Equipment Distributor Can’t Defeat Summary Judgment on Claims that Competitor Conspired with Manufacturer to Terminate Business with Distributor

The Eleventh Circuit affirmed summary judgment for a defendant facing claims under the Sherman Antitrust Act, concluding that the plaintiff’s evidence was “at least ‘as equally consistent with permissible competition as it is with an illegal conspiracy.’” The court’s decision in American Contractors Supply, LLC v. HD Supply Construction Supply, Ltd., 2021 WL 822194 (11th Cir. Mar. 4. 2021), underscores the high bar for plaintiffs alleging an unlawful vertical conspiracy. To defeat summary judgment, a plaintiff must affirmatively present evidence “tending to exclude the inference” that the alleged conspirators acted independently; evidence that merely raises an inference of conspiracy is not enough.

The plaintiff, “ACS,” is a distributor of equipment used in tilt concrete wall construction. The defendant, which does business as “White Cap,” also is a distributor of such “tilt-wall” equipment and competes with ACS. Both companies have a significant share of the market in Georgia, where both distributors purchase equipment from the same manufacturer, Meadow Burke. 

In Florida, however, ACS traditionally had no presence, while White Cap has been the dominant distributor for years, with around 75% of the market. Meadow Burke was the primary manufacturer used by White Cap in Florida, although White Cap also used another manufacturer, Dayton Superior, for a smaller percentage of its orders.

When ACS decided the time was right to enter the Florida market, it reached out to its contact at Meadow Burke to discuss the possibility. The Meadow Burke representative suggested that ACS open an office in Tampa (which ACS did), and suggested a project for ACS to bid (which ACS did, and won).

White Cap found out that ACS was setting up shop as a Meadow Burke distributor in Florida when it received an email from Meadow Burke with the bill of materials for the ACS project—the result of a “clerical error” at Meadow Burke. Needless to say, White Cap was not happy to learn that it had competition in Florida, and it immediately made its displeasure known to Meadow Burke. In a series of phone calls and meetings, White Cap threatened to take business away from Meadow Burke and give it to Dayton Superior if Meadow Burke proceeded to support ACS in Florida.

Faced with losing its largest customer in the state, Meadow Burke decided to terminate its business with ACS in Florida. In communicating this to ACS, Meadow Burke “acknowledged that they ‘wouldn’t be sitting [at the meeting] if [they] didn’t receive pressure’” from White Cap.

ACS eventually shut down its Florida office and pulled out of the market. As a White Cap representative explained it to a customer, “We sent him [ACS] packing. We do millions a year with Meadow Burke.”

ACS then sued White Cap (but not Meadow Burke) under the antitrust laws, alleging causes of action for (1) unreasonable restraint of trade in violation of section 1 of the Sherman Act, (2) monopolization and (3) attempted monopolization in violation of section 2 of the Sherman Act, and (4) tortious interference with a business relationship in violation of Georgia law.

The district court granted summary judgment to White Cap on all counts, and the Eleventh Circuit affirmed.

All four of ACS’s claims, the Eleventh Circuit explained, turned on the question of whether ACS could show that White Cap and Meadow Burke had entered into an agreement for Meadow Burke to cease doing business with ACS in Florida. If there were no such agreement, and Meadow Burke instead had made the decision unilaterally, then there was no conspiracy as required for violation of section 1 of the Sherman Act. And ACS did not allege any other anticompetitive conduct that would support a claim under section 2 of the Sherman Act or the tortious-interference claim.

In concluding that ACS could not withstand summary judgment on this issue, the Eleventh Circuit reiterated the higher standard required of an antitrust plaintiff, accounting “for the purpose of the antitrust laws to only deter anticompetitive conduct, not chill legitimate business practices.” Specifically, “antitrust law limits the range of permissible inferences from ambiguous evidence in a § 1 case.” Moreover, “[t]he summary judgment standard in vertical restraint cases is more stringent than in other areas of antitrust law because a higher possibility of capturing and invalidating legitimate business conduct exists.”

Under this standard, there can be no conspiracy or agreement if the evidence is equally consistent with an inference of independent action. That is, the plaintiff on summary judgment must “point to evidence which tends to exclude the possibility that the manufacturer was operating independently in making his determination to terminate the distributor.” “This evidence ‘need not be such that only an inference of conspiracy may be derived from it. It must, however, go beyond equivocal complaints and tend to exclude the inference of independent action.’”

This means that evidence of mere complaints from a competitor to the manufacturer fails to establish a conspiracy under the Sherman Act: “But evidence of a complaint, even a strong one, like this is not anticompetitive conduct.”

Here, although the evidence “raises an inference that there might have been an agreement between Meadow Burke and White Cap—Meadow Burke agreeing to use White Cap only and terminate ACS in Florida in exchange for White Cap continuing to purchase from Meadow Burke—it is evidence of ‘conduct which is as equally consistent with permissible competition as it is with an illegal conspiracy’” and ‘does not, without more, support … an inference of conspiracy.’” Again, “[m]ere equipoise of the evidence does not establish an agreement.”

In reaching this conclusion, the court pointed specifically to the timing of Meadow Burke’s decision not to support ACS. There was no evidence that Meadow Burke had consulted with White Cap at any point after White Cap threatened to pull business from Meadow Burke.

Moreover, the court pointed out, it was in Meadow Burke’s best interest to pull back from ACS in order to maintain its relationship with White Cap. Meadow Burke would not want to lose White Cap’s market share or discourage other distributors from investing in Meadow Burke as White Cap had.

Posted by Stacey Mohr.

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