Multi-Defendant Antitrust Litigation: Lessons Learned from In re: Automotive Parts Antitrust Litigation
Last Friday, in the latest development in the massive auto parts antitrust litigation, the State of California settled with Sumitomo Electric Industries, Ltd. and related companies regarding their sale of wire harness systems and heater control panels at allegedly supracompetitive prices. (For prior posts on this case, see here and here.) Sumitomo did not admit to any wrongdoing, but agreed to pay California over $800,000 and cooperate with California’s litigation efforts against the many other defendants in the case. Sumitomo and its related entities are the only auto parts defendants named in the State of California’s complaint.
At first glance, the settlement seems surprising—Sumitomo’s payment is relatively modest for a potentially significant antitrust litigation, and for California to request cooperation when Sumitomo is the only defendant might appear to make little sense. But this particular settlement highlights the complexities of litigation (and settlement) in multidistrict antitrust litigation.
California’s suit against Sumitomo was settled as part of the larger multidistrict litigation that has been pending in the Eastern District of Michigan since 2012. The MDL includes four class actions—brought on behalf of (i) automobile dealership plaintiffs, (ii) end-payor plaintiffs, (iii) direct purchasers, and (iv) truck and equipment dealership purchasers—as well as several individual actions brought by state AGs and other public entities against 176 foreign and domestic defendants. The cases allege that the defendants conspired to unlawfully fix and raise prices and rig bids for over 25 different auto parts. The first suit was filed in 2012 in the Eastern District of Michigan after the price-fixing scheme became public when several defendants pled guilty and paid fines following the DOJ’s investigation into the auto parts industry.
Although California has settled with Sumitomo with respect to two types of auto parts, given the large number of defendants and auto parts at issue in the MDL, it may still be able to bring suit against at least 172 other defendants for dozens of additional parts.
Furthermore, as with other antitrust litigation, joint and several liability with treble damages would still be available in these other suits. In a 1981 decision, the Supreme Court held that antitrust conspirators face joint and several liability for all damages caused by the conspiracy in which they participated—including the automatic treble damages provided by the federal statute—with no right to contribution from co-conspirators. This means, for example, that in an antitrust action against 100 co-conspirators, 99 of the conspirators may settle, leaving the final conspirator facing automatic treble damages for the actions of all defendants combined without hope of contribution from the 99 other conspirators should it lose the case. This creates tremendous pressure on each co-conspirator to settle early—and usually for less—before the other conspirators settle and leave the final co-conspirator with trebled liability for all the conspirators’ actions.
These features may explain the terms of the California–Sumitomo settlement: although California’s recovery from Sumitomo is relatively modest, it has guaranteed cooperation from one of the conspirators—facilitating its suits against the remaining defendants—and the other defendants are incentivized to race to settle with California. Sumitomo, for its part, is able to escape the risk of potentially significant liability for a modest price.
Lessons Learned from In re: Automotive Parts Antitrust Litigation
The California–Sumitomo settlement highlights several strategic aspects worthy of consideration. First, the settlement highlights the importance for all parties to consider the various factors at play in any complicated multidistrict litigation, rather than in any particular lawsuit.
Second, for antitrust defendants, it highlights the potential benefits of considering a judgment sharing agreement once litigation is filed. While such agreements are often difficult to negotiate, they can potentially remove the risk of a “race for settlement” with a plaintiff due to each defendant’s rational fear of being left alone facing treble damages on behalf of an entire industry.
Third, for antitrust plaintiffs, the settlement underlines the potential benefit of engaging in early settlement negotiations with one conspirator, and securing its cooperation before pursuing the remaining defendants. Such a strategy may yield necessary evidence to bring suit against the remaining conspirators and create significant incentives for the remaining defendants to settle.