Court Opinion

ID: 813770
Source: CourtListenerOpinion
Date Created: 2012-12-18 16:00:17+00
Date Added: 2024-06-11T18:00:49.871612
License: Public Domain

RECOMMENDED FOR FULL-TEXT PUBLICATION
                          Pursuant to Sixth Circuit I.O.P. 32.1(b)
                                 File Name: 12a0411p.06

              UNITED STATES COURT OF APPEALS
                              FOR THE SIXTH CIRCUIT
                                _________________

                                                   X
                                                    -
 ERIE COUNTY, OHIO, individually and on

                              Plaintiff-Appellant, --
 behalf of all entities similarly situated,

                                                    -
                                                          No. 11-4153

                                                    ,
                                                     >
                                                    -
             v.

                                                    -
                           Defendants-Appellees. N-
 MORTON SALT, INC. and CARGILL, INC.,

                    Appeal from the United States District Court
                     for the Northern District of Ohio at Toledo.
                   No. 3:11-cv-364—James G. Carr, District Judge.
                               Argued: October 10, 2012
                       Decided and Filed: December 18, 2012
            Before: GILMAN, GIBBONS, and ROGERS, Circuit Judges.

                                 _________________

                                      COUNSEL
ARGUED: Dennis E. Murray, Jr., MURRAY & MURRAY CO., L.P.A., Sandusky,
Ohio, for Appellant. David Marx, Jr., McDERMOTT WILL & EMERY LLP, Chicago,
Illinois, for Appellees. ON BRIEF: Dennis E. Murray, Jr., Charles M. Murray,
Margaret M. Murray, Michael J. Stewart, MURRAY & MURRAY CO., L.P.A.,
Sandusky, Ohio, for Appellant. David Marx, Jr., McDERMOTT WILL & EMERY
LLP, Chicago, Illinois, Hugh R. McCombs, Kristin W. Silverman, MAYER BROWN
LLP, Chicago, Illinois, G. Jack Donson, Jr., John B. Nalbandian, TAFT STETTINIUS
& HOLLISTER LLP, Cincinnati, Ohio, Brian J. Wong, MAYER BROWN, LLP,
Washington, D.C., Richard T. Prasse, HAHN LOESER & PARKS LLP, Cleveland,
Ohio, for Appellees.

                                            1
No. 11-4153         Erie Cnty v. Morton, et al.                                      Page 2

                                  _________________

                                        OPINION
                                  _________________

        RONALD LEE GILMAN, Circuit Judge. This is a purported class action
brought by Erie County, Ohio on behalf of itself and other counties in northern Ohio
against Morton Salt, Inc. and Cargill, Inc. Erie County claims that Morton and Cargill
have conspired to fix the price of rock salt in northern Ohio by geographically dividing
the market and excluding competition, in violation of Ohio’s Valentine Act (Ohio
Revised Code §§ 1331.01-1331.15), a state analogue to the federal antitrust statutes,
including the Sherman Act (15 U.S.C. §§ 1-7). The district court granted the defendants’
motion to dismiss, finding that the facts alleged in the complaint are just as consistent
with lawful parallel conduct as they are with a conspiracy. On appeal, Morton and
Cargill defend the court’s dismissal of the complaint for failure to state a claim and argue
that the court’s decision may also be affirmed on the independent basis that Erie County
lacks standing to sue. Although we disagree with the analysis of the district court, we
AFFIRM its judgment for the reasons set forth below.

                                  I. BACKGROUND

A. Duopoly in the northern Ohio rock-salt market

        The following facts are taken from the Second Amended Class Action Complaint
(the complaint) and the documents that it relies on, which documents both parties urge
us to consider. See Bassett v. Nat’l Coll. Athletic Ass’n, 528 F.3d 426, 430 (6th Cir.
2008) (holding that, on a motion to dismiss, a court “may consider the Complaint and
any exhibits attached thereto, public records, items appearing in the record of the case
and exhibits attached to defendant’s motion to dismiss so long as they are referred to in
the Complaint and are central to the claims contained therein”).

        Rock salt, also known as road salt, is larger and heavier than table salt. Its size
and weight keep it from being easily pushed off the road, and it is used to keep roads and
bridges free of snow and ice during wintery weather. The market for rock salt in Ohio
No. 11-4153        Erie Cnty v. Morton, et al.                                   Page 3

has two distinct segments: a market encompassing the 54 northern counties (known as
the “Lake [Erie] market”) and a market consisting of the southern 34 counties (known
as the “[Ohio] River market”). Rock salt offered in the northern market comes primarily
from mines near Lake Erie in Ohio, and rock salt offered in the southern market comes
primarily from mines in Louisiana. The Ohio Department of Transportation (ODOT)
is the largest purchaser of rock salt in Ohio. Members of the purported class—the
northern Ohio counties—are, collectively, the second-largest in-state purchaser. ODOT
is required to award contracts by soliciting sealed bids and choosing the lowest bid
(subject to preferences for Ohio-mined salt, which will be discussed below). See
generally Ohio Rev. Code § 125.11.

       Morton and Cargill are the only two companies that operate salt mines located
in Ohio. Morton is headquartered in Chicago and operates a salt mine in Fairport, Ohio.
Cargill is headquartered in North Olmstead, Ohio and operates a salt mine in Cleveland.
Together, the two companies supply at least 60 percent of the rock salt purchased in
Ohio. Between 2001 and 2008, they supplied almost all of the rock salt purchased by
government entities in northern Ohio.

       During the fall and winter of 2008, the price of rock salt purchased by ODOT
rose by as much as 300 percent compared to the previous year. (The Ohio Inspector
General puts the price rise at between 19 and 236 percent; ODOT reports it as between
50 and 300 percent.) Ohio Governor Ted Strickland asked ODOT to investigate the
causes of this dramatic price hike. ODOT responded by preparing a Bid Analysis and
Review Team Report (the BART Report), which it submitted to the Governor in
December 2008. The BART Report identified several potential causes for the price
spike, including increased demand for salt due to a harsh winter; high transportation
costs due to increased energy prices; and the structure of the state’s contract system,
which required suppliers to keep a large quantity of salt off the market and in reserve,
thereby “suppress[ing] uncommitted supply” and increasing the price.

       More to the point for purposes of the present case, the BART Report found that
Morton and Cargill elected not to compete with each other, preferring instead to keep
No. 11-4153        Erie Cnty v. Morton, et al.                                    Page 4

to their own turf. This in effect created “county-by-county monopolies” where higher
prices prevailed. Each company “bid in a way that most easily segmented the Ohio
market into two monopolies, preventing competition and ensuring that neither firm
would end up over-committing its supplies.”

       The BART Report also found that the state’s “Buy Ohio” law favored Morton
and Cargill, the only two companies offering salt mined in Ohio, over out-of-state
competitors. According to the BART Report, when two firms offering Ohio-mined salt
submitted a bid, ODOT’s practice under the Buy Ohio law was to accept one of
them—even if out-of-state bidders submitted cheaper bids. This “lockout” effect
excluded outside competition and resulted in higher prices.

       Prompted by the BART Report, the Ohio Office of the Inspector General initiated
its own investigation in February 2009 and issued a report in January 2011 (the OIG
Report). The OIG interviewed 27 people in conducting its investigation, including
employees of Morton and Cargill, employees of their competitors, and state
governmental officials. It also issued 14 subpoenas and other record requests to Morton
and Cargill, and received nearly 190,000 pages of documents containing “road salt
bidding, pricing, mine sourcing, stockpiling and transportation data” in response. The
OIG consulted Dr. James T. McClave, a statistician and founder of Info Tech Inc., a
company that the OIG Report described as “one of the nation’s premier bid-analysis
consulting firms,” to help review and analyze this data. Because the complaint is largely
based on the OIG Report, the Report’s key findings are set forth below.

       The OIG Report found that the exclusion of out-of-state competitors was not due
to the Buy Ohio law itself, but was caused by ODOT’s erroneous interpretation of the
law. Under this law, if two or more companies offering Ohio-mined salt submit a bid
on a contract, ODOT is required to award the contract to one of them, even if other
bidders offering non-Ohio-mined salt submit cheaper bids—but only if the lowest price
for the Ohio-mined salt is no more than five percent above the lowest price for the non-
Ohio-mined salt.      See Ohio Rev. Code § 125.11(B); Ohio Admin. Code
§ 123:5-1-06(C)(3).
No. 11-4153        Erie Cnty v. Morton, et al.                                     Page 5

       From 2001 to 2008, ODOT gave no effect to this “excessive price” caveat. It
instead read the law to require awarding the contract to one of two or more companies
offering Ohio-mined salt, regardless of the price. Under this reading, if both Morton and
Cargill, the only two companies offering Ohio-mined salt, submitted a bid, then all other
companies were locked out of the competition, even if their bids were more than five
percent lower. This lockout interpretation of the Buy Ohio law helped give rise to a
duopoly in which Morton and Cargill ruled the northern Ohio market for state-
government contracts in rock salt. “By applying the lockout interpretation when
awarding salt contracts instead of the excessive-price interpretation,” concluded the OIG
Report, “ODOT has been an enabler in its own victimization.”

       But the OIG Report did not lay all the blame for noncompetitive rock-salt prices
at ODOT’s doorstep.       It also found that Morton and Cargill had “engaged in
anti-competitive market allocation practices” by “carv[ing] up” the market into two
zones, with each company ruling its own zone and failing to mount a competitive
challenge in the other’s zone.

       The OIG Report relied on “five indicators” to support its market-allocation
conclusion:

       1.      Stable market shares. In a competitive market, the market shares
               of firms would fluctuate as they win and lose in competition with
               rivals. Between 2000 and 2010, however, the market shares of
               Morton and Cargill were relatively stable. Morton’s share of the
               northern Ohio market for rock salt was between 18 and 31
               percent, and Cargill’s was between 68 and 82 percent (a
               fluctuation of 13-14 percent). By contrast, in the southern Ohio
               market, Morton’s share varied from 2 to 46 percent, and Cargill’s
               from 33 to 98 percent (a fluctuation of 44-65 percent).

       2.      High incumbency rates. In a competitive market, the rate of
               “incumbency” (the rate at which a bidder keeps winning the
               contracts it won last year) is not expected to be high, because
               business opportunities would attract entrants who seize the prize
               from the incumbent by offering better or cheaper products. But
               the 54 counties in the northern Ohio market experienced high
               incumbency rates: “Since 2000, the percentage of [northern]
No. 11-4153       Erie Cnty v. Morton, et al.                                         Page 6

              Ohio counties with incumbent winning vendors has been as high
              as 98% (2009) and has never dropped below 68% (2008).” In
              some northern Ohio counties, the incumbency rate has been 100
              percent for all but one of the bidding cycles between 2000 and
              2010. By contrast, in the southern Ohio market, incumbency
              rates in the same period ranged from 95 to 20 percent.

      3.      Suspicious bidding patterns. Because transportation costs
              increase as one moves away from the location of a mine, and
              because the other costs of producing and mining salt are constant,
              each company would be expected to submit lower bids for
              counties that are closest to its mine and higher bids for counties
              that are farthest. Morton and Cargill would likewise be expected
              to each win more of the counties closest to its own mine. In fact,
              however, bidding patterns show that each company submitted
              lower bids in counties it had previously won and higher bids in
              counties the other company had won, regardless of the distance
              from its own mine, thereby cementing the geographic allocation
              of the market.

      4.      Sham bids. The bidding data showed that Morton and Cargill had
              each divided the northern Ohio market into “primary” and
              “secondary” counties. (Only Cargill used the “primary,
              secondary” terminology, but Morton followed the same two-
              tiered categorization.) Each company consistently bid low for its
              primary counties and high for its secondary counties. Indeed,
              they bid so high for their secondary counties that it seemed they
              were bidding to lose. The bids for secondary counties were so
              high that they would often lose even when the other company
              raised its prices by more than 25 percent. During the 2010-2011
              season, Cargill won its primary counties 86.9 percent of the time
              and its secondary counties only 7.4 percent of the time; Morton
              won the counties that Cargill deemed secondary 79.6 percent of
              the time. When questioned about the practice of submitting
              consistently higher bids for secondary counties, Cargill
              employees told the OIG that they pursued those customers
              “passively” and that winning them would be “accidental.”
              Similarly, Morton employees said that they bid for certain
              counties “more aggressively”; as for the other counties, they
              “would not expect to get” them and would be “surprised” if they
              did. Internal documents received from the companies also
              confirmed the practice of submitting consciously losing bids:
              “[B]id it high, let Morton . . . have it,” advised a Cargill official
              in a July 2008 bid strategy report. “Bid it high so Morton can get
              what they did last year and maybe some more.”
No. 11-4153        Erie Cnty v. Morton, et al.                                     Page 7

       5.      High prices and profits. Data received from Cargill indicated
               that Cargill’s profit margins were as much as 4,000 percent
               higher in Ohio than in adjoining states. Moreover, prices offered
               by Morton and Cargill in certain counties in northern Ohio were
               much higher than prices offered in nearby counties in other
               states, even where the out-of-state counties were farther from
               mines and thus subject to higher transportation costs.

       Based on these five indicators, the OIG Report concluded that Morton and
Cargill had geographically divided the northern Ohio market for rock salt, which drove
up the price and ended up costing Ohio taxpayers between $47 million and $59 million
in ODOT overpayments. The Report noted, however, that the OIG had “failed to find
evidence that the two companies communicated on salt bids.”

B. This action

       Two weeks after the OIG Report was issued, Erie County sued Morton and
Cargill. The complaint is essentially a summary of the OIG Report, so the foregoing
account of the Report adequately sets forth the thrust of the complaint. In evaluating the
allegations of the complaint, however, one must keep in mind that ODOT purchases salt
in each of the 54 northern Ohio counties, including Erie County, but each of the
54 counties also makes separate purchases on its own behalf. The OIG Report was
focused on ODOT’s purchases; this action, brought as it is by Erie County on behalf of
all northern Ohio counties, focuses on the counties’ purchases. Accordingly, the
complaint adds county-specific facts to those of the OIG Report. The complaint in
essence alleges that the defendants carried over the same practices and pattern of
anticompetitive market allocation from the ODOT market to the county market.

       Relying on the OIG Report, supplemented by county-specific information, the
complaint asserts three claims against Morton and Cargill. Erie County’s first claim is
that the defendants violated the Ohio Deceptive Trade Practices Act, Ohio Rev. Code
§ 4165.02, by misrepresenting the origin of their rock salt. Second, based on the OIG
Report’s five indicators, the complaint asserts that the defendants conspired to fix the
price of rock salt in northern Ohio in violation of the Valentine Act. The final claim is
No. 11-4153        Erie Cnty v. Morton, et al.                                    Page 8

that the defendants committed fraud by intentionally inflating the price of rock salt and
by representing that they were engaged in fair and competitive bidding when in fact they
had colluded.

       Erie County filed this action in Ohio state court. The defendants removed the
case to the United States District Court for the Northern District of Ohio. They
subsequently filed a motion under Rule 12(b)(6) of the Federal Rules of Civil Procedure
to dismiss the complaint for failure to state a claim. The district court granted the
defendants’ motion to dismiss. With respect to the price-fixing claim, the court found
the allegations to be just as consistent with lawful parallel conduct as with an unlawful
conspiracy. The court held that the five indicators in the OIG Report “describe at length
signs of an anticompetitive marketplace, but do not provide indicia of illegal collusion
within that marketplace.” And the defendants’ duopoly and attendant high profits were
found to be the result of the “marketplace’s dysfunction” caused by ODOT’s erroneous
interpretation of the Buy Ohio law, not of any wrongdoing by the defendants. In sum,
the court concluded that the “defendants’ actions are at least as likely to be those of
independent beneficiaries lawfully exploiting ODOT’s erroneous anticompetitive
interpretation as they are of unlawful conspirators in that same marketplace.
Metaphorically, they . . . took their own shares of the manna that kept falling from
Heaven.” The court also dismissed the Deceptive Trade Practices claim for lack of
standing and the fraud claim as vaguely pleaded and duplicative.

       After the district court dismissed the complaint, Erie County filed a motion for
reconsideration. The motion noted that Erie County had recently discovered—contrary
to its previous “information and belief”—that the counties have never been bound by the
Buy Ohio law, and argued that this newly discovered fact should change the district
court’s motion-to-dismiss ruling. But Erie County soon withdrew its motion for
reconsideration and filed this appeal instead.

       On appeal, Erie County challenges the district court’s dismissal of the Valentine
Act claim. It does not challenge the dismissal of the other two claims.
No. 11-4153           Erie Cnty v. Morton, et al.                                       Page 9

                                       II. ANALYSIS

A. Standard of review

          A district court’s decision to grant a motion to dismiss for failure to state a claim
is reviewed de novo. Lambert v. Hartman, 517 F.3d 433, 438–39 (6th Cir. 2008). When
deciding such a motion, we must construe the complaint in the light most favorable to
the plaintiff and accept all factual allegations as true. Id. at 439. We need not, however,
accept conclusory allegations or conclusions of law dressed up as facts. Ashcroft v.
Iqbal, 556 U.S. 662, 678 (2009).

          “To survive a motion to dismiss, a complaint must contain sufficient factual
matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’” Id.
(quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007)). This standard demands
that the factual allegations “raise a right to relief above the speculative level” and
“nudge[] the[] claims across the line from conceivable to plausible.” Twombly, 550 U.S.
at 555, 570. It does not demand, however, that recovery be probable. Rather, “a well-
pleaded complaint may proceed even if it strikes a savvy judge that actual proof of those
facts is improbable, and that a recovery is very remote and unlikely.” Id. at 556 (internal
quotation marks omitted). In the final analysis, “[d]etermining whether a complaint
states a plausible claim for relief will . . . be a context-specific task that requires the
reviewing court to draw on its judicial experience and common sense.” Iqbal, 556 U.S.
at 679.

B. Distinguishing motions to dismiss from summary judgment in the antitrust
   context

          “Ohio has long followed federal law in interpreting the Valentine Act,” Johnson
v. Microsoft Corp., 834 N.E.2d 791, 795 (Ohio 2005), and both parties have cited
exclusively to federal jurisprudence interpreting the Sherman Act. We will therefore
analyze Erie County’s Valentine Act claims by reference to federal law.

          Section One of the Sherman Act, 15 U.S.C. § 1, prohibits unreasonable contracts,
combinations, and conspiracies in restraint of trade. Leegin Creative Leather Prods.,
No. 11-4153         Erie Cnty v. Morton, et al.                                    Page 10

Inc. v. PSKS, Inc., 551 U.S. 877, 885 (2007). To state a Section One claim, a plaintiff
must plead more than a restraint of trade; it must plead an agreement in restraint of trade.
Twombly, 550 U.S. at 553 (“[T]he crucial question is whether the challenged
anticompetitive conduct stems from independent decision or from an agreement, tacit
or express.”) (brackets and internal quotation marks omitted). An agreement, either tacit
or express, may ultimately be proven either by direct evidence of communications
between the defendants or by circumstantial evidence of conduct that, in the context,
negates the likelihood of independent action and raises an inference of coordination.
Brown v. Pro Football, Inc., 518 U.S. 231, 241 (1996); Monsanto Co. v. Spray-Rite Serv.
Corp., 465 U.S. 752, 768 (1984).

        Although an agreement may be inferred from circumstantial evidence, the bare
fact that defendants engaged in parallel conduct is not sufficient to establish a Sherman
Act violation:

        While a showing of parallel business behavior is admissible
        circumstantial evidence from which the fact finder may infer agreement,
        it falls short of conclusively establishing agreement or itself constituting
        a Sherman Act offense. Even conscious parallelism, a common reaction
        of firms in a concentrated market that recognize their shared economic
        interests and their interdependence with respect to price and output
        decisions[,] is not in itself unlawful.

Twombly, 550 U.S. at 553-54 (brackets, citations, ellipsis, and internal quotation marks
omitted).

        Accordingly, “an allegation of parallel conduct and a bare assertion of conspiracy
will not suffice” to state an antitrust claim. Id. at 556. Rather, allegations of parallel
conduct “must be placed in a context that raises a suggestion of a preceding agreement.”
Id. at 557. Examples of allegations that go beyond simple parallel conduct and that
plausibly raise an inference of agreement include “parallel behavior that would probably
not result from chance, coincidence, independent responses to common stimuli, or mere
interdependence unaided by an advance understanding among the parties”; “conduct that
indicates the sort of restricted freedom of action and sense of obligation that one
generally associates with agreement”; and “complex and historically unprecedented
No. 11-4153         Erie Cnty v. Morton, et al.                                      Page 11

changes in pricing structure made at the very same time by multiple competitors, and
made for no other discernible reason” than to conform to a prior agreement. Id. at 556
n.4 (brackets and internal quotation marks omitted).

        Of course, a plaintiff who states a plausible conspiracy claim is not guaranteed
to survive a motion for summary judgment later in the case. “To survive a motion for
summary judgment or for a directed verdict, a plaintiff seeking damages for a violation
of § 1 must present evidence that tends to exclude the possibility that the alleged
conspirators acted independently.” Matsushita Elec. Indus. Co. v. Zenith Radio Corp.,
475 U.S. 574, 588 (1986) (internal quotation marks omitted).

        The district court did not clearly distinguish between the antitrust standards
applicable on summary judgment and those that apply to a motion to dismiss. Two
points of clarification are in order.

        First, at the pleading stage, the plaintiff is not required to allege facts showing
that an unlawful agreement is more likely than lawful parallel conduct. The Supreme
Court took pains to stress in both Twombly and Iqbal that what is required at the
pleading stage is a plausible, not probable, entitlement to relief. See Twombly, 550 U.S.
at 556 (“Asking for plausible grounds to infer an agreement does not impose a
probability requirement at the pleading stage; it simply calls for enough fact to raise a
reasonable expectation that discovery will reveal evidence of illegal agreement.”)
(internal quotation marks omitted); Iqbal, 556 U.S. at 678 (“The plausibility standard is
not akin to a ‘probability requirement,’ but it asks for more than a sheer possibility that
a defendant has acted unlawfully.”); see also Watson Carpet & Floor Covering, Inc. v.
Mohawk Indus., Inc., 648 F.3d 452, 458 (6th Cir. 2011) (“Ferreting out the most likely
reason for the defendants’ actions is not appropriate at the pleadings stage. [T]he
plausibility of [the defendants’] reason for the refusals to sell carpet does not render all
other reasons implausible.”). A Section One complaint will survive a Rule 12(b)(6)
motion to dismiss if it alleges facts sufficient to raise a plausible inference of an unlawful
agreement to restrain trade.
No. 11-4153        Erie Cnty v. Morton, et al.                                    Page 12

       Second, in order to state a Section One claim, a plaintiff need not allege a fact
pattern that “tends to exclude the possibility” of lawful, independent conduct. The
“tends to exclude” language traces its provenance to Monsanto Co. v. Spray-Rite Service
Corp., 465 U.S. 752, 764 (1984), and Matsushita Electrical Industrial Co. v. Zenith
Radio Corp., 475 U.S. 574, 588 (1986), which were both decisions dealing with
summary judgment and the standard of proof required to submit an issue to the jury. In
restating the same language, the Supreme Court in Twombly was mindful of those
decisions’ procedural context, see 550 U.S. at 554, and nowhere held that the same
standard applies on a motion to dismiss. And there is no authority cited by either the
parties or the district court for extending the same standard to the pleading stage.

       To the contrary, the only circuit court of appeals that to our knowledge has
considered such an extension has rejected it, and so has the leading treatise in the field.
See Starr v. Sony BMG Music Entm’t, 592 F.3d 314, 325 (2d Cir. 2010) (“Defendants
first argue that a plaintiff seeking damages under Section 1 of the Sherman act must
allege facts that tend to exclude independent self-interested conduct as an explanation
for defendants’ parallel behavior. This is incorrect.”) (brackets, citation, and internal
quotation marks omitted); 2 Philip E. Areeda & Herbert Hovenkamp, Antitrust Law
¶ 307d1 at 118 (3d ed. 2010) (hereinafter Areeda & Hovenkamp) (“Observe that the
Supreme Court [in Twombly] did not hold that the same standard applies to a complaint
and a discovery record, with the only difference being that the former involves alleged
facts while the latter involves facts in evidence. The ‘plausibly suggesting’ threshold
for a conspiracy complaint remains considerably less than the ‘tends to rule out the
possibility’ standard for summary judgment.”) (emphasis in original).

       The rationale for rejecting such an extension is clear: If a plaintiff were required
to allege facts excluding the possibility of lawful conduct, almost no private plaintiff’s
complaint could state a Section One claim. Rational people, after all, do not conspire
in the open, and a plaintiff is very unlikely to have factual information that would
exclude the possibility of non-conspiratorial explanations before discovery.
Accordingly, the regular motion-to-dismiss standard should apply.
No. 11-4153         Erie Cnty v. Morton, et al.                                    Page 13

        Under this standard, the question before us is: Do the factual allegations point
to nothing more than parallel conduct of the sort that is the product of independent
action, or do they plausibly raise an inference of unlawful agreement? See Twombly,
550 U.S. at 553. That is the question to which we will now turn.

C. Failure to state a claim

        As discussed above, Erie County claims that the five “indicators,” copied from
the OIG Report, nudge this case over the line from mere parallel conduct to conspiracy:
(1) stable market shares; (2) high incumbency; (3) suspicious bidding patterns (failing
to bid lower in geographically closer locations); (4) sham bids (submitting high, losing
bids in secondary territories); and (5) high prices and profits. We must consider these
factors together, not in isolation, to determine whether they give rise to a plausible
inference of conspiracy. See Continental Ore Co. v. Union Carbide & Carbon Corp.,
370 U.S. 690, 698-99 (1962).

        The first, second, and fifth factors are simply descriptions of the market, not
allegations of anything that the defendants did. Standing alone, they indicate only that
the market is a duopoly, and do not give rise to an inference of an unlawful agreement
(though they might, when combined with the other factors, strengthen the plausibility
of such an inference).

        The third and fourth factors are the nub of the complaint. With respect to the
third factor, Erie County faults the defendants for failing to grab allegedly plum business
opportunities. As the complaint puts it, “[s]uspicious bidding patterns occurred when
the Defendants failed to seek bids that would generate higher profit margins, i.e., when
the Defendants would contract with a county that is farther from their mine or stockpile
instead of a county that is closer to their salt source.” The argument, in other words, is
that because the product being sold is homogenous and fungible, and because all costs
except for transportation are constant, the defendants’ failure to aggressively compete
and bid low for accounts that are closer to their respective mines signifies a “fail[ure] to
seek bids that would generate higher profits.”
No. 11-4153          Erie Cnty v. Morton, et al.                                    Page 14

          But this is exactly the sort of failure-to-compete claim that Twombly rejected.
In that case, the plaintiffs attacked the defendant telecommunications firms’ “common
failure meaningfully to pursue attractive business opportunities in contiguous markets
where they possessed substantial competitive advantages.” 550 U.S. at 551 (brackets
and internal quotation marks omitted). The plaintiffs in Twombly claimed that the
defendants’ decision to remain in their respective local telephone and Internet-services
territories and to not encroach on each other’s territories, which resulted in a market that
remained “highly compartmentalized geographically, with minimal competition,” was
indicative of a prior agreement to restrain trade. Id. at 551, 567. In holding that these
allegations of failure to compete and geographical compartmentalization did not state
a Section One claim, the Supreme Court reasoned:

          In a traditionally unregulated industry with low barriers to entry, sparse
          competition among large firms dominating separate geographical
          segments of the market could very well signify illegal agreement, but
          here we have an obvious alternative explanation. In the decade
          preceding the 1996 [Telecommunications] Act and well before that,
          monopoly was the norm in telecommunications, not the exception. [The
          defendants] were born in that world, doubtless liked the world the way
          it was, and surely knew the adage about him who lives by the sword.
          Hence, a natural explanation for the noncompetition alleged is that the
          former Government-sanctioned monopolists were sitting tight, expecting
          their neighbors to do the same thing.
          . . . Not only that, but even without a monopolistic tradition and the
          peculiar difficulty of mandating shared networks, “[f]irms do not expand
          without limit and none of them enters every market that an outside
          observer might regard as profitable, or even a small portion of such
          markets.”

Id. at 567-69 (citations omitted) (quoting Areeda & Hovenkamp ¶ 307d at 155 (Supp.
2006)).

          Just as in Twombly, the failure to compete alleged in this case is indicative of no
more than a natural and independent desire to avoid a turf war and preserve the profits
guaranteed by regional dominance. Morton and Cargill presumably realize, like the
defendants in Twombly, that their interests are best served by keeping to their own turf
No. 11-4153        Erie Cnty v. Morton, et al.                                    Page 15

and charging oligopoly prices rather than stepping on each other’s toes and provoking
a bidding war that would lead to competitive prices and reduced profits. This is no more
than an independent, self-interested failure to compete, which does not violate Section
One. See, e.g., In re Text Messaging Antitrust Litig., 630 F.3d 622, 627 (7th Cir. 2010)
(Posner, J.) (explaining that Section One “does not require sellers to compete; it just
forbids their agreeing or conspiring not to compete”).

       But the fourth factor that the complaint takes from the OIG Report alleges
something more. The claim is not only that Morton and Cargill failed to enter each
other’s turf, but also that they helped each other rule their respective turf by submitting
intentionally losing bids that served to exclude their out-of-state competitors. This is
significant because, under the then-prevailing interpretation of the Buy Ohio law, all out-
of-state bidders were locked out—their bids would not even be considered, no matter
how much cheaper—if both Morton and Cargill submitted a bid for a particular contract.
A crucial difference therefore existed between one of the two companies’ submitting a
losing bid and not submitting a bid at all: only in the former case was the other company
guaranteed to win the contract. The intentional submission of a losing bid under these
circumstances does not make sense if it merely signifies a lack of interest in winning the
contract; if that were the motivation, the company would presumably not bid at all. The
practice makes sense only as a device to help the other company rule its territory.

       Not to compete with a fellow oligopolist is one thing; to actively assist the fellow
oligopolist to preserve its oligopoly is quite another. Unlike the failure to compete, the
submission of losing bids has no obvious independent justification. Why, after all,
should Cargill care if Morton or some other company prevails in a county that is of no
interest to Cargill anyway (and vice versa)? The most plausible explanation is the
expectation of a “tit for tat”; i.e., that I will guarantee your dominance in your primary
zone by submitting a high bid that is guaranteed to lose but will lock out your other
competitors, and in return you will exclude my competitors by submitting a losing bid
in my primary zone. This kind of tit-for-tat arrangement would be extremely difficult
to sustain in the absence of at least a tacit agreement. See 6 Areeda & Hovenkamp
No. 11-4153         Erie Cnty v. Morton, et al.                                  Page 16

¶ 1420b at 154 (“A strong inference of coordinated behavior arises when a participant
actively seeks to lose a bid. Deliberate sacrifice of a contract implies an unusual
confidence that the winning party will return the favor. Moreover, spurious bidding
indicates an awareness of wrongdoing coupled with a desire to hide it by simulating
normal bidding. A spurious bid is almost always anticompetitive.”); see also id.
¶ 1420d1 at 158 (“Interdependent sham bids are unlikely to endure without some
facilitating mechanism . . . .”).

        A sham-bidding conspiracy would therefore not be implausible. Its plausibility,
however, hinges on the applicability of the Buy Ohio law. Without the Buy Ohio law,
as then interpreted by ODOT, the incentive to collude evaporates because the sham
bidding would not lock out any competitors.

        Although the complaint does not specifically allege that Erie County was bound
by the Buy Ohio law, the district court and the defendants assumed that it was so bound,
perhaps because the entire theory of the conspiracy laid out in the complaint rested on
ODOT’s lockout interpretation of the Buy Ohio law. But, after the district court
dismissed the complaint, Erie County acknowledged for the first time that in fact it was
never bound by the Buy Ohio law.            In a subsequently withdrawn motion for
reconsideration filed after the complaint was dismissed, Erie County stated:

        While indirectly harmed by Defendants’ lock-out bidding to ODOT that
        excluded out-of-state bidders, it is now clear that . . . Plaintiff’s
        “information and belief” about Class Members’ application of the Buy
        Ohio program was not correct. Subsequent to the preparation of the
        Complaint, Plaintiff has been collecting and analyzing additional bidding
        information from counties included in the purported class. To date, none
        of these counties, including Erie County, has indicated that they opted to
        participate in the equivalent of the Buy Ohio program.

Erie County reiterated in its opening appellate brief that “[l]ocal governments are free
to participate in ‘Buy Ohio,’ but are not required to.” And counsel for Erie County
assured us again at oral argument that “they weren’t subject to the Buy Ohio” law.
No. 11-4153         Erie Cnty v. Morton, et al.                                    Page 17

        Erie County’s concession that it was not bound by the Buy Ohio law dooms its
conspiracy claim. As explained above, the allegation of sham bidding is the only thing
that could save the present case from dismissal under Twombly. And the theory of sham
bidding makes sense only in a market subject to the lockout interpretation of the Buy
Ohio law. If a purchaser of rock salt is not bound by the Buy Ohio law, then it is free
to solicit and receive bids from out-of-state companies without having its choices limited
to Morton and Cargill, and sham bidding would therefore be an exercise in futility. The
conspiracy claim, in other words, would be implausible in a market that is not subject
to the Buy Ohio law.

        Erie County attempts to extricate itself from this predicament by arguing that,
although it did not adopt ODOT’s interpretation of the Buy Ohio law, it was “indirectly”
harmed by the defendants’ exploitation of that law because the defendants “were able
to leverage the distortions created by Buy Ohio in state contracts into a similar allocation
of county and municipal contracts.” “The resulting environment of high and distorted
price[] levels combined with limited competition allowed the suppliers to carry out much
the same scheme on the county and municipal level.”

        Erie County’s claim of indirect harm by “leveraging” is unpersuasive. Its
arguments as to how this supposed leveraging worked are vague and do not spell out a
meaningful theory. If the theory is that Morton and Cargill leveraged their monopoly
power in segments of the ODOT market to create monopolies in segments of the county
market, that would appear to be a Sherman Act Section Two (monopolization-type)
claim, not a Section One claim. Such a claim would require elements that are not
pleaded in the complaint, including “a dangerous probability of success in monopolizing
a second market.” See Verizon Commc’ns Inc. v. Law Offices of Curtis V. Trinko, LLP,
540 U.S. 398, 415 n.4 (2004) (internal quotation marks omitted).

        The complaint also advances the following claim of “indirect” harm:

        As a result [of ODOT’s continued misapplication of the Buy Ohio law],
        the majority of Ohio’s market for road salt was removed from
        competition by parties other than Defendants which made the remainder
        of the market less dense and therefore less susceptible to effective
No. 11-4153         Erie Cnty v. Morton, et al.                                    Page 18

        competition. Because this allowed Defendants to dishonestly cite to
        supra-competitive prices paid by ODOT as really being competitive
        prices, Defendants made the rest of the market more susceptible to
        anticompetitive conduct including collusion, price-fixing and bid rigging.

        But none of this adds up to a Section One claim. The complaint’s theory that any
sham bidding with respect to ODOT purchases made other markets (what Erie County
calls “the remainder of the market”) “less dense and therefore less susceptible to
effective competition” simply does not follow. After all, how are other markets linked
to the ODOT market? Erie County does not tell us, and its conclusory say-so does not
satisfy the standard of plausible pleading. See Ashcroft v. Iqbal, 556 U.S. 662, 678
(2009) (holding that plausible pleading “does not require detailed factual allegations, but
it demands more than an unadorned, the-defendant-unlawfully-harmed-me accusation”)
(internal quotation marks omitted); Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555, 555
n.3 (2007) (“[A] plaintiff’s obligation to provide the grounds of his entitlement to relief
requires more than labels and conclusions, and a formulaic recitation of the elements of
a cause of action will not do . . . . Rule 8(a)(2) still requires a ‘showing,’ rather than a
blanket assertion, of entitlement to relief.”) (brackets and internal quotation marks
omitted).

        Nor is the complaint salvaged by the contention that sham bidding in the ODOT
market “allowed Defendants to dishonestly cite to supra-competitive prices paid by
ODOT as really being competitive prices.” “Dishonestly citing”—better known as
misrepresentation—is not an antitrust claim. See generally Brooke Grp. Ltd. v. Brown
& Williamson Tobacco Corp., 509 U.S. 209, 225 (1993) (“Even an act of pure malice
by one business competitor against another does not, without more, state a claim under
the federal antitrust laws; those laws do not create a federal law of unfair competition
or purport to afford remedies for all torts committed by or against persons engaged in
interstate commerce.”) (internal quotation marks omitted). The fraud claim was
dismissed below and never appealed, and is therefore not before us. In short, because
it is not bound by the Buy Ohio law, Erie County has failed to state a plausible
conspiracy claim.
No. 11-4153        Erie Cnty v. Morton, et al.                                    Page 19

       Although both parties have characterized Erie County’s not being bound by the
Buy Ohio law as an issue of “standing,” we have elected to treat it as an issue of failing
to state a claim because the significance of Erie County’s not being bound by the Buy
Ohio law can be understood only after analysis of the complaint’s substantive allegations
of conspiracy. In any event, the analysis and its outcome would be no different if
conducted under the rubric of standing. Cf. Rakas v. Illinois, 439 U.S. 128, 139 (1978)
(“We can think of no decided cases of this Court that would have come out differently
had we concluded, as we do now, that the type of standing requirement discussed [in this
case] is more properly subsumed under substantive Fourth Amendment doctrine. . . . The
inquiry under either approach is the same. But we think the better analysis forthrightly
focuses on the extent of a particular defendant’s rights under the Fourth Amendment,
rather than on any theoretically separate, but invariably intertwined concept of
standing.”).

       Finally, although the fact that Erie County is not bound by the Buy Ohio law
came up after the district court’s decision, the impact of that fact is properly considered
on appeal because the resolution of the case is beyond doubt. See DaimlerChrysler
Corp. Healthcare Benefits Plan v. Durden, 448 F.3d 918, 922 (6th Cir. 2006) (holding
that this court “will consider an issue not raised below” when “the proper resolution is
beyond doubt”). With the outcome clear in light of this newly discovered fact, there is
no point in wasting the resources of either the parties or the district court by ordering a
remand. See, e.g., Sec. & Exch. Comm’n v. Chenery Corp., 318 U.S. 80, 88 (1943) (“It
would be wasteful to send a case back to a lower court to reinstate a decision which it
had already made but which the appellate court concluded should properly be based on
another ground within the power of the appellate court to formulate.”); Beaty v. United
States, 937 F.2d 288, 291 (6th Cir. 1991) (“Here, the record is complete, and it would
be a waste of everyone’s time to remand to the district court what can be decided now
as a matter of law.”).

                                  III. CONCLUSION

For all of the reasons set forth above, we AFFIRM the judgment of the district court.