Third Circuit Finds Antitrust Standing Based on Inextricably Intertwined Injuries

Practical Law Legal Update w-000-8582 (Approx. 5 pages)

Third Circuit Finds Antitrust Standing Based on Inextricably Intertwined Injuries

by Practical Law Antitrust

Background

In 2012, Hanover Realty entered into a lease and site-development agreement with Wegmans to construct a full-service supermarket. Full-service supermarkets provide more amenities than grocery stores, including prepared foods, on-site dining options, wine and liquor, specialty products, and pharmacies. ShopRite, which owns a supermarket that is about two miles away from the site of the proposed Wegmans, subsequently filed numerous administrative objections, as well as a state-court suit, including:

Objecting to Hanover Realty's application for a Flood Hazard Area Permit from the New Jersey Department of Environmental Protection. The Environmental Department denied ShopRite's request for a hearing, noting that it had no standing and ShopRite's claim of greater competition from the proposed Wegmans were not enough to show it was an aggrieved party.
Objecting to Hanover Realty's wetlands approvals application from the Environmental Department. ShopRite argued that Hanover Realty's notice to neighboring landowners was technically deficient, sent a request to the Environmental Department for a meeting, and complained to the US Fish and Wildlife Service. The Environmental Department ultimately issued Hanover Realty the requested wetlands permit, subject to various conditions. ShopRite requested an adjudicatory hearing to challenge the approval, which was denied.
Objecting to Hanover Realty's application to the Department of Transportation for a Major Street Intersection Permit as required by an earlier developer's agreement. ShopRite also filed a number of open public records requests seeking additional information to use to contest the application. The DOT agreed with some of ShopRite's arguments, but noted that improvements may no longer have been appropriate or feasible.
Filing an action in New Jersey state court seeking to nullify Hanover's approved application to rezone the property of the proposed. ShopRite filed three amended complaints in that matter, which Hanover Realty argued were filed for the purpose of delay. The Superior Court of New Jersey dismissed ShopRite's lawsuit, finding that it was not an interested party and it also did not have standing as a local taxpayer. The court also disposed of ShopRite's arguments on the merits.

Hanover Realty sued ShopRite, alleging that ShopRite's administrative objections and lawsuit were anticompetitive shams designed to keep Wegmans out of the market.

The district court found that Hanover Realty did not have standing because it was not a consumer or competitor in the markets for full-service supermarkets or supermarket rental space, nor was Hanover Realty's harm inextricably intertwined with the anticompetitive harm caused by ShopRite.

Standing

The Third Circuit disagreed with the district court's finding that Hanover Realty did not have standing to bring antitrust claims against ShopRite. The Third Circuit noted that, to have antitrust standing, a plaintiff generally must show:

A causal connection between the antitrust violation and the harm to the plaintiff, and the intent by the defendant to cause that harm.
That the plaintiff's injury is of the type for which the antitrust laws were intended to provide redress.
The directness of the injury.
The lack of more direct victims of the antitrust violations.
No potential for duplicative recovery or complex apportionment of damages.

While those factors are weighed on a case-by-case basis, the court noted that the second factor is a necessary condition for standing. Hanover Realty admitted that it neither competes nor is a consumer in the market for full-service supermarkets. However, it argued, and the court agreed, that its injuries were inextricably intertwined with ShopRite's attempt to monopolize the market. The court noted that the end goal of ShopRite's alleged anticompetitive conduct was to injure Wegmans, a prospective competitor. To keep Wegmans out of the market, ShopRite sought to impose costs on Hanover Realty, which was tasked with obtaining the necessary permits before construction could begin. The court further noted that, without the relationship between Hanover Realty and Wegmans, ShopRite's conduct would have been purposeless, and ShopRite would succeed either by:

Inflicting enough high costs on Hanover Realty that it was forced to abandon the project.
Delaying the project long enough so that Wegmans would back out of the agreement.

In both cases, injuring Hanover Realty was the means by which ShopRite could get to Wegmans, and therefore the court found that Hanover Realty's injury was necessary to ShopRite's plan to keep Wegmans out of the relevant market.

The court also found that Hanover Realty met the other four factors of the antitrust standing analysis, noting that:

Hanover Realty sufficiently alleged a causal connection between the antitrust violation and its harm because ShopRite's petitioning caused Hanover Realty to pay thousands of dollars in attorney's fees and costs in filing its responses.
The next two factors are interrelated and go to the directness of the injury and other more direct victims. The court noted that a plaintiff can suffer direct injury even if the defendant's anticompetitive conduct ultimately targets a third party. ShopRite's legal challenges directly injured Hanover Realty through costs of responding to legal challenges or loss of rent. That Wegmans is another possible direct victim does not diminish the directness of Hanover Realty's injury.
Hanover Realty's recovery of the costs of responding to the legal challenges would not pose a risk of overlapping damages because no other party has suffered that distinct injury. Additionally, any damages awarded for the delay or obstruction of the lease would not be duplicative because the lost rent would be subtracted as a cost from any subsequent claim by Wegmans for lost profits.

As a result, the court found that Hanover Realty adequately alleged antitrust standing on its claim for attempted monopolization of the market for full-service supermarkets.

Noerr-Pennington

Hanover Realty then had to show that ShopRite's conduct was not covered by Noerr-Pennington immunity. The Noerr-Pennington doctrine provides broad immunity from liability under the Sherman Act to those who petition the government, including administrative agencies and courts, for redress of their grievances. However, as the court noted, a defendant cannot claim this immunity if the petitioning activity is a mere sham to cover what is just an attempt to directly interfere with a competitor's business. To determine whether a series of legal proceedings constitutes a sham, the court looked at whether that series was filed:

With or without regard to merit.
For the purpose of using the governmental process (as opposed to the outcome) to harm a market rival and restrain trade.

The court undertook a holistic review that looked at ShopRite's filing success as circumstantial evidence of its subjective motivations. A high percentage of meritless or objectively baseless proceedings would tend to support a finding that the filings were not brought to redress any actual grievances. Looking at ShopRite's filings, the court determined that ShopRite had a policy of filing anticompetitive sham petitions. It noted that ShopRite's challenge to the flood permit was objectively baseless, as was its zoning lawsuit. Although ShopRite fared somewhat better in its other challenges, its meager record supported Hanover Realty's allegation that the filings were shams.

Outcome

The Third Circuit vacated and remanded the suit to district court. Judge Ambro dissented from the majority's opinion that Hanover Realty had standing (arguing that Hanover Realty did not suffer antitrust injury), but concurred that ShopRite's Noerr-Pennington defense failed. Judge Greengerg, on the other hand, concurred that Hanover Realty had antitrust standing, but dissented from the majority's opinion that the Noerr-Pennington defense was not valid (arguing that the court expanded the sham exception too much).

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