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In re Pressure Sensitiv Labelstock Antitrust Litigation

June 24, 2008

IN RE: PRESSURE SENSITIV LABELSTOCK ANTITRUST LITIGATION


The opinion of the court was delivered by: Judge Vanaskie

MDL Docket No. 1556

(All Cases)

MEMORANDUM

On May 21, 2007, the Supreme Court decided Bell Atlantic Corp. v. Twombly, 127 S.Ct. 1955, 1964 (2007), in which it considered "what a plaintiff must plead in order to state a claim under § 1 of the Sherman Act."*fn1 Relying on Twombly, Defendants Morgan Adhesives Company ("MACtac"), a producer of pressure sensitive labelstock ("PSL"), and Bemis Company, Inc. ("Bemis"), the parent of MACtac, have moved to dismiss the claims asserted against them in Plaintiffs' Second Amended and Consolidated Class Action Complaint ("Second Amended Complaint"). (Dkt. Entry 304.)*fn2 Although this Court denied MACtac's and Bemis's motion to dismiss the Amended Consolidated Class Action Complaint ("Amended Complaint"), which contained allegations against them essentially identical to those set forth in the Second Amended Complaint, MACtac and Bemis contend that the Court applied "then-applicable, now-overruled precedent" when it denied their motion. Because Twombly raised the bar for pleading antitrust conspiracy claims, they argue, Plaintiffs' allegations cannot withstand scrutiny under this new standard. Having carefully considered the parties' arguments in the context of Twombly, I find that the Second Amended Complaint contains enough fact to "plausibly suggest" MACtac was a willing participant in an unlawful conspiracy to restrain trade, but that a cognizable antitrust conspiracy claim has not been presented against Bemis. Accordingly, the motion to dismiss will be granted as to Bemis, but denied as to MACtac.*fn3

I. BACKGROUND

This class action arises from allegations of anti-competitive behavior in the United States PSL industry. After eleven separate antitrust actions were consolidated for pretrial purposes in this Court by the Judicial Panel for Multi-District Litigation, see In re Pressure Sensitive Labelstock Antitrust Litig., 290 F. Supp. 2d 1374, 1376 (J.P.M.L. 2003), Plaintiffs filed an Amended Complaint on February 16, 2004. (Dkt. Entry 46.) In addition to MACtac and Bemis, named as Defendants were Avery Dennison Corporation ("Avery"), the largest producer of PSL in the United States; Raflatac, Inc., the second largest PSL producer in the United States; and Raflatac's parent UPM-Kymmene ("UPM"), a Finnish corporation and a major producer of various types of paper used to produce PSL.

Among other things, the Amended Complaint alleged that, prior to UPM's expansion into the North American market, MACtac and Avery had elected not to compete for customers. MACtac's decision to refrain from competing with Avery, Plaintiffs alleged, was contrary to its economic self-interest in light of newly developed and considerable excess production capacity. As a consequence of this forbearance, MACtac's and Avery's respective market shares, as well as PSL prices, remained relatively stable. Additionally, Plaintiffs alleged that prices for PSL were set at supra-competitive levels, as evidenced by UPM's entry into the U.S. market despite the existence of considerable excess capacity and its ability (through Raflatac) to undercut prices by ten percent or more.

UPM/Raflatac's goal was to acquire twenty percent of the U.S. market. To prevent further price erosion, Avery held meetings with UPM to discuss easing price competition between them. The producers reached an understanding that UPM would acquire MACtac, which would enable it to attain its goal of a twenty percent market share without having to compete with Avery. Bemis agreed to sell MACtac to UPM. Plaintiffs alleged that this transaction was part of the unlawful conspiracy to restrain trade. They alleged that the sale price was half the amount Bemis had rejected for MACtac just two years earlier. Plaintiffs further alleged that, simultaneous with this transaction, UPM agreed to sell its flexible packaging business to Bemis, thus compensating Bemis for the loss of its PSL business by doubling its market share in the European flexible packaging business. As further evidence of Bemis's knowledge and participation in an agreement to restrict price competition, Plaintiffs alleged that MACtac's CEO, chosen by UPM to lead its North American PSL business, predicted the transaction would bring pricing "discipline" to the market.

On March 31, 2004, Bemis and MACtac filed a motion to dismiss the Amended Complaint. (Dkt. Entry 55.) The Court denied their motion in a Memorandum and Order issued February 15, 2005, and reported at In re Pressure Sensitive Labelstock Antitrust Litigation, 356 F. Supp. 2d 484 (M.D. Pa. 2005). After rejecting MACtac's and Bemis's contention that § 1 claims are subject to a heightened pleading standard, see id. at 491, the Court determined that Plaintiffs adequately pled an antitrust claim against MACtac under the theory of conscious parallelism. The averment that MACtac and Avery did not compete for customers, coupled with the averments that MACtac had newly developed excess capacity, that UPM entered the U.S. market notwithstanding the excess production capacity because prices were maintained at supra-competitive levels, and that MACtac's CEO and President decried UPM's price competition as "ruin[ing] the industry," supported a reasonable inference of concerted action by MACtac and Avery. Id. at 493.

With respect to the claim against Bemis, the Court found that the Amended Complaint alleged more than merely an agreement to sell MACtac to UPM. Id. at 494. By agreeing to exit the PSL market, Plaintiffs alleged, Bemis acquired significant market share in the European flexible packaging business. This Court found that "[t]he complaint thus support[ed] a reasonable inference of an agreement to allocate market shares as part and parcel of an effort to restrain competition." Id. Additionally, Plaintiffs alleged that Bemis was aware of the agreement to constrain price competition and knew the sale of MACtac furthered that agreement. Because it "ha[d] been given fair notice of the nature of Plaintiffs' claim, and the theory of liability [was] neither irrational nor implausible," Bemis was not entitled to be dismissed from the action. Id.

On May 5, 2005, Plaintiffs filed a Motion for Leave to File a Second Amended Complaint, (Dkt. Entry 149), which was granted on January 3, 2006. (See Mem. & Order, Jan. 3, 2006, Dkt. Entry 189.) The Second Amended Complaint restated allegations of the Amended Complaint, but also included new averments based on information uncovered during discovery regarding class certification. (See Second Am. Compl., Dkt. Entry 190.) All Defendants, including MACtac and Bemis, answered the Second Amended Complaint. (See Dkt. Entries 195, 197, 198, 199.)

Twombly was decided May 20, 2007. On September 18, 2007, Bemis and MACtac filed their motion to dismiss. (Dkt. Entry 304.) The motion is fully briefed, (see Dkt. Entries 307, 317, 330), and oral argument was held December 11, 2007. The matter is ripe for disposition.*fn4

II. DISCUSSION

A. Twombly

Section 1 of the Sherman Act prohibits "[e]very contract, combination . . . or conspiracy, in restraint of trade or commerce." 15 U.S.C. § 1. Three basic elements comprise a § 1 claim: "(1) concerted or joint action of more than one party; (2) that unreasonably restrains trade; and (3) that affects interstate trade or commerce." In re Pressure Sensitive Labelstock, 356 F. Supp. 2d at 489. "The existence of an agreement is '[t]he very essence of a section 1 claim.'" In re Flat Glass Antitrust Litig., 385 F.3d 350, 356 (3d Cir. 2004) (quoting Alvord-Polk, Inc. v. F. Schumacher & Co., 37 F.3d 996, 999 (3d Cir. 1994)). Like their first motion to dismiss, Bemis and MACtac challenge only the sufficiency of the Second Amended Complaint's allegations pertaining to their purported involvement in concerted action.

In Twombly, the Supreme Court addressed the requirements for pleading a claim under § 1 of the Sherman Act. Twombly, 127 S.Ct. at 1964. Twombly involved a § 1 claim against providers of local telephone and high-speed Internet service. Defendants, known as the "Baby Bells," were created after the break-up of AT&T in 1984, and each had enjoyed a government-sanctioned regional monopoly. Id. at 1961. Over ten years later, Congress signaled its disapproval of the monopolies by enacting the Telecommunications Act of 1996 to open the local telephone markets to competition from "competitive local exchange carriers." Id. Defendants, however, litigated the scope of the Act and resisted competition from CLECs. Id. Plaintiffs, subscribers of local telephone and/or high speed Internet services, commenced a class action alleging defendants violated § 1 by conspiring to restrain trade. Id. at 1962. Specifically, plaintiffs alleged that defendants conspired to hinder the competitive efforts of the CLECs and conspired to refrain from competing with one another. Id. The complaint contained no independent allegations of an agreement among defendants, but instead inferred an agreement from its ...


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