The U.S. Court of Appeals for the Second Circuit has shut down Baltimore’s quest to recoup hundreds of millions of dollars the city lost in the collapse of the market for auction rate securities during the economic downturn in 2008.

The Second Circuit affirmed the dismissal of the class action complaints in Mayor and City Council of Baltimore et al. v. Citigroup Inc. et al., finding that the claims of boycott and refusal to deal in the market for auction rate securities failed to successfully allege a violation of Section 1 of the Sherman Act.

The plaintiffs, who include the Mayor and City Council of Baltimore and three individual investors, accused 11 of the largest financial institutions of conspiring to simultaneously withdraw support bids in the auction rate securities market.   According to the complaints, withdrawing the bids had the same anticompetitive effect as a group boycott and limited competition until the market collapsed.

Before the financial crisis, cities borrowed money through auction rate securities, long-term bonds with short term interest rates.  The defendants periodically organized the bond sales needed to reset interest. 

The auctions usually attracted numerous investors, and the high demand kept interest rates low for nearly three decades.  However with the market collapse, cities now face penalties when auctions fail and high fees to refinance their debt.    

The U.S. District Court for the Southern District of New York found plaintiffs’ antitrust allegations failed because securities law protects some concerted conduct to set interest rates.  

Judge Peter W. Hall’s opinion for the Second Circuit went further, and held that plaintiffs failed to state a claim in the first place.

The appeals court found that the complaint was deficient under the Supreme Court’s 2007 decision in Bell Atlantic Corp v. Twombly, which held that plaintiffs must provide enough evidence to show it is plausible companies made a formal agreement rather than simply taking independent, parallel actions.  “Indeed, Defendants’ alleged actions—their en masse flight from a collapsing market in which they had significant downside exposure—made perfect business sense,” the Second Circuit wrote.

The complaint provided only two instances of communication between the companies, which discussed the state of the market and potential solutions.  Other memos used as evidence were internal and only indicated a “high level of inter firm awareness,” according to the Second Circuit.

There were also warning signs the market was failing as early as the summer of 2007.  “At that point abandoning bad investments was not just a rational business decision, but the only rational business decision,” the court concluded, referring to the banks’ choice to stop the bids.

On top of legal fees, Baltimore has $350 million in auction rate securities debt, and the city could lose an additional $90 million to refinance.

The National Collegiate Athletic Association bylaws escaped unscathed after the U.S. District Court for the Southern District of Indiana dismissed the amended complaint in Rock v. National Collegiate Athletic Association, a class action alleging NCAA limits on athletics-based financial aid violate antitrust laws.

Plaintiffs John Rock, Tim Steward, and Kody Collins each received scholarships for athletic and academic achievement to offset tuition while playing for NCAA teams.  The plaintiffs alleged that although their universities promised them financial aid, the schools eventually asked each student to choose between participation in his respective sport and receiving the scholarship in order to comply with NCAA rules.

According to the amended complaint, NCAA rules on athletic scholarships “artificially restrict” the nationwide market for labor of student athletes.  Until recently, NCAA rules did not allow students to receive athletics-based scholarships for more than one year.  The NCAA’s bylaws also limit the number of scholarships each school can award for each sport and bar Division III schools from awarding athletics-based financial aid at all. 

Judge Jane Magnus-Stinson disagreed with the plaintiffs’ arguments.  Her decision relies largely on Agnew v. National Collegiate Athletic Association, a case in which two football players lost their athletic scholarships due to injury and accused the NCAA of anticompetitive behavior.

In Agnew the U.S. Court of Appeals for the Seventh Circuit held that a “cognizable” market must be affected by the anticompetitive behavior in order for transactions between student athletes and universities to comprise antitrust violations.

Judge Magnus-Stinson found the plaintiffs’ claims failed to define such a relevant market.  First, the market definition did not account for substitute associations, such as the National Association of Intercollegiate Athletics.  Second, the alleged market grouped all student athletes together without consideration for gender, differences among sports, or differences among divisions.

“Even at the motion to dismiss stage, the Court will not “don blinders” and “ignore commercial reality” when analyzing Plaintiffs’ market allegations,” the court wrote.

The court’s opinion also agreed with the NCAA in rejecting plaintiffs’ arguments that the inability of Division III schools to provide financial aid restricts competition.  According to the NCAA’s motion to dismiss, the ban on Division III athletic-based scholarships actually exists to allow more schools to participate.  According to the NCAA, the financial requirements accompanying athletics-based scholarships that had existed prior to the ban had made joining the NCAA difficult for smaller schools.  

Rock, who played at a Division I school, will have 28 days to submit an amended complaint.

NorthStar Energy LLC is suing Encana Corp. and Chesapeake Energy Corp. in the U.S. District Court for the Western District of Michigan, alleging the two companies’ drafting of an agreement violated antitrust laws by rigging the bidding process for NorthStar’s oil and gas leases.

According to the complaint in NorthStar Energy LLC v. Encana Corp. et al., NorthStar Energy was granted the rights to explore thousands of acres of Michigan land with the goal of finding oil or natural gas in the Utica-Collingwood shale formations.  In early 2010, NorthStar determined there were sufficient resources to begin commercial drilling on 9,838 acres, and asked for bids at the market price of $3,000 per acre.

NorthStar claims that Encana and Chesapeake executives negotiated an Area of Mutual Interest Agreement that rigged the bidding process.  NorthStar alleges that comments and edits to the agreement indicate that Encana and Chesapeake conspired not to bid against one another for NorthStar’s leases in six Michigan counties.

According to NorthStar, the agreement originally included a paragraph that provided the two companies could independently bid for NorthStar’s leases even if it meant that the companies would bid against each other.  According to the complaint, in response to this paragraph Chesapeake wrote, “[w]hy have this [paragraph] if the goal is to keep from running the prices up on each other?”

The complaint alleges that as a result of collusion, Chesapeake secured a lease for $2,250 per acre.  Not only was Chesapeake’s price $750 below the alleged market price, but one month earlier NorthStar had sold leases at $3,727.71.

“Absent collusion, NorthStar would have realized substantially higher price terms, more consistent with the market value and similar to or higher than the price terms at which 16 comparable acreage sold at the May 2010 State of Michigan auction,” the complaint states.

The United States Court of Appeals for the Eighth Circuit has decided that arbitration agreements are not necessarily the silver bullet that will dispose of antitrust claims five retail groceries (the “Retailers”) are asserting against two of the largest wholesale grocers in the United States – SuperValu Inc. and C&S Wholesale Grocers Inc. (the “Wholesalers”).

While the Eighth Circuit reversed the ruling of the U.S. District Court for the District of Minnesota in In re: Wholesale Grocery Products Antitrust Litigation that the doctrine of “equitable estoppel” makes the arbitration agreements a bar to the Retailers’ claims against the “Wholesalers,” the appellate court remanded the claims to the lower court to decide if the arbitration agreements might still bar those claims under a successor-in-interest theory.

The Retailers accuse the Wholesalers of inflating prices through an asset exchange agreement, under which they agreed not to compete for customers already under supply and arbitration agreements at the time of the exchange.

While each Retailer had an arbitration agreement with one of the Wholesalers, each Retailer only sued the Wholesaler with which it did not have an arbitration agreement.  The district court dismissed the Retailers’ claims, finding that they were equitably estopped from refusing arbitration because their claims were so intertwined with the arbitration agreements.

However, the Eighth Circuit ruled that equitable estoppel does not apply because the alleged antitrust violations were not sufficiently related to the contracts with the arbitration clauses.  The court found that the Retailers’ antitrust conspiracy claims “exist independent of the supply and arbitration agreements.”  The court also noted that “the Retailers’ antitrust claims are premised on paying artificially inflated prices, but since none of the Retailers’ contracts with the Wholesalers specify price terms, the Retailers’ claims do not involve alleged violation of any terms of those contracts.”

Judge Duane Benton dissented from the decision, arguing that the majority had misread the arbitration agreements.  According to the dissent, the Retailers’ antitrust claims were coved by the arbitration clauses, which required arbitration for “any dispute arising between the parties,” not just disputes related to the supply agreement.

Although the Eighth Circuit reversed the dismissal of the Retailers’ claims, that court left open the question of whether the district court on remand should compel arbitration on a successor-in-interest theory.  Such a theory would make the Retailers’ subject to the arbitration agreements because the Wholesalers essentially inherited each other’s arbitration agreements.  That theory will now be decided by the district court on remand.

On remand, the fate of the Retailers’ claims will be especially uncertain given the district court’s prior rulings.  After dismissing the Retailers’ claims, the district court denied class certification to the remaining plaintiffs, and subsequently granted summary judgment on the remaining plaintiffs’ antitrust claims.  The lower court found that the antitrust claims were not viable because the Wholesalers’ price increases stemmed not from an antitrust violation, but from contract violations that occurred after the Wholesalers swapped facilities.  Both of these orders are being appealed to the Eighth Circuit.

Vitamin C manufacturers currently on trial in federal court in Brooklyn are hoping their defense to price-fixing claims will get a boost from last week’s testimony by a former Chinese government official that China compelled them to engage in allegedly anticompetitive behavior.

Plaintiffs in the class action In re Vitamin C Antitrust Litigation are seeking to convince a jury in the U.S. District Court for the Eastern District of New York that the defendant Chinese manufacturers harmed U.S. purchasers of vitamin C by conspiring to fix prices and limit the supply of vitamin C exports to the U.S.

The defendants are relying on the foreign sovereign compulsion defense, claiming that they risked losing their right to export vitamin C if they did not adhere to minimum prices and volume restrictions set by the Chinese government.

Last week, the jury heard the testimony of Qiao Haili, a retired China Ministry of Commerce official, whom the defendants called for his testimony that the Chinese government could halt exports from Vitamin C manufacturers that failed to comply with its coordination of prices and production of the vitamin.  In cross-examination, plaintiffs challenged whether the former official actually had the authority to punish companies that did not comply with the government’s restrictions.

In re Vitamin C Antitrust Litigation is a multidistrict class action case that began in 2005.  Plaintiffs allege that the defendant Chinese manufacturers of vitamin C controlled exports to inflate prices.  Plaintiffs have alleged that the defendants, which controlled 60 percent of the global market, caused prices to rise from $2.30 per kilogram in 2001 to $15 per kilogram in 2003.

Judge Brian Cogan green-lighted the case for trial just last month, by denying a motion for summary judgment by defendant North China Pharmaceutical Group Corporation (“NCPGC”).

NCPGC argued that it never received pricing information because the company indirectly owns one of the manufacturer defendants and is not involved in production or sales.  Without knowing vitamin C prices, the company claimed it could not have participated in the price-fixing scheme.  The court, however, concluded that there was “evidence from which a jury could conclude that NCPGC participated in the conspiracy at the heart of this litigation.”

In May 2012, one of the defendants agreed to a $10.5 million settlement.