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In Re: National Association of Music Merchants

August 17, 2012

IN RE: NATIONAL ASSOCIATION OF MUSIC MERCHANTS, MUSICAL INSTRUMENTS AND EQUIPMENT ANTITRUST LITIGATION


(USDC Case Nos. 09cv2002, 09cv2146, 09cv2151, 09cv2211, 09cv2267, 09cv2285, 09cv2332, 09cv2418, 09cv2423)

The opinion of the court was delivered by: Honorable Larry Alan Burns United States District Judge

ORDER DISMISSING FEDERAL CLAIMS; AND ORDER CERTIFYING ISSUE FOR APPEAL

On August 22, 2011, the Court granted in part Defendants' motions to dismiss the consolidated complaint, and granted Plaintiffs limited discovery solely for the purpose of permitting them to obtain information sufficient to plead their claims, if they could do so.

After discovery was complete, Defendants joined in a motion to dismiss. After full briefing, the Court held a hearing on that motion at which the parties appeared through counsel. For reasons discussed at that hearing, and set forth in this order, it is clear Plaintiffs' federal claim, the first claim in their Second Amended Consolidated Class Action Complaint (SAC, Docket no. 178) must be dismissed with prejudice for failure to state a claim.

I. The Claims

The SAC alleges Defendants engaged in a conspiracy to fix retail prices of acoustic, electric, and bass guitars, and guitar amplifiers. Their theory is that certain guitar manufacturers and retailers, faced with price competition from internet merchants and "big box" retailers, sought ways to stabilize or increase guitar and amplifier prices. They allegedly did this with the support and assistance of the National Association of Music Merchants (NAMM) by requiring that dealers adhere to policies setting minimum advertised prices (MAPs).*fn1

Plaintiffs identify section one of the Sherman Antitrust Act, and certain state statutes as giving rise to their claims, and are pursuing their claims as a putative class action with subclasses whose claims arise under state law.

II. Legal Standards

The complaint must meet the pleading standard set forth in Bell Atlantic v. Twombly., 550 U.S. 544 (2007). The first element of a claim under § 1 of the Sherman Act is the existence of a "contract, combination, or conspiracy." State Oil Co. v. Khan, 522 U.S. 3, 10 (1997). See also William O. Gilley Enterprises, Inc. v. Atlantic Richfield, 588 F.3d 659, 663 (9th Cir. 2009) (citing Sherman Act § 1) ("Whether a plaintiff pursues a per se claim or a rule of reason claim under § 1, the first requirement is to allege a "contract, combination in the form of trust or otherwise, or conspiracy.") Even assuming Plaintiffs have made out a claim for anticompetitive behavior (which is the second element of a § 1 claim), the allegations must be sufficient to show that the behavior was the product of one or more agreements, and must exclude mere parallel action without any agreement or conspiracy. Bell Atlantic, 550 U.S. at 554 (noting the "inadequacy of showing parallel conduct or interdependence, without more"). See also id. at 556 ("[A]n allegation of parallel conduct and a bare assertion of conspiracy will not suffice.") At argument, the Court focused on the question of whether an agreement or conspiracy had been adequately alleged, although some argument on other issues (such as the effect of MAP policies) was also entertained.

The Supreme Court has made clear that factual allegations in support of a § 1 claim must suggest that an unlawful agreement was made. Bell Atlantic, 550 U.S. at 556. "Hence, when allegations of parallel conduct are set out in order to make a § 1 claim, they must be placed in a context that raises a suggestion of a preceding agreement, not merely parallel conduct that could just as well be independent action." Id. at 557. Generally, the pleading standard "calls for enough fact to raise a reasonable expectation that discovery will reveal evidence of illegal agreement." Id. at 556. But here, where discovery concerning possible agreements has already taken place, the complaint should contain factual allegations of those agreements. Unless the factual allegations are adequate now, there is no reasonable expectation they will ever be adequate to support a claim.

III. Discussion

Plaintiffs have alleged Defendants' representatives attended large trade show meetings or other large meetings attended by a wide variety of people, where MAPs were discussed or advocated as being good for the industry. But unilateral advocacy, particularly in an open and public forum, is not itself an agreement or conspiracy. And independent responses to public advocacy without an agreement, even if consciously parallel to other entities' activity, would simply be permissible parallel conduct. See Bell Atlantic, 550 U.S. at 557. The touchstone of an agreement is a "meeting of the minds," creating a sense of mutual obligation among the alleged conspirators. Id. at 557 and n.4. In this context, an agreement, conspiracy, or combination would involve Defendants communicating with one another in some fashion and agreeing on a course of action. Defendants have argued the SAC fails to allege even a single meeting or communication where an illegal agreement was reached..

Nor does attendance at trade shows or other large meetings imply an agreement or conspiracy. As the Court's earlier rulings reflect, this is normal business activity, and doesn't imply any kind of illegality. This is particularly true of large meetings attended by numerous other people, including press representatives. Although Plaintiffs characterize these as "invitation-only" meetings, Defendants have pointed out that hundreds of attendees received invitations. While the meetings, strictly speaking, were not open to the general public, it is undisputed they were open to a large group of people in the musical instruments and equipment industry, including members of the trade press, who published articles on what took place there. The presence of numerous uninvolved observers at such meetings tends to dispel any specter of illegality. Furthermore, if any price-fixing agreements were made during such meetings, the presence of numerous witnesses would allow Plaintiffs to allege the specifics of such agreements.

In their opposition to the motion to dismiss, Plaintiffs argued that they were not required to allege direct evidence of conspiratorial meetings (Opp'n at 19), which is correct. See In re Graphics Processing Units Antitrust Litigation, 527 F. Supp. 2d 1011, 1024 (N.D.Cal., 2007) ("This is not to say that to survive a motion to dismiss, plaintiffs must plead specific back-room meetings between specific actors at which specific decisions were made.") At the same time, under Bell Atlantic, Plaintiffs must allege one or more agreements or conspiracies. See id. (quoting Bell Atlantic, 550 U.S. at 557) (noting that, under Bell Atlantic, "parallel conduct does not show conspiracy, and a conclusory allegation of agreement at ...


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