A dilemma

A price-fixer cheats his buyers, but he may also do something worse — frighten them into doing nothing about it.

Last week, the Third Circuit made a ruling that will calm victims’ fears. Instead of bringing a claim they don’t want to prosecute, the court held, they may freely assign it to someone who does. And they may do so with or without payment for the assignment.

Background

The case that produced the decision arose from an effort by Eaton Corporation, the dominant maker of heavy-duty truck transmissions, to squelch competition by an upstart, ZF Meritor. Tauro Brothers Trucking sued Eaton for treble damages under sections 1 and 2 of the Sherman Act. Tauro alleged that Eaton had killed ZF Meritor with contract terms that tied buyers exclusively to Eaton.

But four years into the case, Eaton moved to dismiss on the ground that Tauro lacked standing to sue. Because Tauro did not buy transmissions directly from Eaton, the motion argued, it failed to meet the Supreme Court’s limitation on antitrust standing in Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977), to direct buyers.

Tauro replied that it had a valid assignment from R&R, a firm that sold Eaton transmissions to Tauro after buying them directly from Eaton.

The district court granted the motion, holding the assignment no good on the ground that Tauro gave R&R nothing for it. A valid assignment, the court held, required “consideration”.

Reversal

The Third Circuit reversed.

It started by stressing that “federal common law” — not state law — governed the question of what makes an assignment of federal antitrust claims valid. Wallach v. Eaton Corp., No. 15-3320, slip op. at 15 n.11 and accompanying text.

The panel next adopted the American Law Institute’s Restatement (Second) of Contracts (1981) “as a starting point for fashioning rules of federal common law” regarding the validity of antitrust claim assignments. Id. at 20.

Because the Restatement does not require the owner of a right of action to receive something in return for assigning it, the court held, the lack of consideration for R&R’s express assignment to Tauro did not matter. Tauro had standing. Id. at 28-29.

Implications

The panel supported its ruling on the ground that it will aid enforcement of antitrust law. Their honors noted:

Part of creating incentives for private antitrust suits is making federal courts a welcome forum for such litigation, and erecting the barrier of consideration threatens to shut out otherwise meritorious suits from resolution. True, in some circumstances, consideration could spur such private suits because an assignee who pays valuable consideration for the right to sue might be more likely to actually bring suit in order to recoup its investment. But in situations like the one at issue in this case, if a direct purchaser is uninterested in pursuing its claims, whether because it deems them valueless or because it cannot afford the expense of litigation, an otherwise willing and interested assignee might be discouraged from pursuing the suit in the direct purchaser’s stead if it were required to provide consideration.

Id. at 26.

The court did not point out that “the expense of litigation” may include concern about the direct buyer’s ongoing relationship with her supplier, the Sherman Act violator. But I hear questions about the effect of bringing a case all the time. Will the powerful antitrust cartel take revenge?

An assignment can help take away worry. By transferring the claim to a third party, the direct purchaser puts distance between herself and the fight over the antitrust violation. She also avoids friction as well as expense and administrative burden of litigation, including party discovery.

As the court held in Wallach v. Eaton Corp., the claim owner may assign the antitrust claims without receiving consideration in return. But she also has the option of requiring some kind of payment. That may take the form of a lump-sum, but it may also consist of a right to a share of proceeds from litigation and settlement of the claims.

The Supreme Court has okayed assignments of federal claims to an entity that aggregates many claims and promises to pay proceeds, if any, to the assignors. Sprint Communications Co., L.P. v. APCC Services, Inc., 554 U.S. 269 (2008).