Corporate & Securities Law

Twombly Meets Leegin. Failure of Plaintiff to Allege "Plausible" Entitlement to Relief Constitutes Failure to Allege "Antitrust Injury."

By Sheppard Mullin Richter Hampton, LLP

In New England Carpenters Health Benefits Fund v. McKesson Corp., 573 F.Supp.2d 431 (Aug. 26, 2008), the District Court for the District of Massachusetts dismissed a national class action antitrust complaint, borrowing from the recent United States Supreme Court decisions in Bell Atlantic Corp. v. Twombly, 127 S.Ct. 1955 (2007), and Leegin Creative Leather Products, Inc. v. PSKS, Inc., 127 S.Ct. 2705 (2007).

Plaintiffs alleged that defendant McKesson, a drug wholesaler, engaged in an unlawful price-fixing agreement with First DataBank, a drug pricing publisher.  Plaintiffs alleged that by fraudulently misrepresenting the pricing levels for various of its drugs, McKesson and First DataBank artificially inflated the “average wholesale price” for various prescription pharmaceuticals.

McKesson moved for dismissal for failure to allege anticompetitive effects in a properly defined relevant market.  The antitrust allegations of the complaint were based upon the same operative facts alleged by plaintiffs in a companion civil RICO suit.  See New England Carpenters Health Benefit Fund v. First DataBank, Inc., 244 F.R.D. 79 (D. Mass. 2007).  In granting McKesson’s FRCP 12(b)(6) motion to dismiss, the court noted, pursuant to Twombly that a plaintiff’s complaint must allege “a plausible entitlement to relief”.  The court cited the recent decision of the First Circuit in In re Citigroup, Inc., 535 F.3d 45, 52(1^st Cir. 2008), noting that while it will take all of the complaint’s well-pleaded facts as true, and draw all reasonable inferences in plaintiff’s favor, it is free to disregard “bold assertions, unsupportable conclusions, and opprobrious epithets.”

The district court rejected plaintiff’s contention that the alleged conspiracy, which was for a drug wholesaler to induce a drug price publisher to inflate the wholesale price of the wholesaler’s pharmaceuticals, qualified as a “per se” violation.  The district court rejected this contention, noting that as recently held in Leegin, the “per se” category is only applicable to alleged violations that have “manifestly anticompetitive effects”.  A “per se” standard is only appropriate where “courts have had considerable experience with the type of restraint at issue, and only if courts can predict with confidence that it would be invalidated in all or almost all instances under the rule of reason”.  Here, noting that the defendants were not horizontal competitors, the court found that anticompetitive effects were not immediately obvious.  The district court also noted that plaintiffs, at the hearing on the motion to dismiss, conceded that the alleged conspiracy was “unique”, and that plaintiff’s theory was “novel”.  As such, the court held that McKesson’s conduct did not fall within one of the narrowly recognized categories warranting “per se” analysis.

Borrowing an invitation from Leegin to formulate presumptions in order to eliminate complex litigation issues, the plaintiffs argued that their claims, while novel, at least merit the application of a “quick look” analysis under the rule of reason.  The court rejected this invitation, and noted that pursuant to Leegin, and Cal. Dental Ass’n v. F.T.C., 526 US 756, 780-81 (1999), a “quick look” analysis requires that the allegations at least give rise to an “intuitive obvious inference of an anticompetitive effect”.  See also, National Society of Professional Engineers v. United States, 435 U.S. 679, 692 (1978) (when faced with such a conspiracy, the court will evaluate the alleged justification by the defendant, and “only the briefest inspection” is required to “reject the excuses and strike down the agreements”.)

The district court noted that the plaintiffs did not explain how there were any anticompetitive effects at all, other than to say in conclusory fashion that McKesson gained an unfair advantage over competitors with its false price advertising.  Plaintiffs failed to explain to the court’s satisfaction why purchasing consumers would not substitute away from the higher prices to reasonably substitutable offerings by competitors.  Thus, the court noted that there was no allegation that McKesson reduced competition in any relevant economic market.  In short, even ssuming “anticompetitive effects”, it was still incumbent upon plaintiffs to allege “anticompetitive conduct”.

Authored by:

Don T. Hibner, Jr.

(213) 617-4115

dhibner@sheppardmullin.com

Full post as published by Antitrust Blog Review on January 08, 2009 (boomark / email).