Blomkest Fertilizer, Inc. v. Potash Corp. of Saskatchewan, Inc.
Docket: No. 97-1330
Court: Court of Appeals for the Eighth Circuit; February 16, 2000; Federal Appellate Court
A certified class of potash consumers is appealing a district court’s summary judgment favoring the producers in a conspiracy case under the Sherman Act. The class consists of individuals who purchased potash from the producers between April 1987 and July 1994, including six Canadian and two American companies. The North American potash market is characterized as an oligopoly, resulting in higher prices and price uniformity due to limited competition and homogeneous products. The majority of U.S. potash is sourced from Saskatchewan, where the Potash Corporation of Saskatchewan (PCS) dominates with 38% of production capacity. As a governmental entity, PCS focused on local economic stability rather than profit maximization, leading to significant losses and low potash prices in the 1980s. In 1986, a new government promised to privatize PCS, which then cut output and raised prices. Concurrently, U.S. producers alleged that Canadian companies were dumping potash below fair market value, prompting the Department of Commerce to issue a preliminary ruling on dumping and later negotiate a Suspension Agreement that established a minimum price for Canadian potash. Following this agreement, PCS and other producers raised their prices, which have generally remained high. The class accuses the producers of collusion to inflate prices between 1987 and 1994, while the producers argue that the price increases were due to market interdependence and reactions to the privatization of PCS and the Suspension Agreement. The district court ruled in favor of the producers, leading to the current appeal.
The class contends that upholding the district court's decision would set a precedent that circumstantial evidence cannot counter a summary judgment motion in antitrust cases. However, the court finds the evidence presented by the class insufficient to establish a prima facie case under Section 1 of the Sherman Act, which prohibits concerted actions that restrain trade. The standards established by the Supreme Court in Monsanto Co. v. Spray-Rite Service Corp. and Matsushita Electric Industrial Co. v. Zenith Radio Corp. require plaintiffs to demonstrate that the evidence excludes the possibility of independent actions by defendants. The court emphasizes that conduct compatible with both legal and illegal activities does not alone support an antitrust conspiracy inference.
The class's claim hinges on conscious parallelism, which is not inherently unlawful but rather describes how firms in a concentrated market might set prices at a profit-maximizing level by recognizing mutual interests. The evidence of similar pricing among producers, despite differing costs, and the prompt response to each other's price changes, only indicates conscious parallelism, not a violation of antitrust laws. Courts have noted that parallel pricing is less significant in cases involving fungible products like potash.
To infer an agreement from conscious parallelism, additional "plus factors" must be present, indicating actions contrary to self-interest alongside the conscious parallelism evidence. The burden lies with the plaintiff to provide both the conscious parallel pricing and sufficient plus factors. Ultimately, even if the plaintiffs meet their initial evidence burden, the court must ascertain that the evidence tends to exclude any possibility of independent action by the defendants.
The class claims to have identified parallel pricing and established three plus factors to support its allegations of collusion: 1) interfirm communications among producers, 2) actions by producers contrary to their self-interest, and 3) econometric models suggesting that potash prices would have been lower absent collusion. However, the evidence presented is deemed insufficient to substantiate these claims.
Regarding interfirm communications, while a high level of communication can suggest conspiracy when paired with parallel behavior, the class's evidence is too ambiguous to exclude the possibility of independent action. The class assumes a conspiracy exists and then attempts to prove it, which is not permissible. The communications cited include meetings, price verification calls, and discussions about a Canadian potash association, involving approximately three dozen verifications over seven years. However, these interactions mostly involved confirming previously charged prices and do not logically correlate with the price increases in question.
The class contends that a price-fixing conspiracy began in April 1987, coinciding with a significant price increase by PCS on September 4, 1987, followed by other producers. The argument posits that simultaneous price increases and verifications create an inference of collusion. Yet, the price verification communications pertained to past sales rather than future pricing, lacking evidence to show they influenced price increases. The evidence suggests potential price reductions rather than increases. To withstand summary judgment, there must be proof that the communications affected pricing decisions, which is absent in this case. Therefore, the evidence of price verifications related to specific sales does not support a broader conspiracy regarding market pricing.
Evidence related to price verification does not eliminate the possibility of independent action among potash producers, as strong indications of such independent action exist. Notably, prior to and during the price increases, potash prices were historically low, producers faced significant losses, and complaints were made to the U.S. Department of Commerce about Canadian producers dumping potash below market value, prompting the Department to require bonds for imports. The industry leader, PCS, underwent management changes and privatization efforts aimed at profitability, while Saskatchewan passed legislation regulating potash production. Additionally, a Suspension Agreement was reached with the Department of Commerce to establish price floors, and PCS reduced its output following privatization.
Given these conditions and the oligopolistic nature of the industry, it was expected that other companies would raise prices in response to PCS's actions. The evidence presented by the class regarding potential price-fixing is insufficient to withstand summary judgment, primarily because the evidence of an agreement to maintain high prices relies on parallel pricing and sporadic price verifications. The communications cited were limited to verifying prices after sales, lacking the proactive coordination typical of a price-fixing conspiracy. The amount of communication over seven years, while numerous, is not significant in the context of the many transactions that occurred. The reliance on sporadic verifications and the nature of the communications do not convincingly indicate collusion, as illustrated by the precedent in In re Baby Food, where intercompany communications were similarly deemed inadequate to imply a Section 1 violation of the Sherman Act, despite more extensive evidence of competitive activity reports and coordination among leading companies in that case.
The In re Baby Food case demonstrates that Gerber, Beech-Nut, and Heinz systematically collected pricing information aimed at high-level executives, suggesting an organized approach to price information gathering within the baby food industry. However, the Third Circuit granted summary judgment to the defendants, citing a lack of evidence showing that these information exchanges influenced pricing decisions, contrasting with more compelling evidence in similar cases like In re Brand Name Prescription Drugs Antitrust Litigation, where the communications were deemed "smoking guns." In this case, the communications were characterized as innocuous and ambiguous regarding any pricing scheme.
The class identified a January 8, 1988 memorandum from Canpotex, a Canadian cartel, as key evidence of a price-fixing agreement. The memorandum discussed an agreement with the U.S. Department of Commerce and announced new price lists. The class argued that the high-ranking officials who received the memorandum indicated collusion. However, the magistrate judge found this insufficient to rule out independent actions by the producers, noting that PCS had communicated similar prices to its customers the same day, and variations in price list announcements among producers suggested independent pricing decisions. The magistrate concluded that awareness of competitors' prices does not equate to evidence of an antitrust conspiracy. The opportunity to conspire, in the context of parallel pricing behavior, is not conclusive evidence of collusion.
The magistrate judge's finding indicates that a memorandum attributed to R.J. Ford does not provide sufficient evidence to rule out the possibility of independent actions by producers. The memorandum's recipients remain unclear, as only one high-ranking official, Dave Benusa, was asked about it and he denied receiving any related documents. The class did not depose Ford or seek to identify the memorandum's recipients further. Another document, an inter-office memo from 1993, was directed to the Canpotex Board of Directors, highlighting that if the January 1988 memorandum had been meant for them, it would have specified that. The lack of uniform price increases following the memorandum's date, particularly by producer Kalium, suggests no conspiracy. The class's assertion that producers signaled intentions through price announcements does not automatically imply a Sherman Act violation, as the Supreme Court has set a precedent against assuming a conspiracy without independent evidence. Lastly, while actions against self-interest can imply collusion, the existence of legitimate business justifications, such as participation in the Suspension Agreement by low-tariff producers, negates any claims of conspiracy. Overall, the evidence presented by the class remains too ambiguous to overcome summary judgment.
NMPC's lack of objection to the agreement is characterized as contrary to self-interest by the class, but producers argue that the unpredictable nature of Department of Commerce investigations justified their participation in the agreement, as it mitigated uncertainty. Without the Suspension Agreement, low tariff producers would have faced heavy financial burdens from posting bonds. The agreement allowed NMPC to achieve certainty and higher potash prices in the U.S. market, aligning with its initial goals, thus undermining the class's assertion of self-interest violation. The class failed to counter the producers' business justification, as established in Laurel Sand & Gravel, Inc. v. CSX Transp. Inc.
The class's expert testimony, which purportedly demonstrated that prevailing potash prices exceeded expectations absent collusion, was deemed unconvincing. The expert acknowledged that his econometric model did not account for significant events in 1986, such as the privatization of PCS and anti-dumping proceedings, which would have influenced prices independently of any collusion. Additionally, the model's reliance on evidence that does not legally support claims of collusion rendered it fundamentally unreliable, as emphasized by the magistrate judge. Under Federal Rule of Evidence 703, expert opinions must be based on reliable facts, which this model lacked due to its speculative nature.
Ultimately, the class did not provide sufficient evidence of collusion to create a material factual issue, leading to the producers' entitlement to summary judgment. The district court's decision was affirmed.
Potash Corporation of Saskatchewan, Inc. and Potash Corporation of Saskatchewan Sales, Ltd. (collectively 'PCS'), Comineo, Ltd. and Comineo American, Inc. (collectively 'Comineo'), IMC Global, Inc., Kali-um Chemicals, Ltd., Kalium Canada, Ltd., and their former owner PPG Industries, Inc. and PPG Canada, Ltd. (collectively 'Kalium'), Noranda Mineral, Inc., Noranda Sales Corporation Ltd., and Central Canada Potash Co. (collectively 'Noranda'), Potash Corporation of America, Inc. and its owner Rio Algom, Ltd. (collectively 'PCA'), New Mexico Potash Corporation and its affiliate, and Eddy Potash Inc. (collectively 'Eddy') are identified as key players in the potash market. The document defines an oligopoly and discusses the economic implications of the potash market structure, highlighting the calculated dumping margin based on U.S. sale prices, foreign market value, and production costs. Under a prior agreement, firms could sell potash in the U.S. at prices below fair market value by up to 15% of the dumping margin, but this was modified by the Suspension Agreement, which established a price floor. The class claims that PCS acted against its self-interest by supplying potash to PCA when PCA's mine flooded in February 1987, prior to the alleged conspiracy. Additionally, the class argues that Eddy's failure to object to the Suspension Agreement was not self-interested, as Eddy did not exist at that time. The document critiques the theory that prices would decline over time in a price-fixing conspiracy, noting a lack of substantial discussion in antitrust literature on this phenomenon and suggesting that the incentive for individual producers to undercut prices inhibits collusion. Key legal and economic analyses are referenced to support these points, emphasizing that competition drives prices down in the absence of an agreement among oligopolists.
