Opinion ID: 903587
Heading Depth: 3
Heading Rank: 2

Heading: Evergreen's Allegations of Agreement

Text: The facts alleged in Evergreen's complaint go much further than the complaint at issue in Twombly, raising a plausible § 1 antitrust claim. While each of Evergreen's allegations of circumstantial agreement standing alone may not be sufficient to imply agreement, taken together, they provide a sufficient basis to plausibly contextualize the agreement necessary for pleading a § 1 claim. Unlike Twombly, Evergreen's complaint does not rely exclusively on parallel conduct, but alleges facts concerning when agreement occurred and providing circumstantial evidence to establish a setting to make agreement plausible. First, it specified the 2005-2006 PFPG meeting as the locus of agreement, further alleging that all defendants were members of PFPG, that two producer defendants dominant in the polystyrene lunch tray and cup production markets -- Pactiv and Dart -- put forward their position that recycling polystyrene products was not an option in the industry's battle with polystyrene critics, and Evergreen was the sole source for recycling polystyrene. Also, Pactiv and Dart are alleged to pay the majority of PFPG's yearly dues, and at this stage, one could infer that their prominent place in the organization would place -31- some pressure on other producer defendants to conform with their position on recycled polystyrene. Further support for agreement was alleged in defendants' parallel conduct following the PFPG meeting as well as their global failure to adopt Evergreen's closed-loop system. For example, the complaint alleges that: C Dolco abruptly withdrew its interest in producing for Evergreen's closed-loop system after the meeting; C Genpak and Pactiv both refused to work with Evergreen despite requests from their client, Southeastern Paper Group, that they do so; C Solo refused to work with Evergreen after it was asked by Eastern Bag & Paper to supply it with Poly-Sty-Recycle products, even though it had successfully tested Evergreen's PC-PSR; C Solo's President and CEO told the President of Eastern Bag & Paper that he had been told by his people not to work with Evergreen or Michael Forrest; C Pactiv refused to use PC-PSR with distributors for Compass, representing to Compass that polystyrene recycling was not economically feasible; C Pactiv induced Sodexo to cancel its contract with Evergreen; C Pactiv refused to work with Evergreen despite requests from Sysco and Eastern Bag & Paper to reconsider; C Genpak converted Pasco County's foam lunch trays from white to black, knowing that Evergreen could only recycle white resin, and did not convert other county trays from white to black; C Pactiv, Dart and the ACC promoted a sham competitor, PDR, known to be fraudulent, to force Evergreen to make higher bids for projects and to discredit polystyrene recycling; -32- C Pactiv, Dart and the ACC told their clients that polystyrene recycling was not economically feasible and published articles to that effect, despite, in Pactiv's case, their tests having revealed the opposite; C The ACC/PFPG and its members jointly agreed to refuse funding for Evergreen's California project. Evergreen's allegations regarding defendants' promotion of a sham competitor, if proven, would be particularly telling because the alleged conduct goes beyond rejecting a new entrant in favor of the benefits of the status quo. These allegations describe proactive destructive conduct, aimed directly at the success of Evergreen and polystyrene recycling generally, which is difficult to explain outside the context of a conspiracy. Finally, the complaint provided allegations setting forth circumstantial evidence to establish a context for plausible agreement in the form of industry information and facilitating practices. It alleged that the polystyrene food services industry is highly concentrated, with the five producer defendants controlling 90 percent of the market, and the success of Evergreen's business model depended on the participation of at least one of the producer defendants due to scale requirements of large school districts and institutional customers. See, e.g., In re Text Messaging, 630 F.3d at 627-28 (industry structure that facilitates collusion constitutes supporting evidence of collusion); E. Food Servs., Inc. v. Pontifical Catholic Univ. Servs. Ass'n, 357 F.3d 1, 8 (1st Cir. 2004) (The best example of -33- a possible threat to competition exists where a market is already heavily concentrated and long-term exclusive dealing contracts at either the supplier or distribution end foreclose so large a percentage of the available supply or outlets that entry into the concentrated market is unreasonably constricted.); Todd v. Exxon Corp., 275 F.3d 191, 208 (2d Cir. 2001) (Generally speaking, the possibility of anticompetitive collusive practices is most realistic in concentrated industries.). The complaint further stated that defendants' conduct resulted in anticompetitive effects because innovation in the market for the development and sale of cost-effective and environmentally conscious polystyrene food service products with post-consumer recycled content will continue to be artificially restrained. See Atari Games Corp. v. Nintendo of Am., Inc., 897 F.2d 1572, 1576 (Fed. Cir. 1990) (noting that the antitrust laws are aimed at encouraging innovation); Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law, ¶ 2115b1, at 115 (3d ed. 2008) (while not construed as naked restraints, agreements between firms engaged in joint innovation not to innovate in the same area outside the context of the joint venture are to be regarded as ancillary . . . and are thus subject to the usual proof of power and anticompetitive effects.). It also alleged that the producer defendants were comfortable with the status quo because each of -34- them was dominant in its respective niche of the polystyrene industry. Additionally, the complaint points to the producer defendants' membership in the PFPG as a facilitating practice as well as the ACC/PFPG's use of a joint e-mail, including the member producer defendants, in the organization's correspondence with Evergreen wherein ACC/PFPG denied Evergreen's request for funding.4 Such exchanges may serve as practices facilitating collusion as they provide a basis for notifying alleged members of the 4 Defendants argue that Evergreen's complaint failed to allege any facts that the ACC acted as an independent entity in the alleged boycott, and, therefore, it cannot be liable under § 1. They rely on Alvord-Polk, Inc. v. F. Schumacher & Co., 37 F.3d 996, 1007 (3d Cir. 1994). This argument was not addressed by the district court, but even assuming we adopt the Third Circuit's rule regarding trade association liability, Evergreen has sufficiently alleged action by the ACC as an independent entity to survive a motion to dismiss. Since the PFPG is a business group within the ACC, it is reasonable to infer that the ACC was aware of the PFPG's 2005-2006 meeting. Further, the complaint alleges that the ACC allowed Dart to publish a misleading article on its website and used its publication -- Plastic News -- to promote a sham competitor to Evergreen. Finally, the complaint alleges that Evergreen reached out to PFPG and the ACC to validate its closed-loop program as well as seeking funding for its California project. When Evergreen's proposal was put before the PFPG's members, who made a group decision to deny funding for the project, it was the PFPG, on ACC letterhead, that notified Evergreen. This is sufficient to state a claim that, at a minimum, the ACC acquiesced to and/or aided and abetted a trade-restraining agreement actionable under § 1 at this stage. See United States v. Paramount Pictures, Inc., 334 U.S. 131, 161 (1948) ([A]cquiescence in an illegal scheme is as much a violation of the Sherman Act as the creation and promotion of one.); Spectators' Commun. Network, Inc. v. Colonial Country Club, 253 F.3d 215, 220-21 (5th Cir. 2001); MCM Partners v. AndrewsBartlett & Assocs., 62 F.3d 967, 973 (7th Cir. 1995); Virginia Vermiculite, Ltd. v. W.R. Grace & Co., 156 F.3d 535, 541 (4th Cir. 1998). -35- conspiracy of the agreed-upon refusal to deal as well as to keep tabs on members. See Allied Tube & Conduit Corp. v. Indian Head, 486 U.S. 492, 500 (1988) ([P]rivate standard-setting associations have traditionally been objects of antitrust scrutiny . . .); In re Text Messaging, 630 F.3d at 628 (noting as significant in the complaint the allegation that defendants belonged to a trade association and exchanged information directly at association meetings: [t]his allegation identifies a practice, not illegal in itself, that facilitates price fixing that would be difficult for the authorities to detect.); Todd, 275 F.3d at 213 (meetings between defendants have the potential to enhance the anticompetitive effects and likelihood of . . . uniformity caused by information exchange (citation and internal quotation marks omitted)); Susan S. DeSanti & Ernest A. Nagata, Competitor Communications: Facilitating Practices or Invitations to Collude?, 63 Antitrust L.J. 93, 121 (1994) (discussing circumstances, including trade association meetings, where communications among competitors raise antitrust concerns). The complaint also states that the defendant producers acted against their own best interests when refusing to deal with Evergreen since the closed-loop program it offered was cost-neutral, the royalties requested by Evergreen were standard in the industry, and shifting to recycled polystyrene would have produced abundant savings to customers and resulted in a higher volume of customer sales due to the -36- attractiveness of potential savings and environmental benefits. See In re Ins. Brokerage, 618 F.3d at 321-22 (listing evidence that a defendant acted contrary to its interests as one of three examples of plus factors). In assessing these allegations, the district court improperly applied a heightened pleading standard in reviewing Evergreen's complaint, and it improperly occupied a factfinder role when it both chose among plausible alternative theories interpreting defendants' conduct and adopted as true allegations made by defendants in weighing the plausibility of theories put forward by the parties. The court went beyond Twombly's pleading requirements when it found Evergreen's complaint deficient as compared to those in other cases that pled highly specific details as to how the alleged conspirators communicated with each other, the individuals who were involved, when the communications took place, the substance of their contents, and the dramatic switch in business practices that followed. Evergreen, 865 F. Supp. 2d at 142. As discussed earlier, Twombly does not require such heightened pleadings for § 1 claims. The district court further made inferences in favor of defendants when the complaint made opposing allegations -- for example, that Evergreen's PC-PSR was, in fact, more expensive than virgin resin. It then proceeded to evaluate the plausibility of defendants' legitimate business reasons for refusing to deal with -37- Evergreen over and against the allegations made in the complaint. Id. at 140. Those business reasons -- that Evergreen's business plan stood to raise costs for the producer defendants and their consumers; that it required the producer defendants to expand beyond their established market niches and disrupt a profitable status quo; and that it would have undermined the producer defendants' existing and even more profitable environmentally conscious products -- may prove, at later stages in the litigation, substantial enough to prevent Evergreen from sufficiently ruling out the possibility of independent action. However, as to the first listed reason, we decline to choose defendants' factual assertion regarding the costs of Evergreen's PC-PSR against Evergreen's contrary assertion in its complaint that we must accept as true.5 Regarding the second business reason stated by defendants, the extent to which Evergreen's business model would have required the producer defendants to expand beyond their market niches and would have undermined the sales of their other products is entirely unclear at this stage. If we accept as true Evergreen's allegations, their model would be entirely consistent with the producer defendants maintaining their established market niches while incorporating the closed-loop process into their 5 These factual allegations in Evergreen's complaint include the assertion that virgin resin was competitively priced and that the additional environmental fee was specifically structured to be merely a percentage of the cost-savings each school achieved by virtue of its participation in the closed-loop program. -38- existing agreements. Finally, even assuming the producer defendants' existing green products would have been undermined by their choosing to deal with Evergreen, that fact alone would not likely explain the kind of coordinated conduct alleged between the defendants and just as plausibly suggests a motive to conspire to boycott Evergreen's model. The district court further improperly weighted defendants' alleged inconsistent responses to Evergreen when it weighed the parties' respective accounts regarding the plausibility of a conspiracy. In fact, there is nothing implausible about coconspirators' starting out in a disagreement as to how to deal conspiratorially with their common problem. Anderson News, 680 F.3d at 191. Finally, it improperly considered the parties' differing roles in the polystyrene business as weigh[ing] against the plausibility of any antitrust claim. See González-Maldonado, 693 F.3d at 249 (A violation of section 1 may well occur when a group of independent competing firms engage in a concerted refusal to deal with a particular supplier, customer, or competitor.).