### FILED U.S.COURT OF APPEALS ELEVENTH CIRCUIT 06/09/99 THOMAS K. KAHN CLERK PUBLISH IN THE UNITED STATES COURT OF APPEALS FOR THE ELEVENTH CIRCUIT

------------------------------------------- No. 98-6194

--------------------------------------------

D. C. Docket No. 97-0581-BH-M

DOUG LOWELL, MACKEY NOLTE, et al., Plaintiffs-Appellants,

versus
AMERICAN CYANAMID COMPANY, A CORPORATION, Defendant-Appellee.

---------------------------------------------------------------- Appeal from the United States District Court for the Southern District of Alabama

---------------------------------------------------------------- (June 9, 1999)

Before EDMONDSON and BLACK, Circuit Judges, and RESTANI*, Judge.

_______________ *Honorable Jane A. Restani, Judge, U.S. Court of International Trade, sitting by designation.2 EDMONDSON, Circuit Judge: Plaintiffs, five Alabama farmers, have appealed a district court order dismissing an antitrust complaint for failure to join middlemen dealers as defendants pursuant to Illinois Brick Co. v. Illinois , 431 U.S. 720 (1977). We conc lude that Illinois Brick has no application in a vertical conspiracy withno allegations of “pass-on.” The district court decision is vacated, and the case is remanded.

Background

Between 1989 and 1995, the defendant, American Cyanamid Company (“American Cyanamid”), main tained two similar rebate programs for its independent retail dealers nationwide. Under the pr ograms, American Cy anamid entered into written contracts with its dealers whereby American Cyanamid would give the dealer a rebate on each sale of desi gnated crop-protection products but only if the dealer sold the product at or above American Cyanamid ’s suggested resale price; the programs allegedly established a minimum resale pri ce. Under these contracts, the specified resale price was equal to the wholesal e prices paid by the dealer. American1 Although this act may be, by itself, unexceptional (as it is the only way to turn a profit on the individual product), we will assume, due to the proce dural posture of this case, that Plaintiffs have shown a vertical price-fixing conspiracy. 3 Cyanamid’s dealers overwhelmingly responde d by selling the product at or above the specified minimum resale price. 1 In 1997, Plaintiffs filed a complaint, on behalf of themselves and all others similarly situated, alleging American Cyan amid had violated section one of the Sherman Act (15 U.S.C. § 1) and section four of the Clayton Act (15 U.S.C. § 15). Plaintiffs later amended their complaint, but at no time did they join any of the estimated 2,500 American Cyanamid distributors. American Cyanamid filed a motion to dismiss pursuant to Federal Rule of Civi l Procedure 12(b)(6). The district court granted the motion with prejudice, holding th at the independent dealers, as direct purchasers, must be parties to the action under the doctrine of Illinois Brick

. Otherwise, Plaintiffs, according to the distri ct court, lacked standing to maintain the suit. Plaintiffs appealed. Discussion

We review de novo a district court order dismissing a complaint for failure to state a claim, construing the allegations in the complaint as true and in the light most2 The two exceptions--neither of which apply here --are where there is a preexisting cost-plus contract or where the direct purchaser is owned or controlled by its customer. See Illinois Brick , 431 U.S. at 735-36 & n.16. 4 favorable to the plaintiff. See Harper v. Blockbuster Entertainment Corp. , 139 F.3d 1385, 1387 (11 thCir. 1998). Plaintiffs’ complaint alleges that Amer ican Cyanamid engaged in a vertical price-fixing conspiracy with the independent dealers in violation of section one of the Sherman Act and section four of the Clayton Act. Plaintiffs claim that the district court erred in applying Illinois Brick to bar this complaint from proceeding directly against American Cyanamid without joining the independent dealers. Illinois Brick , so Plaintiffs’ argument goes, doe s not apply to a vertical pricefixing scheme where (1) a plaintiff buys dir ectly from a dealer who combined with a manufacturer to fix the prices and (2) no alle gations are made of “pass-on.” In other words, Plaintiffs claim they are not indi rect purchasers at all under Illinois Brick , but are direct purchasers from a conspiring party. American Cyanamid counters thatthe rule of Illinois Brick --that indirect purchasers cannot maintain a suit without joining the appropriate middlemen--is on point and that the present case falls within neither of its two enumerated exceptions. 2 American Cyanamid also point s out that the former Fifth Circuit applied Illinois Brick3 Hanover Shoe said that a manufacturer cannot assert a “passing-on” defense (that is, the defense that the plaintiff has no damages when he passed the overcharge on down the production line) against a direct purchaser of its product. 392 U.S. at 494. 5 to bar claims somewhat similar to this one in In re Beef Industry Antitrust Litigation , 600 F.2d 1148 (5 thCir. 1979). We agree with the Plaintiffs. Illinois Brickhas no application in this case. Illinois Brick was an extension of the Court’s earlier prohibition against the defensive use of passing on in Hanover Shoe, In c. v. United Shoe Machinery Corp. , 392 U.S. 481, 491-94 (1968). 3 In concluding that the indirect government purchasers of a product may not sue distant manufacturers, Illinois Brick cited two underlying rationales. The first of these was that “allowing offensive but not defensive use of pass-on would create a serious risk of multip le liability for defendants. Even though an indirect purchaser had already recovered for all or part of an overcharge passed on to it, the direct purchaser would still r ecover automatically the full amount of the overcharge that the indirect purchaser had shown to be passed on[ .]” Illinois Brick , 431 U.S. at 730. Second, as in Hanover Shoe , the Court was worried about the “uncertainties and difficulties in analyzing price and out-put decisions ‘in the real economic world rather than an economist’ s hypothetical model,’ and of the costs to the judicial system and the efficient enfo rcement of the antitrus t laws of attempting4 Considering the loose nature of notice pleadings, a potential plaintiff might allege only a vertical conspiracy when there is in fact a horizont al conspiracy as well or some other kind of illegal conduct (for example, tying or monopolistic behavior). By so doing, some clever plaintiff could elude a defendant’s 12(b)(6) motion but then later recover in the lawsuit for the pass-on injury of a horizontal conspiracy--the kind of injury for which a middleman could also recover. This circumstance could present the Illinois Brick double-recovery problem. So, courts must be attentive in holding plaintiffs to their pleadings or, if plai ntiffs seek to amend their pleadings to add a kind of conduct from which pass-on could be claimed, in forcing the plaintiffs to join the middlemen as well. Cf. Arizona v. Shamrock Foods Co. , 729 F.2d 1208, 1211 (9th Cir. 1984) (holding suit against somewhat distant defendant permissible where plainti ffs changed their theory of recovery to one that does not involve pass-on). 6 to reconstruct those decisions in the courtroom.” Id . at 731-32 (quoting Hanover Shoe , 392 U.S. at 493) (citations omitted). Neither of the rationales app lies to the very different case of vertical conspiracy with no allegations of passing on: Illinois Brick does not limit suits by consumers against a manufacturer who illegally contracted with its deal ers to set the latte r’s resale price. The consumer plaintiff is a directpurchaser from the dealer who, by hypothesis, has conspired illegally with the manufacturer with respect to the very price paid by the consumer. There is no problem of duplication or apportionment because the consumer is the only party who has paid any overcharge. Although the manufactur er did not sell directly to the consumer, he is a fellow conspirator with the direct-selling dealer and therefore jointly and severally liable with the dealer for the consumer’s injury.
2 Phillip E. Areeda & Herbert Hove nkamp, Antitrust La w 264 (rev. ed. 1995) (footnotes omitted). This case presents no problems of doubl e recovery because only one illegal act (the vertical conspiracy) 4 is present and likely only one set of potential plaintiffs (the5 Two other kinds of potential plaintiffs--interme diaries who could sue the manufacturer either (1) for coerced participation in an unlawful sche me or (2) termination for refusing to adhere--may exist given the occurrences alleged in this case. But these kinds of potential plaintiffs do not change the rule about the need to join intermediaries in the case before us now. Such suits would result in a different measure of damages: the damages would not be pass-on and would not factor into Plaintiffs’ recovery. In the even t that a manufacturer might have to pay two sets of damages, it only means he committed two different injuries; this ci rcumstance is not the double recovery of Illinois Brick

. 6 Illinois Brickfaced the prospect of distant government plaintiffs and intermediate supplierplaintiffs or dealer-plaintiffs recovering repeatedly from the manufacturers for the same pass-on injury resulting from the same horizontal conspiracy. 7 See In re Mid-Atlantic Toyota Antitrust Litig. , 516 F. Supp. 1287, 1295 (D. Md. 1981) (“While such a calculation [of the price that would have prevailed in a non-pass-on case] would appear to be a simple one, even if it is co mplex it would not be the type of complexity that the Illinois Brick Court was concerned with.”). 7 farmers) exists. 5 Although Plaintiffs may sue Amer ican Cyanamid alone for the full cost of the conspiracy with the dealers, that is the way antitrust conspiracy liability works and does not go to the kind of duplica tive recovery with which Illinois Brick was concerned. 6 Second, the economic and legal comp lexities outlined in Illinois Brick are absent here as well. For the plaintiffs ina case like this one, proving what price would have existed in the absence of the unlawful agreement is difficult; but it is no more difficult than the proof necessary in any vertical conspiracy case. Furthermore, the task pales in comparison to the complexities contemplated in Illinois Brick : 7 tracing the pass-on through many steps in the produc tion process and determining how much was absorbed, how much was passed on, and by whom; moreover, all of the8 In this case, no dealers had sued American Cyan amid at the time of the appeal even though the statute of limitations was running out. 8 calculations would have to be made without any of the in termediary parties asserting their interests, but merely with the aid of “elasticity studie s introduced by expert witnesses[.]” Illinois Brick , 431 U.S. at 742. The complexities Illinois Brick involved were legal ones as well. “[P]otential plaintiffs at each level in the distribution chain are in a position to assert conflicting claims to a common fund the amount of the alleged overcharge by contending that the entire overcharge was absorbed at that particular level in the chain.” Id . at 737. This creates the need for either statut ory interpleader under 28 U.S.C. § 1335 or compulsory joinder under Rule 19(a). See id . at 738. And such efforts would create as many problems as they would solve. See id . at 738-41. But here, we have no such legal complex ities. In all likelihood, the full extent of this litigation will be a class-action suit by Plaintiffs against American Cyanamid. That is it. Plaintiffs do not want to jo in the dealers, and Am erican Cyanamid will have no incentive to bring the dealers in because it cannot seek contribution. See Texas Indus. Inc., v. Rad cliff Materials, Inc. , 451 U.S. 630 (1981) (holding no right of contribution under Clayton and Sherman Acts ). Also, suits, if any, by the dealers against American Cyanamid (which seem unlikely) 8 could be handled separately as9 ”the damage criteria are quite distinct and not overlapping for the dealer and the consumer.” 7 Phillip E. Areeda, Antitrust Law 183 (1986). Today’s vacation of the district court’ s decision to dismiss makes no new law. The inapplicability of Illinois Brick to vertical conspiracies with no allegations of pass-on (what some have called the “verti cal conspiracy exception”) has long been recognized. See Shamrock Foods , 729 F.2d at 1211-13; Fontana Aviation, Inc. v. Cesna Aircraft Co. , 617 F.2d 478, 480-82 (7 thCir. 1980); Mid-Atlantic Toyota , 516 F. Supp. at 1294-96; Reite r v. Sonotone Corp. , 486 F. Supp. 115, 119-21 (D. Minn. 1980); Gas-A-Tron v. American Oil Co. , 1977 WL 1519, at *2-3 (D. Ariz. 1977); Areeda, supra , at 182 (“[O]ther courts have co rrectly seen that Illinois Brick has no bearing on [vertical price fixing.]”); Herb ert Hovenkamp, Commentary, The IndirectPurchaser Rule and Cost-Plus Sales , 103 Harv. L. Rev. 1717, 1719 (1990) (“Some courts . . . have held that Illinois Brick will not bar an indirect -purchaser action if . . . the dealer itself particip ated in the conspiracy.”). And the facts of the cases cited by Ameri can Cyanamid are materially different. In In re Beef , upon which American Cyanamid re lies most heavily, the complaint alleged a horizontal conspiracy between 25 retail food chains. On appeal, the plaintiffs (cattlemen, ranchers and feeders) al so said that the district court erred in not10 allowing them to amend their complaint to allege a vertical conspiracy between the retail chains and the middlemen (meat packers and slaughterhouses). The district court’s refusal to allow amendments--a decision that is reviewed only for abuse of discretion--was upheld on the basis of undue delay on the plaintiffs’ part in moving to amend. “A bsent any apparent justifica tion for this delay, we cannot hold that the district court abused its discretion.” In re Beef , 600 F.2d at 1162. We went on to say that the decision not allowing amendments was “supportable” on grounds of futility as well; in that para graph, we observed that the proposed amendments did not fit the “control” exception to Illinois Brick . Then we added another paragraph in which we said that we did not “think” th at the allegation of vertical conspiracy in In re Beef would get around Illinois Brick and its prohibition against double liability. In context, the discussion of Illinois Brick looks like dicta, given that the standard of review was abuse of discretion and that the In re Beef court had already decided to affirm the denial of the amendm ents. But even supposing that the Illinois Brick paragraph is binding in materially sim ilar cases, it would have no impact here, because here--unlike In re Beef --there is no allegation of both a vertical conspiracy as well as a horizontal conspiracy one step removed from the plaintiffs. Put another way, In re Beef is consistent with the rule we announce toda y. Not every vertical11 conspiracy allegation will get around the Illinois Brick doctrine. An alleged vertical conspiracy on top of a horizontal conspi racy--like the situation in In re Beef --does not, as the plaintiffs in In re Beef had hoped, “save” the overall conspiracy claims. Instead, the Illinois Brickdoctrine might apply even more strongly in a case like In re Beef

. Illinois Brick is not some formulaic “remoten ess” doctrine wherein a plaintiff who proves he purchased from a cons piring party--any c onspiring party-- automatically escapes the Illinois Brick bar. Instead, Illinois Brick is a decision based on avoiding risks; and the same risks that we re inherent in a garden-variety horizontal conspiracy case with pass-on apply to a case like In re Beef : the risks of (1) double liability; and (2) economic and legal complexity. The difference between In re Beef and the ordinary horizontal c onspiracy is that In re Beef takes all the same risks of the typical horizontal conspiracy and com pounds them by including another conspiracy (the vertical one) with a separate set of proofs and a separate set of problems. Second, Austin v. Blue Cross & Blue Shield , 903 F.2d 1385 (11 thCir. 1990), is not on point either. That case involve d non-Blue Cross patients suing Blue Cross for overcharging by hospitals. The plaintif fs did not allege vertical price-fixing between Blue Cross and the hospitals for non-Blue Cross patients; Blue Cross was not even in the plaintiffs’ chain of distribution. The plaintiffs only alleged that Blue Cross12 had a special deal with the hospitals for Blue Cross patients. Id. Because of what was, in effect, a lower rate charged to these patients, the hospitals--the plaintiffs alleged--shifted the costs on to their non-Blue Cross patients. Id. The Austin opinion set out several explanations for the court’s decision that the non-Blue Cross patients lacked standi ng to maintain the lawsuit. See id. at 1393. At least two of those reasons were independent of the others. See id. at 1389 (observing that, apart from Illinois Brick , “[b]oth causation and antitrus t injury[, which were not proved,] are essential elements of an titrust standing.”). The Illinois Brick reasoning was therefore likely not critical to the decisi on in the case. More over, “[t]here is, of course, an important difference between the holding in a case and the reasoning that supports that holding.” Crawford-El v. Britton , 118 S. Ct. 1584, 1590 (1998). But, even faithfully adhering to the Illinois Brick section of the Austinopinion, we cannot say that it contradi cts today’s decision. To th e contrary, it too fits within the rule announced today: Illinois Brick does not apply to a single vertical conspiracy where the plaintiff has purchased directly from a conspiring party in the chain of distribution. We can accept that Illinois Brick prohibited the non-Blue Cross plaintiffs in Austin from suing Blue Cross directly wh en the claims are purely derivative through the hospitals’ alleged “cost-shifting.” Those facts are not the facts of this13 case, however: Plaintiffs’ claims are not deri vative or reliant on cost-shifting theories. The claims are directly against a conspi ring party in the chain of distribution. Moreover, In re Brand Name Presc ription Drugs Antitrust Litigation , 123 F.3d 599 (7 thCir. 1997), and Kansas v. Utilicorp United, Inc. , 497 U.S. 199 (1990), do not bear on our decision. Fi rst, In re Brand Name is distinguishable for the same reasons as Austinand In re Beef . Second, that the Supreme Cour t refused to carve out another exception to the Illinois Brick doctrine in Utilicorp --a case where the facts seemed ripe for an exception--is unremarkable. Plaintiffs here, unlike in Utilicorp , are not looking for an exception to Illinois Brick based on the facts of a particular market; Illinois Brick simply does not apply to this kind of conspiracy.

Conclusion

We conclude that Illinois Brick is inapplicable to the present case where the complaint alleges a vertical conspiracy w ith no pass-on. In su ch a case, Plaintiffs have standing to assert a claim against Am erican Cyanamid directly under the antitrust laws. The district court decision to dismi ss the complaint must be vacated. The case is remanded for further proceedings. VACATED AND REMANDED.14