Body Shops Can Proceed with Antitrust Claims Against Auto Insurers

A divided panel of the Eleventh Circuit has reversed the dismissal of antitrust and state law claims asserted by auto body shops against automobile insurers. Quality Auto Painting Ctr. of Roselle, Inc. v. State Farm Indem. Co., 2017 WL 3910750 (11th Cir. Sept. 7, 2017).  Senior Judge Lanier Anderson’s lengthy dissent and partial concurrence would have affirmed the dismissal of all of the plaintiffs’ claims except for their claim for tortious interference.

The plaintiff body shops, which operate in four different states (Kentucky, Missouri, New Jersey, and Virginia) asserted claims for price-fixing, boycotting, unjust enrichment, quantum meruit, and tortious interference. They alleged that auto insurance companies select a “market rate” at which they will reimburse body shops for repairs, and then force compliance with the selected “market rate.”  The “market rate,” the shops claimed, is derived by State Farm using an unverified method which State Farm allegedly manipulates and does not make public.  State Farm won’t pay more than its “market rate,” and, the shops claimed, other insurers won’t pay more than State Farm will pay.  The shops also alleged that the insurers force shops’ compliance with the “market rate” by making misleading statements about the quality of the work performed by shops that refuse to comply.

The plaintiffs’ separate cases were transferred to the Middle District of Florida and consolidated for pretrial proceedings, and the district court granted the defendants’ motions to dismiss. Rather than amend, the plaintiffs appealed.

In the Eleventh Circuit, the panel majority held that the shops’ claims should not have been dismissed. The majority opinion, written by Judge Wilson and joined by Judge Barbara Jacobs Rothstein visiting from the Western District of Washington, recited the rule that “[a]n antitrust complaint must include allegations ‘plausibly suggesting (not merely consistent with)’ an illegal agreement among the defendants.”  Mere parallel conduct among competitors is insufficient.  Something more—a “plus factor”—must also be alleged.

In the Eleventh Circuit, there is no set list of potential plus factors—“any showing by [a plaintiff] that tends to exclude the possibility of independent action can qualify as a plus factor.” The majority held that the plaintiffs had alleged two “plus factors” along with the underlying allegation that the insurers acted in parallel.  First, the allegation that other insurers used State Farm’s “market rate” constituted a “plus factor” because (according to the majority) divergent rather than convergent pricing would otherwise be expected.  The insurers had different market areas, which would suggest different prices, and an insurer could differentiate itself by using a different reimbursement formula (by paying for higher quality parts, for example), so the use of the State Farm “market rate” by other companies occurred, in the majority’s view, “despite variables that would ordinarily contribute to divergent amounts of reimbursement.”  Second, the plaintiffs alleged that the insurers engaged in “uniform practices,” including requiring repair rather than replacement of faulty parts and disparaging the work of shops who sought more than the “market rate.”  These allegations, in the majority’s view, provided a second “plus factor” sufficient to state a price-fixing claim.

The majority also held that the plaintiffs stated a claim for “the per se violation of boycotting” by alleging that the insurers used identical tactics to keep insureds away from non-compliant shops. It also reversed the dismissal of the plaintiffs’ claims for unjust enrichment, quantum meruit, and tortious interference, finding these claims supported by the allegations underlying the antitrust claims.

Judge Anderson dissented, except to concur in the result as to the claim for tortious interference. Judge Anderson agreed that the shops’ allegations “describe a pattern of behavior that, taken as true, might be considered objectionable.”  But the allegations (except as to the claim for tortious interference) did not, in Judge Anderson’s view, amount to a claim that the conduct was unlawful.  The majority’s “plus factors,” according to Judge Anderson, did not suggest an agreement among insurers.  Convergent pricing—use of the “market rate”—is only a plus factor when divergent pricing would ordinarily be expected, and “[n]either the body shops nor the majority have pointed to any plausible reason that one should expect that prices in this market—involving standardized automobile parts and repairs—would be divergent.”  As for the claim of “uniform tactics” in coercing shops to accept less than the “market rate,” in Judge Anderson’s view there was no such allegation in the shops’ complaints:  “the complaint reflects nothing approaching the level of conviction about the body shops’ allegations that the majority reads into it.” At most, the allegations amounted to a claim that the insurers had similar but independent reactions to “the most common of corporate stimuli:  a desire to increase profits.”  And the allegations in support of the boycotting claim, in Judge Anderson’s view, did not support—and indeed did not even allege—an unlawful agreement to boycott.

Judge Anderson also dissented as to the claims for unjust enrichment and quantum meruit. These claims were properly dismissed, he wrote, because the shops undertook repairs knowing how much the insurers would pay.  To hold that the shops could later assert tort claims seeking a higher price “threatens some basic tenets of our economic system.”  Judge Anderson also noted an open question of state law as to whether the benefits sought to be recouped by the tort claims had actually been conferred on the insurers rather than their insureds.

Judge Anderson concurred in the reversal of the dismissal of the tortious interference claim, though not in the majority’s rationale. In his view, the complaint stated a claim for tortious interference because it alleged that the body shops had an expectation of business with which the insurers wrongly interfered.  But he rejected the majority’s suggestion that the insurers’ combined market share was relevant to the analysis:  “neither the body shops nor the majority cite any authority suggesting that mere market power can transform otherwise appropriate conduct into improper interference for purposes of a tortious interference claim.”

Posted by Valerie Sanders.

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