plead plausible
10 grounds for relief. See DM Research, Inc. v. Coll. of Am. Pathologists, 170 F.3d
11 53, 56 (1st Cir. 1999) (upholding dismissal of antitrust complaint because the
12 alleged conspiracy was “highly implausible”) (cited approvingly in Twombly, 550
13 U.S. at 557).
14 In sum, the Complaint tries to dress up the insufficiency of its logic and
15 factual support for unlawful parallelism by trotting out disconnected statistics that
16 do not support a logical theory as to why the alleged parallelism is more consistent
17 with unlawful conduct than with lawful conduct, as Twombly requires. Such a
18 vague theory based on “[g]eneral similarity of conduct is not enough” to support an
19 inference of an agreement among competitors. Zoslaw v. CBS, 533 F. Supp. 540,
20 552 (N.D. Cal. 1980), aff’d in part, rev’d in part on other grounds, 693 F.2d 870
21 (9th Cir. 1982).
22 3. The Complaint’s Meager Allegations of Opportunity to
Collude Are Insufficient to Plead a Plausible Conspiracy.
23
24 Courts have consistently refused to infer the existence of a conspiracy from
25 allegations of opportunities to communicate, even where the defendants are alleged
26 to have participated in recurring industrywide meetings or associations and have
27 had many opportunities to directly communicate. See, e.g., Citric Acid, 191 F.3d at
28 1103 (rejecting plaintiff’s attempt to infer a conspiracy from multiple meetings and
FEDEX’S MEM. OF P. & A. ISO MOTION TO
19 DISMISS FIRST AMENDED COMPLAINT
2:10-CV-05830-MMM-RC
Case 2:10-cv-05830-MMM -RC Document 43 Filed 11/12/10 Page 25 of 27 Page ID #:204
1 telephone conversations, as such meetings “do not tend to exclude the possibility of
2 legitimate activity”); In re Elevator Antitrust Litig., No. 04-1178, 2006 WL
3 1470994, at *10-11 (S.D.N.Y. May 30, 2006) (explaining that “the allegation that
4 elevator company executives attend trade, industry, or social functions together is
5 clearly insufficient to state a claim”). AFMS’s allegation that UPS and FedEx
6 representatives had the opportunity to communicate—at a single industry event in
7 October 2009 (Compl. ¶ 13), and at a customer’s premises at some unspecified time
8 and location (id.)—are likewise insufficient and fail to give rise to a plausible
9 inference of conspiracy regarding third-party consultants.
10 With respect to the one industry event, AFMS has not even alleged that
11 FedEx and UPS representatives spoke or communicated with each other while
12 there. AFMS weakly asserts that UPS and FedEx representatives made parallel
13 announcements regarding their third-party consultant policies at the industry event
14 in October 2009, at which both representatives were panelists. (Compl. ¶ 13.) But
15 AFMS does not allege that these representatives ever agreed to these purported
16 policies (or had the authority to do so)—whether at the industry event, before the
17 event, or after it—or even discussed the policies with each other. AFMS alleges no
18 other facts to indicate when or where or with whom such an agreement was
19 reached. See Kendall, 518 F.3d at 1048 (complaint was properly dismissed where it
20 failed to “answer the basic questions: who, did what, to whom (or with whom),
21 where, and when?”). AFMS tries to compensate for this omission by alleging that
22 the FedEx and UPS representatives “did not deny collusion between the
23 companies” in deciding upon their purported policies. (Compl. ¶ 13.) Yet nowhere
24 does AFMS allege that the representatives were ever asked about collusion between
25 the companies or whether they had reached an agreement to implement the
26 purported policies. AFMS’s suggestion that the lack of an unprompted denial of
27 collusion somehow demonstrates collusion is logically erroneous and deliberately
28 misleading.
FEDEX’S MEM. OF P. & A. ISO MOTION TO
20 DISMISS FIRST AMENDED COMPLAINT
2:10-CV-05830-MMM-RC
Case 2:10-cv-05830-MMM -RC Document 43 Filed 11/12/10 Page 26 of 27 Page ID #:205
1 The allegation that representatives of FedEx and UPS “sat and conferred”
2 with each other at or outside a customer’s premises (Compl. ¶ 13) also falls far
3 short of demonstrating collusion. The Complaint does not identify who the
4 representatives were, which customer’s premises they were at or outside, when the
5 meeting occurred, where it occurred, or what the representatives “conferred” about.
6 Importantly, the Complaint fails to allege that the communication had anything at
7 all to do with third-party consultants or even with FedEx, UPS, or shipping
8 business generally. While AFMS asserts that the meeting took place at some point
9 before FedEx and UPS individually told the unidentified customer that they would
10 not work with a third-party consultant, the Complaint is silent as to how long before
11 that the alleged meeting took place or whether the meeting was in any way related.
12 When parsed, this allegation amounts to nothing more than an isolated opportunity
13 to communicate. And like the allegations made in Citric Acid and Elevator
14 Antitrust, it fails to provide the factual basis needed to support an inference of
15 unlawful conspiracy. See 191 F.3d at 1103; 2006 WL 1470994, at *10-11.
16 *****
17 Twombly requires that AFMS allege facts showing that either an express
18 agreement was made or that purportedly parallel conduct was not simply the result
19 of natural market forces, but instead suggests a preceding agreement. 550 U.S. at
20 556-57. AFMS has failed to do so. The Complaint alleges neither an express
21 agreement nor the type of parallel conduct that could not “just as well be
22 independent action.” Id. at 557. As in Twombly, the Complaint is insufficient to
23 justify the enormous expense of antitrust litigation, and AFMS’s Section 1 claim
24 should be dismissed.
25 Dated: November 12, 2010 O’MELVENY & MYERS LLP
26
By: /s/ Andrew J. Frackman
27 Andrew J. Frackman
28
FEDEX’S MEM. OF P. & A. ISO MOTION TO
21 DISMISS FIRST AMENDED COMPLAINT
2:10-CV-05830-MMM-RC
Case 2:10-cv-05830-MMM -RC Document 43 Filed 11/12/10 Page 27 of 27 Page ID #:206
1 ANDREW J. FRACKMAN (Pro Hac Vice)
afrackman@omm.com
2 O’MELVENY & MYERS LLP
7 Times Square
3 New York, NY 10036
4 Telephone: (212) 326-2000
Facsimile: (212) 326-2061
5
CHRISTINA J. BROWN (S.B. #242130)
6 cjbrown@omm.com
O’MELVENY & MYERS LLP
7 Two Embarcadero Center, 28th Floor
San Francisco, CA 94111
8 Telephone: (415) 984-8700
Facsimile: (415) 984-8701
9
MICHAEL W. HIGGINBOTHAM (Pro Hac Vice)
10 mwhigginbotham@fedex.com
11 R. JEFFERY KELSEY (Pro Hac Vice)
jkelsey@fedex.com
12 JEANNA M. LITTRELL (Pro Hac Vice)
jmlittrell@fedex.com
13 COLLEEN D. HITCH (Pro Hac Vice)
colleen.hitch@fedex.com
14 FEDERAL EXPRESS CORPORATION
3620 Hacks Cross Road, Building B, 3rd Floor
15 Memphis, TN 38125
Telephone: (901) 434-8570
16 Facsimile: (901) 434-9278
17 CHRISTOPHER J. YOST (S.B. # 150785)
18 cjyost@fedex.com
FEDERAL EXPRESS CORPORATION
19 2601 Main Street, Suite 340
Irvine, CA 92614
20 Telephone: (949) 862-4558
Facsimile: (949) 862-4605
21 Attorneys for Defendant
22 FEDEX CORPORATION
23
24
25
26
27
28
FEDEX’S MEM. OF P. & A. ISO MOTION TO
22 DISMISS FIRST AMENDED COMPLAINT
2:10-CV-05830-MMM-RC