A Ninth Circuit panel split 2-1 on whether a California wholesale buyer of clean-burning CARB gasoline alleged a viable claim under section 1 of the Sherman Act. (CARB seems to stand for California Air Resources Board.)
The wholesaler accused major oil producers of tying up their refinery capacity by entering into "bilateral exchange agreements" – 44 of them. It also asserted that the producer's agreements, by limiting production of CARB gasoline, caused anticompetitive effects in the form of prices "above competitive levels". The district court dismissed the case on the ground that the complaint failed to allege that each contract, individually, produced supracompetitive prices.
The Ninth Circuit majority reversed. William O. Gilley Enterprises, Inc. v. Atl. Richfield Co. No. 06-5069 (9th Cir. Apr 3, 2009). It held that the wholesaler adequately pleaded the elements of a section 1 claim. The complaint specified the "agreement" element alright — actually quite a few agreements. That the pleading didn't also assert an intent to cause harm to competition didn't matter.
The big fight concerned whether the district court properly declined to credit the wholesaler's allegations that the producer's bilateral exchange agreements cumulatively exerted "market power" and that they produced an "anticompetitive effect". The court noted that Supreme Court precedent and its own have "allowed aggregation of multiple contracts when evaluating the legality of an individual contract." Id., slip op. at 4025. Nor could defendants save the day with arguments that only certain kinds of agreements (tying and exclusive dealing ones) warrant aggregate consideration and that bilateral exchange agreements actually enhance competition.
"At this stage of a motion to dismiss for failure to state a claim," the majority said, it is not our role to determine the soundness of Plaintiffs' economic theory. Even if we, as a savvy court, view actual proof of the facts pleaded in the [complaint] as improbable and conclude that a recovery is remote and unlikely, the complaint should still proceed. . . . The analysis we would have to unertake to dismiss the complaint is not appropriate at the Rule 12 stage." Id. at 4027 (citing Bell Atl. Corp. v. Twombly, 127 S. Ct. 1964, 1965 (2007)).
