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Antitrust, Deceptive Conduct Under Consumer Protection Statutes and Indirect Purchasers

By David Fischer

In states where the antitrust laws do not permit indirect purchaser suits (i.e., non Illinois Brick repealer states), plaintiffs often allege that, by not revealing their price-fixing, the defendants engaged in deceptive conduct that violates the state consumer protection laws.

On Tuesday, the United States Court for the Third Circuit released an opinion holding that where reliance on the deceptive conduct is required by the consumer protection laws, a plaintiff must allege that the plaintiff would have acted differently but for the deceptive conduct.  Although the opinion itself is limited to the Pennsylvania Consumer Protection Act, its reasoning should be very persuasive in other states.

In Hunt v. United States Tobacco Company, the plaintiff and proposed class members alleged:

that U.S. Smokeless Tobacco Company (?Smokeless?) engaged in anticompetitive behavior that artificially inflated the price of the company?s moist smokeless tobacco products, causing purchasers to pay at least $0.07 per can more than they would have paid in an efficient market. The alleged misconduct included theft and concealment of competitors? distribution racks and point-of-sale advertisements at various stores, as well as dissemination of disparaging and false statements about competitors? products. Hunt further alleges that Smokeless concealed its anticompetitive behavior, thereby leading ?all consumers acting reasonably under the circumstances to believe that they were purchasing moist smokeless tobacco products at prices born[e] by a free and fair market.?

Importantly, in a lawsuit brought by a competitor, the defendants were found liable for antitrust violations.  That was the well known case of Conwood Co. v. United States Tobacco Co.   In the case at hand, however, the action was not brought under the antitrust laws, but under Pennsylvania’s Consumer Protection statute:

Specifically, he brought his suit in the Pennsylvania Court of Common Pleas under the so-called ?catch-all provision? of the Consumer Protection Law, § 201-2(4)(xxi), which, following a 1996 amendment adding the words ?or deceptive,? proscribes ?[e]ngaging in any other fraudulent or deceptive conduct which creates a likelihood of confusion or of misunderstanding.?

The District Court denied the defendants’ Rule 12(b)(6) motion “holding that ‘Plaintiff does not need to establish reliance under the catch-all provision of the [Consumer Protection Law].’ Hunt v. United States Tobacco Co., No. 06-cv-1099, 2006 WL 2619806, at *2 (E.D. Pa. Sept. 11, 2006).”  Upon appeal, the Third Circuit reversed, and held that the Pennsylvania Supreme Court has repeatedly held that:

due to the causation requirement in the Consumer Protection Law?s standing provision, 73 Pa. Cons. Stat. § 201-9.2(a) (permitting suit by private plaintiffs who suffer loss ?as a result of? the defendant?s deception), a private plaintiff pursuing a claim under the statute must prove justifiable reliance.

…

The Supreme Court of Pennsylvania has consistently interpreted the Consumer Protection Law?s private-plaintiff standing provision?s causation requirement to demand a showing of justifiable reliance, not simply a causal connection between the misrepresentation and the harm.  [fn 4]

[fn 4:]  A mere causal connection can be established by, for instance, proof that a misrepresentation inflated a product?s price, thereby injuring every purchaser because he paid more than he would have paid in the absence of the misrepresentation.  See Weinberg v. Sun Co., 777 A.2d 442, 445 (Pa. 2001). A justifiable-reliance requirement, by contrast, requires the plaintiff to go further?he must show that he justifiably bought the product in the first place (or engaged in some other detrimental activity) because of the misrepresentation. See id. at 446.

Given the Pennsylvania courts? repeated holdings that ?[t]o bring a private cause of action under the [Consumer Protection Law], a plaintiff must show that he justifiably relied on the defendant?s wrongful conduct or representation and that he suffered harm as a result of that reliance,? Yocca, 854 A.2d at 438 (where, as here, the plaintiffs pressed a claim under the post-1996 catch-all provision, see id.; Plaintiffs[?] Third Amended Class Action Complaint in Civil Action at 18?19, Yocca, No. GD 01-016041), we conclude that private plaintiffs alleging deceptive conduct under the statute?s post-1996 catchall provision must allege justifiable reliance.

Turning to the facts of the case at hand, the Third Circuit ruled that:

Hunt has not adequately alleged that he justifiably relied on Smokeless?s deception, for he has not alleged that Smokeless?s deception induced him to purchase Smokeless?s products or engage in any other detrimental activity.

…

Although Hunt alleges he and his putative class members ?relied on a presumption that they were paying prices set by an efficient market,? App. 49 (Complaint), he leaves us guessing as to how his knowledge that the market was inefficient would have changed his conduct.

Note: numerous footnotes and citations were omitted from the quotations above.

Full post as published by Antitrust Review on August 07, 2008 (boomark / email).