Opinion
MDL Docket No. 3:03CV1516.
August 4, 2004
MEMORANDUM AND ORDER Denying Koch Industries' Motions To Dismiss
THIS MATTER comes before the Court on Defendant Koch Industries, Inc.'s ("Koch") Motions To Dismiss claims against it within the Consolidated Amended Class Action Complaint as well as the Individual Complaints captioned above pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure. Because the bases for Defendant's motions are essentially the same as to each of the different civil actions, the motions will be analyzed by the Court collectively.
I. Nature Of The Case
These cases arise out of allegations by individual and class plaintiffs that beginning as early as 1995, and continuing at least through 2001, Defendants and their co-conspirators conspirators agreed, combined and conspired with each other to fix, raise, maintain and/or stabilize the price of polyester staple and to allocate markets and/or customers for the sale of polyester staple in the United States. (Consol. Am. Compl. at 2.) (Avondale Mills's Am. Compl., ¶¶ 18,20.) Plaintiffs collectively allege that as a result of Defendants' unlawful conduct and conspiracy, Plaintiffs paid artificially inflated prices for polyester staple. Therefore, Plaintiffs assert that Defendants violated Sections 4 and 16 of the Clayton Act, 15 U.S.C. §§ 15 and 26, and Section 1 of the Sherman Act, 15 U.S.C. § 1.
For purposes of the instant Order, the term "Plaintiffs" will refer to all of the Class Plaintiffs, Individual or Non-Class Plaintiffs, as well as all putative class members. In the event the Court wishes to refer to a particular group (or sub-group) of plaintiffs, the Order will expressly identify that group.
The moving Defendant, Koch Industries, Inc. ("Koch"), is a privately-held corporation headquartered in Wichita, Kansas. (Consol. Am. Compl., ¶ 25) Koch is the parent entity of Defendant Arteva Specialties S.a.r.l. d/b/a KoSa, which is licensed to do business in North Carolina as Arteva Specialties, L.L.C. ("Arteva/KoSa"). Arteva/KoSa was created in December 1998 as part of a transaction in which certain Koch subsidiaries and IMASAB S.A. de C.V. ("IMASAB"), a Mexican corporation, purchased some of Hoechst AG's polyester assets. (9-5-03 Motion at 5.) (Consol. Am. Compl., ¶ 21) In late 2001, Koch purchased IMASAB's share. Id. Presently, Koch is the sole owner of Arteva/KoSa. Id.
"Hoechst AG" is short for Hoechst Aktiengesellschaft.
Koch owns Defendant Arteva/KoSa through two (2) wholly owned subsidiaries, Koch International Equity Investments BV and Koch Equities, Inc. (Consol. Am. Compl., ¶ 25)
Defendant Koch describes itself as a "large private holding company with investments in a wide range of businesses that operate throughout the world." (9-5-03 Motion at 3.) Some of the industries Koch's subsidiaries operate in are: "trading, petroleum, asphalt, natural gas, gas liquids, chemicals, chemical technology equipment, minerals, fertilizers, ranching, and finance." Id. It is undisputed that Koch itself is not a manufacturer of polyester staple although Koch apparently supplies Arteva/KoSa with the base chemical for its polyester staple production, namely, paraxylene ("PX"). (Class Plaintiffs' Exh. A, at 2-3.)
Koch is the only named Defendant that is not a polyester staple manufacturer.
According to Koch, it operates independently from Arteva/KoSa in that Koch and Arteva/KoSa observe corporate formalities, conduct day-to-day operations separately from one another, and have separate employees engaged in separate and distinct businesses. Id. Class Plaintiffs present some evidence that the officers of Koch and Arteva/KoSa have overlapped throughout the class period. (Class Pl.'s Mem. In Opp. at 3.) In fact, Arteva/KoSa's sole director and officer is the current President and CEO of Koch. Id. at 3.
As a general rule, the Court may not consider materials outside the pleadings in ruling on a Rule 12(b)(6) motion without converting the motion into one for summary judgment. FED. R. CIV. P. 12(b). Because some of the information provided by Class Plaintiffs is public record, and subject to judicial notice, i.e., information contained on Koch Industries' website, it is properly considered. 5B Charles A. Wright, et al., Federal Practice and Procedure § 1357 (3d. ed. 2004) ("items subject to judicial notice, matters of public record . . . items appearing in the record of the case, and exhibits attached to the complaint whose authenticity is unquestioned" may be considered without converting the motion into one for summary judgment).
On October 31, 2002, the U.S. Department of Justice filed an information against Arteva/KoSa, and its Polyester Staple Sales Manager, Troy Stanley, in the Western District of North Carolina. (Criminal Docket Nos.: 3:02CR229; 3:02CR230) The information charged both with conspiring to restrain trade by fixing prices and allocating customers within the polyester staple industry in North America from September 1999 through at least January 2001, in violation of Section One of the Sherman Act, 15 U.S.C. § 1. On December 18, 2002, guilty pleas were tendered by Mr. Stanley and by corporate representatives of Arteva/KoSa. The undersigned conducted the Rule 11 proceedings, at which time both guilty pleas were accepted by the Court. The Court immediately sentenced Arteva/KoSa at its request. As a condition of its Plea Agreement, Arteva/KoSa agreed to pay a criminal fine of $28.5 million for participating in the alleged polyester staple fiber conspiracy. Mr. Stanley is still awaiting sentencing. According to Koch, the DOJ never targeted Koch as part of its criminal investigation, never served a subpoena on Koch, and never requested to interview any Koch personnel.
Defendant's contention that the guilty plea tendered and accepted by this Court, by its wholly owned subsidiary, Arteva/KoSa, should not be considered or relied upon is disingenuous.
The Court agrees with Plaintiffs that the DOJ's criminal investigation does not define the scope of these consolidated civil proceedings.
Defendant Koch now moves to dismiss the claims against it contending there is a lack of nexus between Koch and the alleged conspiracy within the polyester staple industry. As an alternative grounds for dismissal, Defendant contends that Plaintiffs do not satisfy the pleading requirements set forth within Rule 8(a).
The Court finds Defendant's alternative motion pursuant to Rule 8(a) without merit. Defendants cannot legitimately contend that they have not been placed on notice by Plaintiffs of the possible ways in which Plaintiffs seek to establish liability. Indeed, Defendant identifies at least four possibilities within its memoranda. Moreover, Defendants' reliance on Estate Construction is misplaced in that the appellate court held that an antitrust plaintiff must "provide, whenever possible, some details of the time, place and alleged effect of the conspiracy."Estate Const. Co. v. Miller Smith Holding Co., 14 F.3d 213, 221 (4th Cir. 1994) (emphasis added). Further, the complaint in Estate Construction did nothing more than repeat key words from the statute. Plaintiffs' complaints satisfy the liberal pleading standards of Rule 8.5B Charles A. Wright, et al., Federal Practice and Procedure § 1357 (3d. ed. 2004) ("Rule 8 indicates that a complaint need only set out a short and plain generalized statement of the claim from which the defendant will be able to frame a responsive pleading")
II. Standard For Review/FED. R. Civ. P. 12(b)(6)
On a motion to dismiss, a court may dismiss a complaint which "fail[s] to state a claim upon which relief may be granted." FED. R. Civ. 12(b)(6). "[A] complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of [its] claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957). In ruling on a Rule 12(b)(6) motion to dismiss, the Court must take the allegations in the complaint as true, and construe the facts alleged in the complaint in the light most favorable to the plaintiff. See GE Investment Private Placement v. Parker, 247 F.3d 543, 548 (4th Cir. 2001).Typically, in analyzing a defendant's motion to dismiss a plaintiff's Sherman Act § 1 complaint pursuant to Rule 12(b)(6), the Court "must determine whether allegations covering all the elements that comprise the theory for relief have been stated as required." Estate Constr. Co. v. Miller Smith Holding Co., 14 F.3d 213, 220 (4th Cir. 1994). Plaintiffs' allegations may not be vague nor conclusory. Id. ( citing Reynolds Metals Co. v. Columbia Gas Sys. Co., Inc., 669 F.Supp. 744, 750 (E.D.Va. 1987)).
Because Defendant claims the facts do not support Plaintiffs' allegations that Koch was involved in the alleged conspiracy, the Court's focus is Koch's purported role in the alleged conspiracy as opposed to the facts alleged in support of the antitrust claims.
Further, the U.S. Supreme Court has cautioned that, "[i]n antitrust cases, where 'the proof is largely in the hands of the alleged conspirators,' dismissals prior to giving the plaintiff ample opportunity for discovery should be granted very sparingly." Hosp. Bldg. Co. v. Trustees of the Rex Hosp. et al., 425 U.S. 738, 745 (1976) ( quoting Poller v. Columbia Broadcasting, 368 U.S. 464, 473 (1962)).
III. Discussion
The issue before the Court is whether Plaintiffs allege sufficient facts from which a reasonable jury could find Koch Industries liable for the alleged conspiracy to fix prices and allocate customers within the polyester staple industry during the relevant time periods. Accepting Plaintiff's allegations as true, as the Court must, Defendant's motions must be denied.
The relevant time period varies. The time period described by the Consolidated Amended Class Complaint is April 1, 1999 through July 31, 2001 ("Class Period.") (Consol. Compl. at 2.) Some Individual or Non-Class Plaintiffs allege broader time periods. It is also alleged by Class Plaintiffs that the DOJ, which originally alleged that the conspiracy was in existence from September 1999 through at least January 2001, has expanded its investigation to as early as 1995 and as recent as 2001 through 2003. (Class Plaintiffs' Mem., at 15.)
In support of its motions, Koch claims that Plaintiffs' general allegations, or those that pertain to the defendants as a whole, are not sufficient to state a claim against Koch. Koch also maintains that — with or without discovery — Plaintiffs cannot allege facts in support of its purported liability pursuant to various common law theories such as agency, piercing the corporate veil, and respondeat superior. According to Plaintiffs, they only allege violations of Section 1 of The Sherman Antitrust Act as opposed to an action under common law.
However, the issue before the Court is not whether Plaintiffs will ultimately succeed on the merits of any particular legal theory. Gilbane Bldg. Co. v. Federal Reserve Bank of Richmond, 80 F.3d 895, 900 (4th Cir. 1996). Instead, the Court considers whether Plaintiffs allege sufficient facts to sustain any cognizable legal action against Koch. Id.
The Clayton Act, 15 U.S.C. §§ 15 and 26, civil counterpart to The Sherman Act, creates a private right of action for the recovery of damages and injunctive relief based upon violations of the "antitrust laws." The Sherman Act, 15 U.S.C. § 1, provides in pertinent part:
Sections 15 and 26 prohibit conduct that is forbidden by, or is in violation of, the "antitrust laws." 15 U.S.C. §§ 15(a) and 26. For purposes of the Clayton Act, "[a]ntitrust laws" includes the Act entitled "An Act to protect trade and commerce against unlawful restraints and monopolies . . ." 15 U.S.C. § 12.
"Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal. Every person who shall make any contract or engage in any combination or conspiracy hereby declared to be illegal shall be deemed guilty of . . ."
— an offense against the United States.
15 U.S.C. § 1 (2004). In order to sustain these civil actions, Plaintiffs must establish a violation of Section 1 of The Sherman Act by proving the following three (3) elements by a preponderance of the evidence:
1) an antitrust violation;
2) direct injury, or impact, to the plaintiff from such violation; and
3) damages sustained by the plaintiff.
DeLoach v. Philip Morris Cos., Inc., 206 F.R.D. 551, 558 (M.D.N.C. 2002) ( citing Windham v. American Brands, Inc., 565 F.2d 59, 65 (4th Cir. 1977)). If Plaintiffs are successful in proving that a conspiracy actually existed, and that the object or purpose of the conspiracy was to fix prices or allocate customers, Plaintiffs' burden diminishes in that the second element is presumed. Hanover Shoe v. United Shoe Machinery Corp., 392 U.S. 481, 489 (1968); Illinois Brick Co. v. Illinois, 431 U.S. 720, 724-25 (1977).
Plaintiffs allege sufficient facts to withstand Defendant's motions to dismiss. Although Defendant Koch contends that Plaintiffs allegations against it are based entirely on its ownership of KoSa, Plaintiffs allege both direct and indirect participation (to the extent there is a true distinction) in the conspiracy by Koch. In other words, Plaintiffs argue that Koch has more control over, direction of, and general involvement with Arteva/KoSa than it admits in its filings. Class Plaintiffs expressly allege that all of Defendants' acts, including Arteva/KoSa's, "were authorized, ordered and condoned by their parent companies," including Koch, "while engaged in the management, direction, control, or transactions of their business affairs." (Consol. Am. Compl., ¶¶ 25, 32) Although specifics are not provided, Avondale Mills and other Plaintiffs similarly allege Koch was directly involved in the alleged conspiracy. (Avondale Am. Compl., ¶ 18; Mt. Vernon Mills' Compl., ¶¶ 47-48) At this stage in the litigation, either allegation is sufficient to survive Defendant's motion.
It is true that Plaintiffs consider Defendant's relationship with KoSa significant and, therefore, it is alleged that Defendant may have also been involved in the alleged conspiracy indirectly. For example, Class Plaintiffs allege that "[a]t all relevant times, Koch manufactured, marketed and/or sold Polyester Staple in the United States through its agent, defendant [Arteva]." (Consol. Am. Compl. at 8.) Other Complaints allege that Koch acted "through" Arteva/KoSa but do not expressly describe Arteva/KoSa as Koch's agent. (American Fiber Compl. at 6; Avondale Am. Compl. at 8; CMI Compl. at 8; Gulistan Compl. at 8; Wellington Compl. at 6.) Contrary to Defendant's characterization of the claims against it, Plaintiffs do notsolely rely on the relationship between Koch and Arteva/KoSa.
The allegations described herein distinguish this case from Reynolds Metals, cited by Defendant. Reynolds Metals Co. v. The Columbia Gas System, Inc., et al., 669 F.Supp. 744 (E.D.N.C. 1987). In Reynolds, plaintiff asserted claims under the Clayton Act, § 1 et seq., 15 U.S.C. § 12, et seq., against a parent entity and its subsidiaries, all of which were involved in various aspects of the natural gas industry. More specifically, the plaintiff alleged that defendants abused their monopoly power over the transportation of natural gas in violation of the Sherman Act. Reynolds, 669 F.Supp. at 746. After recognizing that in antitrust actions dismissals for failure to state a claim "should be granted very sparingly", the Court found that dismissal was proper as to the parent entity, "System." Id. at 750-51. The Court explained that plaintiff's claims were "based upon agreements to which System was not a party, and upon actions allegedly taken by [its subsidiaries]"; that plaintiff's allegations connecting System to the alleged anti-competitive behavior constituted legal conclusions rather than facts; and that plaintiff's claims against the parent corporation were based solely on its ownership of the other defendant corporations. Id. at 750. The Court also noted that, as a general rule, a corporation will be recognized as a separate entity. Id. ( citing Dewitt Truck Brokers, Inc. v. W. Ray Flemming Fruit Co., 540 F.2d 681, 683 (4th Cir. 1976) (piercing corporate veil case). Because plaintiff did not allege facts beyond ownership, and likewise failed to allege facts requiring the Court to disregard the separate corporate structures, the actions of the subsidiaries would not be imputed to the parent corporation. Id.
In this case, Plaintiffs do not concede that the alleged illegal agreement was made by Koch's subsidiary Arteva/KoSa as opposed to Koch. Instead, they allege that Koch was, at a minimum, aware of the conspiracy's existence and that Koch approved or condoned the alleged illegal conduct. This allegation is sufficient for Plaintiffs' claims against Koch to withstand Defendant's motion. Indeed, the Second Circuit Court of Appeals recently held that where a licensor/parent entity has the power to preempt an illegal policy, and also offers "affirmative encouragement" of conduct carried out by its licensee/subsidiary that is found to violate the Sherman Act, the licensor/parent may also be liable for the conduct of its licensee/subsidiary.United States v. VISA U.S.A., Inc., et al., 344 F.3d 229, 244 (2nd Cir. 2003). The Second Circuit found this to be the case even where the licensor/parent entity was organized as a membership association and, like Koch, considered itself to be "autonomous" or independent from its licensee/subsidiary entities. Id. at 237.
Moreover, Arteva/KoSa and Koch are privately-held corporations and information about the relationship between these entities is not publically available. (Class Mem., at 9.) Therefore, if there are more specific facts that support Plaintiffs' claims, or merely explain the relationship between these entities, it's unlikely Plaintiffs have ready access to them. Due to the nature of the claims alleged, it is proper to allow Plaintiffs to conduct discovery before requiring dismissal of the claims against Koch. Hosp. Bldg. Co., 425 U.S. at 746. Defendant's motions are more appropriate for resolution at summary judgment.
IT IS, THEREFORE, ORDERED THAT:
1) Koch Industries, Inc.'s Motions To Dismiss Pursuant To FED. R. CIV. 8 are hereby DENIED;
2) Koch Industries, Inc.'s Motions To Dismiss Pursuant To FED. R. CIV. 12(b)(6) are hereby DENIED;
3) Absent factual allegations distinguishing any future tag-along action from the above-captioned cases, the Court's ruling on this issue shall also apply to all tag-along actions; and
4) The Deputy Clerk is directed to forward a copy of this Memorandum and Order to all Liaison Counsel appointed by the undersigned and/or designated by Defendants.