Burtch v. Milberg Factors, Inc.

Summarized by Steven Schwartz , White & Case LLP
14 years 4 months ago

Citation:

Case No. 10-2818 (3d Cir. Oct. 24, 2011; 2011 WL 5027511

Tag(s):

Ruling:

A defendant violates Section 1 of the Sherman Act by engaging in concerted action that imposes an unreasonable restraint on trade. An unreasonable restraint on trade (under the per se standard) is found when an agreement is made that is plainly anticompetitive on its face. The Third Circuit held that agreements regarding price information typically serve the purpose of suppressing competition, whereas information concerning the creditworthiness of a customer can protect competitors from insolvent customers. The Third Circuit held that merely exchanging information regarding a customer's creditworthiness did not violate the Sherman Act under the per se standard. If an agreement to extend or refuse credit had resulted from such an exchange of information, the combination would have been a violation of the Sherman Act. However, no agreement was found directly or circumstantially. Conscious parallelism, which can show circumstantial agreement when combined with a "plus factor," was not found here. This is because the defendants' activities were not parallel: some of the defendant factors involved in financing the debtor's garment retailer increased credit to the debtor, while other factors decreased credit, and others still maintained their positions, at the same time. Finally, leave to reopen the final judgment and to amend the complaint was futile, as Appellants still failed to allege an agreement to conspire regarding the credit terms provided by the defendant factors to the garment retailer. They did not provide a time, place, or person involved in the alleged conspiracies, and left no clue as to which of the defndants supposedly agreed.

Procedural context:

The Third Circuit affirmed the U.S. District Court of Delaware's dismissal of a Section 1 claim under the Sherman Act for failure to state a plausible claim. The Third Circuit also affirmed the U.S. District Court of Delaware's denial of leave to reopen the final judgment and amend the complaint under FRCP 59(e)/60(b) on the ground of futility.

Facts:

Garment retailers generally depend on factors to determine that they are creditworthy. If they are creditworthy, garment manufacturers will ship to the retailers while the factors assume the manufacturers' risk of the retailers' non-payment. Factory 2-U was a garment retailer, and between 2002-2003 Factory 2-U could not get enough credit extended by factors. During that time, various factors increased, decreased, or maintained Factory 2-U's credit level. Factory 2-U argues that the factors held numerous telephone conversations and exchanged information about its creditworthiness. Then, the factors allegedly agreed to decline Factory 2-U's credit at the same time. Factory 2-U argues that as a result of Factory 2-U's inability to obtain credit and inability to get manufacturers to ship them garments, they filed for chapter 11 protection on January 13, 2004. The case was subsequently converted to a chapter 7 and a trustee was appointed.

Judge(s):

Greenaway, Jr. (opinion), Sloviter, Roth

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