Litigation
Nov. 15, 2016
Judge vacates $44M antitrust verdict, citing new 9th Circuit precedent
A business is not liable for anticompetitive behavior if it profits immediately, a federal judge reasoned.
Daily Journal Staff Writer
A $44 million verdict against a cigarillo manufacturer was dismissed last week by a Santa Ana federal judge.
The surprise post-trial defense victory last week was made possible by a September decision in another case from the 9th U.S. Circuit Court of Appeals, which narrowed the definition of attempted monopoly to acts "where the only conceivable rationale or purpose is to sacrifice short-term benefits in order to obtain higher profits in the long-run from the exclusion of competition." That was great news for defendant company Swisher International Inc., which makes and sells its own branded cigarillos but also fills manufacturing orders for rival brands.
Swisher lost at trial in March, when a jury found it liable for $44 million in antitrust claims that alleged the company purposely sabotaged client-rival Trend Settah Inc. by suddenly refusing to fill orders under a manufacturing contract, leading to a decrease in the rival's market share.
The award was $9 million in actual damages for breach of contract, plus $14.8 million for the Sherman Act violation, which is trebled under federal law. Trend Settah Inc. v Swisher International Inc., 14-CV1664 (C.D. Cal., filed Oct. 14, 2014).
The 9th Circuit's ruling in a separate case five months later was a game-changer. Aerotec International Inc. v. Honeywell International Inc., 14-15562 (9th Cir., Sept. 9, 2016).
Because the competing products were made on the same machinery, Swisher was able to argue that it stopped filling Trend Settah's monthly orders because they were regularly placed too late and in quantities too small to be profitable, resulting in efficiency problems.
It made better business sense, Swisher argued, to put its machines to work ramping up its own more profitable house brand, Swisher Sweets cigarillos, instead.
U.S. District Judge James V. Selna agreed, and took the unusual step of reconsidering and granting Swisher's pre-trial motion for summary judgment.
"Swisher presented significant evidence that it had business reasons to prioritize production of its own cigarillos ... and thereby increase its profits," Selna wrote. "Such prioritization is legal from an antitrust standpoint as long as Swisher did so to help its own business."
Selna reasoned that "Aerotec's repeated use of [the word] 'only' means that any legitimate business rationale or purpose precludes liability," and that plaintiffs would have had to "establish that the defendant had no motivations other than anticompetitive conduct" to prove their case.
Defense counsel Daniel G. Swanson, partner and chair of the Antitrust and Competition Practice Group at Gibson, Dunn & Crutcher LLP in Los Angeles, called Selna's ruling an important application of the newly clarified precedent.
Gibson Dunn was hired after Swisher lost at trial, in hopes that the damage could be undone.
"Aerotec gives companies breathing space to not have to worry unduly that if they enter into contract with a competitor, that it's an automatic basis for the competitor to leverage any contract dispute into the antitrust treble damages realm," Swanson said.
"Being sued for breach of contract is one thing, but if you then find yourself subject to treble damages just because you have a high market share is crazy," he added.
Theodore J. Boutrous, Jr. and Cynthia Richman, partners in Los Angeles and Washington, D.C., respectively, were also part of the post-trial team.
Trend Settah's counsel, Mark W. Poe, partner at Gaw Poe LLP in San Francisco, said he will challenge Selna's ruling to the 9th Circuit.
"It's a giant procedural mess that the court reinstituted on summary judgment new arguments that hadn't been raised by Swisher's previous counsel or considered by the jury," he said.
america_hernandez@dailyjournal.com
America Hernandez
america_hernandez@dailyjournal.com
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