Opinion ID: 2936316
Heading Depth: 3
Heading Rank: 1

Heading: The contemporaneous Canadian

Text: conspiracy 29 The Individual Plaintiffs and the Direct Purchaser Class do not ascribe the same meaning to the Canadian conspiracy evidence. According to the Individual Plaintiffs, it is reasonable to infer a domestic conspiracy from the evidence of a Canadian conspiracy based on the fact that the Canadian market is a similar adjacent market involving the same participants. The Individual Plaintiffs further contend that a jury should be permitted to weigh evidence of the Canadian conspiracy in assessing the credibility of the Chocolate Manufacturers’ explanations for the U.S. price increases. Finally, the Individual Plaintiffs argue, based on testimony from their economic expert, that the Canadian conspiracy “actuated” or facilitated the U.S. conspiracy. According to Dr. Vellturo’s actuation theory, the sharing of information between the Chocolate Manufacturers and their Canadian counterparts led the Chocolate Manufacturers to observe the success of the Canadian conspiracy and implement a tacit or express U.S. conspiracy. See J.A. 2191– 92. On appeal, the Direct Purchaser Class distances itself from the actuation theory, arguing instead that the Canadian conspiracy is relevant to assessing the Chocolate Manufacturers’ conduct because it enhances the plausibility of a domestic conspiracy. We have not considered what inferences may be permissibly drawn from evidence of a foreign antitrust conspiracy about the existence of a domestic antitrust conspiracy. The Areeda treatise guides our analysis, and we quote from it at length: Illegal behavior elsewhere in time or place does not generally allow the inference of an immediate conspiracy. If the immediately challenged behavior would not imply a conspiracy among firms that are similar to the defendants [but that are not involved in a 30 conspiracy elsewhere], then a distinct conspiracy in the past or in a different market has little power to explain the present behavior. But if there is other evidence of a present conspiracy, the defendants’ sins elsewhere may cast doubt on the truthfulness of their innocent explanations. Of course, the scope of a proved conspiracy will often be uncertain. It may be difficult to define the boundaries of a conspiracy proved to cover an adjacent time period, product, or region. Competitors who were conspiring in this market yesterday may still be doing so today. Parties who are conspiring in New York may be doing the same in New Jersey. If immediate parallelism is as likely to result from present interdependence as from proved conspiracy in the past, we should not lightly assume in fact or presume in law that the earlier conspiracy continues. Contemporaneous conspiracies in adjacent geographic markets could reasonably be deemed sufficient to transfer to the defendants at least the burden of going forward with evidence of an explanation that performance is different in the second market, that any motivation for conspiracy in one market does not extend to the other, or that the personnel or other circumstances make it unreasonable to interpret the proved conspiracy as extending to the adjacent market. Areeda & Hovenkamp, supra, ¶ 1421a, at 160. 31 The Second and Eleventh Circuits have taken positions consistent with the Areeda treatise. In In re Elevator Antitrust Litigation, 502 F.3d 47, 51–52 (2d Cir. 2007) (per curiam), the Second Circuit concluded that a claim of a domestic or worldwide conspiracy in the elevator and elevator services markets was unsupported by allegations of a conspiracy in the European elevator market given the absence of “any evidence of linkage between” the foreign and domestic conduct. Without such a link, the plaintiffs’ argument was merely “‘if it happened there, it could have happened here.’” Id. at 52. Similarly, in Williamson Oil Co. v. Philip Morris USA, 346 F.3d 1287, 1316–17 (11th Cir. 2003), the Eleventh Circuit held that a district court did not abuse its discretion in excluding evidence of contemporaneous foreign conspiracies involving cigarette manufacturers that were also charged with a domestic antitrust conspiracy. The court reasoned that without “some palpable tie between these overseas activities and [the manufacturers’] pricing actions in the United States, the foreign undertakings . . . do not tend to exclude the possibility of independent action in the setting of domestic cigarette prices.” Id. at 1317. We are persuaded by the sensible approach articulated by the Areeda treatise and inherent in the reasoning of the courts in Elevator and Williamson Oil. A conspiracy elsewhere, without more, generally does not tend to prove a domestic conspiracy, especially when the conduct observed domestically is just as consistent with lawful interdependence as with an antitrust conspiracy. To hold otherwise would sanction the use of unabashed propensity reasoning—the fallacy that “if it happened there, it could have happened here”—to prove a domestic conspiracy using evidence of a foreign conspiracy. But if two markets are sufficiently similar or adjacent and the relevant activities therein are sufficiently 32 linked or tied in some way, e.g., the people involved in the conspiracies are the same or overlapping, it may be reasonable to use evidence of a foreign conspiracy to support an inference of a domestic conspiracy.13 Based on our review of the record, we conclude that the Plaintiffs have not adequately linked the Canadian conspiracy to the purported U.S. conspiracy to justify using the former to support an inference of the latter. First, the people involved in the Canadian conspiracy are different from those involved in the purported U.S. conspiracy. Granted, Mars Canada and Hershey Canada are subsidiaries whose executives report to and receive final approval from U.S. executives on certain decisions, including pricing decisions. 13 Our decision in Flat Glass is not to the contrary. There we noted in dicta that evidence of a defendant’s price fixing in a market for original equipment manufacturer glass would be relevant to the claim that the same defendant also conspired to fix prices in the market for flat glass, a closely related but distinct product market in the same geographic area. See 385 F.3d at 377–78. The evidence in Flat Glass involved identical companies and one executive who participated in the price-fixing conspiracies in both product markets. It is therefore consistent with the rule stated above because the people and companies involved in both conspiracies overlapped. Nor does the standard we adopt here conflict with Continental Ore Co. v. Union Carbide & Carbon Corp., 370 U.S. 690 (1962). Continental Ore is inapposite because the relevant foreign conduct in that case was part of a single conspiracy that “was effectuated both here and abroad,” id. at 706, and the Plaintiffs do not contend a single conspiracy existed here. 33 But the evidence does not show that any U.S. executives were involved in the Canadian trade spend or price-fixing conspiracies. The evidence instead shows that the conspiratorial conduct occurred in Canada when Canadian executives and ITWAL agreed to limit trade spend or raise prices in concert, not when they received final approval from U.S. executives on price changes. And as for Nestlé USA, the case is stronger yet. Nestlé Canada is not a subsidiary of Nestlé USA, and Nestlé Canada’s pricing decisions did not need Nestlé USA’s approval. Second, although the Canadian and U.S. markets are in a sense adjacent, they are not adjacent in the same way that the New York and New Jersey markets are, to use the example from the Areeda treatise. The Canadian Chocolate Manufacturers are distinct legal entities operating in a different country, and their wrongdoing does not tend to show that the Chocolate Manufacturers engaged in similar wrongdoing in the United States. Cf. Ins. Brokerage, 618 F.3d at 341 n.44 (“[A] subsidiary is a distinct legal entity and is not liable for the actions of its parent or sister corporations simply by dint of the corporate relationship.”). Third, the circumstances surrounding the Canadian conspiracy are markedly different from the purported U.S. conspiracy, and comparing the two reveals gaping holes in the Plaintiffs’ proof in this case. In Canada, ITWAL played a primary role in instigating, organizing, and facilitating the Canadian conspiracy; the Plaintiffs here identify no similar U.S. player. In Canada, the conspiracy involved concerted action on trade spend in addition to price fixing; the purported U.S. conspiracy only involved price fixing. In Canada, the Canadian Chocolate Manufacturers’ most senior executives exchanged pricing information and agreed to fix prices, see, e.g., J.A. 14106 (describing a November 22, 2007, telephone 34 call between a Nestlé Canada executive and a Hershey Canada executive in which the Hershey Canada executive promised that Hershey Canada would follow a Nestlé Canada price increase); J.A. 11817–18 (Sculthorpe of Cadbury Canada testifying to a meeting with Leonidas of Nestlé Canada where Leonidas said Nestlé Canada was raising prices and Sculthorpe said Cadbury Canada would follow); the Plaintiffs here can point to hardly any communications, let alone pricing communications, among the Chocolate Manufacturers’ U.S. executives. And in Canada, Cadbury Canada’s cooperation with the Canadian Competition Bureau’s investigation yielded evidence of conspiratorial conduct in Canada; Cadbury’s settlement with the Plaintiffs here required cooperation as a condition of the settlement, but despite that cooperation, no similar evidence was uncovered in the United States. As to the actuation theory, we reject its application here for the reasons stated by the District Court.14 The actuation theory posits that conspiratorial “conduct and outcomes” in Canada facilitated an unlawful U.S. conspiracy. 14 We have doubts about the actuation theory and whether it unduly blurs an already fine line between lawful interdependence and unlawful conspiracies, especially when the alleged conspiracy involves price fixing among oligopolists supposedly formed by a tacit agreement. “[E]ven when each firm rests its own [pricing] decision upon its belief that competitors will do the same,” that only shows interdependence, not a conspiracy. Clamp-All, 851 F.2d at 484. But because the District Court concluded that Dr. Vellturo’s theory was admissible and the Chocolate Manufacturers do not challenge that decision on appeal, we reject the theory’s application on its own terms. 35 J.A. 2192. The theory therefore presumes a factual foundation, namely that the U.S. decision makers knew of the unlawful conduct in Canada and their knowledge of that conduct gave them confidence to raise U.S. prices by a tacit or express agreement. See J.A. 2186 (concluding that the U.S. price increases were the result “of collusion (either tacit or express) that was actuated as a result of information and confidence collected by [the Chocolate Manufacturers] on the development, execution and conduct of conspiratorial action among their Canadian operations”).15 15 Dr. Vellturo’s explanation of the actuation theory in his report drives home the point. There he opines that before 2002, the Chocolate Manufacturers were unable to raise prices together. Posing a thought experiment, he says to “consider a scenario in which U.S. executives from each Defendant with pricing authority for both the U.S. and Canada fly to a meeting in Canada” and “[w]ithout ever uttering an express word regarding U.S. prices, the three executives agree to raise prices in Canada by 10%.” J.A. 2193. The thought experiment continues with the executives returning to the U.S. and monitoring the Canadian outcomes, and then, without any further communication, one firm announces a price increase of 10% in the U.S. Dr. Vellturo opines that under these circumstances, the “coordinated anticompetitive agreement in Canada has significantly changed the information known about likely responses to a price increase in the U.S. by these same companies,” with the price leader expecting the other companies to follow the price increase. J.A. 2194. This thought experiment presumes not only that the conspirators in the U.S. knew of the Canadian conspiracy but also that the U.S. conspirators are the same people as the Canadian conspirators. 36 And for good reason. Unless there is direct or circumstantial evidence showing that the U.S. Chocolate Manufacturers knew of the unlawful Canadian conspiracy, the U.S. Chocolate Manufacturers would have no basis to know whether the Canadian parallel trade spend reductions and pricing were the result of a conspiracy or interdependence. If we inferred the existence of a U.S. conspiracy based on evidence that only shows that U.S. Moreover, at oral argument, counsel for the Individual Plaintiffs clearly explained that Dr. Vellturo premised his theory on evidence showing “that the U.S. executives with pricing authority at a minimum knew that there was a [sic] joint conduct in Canada, [and] at a maximum directed that it occur.” Oral Argument at 25:38, available at http://www2. ca3.uscourts.gov/oralargument/audio/14- 2790InReChocolateConfectionaryAntitrust.mp3. That being said, Dr. Vellturo backtracked in his deposition by asserting that the U.S. Chocolate Manufacturers’ awareness of the Canadian conspiracy was “not essential to [his] opinion.” J.A. 2529. In that case, we acknowledge that the factual prerequisites for this variation of the actuation theory—that the Chocolate Manufacturers monitored Canadian prices and communicated (lawfully) with their Canadian affiliates—are satisfied. But under this variant theory, the inference of a U.S. conspiracy is tenuous because the U.S. result of parallel pricing is perfectly consistent with interdependence. See Areeda & Hovenkamp, supra, ¶ 1422b, at 170 (noting that facilitating devices alone do not imply a traditional conspiracy because “any parallelism in subsequent behavior will often be of the sort that can be satisfactorily explained by oligopolistic interdependence alone and without regard to the facilitating practice”). 37 executives observed the parallel outcomes in Canada but had no knowledge of the cause of those outcomes (a conspiracy or interdependence), we would chill lawful conduct. We would essentially prohibit an oligopolist from recognizing its interdependence in a foreign market and applying those lessons in a domestic market, even though interdependence at home or abroad is lawful under the Sherman Act. If interdependence alone is not unlawful, we fail to see how evidence that effectively shows “interdependence squared” suddenly would create a reasonable inference of a U.S. conspiracy. Therefore, for the actuation theory to make a meaningful dent in the Plaintiffs’ burden, they must show more than similar outcomes in Canada and the United States; they must instead show that the unlawful Canadian conduct actuated, facilitated, or informed the U.S. conduct.16 The District Court correctly found factual support for the actuation theory lacking in this case, either in the form of the U.S. Chocolate Manufacturers’ direct participation in or knowledge of the Canadian conspiracy. First, the theory finds no support in a 2007 email from Humberto Alfonso, a U.S.- based Hershey executive, connecting Eric Lent, the new General Manager of Hershey Canada, with Schulthorpe, Cadbury Canada’s President. In the email, Alfonso wrote, “In keeping with the good advice from ‘The Godfather,’ keep close to your competition.” J.A. 8380. Because Alfonso participated in the 2007 U.S. pricing decision, and perhaps also because he appears to have referenced the sinister words 16 To the extent Dr. Vellturo’s opinion is based only on similar outcomes, see supra note 15, it is insufficient on its own to create a reasonable inference of a conspiracy. 38 of Michael Corleone from The Godfather Part II,17 the Direct Purchaser Class wants us to infer something more sinister from this social introduction—that Alfonso encouraged or facilitated the Canadian conspiracy. But social contacts between competitors without more are not unlawful. See Baby Food, 166 F.3d at 133. Without anything else to suggest Alfonso’s further involvement in the Canadian conspiracy, and with Alfonso’s sworn declaration that he sent the email only as a social introduction and lacked knowledge of the Canadian conspiracy, see J.A. 12996–97, we cannot read this email as anything other than a social introduction. Nor does Leonidas, CEO of Nestlé Canada, establish the necessary link between the Canadian and U.S. markets. According to the Plaintiffs, Leonidas played a key role in the Canadian conspiracy and regularly interacted with U.S. executives, including with Nestlé USA’s team when Nestlé considered buying Hershey in 2002. But this purported common player did not have pricing authority for the U.S. market and none of Leonidas’s documented communications with U.S. executives hinted at illegal conduct in Canada, leaving a significant gap in the inferences the Plaintiffs ask us to draw to connect the two conspiracies. A set of emails from Hershey Canada executives to Hershey executives in the U.S. is also not enough. In 2003, Bruce Brown, Hershey Canada’s General Manager, emailed Burt Snyder, the Interim President of Hershey International, shortly after Nestlé Canada initiated a price increase. Speaking of the Canadian market, Brown said he had “some intelligence” that “[Mars] is anxious to follow [Nestlé’s] price 17 “My father taught me . . . keep your friends close, but your enemies closer.” The Godfather Part II (Paramount Pictures 1974). 39 increase but would rather have Hershey or Cadbury announce ahead of them.” J.A. 7174. Brown went on to call Cadbury “the wild card” because he had heard rumors of Cadbury taking a price increase but also of Cadbury offering deep discounts to certain stores. Id. Snyder responded by approving the proposed price increase. In 2005, Brown emailed J.P. Bilbrey, the President of Hershey International, to say Brown “had heard rumours swirling around about a potential competitive price increase (Nestl[é]/Cadbury) in Canada . . . and had it confirmed last week, although details are sketchy.” J.A. 8316. And in October 2007, following a meeting between Hershey Canada General Manager Lent and Leonidas where Leonidas told Lent that Nestlé Canada would be increasing prices, J.A. 11941, an email circulated among Hershey executives in the U.S., noting that “[Lent] knows Nestl[é]’s [p]ricing in Canada, and hears [Mars/Cadbury] following,” and that Cadbury Canada and Nestlé Canada had “floated” price increases. J.A. 8421–22. The October 2007 emails, however, made no reference to the meeting between Lent and Leonidas. Even assuming the Plaintiffs are correct that an inference could be drawn from these emails that some Hershey executives in the United States were aware of the Canadian conspiracy (an inference better supported by some emails than others), that is all they show; they say nothing about what Mars and Nestlé USA knew. Indeed, the record is devoid of evidence showing that Mars and Nestlé USA knew 40 of the Canadian conspiracy.18 Even if the Canadian conspiracy informed Hershey’s unilateral actions, it could not have facilitated a U.S. conspiracy if two of the three purported conspirators (including Mars, the price leader in all three instances) were unaware of the Canadian conspiracy. In sum, under any of the theories presented by the Plaintiffs, there must be a sufficient factual basis for the Canadian conspiracy to be relevant to or facilitative of the purported U.S. conspiracy. Because such evidence is lacking, 18 A September 2005 email from Don Robinson, President of Mars Canada, to Robert Gamgort, President of Mars North America, does not show that Mars executives in the U.S. knew of the Canadian conspiracy. In that email, Robinson said that “an industry wide price increase has been rumoured for a few weeks” and reported the price increases already taken and being taken by Mars Canada’s competitors. J.A. 1395. Unlike the aforementioned 2003 Brown to Snyder email, for example (which suggested that Hershey Canada contemplated a coordinated response to a Nestlé Canada price increase with its rivals), this Mars email does not include information that tends to show a Canadian conspiracy. Nor does a March 2002 email from Frank Higgins, Vice President of Marketing for Nestlé USA, to other Nestlé USA executives show that Nestlé USA knew of the ongoing Canadian conspiracy. In that email, Higgins reported on a Hershey Canada price increase and promised he would “get[] more information from Nestl[é] Canada to assess the likelihood that they will increase prices in the US.” J.A. 7394. This email shows that Nestlé USA monitored outcomes in Canada but says nothing of whether Nestlé USA knew the price increases there were the result of interdependence or a conspiracy. 41 the contemporaneous Canadian conspiracy does not support a reasonable inference of a U.S. conspiracy, and we move on to consider other traditional conspiracy evidence.