Romero v. Philip Morris Inc.

IN THE SUPREME COURT OF THE STATE OF NEW MEXICO

Opinion Number: 2010-NMSC-035

Filing Date: June 25, 2010

Docket No. 31,433

BEATRICE C. ROMERO and MICHAEL FERREE,

on behalf of themselves and all others similarly situated,

Plaintiffs-Respondents,

v.

PHILIP MORRIS INCORPORATED, R.J. REYNOLDS

TOBACCO COMPANY, BROWN & WILLIAMSON TOBACCO

CORPORATION,

Defendants-Petitioners.

ORIGINAL PROCEEDING ON CERTIORARI

James A. Hall, District Judge

Montgomery & Andrews, P.A.

Sarah M. Singleton

Walter J. Melendres

Victor R. Ortega

Santa Fe, NM

Arnold & Porter, L.L.P.

Kenneth L. Chernof

Washington, DC

Boies, Schiller & Flexner, L.L.P.

David Boies

Armonk, NY

Jack G. Stern

New York, NY

Amy J. Mauser

Washington, DC

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for Petitioner Philip Morris Incorporated

Rodey, Dickason, Sloan, Akin & Robb, P.A.

Andrew G. Schultz

Albuquerque, NM

Jones Day

Edwin L. Fountain

Washington, DC

Thomas Demitrack

Cleveland, OH

for Petitioners R.J. Reynolds Tobacco Company

and Brown & Williamson Tobacco Corporation

Youtz & Valdez, P.C.

Shane C. Youtz

Albuquerque, NM

Ball & Scott Law Offices

Gordon Ball

Knoxville, TN

Cuneo Gilbert & Laduca, L.L.P.

Jonathan W. Cuneo

Daniel Cohen

Washington, DC

Hausfeld, L.L.P.

Michael D. Hausfeld

Megan E. Jones

Washington, DC

for Respondents

OPINION

CHÁVEZ, Justice.

{1} In this class action lawsuit, Plaintiffs allege that Defendants engaged in an agreement

to fix the price of cigarettes from 1993 to 2000. The district court granted summary

judgment in favor of Defendants, because although Plaintiffs offered evidence of parallel

pricing, they failed to establish a genuine issue of material fact regarding whether any

2

evidence, in addition to the parallel pricing, tended to exclude independent conduct on

Defendants’ part, as required by federal substantive law. On appeal, the Court of Appeals

rejected the federal “plus factor” approach, and instead held that Plaintiffs could prove a

conspiracy by parallel conduct alone, as long as independent conduct was an implausible

explanation. Romero v. Philip Morris, Inc., 2009-NMCA-022, ¶¶ 24, 44, 145 N.M. 658, 203

P.3d 873. The Court of Appeals also concluded that when looking at the evidence in the

light most favorable to Plaintiffs, a genuine issue of material fact existed, therefore

precluding summary judgment. Id. ¶¶ 43-44. Romero v. Philip Morris Inc., 2009-

NMCERT-002, 145 N.M. 704, 204 P.3d 29.

{2} We granted Defendants’ petition for writ of certiorari to consider two issues. First,

we consider whether the Court of Appeals applied the incorrect standard for summary

judgment. Second, we consider whether the Court of Appeals correctly applied federal

substantive law regarding alleged agreements to fix prices. Although we agree with the

summary judgment standard applied by the Court of Appeals, we hold that the Court of

Appeals did not correctly apply federal substantive law as required by NMSA 1978, Section

57-1-15 (1979). Under federal substantive antitrust law, 15 U.S.C. § 1 (2006), evidence of

parallel price increases alone is not sufficient in the context of an oligopoly to prove an

agreement to fix prices. Such evidence is always ambiguous, and therefore plaintiffs who

allege a price-fixing agreement must also provide evidence that tends to exclude the

possibility that parallel price increases were the result of independent conduct. Because

federal law limits the inferences available to a jury to those that are reasonable, plaintiffs

relying upon circumstantial evidence cannot survive summary judgment, as a matter of law,

unless the evidence tends to exclude the possibility that the alleged conspirators acted

independently. Independent conduct is also referred to in case law as “conscious

parallelism,” “tacit collusion,” or “legal independent conduct.” We therefore affirm the

district court’s grant of summary judgment and reverse the Court of Appeals.

BACKGROUND

{3} The following facts are undisputed. Plaintiffs are “[p]ersons in the State of New

Mexico . . . who purchased cigarettes indirectly from Defendants, or any parent, subsidiary

or affiliate thereof, at any time from November 1, 1993 to the date of the filing of this action

[April 10, 2000].” The original Defendants were Philip Morris, R.J. Reynolds (“RJR”),

Brown & Williamson (“B&W”), Lorillard, and Liggett. The events leading up to this

lawsuit were set in motion in response to a Philip Morris strategy beginning with an event

known as “Marlboro Friday.”1 Prior to Marlboro Friday, Philip Morris, the market leader,

had been steadily losing market share to discount and deep discount cigarettes since 1980,

when Liggett pioneered the development of generic cigarettes. See Brooke Group Ltd. v.

1

We adopt the Court of Appeals recitation of the facts of the pre-Marlboro Friday

events. See Romero v. Philip Morris, Inc., 2009-NMCA-022, ¶¶ 4-10, 145 N.M. 658, 203

P.3d 873.

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Brown & Williamson Tobacco Corp., 509 U.S. 209, 212 (1993). In an attempt to regain

market share, Philip Morris announced Marlboro Friday on April 2, 1993, “a nationwide

promotion on Marlboro that reduced prices at retail by approximately 20 percent, an average

of 40¢ per pack.” In response, RJR and B&W instituted similar promotions. As part of its

strategy, Philip Morris announced on July 20, 1993, that there would be a similar reduction

on all premium brands, discount brands, and deep discount brands starting on August 9,

1993. Defendants RJR and B&W also followed these price reductions. After these

decreases, Defendants began to increase their wholesale list prices on premium and discount

cigarettes in near lock-step fashion. Some increases were due to settlements with the 50

states, some because of increases in federal excise taxes, and others were simply planned.

Even with these increases, wholesale list prices did not exceed pre-Marlboro Friday levels

until August 3, 1998, or when adjusted for inflation, ongoing settlement costs, and federal

excise taxes, the list prices did not surpass pre-Marlboro Friday amounts until August 1999.

During the time period of the alleged agreement to fix prices, 1993 to 2000, Defendants were

engaged in competition with one another regarding promotions at the retail level, resulting

in a direct reduction of the retail prices of cigarettes.

{4} Plaintiffs filed this class action lawsuit on April 10, 2000, alleging violations of New

Mexico antitrust and consumer protection laws. See NMSA 1978, §§ 57-1-1 to -15 (1979,

as amended through 1987); NMSA 1978, §§ 57-12-1 to -22 (1967, as amended through

1999). Defendants filed motions for summary judgment. In granting the motion for

summary judgment, the district court held that Plaintiffs had met their initial burden of

showing a pattern of parallel behavior, but failed to meet their second burden of showing the

existence of plus factors that would tend to exclude the possibility that the alleged

conspirators acted independently. Plaintiffs argued that the following were plus factors that

tended to exclude Defendants’ independent conduct: (1) the economics of the marketplace;

(2) Defendants’ strong motivation to conspire; (3) the fact that Defendants condensed the

price tiers to facilitate their conspiracy; (4) Defendants acted contrary to their own self-

interests; (5) alleged conspiratorial meetings in foreign markets; (6) Defendants had engaged

in past conspiracies, such as misrepresenting the health consequences of smoking; (7)

Defendants monitored their conspiracy through monthly factory shipment data reports

prepared by Management Science Associates (“MSA”); (8) opportunities to conspire,

including inter-firm communications and meetings; and (9) pricing decisions were made by

those in high-level positions. However, the district court relied on the Eleventh Circuit case

of Williamson Oil Co. v. Philip Morris USA, 346 F.3d 1287, 1300 (11th Cir. 2003), to reject

Plaintiffs’ plus factors. The district court also held that even with the presentation of plus

factors, “there still exists the opportunity for the defendant[s] to rebut the inference of

collusion by presenting evidence establishing that no reasonable fact-finder could conclude

that they entered into a price-fixing conspiracy.” Plaintiffs appealed.

{5} On appeal, the Court of Appeals acknowledged that “Marlboro Friday and the

industry-wide price reductions that occurred afterward represented the triumph of

competition over oligopolistic price coordination.” Romero, 2009-NMCA-022, ¶ 27; see

also id. ¶ 44. Although the Court affirmed summary judgment in favor of Lorillard and

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Liggett because the evidence showed that they had merely acted “consistent with conscious

parallelism,” id. ¶ 46, the Court reversed summary judgment in favor of Philip Morris, RJR,

and B&W because “[a]pplying Brooke Group, and relying on the opinions of Plaintiffs’

expert, Dr. [Keith] Leffler, we think that a reasonable factfinder could view conscious

parallelism as a relatively implausible explanation for the anticompetitive scenario that

played out following Marlboro Friday,” Romero, 2009-NMCA-022, ¶ 44. The Court

acknowledged that New Mexico follows “federal case law interpreting Section 1 of the

Sherman Act for substantive rules defining the scope of liability under [the New Mexico

Antitrust Act] NMAA Section 1.” Id. ¶ 18. It held that “behavior of market participants

characterizable as mere conscious parallelism does not satisfy the conspiracy element

requirement of NMAA Section 1,” id. ¶ 22, and noted that federal courts have recognized

the “doctrine of conscious parallelism as a substantive principle of antitrust law,” id. ¶ 23.

The Court also noted that federal law requires plaintiffs to present evidence of “plus factors”

that tend to exclude the possibility of independent conduct. Id. ¶¶ 23-24. However, it did

not follow federal precedent regarding plus factors, but held that “the sounder approach for

a New Mexico court is to engage in an independent and rigorous evaluation of the evidence

in deciding whether or not the plaintiffs’ evidence tends to suggest a degree of coordination

that exceeds the parallelism that could be accomplished through lawful conscious

parallelism.” Id. ¶ 24 (emphasis added). In addition, the Court held that “[t]he non-

existence of conscious parallelism is not a separate element of the plaintiff’s case.” Id. ¶ 25.

If the plaintiff comes forward with evidence that would allow a reasonable

factfinder to exclude lawful conscious parallelism as the most likely

explanation for the parallelism proved by the plaintiff, then the plaintiff has

made out a prima facie case that would defeat summary judgment. At trial,

then, the burden of negating the exculpatory inference of lawful conscious

parallelism simply merges into the plaintiff’s ultimate burden of convincing

the factfinder that the parallelism proved by the plaintiff was more likely than

not the result of a conspiracy.

Id. The Court of Appeals then constructed a hypothetical situation in which the jury could

find that Defendants entered into an agreement to fix prices. Id. ¶¶ 27-30. Although

rejecting the concept of plus factors, the Court held that

[t]estimony by a qualified economics expert that the character or degree of

parallelism actually exhibited by prices exceeds the parallelism that

economic theory predicts would result from independent competitive

behavior is precisely the type of evidence that tends to exclude the possibility

that the defendants acted independently . . . [and] constitutes an extremely

forceful “plus factor” . . . .

Id. ¶ 32. The Court also held that “Dr. Leffler’s testimony is sufficient to meet Plaintiffs’

burden of production,” id., and that “conscious parallelism in a complex, multi-variable

industry is ‘improbable,’” id. ¶ 35 (citation omitted). In its conclusion, the Court of Appeals

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noted numerous ways in which the parallelism cited by Plaintiffs could not reasonably have

been the result of Defendants’ independent conduct. Id. ¶¶ 44-45.

{6} As stated previously, we granted certiorari to determine whether the Court

misapplied the summary judgment standard and whether the Court failed to follow

substantive federal antitrust law. We reverse the Court of Appeals and affirm the district

court’s grant of summary judgment.

SUMMARY JUDGMENT

{7} Defendants argue that the Court of Appeals applied the incorrect summary judgment

standard by referring to the “traditional stringent standard that a movant must meet.” Id. ¶

15. The standard, as articulated by the Court of Appeals, is to “view the facts in a light most

favorable to the party opposing summary judgment and draw all reasonable inferences in

support of a trial on the merits.” Id. ¶ 17 (internal quotation marks and citation omitted).

This was a correct statement of the standard for summary judgment in New Mexico:

Summary judgment is appropriate where there are no genuine issues of

material fact and the movant is entitled to judgment as a matter of law.

Where reasonable minds will not differ as to an issue of material fact, the

court may properly grant summary judgment. All reasonable inferences are

construed in favor of the non-moving party.

Montgomery v. Lomos Altos, Inc., 2007-NMSC-002, ¶ 16, 141 N.M. 21, 150 P.3d 971 (filed

2006) (internal quotation marks and citations omitted). “Summary judgment is reviewed on

appeal de novo.” Juneau v. Intel Corp., 2006-NMSC-002, ¶ 8, 139 N.M. 12, 127 P.3d 548

(filed 2005).

{8} New Mexico courts, unlike federal courts, view summary judgment with disfavor,

preferring a trial on the merits. Compare Handmaker v. Henney, 1999-NMSC-043, ¶ 21,

128 N.M. 328, 992 P.2d 879 (noting that “the policy in New Mexico disfavor[s] summary

judgment”), and Pharmaseal Labs., Inc. v. Goffe, 90 N.M. 753, 756, 568 P.2d 589, 592

(1977) (“Summary judgment is a drastic remedy to be used with great caution.”), with

Celotex Corp. v. Catrett, 477 U.S. 317, 327 (1986) (“Summary judgment procedure is

properly regarded not as a disfavored procedural shortcut, but rather as an integral part of

the Federal Rules as a whole . . . .”), and 11 James William Moore, Moore’s Federal

Practice § 56.03[1] (3d ed. 2007) (discussing the trend in the federal courts to use summary

judgment as a means of case management and resolution). Federal courts, on the other hand,

following the “Celotex trilogy,”2 have become more inclined to grant summary judgment and

2

Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574 (1986), Anderson

v. Liberty Lobby, Inc., 477 U.S. 242 (1986), and Celotex Corp. v. Catrett, 477 U.S. 317

(1986).

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“substantially increased the availability of summary judgment and encouraged greater use

of the motion by trial courts.” 11 Moore, supra § 56.03[1], at 56-23. The Celotex trilogy

favored greater use of summary judgment and “gave strong rhetorical support to summary

judgment as a means of case management and resolution.” 11 Moore, supra § 56.03[1], at

56-23; see also § 56.03[2][c], at 56-28 (noting that Matsushita abrogated “big case” and

“defendant motive and state of mind” exceptions to summary judgment and allowing

summary judgment where it traditionally had not been allowed (internal quotation marks

omitted)); § 56.03[3], at 56-30 (noting that Anderson requires the courts to consider the

substantive evidentiary burden at the summary judgment stage, thus creating a heightened

evidentiary burden for those opposing summary judgment); § 56.03[5], at 56-36 (noting that

Celotex held that movant for summary judgment could meet burden by demonstrating

absence of support for essential element of claim and not just affidavits).

{9} We continue to refuse to loosen the reins of summary judgment, as doing so would

“turn what is a summary proceeding into a full-blown paper trial on the merits.” Bartlett v.

Mirabal, 2000-NMCA-036, ¶ 32, 128 N.M. 830, 999 P.2d 1062 (internal quotation marks

and citation omitted). We do not wish to grant trial courts greater authority to grant

summary judgment than has been traditionally available in New Mexico. See id. ¶¶ 37-38.

“Permitting trial courts a license to quantify or analyze the evidence in a given case under

whatever standard may apply . . . would adversely impact our jury system and infringe on

the jury’s function as the trier of fact and the true arbiter of the credibility of witnesses.” Id.

¶ 38. By our refusal to align our state’s approach with that of the federal courts, we do not

intend to imply that summary judgment is never appropriate.

{10} In New Mexico, summary judgment may be proper when the moving party has met

its initial burden of establishing a prima facie case for summary judgment. See Roth v.

Thompson, 113 N.M. 331, 334-35, 825 P.2d 1241, 1244-45 (1992). “By a prima facie

showing is meant such evidence as is sufficient in law to raise a presumption of fact or

establish the fact in question unless rebutted.” Goodman v. Brock, 83 N.M. 789, 792-93, 498

P.2d 676, 679-80 (1972) (citations omitted). Once this prima facie showing has been made,

the burden shifts to the non-movant “to demonstrate the existence of specific evidentiary

facts which would require trial on the merits.” Roth, 113 N.M. at 335, 825 P.2d at 1245. “A

party may not simply argue that such [evidentiary] facts might exist, nor may it rest upon the

allegations of the complaint.” See Dow v. Chilili Coop. Ass’n, 105 N.M. 52, 55, 728 P.2d

462, 465 (1986). Rather, “[t]he party opposing the summary judgment motion must adduce

evidence to justify a trial on the issues.” Clough v. Adventist Health Sys., Inc., 108 N.M.

801, 803, 780 P.2d 627, 629 (1989) (citation omitted). Such evidence adduced must result

in reasonable inferences. See Montgomery, 2007-NMSC-002, ¶ 16. “An inference is not a

supposition or a conjecture, but is a logical deduction from facts proved and guess work is

not a substitute therefor.” Stambaugh v. Hayes, 44 N.M. 443, 451, 103 P.2d 640, 645 (1940)

(citation omitted). When disputed facts do not support reasonable inferences, they cannot

serve as a basis for denying summary judgment. Only when the inferences are reasonable

is summary judgment inappropriate.

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{11} In addition to requiring reasonable inferences, New Mexico law requires that the

alleged facts at issue be material to survive summary judgment. To determine which facts

are material, the court must “look to the substantive law governing the dispute,” Farmington

Police Officers Ass’n v. City of Farmington, 2006-NMCA-077, ¶ 17, 139 N.M. 750, 137

P.3d 1204. The inquiry’s focus should be on whether, under substantive law, the fact is

“necessary to give rise to a claim.” Eoff v. Forrest, 109 N.M. 695, 702, 789 P.2d 1262, 1269

(1990); see also Martin v. Franklin Capital Corp., 2008-NMCA-152, ¶ 6, 145 N.M. 179,

195 P.3d 24 (“An issue of fact is ‘material’ if the existence (or non-existence) of the fact is

of consequence under the substantive rules of law governing the parties’ dispute.”); Parker

v. E.I. Du Pont de Nemours & Co., 121 N.M. 120, 124, 909 P.2d 1, 5 (Ct. App. 1995) (“A

fact is material for the purpose of determining whether a motion for summary judgment is

meritorious if it will affect the outcome of the case.”). In this case, substantive federal

antitrust law is the filter through which we must determine whether genuine issues of

material fact exist. See § 57-1-15.

FEDERAL SUBSTANTIVE ANTITRUST LAW: PROVING THE CONSPIRACY

{12} As substantive law is the filter through which we apply summary judgment, and to

construe our law in harmony with federal law, see § 57-1-15, we must first undertake an

analysis of substantive federal antitrust law. To establish a violation of Section 1 of the

Sherman Act, a plaintiff “must be able to show: (1) concerted action, (2) by two or more

persons, (3) which unreasonably restrains interstate or foreign trade or commerce.” In re

Med. X-ray Film Antitrust Litig., 946 F. Supp. 209, 215 (E.D.N.Y. 1996); see also 15 U.S.C.

§ 1. It is important to note that Section 1 is not violated when the alleged conspirators act

independently. See Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S. 752, 761 (1984)

(“Independent action is not proscribed.”).

The essence of a Section 1 claim is the existence of an agreement.

Unilateral action simply does not support liability; there must be a unity of

purpose or a common design and understanding or a meeting of the minds in

an unlawful agreement. Concerted action is established where two or more

distinct entities have agreed to take action against the plaintiff.

Gordon v. Lewistown Hosp., 423 F.3d 184, 207 (3d Cir. 2005) (internal quotation marks and

citations omitted). Contrary to most markets, it is not always obvious whether firms in an

oligopoly have acted independently. See In re Wireless Tel. Servs. Antitrust Litig., 385 F.

Supp. 2d 403, 420 n.24 (S.D.N.Y. 2005) (defining oligopoly as “control or domination of

a market by a few large sellers, creating high prices and low output similar to those found

in a monopoly” (internal quotation marks and citation omitted)). “[F]irms in a concentrated

market might in effect share monopoly power, setting their prices at a profit-maximizing,

supracompetitive level by recognizing their shared economic interests and their

interdependence with respect to price and output decisions.” Brooke Group Ltd., 509 U.S.

at 227.

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[A]n oligopolist’s price and output decisions will have a noticeable impact

on the market and on its rivals. . . . [For example,] in a market served by

three large companies, each firm must know that if it reduces its price and

increases its sales at the expense of its rivals, they will notice the sales loss,

identify the cause, and probably respond. . . . Because of their mutual

awareness, oligopolists’ decisions may be interdependent although arrived

at independently.

VI Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law: An Analysis of Antitrust

Principles and Their Application ¶ 1429a (2d ed. 2003). To summarize, where there are

very few sellers (firms) within a market, the actions of one seller will have a noticeable

effect on the actions taken by the other sellers. The other sellers may perform a cost-benefit

analysis and react to the actions of the leader, producing results similar to an unlawful price-

fixing agreement, but actually resulting from lawful, independent action. This “[t]acit

collusion [or independent conduct] . . . describes the process, not in itself unlawful, by which

firms in a concentrated market might in effect share monopoly power, setting their prices at

a profit-maximizing, supracompetitive level by recognizing their shared economic interests

and their interdependence with respect to price and output decisions.” Brooke Group Ltd.,

509 U.S. at 227 (emphasis added). In an oligopolistic setting, the distinction between lawful,

independent conduct and illegal conduct is most at issue when circumstantial evidence is

used to prove the existence of an agreement to fix prices.

{13} To prove a violation of Section 1 of the Sherman Act, plaintiffs can produce direct

or circumstantial evidence of an illegal agreement to fix prices. See Monsanto Co., 465 U.S.

at 764. Direct evidence of such an agreement is “explicit and requires no inferences to

establish the proposition or conclusion being asserted.” In re Baby Food Antitrust Litig., 166

F.3d 112, 118 (3d Cir. 1999). In contrast, circumstantial evidence necessarily requires that

inferences be drawn. See Williamson Oil Co., 346 F.3d at 1300 (“The problem with this

reliance on circumstantial evidence, however, is that such evidence is by its nature

ambiguous, and necessarily requires the drawing of one or more inferences in order to

substantiate claims of illegal conspiracy.”). “While direct evidence, the proverbial

‘smoking-gun,’ is generally the most compelling means by which a plaintiff can make out

his or her claim, it is also frequently difficult for antitrust plaintiffs to come by.” Rossi v.

Standard Roofing, Inc., 156 F.3d 452, 465 (3d Cir. 1998).

{14} As a result of the need to draw inferences from circumstantial evidence and the

likelihood that parallel conduct in an oligopoly stems from lawful, independent conduct,

federal courts require antitrust plaintiffs to present evidence “that tends to exclude the

possibility that the alleged conspirators acted independently.” Matsushita Elec. Indus. Co.

v. Zenith Radio Corp., 475 U.S. 574, 588 (1986) (internal quotation marks and citation

omitted); see also Monsanto Co., 465 U.S. at 763 (noting that “it is of considerable

importance that independent action by the manufacturer, and concerted action on nonprice

restrictions, be distinguished from price-fixing agreements”); Williamson Oil Co., 346 F.3d

at 1300 (holding that evidence tending to exclude independent conduct is necessary only

9

when the plaintiff relies on circumstantial evidence to prove a conspiracy). Without

requiring such a showing, pro-competitive conduct, the conduct that the antitrust laws are

designed to protect, may be deterred. See Matsushita Elec. Indus. Co., 475 U.S. at 593-94.

“[C]onduct as consistent with permissible competition as with illegal conspiracy does not,

standing alone, support an inference of antitrust conspiracy . . . [and plaintiffs] must show

that the inference of conspiracy is reasonable in light of the competing inferences of

independent action or collusive action that could not have harmed [them].” Id. at 588

(citations omitted).

{15} As a result of the limited inferences that can be drawn from circumstantial evidence

and the interdependent nature of an oligopoly, the plaintiffs must present more than evidence

of parallel pricing to prove the existence of an agreement between the defendants to fix

prices. Although “parallel business behavior is admissible circumstantial evidence from

which the fact finder may infer agreement, it falls short of conclusively establish[ing]

agreement or . . . itself constitut[ing] a Sherman Act offense.” Bell Atl. Corp. v. Twombly,

550 U.S. 544, 553 (2007) (internal quotation marks and citation omitted) (alterations in

original); see also In re Baby Food Antitrust Litig., 166 F.3d at 122 (“[N]o conspiracy should

be inferred from ambiguous evidence or from mere parallelism when defendants’ conduct

can be explained by independent business reasons.”). Evidence of parallel pricing without

more is inherently ambiguous in the oligopolistic setting because there are so many different

means, lawful and unlawful, by which parallel pricing can be achieved. See VI Areeda &

Hovenkamp, supra ¶ 1431b (discussing the numerous explanations for parallel pricing,

including “imperfect express collusion, merely interdependent behavior, and fairly

independent and non-interdependent conduct”).

{16} It is the judge’s duty to review the evidence presented by the plaintiffs and make a

threshold legal determination as to whether it tends to exclude the possibility that the

defendants acted independently. See Williamson Oil Co., 346 F.3d at 1304 (holding that the

judge does not act as fact-finder, but only makes a determination of the “reasonableness of

the inferences that c[an] be drawn from the evidence, [which are] threshold legal

determinations that appropriately [are] made by the district court”). If the evidence offered

by the plaintiff is ambiguous and can equally lead to the conclusion that the alleged conduct

was the result of independent action as opposed to illegal conduct, the plaintiff has failed to

establish a genuine issue of material fact that there was a conspiracy. See Monsanto Co., 465

U.S. at 763; Blauwkamp v. Univ. of N.M. Hosp., 114 N.M. 228, 232, 836 P.2d 1249, 1253

(Ct. App. 1992) (holding that failure to establish an essential element of plaintiff’s claim is

sufficient grounds for summary judgment); see also In re Baby Food Antitrust Litig., 166

F.3d at 118 (noting that plaintiffs must “meet [a] demanding standard of proof required in

the context of an antitrust case”); Bell Atl. Corp., 550 U.S. at 554 (recognizing “proof of a

§ 1 conspiracy must include evidence tending to exclude the possibility of independent

action”).

{17} To assist in determining which evidence would tend to exclude independent action,

federal courts have created “plus factors.” “[A]ny showing . . . that ‘tend[s] to exclude the

10

possibility of independent action’ can qualify as a ‘plus factor.’” Williamson Oil Co., 346

F.3d at 1301 (citation omitted). These “‘plus factors’ . . . remove [the plaintiff’s] evidence

from the realm of equipoise and render that evidence more probative of conspiracy than of

conscious parallelism.” Id. In determining whether evidence constitutes a plus factor, i.e.,

tends to exclude independent conduct, the court should consider the following: “[I]f a

benign explanation for the action is equally or more plausible than a collusive explanation,

the action cannot constitute a plus factor,” id. at 1310; the evidence presented by the

plaintiffs must be economically sensible or plaintiffs must “come forward with more

persuasive evidence to support their claim,” Matsushita Elec. Indus. Co., 475 U.S. at 587;

see also In re Vitamins Antitrust Litig., 320 F. Supp. 2d 1, 12 (D.D.C. 2004) (“[I]n the face

of economic factors dictating that the nonmoving party’s theory is irrational, that party must

submit evidence to establish that the theory remains practical and genuine despite economic

evidence to the contrary.”). In addition, “a showing that the defendants’ behavior would not

be reasonable or explicable (i.e. not in their legitimate economic self-interest) if they were

not conspiring to fix prices or otherwise restrain trade” also constitutes a plus factor.

Williamson Oil Co., 346 F.3d at 1301 (internal quotation marks and citation omitted). The

requirement of tending to exclude independent conduct necessarily requires that the court

view the plaintiffs’ evidence in light of the defendants’ evidence to determine whether the

plaintiffs’ evidence tends to exclude the possibility that defendants were acting

independently. See Rule 1-056(C) NMRA (stating that the judge must review “the

pleadings, depositions, answers to interrogatories and admissions on file, together with the

affidavits”); see also Clough, 108 N.M. at 804-05, 780 P.2d at 630-31 (determining that

plaintiff’s antitrust conspiracy claim should not survive summary judgment by considering

plaintiff’s evidence in light of evidence presented by defendants). The phrase “‘plus factors’

refers simply to the additional facts or factors required to be proved as a prerequisite to

finding that parallel action amounts to a conspiracy.” VI Areeda & Hovenkamp, supra ¶

1433e. Whether the courts want to call them plus factors or not, the requirement that the

plaintiffs tend to exclude independent conduct does not change.

NEW MEXICO ANTITRUST PLAINTIFFS MUST PRESENT EVIDENCE

TENDING TO EXCLUDE THE POSSIBILITY THAT DEFENDANTS ACTED

INDEPENDENTLY

{18} Plaintiffs allege that Defendants violated the New Mexico Antitrust Act, which states

that “[e]very contract, agreement, combination or conspiracy in restraint of trade or

commerce, any part of which trade or commerce is within this state, is unlawful.” Section

§ 57-1-1. To prove a cause of action under the Antitrust Act the Legislature requires that

“the Antitrust Act shall be construed in harmony with judicial interpretations of the federal

antitrust laws. This construction shall be made to achieve uniform application of the state

and federal laws prohibiting restraints of trade and monopolistic practices.” Section 57-1-15

(emphasis added). It is therefore the duty of the courts to ensure that New Mexico antitrust

law does not deviate substantially from federal interpretations of antitrust law. See State v.

Guerra, 2001-NMCA-031, ¶ 14, 130 N.M. 302, 24 P.3d 334 (“The word ‘shall’ as used in

a statute is generally construed to be mandatory.”).

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{19} Federal substantive law as it relates to oligopolies controls in this case. There is no

doubt that the tobacco industry, in which five companies manufacture more than 97% of the

cigarettes sold in the United States, is a classic oligopoly. See Williamson Oil Co., 346 F.3d

at 1291. Because the cigarette industry is an oligopoly, it is likely that when one tobacco

company (i.e., Philip Morris) acts in a certain manner (i.e., Marlboro Friday and subsequent

price increases), the other firms (RJR, B&W, Lorillard, and Liggett) will determine whether

it is in their best interest to follow the leader’s actions. As we will discuss below, when

Philip Morris began raising prices after Marlboro Friday, RJR’s and B&W’s conduct in

following subsequent price increases was just as likely due to their own independent analysis

of what was in their best interests as it was the result of an illegal price-fixing agreement.

Therefore, Plaintiffs must present evidence that tends to exclude the possibility that

Defendants acted independently or they can not meet their burden of establishing a genuine

issue of material fact. Because Plaintiffs rely on circumstantial evidence to prove the

existence of a price-fixing agreement, see Romero, 2009-NMCA-022, ¶ 20, if they have not

presented evidence that tends to exclude the possibility that Defendants acted independently,

they have not met their burden of establishing a genuine issue of material fact.

{20} Material facts are those “necessary to give rise to a claim,” Eoff, 109 N.M. at 702,

789 P.2d at 1269, and to give rise to a Section 1 claim, evidence that tends to exclude

independent action by the defendants is necessary to show that there was an unlawful

agreement. See Bell Atl. Corp., 550 U.S. at 557 (“An allegation of parallel conduct is thus

much like a naked assertion of conspiracy in a § 1 [Sherman Act] complaint: it gets the

complaint close to stating a claim, but without some further factual enhancement it stops

short of the line between possibility and plausibility of ‘entitle[ment] to relief.’”); see also

Monsanto Co., 465 U.S. at 763 (“On a claim of concerted price-fixing, the antitrust plaintiff

must present evidence sufficient to carry its burden of proving that there was such an

agreement.”). The United States Supreme Court has explicitly stated that “when allegations

of parallel conduct are set out in order to make a § 1 claim, they must be placed in a context

that raises a suggestion of a preceding agreement, not merely parallel conduct that could just

as well be independent action.” Bell Atl. Corp., 550 U.S. at 557. Without this showing, an

essential element of the conspiracy claim is absent and there can be no issue of material fact.

{21} In rejecting the plus factor approach used by the federal courts and holding that

parallel conduct can be enough to prove a conspiracy, the Court of Appeals fails to construe

the New Mexico Antitrust Act in harmony with judicial interpretations of federal antitrust

law required by Section 57-1-15. See Romero, 2009-NMCA-022, ¶ 24. This ignores the

United States Supreme Court’s holding that “[t]he inadequacy of showing parallel conduct

or interdependence, without more, mirrors the ambiguity of the behavior: consistent with

conspiracy, but just as much in line with a wide swath of rational and competitive business

strategy unilaterally prompted by common perceptions of the market,” Bell Atl. Corp., 550

U.S. at 554, and that plus factors are the tool for reviewing the evidence presented, see VI

Areeda & Hovenkamp, supra ¶ 1432a (“We conclude that the Sherman Act § 1 requirement

of a contract, combination, or conspiracy is not satisfied by uniform anticompetitive pricing

that results merely from recognized interdependence without the addition of any

12

facilitators.”). Contrary to the holding of the Court of Appeals that proof tending to exclude

independent conduct is not a separate element of Plaintiffs’ case, Romero, 2009-NMCA-022,

¶ 25, we hold that the requirement that only reasonable inferences can be drawn from

ambiguous evidence is a substantive component of federal antitrust law, and that Plaintiffs

must present evidence tending to exclude independent conduct to ensure uniform application

of federal and state laws. See § 57-1-15.

{22} In reversing the district court and holding that an agreement to fix prices can be

shown only with parallel conduct, the Court of Appeals requires a different quantum of proof

than the federal court and, as a result, fails to construe our law in harmony with federal law.

The Court of Appeals assumes that a jury could find a conspiracy, see Romero, 2009-

NMCA-022, ¶¶ 27-30, without discussing Defendants’ evidence that the in-tandem

increases, shifts in market share, and supposed behavior contrary to self-interest were just

as likely the result of independent, rational business decisions made to maximize profits,

rather than an agreement to fix prices, because any alternative other than following the price

increases was a losing option. In its hypothesis, the Court of Appeals errs in accepting

certain plus factors with no discussion of whether they actually tend to exclude independent

conduct. Id. ¶ 29 (discussing signaling and clandestine communications). Additionally, in

assuming the jury could find a conspiracy based solely on parallel behavior, the Court allows

an inference that is per se unreasonable. Id. Rather than reviewing Plaintiffs’ evidence in

light of all of the evidence presented, the Court asserts that it just upheld its “obligation to

view the evidence in the light most favorable to the non-movant and to allow the non-movant

the benefit of any reasonable inferences supported by the evidence . . . .” Id. ¶ 31. The

Court fails to use substantive federal antitrust law as the filter to first determine whether

genuine issues of material fact exist in favor of summary judgment. Instead, the Court

employs New Mexico’s summary judgment standard to overcome the strict requirements of

substantive law. This is exactly the rationale rejected in Matsushita. See 475 U.S. at 587-88

(“Respondents correctly note that ‘[o]n summary judgment the inferences to be drawn from

the underlying facts . . . must be viewed in the light most favorable to the party opposing the

motion.’ But antitrust law limits the range of permissible inferences from ambiguous

evidence in a § 1 case.” (citation omitted)).

{23} We also disagree with the Court of Appeals in Romero that both Dr. Leffler’s opinion

and Brooke Group set forth “major points of departure” from the plus factor approach

discussed in Williamson Oil. The Court noted that Dr. Leffler stated that “[t]he economic

evidence indicates that it is highly unlikely that independent competitive behavior explains

the price restructuring and price changes for cigarettes during the alleged conspiracy period.”

Id. ¶ 32 (internal quotation marks omitted). The Court also held that “Dr. Leffler’s opinion

testimony, if believed, would permit a reasonable factfinder to exclude lawful parallelism

as the most likely explanation for the parallelism demonstrated by cigarette prices during the

class period.” Id. Although the Court held that it was “not inclined to appoint [itself an]

amateur econo[mist] and attempt to second guess Dr. Leffler’s reasoning,” id. ¶ 39, it did not

give consideration to the fact that there were several ambiguities in Dr. Leffler’s opinion that

were drawn out in his deposition. While Dr. Leffler opined that the parallel price increases

13

were not the result of lawful parallelism, he also agreed that the factors he used to determine

the existence of a price-fixing conspiracy could not “tell you one way or the other whether

you have conscious parallelism or you’ve got something beyond conscious parallelism like

a price fixing agreement.” He also offered the opinion that an explicit agreement was a

violation of Section 1 of the Sherman Act as opposed to oligopolistic coordination and there

was no explicit agreement in this case. Dr. Leffler stated that rational oligopolists would act

to maximize profits, rational oligopolists would have matched the Marlboro Friday price

reduction, and RJR and B&W were most likely acting to maximize their profits by failing

to re-widen the price gap. Dr. Leffler even went so far as to acknowledge that the cigarette

industry “responded as I would have expected them to respond . . . [t]o match the price cut

and then to anticipate future price increases, to extend the oligopoly cooperation to the

discount sector.”

{24} In general, Dr. Leffler’s report concludes that following Marlboro Friday,

Defendants’ actions amounted to illegal price-fixing. However, his statements and responses

in his deposition demonstrate that he actually thought it was just as likely that Defendants

would have behaved in the same manner if they were acting independently and not under an

illegal price-fixing agreement, because to act any other way would have been less profitable

and, as such, against their economic interest.

{25} Without becoming amateur economists, the Court of Appeals could have easily

recognized inconsistencies between Dr. Leffler’s report and his deposition. Based on these

ambiguities in the evidence, it would have been necessary under substantive antitrust law to

hold that the evidence did not tend to exclude independent conduct because it was also

consistent with independent conduct. See Holiday Wholesale Grocery Co. v. Philip Morris,

Inc., 231 F. Supp. 2d 1253, 1270 (N.D. Ga. 2002) (“If, when considered in its entirety, [the

evidence] is totally ambiguous or to the opposite effect, it is not relevant and may not be

relied upon by the jury.”). By holding that such ambiguous evidence tended to exclude

independent conduct and would allow the jury to reach a reasonable inference, the Court of

Appeals failed to ensure uniform application of state and federal antitrust law.

{26} The Court of Appeals also relied heavily on several facets of the United States

Supreme Court’s analysis in Brooke Group to bolster both its reliance on Dr. Leffler’s

opinion and its conclusion that independent action was an unlikely explanation for the

parallel pricing observed during the period of the alleged agreement to fix prices. Romero,

2009-NMCA-022, ¶¶ 33-37, 40. In each instance, however, reliance on Brooke Group is

premised on a misreading of the Supreme Court’s analysis. While the Court of Appeals

correctly observed that Brooke Group recognizes the “inherent limitations” of independent

conduct and that it is an “improbable” explanation for “multivariable coordination,” that

conclusion was based on an analysis of “the net price in the market” or retail pricing, not on

list or wholesale prices, which underlie the basis of the claim in the instant case. Brooke

Group Ltd., 509 U.S. at 239. Similarly, while Brooke Group did analyze “the likelihood that

tacit collusion could result in industry-wide, in-tandem increases in the prices of both generic

and premium cigarettes,” Romero, 2009-NMCA-022, ¶ 40, it did so only in the context of

14

retail pricing.

{27} Retail pricing is influenced by so many variables that the cigarette oligopoly cannot

exert collective control over it through independent conduct. See Brooke Group Ltd., 509

U.S. at 239 (noting that retail prices are determined in part by “list prices, but also by a wide

variety of discounts and promotions to consumers and by rebates to wholesalers”). Cigarette

wholesalers, who buy direct from cigarette manufacturers at wholesale list prices, set prices

for retailers, who then set retail prices for consumers. All levels of pricing are affected by

various manufacturer discounts and promotions. Therefore, “to coordinate in an effective

manner [at the retail level] . . . the cigarette companies would have been required, without

communicating, to establish parallel practices with respect to each of these variables, many

of which, like consumer stickers or coupons, were difficult to monitor.” Id. at 239. This

complexity explains why independent conduct is an improbable means of coordinating

parallel retail pricing and why Brooke Group suggests that independent conduct should be

rejected as a likely explanation in that circumstance. Id. This conclusion, however, cannot

be logically extended to wholesale list prices, which are simply determined by the

manufacturers. Brooke Group is very clear that “it would be unreasonable to draw

conclusions about the existence of tacit coordination or supracompetitive pricing from data

that reflect only list prices,” because “in an oligopoly setting . . . price competition is most

likely to take place through less observable and less regulable means than list prices.” Id.

at 236 (emphasis added).

{28} Despite these significant distinctions between Brooke Group and the instant case, the

Court of Appeals nonetheless suggests that “Defendants’ theory of the present case seems

. . . easily as complex as the recoupment theory rejected in Brooke Group.” Romero, 2009-

NMCA-022, ¶ 36. The Court holds that only a “single-tier market” can be effectively

controlled by legal oligopolistic coordination, because a two-tier wholesale market is too

complex and has too many variables, making independent conduct an implausible

explanation for parallel pricing. Id. ¶ 40 (“The present case does not involve the type of

simple price leadership in a single-tier market that characterized the tobacco industry prior

to the introduction of generic cigarettes.”). Finding the two-tier system complex, the Court

of Appeals rejects independent conduct as a plausible explanation for the observed list

pricing. Id. ¶ 37 (“[L]awful oligopolistic coordination was incapable of containing the

competition from non-premium cigarettes.”).

{29} The point of Marlboro Friday and subsequent price reductions, however, was to

simplify the wholesale pricing scheme, collapsing the market from ten pricing tiers to two,

so there would be a less complex pricing system. Due to the interdependent nature of an

oligopoly, “oligopolistic rationality” can “provide for price increases through . . . price

leadership[]” if the other firms believe that following the pricing leader will maximize their

profits. VI Areeda & Hovenkamp, supra ¶ 1429a-b (internal quotation marks omitted)

(discussing interdependent decision-making and how the actions of one firm may result in

the independent decision of other firms to follow if doing so will maximize profits). To stem

the flow of market share into the discount sector, Philip Morris realized the need to close the

15

price gap between premium and discount cigarettes, and set about undertaking this task with

Marlboro Friday and the subsequent price reductions in the premium and discount sectors.

With the price gap closed and only two price tiers remaining, Philip Morris was able to take

advantage of the expected “oligopolistic rationality” when prices began to ascend to pre-

Marlboro Friday levels. Dr. Leffler opined that RJR and B&W were acting as rational

oligopolists by following Philip Morris in subsequent price increases to prevent further price

cuts similar to Marlboro Friday. Compliance was ensured by the looming threat of

continued revenue losses should Philip Morris institute a second Marlboro Friday.3 By

relying on “oligopolistic rationality” and having condensed the ten-tier system to two tiers,

Philip Morris used its dominant market position and the inherent interdependencies of the

cigarette oligopoly to force the other manufacturers to comply with its subsequent price

increases in both pricing tiers. These strategic moves were all part of Philip Morris’s

strategy to “box in its competitors” and advance its own competitive position.

{30} Prior to Marlboro Friday, Philip Morris attempted to box in its competitors and

reduce the discount-premium price gap by independently raising generic and discount

cigarette prices. However, this attempt failed. Romero, 2009-NMCA-022, ¶ 37. No

discount cigarette manufacturers responded because with ten pricing tiers and the large price

gap between discount and premium cigarettes, discount cigarettes could continue to grow

revenue by cannibalizing the premium cigarette market share; it was not in their interest at

that point to follow Philip Morris’s price leadership, and they had no incentive to do so.

Contrary to the Court of Appeals’s conclusion that “[t]his evidence [supports] Dr. Leffler’s

opinion that by itself, lawful oligopolistic coordination was incapable of containing the

competition from non-premium cigarettes,” Romero, 2009-NMCA-022, ¶ 37, this initial

failure to control discount list prices simply explains Philip Morris’s rationale and

motivation for both Marlboro Friday and its subsequent pricing strategy. Philip Morris

needed to simplify the pricing structure and exert its market influence before the oligopoly

would respond to its price leadership.

{31} Nothing about the cigarette oligopoly’s coordination of the wholesale two-tier market

is multi-variable or complex as described in Brooke Group. Retail pricing, not list pricing,

is multi-variable and complex and makes independent conduct an improbable explanation

for parallel pricing. See Brooke Group Ltd., 509 U.S. at 239. Therefore, simultaneous

coordinated pricing in both tiers does not, by itself, tend to exclude independent conduct due

to complexity. Rather the opposite is true. It is undisputed by Plaintiffs that Philip Morris’s

Marlboro Friday was the initiation of a highly competitive strategy. That strategy did not

end on Marlboro Friday, but persisted throughout the alleged conspiracy as Philip Morris

worked to maintain a narrow price gap between discount and premium cigarettes and worked

3

Declaration of RJR CEO: “[B]ased on Marlboro Friday, RJR believed that [Philip

Morris] would not allow a competitor to take market share away from Marlboro by cutting

prices. Thus, RJR believed, any further price reduction would be futile and would result in

lower profits.”

16

to raise prices in both tiers. With this strategy, Philip Morris maintained its newly-acquired

market share and increased its revenue, while manufacturers that depended on the discount

sector lost market share and revenue. Philip Morris sought to regain market share it had lost

to the discount sector prior to Marlboro Friday, and over a roughly six-year period, it

increased wholesale prices to regain the status quo prior to Marlboro Friday.

{32} The result of Philip Morris’s market dominance was that premium cigarettes and

discount cigarettes became subject to interdependent conduct, whereas prior to Marlboro

Friday only premium cigarettes were subject to such oligopolistic control. Plaintiffs’ expert,

Dr. Leffler, stated that Marlboro Friday “caused a restructuring in the industry and a change

in the competitive relationships.” As a result of this restructuring, oligopolistic functioning

and rationale extended to the discount sector where there had been no such functioning prior

to Marlboro Friday. Indeed, Dr. Leffler even acknowledged in his deposition that the

industry merely “extend[ed] the oligopoly cooperation to the discount sector.” As

oligopolistic control is lawful in the premium price tier, there is no rationale for arguing that

it is illegal in the discount price tier. For these reasons, the Court of Appeals’s reliance on

Brooke Group was misplaced.

{33} Thus, we must determine whether Plaintiffs’ proffered evidence of plus factors tends

to exclude the possibility that Defendants acted independently. Plaintiffs cite to the

following plus factors, in addition to parallel pricing, as tending to exclude the possibility

that Defendants acted independently: (1) the economies of the marketplace, such as a highly

concentrated market, cigarette fungibility, high barriers to entry in the industry, absence of

close substitutes, and a history of collusion; (2) a strong motivation to conspire, resulting

from the desperate times facing the cigarette industry, including “a dramatic decline in its

sales as a result of . . . increased public awareness of the detrimental health effects of

smoking”; (3) the condensation of price tiers to facilitate the conspiracy; (4) actions contrary

to self-interest, including Philip Morris’s pre-announcing its price reductions and

Defendants’ failure to attempt to re-widen the price gap by reducing discount prices; (5)

conspiratorial meetings in other markets; (6) a smoking and health conspiracy; (7) the

manner in which Defendants monitored the conspiracy through Management Science

Associates (“MSA”)4; (8) opportunities to conspire; and (9) pricing decisions made at high

levels. Although the ambiguities in Dr. Leffler’s opinion have previously been discussed,

see supra, ¶¶ 23-25, we will further review the evidence presented by Dr. Leffler, since this

is the only plus factor cited by the Court of Appeals.

{34} We reject Plaintiffs’ plus factors for reasons similar to those set forth in Williamson

4

“[MSA] provides data collection, processing, and storage services to numerous

Fortune 500 companies, including American Express, MCI, Coca-Cola, and Michelin Tires.”

“MSA Inc. shipment-to-wholesale data are aggregated, historical data on manufacturer

shipments of cigarettes to wholesalers that manufacturers provide to MSA Inc. for

processing, and do not contain any cigarette pricing information.”

17

Oil Co. because Defendants’ conduct is just as consistent with lawful, independent action

as it is with price fixing, and therefore it does not tend to exclude independent conduct. We

briefly discuss Plaintiffs’ plus factors to address why they do not tend to exclude the

possibility of independent conduct by Defendants. (1) The majority of the economies of the

marketplace to which Plaintiffs cite are nothing more than inherent characteristics of an

oligopoly and cannot tend to exclude independent action. See Holiday Wholesale Grocery

Co., 231 F. Supp. 2d at 1305. In fact, Plaintiffs’ expert agreed that these factors are

“conducive to collusion, whether it be in the form of tacit collusion [independent conduct]

or some kind of explicit agreement fixing prices,” and that “looking at [these] structural

factors alone, just like prices, does not allow you . . . to distinguish between whether the

prices in this industry are the result of price fixing conspiracy on the one hand or conscious

parallelism on the other hand.” In addition, the history of collusion cited by Plaintiffs is

based on a 1946 violation of the Sherman Act. See Am. Tobacco Co. v. United States, 328

U.S. 781 (1946). However, Plaintiffs do not explain how a case from more than fifty years

ago is indicative of a present day price-fixing agreement, especially when only one of the

current Defendants, RJR, was a defendant in the 1946 case. See Williamson Oil Co., 346

F.3d at 1317-18. (2) The motivation to conspire cited by Plaintiffs cannot serve as tending

to exclude independent conduct because “[p]rofit is a legitimate motive in pricing decisions,

and something more is required before a court can conclude that competitors conspired to

fix pricing in violation of the Sherman Act.” In re Baby Food Antitrust Litig., 166 F.3d at

134-35. (3) When Philip Morris took action to condense the price tiers, it is just as likely

that they did so to reduce the price gap and maximize profits as to facilitate a price fixing

agreement, and thus this does not tend to exclude independent conduct. (4) Plaintiffs argue

that Defendants took actions contrary to self-interest by pre-announcing price decisions and

failing to re-widen the price gap. Philip Morris argues that the June 20, 1993 pre-

announcement of a price decrease to take effect twenty days later was not a signal to the

other cigarette manufacturers, but was made to allow wholesalers and retailers to avoid an

immediate reduction in the value of their inventory and to accommodate the burden of

implementing a price reduction. See id. at 133 (holding that advance price announcements

can serve an important purpose in the industry). In addition, failure to re-widen the price gap

does not tend to exclude independent conduct. Plaintiffs’ expert testified that RJR and B&W

were acting as rational oligopolists in following Philip Morris’s price reduction, and that

RJR and B&W made rational business decisions not to re-widen the price gap because they

would not have made more money doing so. See VI Areeda &Hovenkamp, supra ¶ 1429b

(discussing that other firms in an oligopoly will follow the price leader “when they believe

that it will maximize industry profits”). (5) The alleged conspiratorial meetings in other

markets cannot serve as tending to exclude independent conduct because Plaintiffs offered

no support to connect the actions in foreign markets with the actions in the United States.

In addition, Plaintiffs’ expert testified that he knew of no such connection and price changes

in the United States were independent of those in the international market. (6) Similarly,

concluding that an alleged smoking and health conspiracy facilitated coordination of a

conspiracy in this case would require the jury to engage in speculation, and therefore it does

not tend to exclude independent conduct. See Williamson Oil Co., 346 F.3d at 1316-17;

Matsushita Elec. Indus. Co., 475 U.S. at 595. (7) The manner in which Defendants

18

monitored the conspiracy through MSA is not evidence tending to exclude independent

conduct because there is an equally rational legal explanation for this such as to “devise

competitive strategies, gauge the success of their promotions, monitor the impact of new

styles or packing on the market, and determine whether increased promotional spending was

needed in certain geographic areas to compete with competitors’ programs.” In addition, Dr.

Leffler acknowledged under oath that the information exchanged was not pricing

information. As this information is ambiguous at best, it can not be seen as tending to

exclude independent conduct. See Williamson Oil Co., 346 F.3d at 1315. (8) Plaintiffs

allege that Defendants had many opportunities to conspire because high- ranking officials

from each manufacturer met on numerous occasions. However, the fact that Defendants may

have met does not reasonably lead to the inference that they conspired to discuss price

fixing. “[M]ere contacts and communications, or the mere opportunity to conspire, among

antitrust defendants is insufficient evidence from which to infer an anticompetitive

conspiracy . . . .” Clough, 108 N.M. at 804, 780 P.2d at 630 (internal quotation marks and

citation omitted); see also Williamson Oil Co., 346 F.3d at 1319. (9) Finally, pricing

decisions made at high levels do not tend to exclude independent conduct as “[f]irms

routinely consolidate decisionmaking authority in high ranking officers for a multitude of

wholly legitimate reasons.” Williamson Oil Co., 346 F.3d at 1319. In light of the ambiguous

nature of Plaintiffs’ plus factors, we hold that they do not tend to exclude independent

conduct.

{35} We also affirm the district court’s ruling that “even after going through the plus

factors, there still exists the opportunity for the defendant to rebut the inference of collusion

by presenting evidence establishing that no reasonable fact-finder could conclude that they

entered into a price-fixing conspiracy.” Plaintiffs and the Court of Appeals erred in failing

to acknowledge any legitimate rational explanations for the actions taken by Defendants.

Plaintiffs ignore both retail competition and the effect that competition had on the “actual

‘transaction’ prices.” Defendants competed “vigorously” on retail pricing, spending a

combined total of over $25 billion. This competition led to RJR and B&W filing a lawsuit

against Philip Morris alleging violations of the Sherman Act and unfair competition for

conduct that occurred in the midst of the alleged conspiracy. See R. J. Reynolds Tobacco

Co. v. Philip Morris Inc., 199 F. Supp. 2d 362 (M.D.N.C. 2002). RJR and B&W argued that

Philip Morris “designed and executed Retail Leaders to monopolize and restrain trade in the

United States cigarette market by paying retailers for advantageous display and signage

space which Plaintiffs say restricts information needed by consumers, disrupts the

price-setting mechanism of the market, and limits Plaintiffs’ abilities to promote their

products.” Id. at 365. It would be unreasonable to infer that companies who fiercely

competed at the retail level to the extent of suing one another would at the same time agree

to fix prices.

{36} Plaintiffs also fail to explain the economic rationale for Defendants competing so

fiercely on retail promotions that would undermine any benefit they may have been receiving

from a price-fixing conspiracy at the wholesale level. See Williamson Oil Co., 346 F.3d at

1321 (“[I]f prices are fixed . . . there is no rational reason to undertake extremely significant

19

and expanding retail promotional expenditures, which are a paradigmatically competitive

activity.”). From 1994 to 1999, Philip Morris’s increased spending on retail promotions

increased by $1.651 billion, which equaled 60% of its operating income. From 1993 to

1999, RJR’s increased spending on retail promotions increased by $570 million, which was

141.6% of its operating income. B&W increased its spending on retail promotions from

1992 to 1998 by $492.5 million. This retail competition caused retail prices to vary, “even

among brands that were priced identically at list.”

{37} In addition, market shares did not remain static but shifted and resulted in clear

winners, such as Philip Morris, and clear losers, such as RJR and B&W. Philip Morris

walked away a winner by ensuring that the price gap remained at a desirable level, while

RJR and B&W, both of which had relied heavily on discount cigarettes, lost market share.

During the period of the alleged conspiracy, Philip Morris’s market share grew from 42.2%

to 50.5%; RJR’s share shrunk from 30.6% to 23.0%; and B&W’s share declined from 16.6%

to 11.7%. These shifts in market share also resulted in substantial revenue adjustments,

further highlighting the winners and losers. For example, “in 1999 alone [Philip Morris]

realized an additional $2.9 billion in revenues as a result of its cumulative increase in market

share since 1993.” In 1999, RJR was down approximately $3 billion in annual revenues

compared to 1993, and B&W lost $1.3 billion in annual revenues from 1993 to 1999.

Plaintiffs offer no evidence to explain why RJR and B&W would participate in a conspiracy

that would result in lost market share and revenue. Rather, it is more likely that RJR and

B&W acted as they did because it was the best option for them to follow out of a number of

bad options. Philip Morris argued that each price increase subsequent to Marlboro Friday

was for legitimate business reasons and independently made. Philip Morris stated that

Plaintiffs had produced no evidence to support the allegation that the pricing actions taken

were “intended to accomplish anything other than to advance [Philip Morris’s] economic

self-interest.” There is no doubt that Marlboro Friday was a competitive act. In fact,

Plaintiffs’ economic expert stated that RJR and B&W were acting to maximize their profits

in the way they reacted to Marlboro Friday and that any other options, such as attempting

to reduce the price gap, would have led to inferior profits. In other words, Defendants had

no choice but to follow the lead of Philip Morris and Plaintiffs failed to present evidence

showing otherwise.

{38} Defendants made a prima facie case supporting summary judgment by providing

evidence of fierce retail competition that undermined the plausibility of a price-fixing

agreement, demonstrating that wholesale prices remained lower than pre-Marlboro Friday

levels and did not exceed pre-Marlboro Friday levels until almost five years later, and by

highlighting the ambiguities in Dr. Leffler’s opinion. This evidence showed that Defendants

“‘had no rational economic motive to conspire, and . . . their conduct is consistent with other,

equally plausible explanations.’” Clough, 108 N.M. at 804, 780 P.2d at 630 (quoting

Matsushita Elec. Indus. Co., 475 U.S. at 596-97). In reviewing Plaintiffs’ plus factors, we

find that the district court properly granted summary judgment.

CONCLUSION

20

{39} Failing to produce evidence tending to exclude independent action, Plaintiffs have

not raised a genuine issue of material fact that there was an agreement between Defendants

to fix the prices of cigarettes. Therefore, we reverse the Court of Appeals and affirm

summary judgment in favor of all Defendants.

{40} IT IS SO ORDERED.

____________________________________

EDWARD L. CHÁVEZ, Justice

WE CONCUR:

____________________________________

CHARLES W. DANIELS, Chief Justice

____________________________________

PATRICIO M. SERNA, Justice

____________________________________

PETRA JIMENEZ MAES, Justice

____________________________________

RICHARD C. BOSSON, Justice

Topic Index for Romero v. Philip Morris, Docket No. 31,433

CM COMMERCIAL LAW

CM-AN Antitrust

CM-UP Unfair Practices Act

CO CIVIL PROCEDURE

CP-SJ Summary Judgment

EV EVIDENCE

EV-CV Circumstantial Evidence

FL FEDERAL LAW

FL-AN Antitrust

MS MISCELLANEOUS STATUTES

MS-AN Antitrust Act

MS-UP Unfair Practices Act

21