Second Circuit Authorizes Magazine Wholesaler To Rewrite Antitrust Claims

The U.S. Court of Appeals for the Second Circuit has revived a magazine wholesaler’s claims of an antitrust conspiracy in the magazine industry and granted permission to that plaintiff to file an amended complaint in Anderson News, L.L.C. v. American Media, Inc.

The Second Circuit reversed the decision of Judge Paul A. Crotty of the Southern District of New York that applied heightened pleading standards in granting defendants’ motion to dismiss for failure to state a claim and denying leave to file an amended complaint.

The plaintiff, Anderson News, was forced into liquidation proceedings in 2009, after being a wholesaler in the magazine industry since 1917.  Anderson purchased magazines from publishers and resold them to retailers.  Anderson’s complaint accused five magazine publishers, four magazine distributors, and one magazine wholesaler of conspiring in violation of Section 1 of the Sherman Act to eliminate Anderson as a wholesaler after Anderson imposed a surcharge of seven cents for each magazine that Anderson received and distributed.

In granting the defendants’ motion to dismiss, the district court held that the complaint did not meet the heightened pleading standard set by the U.S. Supreme Court in Bell Atlantic Corp. v. Twombly.  The district court noted that the defendants’ different reactions to a surcharge that Anderson imposed in January 2009 undermined Anderson’s theory of conscious parallel conduct.  Despite the fact that Anderson had alleged a number of meetings and communications suggestive of a conspiracy, the district court held that the defendants’ decisions to stop doing business with Anderson – the key parallel conduct allegation – did not create an inference of collusion since such conduct was consistent with unilateral and competitive business strategies.

The Second Circuit reversed and permitted Anderson to file an amended complaint, holding that the district court had misapplied Twombly’s plausibility standard.

The appellate court held that to present a plausible claim at the pleading stage, the plaintiff need not show that its allegations suggesting an agreement are more likely than not true or that they rule out the possibility of independent action, and that the choice between two plausible inferences that may be drawn from factual allegations is not a choice to be made by the court on a motion to dismiss.  The question at the pleading stage, held the court, is whether there are sufficient factual allegations to make the complaint’s claim plausible, not whether there is a plausible alternative to the plaintiff’s theory.

The Second Circuit held that in making its plausibility determination that the defendants had acted unilaterally, the district court had made a number of factual findings inappropriate at the pleading stage, such as determining that certain alleged statements by defendants were not suggestive of a “massive antitrust conspiracy.”  The appellate court also disagreed with the district court’s determination that the conspiracy was implausible because the defendants had a variety of reactions to Anderson’s announcement of the surcharge, noting that there is “nothing implausible about coconspirators starting out in disagreement as to how to deal conspiratorially with their common problem.”