Price-Fixing or Price Leadership?
In general, the complaints alleged that the defendants insurers all agreed to follow a market rate established by State Farm, which is accused of using a method of ranking body shops by criteria, including number of employees, number of work bays and area density, which it then “manipulates” as it solicits businesses to be part of its “direct repair program.”
Shops not complying are dropped from the DRP program, and customers are “steered” away by the insurer.
In briefing for the en banc hearing, the appellate panel posed two questions as to the federal claims: whether the complaints could plausibly be inferred to support per se claims of illegal price-fixing and whether they could support claims of an illegal boycott by the insurers.
In ruling against the repair shops, Anderson relied heavily on the U.S. Supreme Court’s 2007 decision in Bell Atlantic v. Twombly.
That decision toughened the standards for price-fixing claims and concluded that simply showing that parties engaged in “parallel conduct” without evidence of an actual agreement is insufficient to support such claims.
Anderson first took issue with the plaintiffs’ decision not to amend their complaints when Presnell first issued his ruling, writing that “the body shops’ appellate briefing takes undue liberties in construing the inferences that can be fairly read from their pleadings.”
The plaintiffs provided several “plus factors” to indicate more than parallel conduct by the insurers, which Anderson’s opinion took up and discarded one by one.
The assertion that the body shops are barred from changing the rates they charge without authorization from State Farm was not supported in the complaints, he wrote.
“Quite the contrary, the only relevant specific allegation of fact is that the non-State Farm Insurance companies advise the plaintiffs that they will pay no more than State Farm pays,” Anderson said, which is “mere price leadership” and perfectly acceptable.
“The body shops also argue that the conspiracy is shown by the presence of a common motive, namely desire to maximize profits,” he said. “However, under this logic, most businesses with similar pricing would be deemed in cahoots with each other because that is the goal of most corporations.”