Ninth Circuit: Antitrust Co-conspirator Not Required Party under FRCP 19

Practical Law Legal Update 3-616-9326 (Approx. 5 pages)

Ninth Circuit: Antitrust Co-conspirator Not Required Party under FRCP 19

by Practical Law Antitrust

Background

In Ward, plaintiffs alleged that Apple conspired to monopolize the aftermarket for iPhone voice and data services by entering into an exclusive agreement with alleged co-conspirator ATTM stating that ATTM would be the sole voice and data services provider for the iPhone for five years, enabling ATTM to charge supracompetitive prices for wireless services. In two prior district court cases, plaintiffs' case was dismissed under FRCP Rule 19 for failure to join ATTM as a defendant in the class action. Plaintiffs chose not to join ATTM in the case because of an arbitration clause in ATTM's wireless services contracts that would have compelled arbitration if it was named a defendant.

FRCP Rule 19 states that a required party must be joined in an action if feasible. A party is required if either:

Without that party, a court cannot grant complete relief to the existing parties (FRCP Rule 19(a)(1)(A)).
That party claims an interest in the subject of the action and ruling on the action in that party's absence would:
- impair that party's ability to protect its interests; or
- substantially risk exposing that party to multiple or inconsistent obligations because of the interest.
(FRCP Rule 19(a)(1)(B))

The court explained that because antitrust co-conspirators are jointly and severally liable for their conduct, plaintiffs could recover all damages from Apple alone and therefore joinder of ATTM under 19(a)(1)(A) was not necessary. To determine if joinder was necessary under 19(a)(1)(B), the court considered whether ATTM:

Claimed an interest in the action.
Has a legally protectable interest in the action.

Decision

The court noted that the district court abused its discretion in holding that ATTM was a required party under Rule 19 by failing to identify ATTM's interests in the action or how those interests were at risk if the action was resolved in its absence. The court then undertook its own analysis of ATTM's potential interests and found that ATTM was not a required party.

ATTM Did Not Claim an Interest

The court explained that, as a threshold matter, under Bowen v. United States, an absent party must claim a legally protected interest in the action to be joined in the case (172 F.3d 682 (9th Cir. 1999)). The court found that there was not enough evidence in the record to show that ATTM affirmatively asserted an interest in the action, despite a declaration from ATTM in an earlier district court case that ATTM had an interest in these claims. The court reasoned that it is not clear whether the attorney from the previous action was authorized to assert ATTM's interest in the current litigation, and the interest was therefore not protected under Rule 19.

ATTM Has No Legally Protectable Interest in the Action

The court found that Apple did not present any ATTM interests that qualified for legal protection under Rule 19. Apple argued that ATTM's legal interests derived from the fact that if ATTM was not joined:

ATTM would potentially face collateral consequences, such as:
- regulatory scrutiny; and
- harm to its reputation.
ATTM's contractual rights may be impaired.

Regulatory Scrutiny

The court held that Apple did not show that the risk of ATTM facing regulatory scrutiny was a legally protected interest under Rule 19. The court reasoned that:

The collateral regulatory scrutiny arising out of this case is no greater than the scrutiny arising out of a typical antitrust conspiracy case.
If the risk of increased regulatory scrutiny required joining an absent party:
- antitrust co-conspirators would nearly always be required parties in antitrust cases; and
- the general rule that co-conspirators need not be joined in one action would be meaningless.
Apple did not present any evidence of actual regulatory scrutiny of Apple and ATTM's exclusivity agreement.

The court also noted that it is hesitant to recognize legally protected interests on speculation of the occurrence of future events.

ATTM's Reputation

The court held that ATTM's reputation interests are not legally protected under Rule 19. The court noted that it had never held a joint tortfeasor's reputational interests made it a required party under Rule 19, and would not do so in this case.

ATTM's Contract Interests

The court held that Apple did not demonstrate that ATTM had substantial contract rights that may be injured if the action is resolved in its absence. Apple argued that ATTM had contract interests in its:

Right to control unlock codes for its customers' iPhones.
Wireless services agreements (WSA) with customers.
Arbitration agreement.

The court noted that the record lacked evidence to show that ATTM had a continuing interest in its right to control unlock codes or its WSAs. The court further noted that if the court did rule on the arbitration agreement contained in the WSAs, and ATTM continues to be a non-party, the ruling would not be binding on ATTM. Therefore, these were not legally protected interests under Rule 19.

Failure to State a Claim

Apple argued that plaintiffs failed to adequately plead ATTM's monopoly power in the relevant market. However, the court declined to decide the issue.

Dissent

Judge John Clifford Wallace dissented, arguing that the Ninth Circuit did not have jurisdiction over the case because the district court's decision was a final decision that was not adverse to the plaintiffs. Even if the court had jurisdiction, Judge Wallace argued that the plaintiffs had waived their right to appeal by inviting the district court to take the position that it did regarding ATTM.

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