A recent decision in the United States Court of Appeals for the First Circuit, Liu v. Amerco, demonstrates that even unsuccessful attempts to fix prices can lead to class action lawsuits. This case shows the serious legal consequences a firm may face if caught inviting rivals to collude, even if the rivals never agree to the advances. The issue resolved in Liu is whether, after a Federal Trade Commission (FTC) invitation to collude settlement, plaintiffs in states with “little FTC acts” can show they were harmed by the conduct even though there was no agreement to fix prices. "Little FTC acts" are laws passed in many states over the years that track the language of the FTC Act.
In Liu, the First Circuit overturned the district court’s dismissal of a class action complaint alleging that U-Haul customers were injured by an unsuccessful price-fixing scheme allegedly orchestrated by the CEO of Amerco, the parent company of U-Haul. An FTC investigation first brought the conduct to light. The FTC alleged that the CEO had instructed managers and local dealers in the company to raise prices “conditionally,” and to contact rivals in the market with the message that the rivals should match the price increases or Amerco’s prices would fall back. The CEO also made statements in investor meetings regarding his goal for Amerco to be a price leader and that he wanted to achieve higher prices in the market. At the time of the events alleged in the complaint, U-Haul was the leading firm in the market, with a market share in excess of 50%.
The FTC investigation in the matter culminated in a consent order in 2010. In the complaint accompanying that order, the FTC did not allege that Amerco’s rivals ever agreed to any of Amerco’s advances, a fact that was noted in a statement by three FTC Commissioners, including the Chairman. As a consequence, the FTC did not allege that Amerco or its rivals fixed prices in violation of Section 1 of the Sherman Act. Instead, the FTC alleged an “invitation to collude,” which was found to be a violation of Section 5 of the FTC Act.
Shortly after the consent, Liu, who had twice rented vehicles from U-Haul during the period covered by the alleged scheme, filed a complaint in federal district court in Massachusetts alleging that she and a class of U-Haul customers had been injured. Liu alleged that the conduct described in the complaint was illegal under the Massachusetts little FTC act, Massachusetts General Law ch. 93A, section 2(a). The district court dismissed the complaint, holding that Liu had failed to properly allege injury. The district court found that the complaint failed to allege specifics about the plaintiff’s transactions and the rates available from other firms at the time she rented vehicles, and, in general, had failed to make sufficient allegations to sustain the claim that she had overpaid and that the overpayments were caused by U-Haul’s alleged scheme.
The First Circuit reversed, finding that the complaint contained sufficient allegations of harm to consumers to allow the claim to go forward. The court pointed to allegations in the FTC complaint against Amerco and U-Haul that the CEO had instructed his managers and local dealers to raise prices as part of the scheme to initiate price leadership, finding that “one may infer that managers and dealers generally did what the head of the company instructed.” The court also noted that the FTC complaint included internal correspondence where a regional manager in Florida stated that he had followed instructions and had increased prices. Finally, the court noted evidence from the class action complaint itself, including a graph that identified a jump in prices for the vehicles covered by the allegations of over 40% and a price study finding that vehicles covered by the scheme “markedly diverge upward” in comparison to vehicles not covered by the scheme.
Invitation to collude cases create two separate problems for follow-on private litigants: first, there may not be a private right of action for the violation; and second, the facts may not allow the litigant to argue that it was harmed by the conduct. Both of these issues were resolved, at least on the law, in Liu. On the private right of action, the Massachusetts state law tracks the FTC Act, provides a right of action for consumers and allows class actions. Private damages were allegedly created by the price leadership scheme itself because part of the scheme involved the company raising prices.
When the FTC settled with U-Haul, three FTC Commissioners issued a statement noting that the FTC's use of “pure” Section 5 theories (i.e., theories that are not on their terms also violations of the antitrust laws) could limit private follow-on treble damages litigation while still allowing the FTC to stop inappropriate conduct. That sentiment might be accurate in general, but this decision shows that for a certain type of invitation to collude – price leadership – consumers can suffer price increases from the scheme, making subsequent private class action litigation under little FTC acts possible.
If you have any other questions regarding this or other antitrust concerns, please contact one of the attorneys in our Antitrust Practice Group.