Opinion ID: 626562
Heading Depth: 2
Heading Rank: 3

Heading: Analytical Problems

Text: In addition to our conclusion that the district court erred in characterizing the PAC's factual allegations as conclusory and in refusing to accept as true the reasonable inferences that could be drawn from those allegations, we have difficulties with some of the court's analytical constructs, including its application of Twombly 's plausibility test.
When the district court ruled that Anderson did not state a plausible § 1 claim because  [u]nilateral parallel conduct [by the defendants wa]s completely plausible,  732 F.Supp.2d at 399 (emphases added); see also id. at 400, 407, the plausibility inquiry was misdirected. The question at the pleading stage is not whether there is a plausible alternative to the plaintiff's theory; the question is whether there are sufficient factual allegations to make the complaint's claim plausible. As discussed in Part II.A. above, the plausibility standard is lower than a probability standard, and there may therefore be more than one plausible interpretation of a defendant's words, gestures, or conduct. Consequently, although an innocuous interpretation of the defendants' conduct may be plausible, that does not mean that the plaintiff's allegation that that conduct was culpable is not also plausible. The view of the district court here that  it is plausible that each of the publisher Defendants unilaterally stopped shipping magazines to Anderson rather than pay the Surcharge, 732 F.Supp.2d at 400 (emphases added), was thus not a proper basis for finding that Anderson had not pleaded a claim that was plausible. The court also found that the possibility that each of the defendants had acted separately in deciding to stop supplying magazines to Anderson was [t]he most plausible scenario, id. at 407 (emphasis added). But on a Rule 12(b)(6) motion it is not the province of the court to dismiss the complaint on the basis of the court's choice among plausible alternatives. Assuming that Anderson can adduce sufficient evidence to support its factual allegations, the choice between or among plausible interpretations of the evidence will be a task for the factfinder.
We note also that in finding Anderson's view of the events implausible, or less plausible than the possibility that defendants acted unilaterally, the court essentially made a number of other factual findings. For example, the court found that the statements attributed to Curtis's CEO, Robert Castardi, were not inculpatory. 732 F.Supp.2d at 402. The court found that Castardi's statement to Anderson that once Source was eliminated Anderson could increase its earnings by having an exclusive territory in which it could raise prices to retailers, but `you need to let Source go out first'was not ... an invitation to join a massive antitrust conspiracy to eliminate Source. Id. Perhaps it was not; but whether it was or not is a question for a factfinder. As set out in Part II.B. above, there are allegations of statements by, among others, Kable's Duloc, Rodale's Alleger, and TWR's Jacobsen, indicating that defendants wished to eliminate Source, as well as Bauer's assurance to Rodale that Source would soon be gone. With the PAC read as a whole, rather than piecemeal, e.g., Yoder v. Orthomolecular Nutrition Institute, Inc., 751 F.2d 555, 562 (2d Cir. 1985), the existence of a conspiracy to eliminate Source could permissibly be inferred; and any ambiguity as to whether the statements to Anderson by Castardi and Duloc constituted invitations to join such a conspiracy would remain to be resolved by a factfinder. In any event, the district court could not properly make an interpretive finding on a Rule 12(b)(6) motion, in effect ruling as a matter of law that that Castardi statement was not an invitation to join such a group effort to eliminate Source. The court also found that Castardi's statement that he was `going to have to go with whatever Rich [Jacobsen, CEO of TWR] does' ... suggests only that he would wait to see what TWR did and that, in fact, he had no actual knowledge of Jacobsen's plans regarding Anderson. 732 F.Supp.2d at 402 (emphasis added); see also id. at 398-99 (finding that defendants' decisions to stop supplying Anderson were unchoreographed). Castardi might, of course, claim that the court's interpretation of his statement was what he meant; but in fact stating that he would go with whatever [Jacobsen] does is not precisely the same as stating that he would wait to see what Jacobsen would do. And indeed, taking the factual allegations of the Complaint and the PAC as true, Castardi in fact did not wait to see what TWR actually did, for Castardi had Curtis and its publisher clients cut Anderson off on January 29. TWR did not cut Anderson off until February 2. Castardi's statement that Curtis would do what TWR would do, along with Curtis's termination of Anderson in advance of such a termination by TWR, must further be considered in light of two other allegations: (1) that Curtis had been unsuccessful in 2008 when it tried to terminate Anderson unilaterally, and (2) that before Source was terminated by TWR, AMI, and Bauer, Castardi told a Source executive that Castardi knew, `with 100% certainty,' that those entities were going to refuse to supply Source. In these circumstances it is plausible to infer that Castardi knew in advance, with certainty, that TWR would cease to supply Anderson; and from that certain foreknowledge, an inference of advance agreement is plausible.

We also have difficulties with the district court's view that Anderson's conspiracy claim was implausible because defendants had a variety of reactions to Anderson's announcement of its Surcharge, 732 F.Supp.2d at 394, with some publishers or distributors initially entering into negotiations for alternatives to the Surcharge and suggesting alternatives that varied and other publishers and distributors not negotiating. The court stated that [c]onspirators hatching a concerted scheme to destroy Anderson would not have reacted so differently to the Surcharge, id. at 397. However, there is nothing implausible about coconspirators' starting out in disagreement as to how to deal conspiratorially with their common problem. As the court itself noted, the key parallel conduct allegation was that all of the publisher and distributor defendants ceased doing business with Anderson, id. at 398 (emphasis added). The court's reliance on the variety of defendants' original reactions failed to take into account that, notwithstanding their responses initially, some two weeks later every defendant publisher and distributor acted, within a span of three business days, to cut Anderson off.
In analyzing Anderson's claims against each defendant, the district court found that AMI could not have been a member of the alleged conspiracy to boycott Anderson. Citing a February 2009 Delaware Chancery Court order, and invoking the principle of collateral estoppel, the district court found that AMI had not cut Anderson off but instead had continued to ship magazines to Anderson in February 2009, after the alleged boycott occurred, 732 F.Supp.2d at 403. However, given that, in order to determine the preclusive effect of a state-court decision, a federal court must look to the law of that state and should not give the state-court decision any greater preclusive effect than the courts of that state would give it, see, e.g., Marrese v. American Academy of Orthopaedic Surgeons, 470 U.S. 373, 380, 105 S.Ct. 1327, 84 L.Ed.2d 274 (1985), we have two difficulties with the district court's collateral estoppel ruling. First, the Delaware Chancery decision relied on by the district court merely granted a Temporary Restraining Order, American Media, Inc. v. Anderson News, LLC, C.A. No. 4369-VCL (Del.Ch. Feb. 13, 2009). Under Delaware law, collateral estoppel, or issue preclusion, is not available unless, inter alia, a question of fact essential to the judgment is litigated and determined in a valid and final judgment. Messick v. Star Enterprise, 655 A.2d 1209, 1211 (Del.1995) (internal quotation marks omitted); see, e.g., The Thomas and Agnes Carvel Foundation v. Carvel, No. 3185-VCP, 2008 WL 4482703, at  (Del.Ch. Sept. 30, 2008) (denying collateral estoppel effect to a New York court's findings in granting a preliminary injunction, because that is not a final judgment of the court on the merits). The Delaware Chancery Temporary Restraining Order relied on by the district court was not a final judgment. Second, although the Delaware Chancery Temporary Restraining Order required Anderson to return to AMIand to Hachette, which was also a plaintiff in that actionall of those plaintiffs' magazines that were then in Anderson's possession, the order made no findings whatever as to when Anderson had received those magazines or when their shipment had been initiated. The Complaint alleged that AMI and Hachette had cut Anderson off in late January. (Complaint ¶ 47; see also PAC ¶ 66 (alleging that the magazines that were the subject of the state-court order had been `in the pipeline' from the magazine printers before Anderson was cut off and could not be diverted).) The state court's order made no contrary finding and thus provided no basis for a deviation from the principle that on a Rule 12(b)(6) motion, the district court was required to accept Anderson's allegations as true.
The district court also ruled that Anderson's presentation of a common economic stimulus, impelling an immediate market reaction, 732 F.Supp.2d at 401, made it impossible for Anderson to plead a viable § 1 claim. It stated that Anderson alleges facts suggesting that the Defendants merely responded to a common market stimulus created by Anderson itself, id. at 402, and that [h]aving proposed its pay-it-or else Surcharge, Anderson can not claim collusion in the Defendants' refusal to acquiesce to its self-destructive demand, id. at 401 (emphasis added). We have two difficulties with this reasoning. First, the court itself noted ( see Part II. C.3.a. above) that several of the defendants had initially entered into negotiations with Anderson for various alternatives to the Surcharge, and that some had reached agreement on such alternatives, see 732 F.Supp.2d at 397. The facts that there were various proposed alternatives to the Surchargeand that Anderson agreed to some of themundercut both the court's own view of the Surcharge as a take-it-or-leave-it demand by Anderson and the court's suggestion that the defendants also so viewed it. Second, the mere fact that an offer of goods or services at a given price may be nonnegotiable does not mean that the offerees, in responding to it, cannot violate the antitrust laws. Thus, the Twombly Court referred not simply to responses to given stimuli, but rather to  independent responses to common stimuli, or ... interdependence unaided by an advance understanding among the parties.  Twombly, 550 U.S. at 556 n. 4, 127 S.Ct. 1955 (internal quotation marks omitted) (emphases added). The presentation of a common economic offer may well lend itself to innocuous, independent, parallel responses; but it does not provide antitrust immunity to respondents who get together and agree that they will boycott the offeror. The latter is what the PAC alleged.
The district court found that, in light of Anderson's withdrawal of its assertion that Hudson took over Anderson's retail distribution business, there was no conceivable role for Hudson in the alleged conspiracy, 732 F.Supp.2d at 403, 405, because Hudson, a wholesaler rather than an entity higher in the distribution chain, could not cut off Anderson's magazine supply, id. at 403. We have several difficulties with this analysis. First, as discussed in Part II.A. above, § 1 applies not just to horizontal conspiracies between or among competitors but also to vertical contracts and to boycotts agreed to by a group of suppliers and their favored customer or customers. Second, the gist of conspiracy is agreement. Thus, if Hudsonassuring, along with News Group, a continuation of wholesaler servicesagreed with the publisher and distributor defendants to attempt to eliminate Anderson and Source as wholesalers, Hudson may be liable under § 1, even if it did not take over any of the business lost by Anderson. Third, although the court emphasized that Hudson could not engage in conduct that would parallel the conduct of the publishers or the distributors, it is entirely plausible that Hudson had an interest in participating in an endeavor to eliminate Anderson and SourceHudson's largest competitorsas wholesalers, hoping to gain market share. Indeed, the alleged goal of the conspiracy was to eliminate Anderson and Source in order to divide the wholesale market between News Group and Hudson and give News Group and Hudson exclusive territoriesthereby affording retailers no choice as to wholesale supplier ( see Part II.C.3.e. below). Fourth, the court's analysis, focusing solely on the concept of parallelism, disregarded Anderson's factual allegations. They include the allegation that on or about January 29, 2009, key employees of Curtis, DSI, and TWR, and of Hudson's competitor News Group (all identified by name in the PAC), met at Hudson's offices in North Bergen, New Jersey. Although the PAC did not identify the person or persons attending that meeting on behalf of Hudson, it is surely inferable that Hudson was represented, as the meeting was at its offices. Further, the fact that the meeting was held after normal business hours lends itself to a plausible inference that the meetingof two levels of competitors (three distributors and two wholesalers)was intended to be covert and that its purpose was anticompetitive.
Finally, we note the district court's view that Anderson's conspiracy claim is not plausible because the elimination of Anderson and Source would be contrary to the publishers' and national distributors' self-interest. The court stated that more wholesalers yields greater competition, which is good for suppliers. Destroying Anderson and Source would reduce the publisher's wholesale outlets from four to two and would give Hudson and News Group, the two remaining major wholesalers, 90% of the market share.... This is too much market power to yield to wholesalers. 732 F.Supp.2d at 397. We reject this rationale for the dismissal. First, the defendant publishers and distributors own or control 80 percent of the nation's magazines ( see PAC ¶ 80), including, apparently, those that are the most popular ( see, e.g., id. ¶¶ 11-18). We doubt that it can be said as a matter of law that these publishers and distributors would have less market power than wholesalers who themselves produce no goods and who, without these publishers and distributors, would lack the most popular magazines to offer to retailers. Nor is it implausible that the publishers and distributors would feel comfortable dealing with just two wholesalers, especially given that those wholesalers were members of the alleged conspiracy. Second, the court's self-interest rationale disregards the allegations that, under the pre-2009 system, with four national wholesalers competing with each other and operating independently of the publishers, the retailers had more wholesalers from which to choose and could make decisions based on the suppliers' prices. With only two national wholesalers, each with its own allocated territory, many retailers would have no other supplier choice; wholesalers could increase their profits by raising prices to the retailers, and not seek, as Anderson and Source had, to increase charges to the publishers. In the near term at the very least, the conspiracy alleged by Anderson could be expected to benefit the publishers, the distributors, and the two wholesalers who participated. In this connection, we note that the alleged comment by Jacobsen on the elimination of Anderson and Source, stating that we now control this space, was interpreted by the district court as merely describing the state of the industry, 732 F.Supp.2d at 402. It is at least as plausible an interpretation (a) that this statement claiming control evinced satisfaction with the reduction of the number of national wholesalers to two, and (b) that the we in we ... control referred not only to Jacobsen's TWR and its client Time, but to other publishers and distributors as well. If indeed Jacobsen said we are in control, it hardly seems possible that the we could not have included at least the nation's two largest distributorsCurtis and Kableand the publishers they represent, i.e., all of the other publishers in this case.