On September 7, 2016, the Third Circuit ruled that a district court erred in granting a Fed. R. Civ. P. 12(b)(1) motion to dismiss federal antitrust claims for lack of subject matter jurisdiction, because the court conflated the analyses for Article III standing and antitrust standing. Hartig Drug Co. Inc. v. Senju Pharmaceutical Co. Ltd., No. 15-3289 (3d Cir. Sept. 7, 2016).
Hartig Drug Company Inc. (“Hartig”), an Iowa-based drug store chain, sued pharmaceutical manufacturers alleging that they suppressed competition for medicated eyedrops through a variety of means, which resulted in higher prices for the eyedrops. Hartig purchased the eyedrops from a distributor, AmerisourceBergen Drug Corporation (“Amerisource”), which purchased the eyedrops from the manufacturers. Hartig’s claim as an indirect purchaser from the defendant manufacturers was barred by Illinois Brick v. Illinois, 431 U.S. 720 (1977), so it alleged that Amerisource had assigned its claim to Hartwig, which enable Hartwig to sue as a direct purchaser.
The manufacturers filed a Rule 12(b)(1) motion to dismiss for lack of subject matter jurisdiction, and also a Rule 12(b)(6) motion to dismiss for failure to state a claim. For the Rule 12(b)(1) motion, defendants submitted Amerisource’s Distribution Services Agreement (“DSA”) with one of the manufacturers—which was not mentioned in Hartwig’s complaint—to argue that an anti-assignment clause in the DSA prohibited Amerisource from assigning its claim without the defendant’s consent. The District Court accepted that argument and granted the Rule 12(b)(1) motion on the ground that Hartig was actually suing as an indirect purchaser and not as a direct purchaser because the assignment was invalid.
On appeal, several retailers filed an amicus brief arguing that defendant’s anti-assignment argument reached only the issue of antitrust standing, which is different from Article III standing, and the district court erred in ruling that it did not have subject matter jurisdiction. The Third Circuit agreed.
The appeals court first explained the difference between a challenge to subject matter jurisdiction under Rule 12(b)(1) and a motion to dismiss for failure to state a claim under Rule 12(b)(6). A Rule 12(b)(6) motion is based on the allegations in the complaint and materials that are attached to or referenced in the complaint. But a Rule 12(b)(1) motion is a fact-based, evidentiary motion that can rely on materials from outside the complaint. Equally important, the defendant has the burden on a Rule 12(b)(6) motion, but the plaintiff has the burden on a Rule 12(b)(1) motion. In short, the plaintiff enjoys far less protection under a Rule 12(b)(1) motion that it does under a Rule 12(b)(6) motion.
The court then explained that “the District Court should have treated antitrust standing not as an Article III jurisdictional issue, but rather as a merits issue, and thus should have resolved the motion to dismiss under Rule 12(b)(6) rather than Rule 12(b)(1).” Slip op. at 15. Article III standing—assessed under Rule 12(b)(1)—requires proof of injury, causation and a likelihood the injury will be redressed by a favorable decision. But even when a plaintiff can demonstrate Article III standing, it still must demonstrate antitrust standing—that is, that the plaintiff’s injury “is of the type that the antitrust statute was intended to forestall.” Id. at 16 (citations omitted). In short, “[t]he two concepts are different, with [Article III standing] implicating a court’s subject matter jurisdiction and [antitrust standing] affecting only the plaintiff’s ability to succeed on the merits.” Id. at 17. “We have repeatedly interpreted Illinois Brick and its progeny as addressing not the threshold question of whether an indirect purchaser has Article III standing to sue in federal court at all, but rather the subsequent question of whether such a purchaser has standing to recover under federal antitrust statutes.” Id. at 19. Thus, Hartig alleged injuries sufficient for Article III standing and the district court could not consider the anti-assignment clause in the context of Rule 12(b)(6) because the DSA was not included or referenced in the complaint. Accordingly, the Third Circuit vacated the district court’s order and remanded for further proceedings.
In the interests of judicial economy, the Third Circuit went on to express its “doubt” about the district court’s interpretation that the anti-assignment provision barred the assignment of antitrust claims. After outlining contract interpretation principles under the applicable Pennsylvania law, the court explained that although the DSA provides that the agreement itself may not be assigned without consent, an exception exists to provide that “either party may assign its rights and obligations hereunder” to affiliates or subsidiaries without consent. This, the court said, suggests “there is a serious argument” that the antitrust claims do not fall within the DSA and, if so, the anti-assignment clause would not apply.
The decision serves as a useful reminder of several points.
- Article III standing is not the same as antitrust standing. As the Third Circuit’s decision points out, the Supreme Court’s decision in Illinois Brick, which applied rules of antitrust standing and not Article III, is a perfect example.
- Under the Third Circuit’s decision, the proper vehicle to attack antitrust standing is a Rule 12(b)(6) motion, not a Rule 12(b)(1) motion. Although it is almost irresistable to submit evidence to attack antitrust standing at the pleading stage, trying to convert an antitrust standing motion under Rule 12(b)(6) into a subject matter jurisdiction motion under Rule 12(b)(1) is not likely to gain traction in the Third Circuit.
- Finally, indirect purchasers seeking damages in states without Illinois Brick-repealer statutes continue to try to thread the direct purchaser needle by obtaining assignments of claims from the direct purchasers. Defendants should always be sure to examine not just the document assigning the claim, but all underlying contracts and collateral documents to try to develop arguments that the assignment is invalid.