In Pari Delicto as a Defense to a Private Antitrust Action

Gatt Commc’ns, Inc. v. PMC Associates, LLC, 2013 U.S. App. LEXIS 3186 (2d Cir. Feb. 14, 2013):

3. In pari delicto

Defendants, and our concurring colleague, have argued that we should deploy the equitable doctrine of in pari delicto ("in equal fault") to erect a complete and simple bar to Gatt's claims, and there is some appeal to that approach. Indeed, elements of the efficient enforcer analysis that we have discussed above do overlap with the standard in pari delicto analysis, and Gatt's participation in the scheme would make it a particularly dubious recipient of treble damages for its belated and questionable enforcement efforts.

The Supreme Court has cautioned, however, against broad-brush application of the in pari delicto defense in private civil antitrust cases, reasoning that antitrust interests "are best served by insuring that the private action will be an ever-present threat to deter anyone contemplating [illegal] behavior." Perma Life Mufflers, Inc. v. Int'l Parts Corp., 392 U.S. 134, 139 (1968), overruled on other grounds by Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 765, 777 (1984). Caution seems warranted in developing contours for the application of such a defense in this context, where private actions play a significant role in the enforcement scheme, as evidenced by Congress's authorization of treble damages awards to prevailing plaintiffs. This is particularly so on an appeal from the grant of a motion to dismiss, where the factual record is undeveloped.

Our Court has not to date applied the in pari delicto defense in private antitrust litigation. To the contrary, we have recognized that "a plaintiff's own anticompetitive conduct generally cannot be raised as a defense to liability in an antitrust action." See United States Football League v. Nat'l Football League, 842 F.2d 1335, 1369 (2d Cir. 1988). In that case, where in pari delicto was not raised by the defendant, we suggested in dicta that a plaintiff's anticompetitive behavior "may" be an available defense in an antitrust case if "the plaintiff was present at the creation and had a complete and continuing involvement in the monopolization scheme." Id. And, although several of our sister circuits have recognized an in pari delicto defense in civil antitrust litigation, they have generally done so on appeal from summary judgment or after trial, when the extent and circumstances of the culpable plaintiff's involvement have been factually developed, and the possibility that the plaintiff's behavior was motivated by economic duress--a factor that could relieve the plaintiff of an in pari delicto bar--has been examined. See Javelin Corp. v. Uniroyal, Inc., 546 F.2d 276, 279 (9th Cir. 1976) (summary judgment); Sullivan v. Nat'l Football League, 34 F.3d 1091, 1107 (1st Cir. 1994) (trial); General Leaseways, Inc. v. Nat'l Truck Leasing Ass'n, 830 F.2d 716, 720-24 (7th Cir. 1987) (trial); Columbia Nitrogen Corp. v. Royster Co., 451 F.2d 3, 15-16 (4th Cir. 1971) (trial). Cf. Bateman Eichler, Hill Richards, Inc. v. Berner, 472 U.S. 299, 311 n.21 (1985) (describing as "inappropriate[ ]" the undertaking to "resolve[ ] the question of [the plaintiffs'] fault solely on the basis of the allegations set forth in the complaint").

Footnote 11. Varying formulations of the in pari delicto defense have been articulated and applied; which of them would be most appropriate in the antitrust context would bear careful examination. Cf. Bateman Eichler, 472 U.S. at 310-11 (declining to adopt wholesale in pari delicto rule in securities law context and holding that "a private action for damages . . . may be barred on the grounds of the plaintiff's own culpability only where (1) as a direct result of his own actions, the plaintiff bears at least substantially equal responsibility for the violations he seeks to redress, and (2) preclusion of suit would not significantly interfere with the effective enforcement of the securities laws and protection of the investing public").

In short, because we conclude that Gatt lacks antitrust standing to pursue its antitrust claims, and the factual record is undeveloped, we do not reach the question whether some form of the doctrine of in pari delicto should be adopted in our Circuit for application in § 4 actions, and, if so, whether it would bar Gatt's claims.

***

CONCUR

Wesley, J., concurring:

I concur in the excellent reasoning of Judge Carney and her conclusion that Gatt lacks standing to bring federal or state antitrust claims and that its tort claims are without merit. I write separately because, although the anti-trust standing issue can serve as a basis for dismissal, I believe this is a paradigmatic case for dismissal under the doctrine of in pari delicto.

Footnote 1. We are not compelled to determine whether Gatt has antitrust standing before addressing the doctrine of in pari delicto. Antitrust standing involves an analysis of prudential considerations aimed at "avoid[ing] counter-productive use of antitrust laws in ways that could harm competition rather than protecting it." Port Dock & Stone Corp. v. Oldcastle Ne., Inc., 507 F.3d 117, 121 (2d Cir. 2007). In this vein, it is distinct from Article III standing, which must be assessed before reaching the in pari delicto defense. Cf. In re Senior Cottages of Am., LLC, 482 F.3d 997, 1002-03 (8th Cir. 2007); see also Kirschner v. KPMG LLP, 15 N.Y.3d 446, 459 n.3 (2010).

The facts in this case are extraordinary and exceptionally troubling. As noted by the Majority, Gatt admits that it knowingly participated in the bid-rigging scheme by either entering dummy bids or not submitting bids at PMC's direction. Gatt also readily admits that "[o]n over 100 occasions," it benefited from the scheme by receiving contracts from various New York City public schools. Gattini Aff. ¶ 28. Indeed, Pietro Gattini, Gatt's owner and president, recounts in detail Gatt's understanding of, and willing participation in, the bid-rigging scheme***.

Given Gatt's unabashed participation in the bid-rigging scheme, its claims should be barred under the doctrine of in pari delicto. This common law defense provides that "a plaintiff who has participated in wrongdoing may not recover damages resulting from the wrongdoing." Black's Law Dictionary 794 (9th ed. 2009). It "derives from the Latin, in pari delicto potior est conditio defendentis: 'In a case of equal or mutual fault . . . the position of the [defending] party . . . is the better one.'" Bateman Eichler, Hill Richards, Inc. v. Berner, 472 U.S. 299, 306 (1985) (citations omitted). The doctrine is based on the policy that "courts should not lend their good offices to mediating disputes among wrongdoers" and "denying judicial relief to an admitted wrongdoer is an effective means of deterring illegality." Id. Courts employ the doctrine in a wide variety of contexts. See, e.g., Pinter v. Dahl, 486 U.S. 622, 633-34 (1988); see also BrandAid Mktg. Corp. v. Biss, 462 F.3d 216, 218-19 (2d Cir. 2006) (applying the in pari delicto analysis to a claim for tortious interference with contract but finding that plaintiffs' wrongdoing was insufficient for the defense to merit dismissal).

The Supreme Court has considered the application of the in pari delicto doctrine in the enforcement of antitrust and securities laws. Bateman Eichler, 472 U.S. at 299; Perma Life Mufflers, Inc. v. Int'l Parts Corp., 392 U.S. 134 (1968), overruled on other grounds by Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752 (1984). Although in both instances the Court declined to apply the doctrine, the Court explained that the doctrine would be appropriate where the plaintiff was substantially involved in the unlawful activity and preclusion of suit would not interfere with the policy goals of the federal statute.

In Perma Life, the Court declined to employ in pari delicto where "a private suit serves important public purposes." Perma Life Mufflers, Inc., 392 U.S. at 138. The Court did indicate that "the doctrine of in pari delicto . . . is not to be recognized as a defense to an antitrust action." Id. at 140. But the basis for that decision was that the opponents entangled in the illegal scheme were of decidedly unequal strength. The plaintiffs, the Court noted, "participated to the extent of utilizing illegal arrangements formulated and carried out by others . . . [but] their participation was not voluntary in any meaningful sense." Id. at 139.

Recognizing that the scheme had been thrust upon plaintiffs, the Court reserved the question of whether a plaintiff who engaged in "truly complete involvement and participation in a monopolistic scheme"--one who "aggressively support[ed] and further[ed] the monopolistic scheme as a necessary part and parcel of it"--could be barred from pursuing a damages action. Id. at 140. In concurrences, five members of the Perma Life Court favored barring suit by antitrust plaintiffs who were substantially involved in the conspiracy.

The Court's subsequent decision in Bateman Eichler reinforced this view. In Bateman Eichler, the Court addressed whether in pari delicto is an available defense to a private action for damages brought under the federal securities laws. Bateman Eichler, 472 U.S. at 301. After noting that the "views expressed in Perma Life apply with full force to implied causes of action under the federal securities laws," the Court held that a private action for damages under federal securities laws may be barred under the doctrine of in pari delicto where "(1) as a direct result of his own actions, the plaintiff bears at least substantially equal responsibility for the violations he seeks to redress, and (2) preclusion of suit would not significantly interfere with the effective enforcement of the securities laws and protection of the investing public." Id. at 310-11.

In light of the Court's reasoning, every one of our sister circuits to consider the issue has held that antitrust plaintiffs who actively participate in the illegal scheme and who are substantially at fault are barred from suit. See, e.g., Sullivan v. Nat'l Football League, 34 F.3d 1091, 1107 (1st Cir. 1994); Gen. Leaseways, Inc. v. Nat'l Truck Leasing Ass'n, 830 F.2d 716, 720-23 (7th Cir. 1987); Javelin Corp. v. Uniroyal, Inc., 546 F.2d 276, 279 (9th Cir. 1976); Columbia Nitrogen Corp. v. Royster Co., 451 F.2d 3, 16 (4th Cir. 1971). Although we have yet to address the issue, we have recognized that "[t]he [in pari delicto] defense may be available . . . when the plaintiff was present at the creation and had a complete and continuing involvement in the monopolization scheme." U.S. Football League v. Nat'l Football League, 842 F.2d 1335, 1369 (2d Cir. 1988).

This case is certainly a good candidate for the view that a cause of action under the Sherman Act is barred where (1) the plaintiff is an active and willing participant in the illegal activity, and (2) dismissing the suit does not significantly interfere with the policy goals underlying the act.

[RICO Implications]

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