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Anderson News L.L.C. v. American Media, Inc.

United States Court of Appeals, Second Circuit

July 19, 2018

Anderson News, L.L.C., Plaintiff-Counter-Defendant-Appellant-Cross-Appellee,
v.
American Media, Inc., Time Inc., Hearst Communications, Inc., Defendants-Counter-Claimants-Appellees-Cross-Appellants, Lloyd T. Whitaker, as the Assignee under an Assignment for the Benefit of Creditors for Anderson Services, L.L.C., Plaintiff-Appellant, Bauer Publishing Co., LP., Curtis Circulation Company, Distribution Services, Inc., Hachette Filipacchi Media, U.S., Inc., Kable Distribution Services, Inc., Rodale, Inc., Time Warner Retail Sales & Marketing, Inc., Defendants-Appellees, Hudson News Distributors LLC, The News Group, LP, Defendants,
v.
Charles Anderson, Jr., Counter-Defendant-Cross-Appellee.

          File Date- August 6, 2018

          Argued: December 2, 2016

         Plaintiffs-appellants Anderson News, L.L.C., and Anderson Services, L.L.C., (together, "Anderson") appeal from an award of summary judgment to defendants on Anderson's allegation that, in early 2009, defendants conspired to boycott Anderson and drive it out of business, in violation of section 1 of the Sherman Act, 15 U.S.C. § 1. Anderson provided wholesaler services to the single-copy magazine industry: it was responsible for collecting single-copy magazines from publishers, delivering those magazines to retailers, accounting for the number of magazines sold, and recycling unsold magazines. In mid-January 2009, Anderson proposed charging publishers a delivery surcharge of $0.07 per magazine shipped, and called for publishers' agreement to the surcharge before February 2009 "to ensure future distribution." Defendants- appellees, a group of publishers and their distributors (which provide marketing and logistics services to the publishers), refused to pay the proposed surcharge and found wholesalers other than Anderson to deliver their magazines. Anderson sued the publishers and distributors, alleging a conspiracy in violation of antitrust laws to boycott Anderson and making various related state law claims. Some defendants counterclaimed, alleging that Anderson's proposed surcharge was itself the result of an unlawful conspiracy to raise prices.

         The District Court granted summary judgment to defendants on Anderson's antitrust and state law claims, and to Anderson on the counterclaims. Reviewing the evidence in light of the totality of the circumstances and under the Matsushita "tends to exclude" standard, Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 588 (1986), we conclude that the District Court correctly ruled that Anderson has failed to offer sufficient evidence from which a reasonable jury could infer that defendants entered into such an unlawful agreement. We further conclude that the District Court correctly ruled that defendants did not suffer an antitrust injury and therefore lacked antitrust standing to pursue the stated counterclaims.

         Affirmed.

          Michael K. Kellogg (Joshua D. Branson, Kellogg, Huber, Hansen, Todd, Evans & Figel, P.L.L.C., Was h ing ton, DC; Marc E. Kasowitz, Hector Torres, Seth Davis, Kasowitz, Benson, Torrest & Friedman LLP, New York, NY, on the brief), Kellogg, Huber, Hansen, Todd, Evans & Figel, P.L.L.C., Was h ingto n, DC, for Plaintiff- Counter-Defendant-Appellant-Cross-Appellee Anderson News L.L.C. and Counter-Defendant-Cross-Appellee Charles Anderson, Jr.

          Thomas P. Lynch, Lynch Rowin LLP, New York, NY, for Plaintiff-Appellant Lloyd T. Whitaker, as the Assignee under Assignment for the Benefit of Creditors of Anderson Services, L.L.C.

          David G. Keyko (Eric Xinis Fishman, on the brief), Pillsbury Winthrop Shaw Pittman LLP, New York, NY, for Defendant-Counter-Claimant-Appellee-Cross-Appellant American Media, Inc., and Defendant-Appellee Distribution Services, Inc.

          Daniel N. Anziska, Kevin P. Wallace, Troutman Sanders LLP, New York, NY, for Defendant-Appellee Bauer Publishing Co., LP.

          George G. Gordon (Jennings Durand, on the brief), Dechert LLP, Philadelphia, PA, for Defendant-Appellee Curtis Circulation Company.

          Jay A. Katz (Isaac Michael Bayda, on the brief), McElroy, Deutsch, Mulvaney & Carpenter, LLP, New York, NY, for Defendant-Appellee Kable Distribution Services, Inc.

          John M. Hadlock (Alexander Lycoyannis, on the brief), Rosenberg & Estis, P.C., New York, NY, for Defendant- Appellee Rodale, Inc.

          Rowan D. Wilson (Thomas G. Rafferty, Antony L. Ryan, on the brief), Cravath, Swaine & Moore LLP, New York, NY, for Defendant-Counter-Claimant-Appellee-Cross- Appellant Time Inc. and Defendant-Appellee Time Wa rn er Retail Sales & Marketing, Inc.

          Jonathan R. Donnellan, Eva M. Saketkoo, Hearst Corporation, Office of the General Counsel, New York, NY, for Defendant-Counter-Claimant-Appellee- Cross-Appellant Hearst Communications, Inc. (as successor-in-interest to Appellee Hachette Filipacchi Media U.S., Inc.).

          Before: Livingston, Chin, and Carney, Circuit Judges.

          Susan L. Carney, Circuit Judge

         Plaintiffs-appellants Anderson News, L.L.C., and Anderson Services, L.L.C., (together, "Anderson") appeal from an award of summary judgment to defendants on Anderson's allegation that, in early 2009, defendants conspired to boycott Anderson and drive it out of business, in violation of section 1 of the Sherman Act, 15 U.S.C. § 1. At the time, Anderson provided wholesaler services to the single-copy magazine industry, in which magazines are published and sold individually to consumers (in contrast to sales by subscription). As a wholesaler, Anderson was responsible for collecting single-copy magazines from publishers, delivering those magazines to retailers, accounting for the number of magazines sold, and recycling unsold magazines.

         In an effort to decrease the financial burden imposed on it by publishers' practice of shipping many more magazines than are sold, in mid-January 2009 Anderson announced that it would begin charging publishers a delivery surcharge of $0.07 per magazine shipped, and called for agreement to the surcharge before February 2009 "to ensure future distribution." J.A. 1450.[1] Defendants-appellees, a group of publishers and their distributors (which provide marketing and logistics services to the publishers), refused to pay the proposed surcharge and found wholesalers other than Anderson to deliver their magazines. Anderson sued the publishers and distributors, alleging a conspiracy in violation of antitrust laws to boycott Anderson and making various related state law claims. Some defendants counterclaimed, alleging that Anderson's proposed surcharge was itself the result of an unlawful conspiracy to raise prices.

         The District Court granted summary judgment to defendants on Anderson's antitrust and state law claims, and to Anderson on the counterclaims. Anderson now argues that the District Court ignored or too heavily discounted much of the evidence that Anderson presented in support of its claims, and maintains that it has offered sufficient evidence from which a jury could reasonably conclude that defendants entered into an unlawful agreement to refuse to deal with Anderson and to drive it out of business. Reviewing the evidence in light of the totality of the circumstances and under the Matsushita "tends to exclude" standard, Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 588 (1986), we conclude that the District Court correctly ruled that Anderson has failed to offer sufficient evidence that defendants entered into the alleged unlawful agreement to survive defendants' motions for summary judgment. We further decide that the District Court was correct in ruling that defendants did not suffer an antitrust injury and thus lacked antitrust standing to pursue the stated counterclaims. We therefore AFFIRM the District Court's judgments.

         BACKGROUND

         I. Factual background

         The following statement of facts is drawn from the District Court's thorough recitation, supplemented by the parties' statements of undisputed fact under Federal Rule of Civil Procedure 56.1 and primary documents such as emails and other correspondence that are contained in the record. Although significant changes have doubtless since transpired, we describe relevant facts in this industry as they stood in 2008-2009, when the events in question occurred, as reflected by the record evidence.

         In the United States, in 2009, publishers primarily sold magazines in two ways: by subscription and by single-copy purchase at a newsstand, supermarket, or another retailer. The single-copy magazine industry, which is our focus in this case, had long operated through four distinct levels of enterprise:

         First, publishers created and produced magazines. Defendants Time Inc. ("Time"), American Media, Inc. ("AMI"), Bauer Publishing Co., LP. ("Bauer"), Rodale, Inc. ("Rodale"), and Hachette Filipacchi Media, U.S., Inc. ("Hachette") published a variety of magazines ranging from familiar titles like People and Star to more obscure titles like Yikes! and Twist. As of 2008, just before the events at issue here took place, sales of defendants' magazines constituted 42% of the U.S. single-copy market.

         Second, distributors provided a variety of services, including marketing and billing services, to publishers. In 2008, four major distributors operated in the United States: defendants Time/Warner Retail Sales & Marketing, Inc. ("TWR"), Curtis Circulation Company ("Curtis"), Kable Distribution Services, Inc. ("Kable"), and non- defendant Comag. TWR represented only Time; Kable represented Bauer; Curtis represented Rodale, AMI, and Hachette; and defendant Distribution Services, Inc. ("DSI"), a wholly owned subsidiary of AMI, provided consulting and marketing services to AMI, Bauer, Rodale, and Hachette. Together, TWR, Curtis, and Kable served as national distributors for 75% of the single-copy magazine market in 2008.

         Third, wholesalers served as middlemen between publishers and retailers. Wholesalers received magazines from publishers, delivered magazines to retailers, and set up in-store displays of those magazines for retailers. Once the magazines reached their "off-sale" date (that is, they were no longer current), wholesalers retrieved and disposed of the unsold magazines. In 2008, the U.S. market was occupied by four major wholesalers: Anderson News, Source Interlink Distribution, L.L.C. ("Source"), The News Group, LP ("TNG"), and Hudson News Distributors LLC ("Hudson"). As of late 2008, these wholesalers together distributed 93% of magazines in the single-copy market, and Anderson News served as wholesaler for approximately 30% of all single- copy magazines distributed in the United States.

         As an ancillary matter, many wholesalers used logistics affiliates to coordinate the wholesalers' delivery and disposal services. Anderson Services was Anderson News's logistics affiliate. Many wholesalers also engaged delivery services to deliver magazines to retailers. Anderson Services and TNG's logistics affiliate shared ownership of two such services: ProLogix Distribution Services (East), LLC ("ProLogix East") and ProLogix Distribution Services (West), LLC ("ProLogix West").

         At the fourth distinct level, retailers sold magazines to customers. During the relevant period, key retailers in the nation included Wal -Mart Stores, Inc. ("Wal-Mart") and The Kroger Co. ("Kroger"). To reduce their logistical costs, retailers generally demanded that all of their retail outlets be serviced by a single wholesaler.

         Before the early 2000s, single-copy magazines moved through each level of the industry as follows: Publishers sold magazines to wholesalers at a certain discount from the cover price. Wholesalers in turn sold magazines to retailers at a slightly lower discount, and retailers sold to consumers at the cover price. Wholesalers collected unsold magazines and refunded retailers for them. Publishers then refunded wholesalers for unsold magazines. As the District Court recognized, even with a buy- back guarantee, publishers had an incentive to and therefore did sell wholesalers more magazines in the first instance than are likely to be bought, to prevent retailers from experiencing a shortfall and thereby missing out on potential sales. This overselling practice imposed a burden on wholesalers, which then had to retrieve and account for the unsold magazines.

         In the early 2000s, retailers implemented a new accounting and payment method called scan-based trading. In this method, retailers obtain magazines from wholesalers on a consignment basis. They then track sales precisely by using bar codes, and they do not pay wholesalers for magazines until the magazines are actually sold to consumers. This eases the wholesalers' burden of tracking the numbers of unsold magazines at retail outlets. It also, however, forces wholesalers to bear related inventory costs-the cost of magazines sitting on the shelves-because wholesalers must purchase magazines from publishers up front and receive no payment from retailers for those magazines until they are sold.

         In January 2009, in an attempt to shift these costs further up the supply chain to publishers, and after some years of debate in the industry on related practices, Anderson-which enjoyed a 30% market share of the wholesaler business-decided to announce that publishers would from that time on be required to assume the inventory costs and pay a surcharge of $0.07 on each magazine that Anderson delivered to retailers on their behalf (the "Program"). Anderson had in the past tried to shift these costs to publishers, but without success: the publishers had resisted its efforts. Given these prior failures, Anderson formulated a new strategy to force publishers to accept the surcharge. This strategy had two parts: First, Anderson obtained commitments from Wal-Mart and Kroger, the two biggest single-copy magazine retailers, to refuse to accept shipments from wholesalers other than Anderson during Anderson's short-fuse negotiations with the publishers. Second, Anderson Services planned to use its ownership share in one of its logistics affiliates, ProLogix East, to pressure publishers by suspending delivery services for all publishers' magazines to retailers within ProLogix East's delivery areas until recalcitrant publishers gave in and agreed to pay the surcharge. These combined actions, Anderson reasoned, would move publishers by depriving them of single-copy magazine income until they and Anderson reached an accord.

         Anderson launched its plan in mid-January 2009. On January 12 and 13, Charles Anderson, Jr., the owner of Anderson News and manager of Anderson Services, met privately with a number of publishers, including defendants Time, AMI, and Bauer, and outlined his proposed cost-shifting measures and the $0.07 surcharge. On January 14, Mr. Anderson publicly announced the Program in a conference call hosted by a magazine-industry publication. During the conference call, Mr. Anderson explained his reasons for implementing the Program as stemming in part from how "over the last 10 years [Anderson's] profits have eroded to nothing and into significant losses . . . so we think that the time has come to make some significant changes so that we can continue as a viable, cost effective method of distributing magazines." J.A. 919. When asked whether the publishers' acceptance of the Program would result in a "financially sound magazine distribution channel," though, Mr. Anderson was unable to provide any reassurances about his company's viability: "I can't tell you what the future holds as no one can with unemployment going the way it is. With the factors that we've got today, I'm just not going to predict it." Id. at 931. Mr. Anderson was also challenged about the timing of his Program, given the "distress[ed] situation of publishing" and the public announcement made the previous day that "advertising pages for the last quarter of the year fell by 17%, 11% for the whole year . . . ." Id. at 926-27. He was asked, "[I]s your request for very substantial publishing financial commitment, is this a good time for it?" Id. Mr. Anderson responded, "I am fully cognizant of what is going on in the industry. . . . We know how difficult it is. It's not that we want to do anything like this, is the timing good? Of course not. But now is the time that we have to do this." Id. Moreover, Mr. Anderson seemed to suggest that the $0.07 per copy surcharge was not a negotiable figure, noting, "[I]f we negotiated the rate then it would not be fair so the answer is we really believe that the 7 cent number is the number." Id. at 922. Mr. Anderson then confirmed that if publishers did not agree to the Program, Anderson would refuse to ship magazines for those publishers as of February 1. Id. at 922-23. And finally, he noted the possibility that Anderson might exit the business if not enough publishers signed on to his Program: "[W]hy should we continue to lose money in a business that doesn't . . . give us any return?" Id. at 927-28.

         On the heels of the announcement, the president of Anderson News, Frank Stockard, wrote to publishers giving them a deadline of January 23 to agree to the proposed surcharge "to ensure future distribution" in February and, implicitly, thereafter. J.A. 1450. Concurrently with Anderson's announcements, by letter dated January 19, Source (a wholesaler in competition with Anderson) wrote to at least several publishers announcing that it, too, would impose a $0.07 surcharge on each magazine it distributed. These announcements followed several phone calls between Mr. Anderson and Source President James Gillis in December 2008 and January 2009.

         Anderson's announcement sparked a flurry of communications between and among defendants and between defendants and non-parties, as described in detail by the District Court. See Anderson News, L.L.C. v. American Media, Inc. (Anderson III), 123 F.Supp.3d 478, 492-94, 504-08 (S.D.N.Y. 2015). Emails, telephone records, and testimony introduced by Anderson reflect that during the short period between Anderson's announcement and the February 1 deadline that it declared, defendant publishers and defendant distributors discussed the proposed surcharge and their planned responses in various settings: defendants discussed it internally; defendant publishers discussed it with their affiliated distributors; defendants discussed it with non-defendant wholesalers and retailers; and defendants discussed it with their direct competitors. Anderson conceded at oral argument before the District Court that "many communications between [distributors and their publisher-clients] were not simply permissible, but necessary-it was critical for Publisher Defendants to communicate with their distributors regarding their responses to the Anderson proposal, and for the Distributor Defendants to discuss the proposal with their publisher clients." Id. at 492. During the short time period between Anderson's January 14 announcement and the February 1 deadline, the defendants' actions varied. When Mr. Anderson described his individual meetings with certain defendants to inform them of the Program on January 12 and 13, Mr. Anderson observed that in contrast to his meetings with Time, AMI, and Hachette, which were "open" and "there was good dialogue," Bauer's immediate reaction was "[N]o, we're not going to do it, absolutely not. And it was firm, it was very, very firm . . . . [I]t was not open dialogue." J.A. 172-73. On January 26, Anderson sent another letter to address "common misconceptions" regarding its Program. In that letter, Anderson asked publishers to respond by January 28, and emphasized that, although" Anderson has made proposals like this in the past," it was not "bluffing" with the current proposal now that" Anderson [had been] forced to take urgent action on its own." C.A 300. Thus, as the February 1 deadline approached, many other defendants attempted to negotiate with Anderson: Curtis CEO Robert Castardi reached out to Anderson News President Frank Stockard at least a few times, noting in an email, "I have been asking for discussions with [Anderson] for the past week; to no avail." J.A. 640, 793, 795, 801. An internal email between Stockard and Mr. Anderson noted that Castardi was "trying to help." Id. at 795. The record also suggests that Kable expressed willingness to negotiate with Anderson. Id. at 131, 1567. Time and TWR seemed to come closest to an agreement with Anderson: On January 27, 2009, TWR requested a deadline extension while offering to provide a two-point discount on Time magazines. That same day, Mr. Anderson rejected Time's proposed deal. Notably, two days after rejecting Time/TWR's request for an extension, Anderson entered into an arrangement similar to that proposed by Time with another publisher, Comag.

         By February 1, Hachette and Rodale agreed to pay the proposed surcharge on certain titles for the month of February, and Curtis continued to facilitate shipments on behalf of Hachette and Rodale after the February 1 deadline. AMI continued to ship some of its monthly magazines for February on uncertain terms (although it made alternative arrangements for its other magazines). Time, Hachette, and Bauer ended up rejecting Anderson's proposed surcharge and made alternative shipping arrangements for their magazines in February: they each would ship through TNG instead of Anderson. No defendant agreed before the February 1 deadline to pay the surcharge on a long-term basis. The defendants were not alone in making this decision: Ultimately, 1, 484 of 1, 570 publishers, or approximately 95% of all publishers nationwide, had not agreed to Anderson's terms as of February 1, 2009.

         In the face of this general reaction, immediately after February 1, Anderson implemented what it called its "going dark" strategy-conveying an ultimatum, in a last-ditch effort to convince the publishers to accept the surcharge. It reaffirmed that key retailers Wal-Mart and Kroger would not accept magazines from wholesalers other than Anderson in February and on Saturday, February 7, it announced by press release that on Monday, February 9, its affiliate ProLogix East would halt magazine deliveries to retailers, including deliveries for major wholesaler TNG.

         In response, a TNG subsidiary brought suit in the United States District Court for the District of Delaware, seeking a temporary restraining order that would require ProLogix East to deliver TNG's magazines to retailers pending adjudication of its claims against Anderson. On February 9, 2009, the court issued the requested order. According to Mr. Anderson, the issuance of this temporary restraining order meant "game over" for Anderson News. J.A. 225. Soon after, in March 2009, Anderson ceased doing business altogether and began bankruptcy proceedings.

         II. Procedural history

         On March 10, 2009, Anderson News and Anderson Services filed a complaint in the United States District Court for the Southern District of New York, naming AMI, Bauer, Curtis, DSI, Hachette, Kable, Rodale, Time, and TWR as defendants. They alleged: first, an unlawful group boycott of Anderson in violation of the Sherman Act, 15 U.S.C. § 1; second, tortious interference with business relationships and contracts; and third, civil conspiracy.[2]

         Defendants successfully moved under Rule 12(b)(6) to dismiss the complaint. Anderson News, L.L.C. v. American Media, Inc. (Anderson I), 732 F.Supp.2d 389 (S.D.N.Y. 2010). The District Court concluded that the complaint failed to state a claim because it was "implausible that magazine publishers would conspire to deny retailers access to their own products" and "completely plausible" that their respective decisions to use other wholesalers were "unchoreographed behavior, a common response to a common stimulus." Id. at 397-99. The District Court also dismissed Anderson's state law claims, ruling that by failing adequately to plead an antitrust violation, the complaint also failed to state a claim for tortious interference and civil conspiracy. Further finding that "[t]he context of the alleged antitrust conspiracy-the Surcharge that Anderson tried to impose on the industry to Anderson's advantage and the disadvantage of everyone else-belies the viability of Anderson's antitrust claim," the District Court denied Anderson leave to replead. Id. at 405.

         Anderson appealed, and in 2012 we vacated the District Court's dismissal and remanded for further proceedings, ruling that Anderson should have been permitted to file an amended complaint. Anderson News, L.L.C. v. American Media, Inc. (Anderson II), 680 F.3d 162 (2d Cir. 2012). We decided that the allegations made in Anderson's proposed amended complaint were "sufficient to suggest that the cessation of shipments to Anderson resulted not from isolated parent-subsidiary agreements but rather from a lattice-work of horizontal and vertical agreements to boycott Anderson." Id. at 189. Although "presentation of a common economic offer may well lend itself to innocuous, independent, parallel responses," we explained, "it does not provide antitrust immunity to respondents who get together and agree that they will boycott the offeror." Id. at 192. We also rejected the District Court's conclusion that, at the motion- to-dismiss stage, the alleged conspiracy was not plausible because it would not be in the defendant publishers' self-interest. We ruled that defendants might plausibly see some benefit from such a conspiracy: the complaint's allegations made it possible that "the publishers and distributors would feel comfortable dealing with just two wholesalers," especially if, as alleged, those wholesalers were also members of the alleged conspiracy. Id. at 193-94.

         On remand, in September 2012, Anderson filed an amended complaint and the parties proceeded to discovery. After two years of discovery, defendants moved for summary judgment and Anderson cross-moved for summary judgment on counterclaims filed by AMI, Hearst Communications, Inc. ("Hearst") (as successor to Hachette), and Time, in which those defendants charged Anderson with engaging in an illegal price-fixing conspiracy and unlawfully inducing retailers to boycott non- compliant publishers.

         In August 2015, the District Court granted summary judgment for defendants. Anderson III, 123 F.Supp.3d at 512. On what had become a robust factual record, the District Court reiterated its earlier view that Anderson's allegations were not plausible and that it was Anderson's "own ill-conceived and badly executed plan [that] led to its downfall." Id. at 486. The District Court observed that, despite extensive discovery, Anderson had not presented any direct evidence that defendants agreed to boycott Anderson. Id. at 485. Particularly on such an implausible claim, Anderson had failed to offer the "strong direct or circumstantial evidence" required to survive summary judgment, the District Court ruled. Id. at 508 (citation omitted).

         In conjunction with its merits decision, the District Court issued a separate opinion and order in which it granted in part defendants' motion to exclude some of the testimony offered by one of Anderson's experts, Dr. Leslie Marx. Anderson News, L.L.C. v. American Media, Inc. (Anderson IV), No. 09 Civ. 2227, 2015 WL 5003528 (S.D.N.Y. Aug. 20, 2015). As relevant to the present appeal, the District Court excluded Dr. Marx's testimony in which she averred "that it was in each [d]efendant's independent economic self-interest to continue to supply Anderson News with magazines," id. at *3, because, in its view, the testimony did not contain "any actual analysis regarding [d]efendants' ...


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