9th Circuit panel reinstates $44.4 million antitrust verdict

A 9th U.S. Circuit Court of Appeals panel has reinstated a $44.4 million antitrust verdict against the company that makes Swisher Sweets cigarillos.

The unpublished opinion issued Friday found U.S. District Judge James V. Selna did not need to reverse the verdict due to a seemingly contradictory opinion from the 9th Circuit issued in 2016. Rather, the jury in the original case had been properly briefed and had enough evidence to reach its conclusion, the opinion said. Trendsettah USA Inc. v. Swisher International Inc., 16-56823 (9th Cir. 2018) (unpublished).

The case began in 2014 when Orange County-based Trendsettah sued Swisher, a Florida company that leads the market for small, sweetened cigars. Trendsettah contracted with Swisher in 2011 to produce a competing product named Splitarillos.

When the new brand began to take off, Trendsettah alleged Swisher limited production and eventually canceled the deal. This left Trendsettah unable to fulfill orders, ultimately losing its access to the distributors and shelf space it needed to maintain and expand its market share.

It sued for anticompetitive behavior, citing the Sherman Antitrust Act of 1890 and claiming up to $30 million in lost profits. The defense argued Trendsettah routinely placed orders that were too small and too late, making the partnership unprofitable for Swisher.

A jury ruled in Trendsettah's favor in March 2016, awarding $9 million in actual damages for breach of contract and $14.8 million for the antitrust violations, an amount that was trebled under federal law.

Months later, the 9th Circuit issued an opinion in an unrelated antitrust case that appeared to call the verdict into question. Aerotec International Inc. v. Honeywell International Inc., 2016 DJDAR 9449 (9th Cir. 2016).

The ruling limited the definition of an attempted monopoly to instances in which a company sacrificed "short-term benefits in order to obtain higher profits in the long run." In light of Aerotec, Selna, of the Central District, granted reconsideration of Swisher's pre-trial motion for summary judgment and ultimately threw out the antitrust verdict.

The panel found Selna was right in granting reconsideration but reached the wrong conclusion. It found the jury properly considered and rejected Swisher's evidence that it had a "legitimate business reason for its conduct."

"The court unwound everything and went back to the root issue, which is, 'Was the jury properly instructed in the first place?'" said Randolph Gaw, who won the ruling for Trendsettah with Mark W. Poe, his co-founder at Gaw Poe LLP in San Francisco. "If you answer that question, you don't really have to answer the other questions."

Swisher quickly applied for an extension to seek a rehearing before a 9th Circuit en banc panel. The defense team is led by Theodore J. Boutrous Jr., a partner with Gibson, Dunn & Crutcher LLP in Los Angeles.

"What the panel has done essentially is paid lip service to the standard but has reversed based on the notion that the jury must have rejected our defense based on an instruction that doesn't set forth that standard," said Gibson Dunn partner Daniel G. Swanson.

Swanson said his side will be raising numerous issues on appeal, including the question of whether a company with about 40 percent market share can be considered a monopoly.

He also said the ruling appears to go against a case the U.S. Supreme Court decided over the summer, Ohio et al. v. American Express Co. et al., 2018 DJDAR 6107 (U.S. 2018). The court found American Express could demand contracts from retailers stating they would not encourage customers to use other cards that use lower fees, suggesting it will take a very narrow approach to antitrust cases in the future.