I was neck-deep in a summary judgment brief late one afternoon when my phone began to vibrate. With a bit of reluctance, I turned from my brief, clicked off my billing timer, and swiped to answer.
I recognized the voice on the line as an old law school classmate. After exchanging greetings, she got right to the point: “I have an idea for a new antitrust conspiracy class action that I want to run by you. I think it could be huge. I know you defend those kinds of cases, so I’m hoping you’ll tell me if I’m off the mark before I start drafting my complaint.”
“Hold on,” I said. “You’re not suing one of my clients, are you?”
“No,” she replied. Her response was so quick and so definite that I was almost insulted. But my curiosity reached my lips before my ego did.
“Alright, who’s your target?” I asked.
“We’ll get there,” she said. “But I don’t want to bias your thinking. Let me tell you about the case first.”
“Fair enough,” I replied. “You’re sure there’s no conflict?”
“I promise.”
“Okay, then,” I said, closing my eyes again and leaning back in my chair. “What’s your market?”
“It’s a niche nationwide market for professional services,” she began. “There are a handful of players all offering the same services.”
She paused. “Are there substitutes?” I asked.
“Not really. At least, I expect the defendants will have lots of documents about how specialized their field is and how few true competitors they have.”
“Businesses always like to talk about how unique and special they are until they get an antitrust complaint. Then, all of a sudden, everyone’s a competitor,” I replied. “Do you have direct evidence of a conspiracy?”
“No, I don’t have a smoking gun.”
That wasn’t particularly surprising. It’s rare to see antitrust complaints pled with direct evidence of a conspiracy unless they are following on from a criminal case.
“Then you know you’ll need to plead your claim with evidence of parallel conduct and plus factors,” I said, eyes still closed.
“Right. And I can do that.” She sounded pretty certain.
“Okay, what’s your parallel conduct?” I asked.
“All the players in this market quote the same rates.”
“They all charge the exact same prices?”
“They don’t charge the same prices; they quote the same rates,” she explained. “Their fees are their rates multiplied by the value of the project they’re working on. And everybody quotes the same rates. You never see any rate competition.”
“How do you know that?” I asked.
“Their quotes are publicly disclosed.”
“In RFP processes?”
“It’s kind of like that, yes,” she said. “But the point is that there is publicly available information showing that over time the quoted rates have remained in lock-step, even when the size and difficulty of projects changes, and even when different subsets of defendants are competing with one another.”
“So there is never any competitive bidding?” I pressed.
“Very rarely. My associate found only three instances of a real bidding process. And guess what happened in those few instances? The rates charged were substantially lower than the usual rates.”
I opened my eyes and sat up in my chair. “Okay, it sounds like you can allege parallel conduct,” I said. “Everybody is quoting similar rates nearly all the time, and you can even make a plausible allegation that those rates are above the competitive rate. That’s a really good start. What about the plus factors?”
“As you know,” she began, “there is no exclusive list of plus factors. Courts just look for actions that would be economically irrational for a firm acting in its unilateral self-interest. And there’s no minimum number that you need. Even one can be enough to get by a motion to dismiss.”
“Don’t remind me,” I said. “It’s really hard to get an antitrust complaint dismissed based on insufficient plus factors, particularly since plaintiffs usually plead a bunch of them and, as you said, only one needs to get through to survive Twombly.”
“Exactly,” she replied.
“But it sounds like you’re hedging a bit,” I continued. “You said you had some plus factors.”
“I have a bunch. The first and most obvious plus factor is the absence of price competition—”
“Now you really sound like an antitrust plaintiffs’ lawyer,” I interjected, laughing. “You just said that everyone quoting the same rate was parallel conduct. You want it to be your plus factor, too?”
“Not exactly,” she began. “Everyone quoting the same rate is parallel conduct. But in a competitive market, somebody should try to undercut the others. This is an extremely profitable business. A single project can bring in tens of millions of dollars in profits. Or more.”
I saw where she was going. “So your theory is that, in a competitive market, sooner or later somebody would bid at a lower rate to capture more business volume and still turn a very healthy profit?” I asked.
“Right,” she said. “And then somebody else would respond. Sooner or later, a truly competitive market would bid rates down to a level where profits are much, much lower than you see in this market. Courts have recognized that extreme profitability is itself a plus factor. They also look at whether the defendants have a particular motive to conspire. Here, the motive to conspire is the ability to maintain supra-competitive profits. So either way you look at it, the fact that nobody tries to compete by quoting lower rates is a plus factor.”
I stood up and began pacing the room as I turned these facts over in my mind. “How do they explain quoting the same rates regardless of the circumstances?” I asked.
“They say it’s the industry standard,” she began. “They say their profitability is justified because they need to invest to perform their work, and the work is risky. They also say that even if they quote the same rates, that’s not necessarily what their clients will pay.
“And that’s another plus factor,” she continued. “Pretextual explanations. None of that’s really true. The industry standard is just the standard they set. Even when their investment is limited and their risk is small, they still quote the same rate. And they can’t escape the consequences of quoting an inflated rate by saying sometimes some people pay a bit less of an overcharge.”
“I take your point,” I said. “I have heard that sort of response from plaintiffs before. And it usually gets them past a motion to dismiss. Do you have other plus factors?”
“We have tons of opportunities to conspire. Leaders in these defendants communicate all the time. They are members of trade organizations that have regular meetings. They sometimes work together on the same project for different clients. They sometimes even work together for the same clients. And while some of their communications are public, they also do a lot of interacting behind closed doors subject to strict confidentiality protections.”
“That’s true in a lot of industries,” I said. “I’ve always thought that opportunities to conspire is a pretty weak plus factor.”
She was quiet for a moment. I could sense her wheels turning. Finally, she said, “I’ll put it this way. Many courts have let antitrust claims past a motion to dismiss on a lot less than I’ll be able to plead here. I can allege specific meetings, specific projects, and specific clients. There is no way these guys will be able to deny the opportunities to conspire. All they’ll say is that they didn’t conspire. But that’s what every defendant says.”
“Sometimes, that’s true,” I offered.
“Yes, but that doesn’t matter on a motion to dismiss,” she replied. “Also, the leaders of these businesses have a lot of mobility. It’s really common for them to be working for one competitor today and a different competitor tomorrow. I can cite lots of examples. And when they move, they almost always stay within this small niche market. It’s very chummy.”
I was impressed. “Your claim is sounding pretty good, at least in terms of getting past Twombly,” I said.
“Thanks,” she said. “But that’s not all. This is a market where there is extreme transparency in pricing. As I said before, everyone’s quoted rates end up being publicly disclosed. So it’s really easy to monitor the conspiracy.”
I stopped at the window. The shadows were getting longer as the autumn sun tucked itself behind the treetops, but I had forgotten about my brief. “Are there enforcement mechanisms?” I asked.
“I think so,” she said. “These guys work together frequently. They really depend on those working relationships to get good results, keep their costs down, and realize their profits. If a competitor cheated on the conspiracy and started cutting rates, the others would find out quickly and ostracize that competitor. It would lose its efficiencies, and its costs would rise.”
“If someone cheats, then everyone else gets mad,” I interjected. “Couldn’t you say the same for any alleged cartel?”
“Maybe, but here the others can translate their anger into action that will affect somebody’s bottom line.” She paused before continuing. “Look, I’ve seen courts let much weaker enforcement theories past Twombly.” I couldn’t disagree. “Besides, I have even more plus factors. How about product uniformity?”
“I thought you said they sell services,” I said.
“Service uniformity, then,” she sighed. “The thing is, they all sell the same services. They have similar skills, similar qualifications, and similar experience. They use those skills, qualifications, and experience to keep potential competitors out of their niche market. But within the market, they’re pretty interchangeable. I bet they’ll have documents saying so.”
“It’s like you’re either in the club or you’re out of it,” she continued. “And if you’re in, then you don’t differentiate yourself based on the quality of your services relative to the others who are in.”
“Which means you’d expect them to compete on price,” I said.
“Right. But they don’t. And here’s another plus factor: the market is conducive to collusion. There are just a few firms that do this. They’re all competitors. But their leaders all know each other and run into each other frequently when attending industry events, speaking on panels, and, like I said before, working side-by-side on projects. There’s no disruptor. And it’s hard to enter. To compete credibly, you need resources, but most of all, you need experience. You can’t get experience without prior experience. It’s a chicken-or-egg situation. A few competitors with experience keep getting the work over and over again. New competitors can’t break in easily.”
“Don’t customers push back on prices?” I asked.
“Not really,” she said. “They don’t have any leverage. And frankly, they don’t have much incentive. The benefit to any one of them in changing the rates is pretty small. But in the aggregate, keeping rates high really enriches these defendants.”
“That sounds like the recipe for a class action,” I agreed. “Tell me about your class. Can you meet the requirements of Rule 23?”
“Definitely,” she said. “The class is huge. Probably most people in America, plus a lot of businesses. In fact, there might be a few subclasses.”
“You’d better think that one through and pick the class with the best damages,” I said. “You’ll have a bunch of antitrust plaintiffs’ firms swooping in to scoop up the others.”
“I doubt it,” she said. But before I could press her, she continued. “The damages are enormous, by the way. Billions of dollars before trebling.”
“Can your defendants afford to pay a judgment?” I asked, starting to pace again.
“Oh, yes,” she said. I’m not worried about that.”
“That’s good,” I said. “But it also means they can afford to fight.”
“And I’m sure they will,” she agreed. “For a while. But if I can get past the motion to dismiss, they’ll settle. This case will be very bad for their business. Besides, they’re not exactly sympathetic defendants. These guys are mega-rich. They’re the types who fly around in private jets to private islands. Jurors will like to see them get their comeuppance.”
“Your complaint sounds pretty solid,” I said.
“You don’t see any warts?” she pressed.
“Nothing that’s immediately obvious,” I replied, stopping at the window again. “I’d have to see the complaint, of course. But if you can reflect what you’ve told me in your allegations, I think your complaint will be a hard one to dismiss.”
We were both quiet for a moment. But something was nagging at me. It all sounded too good to be true. I swallowed and took a breath.
“I have a question, though,” I began. “You say you have absurdly rich and hated defendants. They’re in a highly-profitable niche market. They all quote the same rates publicly, and they check off every plus factor I can think of. How come these guys haven’t been sued already?”
She didn’t miss a beat. “Because there’s no one to file the complaint. My defendants are the law firms that bring antitrust plaintiffs’ class action cases.”
I wasn’t sure what answer I had expected, but this wasn’t it. And yet, she had a point. She could make all of the allegations she was proposing consistent with Rule 11. Her complaint would probably make it past a motion to dismiss. And I wouldn’t be surprised to see her uncover enough in discovery to get past summary judgment. Plenty of weaker claims have.
But her plan didn’t sit right with the defense lawyer in me. I spoke up again.
“Maybe you can allege all of these things in good faith,” I said. “But at the end of the day, when a law firm files a fees motion, aren’t they just asking for the best price they think the market will bear? Do you really think the plaintiffs’ antitrust class action bar is conspiring to fix contingent fee rates?”
She gave a little laugh. “Let me answer your question with a question,” she said. “Do you think they ever ask themselves that question before they sue one of your clients?”
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