Of the Seventh Circuit, sitting by designation. *

United States Court of Appeals

For the First Circuit

No. 07-1990

IN RE: NEW MOTOR VEHICLES 

CANADIAN EXPORT ANTITRUST LITIGATION,

BARRY COHEN; SARAH EPSTEIN; PHINEAS A. ADLER,

Plaintiffs,

SURI SKORSKI; ELI ELBAZ; SEAN GREGOR AND ASSOC., CO., L.P.A.,

Plaintiffs, Appellants,

v.

GENERAL MOTORS CORPORATION; FORD MOTOR COMPANY; AMERICAN HONDA

MOTOR COMPANY INC.; DAIMLERCHRYSLER CORPORATION; DAIMLERCHRYSLER

MOTORS CO., LLC; MERCEDES-BENZ USA, LLC; GMAC LLC;

DAIMLERCHRYSLER FINANCIAL SERVICES AMERICAS LLC,

Defendants, Appellees,

NATIONAL AUTOMOBILE DEALERS ASSOCIATION; BASS FINEBURG LEASING

INC.; GENERAL MOTORS ACCEPTANCE CORP.,

Defendants.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MAINE

[Hon. D. Brock Hornby, U.S. District Judge]

Before

 Lynch, Chief Judge,

Cudahy, Senior Circuit Judge, *

and Torruella, Circuit Judge.
Mark Schlachet for appellants.

William J. Kayatta, Jr., with whom Clifford H. Ruprecht,

Pierce Atwood LLP, James C. Egan, Jr., Kirsten A. Lockhart,

Carrie M. Anderson, and Weil Gotshal & Manges were on brief for

appellees Chrysler LLC, Chrysler Motors LLC, DaimlerChrysler

Financial Services Americas LLC, and Mercedes-Benz USA, LLC.

John H. Rich III, Perkins & Thompson, P.A., Robert A. Van

Nest, Ragesh K. Tangri, Rachael E. Meny, Daniel Purcell, and

Keker & Van Nest, LLP were on brief for appellee American Honda

Motor Co., Inc.

Margaret M. Zwisler, William R. Sherman, and Latham &

Watkins LLP were on brief for appellee Ford Motor Company.

Richard C. Godfrey, David J. Zott, Daniel E. Laytin, and

Kirkland & Ellis LLP were on brief for appellees General Motors

Corp. and GMAC LLC.

June 30, 2008
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LYNCH, Chief Judge. Plaintiffs, lessees of new cars

produced by defendant manufacturers, appeal the dismissal of their

putative class action lawsuit in which they seek antitrust damages

under section 1 of the Sherman Act, 15 U.S.C. § 1, and section 4 of

the Clayton Act, 15 U.S.C. § 15. See In re New Motor Vehicles

Canadian Exp. Antitrust Litig. (Motor Vehicles II), 490 F. Supp. 2d

13 (D. Me. 2007). Plaintiffs allege that defendant manufacturers

conspired to restrict the flow of cheaper Canadian cars into the

U.S. market (when the U.S. dollar enjoyed a favorable exchange

rate), resulting in artificially high rental payments under

plaintiffs' lease agreements in the United States. Because

plaintiffs are indirect purchasers, they lack standing to sue under

section 4 of the Clayton Act and their suit was correctly dismissed

under the rule of Illinois Brick Co. v. Illinois, 431 U.S. 720

(1977), and Kansas v. UtiliCorp United, Inc., 497 U.S. 199 (1990).

I.

This case arises out of the same multi-district

litigation ("MDL") as another case recently before this court. See

In re New Motor Vehicles Canadian Exp. Antitrust Litig. (Motor

Vehicles III), 522 F.3d 6 (1st Cir. 2008), from which the

background facts can be gleaned. See id. at 9-11. 

Briefly, appellants assert that Canadian and U.S. car

manufacturers conspired to prevent cheaper Canadian cars from

entering the U.S. market during a time when the U.S. dollar was
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much stronger than the Canadian dollar (roughly 2001 to 2003).

This allegedly allowed the manufacturers and their captive leasing

companies, two of which are also named as defendants, to maintain

artificially high prices for new cars in the United States.

The district court held in an earlier decision that a

putative MDL plaintiff class containing both purchasers and lessees

of new cars could not seek antitrust damages under federal law

because they were indirect purchasers under the rule of Illinois

Brick. In re New Motor Vehicles Canadian Exp. Antitrust Litig.

(Motor Vehicles I), 307 F. Supp. 2d 136, 137 (D. Me. 2004). At

that time, the district court noted that future plaintiffs could

potentially avoid the Illinois Brick bar by "join[ing] as named

defendants the dealers from whom they purchased or leased and

prov[ing] that those dealers joined in the conspiracy." Id. In

the cases now before us (which were more recently transferred from

Ohio to the district court), plaintiffs are all lessees, not

purchasers. They rely on that distinction in an attempt to

circumvent the Illinois Brick hurdle. The district court found

this effort unavailing and dismissed their claim, holding that they

were also indirect purchasers. Motor Vehicles II, 490 F. Supp. 2d

at 17.

Our review of dismissals under Rule 12(b)(6) is de novo.

Morales-Tañon v. P.R. Elec. Power Auth., 524 F.3d 15, 18 (1st Cir.

2008). We describe the Supreme Court law on indirect purchasers
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before turning to the mechanics of automobile leasing arrangements

and their implications for plaintiffs' standing to sue under the

Clayton Act. The plaintiffs rely heavily on an inapposite district

court opinion and also attempt to recharacterize what they pled in

their complaint. Both efforts fail.

II.

In Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392

U.S. 481 (1968), a manufacturer sued United Shoe, the lessor of its

manufacturing equipment, under section 4 of the Clayton Act.

United Shoe, in turn, asserted a "passing-on" defense, arguing that

Hanover Shoe would have passed some of the alleged overcharge on to

its customers and thus should not be allowed to recover the full

amount of the antitrust injury. Id. at 487-88. The Court rejected

that argument because of the impracticality of apportioning the

damages between direct purchasers (like Hanover Shoe) and any

subsequent, "indirect" purchasers (like Hanover Shoe's customers).

Id. at 492-93. The Court also articulated a concern that allowing

apportionment would dilute the incentive for any one plaintiff to

bring suit, weakening the effectiveness of private antitrust

enforcement under section 4. Id. at 494.

The Court reaffirmed this rule in Illinois Brick and

expanded it to cover plaintiffs as well: if defendants could not

rely on passing-on defenses, purchasers could not seek to recover

when their injury depended upon passing-on theories. Ill. Brick,
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431 U.S. at 735, 737. In other words, indirect purchasers cannot

recover damages under section 4 of the Clayton Act. This brightline rule was necessary, the Court reasoned, to prevent multiple

recoveries (by both direct and indirect purchasers) and to avoid

the complexity and difficulty of apportioning damages. Id. at 730-

32, 737. While recognizing that "these difficulties and

uncertainties will be less substantial in some contexts than in

others," the Court refused to create exceptions to the rule for

particular types of markets. Id. at 743-44.

UtiliCorp put teeth into the Court's refusal to carve out

exceptions to the Illinois Brick rule. Confronted by a situation

where plaintiffs alleged that the direct purchaser would pass all

of the illegal overcharge on to its consumers, the Court still

refused to allow the indirect purchasers to seek antitrust damages.

UtiliCorp, 497 U.S. at 208. The Court determined that assuming a

complete passing-on by the direct purchaser was inappropriate

because a direct purchaser could potentially have raised prices

irrespective of the overcharge. Id. at 209-10. The Court also

pointed out other ways in which the direct purchaser could be hurt

by the antitrust activity, such as by a delay in implementing the

price increases. See id. at 210. Further, the UtiliCorp

litigation itself demonstrated that determining when an Illinois

Brick exception is truly justified would generate the type of

complicated and costly litigation that the Illinois Brick rule was
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meant to avoid. Id. at 216-17. For this reason, the Court

concluded, "even assuming that any economic assumptions underlying

the Illinois Brick rule might be disproved in a specific case, we

think it an unwarranted and counterproductive exercise to litigate

a series of exceptions." Id. at 217.

III.

Given this bright-line rule, plaintiffs' case depends on

establishing that they are direct rather than indirect purchasers.

Plaintiffs assert vigorously that their case is almost identical to

that of In re Mercedes-Benz Antitrust Litigation, 364 F. Supp. 2d

468 (D.N.J. 2005), in which the district court declined to dismiss

a class action brought by lessees against a car manufacturer and

its dealers because the court determined that the lessees were

direct purchasers under Illinois Brick. Whether or not we would

reach the same conclusion as was reached in that case, it is easily

distinguishable. To understand why, one must understand the

mechanics of automobile leasing arrangements.

Generally in leasing arrangements, dealers buy the car

from the manufacturer, negotiate the purchase price and contract

terms directly with the lessee, and execute the lease. Id. at 472-

73. A leasing company then pays the full purchase price of the car

to the dealer in exchange for the lease, and thereafter the lessee

makes monthly payments to the leasing company. Id. at 473.
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The lessee does not deal directly with the leasing

company until after the lease is executed and the leasing company

has paid the purchase price to the dealer. Id. at 473, 481. While

leasing companies do set certain parameters for lease arrangements

depending on the brand and model of car, dealers maneuver around

the effects of those set rates by negotiating lower purchase

prices, adding options at no additional cost, or agreeing to allow

more than market value for a trade-in vehicle. Id. at 471-72.

There is thus "no substantive difference" between a negotiation for

the direct purchase of a car and the negotiation of a lease. Id.

at 474. 

In Mercedes-Benz, plaintiff-lessees alleged that a car

manufacturer (Mercedes-Benz) directly conspired with its dealers in

the greater New York City area to set the price of cars sold to

customers. Id. at 469. The defendants in that case included both

the manufacturer and individual dealers. Because plaintiffs

alleged a vertical conspiracy involving both the dealers and the

manufacturers, the court concluded that the dealers' customers were

direct purchasers and had standing to sue for antitrust injuries

under the Clayton Act. Id. at 482.

The court's concern in that case was the risk of double

recovery. Because leasing companies were paying the full

(inflated) purchase price of the cars to the defendant dealers,

they, too, could be considered direct purchasers. Id. at 478. The
Thus joining a few leasing companies, even if those 1

lessors were alleged to be part of the conspiracy, does not solve

the problem.

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Mercedes-Benz court concluded, however, that the lessees and the

leasing companies suffered distinct injuries -- higher monthly

payments for the use of the cars for lessees versus higher purchase

prices for the ownership of the cars for the leasing companies --

so that even if both sets of direct purchasers were to sue, they

would recover different damages. Id. at 480, 482; see also id. at

479 (discussing Blue Shield of Va. v. McCready, 457 U.S. 465, 475

(1982)).

There is a significant difference between Mercedes-Benz

and this case: plaintiffs here did not join dealers as defendants,

nor did they plead sufficiently or argue consistently that dealers

were part of the conspiracy. Instead, plaintiffs' complaints

describe a horizontal conspiracy among the manufacturers that

adversely affected dealers as well as the ultimate consumers.

Plaintiffs alleged in their complaints -- and repeat in their

appellate brief -- that because of the manufacturers' conspiracy,

dealers paid higher prices for their inventory. Because dealers

negotiate price and lease terms directly with lessees, any higher

prices paid by dealers to manufacturers would have trickled down

into the lease terms for plaintiff lessees; the leasing companies,

co-conspirators or not, had limited influence on the amount of the

lessees' monthly payments. The dealers in the case before us were 1
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the direct purchasers; they were "the immediate buyers from the

alleged antitrust violators," not the lessees. UtiliCorp, 497 U.S.

at 207.

Before this court, plaintiffs' arguments take on

qualities reminiscent of Lewis Carroll's Through the Looking Glass.

Plaintiffs try to re-frame their allegations as one of "vertical

conspiracy," claiming that "[t]he dealers did not pay an overcharge

to manufacturers and pass it on to the consumers" and that

"[c]onsumers do not claim that they suffered damage because the

dealers passed-on any anti-competitive pricing or other overcharges

from the wholesale to the retail level." This approach contradicts

their fact-pleading.

In their complaints, plaintiffs do refer at times to

dealers as members of the conspiracy, but these references were

primarily to Canadian dealers, not to the U.S. dealers who actually

negotiated the leases. More importantly, those passing and general

allusions are contradicted and outweighed by plaintiffs' clear

allegations in the complaints that dealers also paid higher prices

due to the conspiracy. Examples from their complaints include that

the defendant manufacturers "charged their dealers in the United

States 10-30% more for their motor vehicles than they charge[d]

their Canadian dealers," and, in the very first paragraph of both

complaints, that "dealers were charged noncompetitive prices by the

Automobile Companies and passed that extra charge to [plaintiffs]."
Plaintiffs claim that the district court accepted by 2

implication their motion to amend their complaint, made without any

further elaboration in a footnote in their response to defendants'

motion to dismiss. This argument is without merit.

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Plaintiffs try to distance themselves from their own

complaints by explaining that they copied the "passing-on" language

from the briefs of other MDL plaintiffs, but that explanation

carries no legal significance. What matters here is what

plaintiffs pled in their complaints, and the facts alleged in those

complaints contradict the existence of a vertical conspiracy. See,

e.g., Global NAPs, Inc. v. Fed. Ins. Co., 336 F.3d 59, 66 (1st Cir.

2003) ("[W]e cannot credit a theory of [recovery] that flatly

contradicts facts and assertions made explicit in the complaint.");

Carroll v. Xerox Corp., 294 F.3d 231, 242 (1st Cir. 2002)

(similar).2

Further, even were we to consider this argument, failure

to join the dealers in this case would risk duplicative recovery.

Any finding of a vertical conspiracy between manufacturers and

dealers in this case would not preclude the dealers from initiating

their own suit claiming that they were victims of the

manufacturers' conspiracy and seeking recovery as direct purchasers

under Illinois Brick. See P. Areeda et al., IIA Antitrust Law

¶ 346h, at 175-76 (3d ed. 2007); see also Motor Vehicles I, 307 F.

Supp. 2d at 141 & n.5.
Plaintiffs appear to confuse what they plead in their 3

complaints with what they argue in their briefs before this court

and the court below. As already noted, it is the fact-pleading in

the complaints that controls.

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In connection with their attempted recasting of their

claim as one of vertical conspiracy, plaintiffs compare their case

to other cases involving resale price maintenance theories, but to

no avail. Plaintiffs simply did not plead in their complaints that

manufacturers and dealers conspired to set the prices used in the

lease agreements between dealers and lessees. See Bell Atl. Corp.

v. Twombly, ___ U.S. ___, 127 S. Ct. 1955, 1965 (2007) (stating a

claim under section 1 of the Sherman Act, as plaintiffs attempt to

do here, "requires a complaint with enough factual matters (taken

as true) to suggest that an agreement was made"); cf. Leegin

Creative Leather Prods., Inc. v. PSKS, Inc., ___ U.S. ___, 127 S.

Ct. 2705, 2725 (2007) (refusing in a resale price maintenance case

to consider a horizontal conspiracy theory not alleged before the

lower courts).3

In trying a different tack, plaintiffs put too much

weight on the distinction drawn in Mercedes-Benz between use and

purchase. First, Mercedes-Benz is not binding authority on this

court, and we do not necessarily adopt that distinction. Second,

that distinction simply does not matter here. Both lessees and

lessors are indirect purchasers in this scenario. Whatever the

distinction between purchase and use, the cost of both is increased
Similarly, Mercedes-Benz does not suggest that there is 4

anything inherent about leasing arrangements that makes lessees'

alleged injuries distinct from the injuries of the dealers. For

example, plaintiffs are adamant that the dealers could not recover

duplicative damages because the dealers do not pay the overcharges

in the monthly lease payments, or because the dealers never paid

for the "use" of the cars. That, however, is equivalent to arguing

that a dealer who does not pay a purchaser's monthly car payments

has no claim for antitrust damages against the manufacturer that

overcharged the dealer for the car in the first place. These are

both indirect purchaser situations.

Plaintiffs did note before the district court that the 5

statute of limitations might have run on the dealers, but they did

not argue that its expiration had any legal significance, as they

attempt to do here.

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when the dealer's invoice price is increased, and the overcharge

allegedly suffered by lessees is at least in part due to these

higher costs imposed on the dealers.4

In a final effort to salvage their complaints, plaintiffs

argue that there is no risk of double recovery here because the

statute of limitations has run, barring the dealers from filing

their own suit against the manufacturers. There are many

problematic aspects to this assertion, but it suffices here simply

to point out that plaintiffs failed to raise this argument before

the district court and thus have waived it. Teamsters Local No. 5

59 v. Superline Transp. Co., 953 F.2d 17, 21 (1st Cir. 1992)

("[L]egal theories not raised squarely in the lower court cannot be

broached for the first time on appeal."). 

In sum, these complaints on their face do not allege a

scenario in which plaintiffs could be direct purchasers. See
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Morales-Tañon, 524 F.3d at 18 (to survive a Rule 12(b)(6) motion to

dismiss, a complaint must plead "more than labels and conclusions,"

and its factual allegations must be sufficient to "raise a right to

relief above the speculative level" (quoting Bell Atl., 127 S. Ct.

at 1965) (internal quotation marks omitted)).

IV.

Under the facts alleged, plaintiffs are indirect

purchasers under the rule of Illinois Brick. They have thus not

stated a claim for which relief can be granted. The order of

dismissal is affirmed.