In 2014, the Judicial Panel on Multidistrict Litigation consolidated a series of antitrust actions and transferred them to the United States District Court for the Middle District of Florida. The Middle District of Florida now presides over the multidistrict litigation entitled In re Auto Body Shop Antitrust Litigation, which includes cases originally filed in fifteen different states. All of the cases involve auto repair shops alleging that auto insurers have conspired to depress reimbursement rates for auto repairs. On January 21, 2015, the Court issued an order dismissing all of the claims of the Florida plaintiffs, but granting them leave to amend. Although this is a blog dedicated primarily to non-compete litigation, I am – by original training – an antitrust lawyer.[i] Let’s take a look:
The Florida action involves twenty Florida auto repair shops suing more than forty auto insurance companies. The defendants are alleged to control approximately 2/3 of the Florida auto insurance market. According to the complaint, between seventy and ninety-five percent of the repairs performed at their shops are paid for by insurance.
Direct Repair Programs
Plaintiffs allege the following: Defendants have conspired to depress the price of auto repairs. The defendant insurance companies enter agreements with the plaintiff auto shops. These agreements are referred to as “direct repair programs” or “DRPs”. Shops that participate in DRPs are listed as preferred providers of auto repair services for the insurance company’s insureds. In exchange for this preferred placement, the auto shops agree to certain concessions regarding pricing and priority service. As part of this arrangement, the repair shops agree to charge the insurance companies no more than “market rate” for repairs. State Farm – a defendant in the case – sets the market rate on a regional basis. State Farm surveys repair shops in a given area and then sets market rate slightly above the average rates. Other insurance companies refuse to pay anything higher than the market rate as set by State Farm. Plaintiffs allege that the insurance companies police the market by threatening to remove any auto shop from the DRP if they attempt to raise their rates.
Plaintiffs also allege some other, ancillary misconduct on the part of the defendants: They claim that the auto shops refuse to pay for new replacement parts instead opting for used parts or repairs. The shops refuse to accept repair estimates calculated using industry leading collision-repair estimating software. They refuse to pay for certain required materials and services. And finally, they have imposed arbitrary caps on the amount they will pay for paint as part of a repair.
From all of this, the Plaintiffs – quite sloppily – have cobbled together a seven-count complaint alleging a number of common law claims in addition to two antitrust claims: a price fixing claim and a claim for boycotting. The Court dismissed the Complaint in its entirety. Here’s how it went down:
A Poorly Drafted Complaint
Before getting into the specific causes of action, note the following: If you read the Court’s order, it immediately becomes clear that the Plaintiffs – more accurately the Plaintiffs’ lawyers – did a terrible job here. That’s not just me being a jerk. The Court clearly agrees. First, this was not the original Complaint. The Court dismissed the original Complaint sua sponte because it was riddled with problems: The original Complaint failed to properly allege subject matter jurisdiction, incorporated every word into every subsequent count and failed to identify those Plaintiffs that were actually participants in the DRPs mentioned above. Ultimately, the biggest problem with the original Complaint was that the allegations were impossible to follow: As drafted, the original Complaint alleged every Defendant had committed every act of wrongdoing against every Plaintiff. Although this may be appropriate in certain limited instances that was not the case here. So, the Court dismissed the Complaint without prejudice, expecting the Plaintiffs (their attorneys) to cure these various deficiencies.
At this point, one would expect Plaintiffs’ counsel to be thoroughly embarrassed. And one would reasonably expect that Plaintiffs’ counsel would have cured these mistakes in their Amended Complaint. For instance, rather than proceeding with blanket allegations, the Plaintiffs could have specifically alleged who participated in the DRPs and which Defendants did what wrongful acts to which specific Plaintiffs. That seems reasonable, right? Well, it didn’t happen. Instead, Plaintiffs’ counsel decided to stick with the line that all the Defendants did everything to all the Plaintiffs. They did this, most artfully, by adding the names of all 40 of the Defendants to the end of every paragraph that includes a reference to “the Defendants.” Mind. Blown.
For one thing, it is highly unlikely that all 40 of the Defendants are guilty of every specific instance of misconduct. Case in point: Although Plaintiffs lumped every Defendant into every allegation, Plaintiffs were able to identify only a handful of Defendants who actually had entered DRPs with any particular Plaintiff. Beyond this, some of the Defendants apparently informed the Court that they never even participated in a DRP with any repair shop. So you have the issue of group pleading, confusion and allegations that are – in some instances – blatantly false. For another, the Plaintiffs’ technique – adding the names of all the Defendants over and over again – resulted in the Amended Complaint being twice as long as the original. The Court was not happy. After laying out all of these problems, the Court ordered Plaintiffs to address these problems or face sanctions.
The Common Law Claims
As noted above, Plaintiffs brought a number of common law claims. All of them were dismissed. I understand that some plaintiffs feel the urge to attempt every possible claim no matter how far-fetched. I understand that approach but never found it particularly compelling.
For instance, the Plaintiffs brought claims for both quantum meruit and unjust enrichment. Plaintiffs’ logic goes as follows: The Plaintiff repair shop owners conferred a benefit on the Defendant insurance companies by performing the auto repairs and the terms of that relationship were unfair. Seriously, that is the best explanation of the unjust enrichment/quantum meruit claim. At one point, Plaintiffs state that they have conferred a benefit on the Defendants “to the extent that Defendant insurance companies are wrongfully retaining the monies that otherwise are rightfully those of the Plaintiff shops.” The Court disposes of this pretty quickly: Plaintiffs perform the car repairs and then bill the insurance companies for it. This simply isn’t in the realm of unjust enrichment. Further, as a matter of established Florida law, a third party providing services to an insured confers nothing on the insurer except a claim for reimbursement.
The other common law claims were similarly (or even more) untenable. Plaintiffs tried to assert a claim for “quasi estoppel”. But, as many of us know, there is no cause of action for “quasi estoppel” under Florida law (or any other state law, to my knowledge). The tortious interference claim failed because it did not identify the actual customers with whom Defendants supposedly interfered. The conversion claim failed because it made utterly no sense—- Defendants supposedly committed conversion because they did not pay the Plaintiffs more money for the repairs. You get the picture.
The Antitrust Claims
My real interest here is the antitrust piece, which consists of two claims: (1) price fixing and (2) boycott. Let’s take a look:
Before getting into the analysis, an important clarification: As the Court aptly notes, this case does not involve a vertical restraint of trade. Although the Plaintiffs themselves refer to it as a vertical restraint, it is not. Instead, the Amended Complaint alleges a horizontal conspiracy among the insurance companies. Yes, there is a market level component in that the insurance companies are reimbursing the repair shops. But the allegedly wrongful conduct – the supposed collusion – is taking place horizontally, by and among the insurance companies. It is hard to imagine that an antitrust plaintiff ever would want to be in the vertical restraint world (post Leegin) when it is so much more advantageous to be in the horizontal restraint universe. Fortunately, for the Plaintiffs, the Court set the record straight even though the Plaintiffs’ lawyers appeared badly confused. Unfortunately, the antitrust claims still failed.
The price fixing claim goes as follows: Defendants have conspired to impose maximum price limits upon the Plaintiffs’ products and services. Let’s go back to the specific facts: State Farm studies the market and sets its own market rates for reimbursement for various auto repair services. These rates apply to any car repair shop that wants to participate in State Farm’s direct repair program or DRP. Auto shops that participate in the DRP agree not to charge more than the market rate. In exchange for that agreement, they are listed as preferred providers. So when an insured contacts State Farm about repairs, preferred providers – shops that participate in the DRP – ostensibly get a bit of an edge. Other insurance companies tie their reimbursement rates to State Farm’s rates. They operate similar DRPs and refuse to pay reimbursement rates that are higher than whatever State Farm pays. Plaintiffs contend this is price fixing.
Anybody who litigates antitrust cases – even anybody who litigates in federal court – can tell you where this is heading: This is Twombly, point blank. Parallel conduct without more does not equal unlawful agreement. To beat a motion to dismiss in a parallel conduct case, you need facts that suggest some type of agreement among the defendant conspirators. Here, Plaintiffs offer nothing more than the fact that other insurance companies refuse to pay higher reimbursement rates than State Farm.
Plaintiffs also allege price-fixing via industry-wide databases. But this one is a bit ridiculous: According to the Plaintiffs, there are certain databases that are used in the industry for estimating the costs of repairs. And over the years, the Defendants have admitted the validity of prices in those databases, but still refused to pay reimbursement rates that are in-line with those estimates. In Plaintiffs’ view, this somehow amounts to antitrust. But, of course, it’s not. Price-fixing claim dismissed.
Here is an explanation of the boycott claim, taken directly from the Amended Complaint:
Defendants “have engaged … in boycott and boycotting activities through their repeated actions of steering customers away from the Plaintiffs through allegations and intimations of poor quality work, of poor efficiency in performing work, of questionable business practices, or overcharging, impugning integrity, and similar actions so as to withhold and/or enlist others to withhold patronage from the Plaintiffs.”
What a load of trash. Questionable business practices? Impugning integrity? For starters, could your allegations be any more vague and generic? But beyond the boilerplate quality of the allegations, this does not add up to a boycott. A boycott requires an agreement among competitors and a concerted refusal to deal. But here, there isn’t a refusal to deal. There are absolutely no allegations that any of the Defendants refused to allow any of their insureds to obtain repairs from any given shop, or refused to pay for repairs performed at such a shop. Boycott claim dismissed.
It’s hard to tell whether the case is just entirely worthless, or, whether the Plaintiffs were simply done in by bad lawyering. A number of the claims are just trash: I mean, trying to state a claim for quasi estoppel (which does not exist)? Who does that? Let’s put aside all of the claims that are clearly going nowhere and focus only on the claims that have some chance of success (even if that chance is a small one): (1) tortious interference and (2) price fixing. And let’s assume there’s some merit to Plaintiffs’ allegations.
If the Plaintiffs are going to pursue tortious interference claims, they are going to need to get specific. That means they need specific identities of specific customers with whom the Defendants interfered. And for each customer, they’re going to need the specific manner of interference (e.g. steering them away, spreading lies about work quality, etc). This may prove altogether impossible. Consider this: If Defendants steered a few hundred customers away from each Plaintiff shop, how do the Plaintiffs have access to the facts necessary to state a claim for tortious interference? They might not. It’s not clear to me where discovery stands in this case, but it’s very possible that discovery has been stayed. Even if the parties are in discovery, it may still be hard for Plaintiffs to ascertain who was wrongly steered away. And beyond that, even if they ascertain the identities of the customers who were wrongly steered away, then you have class certification problems. Each dealer has its own set of customers who were steered away in any number of different ways. Getting that sort of class certified would be very difficult.
Turning to the antitrust claims, the only antitrust claim that has any chance is a price-fixing claim. But that hinges on the Plaintiffs uncovering actual evidence of an agreement or facts that suggest the existence of an agreement. But that evidence might simply not exist.
So what should Plaintiffs have done? Well, for starters, they should have done a better job. The Court’s order makes it clear that the Plaintiffs (or more accurately their attorneys) conducted themselves like amateurs who have no experience in federal court. This is not me being a jerk— just read the order. The Court dressed the Plaintiffs down repeatedly. It’s not just that the Plaintiffs are pursuing a tough claim—- it’s that they’re doing it in such a sloppy manner. So, to begin with, the Plaintiffs might want to fire their lawyers and get better ones. I wouldn’t pay good money for the quality of work that’s been done here. Then again, there’s a high probability that this is being handled on a contingency fee basis and that’s that. I would never touch this case on a contingency fee. But beyond getting better representation, what could Plaintiffs do?
Go back to the drawing board and start over. You’d have far better odds with a simple, one-count complaint for violations of Florida’s Deceptive and Unfair Trade Practices Act. Plaintiffs are alleging a hodgepodge of unfair conduct by the Defendants. When you have a bunch of random (allegedly) unfair conduct, you need to get under a broad, remedial statute like FDUTPA. You might have a tough time proving damages, but you’ll have a far greater chance getting past a motion to dismiss.
The case is A&E Auto Body Inc., et. al. v. 21st Century Centennial Insurance Co., et. al. Case No. 6:14-cv-310 (MDFL).
[i] It’s actually all in the same ballgame. Many state laws governing non-compete agreements are part of state antitrust statutes. In many instances, those statutes simply codify the rule of reason as applied to the employment or sale of a business context.
Jonathan Pollard is a competition lawyer in Fort Lauderdale, Florida. He focuses his practice on defending non-compete and trade secret claims. Jonathan has been interviewed about non-compete issues by reporters from INC Magazine, the BBC, the National Federation of Independent Business and The Tampa Bay Times. In addition to his background in non-compete and trade secrets work, Jonathan has litigated numerous cases under both the Sherman and Lanham Acts. He began his career at the law firm Boies, Schiller & Flexner where much of his work consisted of antitrust, both plaintiff and defense side.
He is licensed in all Florida federal and state courts and routinely represents clients in Miami, Fort Lauderdale, West Palm Beach, Fort Myers, Tampa, Orlando and Jacksonville. His office can be reached at 954-332-2380. For more information, visit http://www.pollardllc.com.