Investors Corp. of Vermont v. Bayer AG, No. 1011-04 Cncv (Norton, J., June 1, 2005)

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STATE OF VERMONT Chittenden County, ss.:

INVESTORS CORPORATION OF VERMONT

v.

BAYER AG, ET AL.

ENTRY This matter concerns allegations of unfair trade p ractices. The plaintiff, Investors Corporation of Vermont, has sued the defendants for allegedly restraining trade of Ethylene Propylene Diene Monomer (EPDM), a componen t of Ethylene-propylene elastomers, which are the third-most common forms o f synthetic rubber in the world. Investors Corporation seeks to form a class of all Vermont persons or business entities that indirectly purchased EPDM from the defendants from January 1994 through December 2002. Investors Corporation claims violati ons of 9 V.S.A. §§ 2453, 2465 (Vermont antitrust law) and 9 V.S.A. §§ 2543, 2461 (Vermont consumer fraud law), as well as unjust enrichment.

The defendants move to dismiss pursuant to V.R.C.P . 12(b)(6) for failure to state a claim upon which relief can be granted. The defenda nts argue that damages are too speculative given that the putative class of plaint iffs are mere indirect purchasers of downstream products, of which EPDM formed only a co mponent part. In essence, the defendants’ argument is that the putative class lac ks standing under the Vermont antitrust
and consumer fraud law.In the alternative, the defendants request that th is court stay this action pending

resolution of a federal action by direct purchasers of EPDM. This federal action has been
consolidated in the U.S. District Court for the Dis trict of Connecticut. See In re Ethylene Propylene Diene Monomer (EPDM) Antitrust Litig. , 277 F. Supp. 2d 1373, 1373 (2003).

The defendants argue that such a stay is warranted given the Vermont statute’s directive that courts “take all necessary steps to avoid dupl icate liability, including but not limited
to the transfer or consolidation of all related act ions.” 9 V.S.A. § 2465(b).

A Rule 12(b)(6) motion “should not be granted unle ss it is beyond doubt ‘that
there exist no facts or circumstances that would en title the plaintiff to relief.’” Richards v.
Town of Norwich , 169 Vt. 44, 48 (quoting Amiot v. Ames , 166 Vt. 288, 291 (1997)). The court “assumes that all factual allegations pleaded in the complaint are true . . . accept[ing] as true all reasonable inferences that may be derived from plaintiff’s pleadings.” Id . at 49. “A court should be ‘especially reluctant t o dismiss’ a cause of action on the basis of the pleadings when the theor y of liability is novel or extreme unless, ‘beyond doubt , there [are] no circumstances or facts which plaintiff[] could pro ve which would entitle [her] to relief.’” In re Judici al Review of A.G. , 151 Vt. 167, 169 (1989) (quoting Assoc. of Haystack Property Owners, Inc. v. Sprague , 145 Vt. 443, 446– 47 (1985)) (second and third alterations in origina l).

The Vermont Consumer Fraud Act provides broad reme dies for consumers injured by unfair trade practices and antitrust violations. “The Act expressly states that any consumer, reinforced by the definition of consumer as ‘any person,’ who suffers injury may bring an action under the statute against a ‘se ller, solicitor or other violator .’” Elkins v. Microsoft Corp. , 174 Vt. 328, 331 (2002) (quoting 9 V.S.A. §§ 2453 (a), 2461(b)). Moreover, “the express legislative intent behind th e statute [is] to ‘protect the public’ against ‘unfair or deceptive acts or practices’ and to ‘encourage fair and honest competition.’” Id . (quoting 9 V.S.A. § 2451). “In light of this purp ose, . . . the VCFA is
‘remedial in nature’ and therefore must be construe d ‘liberally so as to furnish all the remedy and all the purposes intended.’” Id . (quoting State v. Custom Pools , 150 Vt. 533, 536 (1988)). “Of course, liberal construction does not allow [courts] to stretch the language beyond legislative intent.” Id

. In a recent ruling, this court held that a putativ e class of consumers did not have antitrust standing to sue Visa and Mastercard for a lleged injuries they incurred by3

purchasing items from merchants who used financial services from these institutions. See Fucile v. Visa U.S.A., Inc. , No. S5160-03 CnC, 2004 WL 3030037 (Dec. 27, 2004) (Norton, J.). Visa and Mastercard had settled a mul tidistrict class action from merchants who alleged that the defendants had tied debit card services with credit card services in
violation of federal antitrust law. See id . at *1 (citing In re Visa Check/Mastermoney Antitrust Litig. , 297 F. Supp. 2d 503 (E.D.N.Y. 2003)). The plainti ff, Fucile, argued that
the inflated costs of these financial services were passed along to consumers by merchants who used them. In dismissing this complai nt, this court adopted the antitrust standing principles articulated in Associated Gener al Contractors v. Calif. State Council of Carpenters , 459 U.S. 519 (1983), at least to the extent that these principles were consistent with Vermont law, which, unlike federal law, allows indirect purchaser suits. Applying the Associated General Contractors factors, this court held that Fucile’s injury was too attenuated and remote from the alleged anti trust violation and his damages were too speculative. Fucile at *4–5. Fucile therefore lacked antitrust standin g.
Here, Investors Corporation stands in a different posture than Fucile. Unlike Fucile, Investors Corporation and the putative clas s purchased the item allegedly affected by the defendant’s actions (i.e., EPDM), albeit in varied forms as a component of Ethylene-propylene elastomers. According to the com plaint, EPDM comprises 80 to 85 percent of Ethylene-propylene elastomers. Financial services, by contrast, are not components of common consumer goods, except, perhap s, in an extraordinarily abstract sense. Given that EPDM is a significant component o f the product that putative class members purchased, the injury in this case is not a s attenuated and remote and the damages are not as speculative.

As this court stated in Fucile , the relevant factors from Associated General
Contractors are (1) whether there is a causal connection betwe en the antitrust violation and the alleged harm, 459 U.S. at 537; (2) the dire ctness of the injury, considering the “chain of causation,” id . at 540; (3) whether the violator had an improper motive, id . at 537 and n.35; (4) whether the plaintiff’s injury wa s of a type that Congress sought to redress by providing a private remedy, id . at 538; (5) whether the alleged damages are speculative, id . at 542; and (6) whether the nature of the action will keep “the scope of complex antitrust trials within judicially manageab le limits,” id . at 543.

Applying these factors to the instant case, there first exists a causal connection between the defendants’ alleged price fixing and th e putative class’s injury. Because4

EPDM is a significant component part of the finishe d rubber products at issue, an increase in its price could have a ripple affect in the finished products, thereby increasing prices for the ultimate consumers.

The defendants argue that there are countless othe r inputs that determine the ultimate price of Ethylene-propylene elastomers, su ch as different marketing by thirdparty sellers, different forms of distribution, and different types of manufacturing. These multiple variables, the defendants argue, render in jury and damages impossibly speculative, and therefore the causal chain cannot be established. This may or may not be true, and other courts have expressed strong concer ns about stretching antitrust law to cover damages in cases like these. See, e.g., Crouc h v. Crompton Corp. , Nos. 02 CVS 4375, 03 CVS 2514, 2004 WL 2414027, *18–25, 2004 NC BC 7, ¶¶ 71–86 (N.C. Super. Ct. 2004) (analyzing complexity and costliness of a djudicating antitrust case based on rubber compounds and chemicals that form component of tire products at issue). 1 Indeed,
the court in Crouch noted, citing a plea agreement from Canada, that a t least in the case of tires, rubber compounds and chemicals form a mer e 1 percent of the ultimate price of the finished product. Id . at *20–21, 2004 NCBC 7, ¶ 76 (citing The Queen v. Crompton Corp. [2004] F.C. ----).

Such facts, however, are far afield Rule 12(b)(6) motion analysis. The court will be better suited to assess whether Investors Corpor ation will be able to prove causation based on the alleged antitrust violation at the cla ss certification and summary judgment stages. At this point in the proceeding, however, t he court is not confident in holding that Investors Corporation lacks an ability to show caus ation. See Knevelbaard Dairies v. Kraft Foods, Inc. , 232 F.3d 979, 989 (9th Cir. 2000) (holding that “ disputed claims of causation and injury cannot be decided on a Rule 12 (b)(6) motion”). Hence, factors one and two weigh in favor of standing.

1 Of course, the court’s concerns in Crouch were partially based on the lack of express statutory indirect purchaser standing in North Caro lina or any definitive ruling by the North Carolina Supreme Court on indirect purchaser standi ng. Id . at *10–12, 2004 NCBC 7, ¶¶ 46– 50. This is not the case in Vermont. See 9 V.S.A. § 2465(b); Elkins , 174 Vt. at 337–38 (holding that § 2465(b) was mere clarification and Vermont consumer fraud law has always allowed indirect purchaser suits).5

Second, the court can infer an improper motive bas ed on Investors Corporation’s allegations. The alleged price-fixing was a conspir acy throughout U.S. and European markets, evidenced by coordinated price hikes close in time and amount. Investors Corporation alleges that defendants met during the class period; discussed prices, customers, and markets; agreed to charge prices at certain levels; issued price announcements in conformance with these agreements; and allocated markets and customers in accordance with these agreements. One defendant, Crompton Corporation, has pleaded guilty to violating antitrust laws, and others have been contacted by antitrust authorities. These facts are enough to infer that t he defendants had an improper motive to injure consumers like Investors Corporation and tho se in the putative class by allegedly fixing prices at artificially high levels. See Sull ivan v. Tagliabue , 828 F. Supp. 114, 117 (D. Mass. 1993) (finding sufficient evidence to rai se issue as to improper motive where plaintiff alleged that defendant sought to restrain and monopolize commerce and took action toward that goal). The third factor therefor e weighs in favor of standing for Investors Corporation.

Third, the injury that Investors Corporation and t he putative class suffered appears to be within the type of injury that the Legislatur e intended to address through the
Vermont antitrust and consumer fraud law. If Invest ors Corporation can demonstrate that the increased EPDM prices affected the price of the goods purchased, then it will have established the type of injury to indirect purchase rs that the Legislature intended to remedy by allowing indirect purchaser suits. The fo urth factor weighs in favor of standing for Investors Corporation.

Finally, as the court noted above, the damages may be somewhat speculative, and this weighs slightly against standing. But the cour t is not confident at this stage that Investors Corporation will not be able to employ ec onomic models to assess how the price of EPDM affected the price of downstream prod ucts. As the U.S. Court of Appeals for the Ninth Circuit has recognized, “Complex anti trust cases . . . invariably involve complicated questions of causation and damages.” Fo rsyth v. Humana, Inc. , 114 F.3d 1467, 1478 (9th Cir. 1997). This case will likely p rove to be no exception, but that is not reason enough to dismiss for lack of standing.

Considering this analysis, the court holds that In vestors Corporation has standing to bring this antitrust and consumer fraud action. At the same time, however, the court does not wish to enunciate a bright-line rule regar ding antitrust standing. As the Supreme6

Court of the United States noted in Associated Gene ral Contractors , standing determinations must ultimately rest on case-by-case analyses. 459 U.S. at 536–37 (1983). The court does not wish to suggest that in all case s where a product affected by anticompetitive behavior is a component of a finished p roduct, antitrust standing exists for the consumer of the finished product. There may wel l be cases where products form such an minuscule portion of the finished product that a ntitrust standing is lacking. Indeed, in an abstract and theoretical way, the financial serv ices in Fucile were part of the consumer goods at issue in that these goods could not have u ltimately fallen into the hands of all paying consumers without the transactional means th at were affected by price fixing. But
even if the court were to consider such transaction al means to be a part of the consumer goods as EPDM is to finished rubber products, they form an entirely less significant portion of the consumer goods. Transactional means of acquiring goods, therefore, cannot provide grounds for standing to sue the entities th at provided them.

The defendants also argue that Investors Corporati on lacks standing to bring an unjust enrichment claim because Investors Corporati on and members of the putative class did not directly confer any benefit to the defendan ts. Vermont law does not require that the enrichment be directly conferred from one party to another in order for the latter party to have a colorable claim for unjust enrichment. “U nder a quasi-contract theory of unjust enrichment, the law implies a promise to pay when a party receives a benefit and retention of the benefit would be inequitable.” Bro okside Memorials, Inc. v. Barre City

, 167 Vt. 558, 559 (1997) (mem.).

As with the antitrust and consumer fraud claims, t he link between purchases by Investors Corporation and the putative class and be nefits to the defendants may be tenuous, but it is still properly alleged in the co mplaint. Moreover, because of the alleged antitrust and consumer fraud activities, it would b e inequitable for the defendants to retain these benefits. Investors Corporation has th erefore stated a valid unjust enrichment claim. The fact that Investors Corporation and the putative class did not deal directly with the defendants is not relevant, as long as the elem ents for unjust enrichment are pleaded. See In re K-Dur Antitrust Litig. , 338 F. Supp. 2d 517, 544–45 (D.N.J. 2004); In re Cardizem CD Antitrust Litig. , 105 F. Supp. 2d 618, 670–71 (E.D. Mich. 2000).

Finally, the defendants argue in the alternative t hat the court should stay this action pending resolution of the federal direct pur chaser action, contending that the
Vermont Consumer Fraud Act’s instruction that court s “take all necessary steps to avoid7

duplicate liability” suggests that a stay is approp riate. Antitrust law in the United States has an inherent problem of duplicate liability. Fed eral courts do not allow antitrust defendants to use a pass-on defense to show that th e damages from anticompetitive behavior were ultimately absorbed by downstream pur chasers. See Illinois Brick Co. v.
Illinois , 431 U.S. 720, 724–26 (1977). At the same time (an d as a result of the no pass-on defense rule), federal courts also do not allow ant itrust suits by indirect purchasers. See
id . at 730–35. Therefore, defendants in federal court are liable for all damages, even if a plaintiff was able to relay the costs of anticompet itive activities to downstream consumers. Most states, including Vermont, however, have passed “Illinois Brick Repealer” laws, allowing indirect purchasers to rec over for injuries related to antitrust violations. Donald I. Baker, Federalism and Futilit y: Hitting the Potholes on the Illinois
Brick Road , 17-Fall Antitrust 14, 14 (2002). Because most sta te indirect purchaser antitrust actions stem from federal direct purchase r actions, see Ronald W. Davis, Indirect Purchaser Litigation: ARC America’s Chicke ns Come Home to Roost on the
Illinois Brick Wall , 65 Antitrust L.J. 375, 376 (1997), damages will i nevitably be assessed twice against an antitrust defendant: once by the direct purchasers for all damages, even those passed along down the distribut ion chain, and then again by the indirect purchasers for whatever damages were actua lly passed along the distribution
chain. Id . at 397–98; Baker, supra , at 16–17; see also Crouch v. Crompton Corp. , Nos. 02 CVS 4375, 03 CVS 2514, 2004 WL 2414027, *15–17, 200 4 NCBC 7, ¶¶ 60–65 (N.C. Super. Ct. 2004) (discussing North Carolina cases t riggered by events on federal level).

At first glance, the provision cited by the defend ants would seem to combat this double recovery problem. But the very allowance of indirect purchaser antitrust suits gives rise to duplicate liability in the sense desc ribed above. Even if the court were to stay this action and await final resolution of the federal action, Investors Corporation and the putative class would still have a right to reco ver for injuries passed along to them from the direct purchasers under Vermont’s statutor y scheme.

A more reasonable interpretation of the “all neces sary steps” provision is that the legislature intended consolidation of cases within Vermont to avoid overlapping damages to various classes. Indeed, the “steps” that the le gislature identified included “transfer or consolidation of all related actions.” 9 V.S.A. § 2 465(b). Such steps would not address the duplicate liability that occurs with both feder al direct purchaser and state indirect purchaser suits.8

The court also notes that it could find no other s tate Illinois Brick repealer laws requiring stays in a case such as the instant actio n. Several state statutes include similar language, see, e.g., 740 Ill. Comp. Stat. 10/7-2 (“ [I]n any case in which claims are asserted against a defendant by both direct and ind irect purchasers, the court shall take all steps necessary to avoid duplicate liability for the same injury including transfer and

consolidation of all actions. ”); Minn. Stat. § 325D.57 (“In any subsequent actio n arising from the same conduct, the court may take any steps necessary to avoid duplicative recovery against a defendant.”); N.Y. Gen. Bus. Law § 340(6) (“In any action in which claims are asserted against a defendant by both dir ect and indirect purchasers, the court shall take all necessary steps to avoid duplicate l iability including but not limited to the

transfer and consolidation of all related actions. ”); S.D. Codified Laws § 37-1-33 (“In any subsequent action arising from the same conduct, th e court may take any steps necessary to avoid duplicative recovery against a defendant.” ), but state courts have not defined these provisions to require stays in circumstances like those in this case.

The court could find only one statute that express ly warrants stays pending resolution of out-of-state direct purchaser litigat ion, but such stays are only authorized where indirect purchasers have obtained a judgment or settlement “prior to the completion of a direct purchaser’s action.” Haw. St at. Ann. § 480-13(c)(7). Hawaiian courts are required to delay disbursement of damage awards to indirect purchasers until the direct purchasers’ suits are resolved, the stat ute of limitations has run, or “in such a manner that will minimize duplication of damages to the extent reasonable and practicable.” Id . Even this statute seems to recognize that duplica tion of damages will occur; it simply attempts to minimize such duplicat ion. These statutes provide little guidance, but they do not support the issuance of s tay in this action.

The defendants cite Asher v. Abbott Labs. , 307 A.D.2d 211, 212, 763 N.Y.S.2d 555, 556 (N.Y. App. Div. 1998), in support of a sta y pending a federal action. This court’s reasoning in this case, however, had nothin g to do with New York’s statutory mandate that courts “take all necessary steps to av oid duplicate liability” in state antitrust cases. Rather, the appellate court merely held that interests of “comity, orderly procedure, and judicial economy” required a stay pending the c onclusion of the federal action, particularly where “the federal action commenced fi rst and discovery [had] been completed.” Id . at 211; 763 N.Y.S.2d at 556.9

The court is similarly inclined to abide by the go als of comity, orderly procedure, and judicial economy, but the defendants have provi ded little argument that a stay in this case would serve these goals. Although the multidis trict action in federal court is off to a head start, its discovery may not encompass the sam e areas necessary in this case, especially because injury here, if any, will involv e costs passed down a distribution chain. Federal direct purchaser suits do not delve into su ch matters. The court therefore sees no need to halt this action only to have to engage in discovery anyway after the federal
action concludes.

Moreover, issuing a stay and delaying a recovery f or Investors Corporation and the putative class potentially for years would be c ontrary to the broad remedial purpose of
the Vermont Consumer Fraud Act. As the court noted above, “the [Vermont Consumer Fraud Act] is ‘remedial in nature’ and therefore mu st be construed ‘liberally so as to furnish all the remedy and all the purposes intende d.’” Elkins v. Microsoft Corp. , 174 Vt. 328, 331 (2002) (quoting State v. Custom Pools , 150 Vt. 533, 536 (1988)). A stay would not conform with this statutory purpose.

ORDER
For the foregoing reasons, the defendants motion t o dismiss and alternative motion for a stay are DENIED.

Dated at Burlington, Vermont, June 1, 2005.

_________/s/_______________ Richard W. Norton Judge