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Ciardi
v. F. Hoffman-La Roche, Ltd.: Indirect Purchaser Actions Under G.L. c.
93A, Sec. 9
By
Richard J. Yurko and Matthew C. Welnicki
I. Introduction
Antitrust lawyers, fasten your seatbelts, we are in for a bumpy ride.
One recent Supreme Judicial Court decision has greatly altered the landscape
of Massachusetts antitrust litigation. In February 2002, the SJC decided
Ciardi v. F. Hoffman-La Roche, Ltd., 436 Mass. 53 (2002), in which the
Court permitted consumers who are indirect purchasers to maintain
class actions for antitrust violations, such as price-fixing, under Section
9 of the Massachusetts Consumer Protection Statute, G.L. c. 93A. Not only
is the SJC decision important substantively, but it is sure to increase,
dramatically, the number of antitrust class
actions brought
in Massachusetts under the rubric of c. 93A. This article outlines the
reasoning of the majority and dissent in this 4-3 opinion, as well as
the decision’s potential impact.
II. The Ciardi Decision
A. The Issue Presented in Ciardi
The United States Supreme Court has long held that only a direct purchaser,
and not others in the chain of distribution, such as indirect purchasers,
could bring an action under the federal antitrust laws. Illinois Brick
Co. v. Illinois, 431 U.S. 720, 729-36 (1977); Kansas v. UtiliCorp United,
Inc., 497 U.S. 199, 206-208 (1990). In 1978, just after the Illinois Brick
decision, the Massachusetts Legislature enacted the state Antitrust Act,
G.L. c. 93, §§ 1-14A. Section 1 of the Act states that it is
to be “construed in harmony with judicial interpretations of comparable
federal antitrust statutes insofar as practicable.” Thus, it was
assumed that an indirect purchaser had no cause of action under G.L. c.
93, the state Antitrust Act. See Boos v. Abbott Labs., 925 F. Supp. 49,
51 (D. Mass. 1996).
In Ciardi v. F. Hoffmann-La
Roche, Ltd., 436 Mass. 53 (2002), indirect consumer purchasers of vitamin
products brought a class action suit for damages arising from the defendant
manufacturers’ alleged price-fixing conspiracy. To circumvent the
limitations imposed by Illinois Brick, the plaintiffs brought their claim
not under the state Antitrust Act but rather under the Massachusetts Consumer
Protection Act, G.L. c. 93A. Id. The Massachusetts appellate courts had
never ruled on whether G.L. c. 93A could give rise to such a cause of
action for indirect purchasers. The trial judge (Botsford, J.) denied
the defendants’ motion to dismiss, holding that indirect purchasers
could sue under c. 93A, and then reported this issue to the Appeals Court.
The SJC then granted the parties’ applications for direct appellate
review to address this issue of first impression.
B. The Majority Opinion
In its opinion, the SJC confirmed the accepted wisdom that Illinois Brick
prevented indirect purchasers from bringing actions based on the state
antitrust law. Ciardi, 436 Mass. at 57. The Court, however, recognized
that federal antitrust laws do not preempt states from enacting “Illinois
Brick repealer statutes,” which statutes expressly allow indirect
purchasers to bring claims based on traditional antitrust theories. Ciardi,
436 Mass. at 58, citing California v. ARC Am. Corp., 490 U.S. 93, 101-02
(1989). The Court ultimately found that G.L. c. 93A was such a statute.
The SJC began its analysis by noting that G.L. c. 93A was a “statute
of broad impact which creates new substantive rights and provides new
procedural devices for the enforcement of those rights.” Id. at
58, citing Linthicum v. Archambault, 379 Mass. 381, 383 (1979). The consumer
protection sections of the statute, and in particular, section 9(1) of
Chapter 93A, through its incorporation of section 2, declares as unlawful
any “unfair methods of competition and unfair or deceptive acts
or practices in the conduct of any trade or commerce . . . .” See
id. at 58-59. The Court then noted that, under the Federal Trade Commission
Act, 15 U.S.C. § 45(a)(1), price-fixing constitutes an unfair method
of competition. Id. at 59, citing FTC v. National Lead Co., 352 U.S. 419,
428-30 (1957). Because G.L. c. 93A, § 9, via section 2, relies on
interpretations of the FTC Act, price-fixing would also be unlawful under
the state consumer protection statute. Id. at 60. This relationship proves
to be a key aspect of the decision. In the view of the majority, G.L.
c. 93A, § 9, prohibits price-fixing through its link with the FTC
Act, not the federal and state antitrust laws. This consumer protection
path allowed section 9 to avoid the antitrust mandate of Illinois Brick.
According to the SJC, nothing in the express language of G.L. c. 93A,
§ 9, limits consumer protection actions for price-fixing to direct
purchasers. Id. at 60. The Court found that G.L. c. 93A, § 9, permits
any person to bring a consumer protection claim regardless of contractual
privity with the defendant. Id. at 60. Relying upon the express language,
the Court chose not to look to the legislative history of the relevant
statutes and permitted the majority to ignore that the Legislature had
declined opportunities to enact an Illinois Brick repealer statute. Id.
at 61, n.15.
The Court also rejected the defendants’ argument that allowing indirect
purchasers to bring suit for antitrust violations under the consumer protection
statute, G.L. c. 93A, § 9, would give rise to an inconsistent interpretation
of G.L. c. 93A and G.L. c. 93. Id. at 62-63. While G.L. c. 93A, §
11 (the businessperson’s right of action under c. 93A), includes
a specific provision that the interpretation of unfair methods of competition
should be guided by the provisions of the Antitrust Act, section 9 (the
consumer’s right of action) contains no such provision and, according
to the majority, is therefore not bound by antitrust law or Illinois Brick.
Id. at 63. The Court further found that neither the Antitrust Act nor
G.L. c. 93A were a “comprehensive statutory scheme enacted to govern
all antitrust claims to the exclusion of the other.” Id. at 64.
This is not a case where a specific regulatory statute trumped the general
provisions of G.L. c. 93A. Id.
The SJC’s decision reflects
a choice among conflicting public policy considerations. The majority
acknowledged that Illinois Brick was premised (a) on the policy of limiting
the burdens that indirect purchaser lawsuits would place on the judicial
system, and (b) the policy of establishing an efficient means of making
violators pay for their unlawful acts. Id. at 64, n.18. The Court, however,
noted that the Massachusetts Legislature was free to make its own policy
decisions and determine whether to authorize indirect purchaser suits.
Id. at 67. It reasoned that the public would benefit from allowing such
suits and that the Massachusetts Legislature had intended to realize this
benefit. Id. at 66-67.
C. The Dissent
The dissenting Justices in this closely-divided Court acknowledged that
“read literally and by itself,” G.L. c. 93A, § 9(1),
permitted indirect purchasers to bring consumer protection claims based
on antitrust theories. Ciardi, 436 Mass. at 68. The dissent argued, however,
that such a reading ignores the Legislature’s clear intent to adhere
to the principles of Illinois Brick. The dissenting Justices did not agree
with the majority’s view that the express language of G.L. c. 93A,
§ 9, amounted to a limited “repealing statute.” Id. at
68, 75-76. They tracked the evolution of the language of the statute and
concluded that the inclusion of the term “method” as used
in section 9(1) did not have any impact on the prohibition against indirect
purchaser antitrust actions. Id. at 69-75. They argued that the majority’s
opinion created an inconsistent application of Illinois Brick, whereby
plaintiffs could bring indirect purchaser claims, but only in the limited
context of G.L. c. 93A, § 9(1). Id. at 68.
III. Impact of Ciardi
A. Increased Litigation and Unanswered Questions
It is obvious that Ciardi will have a substantial and immediate impact
on the number of antitrust cases which will be brought under Massachusetts
consumer protection law. It opens the door to a previously unavailable
remedy for indirect purchasers. Consumers that have paid an increased
amount for services or products allegedly due to anticompetitive behavior
will be able to initiate an action against a price-fixing primary provider
or manufacturer. Moreover, plaintiffs will be able to bring such claims
as class actions. See G.L. c. 93A, § 9(2).
Over the years and continuing today, the Antitrust Division of the Department
of Justice brings scores of criminal cases each year alleging price-fixing
and similar misconduct. Whenever those alleged conspiracies involve products
which ultimately find their way into the hands of many Massachusetts consumers,
the defendants will now likely find themselves facing a civil suit from
indirect purchasers in Massachusetts. Because of the availability of attorney’s
fees and the lure of statutory damages, knowledgeable class action firms
will be brining these actions with some regularity, piggybacking on the
work of the DOJ.
Beyond the sheer increase in
the number of antitrust cases brought as private consumer protection actions,
the Ciardi decision leaves a number of questions unanswered. These include:
1. G.L. c. 93A, § 11, the
Business Cause of Action
While Ciardi only explicitly addresses G.L. c. 93A, § 9, it strongly
implies that, by contrast, business claims brought under G.L. c. 93A,
§ 11, would be subject to the indirect purchaser limitations of Illinois
Brick. Ciardi, 436 Mass. at 62-63. The SJC noted that the Antitrust Act
“shall have no effect upon the provisions of [c. 93A], except as
explicitly provided in [c. 93A].” Id. at 62, quoting G.L. c. 93,
§ 14A. In turn, General Laws c. 93A, § 11, includes a provision,
not found in section 9, which states that the Court should guide its interpretations
of Section 11 by the provisions of the Antitrust Act. Thus, the logic
goes, interpretations of Section 11 are guided by the Antitrust Act, which
is in turn guided by federal antitrust law and Illinois Brick.
Because only section 9 provides
a plaintiff the ability to bypass Illinois Brick, businesses and government
entities will likely not be able to maintain indirect purchaser actions.
See Cassano v. Gogos, 20 Mass. App. Ct. 348, 352 (1985) (purpose of §
9 is to allow private persons to bring consumer protection suits on their
own behalf or as representatives of classes); see also John Beaudette,
Inc. v. Sentry Ins. A Mut. Co., 94 F. Supp. 2d 77, 111 n.37 (D. Mass.
1999). Similarly, persons harmed while engaged in business will not be
able to avail themselves of this new rule. See G.L. c. 93A, § 9 (section
does not apply to persons covered by G.L. c. 93A, § 11). Section
11 is the exclusive remedy for any person engaged in the conduct of any
trade or commerce and who suffers damages due to the unfair methods of
competition or unfair or deceptive acts of another engaged in trade or
commerce. G.L. c. 93A, § 11.
2. Direct Purchasers
Even though Chapter 93 provides an appropriate remedy for direct purchasers
aggrieved by a defendant’s anticompetitive behavior, the question
remains whether these direct purchasers will be able also to bring an
additional claim under Chapter 93A. Nothing in Ciardi prevents c. 93A,
§ 9, from applying to direct purchasers. The SJC noted that neither
Chapter 93A nor Chapter 93 exclusively governed anticompetitive behavior
to the exclusion of the other. Ciardi, 436 Mass. at 64. Except where the
price-fixing conspiracy is between retail outlets, direct purchasers will
likely be those persons or entities engaged in business, and therefore
subject to the provisions of Section 11 rather than Section 9. Moreover,
direct purchasers have a remedy under the Antitrust Act and claims under
G.L. c. 93A would be, to some extent, redundant.
3. Attorney General Actions
Aside from facing both direct and indirect purchaser actions alleging
antitrust violations, a defendant must also be concerned about suits initiated
by the Attorney General. Under G.L. c. 93A, §§ 2, 4, the Attorney
General has the duty to protect the interests of the public and is authorized
to bring actions for consumer protection violations. The Ciardi court
recognizes that this statutory scheme permits the Attorney General to
defend the interests of indirect purchasers allegedly harmed by defendants
that committed antitrust violations. Ciardi, 436 Mass. at 67, n.21. While
new in the context of indirect purchaser actions under G.L. c. 93A, §
9, Attorney General suits are not novel concepts in antitrust enforcement.
For instance, Chapter 93, section 9, authorizes the Attorney General to
commence antitrust actions on behalf of the citizens of the Commonwealth.
However, this begs the question of how private class actions on behalf
of indirect purchase-consumers might or might not mesh with similar actions
brought by the state Attorney General.
B. Potentially Duplicative and
Increased Damages
One concern that was highlighted by the Dissent in Ciardi is the fact
that defendants in indirect purchaser antitrust suits under G.L. c. 93A
may be subject to multiple overlapping damage awards. Ciardi, 436 Mass.
at 78, n.9. Under Ciardi, a defendant may be liable to direct purchasers
under Chapter 93 as well as indirect purchasers under Chapter 93A. As
the Dissent points out, states that have repealed the Illinois Brick rule
have adopted statutory protections to prevent this problem. Id. Massachusetts
law however provides no such protection and, as a result, the Court “will
have to craft a judicial solution . . . with no legislative guidance .
. . and contrary to the unambiguous adoption of Federal antitrust principles
in G.L. c. 93, § 1.” Id.
Beyond the question of duplicative damage awards, Chapter 93A, §
9, also enables many plaintiffs to recover a larger amount of damages
than those available under G.L. c. 93. The Antitrust Act allows a court
to award up to treble damages if it finds that the violation was perpetrated
with “malicious intent to injure.” G.L. c. 93, § 12.
Chapter 93A, on the other hand, requires a court to award multiple damages
if the defendant’s violation was “willful or knowing.”
G.L. c. 93A, § 9; Ciardi, 436 Mass. at 75, n.16. A finding of “willful
or knowing” behavior also entitles the plaintiffs to attorney’s
fees, an enticing proposition especially in the context of class actions.
Most significantly, however, Chapter 93A, § 9, specifies that a successful
plaintiff shall be awarded the greater of twenty-five dollars or her actual
damages. For example, in a case like Ciardi, the class of plaintiffs could
realistically include virtually every citizen of Massachusetts (because
vitamin products have allegedly been included in most food items). This
potentially transforms claim for a small but distinct overcharge to a
select number of direct purchasers into a twenty-five-dollars-per-resident-of-Massachusetts
claim.
Ciardi does not resolve the issues surrounding damages, and the Legislature
has yet to step in and set rules and limits with respect to these amounts.
Nonetheless, the possible exposure is daunting to any defendant that is
named in one of these new consumer protection antitrust actions.
Indirect purchaser antitrust
actions will likely feature a great number of plaintiffs often organized,
or attempting to be organized, as a class. The total potential award against
the defendants will be shifted from a few large dollar per plaintiff amounts
to a number of small dollar per millions of plaintiffs amounts. Coupled
with the fact that attorney’s fees and treble damages are available
under G.L. c. 93A, plaintiff attorneys will not only welcome the chance
to participate in such an action but will aggressively initiate these
actions.
The class action members in indirect purchaser cases may never directly
receive any payment from a settlement or judgment. In a large class action,
any collected payment will likely be set aside for the general public.
For example, in Ciardi, settlement proceeds may be used to fund state-wide
nutrition programs as the plaintiffs’ allegation is that every citizen
of the Commonwealth was injured by the vitamin companies’ price-fixing
scheme.
C. Procedural Issues in Consumer Protection Enforcement of Antitrust Laws
The Consumer Protection Act and the Antitrust Act are distinct statutes
with different procedural provisions. The following are instances where
the parties’ statutory requirements differ depending on whether
the claim is brought under the antitrust statutes or under G.L. c. 93A,
§ 9.
1. G.L. c. 93A Demand Letter
Under G.L. c. 93A, § 9, at least 30 days prior to initiating a consumer
protection action, plaintiffs must first send the defendants a demand
letter outlining their claims and damages with some degree of specificity.
This affords the defendant an opportunity to tender a reasonable settlement
offer and avoid any additional damages. While this demand letter practice
may work well in most consumer protection actions, it could lead to some
degree of difficulty where there is a large class of indirect purchasers.
It would be difficult for parties accurately to assess damages of the
large number of persons far down the line of manufacture and sale.
The majority in Ciardi assumes
that the use of the twenty-five dollar base fee solves this problem of
calculating damages. Ciardi, 436 Mass. at 67, n.20. This, in turn, raises
the question of whether plaintiffs, regardless of their actual or perceived
damages, will make a demand for twenty-five dollars each. It also leads
back to the constitutional issue of excessive damages awards for relatively
minor injuries to the plaintiffs.
2. Statute of Limitations
Both the Antitrust Act and Chapter 93A provide a four year statute of
limitations. See G.L. c. 93, § 13 (Antitrust Act); G.L. c. 260, §
5A (consumer protection actions). The Antitrust Act, however, contains
a statutory tolling provision which allows a civil action to be suspended
during the pendency of, and for one year thereafter, of any civil or criminal
proceeding brought by the Commonwealth. G.L. c. 93, § 13. A direct
purchaser plaintiff, therefore, could commence an action under G.L. c.
93 despite an indirect purchaser’s inability to do so under G.L.
c. 93A, § 9. See In re Coordinated Pretrial Proceedings in Petroleum
Products Antitrust Litigation, 782 F. Supp. 481, 484 (C.D. Cal. 1991)(applying
FTC Act)(actions brought to enforce prohibitions against unfair or deceptive
business acts are not considered to be antitrust actions under the scope
of the government tolling provisions).
3. State District Court Actions
Chapter 93A, section 9, allows a person or entity to bring an action in
either the Superior or District Court. On the other hand, a plaintiff
employing the Antitrust Act is limited to filing in the Superior Court.
Realistically, most indirect purchaser actions will be in the form of
large class action suits. It is possible, however, that a single indirect
purchaser would file an action in District Court, further complicating
litigation pending in Superior Court.
4. Jury Trials
The interplay between G.L. c. 93A and G.L. c. 93 also raises the issue
of whether plaintiffs in an indirect purchaser antitrust action will be
entitled to a jury trial. The SJC has ruled that there is no such right
to a jury trial under G.L. c. 93A. Nei v. Burley, 388 Mass. 307, 315 (1983).
The federal antitrust laws, however, do afford plaintiffs the right to
a jury trial. See Beacon Theatres, Inc. v. Westover, 359 U.S. 500, 504
(1959). See also In re U.S. Financial Securities Litigation, 609 F.2d
411, 443 (9th Cir. 1990) (no exception to jury right in complex litigation).
While the issue has not been resolved by the Massachusetts courts or the
Legislature, the Massachusetts Federal District Court has concluded that,
to the extent claims under G.L. c. 93A parallel antitrust claims, they
will be tried to a jury. Puretest Ice Cream, Inc. v. Kraft, Inc., 614
F. Supp. 994, 997 (D. Mass. 1985).
D. Difficulties in Prevailing on Indirect Purchaser Theory
The SJC in Ciardi simply recognized a cause of action under G.L. c. 93A
for unfair methods of competition that otherwise traditionally run afoul
of the antitrust laws. It did not make a determination on the plaintiffs’
likelihood of success on the merits of the claim. The court commented
only that the plaintiffs met their “relatively light burden”
in surviving the motion to dismiss, but whether “[they] can prove
[their] claim is another matter entirely.” Ciardi, 436 Mass. at
65.
In many of these cases, the
plaintiffs will be assisted by criminal convictions or guilty pleas obtained
by the Antitrust Division of the Department of Justice. Nonetheless, even
in those circumstances, to succeed in an indirect purchaser action, plaintiffs
will be forced to demonstrate that any price-fixing or anticompetitive
behavior caused price increases to be passed from the manufacturer to
the seller and then passed on to the consumer. The plaintiffs must show
the existence of an overcharge in the products they purchased and that
the overcharge was a direct result of the defendants’ behavior.
This may prove to be a difficult task where the defendant manufacturers
and plaintiff consumers are separated by several degrees of distributors
and retailers.
E. The Future of Ciardi
Throughout its decision in Ciardi, the SJC focused on the fact that the
Legislature has the ultimate authority and obligation to promulgate statutes
governing this area of law. Indeed, the Legislature could react to Ciardi
by enacting law that either overrules Ciardi or clearly sets forth indirect
purchasers’ right to commence antitrust actions. In doing so, the
Legislature could also resolve the issues regarding damages and procedure.
Of course, the Legislature could find that it is satisfied with the result
in Ciardi and could choose to remain silent on this issue. If the Legislature
takes this last approach, it would be up to the Courts to define the interplay
between the Antitrust Act, G.L. c. 93, and the Consumer Protection Act,
G.L. c. 93A, on a case-by-case basis.
IV. Conclusion
The SJC’s decision in Ciardi v. F. Hoffmann-La Roche opened the
door to a new form of antitrust actions. Indirect purchasers may now employ
G.L. c. 93A, § 9, to bring claims for unfair methods of competition
such as price-fixing. The impact of Ciardi is that there will be a likely
increase in both the number of antitrust actions initiated in the Commonwealth
and the size of the damage awards and settlements defendants will pay
to any combination of direct and indirect purchasers. Ciardi’s fate
however is ultimately in the hands of the Legislature. All members of
the SJC acknowledge that the Legislature has the ability to affirm, reject,
or clarify its recent decision. In any event, Ciardi has greatly altered
the present landscape of Massachusetts antitrust enforcement.
"Ciardi v. F. Hoffmann-La
Roche, Ltd.: Indirect Purchaser Actions Under G.L. c. 93A, Sec. 9"
is reprinted with permission from "Antitrust Essentials For Small
and Midsize Businesses and Their Lawyers: A Review of the Real World Antitrust
Problems and How to Avoid Them (2002). @MCLE, Inc. All rights
reserved.
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