                                                                                           PUBLISH

                      IN THE UNITED STATES COURT OF APPEALS
                             FOR THE ELEVENTH CIRCUIT

                                -------------------------------------------         FILED
                                              No. 98-6194
                                                                            U.S. COURT OF APPEALS
                               --------------------------------------------
                                                                               ELEVENTH CIRCUIT
                                                                                   06/09/99
                                D. C. Docket No. 97-0581-BH-M
                                                                                THOMAS K. KAHN
                                                                                    CLERK
DOUG LOWELL, MACKEY NOLTE, et al.,

                                                                  Plaintiffs-Appellants,

       versus


AMERICAN CYANAMID COMPANY, A CORPORATION,

                                                                  Defendant-Appellee.


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                          Appeal from the United States District Court
                             for the Southern District of Alabama

                     ----------------------------------------------------------------
                                            (June 9, 1999)



Before EDMONDSON and BLACK, Circuit Judges, and RESTANI*, Judge.



_______________
*Honorable Jane A. Restani, Judge, U.S. Court of International Trade, sitting by designation.
EDMONDSON, Circuit Judge:

      Plaintiffs, five Alabama farmers, have appealed a district court order dismissing

an antitrust complaint for failure to join middlemen dealers as defendants pursuant to

Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977). We conclude that Illinois Brick has

no application in a vertical conspiracy with no allegations of “pass-on.” The district

court decision is vacated, and the case is remanded.



                                     Background



      Between 1989 and 1995, the defendant, American Cyanamid Company

(“American Cyanamid”), maintained two similar rebate programs for its independent

retail dealers nationwide. Under the programs, American Cyanamid entered into

written contracts with its dealers whereby American Cyanamid would give the dealer

a rebate on each sale of designated crop-protection products but only if the dealer sold

the product at or above American Cyanamid’s suggested resale price; the programs

allegedly established a minimum resale price. Under these contracts, the specified

resale price was equal to the wholesale prices paid by the dealer. American




                                           2
Cyanamid’s dealers overwhelmingly responded by selling the product at or above the

specified minimum resale price.1

       In 1997, Plaintiffs filed a complaint, on behalf of themselves and all others

similarly situated, alleging American Cyanamid had violated section one of the

Sherman Act (15 U.S.C. § 1) and section four of the Clayton Act (15 U.S.C. § 15).

Plaintiffs later amended their complaint, but at no time did they join any of the

estimated 2,500 American Cyanamid distributors. American Cyanamid filed a motion

to dismiss pursuant to Federal Rule of Civil Procedure 12(b)(6). The district court

granted the motion with prejudice, holding that the independent dealers, as direct

purchasers, must be parties to the action under the doctrine of Illinois Brick.

Otherwise, Plaintiffs, according to the district court, lacked standing to maintain the

suit. Plaintiffs appealed.

                                            Discussion



       We review de novo a district court order dismissing a complaint for failure to

state a claim, construing the allegations in the complaint as true and in the light most




   1
     Although this act may be, by itself, unexceptional (as it is the only way to turn a profit on the
individual product), we will assume, due to the procedural posture of this case, that Plaintiffs have
shown a vertical price-fixing conspiracy.

                                                  3
favorable to the plaintiff. See Harper v. Blockbuster Entertainment Corp., 139 F.3d

1385, 1387 (11th Cir. 1998).

        Plaintiffs’ complaint alleges that American Cyanamid engaged in a vertical

price-fixing conspiracy with the independent dealers in violation of section one of the

Sherman Act and section four of the Clayton Act. Plaintiffs claim that the district

court erred in applying Illinois Brick to bar this complaint from proceeding directly

against American Cyanamid without joining the independent dealers.

        Illinois Brick, so Plaintiffs’ argument goes, does not apply to a vertical price-

fixing scheme where (1) a plaintiff buys directly from a dealer who combined with a

manufacturer to fix the prices and (2) no allegations are made of “pass-on.” In other

words, Plaintiffs claim they are not indirect purchasers at all under Illinois Brick, but

are direct purchasers from a conspiring party.

        American Cyanamid counters that the rule of Illinois Brick--that indirect

purchasers cannot maintain a suit without joining the appropriate middlemen--is on

point and that the present case falls within neither of its two enumerated exceptions.2

American Cyanamid also points out that the former Fifth Circuit applied Illinois Brick




    2
     The two exceptions--neither of which apply here--are where there is a preexisting cost-plus
contract or where the direct purchaser is owned or controlled by its customer. See Illinois Brick,
431 U.S. at 735-36 & n.16.

                                                4
to bar claims somewhat similar to this one in In re Beef Industry Antitrust Litigation,

600 F.2d 1148 (5th Cir. 1979).

       We agree with the Plaintiffs. Illinois Brick has no application in this case.

       Illinois Brick was an extension of the Court’s earlier prohibition against the

defensive use of passing on in Hanover Shoe, Inc. v. United Shoe Machinery Corp.,

392 U.S. 481, 491-94 (1968).3 In concluding that the indirect government purchasers

of a product may not sue distant manufacturers, Illinois Brick cited two underlying

rationales. The first of these was that “allowing offensive but not defensive use of

pass-on would create a serious risk of multiple liability for defendants. Even though

an indirect purchaser had already recovered for all or part of an overcharge passed on

to it, the direct purchaser would still recover automatically the full amount of the

overcharge that the indirect purchaser had shown to be passed on[.]” Illinois Brick,

431 U.S. at 730. Second, as in Hanover Shoe, the Court was worried about the

“uncertainties and difficulties in analyzing price and out-put decisions ‘in the real

economic world rather than an economist’s hypothetical model,’ and of the costs to

the judicial system and the efficient enforcement of the antitrust laws of attempting




  3
    Hanover Shoe said that a manufacturer cannot assert a “passing-on” defense (that is, the defense
that the plaintiff has no damages when he passed the overcharge on down the production line)
against a direct purchaser of its product. 392 U.S. at 494.

                                                 5
to reconstruct those decisions in the courtroom.” Id. at 731-32 (quoting Hanover

Shoe, 392 U.S. at 493) (citations omitted).

         Neither of the rationales applies to the very different case of vertical conspiracy

with no allegations of passing on:

         Illinois Brick does not limit suits by consumers against a manufacturer
         who illegally contracted with its dealers to set the latter’s resale price.
         The consumer plaintiff is a direct purchaser from the dealer who, by
         hypothesis, has conspired illegally with the manufacturer with respect to
         the very price paid by the consumer. There is no problem of duplication
         or apportionment because the consumer is the only party who has paid
         any overcharge. Although the manufacturer did not sell directly to the
         consumer, he is a fellow conspirator with the direct-selling dealer and
         therefore jointly and severally liable with the dealer for the consumer’s
         injury.


2 Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law 264 (rev. ed. 1995)

(footnotes omitted).

         This case presents no problems of double recovery because only one illegal act

(the vertical conspiracy)4 is present and likely only one set of potential plaintiffs (the

     4
      Considering the loose nature of notice pleadings, a potential plaintiff might allege only a
vertical conspiracy when there is in fact a horizontal conspiracy as well or some other kind of illegal
conduct (for example, tying or monopolistic behavior). By so doing, some clever plaintiff could
elude a defendant’s 12(b)(6) motion but then later recover in the lawsuit for the pass-on injury of
a horizontal conspiracy--the kind of injury for which a middleman could also recover. This
circumstance could present the Illinois Brick double-recovery problem. So, courts must be attentive
in holding plaintiffs to their pleadings or, if plaintiffs seek to amend their pleadings to add a kind
of conduct from which pass-on could be claimed, in forcing the plaintiffs to join the middlemen as
well. Cf. Arizona v. Shamrock Foods Co., 729 F.2d 1208, 1211 (9th Cir. 1984) (holding suit against
somewhat distant defendant permissible where plaintiffs changed their theory of recovery to one that
does not involve pass-on).

                                                  6
farmers) exists.5 Although Plaintiffs may sue American Cyanamid alone for the full

cost of the conspiracy with the dealers, that is the way antitrust conspiracy liability

works and does not go to the kind of duplicative recovery with which Illinois Brick

was concerned.6

           Second, the economic and legal complexities outlined in Illinois Brick are

absent here as well. For the plaintiffs in a case like this one, proving what price would

have existed in the absence of the unlawful agreement is difficult; but it is no more

difficult than the proof necessary in any vertical conspiracy case. Furthermore, the

task pales in comparison to the complexities contemplated in Illinois Brick:7 tracing

the pass-on through many steps in the production process and determining how much

was absorbed, how much was passed on, and by whom; moreover, all of the


   5
     Two other kinds of potential plaintiffs--intermediaries who could sue the manufacturer either
(1) for coerced participation in an unlawful scheme or (2) termination for refusing to adhere--may
exist given the occurrences alleged in this case. But these kinds of potential plaintiffs do not change
the rule about the need to join intermediaries in the case before us now. Such suits would result in
a different measure of damages: the damages would not be pass-on and would not factor into
Plaintiffs’ recovery. In the event that a manufacturer might have to pay two sets of damages, it only
means he committed two different injuries; this circumstance is not the double recovery of Illinois
Brick.
       6
     Illinois Brick faced the prospect of distant government plaintiffs and intermediate supplier-
plaintiffs or dealer-plaintiffs recovering repeatedly from the manufacturers for the same pass-on
injury resulting from the same horizontal conspiracy.
   7
    See In re Mid-Atlantic Toyota Antitrust Litig., 516 F. Supp. 1287, 1295 (D. Md. 1981) (“While
such a calculation [of the price that would have prevailed in a non-pass-on case] would appear to
be a simple one, even if it is complex it would not be the type of complexity that the Illinois Brick
Court was concerned with.”).

                                                  7
calculations would have to be made without any of the intermediary parties asserting

their interests, but merely with the aid of “elasticity studies introduced by expert

witnesses[.]” Illinois Brick, 431 U.S. at 742.

       The complexities Illinois Brick involved were legal ones as well. “[P]otential

plaintiffs at each level in the distribution chain are in a position to assert conflicting

claims to a common fund the amount of the alleged overcharge by contending that the

entire overcharge was absorbed at that particular level in the chain.” Id. at 737. This

creates the need for either statutory interpleader under 28 U.S.C. § 1335 or

compulsory joinder under Rule 19(a). See id. at 738. And such efforts would create

as many problems as they would solve. See id. at 738-41.

       But here, we have no such legal complexities. In all likelihood, the full extent

of this litigation will be a class-action suit by Plaintiffs against American Cyanamid.

That is it. Plaintiffs do not want to join the dealers, and American Cyanamid will

have no incentive to bring the dealers in because it cannot seek contribution. See

Texas Indus. Inc., v. Radcliff Materials, Inc., 451 U.S. 630 (1981) (holding no right

of contribution under Clayton and Sherman Acts). Also, suits, if any, by the dealers

against American Cyanamid (which seem unlikely)8 could be handled separately as



   8
     In this case, no dealers had sued American Cyanamid at the time of the appeal even though the
statute of limitations was running out.

                                                8
”the damage criteria are quite distinct and not overlapping for the dealer and the

consumer.” 7 Phillip E. Areeda, Antitrust Law 183 (1986).

       Today’s vacation of the district court’s decision to dismiss makes no new law.

The inapplicability of Illinois Brick to vertical conspiracies with no allegations of

pass-on (what some have called the “vertical conspiracy exception”) has long been

recognized. See Shamrock Foods, 729 F.2d at 1211-13; Fontana Aviation, Inc. v.

Cesna Aircraft Co., 617 F.2d 478, 480-82 (7th Cir. 1980); Mid-Atlantic Toyota, 516

F. Supp. at 1294-96; Reiter v. Sonotone Corp., 486 F. Supp. 115, 119-21 (D. Minn.

1980); Gas-A-Tron v. American Oil Co., 1977 WL 1519, at *2-3 (D. Ariz. 1977);

Areeda, supra, at 182 (“[O]ther courts have correctly seen that Illinois Brick has no

bearing on [vertical price fixing.]”); Herbert Hovenkamp, Commentary, The Indirect-

Purchaser Rule and Cost-Plus Sales, 103 Harv. L. Rev. 1717, 1719 (1990) (“Some

courts . . . have held that Illinois Brick will not bar an indirect-purchaser action if . .

. the dealer itself participated in the conspiracy.”).

       And the facts of the cases cited by American Cyanamid are materially different.

In In re Beef, upon which American Cyanamid relies most heavily, the complaint

alleged a horizontal conspiracy between 25 retail food chains. On appeal, the

plaintiffs (cattlemen, ranchers and feeders) also said that the district court erred in not




                                            9
allowing them to amend their complaint to allege a vertical conspiracy between the

retail chains and the middlemen (meat packers and slaughterhouses).

      The district court’s refusal to allow amendments--a decision that is reviewed

only for abuse of discretion--was upheld on the basis of undue delay on the plaintiffs’

part in moving to amend. “Absent any apparent justification for this delay, we cannot

hold that the district court abused its discretion.” In re Beef, 600 F.2d at 1162. We

went on to say that the decision not allowing amendments was “supportable” on

grounds of futility as well; in that paragraph, we observed that the proposed

amendments did not fit the “control” exception to Illinois Brick. Then we added

another paragraph in which we said that we did not “think” that the allegation of

vertical conspiracy in In re Beef would get around Illinois Brick and its prohibition

against double liability.

      In context, the discussion of Illinois Brick looks like dicta, given that the

standard of review was abuse of discretion and that the In re Beef court had already

decided to affirm the denial of the amendments. But even supposing that the Illinois

Brick paragraph is binding in materially similar cases, it would have no impact here,

because here--unlike In re Beef--there is no allegation of both a vertical conspiracy

as well as a horizontal conspiracy one step removed from the plaintiffs. Put another

way, In re Beef is consistent with the rule we announce today. Not every vertical


                                          10
conspiracy allegation will get around the Illinois Brick doctrine. An alleged vertical

conspiracy on top of a horizontal conspiracy--like the situation in In re Beef--does not,

as the plaintiffs in In re Beef had hoped, “save” the overall conspiracy claims.

Instead, the Illinois Brick doctrine might apply even more strongly in a case like In

re Beef.

      Illinois Brick is not some formulaic “remoteness” doctrine wherein a plaintiff

who proves he purchased from a conspiring party--any conspiring party--

automatically escapes the Illinois Brick bar. Instead, Illinois Brick is a decision based

on avoiding risks; and the same risks that were inherent in a garden-variety horizontal

conspiracy case with pass-on apply to a case like In re Beef: the risks of (1) double

liability; and (2) economic and legal complexity. The difference between In re Beef

and the ordinary horizontal conspiracy is that In re Beef takes all the same risks of the

typical horizontal conspiracy and compounds them by including another conspiracy

(the vertical one) with a separate set of proofs and a separate set of problems.

      Second, Austin v. Blue Cross & Blue Shield, 903 F.2d 1385 (11th Cir. 1990),

is not on point either. That case involved non-Blue Cross patients suing Blue Cross

for overcharging by hospitals. The plaintiffs did not allege vertical price-fixing

between Blue Cross and the hospitals for non-Blue Cross patients; Blue Cross was not

even in the plaintiffs’ chain of distribution. The plaintiffs only alleged that Blue Cross


                                           11
had a special deal with the hospitals for Blue Cross patients. Id. Because of what

was, in effect, a lower rate charged to these patients, the hospitals--the plaintiffs

alleged--shifted the costs on to their non-Blue Cross patients. Id.

      The Austin opinion set out several explanations for the court’s decision that the

non-Blue Cross patients lacked standing to maintain the lawsuit. See id. at 1393. At

least two of those reasons were independent of the others. See id. at 1389 (observing

that, apart from Illinois Brick, “[b]oth causation and antitrust injury[, which were not

proved,] are essential elements of antitrust standing.”). The Illinois Brick reasoning

was therefore likely not critical to the decision in the case. Moreover, “[t]here is, of

course, an important difference between the holding in a case and the reasoning that

supports that holding.” Crawford-El v. Britton, 118 S. Ct. 1584, 1590 (1998).

      But, even faithfully adhering to the Illinois Brick section of the Austin opinion,

we cannot say that it contradicts today’s decision. To the contrary, it too fits within

the rule announced today: Illinois Brick does not apply to a single vertical conspiracy

where the plaintiff has purchased directly from a conspiring party in the chain of

distribution. We can accept that Illinois Brick prohibited the non-Blue Cross plaintiffs

in Austin from suing Blue Cross directly when the claims are purely derivative

through the hospitals’ alleged “cost-shifting.” Those facts are not the facts of this




                                          12
case, however: Plaintiffs’ claims are not derivative or reliant on cost-shifting theories.

The claims are directly against a conspiring party in the chain of distribution.

      Moreover, In re Brand Name Prescription Drugs Antitrust Litigation, 123 F.3d

599 (7th Cir. 1997), and Kansas v. Utilicorp United, Inc., 497 U.S. 199 (1990), do not

bear on our decision. First, In re Brand Name is distinguishable for the same reasons

as Austin and In re Beef. Second, that the Supreme Court refused to carve out another

exception to the Illinois Brick doctrine in Utilicorp--a case where the facts seemed

ripe for an exception--is unremarkable. Plaintiffs here, unlike in Utilicorp, are not

looking for an exception to Illinois Brick based on the facts of a particular market;

Illinois Brick simply does not apply to this kind of conspiracy.



                                      Conclusion



      We conclude that Illinois Brick is inapplicable to the present case where the

complaint alleges a vertical conspiracy with no pass-on. In such a case, Plaintiffs

have standing to assert a claim against American Cyanamid directly under the antitrust

laws. The district court decision to dismiss the complaint must be vacated. The case

is remanded for further proceedings.

      VACATED AND REMANDED.


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14
