AFMS LLC v. United Parcel Service Co.

Citations: 105 F. Supp. 3d 1061; 2015 U.S. Dist. LEXIS 56977; 2015 WL 1967035Docket: Case No. CV 10-5830 JGB (AJWx)

Court: District Court, C.D. California; April 30, 2015; Federal District Court

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The Court granted the summary judgment motions filed by United Parcel Service Co. (UPS) and FedEx Corporation in the antitrust action initiated by Plaintiff AFMS LLC on August 5, 2010. Initially, the Court dismissed AFMS’s claims due to a lack of antitrust standing, as AFMS was not a participant in the relevant market for shipping and delivery services, merely providing advisory services. After AFMS amended its complaint, the Court found it had sufficiently alleged antitrust standing but dismissed the claims under Sections 1 and 2 of the Sherman Act for being conclusory and lacking specific factual support. 

In the operative Third Amended Complaint, AFMS asserted three claims under Section 1 of the Sherman Act. The first claim alleged that since fall 2009, FedEx and UPS conspired to unreasonably restrain trade in the market for shipping consultation services by refusing to engage with third-party shipping consultants (TPCs), resulting in increased delivery prices and reduced competition. The second and third claims focused on individual actions by UPS and FedEx, asserting they unreasonably restrained competition through non-disclosure agreements and customer/carrier contracts in the same market. The Court's rulings underscore a pattern of dismissals based on insufficient factual allegations to support claims of antitrust injury or competitive harm.

AFMS asserts that agreements and contracts involving Defendants restrict shippers from sharing information with Third-Party Carriers (TPCs), endangering TPCs' business and resulting in estimated damages of $15 to $20 million. Defendants responded to the Third Amended Complaint (TAC) on January 16, 2012. Subsequently, on May 1, 2013, UPS and FedEx filed motions for summary judgment. While these motions were pending, UPS sought to exclude the expert testimony of AFMS experts Stuart Brotman and David Campbell, with FedEx joining the motions. The Court held a hearing on January 27, 2014, and granted the motions on February 5, 2014, deciding not to consider Brotman’s and Campbell’s reports or testimony in relation to the summary judgment motions. 

On March 5, 2014, UPS requested permission to file a supplemental brief concerning the implications of the expert exclusion on its summary judgment motion, which AFMS opposed. The Court denied UPS’s application, stating that no additional briefing was necessary. The parties initially sought to seal a large portion of the summary judgment materials but were denied on January 15, 2014, for failing to meet the compelling reasons standard. They subsequently refiled with fewer redactions, and the Court provisionally granted most of these requests, emphasizing that it may reconsider sealing when ruling on the merits. As none of the sealed documents were needed for the Court's current decision, the provisional sealing was confirmed. UPS's motion for summary judgment on all claims against it was supported by a Statement of Uncontroverted Facts and Conclusions of Law.

Several declarations have been filed, including those from Sean P. Gates with 148 exhibits, Donald Faby with twenty exhibits, Kathleen Gutmann with twenty-two exhibits, and others each providing one or more exhibits, totaling numerous supporting documents. FedEx has moved for summary judgment, arguing for dismissal while also supporting UPS's positions, and has submitted a Statement of Uncontroverted Facts and an Appendix of Exhibits containing seventy-four exhibits. AFMS has responded with an omnibus opposition, presenting its own Statement of Genuine Disputes of Material Fact and additional undisputed material facts, supported by ninety-nine exhibits attached to Alyson C. Decker's declaration. Both UPS and FedEx have filed separate replies, with UPS addressing AFMS's undisputed facts and including objections to evidence offered in opposition. The court will consider the motions from UPS and FedEx together due to their interrelated arguments. 

The legal standard for summary judgment under Rule 56(c) requires the moving party to demonstrate that no genuine issue of material fact exists and that they are entitled to judgment as a matter of law. The moving party must initially show the absence of evidence supporting the non-moving party's claims. If successful, the non-moving party then must present specific facts indicating a genuine issue for trial, beyond mere pleadings. A mere scintilla of evidence is insufficient; only substantial disputes affecting the outcome under governing law can prevent summary judgment.

Under Local Rules 56-2 and 56-3, the non-moving party must identify triable issues of fact in their 'Statement of Genuine Issues' and support these with written evidence, as mandated by Federal Rule of Civil Procedure 56(e)(2). Failure to do so allows the court to treat the moving party’s evidence as uncontroverted, provided it is adequately supported. The court is not obligated to search the record for evidence or raise legal arguments not presented in summary judgment briefs. Arguments not made in opposition to summary judgment are considered waived, and those not relied upon are deemed abandoned.

The court has observed the substantial volume of evidence submitted and emphasizes the necessity for a well-organized record with specific citations. Parties must cite specific page and line numbers when presenting evidence, as per the Standing Order, and failure to provide such citations will result in the evidence being deemed unsupported. AFMS's submissions include lengthy, unwieldy string cites lacking crucial information and fail to comply with the requirement to separately tab exhibits. The court relies on the cited exhibits but deems unsupported any fact or dispute without proper pincites.

FedEx has raised objections regarding several subexhibits offered by AFMS due to lack of authentication. However, deposition testimony may authenticate such exhibits, particularly when provided by knowledgeable witnesses. Most objected-to exhibits were produced by Defendants during discovery and are considered authentic when presented by AFMS.

Documents produced during discovery are considered authentic when presented by the opposing party, leading the Court to overrule FedEx's objections regarding authentication. FedEx and UPS raised hearsay objections against several articles from industry journals, arguing they were inadmissible as they aim to prove the truth of their content—specifically, claims that Defendants increased prices and revenues. The Court confirms these articles are hearsay and, therefore, will not be considered for the Motion.

FedEx also objected to five exhibits containing emails among FedEx employees about a conference call. These emails are deemed admissible as statements by a party opponent under Federal Rule of Evidence 801(d)(2). The Court emphasizes that, at the summary judgment stage, it evaluates the content's admissibility rather than the form, allowing these emails to be considered. Consequently, FedEx's objections to these exhibits are overruled.

UPS objected to an unsworn Reply Expert Report from Robert Wunderlich submitted by AFMS, citing its inadmissibility under Rule 56(e). The Court agrees, sustaining the objections to this report as it lacks proper verification.

Regarding the disputed and undisputed facts, the Court finds that most material facts are not in genuine dispute, focusing instead on the evidence rather than the parties' characterizations of the facts in their statements of undisputed facts.

The court will rely on the underlying declarations, depositions, and exhibits, with material facts supported by admissible evidence being considered uncontroverted for the motions. Defendants UPS and FedEx operate as carriers, entering into complex contracts with shippers, for which they charge structured delivery rates and accessorial charges. Their sales teams engage in attracting and retaining customers through data analysis of shipping history and tailored service offerings. Price discounts are negotiated based on individual shipper characteristics before finalizing contracts, which are presented to shippers with detailed explanations of services and pricing. FedEx and UPS do not recommend competitor services during these negotiations. They also provide integrated supply chain services, included in delivery rates, aimed at increasing shippers' efficiency and profitability. Plaintiff is a third-party consultant, TPC, assisting shippers in negotiating shipping contracts, primarily focusing on cost reductions, with most of its revenue derived from these services. TPC analyzes shippers' historical data to identify savings opportunities and presents a detailed analysis of potential rate discounts to clients.

AFMS identifies potential savings for shippers by analyzing discounts from FedEx and UPS, as well as exploring alternatives like the United States Postal Service and other regional carriers. It recommends various services, including parcel insurance, customs compliance, and optimal site locations for warehousing, and suggests transitioning shipment methods, such as from express to ground. AFMS develops negotiation strategies based on its analysis and may represent the shipper in negotiations with carriers or provide behind-the-scenes advice. 

AFMS assists in creating a Request for Proposal (RFP) for carriers, detailing target incentives and establishing a timeline for bid submissions. It facilitates meetings with carriers to negotiate discounts and rates, subsequently analyzing carrier proposals and comparing them to the shipper's existing contracts. If necessary, AFMS engages in further negotiations before the shipper selects a preferred carrier and signs a new contract. 

Post-agreement, AFMS ensures contract implementation by verifying invoice accuracy, monitoring pricing trends, and measuring annual savings from the new contract. Shippers typically compensate AFMS through a gain share arrangement, receiving 40-50% of the savings achieved over a three-year term, though fixed fee arrangements may also occur. 

AFMS offers additional post-contract services, including its R.A.D.A.R. software for auditing contract compliance, tracking shipments, and obtaining refunds for service failures. Shippers pay a flat rate for these ancillary services, which contribute minimally to AFMS's revenue. 

Third Party Consultants (TPCs) provide similar consulting services to shippers, including carrier negotiations, bill auditing, and various logistical advice tailored to specific delivery needs, ensuring a comprehensive range of support for shipping operations.

From 2006 to 2008, 11% of surveyed shippers utilized Third Party Consultants (TPCs) to negotiate rates with parcel carriers, increasing to 12% by October 2011, while 85% negotiated independently. Shippers not using TPCs rely on in-house staff for negotiations, a fact the Plaintiff does not dispute, though they claim in-house negotiators are inadequate substitutes. The parties agree that Defendants altered their policies regarding TPC interactions in 2009 and 2010, though there is contention over whether these changes were made jointly or independently. Prior to 2009, TPCs were allowed to engage directly in contract negotiations and had access to pertinent data. However, during 2009-2010, Defendants restricted their dealings with TPCs, particularly those focused solely on rate negotiations. A December 2009 FedEx conference call noted a decision to not engage with TPCs negotiating Requests for Proposals (RFPs). A subsequent FedEx document from April 2010 specified that the new TPC policy applied only to TPCs involved strictly in pricing negotiations, excluding those providing broader supply chain services or other specific consultancy roles. Additionally, VPs had discretion to grant limited exceptions to this policy. UPS implemented changes in September 2009 to mitigate TPC interference in customer relations, including a 30-day cancellation notice upon a shipper's intent to authorize a TPC and provisions for fees in contracts negotiated by TPCs if early termination occurred. Updated procedures were communicated to UPS sales staff in April 2010, mandating that any customer intending to use a TPC must notify the Strategy Room before proceeding.

The Strategy Room at UPS generally advises against engaging Third Party Negotiators (TPCs), allowing exceptions only in unusual circumstances. Most often, sales representatives are instructed to negotiate directly with customers. The Strategy Room has also recommended presenting a non-negotiable 'last-best-and-final offer' to shippers using negotiators. Prior to implementing the TPC Policy, UPS utilized two types of nondisclosure agreements (NDAs): a 2-way NDA that prevents sharing pricing information with third parties, and a 3-way NDA that allows third-party access under confidentiality terms. FedEx's TPC Policy introduced a more stringent 3-way NDA with a $100,000 liquidated damages clause and audit rights. UPS modified its NDA policies to sometimes require strict 2-way NDAs, while also allowing limited 3-way NDAs for TPCs to access confidential pricing information. 

The changes to TPC policies were influenced by an increase in TPCs and shippers using them during the recession of 2008-2009, which hindered UPS and FedEx's ability to negotiate contracts effectively and interfered with their customer relationships. Witnesses indicated that TPCs often mandated that all communications occur through them and engaged in 'benchmarking,' potentially violating shipper NDAs. FedEx expressed specific concerns about TPC bias favoring UPS, resulting in lost business opportunities. The plaintiff argues that these policy modifications were designed to reinforce a duopoly in the delivery services market and limit competition from TPCs. However, the court concludes that the plaintiff has failed to provide evidence supporting the existence of a relevant market for 'shipping consultation services,' leading to a summary judgment in favor of the defendants.

The determination of a 'relevant market' is critical in antitrust cases, as its validity can be tested through summary judgment or trial. In a Section 1 claim, plaintiffs must first demonstrate that the alleged restraint has significant anticompetitive effects within a relevant market. Failure to identify such a market can lead to the dismissal of a Sherman Act claim. Establishing a relevant market is essential for antitrust standing and is a foundational element of the plaintiff's claims, emphasizing the protection of economic freedom within that market.

To prove an unreasonable restraint of trade, a plaintiff must delineate a relevant market and show that the defendant significantly impacts competition within it. The relevant market serves as the platform to assess competitive harms and benefits associated with the restraint. Insufficient evidence to define either the geographic or product market can warrant summary judgment.

In this case, the plaintiff describes the relevant market as "shipping consultation services," while defendants argue it encompasses contract price negotiation services. The court does not need to resolve the market characterization issue since the plaintiff has failed to provide evidence that its market definition is legally valid. The absence of expert testimony to substantiate the market definition hinders the plaintiff's ability to meet the evidentiary burden required. Prior exclusions of testimony further diminish the evidentiary support for the plaintiff's proposed market, resulting in insufficient grounds for a jury to validate an economically significant product market.

Establishing the relevant market in this case necessitates expert testimony due to the complexity involved. A jury cannot determine whether two technologies are "close substitutes" without such testimony. A relevant market must include the product in question and all economic substitutes, defined by reasonable interchangeability and cross-elasticity of demand. The Plaintiff's market definition is unclear; initially, it suggested the market was solely for shipping advice but later attempted to clarify it as involving the analysis of shipping history and strategizing to optimize carrier services. However, the Court finds this definition insufficiently specific and fatal to the Plaintiff's claims. The Plaintiff's primary service—negotiating shipping contracts—constitutes 95% of its business, yet this is not reflected in its market definition. The Court emphasizes adherence to precedent, which necessitates a definition based in commercial reality. The Plaintiff has not demonstrated that its narrowed market constitutes a recognizable market, nor has it shown that customers exclusively seek the "advice" component of its services, which accounts for only 0.51% of its revenue. There is a lack of evidence regarding other firms selling this advice or consumer demand for it.

Plaintiff has failed to produce necessary market data to define the relevant market for its services, as required by precedent. Specifically, it has not provided evidence of a market for the marginal subset of its services or demonstrated the presence of other market participants. Plaintiff admits that trade was only restrained in the market for negotiation services but attempts to broaden its definition of the relevant market to include services beyond those admitted, which is contrary to Ninth Circuit standards. The legal standard requires that the market definition include only those services directly affected by the alleged restraint. Furthermore, Plaintiff has not shown that the services it seeks to include are reasonably interchangeable with the restrained services. The relevant market should encompass all sellers capable of impacting each other's business significantly. Plaintiff claims to be part of a market with defendants and other similar entities, which it defines broadly as those providing shipping consultation services, yet it excludes many actual competitors offering related services that assist shippers in maximizing savings. This exclusion raises questions about the validity of Plaintiff’s proposed market definition.

Plaintiff fails to substantiate the exclusion of shipping consultants from its defined market and does not analyze whether their services may serve as substitutes for those included in the alleged market. Citing Newcal Indus., the excerpt emphasizes that market competition encompasses all economic substitutes, not just specific products targeted by the TPC Policy. The Plaintiff's argument is deemed circular, asserting exclusion based solely on the TPC Policy's focus, which misinterprets market definition. The market should instead reflect the totality of goods and services offered by sellers. The Plaintiff has not provided evidence to support its market boundaries and has arbitrarily excluded in-house shipping advisors, who also analyze data for cost-saving strategies. A product market should incorporate all goods or services that are economic substitutes, reflecting cross-elasticity of demand. Furthermore, over eighty percent of shippers utilize in-house advisors rather than TPCs, yet the Plaintiff offers no justification for the exclusion of these in-house advisors as substitutes. The court has previously rejected market definitions based solely on price or quality differences. The Plaintiff's assertion that only TPCs provide advice without supporting evidence undermines its position. Additionally, the exclusion of USPS and regional carriers from the shipping consultation services market lacks justification, despite evidence that TPCs provide advice on various carriers. The Plaintiff's rationale for exclusion based on service characteristics is insufficient.

Plaintiff has failed to provide evidence supporting its claims, while existing evidence indicates that USPS and regional carriers do offer time-sensitive delivery services. The Plaintiff's attempt to define a market for "shipping consultation services" is flawed, as it unjustly excludes other carriers and lacks evidence of such a market's existence. Antitrust claims cannot be artificially constructed by narrowly defining a market to suggest an injury. Courts are not obligated to accept any market definition proposed by the Plaintiff, especially when it does not align with the realities of the services provided. The Plaintiff has not met the burden of demonstrating a factual question regarding the relevant market necessary to avoid summary judgment. Although antitrust cases can be complex, summary judgment is still applicable when the evidence does not support the Plaintiff's claims. The Plaintiff's reliance on prior cases (Amarel and Yellow Pages) is misplaced, as those cases involved clearly defined markets, which the Plaintiff has not established here. Furthermore, the Plaintiff's argument for per se violations of the Sherman Act does not exempt it from presenting a rational market definition.

Elaborate market analysis is unnecessary for per se antitrust violations due to the presumption of anticompetitive effects. Per se rules apply only to restraints that consistently restrict competition and reduce output. For a per se prohibition, a restraint must clearly demonstrate anticompetitive effects without redeeming virtues. The case Leegin Creative Leather Prods. Inc. v. PSKS, Inc. establishes that per se rules require substantial judicial experience with a restraint type and confidence that it would be invalidated under the rule of reason. The Plaintiff's classification of the TPC Policy as an “illegal boycott” is unsupported by relevant case law, as no similar cases warrant per se treatment. The Supreme Court in FTC v. Indiana Federation of Dentists declined to apply per se rules to a dentists' agreement to withhold X-rays from an insurance company, emphasizing that the definition of group boycotts should not be overly broad. The Plaintiff's assertion that Defendants refused to deal with TPCs fails, as TPCs are not considered "suppliers or customers" of Defendants. The Ninth Circuit outlines three criteria for a per se illegal boycott, including the necessity of market access cut-off, the dominant market position of the boycotting firm, and the lack of justification for the practices. The Plaintiff did not provide evidence of Defendants' dominant market position in shipping consultation services. Furthermore, Defendants argue that the TPC Policy is procompetitive as it enables direct dealings with shipping customers, enhancing efficiency.

The TPC Policy does not invoke the per se rule regarding group boycotts, requiring the Plaintiff to demonstrate the existence of a relevant market and anticompetitive effects. The Plaintiff argues for a "quick look" antitrust analysis, which is applicable when anticompetitive effects are evident to a reasonable observer without extensive market analysis. However, since the Plaintiff has presented a plausible procompetitive justification for the TPC Policy, a quick look analysis is deemed inappropriate. The court asserts that under the rule of reason, the Plaintiff must initially show significant anticompetitive effects in a relevant market, which the Plaintiff failed to do, particularly regarding the market for “shipping consultation services.” Consequently, the Court grants summary judgment in favor of the Defendants and dismisses all claims in the Third Amended Complaint with prejudice. Additionally, the Court dismisses AFMS's monopolization claim under Section 2 of the Sherman Act due to insufficient allegations of anticompetitive conduct and the lack of viable single-brand submarkets. The Court has considered all evidence submitted, including sealed documents, but cites only publicly filed versions for this order. The parties' attempts to seal documents were partially denied, resulting in multiple amended filings to reduce public record redactions.

The Court references the most recent versions of documents in its Order and does not list each exhibit due to the large volume of evidence. Instead, it describes documents as needed in evidentiary citations. FedEx's Appendix contains exhibits with multiple subexhibits, which are cited by number or page. AFMS submitted a substantial amount of evidence, totaling 3,831 pages, but did so in violation of local rules regarding document formatting. The Court notes that while FedEx's subexhibits were not separately tabbed, they were clearly numbered or lettered, facilitating their location. Portions of certain surveys are deemed admissible under specific hearsay exceptions as per the Federal Rules of Evidence, and all parties agree on the undisputed survey results. 

However, many "facts" in Plaintiff’s Statement of Undisputed Facts (ASUF) are compound, making it difficult for the Court to find supporting evidence. The Court acknowledges that in certain cases, a shipper may negotiate with a single carrier instead of issuing a Request for Proposal (RFP). There is evidence that Third Party Consultants (TPCs) engaged in improper benchmarking of confidential shipping rates. The Plaintiff's assertion of an alternative market for "delivery services" contradicts the Court's earlier ruling that the Plaintiff is not a participant in the shipping services market and thus cannot claim antitrust injury. The Plaintiff did not reassert the delivery services market in its Third Amended Complaint and cannot introduce new theories of standing in response to a summary judgment motion, as established by precedent. Therefore, the Court does not entertain the Plaintiff's arguments regarding the "delivery services" market.