Benny Jacobs v. Tempur-Pedic International, Inc.

[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT FILED
________________________ U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
No. 08-12720 DECEMBER 2, 2010
________________________ JOHN LEY
CLERK
D. C. Docket No. 07-00002-CV-RLV-4
BENNY JACOBS,
WANDA JACOBS,
Plaintiffs-Appellants,
versus
TEMPUR-PEDIC INTERNATIONAL, INC.,
TEMPUR-PEDIC NORTH AMERICA, INC.,
Defendants-Appellees.
________________________
Appeal from the United States District Court
for the Northern District of Georgia
_________________________
(December 2, 2010)
Before TJOFLAT and EDMONDSON, Circuit Judges, and RYSKAMP,* District
Judge.
*
Honorable Kenneth L. Ryskamp, United States District Judge for the Southern District
of Florida, sitting by designation.
TJOFLAT, Circuit Judge:
Tempur-Pedic North America, Inc. (“TPX”) manufactures visco-elastic
Tempur-Pedic foam mattresses and sells them to consumers nationwide through
distributors and its own website. These sales amount to eighty to ninety percent of
the visco-elastic foam mattresses sold in the United States.1 TPX sets the
minimum retail prices the distributors can charge for its mattresses; TPX adheres to
those minimum prices in the sales it makes through its website.
Benny and Wanda Jacobs (“Jacobs”)2 purchased a Tempur-Pedic mattress
from a TPX distributor in Rome, Georgia, at a price equal to or above the
minimum price stated in the distributor’s agreement with TPX. After purchasing
the mattress, Jacobs brought this antitrust action in the Northern District of
Georgia, Rome Division, against TPX under the Sherman Act, 15 U.S.C. § 1.3 He
claims that TPX created an “unreasonable restraint of trade” in violation of the Act
in two ways: by enforcing the vertical retail price maintenance agreements with its
1
The mattress industry in the United States produces and sells two types of mattresses:
traditional innerspring mattresses and non-traditional mattresses, which includes visco-elastic
foam mattresses such as those manufactured by TPX. The mattress industry has annual sales of
$4 billion, $800 million of which consists of non-traditional mattresses.
2
For simplicity, we refer to the Jacobses in the masculine singular throughout this
opinion.
3
“Every contract, combination in the form of trust or otherwise, or conspiracy, in
restraint of trade or commerce among the several States, or with foreign nations, is declared to
be illegal.” 15 U.S.C. § 1.
2
distributors and by engaging with its distributors in horizontal price fixing. Jacobs
seeks treble damages against TPX on behalf of all who have purchased Tempur-
Pedic mattresses in the United States and an injunction against TPX’s further
implementation of the retail price maintenance agreements.4
The district court, on TPX’s motion, dismissed Jacobs’s complaint for
failure to state a claim for relief5 and entered a final judgment for TPX. The court
4
Jacobs seeks the same relief against TPX’s parent corporation, Tempur-Pedic
International, Inc. Although Jacobs’s complaint does not allege that the parent corporation and
TPX are one and the same under an alter ego or other theory of liability, for purposes of this
opinion we treat the two corporations as one entity: TPX.
The relevant treble damages provision reads:
[A]ny person who shall be injured in his business or property by reason of
anything forbidden in the antitrust laws may sue therefor in any district court of
the United States in the district in which the defendant resides or is found or has
an agent, without respect to the amount in controversy, and shall recover threefold
the damages by him sustained, and the cost of suit, including a reasonable
attorney’s fee.
15 U.S.C. § 15. The relevant injunctive relief provision reads:
Any person, firm, corporation, or association shall be entitled to sue for and have
injunctive relief, in any court of the United States having jurisdiction over the
parties, against threatened loss or damage by a violation of the antitrust laws,
including sections 13, 14, 18, and 19 of this title, when and under the same
conditions and principles as injunctive relief against threatened conduct that will
cause loss or damage is granted by courts of equity, under the rules governing
such proceedings, and upon the execution of proper bond against damages for an
injunction improvidently granted and a showing that the danger of irreparable loss
or damage is immediate, a preliminary injunction may issue[.]
15 U.S.C. § 26.
5
See Fed. R. Civ. P. 12(b)(6).
3
then denied Jacobs’s motions to alter or amend the judgment6 or, alternatively, for
leave to amend the complaint.7 Jacobs now appeals all three rulings. We affirm.
We review the district court’s rulings in two parts. We first determine
whether Jacobs’s antitrust allegations were sufficient to withstand TPX’s motion to
dismiss. We then consider whether the district court should have granted either of
Jacobs’s alternative post-judgment motions.
I.
We begin our assessment of the sufficiency of Jacobs’s antitrust claims by
setting out the standard for reviewing a motion to dismiss an antitrust claim. The
review is de novo. Spanish Broad. Sys. of Fla., Inc. v. Clear Channel Commc’ns,
Inc., 376 F.3d 1065, 1070 (11th Cir. 2004). As the Supreme Court instructed in
Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S. Ct. 1955 (2007), in a case
brought under § 1 of the Sherman Act, we must determine whether the complaint,
in asserting a conspiracy or agreement in restraint of trade, contains “allegations
plausibly suggesting (not merely consistent with) [a conspiracy or] agreement,”
that is, whether the complaint “possess[es] enough heft to show that the pleader is
entitled to relief.” Id. at 557, 127 S. Ct. at 1966 (quotations and alteration
6
See Fed. R. Civ. P. 59(e).
7
See Fed. R. Civ. P. 15(a).
4
omitted). Plausibility is the key, as the “well-pled allegations must nudge the
claim ‘across the line from conceivable to plausible.’” Sinaltrainal v. Coca-Cola
Co., 578 F.3d 1252, 1261 (11th Cir. 2009) (quoting Twombly, 550 U.S. at 570,
127 S. Ct. at 1974). And to nudge the claim across the line, the complaint must
contain “more than labels and conclusions, and a formulaic recitation of the
elements of a cause of action will not do.” Twombly, 550 U.S. at 555, 127 S. Ct.
at 1965. “[T]he tenet that a court must accept as true all of the allegations
contained in a complaint is inapplicable to legal conclusions. Threadbare recitals
of the elements of a cause of action, supported by mere conclusory statements, do
not suffice.” Ashcroft v. Iqbal, 556 U.S. ___, 129 S. Ct. 1937, 1949 (2009) (citing
Twombly, 550 U.S. at 555, 127 S. Ct. at 1964–65).
In conducting de novo review, we engage in the same exercise a district
court does in assessing the sufficiency of an antitrust complaint. It is a two-step
process:
[A] court considering a motion to dismiss can choose to begin by
identifying pleadings that, because they are no more than conclusions,
are not entitled to the assumption of truth. While legal conclusions can
provide the framework of a complaint, they must be supported by
factual allegations. When there are well-pleaded factual allegations, a
court should assume their veracity and then determine whether they
plausibly give rise to an entitlement to relief.
Id. at 1950.
5
In this case, therefore, after determining whether the complaint’s averments
are more than bare legal conclusions, we examine the complaint for a sufficient
quantum of allegations to plausibly suggest that TPX agreed with its distributors to
restrain trade in violation of the Sherman Act. We do this mindful that this is a
“context-specific task that requires the reviewing court to draw on its judicial
experience and common sense.” Id.
II.
Jacobs contends that the district court erred in two ways in dismissing the
complaint. First, he argues that the complaint sufficiently alleged vertical resale
price maintenance agreements between TPX and its distributors that were illegal
under the rule of reason. Second, he argues that the complaint provided facts
sufficient to establish horizontal price fixing by TPX and its distributors under the
per se rule. We address these arguments in order.
A.
Section 1 of the Sherman Act makes unlawful “[e]very contract,
combination in the form of trust or otherwise, or conspiracy, in restraint of trade or
commerce among the several States.” 15 U.S.C. § 1. Although the section’s
language seems automatically to prohibit any kind of concerted restraint of trade,
the Supreme Court’s interpretation of the Act indicates that many forms of
6
concerted action are to be evaluated under a flexible, case-by-case standard: the so-
called “rule of reason.” See Standard Oil Co. v. United States, 221 U.S. 1, 58–62,
31 S. Ct. 502, 515–16 (1911) (adopting the rule of reason). Under the rule of
reason, “the factfinder weighs all of the circumstances of a case in deciding
whether a restrictive practice should be prohibited as imposing an unreasonable
restraint on competition.” Cont’l T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 49,
97 S. Ct. 2549, 2557 (1977).8
By contrast, per se violations of § 1 of the Sherman Act are limited to a very
small class of antitrust practices whose character is well understood and that almost
always harm competition. Texaco Inc. v. Dagher, 547 U.S. 1, 5, 126 S. Ct. 1276,
1279 (2006); Sylvania, 433 U.S. at 50, 97 S. Ct. at 2557. Examples of such per se
illegality include horizontal price fixing among competitors, group boycotts, and
horizontal market division—business relationships that, in the courts’ experience,
virtually always stifle competition. See, e.g., United States v. Topco Assocs., Inc.,
8
The Court further described rule of reason analysis in this manner:
“The true test of legality is whether the restraint imposed is such as merely
regulates and perhaps thereby promotes competition or whether it is such as may
suppress or even destroy competition. To determine that question the court must
ordinarily consider the facts peculiar to the business to which the restraint is
applied; its condition before and after the restraint was imposed; the nature of the
restraint and its effect, actual or probable.”
Sylvania, 433 U.S. at 49 n.15, 97 S. Ct. at 2557 n.15 (quoting Chi. Bd. of Trade v. United States,
246 U.S. 231, 238, 38 S. Ct. 242, 244 (1918)).
7
405 U.S. 596, 607–08, 92 S. Ct. 1126, 1133–34 (1972).
For many years, vertical resale price maintenance agreements, like the one
alleged in Jacobs’s complaint, were per se unlawful. Dr. Miles Med. Co. v. John
D. Park & Sons Co., 220 U.S. 373, 405, 31 S. Ct. 376, 383 (1911) (“Nor can the
manufacturer by rule and notice, in the absence of contract or statutory right, even
though the restriction be known to purchasers, fix prices for future sales.”),
overruled by Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877,
907, 127 S. Ct. 2705, 2725 (2007). Even though Dr. Miles’s reasoning rested on
infirm economic rationales,9 the Supreme Court implicitly upheld the per se
9
The most glaring flaw in Dr. Miles’s reasoning was its importation of restraints on
alienation—a concept traditionally employed in the common law of property—to justify
prohibiting manufacturers from imposing price minimums on downstream resellers. The Court’s
approach reflected “the formalism of the period” by applying “a common law standard with little
obvious relevance to manufactured goods.” William H. Page, Legal Realism and the Shaping of
Modern Antitrust, 44 Emory L.J. 1, 16 (1995); see also Ira S. Sacks & Hillel R. Silvera, A
Return to Reason for Price Restraints, 24 Hofstra L. Rev. 1069, 1070 (1996) (“The factual
assumptions and common law rule against restraints on alienation that underlied [sic] the Court’s
condemnation of resale price maintenance, however, probably made no sense in 1911 and surely
[are] inconsistent with modern antitrust jurisprudence which is based primarily on market impact
and economic effect.”); Sylvania, 433 U.S. at 53 n.21, 97 S. Ct. at 2559 n.21 (noting that most
commentators regarded past Court reliance on the restraints-on-alienation rule in antitrust cases
as “both a misreading of legal history and a perversion of antitrust analysis”).
More importantly, the Dr. Miles Court lacked the benefit of the modern consensus in
economic literature that vertical resale price maintenance may have procompetitive effects in
many circumstances. It did not consider, for example, that such agreements may stimulate
interbrand competition by eliminating “free-riding” by discounting distributors and by reducing
intrabrand competition based solely on services provided by retailers. Indeed, “[b]y the late
1970s, the Supreme Court itself recognized at least the possibility that such restraints may serve
manufacturer interests in a procompetitive way.” 8 Phillip E. Areeda & Herbert Hovenkamp,
Antitrust Law ¶ 1620c2, at 214 (2d ed. 2004) [hereinafter Areeda]. As explained infra, the Court
in Leegin Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877, 127 S. Ct. 2705 (2007),
focused on several of these procompetitive justifications in shifting vertical resale price
8
illegality of vertical resale price maintenance agreements for nearly a century after
Dr. Miles came down. See, e.g., Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S.
752, 761, 104 S. Ct. 1464, 1469 (1984); Sylvania, 433 U.S. at 51 n.18, 97 S. Ct. at
2558 n.18 (“The per se illegality of [vertical] price restrictions has been established
firmly for many years . . . .”); cf. Bus. Elecs. Corp. v. Sharp Elecs. Corp., 485 U.S.
717, 735–36, 108 S. Ct. 1515, 1525 (1988) (“[E]conomic analysis supports the
view, and no precedent opposes it, that a vertical restraint is not illegal per se
unless it includes some agreement on price or price levels.”).
But even as the Supreme Court nominally upheld the per se illegality of
vertical resale price minimums, it relaxed per se rules on other vertical restraints in
favor of rule of reason analysis. The Court, for example, declared maximum resale
price maintenance agreements subject to the rule of reason. State Oil Co. v. Khan,
522 U.S. 3, 18–22, 118 S. Ct. 275, 283–85 (1997), overruling Albrecht v. Herald
Co., 390 U.S. 145, 88 S. Ct. 869 (1968). The Court also declared non-price
vertical restraints inappropriate for per se condemnation, applying instead the rule
of reason. Sylvania, 433 U.S. at 57–58, 97 S. Ct. at 2561–62, overruling United
States v. Arnold, Schwinn & Co., 388 U.S. 365, 87 S. Ct. 1856 (1967). And the
Court also made clear that it evaluates a manufacturer’s termination of its
minimums to rule of reason analysis.
9
agreement with an undesired discounting distributor under rule of reason analysis.
Bus. Elecs., 455 U.S. at 727, 108 S. Ct. at 1521. Thus, by the time the Court
decided Leegin, the jurisprudential foundations supporting the analysis of vertical
resale price minimums under the per se rule were already substantially weakened.
In Leegin, a manufacturer of leather goods refused to sell to retailers that
discounted its goods below the manufacturer’s suggested prices. One retailer, to
whom the manufacturer stopped selling after the retailer refused to cease
discounting below the suggested prices, sued the manufacturer, alleging that it had
entered into vertical minimum resale price agreements that were per se illegal
under Dr. Miles. Leegin, 551 U.S. at 882–84, 127 S. Ct. at 2710–12. The
Supreme Court disagreed, expressly overruling Dr. Miles because “the reasons
upon which Dr. Miles relied do not justify a per se rule.” Id. at 887–89, 127 S. Ct.
at 2713–14; see also supra note 9. The Court recognized that “[m]inimum resale
price maintenance can stimulate interbrand competition—the competition among
manufacturers selling different brands of the same type of product—by reducing
intrabrand competition—the competition among retailers selling the same brand.”
Id. at 890, 127 S. Ct. at 2715. It can do so because eliminating intrabrand
competition frees retailers to invest in enhanced services that more effectively sell
the manufacturer’s products relative to rival manufacturers’ products.
10
Additionally, customers receive more opportunities to choose among cheaper,
lower-quality brands and more expensive, higher-quality brands. Id.; see also
Sylvania, 433 U.S. at 52 n.19, 97 S. Ct. at 2558 n.19 (observing that interbrand
competition “provides a significant check on the exploitation of intrabrand market
power because of the ability of consumers to substitute a different brand of the
same product”). Furthermore, “[a]bsent vertical price restraints, the retail services
that enhance interbrand competition might be underprovided. This is because
discounting retailers can free ride on retailers who furnish services and then
capture some of the increased demand those services generate.” Id. (citing
Sylvania, 433 U.S. at 55, 97 S. Ct. at 2549).10 The interests in reducing free riding
and enhancing interbrand competition, reasoned the Court, outweighed the stare
decisis concern of overruling Dr. Miles’s nearly century-old precedent. After
Leegin, therefore, courts must evaluate vertical resale price maintenance
10
The Court fleshed out the free-rider concept by explaining that
[i]f the consumer can[, after learning about a product from an upscale retailer,]
buy the product from a retailer that discounts because it has not spent capital
providing services or developing a quality reputation, the high-service retailer
will lose sales to the discounter, forcing it to cut back its services to a level lower
than consumers would otherwise prefer. Minimum resale price maintenance
alleviates the problem because it prevents the discounter from undercutting the
service provider. With price competition decreased, the manufacturer’s retailers
compete among themselves over services.
551 U.S. at 891, 127 S. Ct. at 2716.
11
agreements using the rule of reason.
Under rule of reason analysis, a plaintiff may show either actual or potential
harm to competition. Levine v. Cent. Fla. Med. Affiliates, Inc., 72 F.3d 1538,
1551 (11th Cir. 1996). We address the sufficiency of Jacobs’s allegations of harm
to competition infra. Regardless of whether the plaintiff alleges actual or potential
harm to competition, however, he must identify the relevant market in which the
harm occurs. See Fed. Trade Comm’n v. Ind. Fed’n of Dentists, 476 U.S. 447,
460–61, 106 S. Ct. 2009, 2018–19 (1986) (reversing the court of appeals’ vacatur
of a Federal Trade Commission order because, inter alia, the Commission
identified a market “even in the absence of elaborate market analysis”); Levine, 72
F.3d at 1551 (“Rule of reason analysis requires the plaintiff to prove . . . an
anticompetitive effect of the defendant’s conduct on the relevant market . . . .”).
Jacobs argues that the district court erred by holding that the complaint
failed to adequately plead a relevant market and thus did not show actual harm to
competition. After reviewing the district court’s order, we agree that the
complaint’s relevant market allegations fall short of what Twombly requires.
Section One plaintiffs must define both (1) a geographic market and (2) a
product market. See Rossi v. Standard Roofing, Inc., 156 F.3d 452, 464 (3d Cir.
1998) (“In the usual rule of reason case, to establish a violation of § 1, plaintiffs
12
must prove . . . that the combination or conspiracy produced adverse, anti-
competitive effects within the relevant product and geographic markets.”)
Although the “parameters of a given market are questions of fact,” Thompson v.
Metro. Multi-List, Inc., 934 F.2d 1566, 1573 (11th Cir. 1991), antitrust plaintiffs
still must present enough information in their complaint to plausibly suggest the
contours of the relevant geographic and product markets. Since both the
geographic and product market allegations are necessary for a plaintiff suing under
§ 1 of the Sherman Act to succeed, a court, in assessing the sufficiency of the
complaint, may begin by analyzing either one. See Newcal Indus., Inc. v. IKON
Office Solution, 513 F.3d 1038, 1045 n.4 (9th Cir. 2008) (analyzing the product
market where the defendant did not challenge the plaintiff’s assertion of the United
States as a geographic market). We start with Jacobs’s product market allegation;
as our analysis makes clear, Jacobs has not sufficiently pled the relevant product
market.11
Jacobs contends the district court improperly concluded that the visco-elastic
foam mattresses sold by TPX are part of one larger market for mattresses
11
Jacobs’s geographic market allegation consists of a one-line statement that “[t]he
relevant geographic market is the United States.” While this general allegation seems
ambiguous without more information, see Brown Shoe Co. v. United States, 370 U.S. 294, 337,
82 S. Ct. 1502, 1530 (1962) (“[A]lthough the geographic market in some instances may
encompass the entire Nation, under other circumstances it may be as small as a single
metropolitan area.”), we need not decide whether it is sufficient in this particular case. Jacobs
cannot prevail because he has not adequately pled the relevant product market.
13
generally. The district court reasoned that although “visco-elastic foam mattresses
may be very different from innerspring mattresses . . . they are still a product on
which people sleep.” Jacobs agrees, but insists that this is of no moment. Rather,
what is important is that visco-elastic foam mattresses are a distinct submarket
within the larger mattress market and, as such, must be examined separately for
purposes of the product market definition.
Defining the relevant product market involves identifying “producers that
provide customers of a defendant firm (or firms) with alternative sources for the
defendant’s product or services.” Levine, 72 F.3d at 1552. “The ‘market is
composed of products that have reasonable interchangeability.’” Id. (quoting
United States v. E.I. du Pont de Nemours & Co. (Cellophane), 351 U.S. 377, 404,
76 S. Ct. 994, 1012 (1956)). Most importantly, we should look “‘to the uses to
which the product is put by consumers in general.’” Maris Distrib. Co. v.
Anheuser-Busch, Inc., 302 F.3d 1207, 1221 (11th Cir. 2002) (quoting Queen City
Pizza, Inc. v. Domino’s Pizza, Inc., 124 F.3d 430, 438 (3d Cir. 1997)).
A relevant product market can exist as a distinct subset of a larger product
market. U.S. Anchor Mfg., Inc. v. Rule Indus., Inc., 7 F.3d 986, 995 (11th Cir.
1993). The Supreme Court has provided “practical indicia” that can determine the
contours of the submarket, such as “industry or public recognition of the submarket
14
as a separate economic entity, the product’s peculiar characteristics and uses,
unique production facilities, distinct customers, distinct prices, sensitivity to price
changes, and specialized vendors.” Brown Shoe Co. v. United States, 370 U.S.
294, 325, 82 S. Ct. 1502, 1524 (1962).12 A court should pay particular attention to
evidence of the cross-elasticity of demand13 and reasonable substitutability of the
products, because “[i]f consumers view the products as substitutes, the products are
part of the same market.” Rebel Oil Co. v. Atl. Richfield Co., 51 F.3d 1421, 1435
(9th Cir. 1995).
The district court relied on Cellophane in its product market analysis,
holding that because visco-elastic foam mattresses and traditional innerspring
mattresses are both “product[s] on which people sleep,” the two products are
12
Some have criticized Brown Shoe’s language of “submarkets” and “practical indicia.”
See, e.g., 4 Areeda ¶ 913a, at 62 (“One alternative that we do not recommend is a return to
Brown Shoe’s language of ‘submarkets.’”); Fed. Trade Comm’n v. Whole Foods Mkt., Inc., 548
F.3d 1028, 1058–59, 1061 (D.C. Cir. 2008) (Kavanaugh, J., dissenting) (citing Robert H. Bork,
The Antitrust Paradox 210, 216 (1978)) (casting doubt on the “practical indicia” language and
calling the practical indicia test “moribund”), amending 533 F.3d 869 (D.C. Cir. 2008). We do
not enter this debate, as we find that even if Brown Shoe’s practical indicia are worthy of
dispositive weight as a general matter, Jacobs has not provided allegations sufficient to establish
a relevant submarket for visco-elastic foam mattresses.
13
The cross-elasticity of demand measures the change in the quantity demanded by
consumers of one product relative to the change in price of another. A high cross-elasticity of
demand (that is, consumers demanding proportionately greater quantities of Product X in
response to a relatively minor price increase in Product Y) indicates that the two products are
close substitutes for each other—that is, consumers derive comparable utility from equivalent
consumption of either one. For purposes of the relevant product market analysis, a high cross-
elasticity of demand indicates that the two products in question are reasonably interchangeable
substitutes for each other and hence are part of the same market. See Cellophane, 351 U.S. at
400, 76 S. Ct. at 1010.
15
interchangeable parts of the larger mattress market, a market as to which Jacobs
did not allege any anticompetitive effects. Jacobs correctly points out that, unlike
this case, Cellophane was based on a voluminous record, detailed in several
published appendices, from which the Court could draw data on market share and
substitutability of goods. 351 U.S. 405–12, 76 S. Ct. 1012–16. Here, because the
district court dismissed his complaint based on its legal insufficiency, Jacobs
argues that he did not have the chance to add facts in discovery which would have
established visco-elastic foam mattresses as a separate relevant product submarket.
We cannot accept this argument, however, because it would absolve Jacobs
of the responsibility under Twombly to plead facts “plausibly suggesting” the
relevant submarket’s composition. Jacobs’s skimpy allegations of the relevant
submarket do not meet this obligation. The complaint alleges, without elaboration,
that “[v]isco-elastic foam mattresses comprise a relevant product market, or sub-
market, separate and distinct from the market for mattresses generally, under the
federal antitrust laws.” This conclusional statement merely begs the question of
what, exactly, makes foam mattresses comprise this submarket. The complaint
provides no factual allegations of the cross-elasticity of demand or other
indications of price sensitivity that would indicate whether consumers treat visco-
elastic foam mattresses differently than they do mattresses in general. Consumer
16
preferences for visco-elastic foam mattresses versus traditional innerspring
mattresses, and the costs associated with their sale, may vary widely, may vary
little, or may not vary at all. Jacobs’s complaint, however, gives no indication of
which of these is the case. The allegations that visco-elastic foam mattresses are
more expensive than traditional innerspring mattresses and that visco-elastic foam
mattresses have “unique attributes” are similarly of little help. They do not
indicate the degree to which consumers prefer visco-elastic foam mattresses to
traditional mattresses because of these unique attributes and differences in price.
Would, for example, a consumer whose innerspring mattress was due for
replacement be more likely to purchase another innerspring mattress or substitute a
visco-elastic foam model for it? Are visco-elastic foam mattresses put to different
uses (as luxury goods, such as in fine hotels and within higher income brackets)
than are traditional mattresses? These types of questions, which our precedent
makes clear are crucial to understanding whether a separate market exists, go
unanswered in the complaint.
Moreover, “the broader economic significance of a submarket must be
supported by demonstrable empirical evidence.” U.S. Anchor, 7 F.3d at 998.
While we acknowledge that Jacobs did not have the chance to undertake extensive
discovery because this case was dismissed on a Rule 12(b)(6) motion, he
17
nevertheless had the obligation under Twombly to indicate that he could provide
evidence plausibly suggesting the definition of the alleged submarket. Such an
indication is conspicuously lacking here; in its place is the unsupported assertion
that visco-elastic foam mattresses constitute a distinct submarket of the larger
mattress market.
For these reasons, the complaint’s allegations of the relevant product market
are legally insufficient. The complaint’s insufficiency, however, is not limited to
the relevant product market allegations. Assuming for argument’s sake that the
complaint defined that market, it failed to adequately allege actual or potential
harm to competition.
Actual harm is indicated by a factual connection between the alleged
harmful conduct and its impact on competition in the market, Spanish Broad. Sys.,
376 F.3d at 1072, and the plaintiff claiming it should point “to the specific damage
done to consumers” in the market, id. (citing Full Draw Prods. v. Easton Sports,
Inc., 182 F.3d 745, 753–54 (10th Cir. 1999)). The plaintiff has the burden of
demonstrating damage to competition with “specific factual allegations.” Id. at
1073. Actual anticompetitive effects include, but are not limited to, reduction of
output, increase in price, or deterioration in quality. United States v. Brown Univ.,
5 F.3d 658, 668 (3d Cir. 1993). Higher prices alone are not the “epitome” of
18
anticompetitive harm (as Jacobs claims). Rather, consumer welfare, understood in
the sense of allocative efficiency, is the animating concern of the Sherman Act.
See, e.g., Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S.
209, 221, 113 S. Ct. 2578, 2587 (1993) (noting the antitrust laws’ “traditional
concern for consumer welfare and price competition”); Reiter v. Sonotone Corp.,
442 U.S. 330, 343, 99 S. Ct. 2326, 2333 (1979) (quoting Robert H. Bork, The
Antitrust Paradox 66 (1978)) (“Congress designed the Sherman Act as a ‘consumer
welfare prescription.’”). By “anticompetitive,” the law means that a given practice
both harms allocative efficiency and could “raise[] the prices of goods above
competitive levels or diminish[] their quality,” Rebel Oil, 51 F.3d at 1433, in
addition to other possible anticompetitive effects such as those above. In turn, the
ability to raise prices above the competitive level corresponds to a firm’s market
power. See Ind. Fed’n of Dentists, 476 U.S. at 460–61, 106 S. Ct. at 2019. Here,
beyond the bald statement that consumers lost hundreds of millions of dollars,
there is nothing establishing the competitive level above which TPX’s allegedly
anticompetitive conduct artificially raised prices.
Because Jacobs did not provide allegations plausibly suggesting actual harm
to competition, his only avenue of relief was to sufficiently allege potential harm.
To do so, Jacobs had to “define the relevant market and establish that the
19
defendants possessed power in that market.” Levine, 72 F.3d at 1551. After those
threshold requirements, Jacobs then had to make “specific allegations linking
market power to harm to competition in that market.” Spanish Broad. Sys., 376
F.3d at 1073; see also id. (quoting Tops Mkts., Inc. v. Quality Mkts., Inc., 142 F.3d
90, 97 (2d Cir. 1998) (“Market power, while necessary to show adverse effect
indirectly, alone is insufficient.”)). Here, in addition to having failed to allege the
relevant product market (as explained above), Jacobs has failed to establish the
connection between TPX’s power in the visco-elastic foam mattress market and
harm to competition in that market.
We have held that “[m]arket power is the ability to raise price significantly
above the competitive level without losing all of one’s business,” Graphic Prods.
Distribs., Inc. v. Itek Corp., 717 F.2d 1560, 1570 (11th Cir. 1983) (citing Valley
Liquors, Inc. v. Renfield Importers, Ltd., 678 F.2d 742, 745 (7th Cir. 1982)
(Posner, J.)), and that “[m]arket share is frequently used in litigation as a surrogate
for market power,” id. Jacobs’s complaint does allege that “TPX has 80-90% of
sales in the visco-elastic foam mattress market,” but beyond this fact, the complaint
provides no “direct evidence of the injurious exercise of market power [such as]
evidence of restricted output and supracompetitive prices,” Rebel Oil, 51 F.3d at
1434, beyond stating that these conditions exist. This is another fatal blow to
20
Jacobs’s case, because a showing of market power is necessary, but not sufficient,
to establish potential harm to competition. Spanish Broad. Sys., 376 F.3d at 1073.
The complaint here is bereft of the critical allegations linking TPX’s market power
to harm to competition.
The extent of the complaint’s allegation that TPX harmed competition is the
statement that the alleged resale price fixing agreements “have unreasonably
restrained, do unreasonably restrain, and will continue to unreasonably restrain
trade and commerce in the visco-elastic mattress market . . . by eliminating price
competition.” This sparse allegation is precisely the type of bare legal conclusion
that was insufficient in Twombly and Iqbal. It provides no basis on which a court
could determine how harm to competition results from TPX’s agreements with its
distributors (if such harm results at all). Nor does the complaint allege that
interbrand competition—that is, how competitors react to the allegedly higher
prices of TPX’s mattresses—has been harmed by marketwide increased prices or
reduced output. See Leegin, 551 U.S. at 890, 127 S. Ct. at 2715 (“The promotion
of interbrand competition is important because ‘the primary purpose of the antitrust
laws is to protect [this type of] competition.’” (quoting Khan, 522 U.S. at 15, 118
S. Ct. at 282) (alteration in Leegin)).
Just as firms in a perfectly competitive market are price-takers with respect
21
to commodity prices, an appeals court is a complaint-taker when reviewing the
district court’s dismissal of a claim as legally insufficient. With no record to go
on, the court is limited to what appears on the face of the complaint. Here, the
complaint contains insufficient factual allegations to plead a plausible case that
TPX’s retail price maintenance agreements with its distributors had
anticompetitive effects on the mattress market. Thus, the district court was correct
to dismiss Jacobs’s claim based on those agreements.
B.
Jacobs also argues that the district court improperly dismissed his claim for
horizontal price fixing.14 Specifically, he contends that the dual distribution system
TPX employed—where TPX sold mattresses both through its authorized
distributors and through its own website—constituted a horizontal price-fixing
conspiracy. TPX responds that the dual distribution system it used does not
constitute a per se illegal horizontal conspiracy, and in fact is lawful under rule of
reason analysis. The district court dismissed the horizontal price fixing claim
because (1) courts generally have viewed manufacturer-distributor chains as
vertical, not horizontal, in nature,15 and (2) Jacobs did not allege a freestanding
14
Recall from the discussion supra that horizontal price fixing is one of the few per se
illegal practices under the Sherman Act.
15
This court has not adopted a per se rule for such classification; instead, we examine
the circumstances of each dual distribution arrangement to see whether it more closely resembles
22
horizontal agreement solely among TPX, qua distributor, and its distributors.
We examine whether Jacobs’s allegations of horizontal price fixing are
plausible under Twombly. Jacobs’s allegations stated that “TPX has entered into
agreements with its distributors that allow TPX to set the prices at which a
distributor . . . must sell Tempur-Pedic mattresses. . . . These agreements between
TPX and its distributors result in there being virtually no price competition among
retailers and dealers in the sales of Tempur-Pedic mattresses.” Further, TPX “sells
its mattresses directly to consumers, and sells them at the same prices at which it
has agreed with its distributors to charge.”
Reading these allegations as a whole, we can draw two possible inferences
from the fact that TPX and its distributors charged the same minimum price. The
first inference is that an arrangement existed whereby TPX, qua manufacturer,
used the vertical minimum price agreements as a guise for horizontally setting
a horizontal or vertical agreement. Some cases have classified dual distribution relationships as
horizontal in character. See, e.g., United States v. McKesson & Robbins, 351 U.S. 305, 313, 76
S. Ct. 937, 942 (1956); Hobart Bros. Co. v. Malcolm T. Gilliland, Inc., 471 F.2d 894, 899 (5th
Cir. 1973). The recent trend, however, while it does not illustrate a bright-line rule, has been “to
view the primary relationship between a dual distributor and an independent franchisee as
vertical where the restrictions do not lessen interbrand competition or decrease the availability of
goods or services.” Midwestern Waffles, Inc. v. Waffle House, Inc., 734 F.2d 705, 720 (11th
Cir. 1984) (per curiam); see, e.g., Graphic Prods., 717 F.2d at 1576; Abadir & Co. v. First Miss.
Corp., 651 F.2d 422, 427–28 (5th Cir. Unit A 1981); Red Diamond Supply v. Liquid Carbonic
Corp., 637 F.2d 1001, 1005–07 (5th Cir. Unit A 1981); H & B Equip. Co. v. Int’l Harvester Co.,
577 F.2d 239, 245 (5th Cir. 1978); Hesco Parts, LLC v. Ford Motor Co., No. 3:02CV-736-S,
2006 WL 2734429, at *4–5 (W.D. Ky. Sept. 22, 2006). Professor Areeda also notes that most
recent cases have classified dual distributorships as vertical relationships subject to the rule of
reason. 8 Areeda ¶ 1605b, at 70–71.
23
uniform prices above the market equilibrium level when it acted as a distributor.
In this scenario, a horizontal arrangement would exist between TPX, qua
distributor, and its distributors by dint of the vertical price agreements. According
to Jacobs, this horizontal arrangement would represent tacit collusion by TPX and
its distributors to set prices on Tempur-Pedic mattresses.16 If correct, such an
inference would support Jacobs’s theory of unlawful price fixing by TPX and its
distributors.
The second inference is that TPX and its distributors set prices
independently of each other; that is, TPX and its distributors happened to set the
same price because it made economic sense to do so. Here is why the distributors
would not set prices at any level other than the TPX-imposed minimum. TPX’s
direct-distribution website acts as an “enforcement mechanism” to prevent
distributors from raising prices. If the distributors raised their prices above the
minimum resale price set by TPX, and TPX, qua distributor, did not raise its price,
consumers would start purchasing Tempur-Pedic mattresses nearly exclusively
from TPX’s website, eventually causing the distributors to lose significant amounts
16
The agreement would have to be tacit because the complaint makes no allegation of a
direct agreement to fix prices. That is, the agreement would have taken the form of conscious
parallelism. Yet even consciously parallel behavior by firms with similar economic interests in a
concentrated market is not, by itself, unlawful; without more, parallel behavior could be “just as
much in line with a wide swath of rational and competitive business strategy unilaterally
prompted by common perceptions of the market.” Twombly, 550 U.S. at 553–54, 127 S. Ct. at
1964.
24
of business or to exit the market entirely. Hence, it is in the distributors’
independent economic interest to maintain prices at TPX-set minimums.17
Moreover, TPX would not undercut the minimum prices it imposes on its
distributors. TPX, qua distributor, would not set its price under the minimum
resale prices because doing so would drive the distributors out of business as
consumers switched to purchasing Tempur-Pedic mattresses from the website.
This would be undesirable for TPX for economic reasons as well. TPX maintains
the distributorship arrangement because its distributors provide showrooms where
consumers can test out Tempur-Pedic mattresses, have the mattresses’ unique
attributes explained to them by knowledgeable salespeople, and make an informed
comparison between Tempur-Pedic mattresses and traditional innerspring
mattresses—even if they later choose to purchase from TPX’s website. Such first-
hand information is critical to making a purchasing decision about an item on
which consumers will spend one-third of their lives, and TPX would be reluctant to
forfeit that information by putting distributors out of business. Accordingly, TPX
keeps the prices for its web distributorship equal to the resale price minimums
because it is economically advantageous for TPX as well.
17
Conversely, the same holds true for TPX: it would lose market share as a distributor
by raising prices on its website above those charged by distributors, as long as customers’
transaction costs incurred in purchasing a Tempur-Pedic mattress from a distributor’s showroom
were lower than the difference between the website price and the distributor’s price.
25
We noted earlier that under the pleading standards of Twombly and Iqbal,
plausibility is the key. Given this standard, Jacobs had the burden to present
allegations showing why it is more plausible that TPX and its
distributors—assuming they are rational actors acting in their economic self-
interest—would enter into an illegal price-fixing agreement (with the attendant
costs of defending against the resulting investigation) to reach the same result
realized by purely rational profit-maximizing behavior. Put another way, the
potential costs of fixing prices with its distributors would outweigh any benefits
that TPX would realize by doing so, particularly where independent economic
activity would yield the same benefits with none of the costs.
In fact, the pleading standard enunciated in Twombly built upon the Court’s
rejection of an argument similar to the one Jacobs makes. The Twombly plaintiffs’
complaint against incumbent local exchange long-distance carriers did not survive
a motion to dismiss because any actions those carriers took to resist incursion by
upstart carriers was “fully explained” by their “own interests in defending [their]
individual territory.” Twombly, 550 U.S. at 552, 127 S. Ct. at 1963 (quotations
omitted) (approving the district court’s dismissal of the complaint because
“allegations of parallel business conduct, taken alone, do not state a claim under §
1”). The plaintiffs’ complaint led to competing inferences of conscious parallelism
26
and independent business judgment, and the Court held that more allegations were
required at the motion to dismiss stage:
[W]e have previously hedged against false inferences from identical
behavior at a number of points in the trial sequence. An antitrust
conspiracy plaintiff with evidence showing nothing beyond parallel
conduct is not entitled to a directed verdict; proof of a § 1 conspiracy
must include evidence tending to exclude the possibility of
independent action; and at the summary judgment stage a § 1
plaintiff’s offer of conspiracy evidence must tend to rule out the
possibility that the defendants were acting independently.
Id. at 554, 127 S. Ct. at 1964 (citations omitted); cf. Matsushita Elec. Indus. Co. v.
Zenith Radio Corp., 475 U.S. 574, 587, 106 S. Ct. 1348, 1356 (1986) (“[I]f the
factual context renders [the plaintiff’s] claim implausible—if the claim is one that
simply makes no economic sense—[the plaintiffs] must come forward with more
persuasive evidence to support their claim than would otherwise be necessary.”).
Here, like the Twombly Court, we fail to find in the complaint “facts that are
suggestive enough to render a § 1 conspiracy plausible,” id. at 556, 127 S. Ct. at
1965, when the inference of conspiracy is juxtaposed with the inference of
independent economic self-interest. See Matsushita, 475 U.S. at 596–97, 106 S.
Ct. at 1361 (“[I]f [the defendants] had no rational economic motive to conspire,
and if their conduct is consistent with other, equally plausible explanations, the
conduct does not give rise to an inference of conspiracy.”). Moreover, even if tacit
collusion were, in fact, the more plausible inference, tacit collusion is “not in itself
27
unlawful.” Brooke Group, 509 U.S. at 227, 113 S. Ct. at 2590. Jacobs would have
had to provide further allegations that, in addition to tacitly colluding, TPX and its
authorized distributors somehow signaled each other on how and when to maintain
or adjust prices. See id. at 227–28, 113 S. Ct. at 2590. The complaint contains no
such allegations. There is no indication, for example, of dates on which
distributors moved prices together, or the amounts by which the prices moved, if in
fact they did.
For the foregoing reasons, the district court correctly dismissed Jacobs’s
claim for horizontal price fixing.
III.
The district court denied Jacobs’s alternative motions to alter or amend the
judgment under Federal Rule of Civil Procedure 59(e)18 and to amend his
complaint pursuant to Federal Rule of Civil Procedure 15(a).19 Jacobs argues that
18
The version of Rule 59(e) in effect when Jacobs filed his motions on December 21,
2007, provided: “A motion to alter or amend a judgment must be filed no later than 10 days after
the entry of the judgment.” Fed. R. Civ. P. 59(e) (2007) (amended 2009).
19
The version of Rule 15(a) in effect at the time of Jacobs’s motion provided, in relevant
part:
(a) Amendments Before Trial.
(1) Amending as a Matter of Course. A party may amend its pleading once as a
matter of course:
(A) before being served with a responsive pleading; or
(B) within 20 days after serving the pleading if a responsive pleading is not
allowed and the action is not yet on the trial calendar.
(2) Other Amendments. In all other cases, a party may amend its pleading only
28
the rulings constituted an abuse of discretion:20 the court should have reversed the
judgment and required TPX to answer the complaint and, if not, it should have
vacated the judgment and granted him leave to amend.
A.
Jacobs’s motion to alter or amend the judgment claimed that the court, in
dismissing the complaint, erred in concluding that the complaint “failed to
sufficiently allege an anticompetitive effect of defendant’s conduct.” According to
Jacobs’s motion, the complaint satisfactorily alleged “actual harm to competition”
and “a relevant product market” and that the court misapplied the Twombly
standard in finding the allegations insufficient. Particularly egregious was the
court’s product market determination; the disagreement between the parties as to
the correct product market was a factual dispute that could not be resolved on a
motion to dismiss.
In Arthur v. King, we observed that
with the opposing party’s written consent or the court’s leave. The court should
freely give leave when justice so requires.
Fed. R. Civ. P. 15(a) (2007) (amended 2009).
20
A district court’s “decision to alter or amend judgment is committed to the sound
discretion of the district judge and will not be overturned on appeal absent an abuse of
discretion.” Lawson v. Singletary, 85 F.3d 502, 507 (11th Cir. 1996) (per curiam) (quoting Am.
Home Assurance Co. v. Glenn Estess & Assocs., Inc., 763 F.2d 1237, 1238–39 (11th Cir. 1985)).
A district court’s denial of a motion for leave to amend is reviewed under the same abuse of
discretion standard. See Laurie v. Ala. Court of Criminal Appeals, 256 F.3d 1266, 1269 (11th
Cir. 2001).
29
‘[t]he only grounds for granting [a Rule 59] motion are
newly-discovered evidence or manifest errors of law or fact.’ In re
Kellogg, 197 F.3d 1116, 1119 (11th Cir. 1999). ‘[A] Rule 59(e)
motion [cannot be used] to relitigate old matters, raise argument or
present evidence that could have been raised prior to the entry of
judgment.’ Michael Linet, Inc. v. Village of Wellington, Fla., 408
F.3d 757, 763 (11th Cir. 2005).
500 F.3d 1335, 1343 (11th Cir. 2007) (per curiam) (alterations in original).
Having read Jacobs’s motion, we conclude that it did nothing but ask the
district court to reexamine an unfavorable ruling. Reconsidering the merits of a
judgment, absent a manifest error of law or fact, is not the purpose of Rule 59. We
find nothing in the district court’s order that would constitute a manifest error of
law or fact. Jacobs’s remedy, if he thought the district court ruling was wrong, was
to appeal, a step he has taken. Since we have concluded that the court did not err
in dismissing Jacobs’s complaint, it necessarily follows that it did not abuse its
discretion in denying Rule 59(e) relief.
B.
Jacobs based his alternative motion, which called for vacating the judgment
and entering an order of dismissal with leave to amend the complaint, on the
provisions of Federal Rule of Civil Procedure 15(a). He first seized upon Rule
15(a)(1), which states that “[a] party may amend its pleading once as a matter of
course . . . before being served with a responsive pleading.” Fed. R. Civ. P.
30
15(a)(1) (2007) (amended 2009). Noting that TPX had not filed a “responsive
pleading, but only a motion to dismiss, [which is] not considered a responsive
pleading for purposes of Rule 15(a)[(1)],” Jacobs’s motion stated that “a plaintiff
may amend the complaint once as a matter of right.” Since he had not previously
exercised that right, Jacobs contended, in effect, that an intervening judgment
could not abolish the right. Jacobs further asserted that the district court abused its
discretion by refusing to allow an amendment under Rule 15(a)(2), which directs
the court to “freely give leave [to amend] when justice so requires.”
The problem with Jacobs’s arguments is that Rule 15(a), by its plain
language, governs amendment of pleadings before judgment is entered; it has no
application after judgment is entered. In United States ex rel. Atkins v. McInteer,
we made this clear.
[Rule] 15(a) has no application once the district court has dismissed
the complaint and entered final judgment for the defendant.
Czeremcha v. Int’l Ass’n of Machinists and Aerospace Workers,
AFL-CIO, 724 F.2d 1552, 1556 (11th Cir. 1984). Wright, Miller &
Kane, Federal Practice and Procedure, § 1489. Post-judgment, the
plaintiff may seek leave to amend if he is granted relief under Rule
59(e) or Rule 60(b)(6). Id.; Czeremcha, 724 F.2d at 1556; Ahmed v.
Dragovich, 297 F.3d 201, 207–09 (3d Cir. 2002); Lindauer v. Rogers,
91 F.3d 1355, 1356 (9th Cir. 1996); Dussouy v. Gulf Coast Inv. Corp.,
660 F.2d 594, 597 n.1 (5th Cir. 1981).
470 F.3d 1350, 1361 n.22 (11th Cir. 2006). Given this precedent, we could hardly
hold that the district court abused its discretion in denying Jacobs leave to amend
31
his complaint post-judgment.
IV.
For the foregoing reasons, the judgment of the district court is
AFFIRMED.
32
RYSKAMP, District Judge, dissenting:
This appeal requires examination of the nature of pleading in the post-
Twombly era. Prior to Twombly, a complaint was held to the Fed.R.Civ.P. 8(a)(2)
notice pleading standard, that is, a complaint needed to contain “a short and plain
statement of the claim showing that the pleader is entitled to relief” such that the
defendant received “fair notice of what the...claim is and the grounds upon which it
rests.” Conley v. Gibson, 355 U.S. 41, 47, 78 S. Ct. 99, 103 (1957). Twombly
recast the standard for specificity in pleading, ruling that a plaintiff’s obligation to
provide the grounds for his entitlement to relief requires more than “labels and
conclusions,” and that a “formulaic recitation of the elements of a cause of action
will not do.” Ashcroft v. Iqbal, 556 U.S. ___, 129 S. Ct. 1937, 1949 (2009)
(quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 127 S. Ct. 1955, 1964-65
(2007)). Courts must first separate factual allegations and legal conclusions and
need only accept the factual allegations as true. Iqbal, 556 U.S. ___, 129 S.Ct. at
1949. Courts then apply a plausibility standard; the complaint must contain “only
enough facts to state a claim for relief that is plausible on its face.” Twombly, 550
U.S. at 570, 127 S.Ct. at 1974. “Determining whether a complaint states a
plausible claim for relief [is] a context-specific task that requires the reviewing
court to draw on its judicial experience and common sense.” Iqbal, 556 U.S. at
33
___, 129 S.Ct. at 1950.
The majority goes too far in its application of Twombly and essentially
requires Jacobs to prove his case in his complaint. I cannot join the majority
opinion in light of its misapplication of the Twombly standard.
The majority finds Jacobs’s vertical price-fixing claim lacking in part
because Jacobs did not sufficiently plead the relevant product market. As the
majority notes, the “‘market is composed of products that have reasonable
interchangeability.’” Levine, 72 F.3d at 1552 (quoting du Pont, 351 U.S. at 404,
76 S.Ct. at 1012). Such identification requires knowledge of “producers that
provide customers of the defendant firm (or firms) with alternative sources for the
defendant’s products or services.” Levine, 72 F.3d at 1552 (quotation omitted).
Also according to the majority, actual evidence of cross-elasticity of demand is
another factor in evaluating the existence of the submarket. The majority even
goes so far as to say that “the broader economic significance of a submarket must
be supported by demonstrable empirical evidence.” U.S. Anchor, 7 F.3d at 998
(emphasis added).
Product market analysis is detailed and complicated. That people sleep on
both innerspring mattresses and visco-elastic mattresses does not necessarily mean
that each of these mattresses belongs in the same product market. All building
34
materials (wood, stone, brick, steel, etc.) are not all in the same market simply
because people use these materials to construct buildings. The relevant market
simply cannot be determined on a motion to dismiss.
The demand for “empirical evidence” at this stage of litigation is improper.
Requiring “demonstrable empirical evidence” in the complaint carries Twombly
too far. Indeed, Twombly itself states that “a complaint...does not need detailed
factual allegations.” 550 U.S. at 555, 127 S. Ct. 1964. No litigant could have any
possibility of alleging a complaint under the majority’s “demonstrable empirical
evidence” standard. Evidence is presented at the summary judgment stage or at the
trial stage of litigation, not in the pleadings. Notably, Cellophane, on which the
district court relied in its product market analysis, was based on a voluminous
record contained in several appendices. Jacobs cannot be expected to provide
factual allegations of cross-elasticity of demand, or other indications of price
sensitivity, absent access to discovery. While Twombly was a sea change in the
standards governing pleading in federal court,1 the majority goes too far when it
interprets Twombly to require a plaintiff to include actual evidence in the
complaint.
1
Many state courts predicated their pleading requirements on the now-overruled Conley
standard. It remains to be seen if and how these states will alter their pleading requirements in
light of Twombly.
35
Jacobs alleges that the system by which TPX sold mattresses through
authorized distributors and its own website constitutes a horizontal price-fixing
conspiracy in that all retailers charged the same price for the same product. The
majority notes that two possible inferences derive from the fact that TPX and its
distributors charged the same minimum price. The first inference is tacit collusion
by TPX and its distributors to set prices. The second inference is that TPX and its
distributors set prices independently of each other. Merriam-Webster’s dictionary
defines “plausible” as “appearing worthy of belief.” Synonyms for “plausible”
include “credible,” “creditable,” “likely,” “believable,” “presumptive” and
“probable.” My judicial experience and common sense leads me to conclude that it
is entirely plausible that TPX and its distributors colluded to set prices. Indeed, it
is totally implausible that TPX and its distributors set prices independently of each
other. Horizontal price-fixing is still a per se violation, and this allegation satisfies
the plausibility pleading standard: it is entirely plausible that this uniformity in
pricing is the result of collusion rather than market forces. Jacobs has a colorable
horizontal price fixing claim, and his horizontal price-fixing claim should have
been allowed to proceed.
The majority’s judicial experience and common sense leads it to conclude
otherwise: it would require Jacobs to provide allegations that TPX and its
36
distributors signaled each other as to how and when to fix prices. When
plausibility is based on a judge’s common sense and experience, different judges
will have different opinions as to what is plausible, resulting in a totally subjective
standard for determining the sufficiency of a complaint. “[I]nconsistent rulings on
virtually identical complaints may well be based on individual judges having quite
different subjective views of what allegations are plausible.” Arthur R. Miller,
From Conley to Iqbal: A Double Play of the Federal Rules of Civil Procedure, 60
Duke L.J. 1, 30 (2010). See also Rajiv Mohan, A Retreat from Decision by Rule in
Ashcroft v. Iqbal, 33 Harv.J.L. & Pub. Pol’y 1191, 1197 (2010) (basing the
plausibility determination on judicial experience and common sense “suggests that
plausibility is not meant to be guided by clear principles, but instead by the
wisdom of judges.”). Speaker v. U.S. Dep’t of Health and Human Services Center
for Disease Control and Prevention, ___ F.3d ____, ____, No. 09-16154, 2010 WL
4136634 (Oct. 22, 2010) illustrates this principle. The plaintiff alleged that the
United States Department of Health And Human Services Centers For Disease
Control and Prevention (“CDC”) disclosed his identity and other confidential
medical information relating to the treatment of his tuberculosis. Id. at 4. The
district court granted the CDC’s motion to dismiss, but this court reversed and
remanded, ruling that Plaintiff’s complaint met the plausibility standard and noting
37
that a plaintiff “need not prove his case on the pleadings” but “merely [needed to]
provide enough factual material to raise a reasonable inference, not a possible
claim, that the CDC was the source of the disclosures at issue.” Id. at 11. The
plausibility standard is a moving target; two different courts can easily reach
different conclusions based on a review of the same pleading. See also Wells v.
Willow Lake Estates, Inc., No. 09-14154, 2010 WL 3037808, at *3 (11th Cir. Aug.
5, 2010) (reversing district court dismissal of amended complaint, noting that
amended complaint’s “allegations are specific, factual, and plausible....”); Waters
Edge Living, LLC v. RSIU Indem. Co., 355 Fed.Appx. 318, 323-24 (11th Cir.
2009) (finding that the complaint “allow[ed] a reasonable inference” regarding the
existence of the settlement agreement and reversing the district court’s dismissal
for failure to state a claim for relief).
Yet if Jacobs made the type of allegations the majority seeks and discovery
later indicated that those allegations were untrue, Jacobs would be vulnerable to
Rule 11 sanctions. Scholars write of “information asymmetry,” which often
presents in claims “hinging on the defendant’s state of mind or secret conduct.”
Scott Dodson, New Pleading, New Discovery, 109 Mich.L.Rev. 53, 66 (2010). In
such instances, “the necessary information relating to issues such as fraud,
conspiracy, price-fixing, and corporate governance can be found only in the
38
defendant’s files and computers.” Miller, supra, 45. See also Dodson, supra, 67-
68 (noting that plaintiffs who “may have actually suffered cognizable harm” will
not necessarily “be able to survive a motion to dismiss without formal discovery”
and will be unable “to allege unknown facts in their pleadings without running
afoul of the certification provision in Rule 11....”).
I am concerned that the majority confuses the complaint’s factual allegations
with legal conclusions. The complaint alleges that “[v]isco-elastic foam mattresses
comprise a relevant product market, or sub-market, separate and distinct from the
market for mattresses generally, under the federal antitrust laws” and that the
alleged price fixing agreements “have unreasonably restrained, do unreasonably
restrain, and will continue to unreasonably restrain trade and commerce in the
visco-elastic mattress market...by eliminating price competition.” These
allegations could just as well be factual and suitable for trial by jury. See Miller,
supra, 24-25 (“the conclusion category is being applied quite extensively,
embracing allegations that one might reasonably classify factual and therefore
potentially jury triable....”).
I am also troubled that the district court dismissed Jacobs’s complaint with
prejudice based on case law not yet decided at the time Jacobs filed suit. The
complaint was filed on January 5, 2007. Twombly was decided on May 21, 2007,
39
and Leegin was decided on June 28, 2007. Iqbal was not yet decided at the time of
oral argument in this court.
Leegin applied the rule of reason to vertical price-fixing agreements, but
Jacobs filed his complaint when the per se rule governed. As the majority notes,
evaluation of potential restraints of trade under the rule of reason entails “the
factfinder weigh[ing] all of the circumstances of the case in deciding whether a
restrictive practice should be prohibited as imposing an unreasonable restraint on
competition.” Cont’l T.V., 433 U.S. at 49, 97 S.Ct. at 2557. The court is not a
factfinder on a motion to dismiss, however. Under the rule of reason, the uniform
pricing could be indicative of an illegal price fixing agreement, but such is not
discernable absent discovery. It was an abuse of discretion to deny Jacobs leave to
amend in light of the intervening Leegin decision.
Since Twombly also post-dated Jacobs’s complaint, Jacobs could not be
expected to conform his pleading to unarticulated standards. Simply put, Jacobs
relied on the Rule 8 notice pleading standard when he filed his complaint. The
Appendix to the Federal Rules contains several forms that “suffice under these
rules and illustrate the simplicity and brevity that these rules contemplate.”
Fed.R.Civ.P. 84. Form 11, issued April 30, 2007, i.e., pre-Twombly, entitled
“Complaint for Negligence,” provides that the following is sufficient to allege a
40
claim for negligence:
1. (Statement of Jurisdiction....).
2. On date, at place, the defendant negligently drove a motor vehicle
against the plaintiff.
3. As a result, the plaintiff was physically injured, lost wages or income,
suffered physical and mental pain, and incurred medical expenses of
$___________.
Therefore, the plaintiff demands judgment against the defendant for
$__________, plus costs.
Such a pleading would likely be considered scant under the Twombly standard.
Although Jacobs’s motion to amend came after issuance of the final judgment,
denial of the motion was an abuse of discretion given that Twombly was not
decided when Jacobs filed suit. I am puzzled that the district court would issue a
final judgment prior to allowing Jacobs leave to amend his complaint. The sua
sponte allowance of leave to amend after dismissal of an initial complaint is
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standard practice in federal court.
Furthermore, the district court never gave oral argument to the parties. By
deciding this case on the pleadings and immediately (the same day) entering final
judgment, the district court thwarted Jacobs’s right to amend (since no responsive
pleading was filed).
I say nothing as to whether Jacobs’s claims would survive a motion for
summary judgment. I merely say that Jacobs should have received leave to amend
his complaint in light of Twombly and Leegin and that the majority overreads
Twombly as requiring the presentation of evidence at the pleadings stage.
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