In re Interior Molded Doors Antitrust Litigation

          OPINION

          John A. Gibney, Jr., United States District Judge.

         In these consolidated class actions, two groups of plaintiffs contend that America's leading manufacturers of interior molded doors unlawfully conspired to fix prices. The first group of plaintiffs-the direct purchaser plaintiffs-bought interior molded doors directly from the defendants, Masonite Corporation and JELD-WEN, Inc. The direct purchaser plaintiffs seek damages under the Sherman Act for the defendants' alleged anticompetitive conduct. The second group of plaintiffs-the indirect purchaser plaintiffs-bought interior molded doors indirectly from the defendants through distributors. The indirect purchaser plaintiffs seek injunctive relief under the Sherman Act and damages under the laws of thirty-nine states. The defendants have moved to dismiss both complaints^[1] for failure to state a claim.

         Because the direct and indirect purchaser plaintiffs sufficiently allege that the defendants conspired to fix prices, the Court will deny the motion to dismiss for failure to state a claim as to the Sherman Act. Some of the indirect purchaser plaintiffs' claims arising under state law, however, fall short in various respects. Accordingly, the Court will grant in part the motions to dismiss. In this Opinion, the Court will address each claim in turn.

         I. FACTS ALLEGED IN THE COMPLAINTS

         Most American homes contain interior molded doors ("IMDs"), which separate interior rooms, hallways, and closets. Manufacturers produce IMDs "by sandwiching a wood frame and a hollow or solid core between two doorskins composed of a high-density fibrous mat and formed into a raised panel design." (Dk. No. 119, 3:18-cv-718, at ¶ 1.) Doorskins comprise the most important part of IMDs, representing up to 70 percent of the overall cost of IMDs.

         JELD-WEN and Masonite are the two largest manufacturers of IMDs in the United States. In 2012, JELD-WEN acquired another manufacturer of IMDs and doorskins, CraftMaster International, Inc. ("CMI"). After the acquisition, JELD-WEN and Masonite became the only two manufacturers of doorskins in the United States and controlled 85 percent of the national IMD market. Because the manufacturers comprising the other 15 percent of the IMD market did not make doorskins, they had to buy doorskins from the defendants, who had aggressively competed for the business of those manufacturers in the past. In 2014, Masonite abruptly stopped selling doorskins to third parties, making JELD-WEN the sole supplier of the largest component of IMDs.

         To plausibly plead a conspiracy to fix prices, the plaintiffs must plead facts showing that the defendants (1) increased prices in a parallel fashion, and (2) entered into an illegal agreement to fix prices. The Court sets forth the plaintiffs' allegations in that order.

         A. Parallel Price Increases

         After JELD-WEN acquired CMI, JELD-WEN and Masonite began to increase their prices of IMDs in near synchronization-either simultaneously or in brief succession of each other- beginning in late 2012. Nine different times between 2012 and 2018, the defendants increased the price of IMDs in similar percentage increments. For example, in late 2013, Masonite increased its prices by 5 percent. Seven days later, Jeld-Wen increased its prices by 4 percent. The last alleged price increase came from both companies on the same day: October 8, 2018. Both JELD-WEN and Masonite announced that the prices would take effect later in the year within two days of each other.

         B. Facts Showing an Agreement

         The plaintiffs set forth the following allegations to show that the defendants entered into an illegal agreement to fix prices.

         1. Trade Association Meetings and Revolving Door

         Executives from JELD-WEN and Masonite regularly attend the same trade association meetings, trade shows, and investor conferences. Representatives from the two companies have both attended at least five separate annual trade shows and made presentations at three investor conferences. Additionally, executives from JELD-WEN and Masonite alternate between working for each company, resulting in a "revolving door" between the two competitors. The industry is a "highly inbred, 'good old boy' network that is comprised of the same players who have been working together since the 1980s." (Id. at ¶ 79.)

         2. Features of the IMD Market

         Various features of the IMD market make it ripe for price fixing. Because the IMD market has only two large producers, each player knows the capabilities and capacity of the rest of the market. The IMD market has high barriers to entry: any new company wishing to enter the market must not only capture customers currently purchasing IMDs from established suppliers, but also must invest tens of millions of dollars to construct an IMD plant. Those barriers allow the current players to ignore the threat of emerging competitors.

         Because home builders, renovators, and other buyers all need IMDs and will keep buying them regardless of the price, demand for IMDs is "inelastic." Manufacturers are thus able to continue increasing prices without decreasing demand.

         Buyers can easily replace one model of IMD with another. Because IMDs are interchangeable products, manufacturers must aggressively compete over price as the only differentiating feature. Manufacturers, therefore, have a greater incentive to fix prices.

         3. History of Antitrust Violations

         The interior door industry has a history of violating antitrust laws. In the 1990s, several predecessors of the defendants and their subsidiaries pled guilty to multiple allegations of price fixing and paid substantial fines to the government.

         4. Price Increases Despite Falling Input Costs

         In letters to customers, Masonite and JELD-WEN often blamed their price increases on rising input costs. Those representations were materially false, as input costs were decreasing and inflation rates were low.

         5. Knowledge of JELD-WEN's Pricing Decisions

         A Masonite vice president often returned to Masonite from days or weeks of travel having obtained knowledge of JELD-WEN's intended price increases. Decisions to raise prices at Masonite occurred shortly after that vice president returned.^[2]

         6. Masonite 's Pricing Activity

         Masonite executives set prices well above the levels that internal analyses showed a competitive market could support. Masonite never undercut JELD-WEN's pricing, despite having the necessary profit margins to lower prices and capture a larger market share.

         7. Masonite's Decision to Stop Selling Doorskins

         In 2014, Masonite stopped selling doorskins to independent IMD manufacturers despite its continued capacity to sell and its previous aggressive marketing of doorskins. Masonite's actions were against its economic interests and helped JELD-WEN corner the doorskins market. Around that same time, JELD-WEN implemented a new strategy emphasizing price optimization.

         After Masonite announced that it would stop selling doorskins to independent IMD manufacturers, JELD-WEN-the only remaining doorskins seller-began raising its prices for doorskins.

         II. THESE PROCEEDINGS AND RELATED LITIGATION

         In response to JELD-WEN's price hikes, an IMD manufacturer, Steves & Sons, Inc., sued JELD-WEN, alleging that the company's 2012 acquisition of CMI violated § 7 of the Clayton Act because it substantially decreased competition in the doorskins market.^[3] In February, 2018, a jury returned a verdict in Steves' favor.

         Following the Steves verdict, the direct and indirect purchaser plaintiffs followed suit with these claims. First, the direct purchaser plaintiffs^[4] allege that Masonite and JELD-WEN conspired to adopt uniform price increases for IMDs in violation of § 1 of the Sherman Act and fraudulently concealed their conspiracy from the plaintiffs. Soon thereafter, the indirect purchaser plaintiffs sued the defendants. The indirect purchaser plaintiffs also allege that the defendants violated § 1 of the Sherman Act, but only request injunctive relief. The indirect purchaser plaintiffs seek damages based on alleged violations of state antitrust, consumer protection, and unjust enrichment laws.

         The defendants have moved to dismiss both complaints for failure to state a claim, arguing that the plaintiffs have failed to plead sufficient facts showing that the defendants conspired to fix prices in the IMD market. The defendants also lodge numerous challenges to the plaintiffs' state law claims, which the Court will address in turn.

         III. DISCUSSION^[5]

         Because virtually all the plaintiffs' claims rise and fall on the sufficiency of their federal antitrust allegations, the Court first addresses the federal antitrust claim. The Court then considers the defendants' sundry challenges to the plaintiffs' state law claims.

         A. Federal Antitrust Claim

         First, the defendants argue that the plaintiffs do not plead a plausible conspiracy claim under the Sherman Act. The defendants also say that the plaintiffs cannot invoke the doctrine of fraudulent concealment to toll the statute of limitations. Finally, the defendants contend that the indirect purchaser plaintiffs lack antitrust standing to seek injunctive relief under the Sherman Act.

         1. Plausibility Under § 1 of the Sherman Act

         To state a claim under § 1 of the Sherman Act, "a plaintiff must [show] (1) a contract, combination, or conspiracy; (2) that imposed an unreasonable restraint on trade." N. C. State Bd. of Dental Exam'rs v. FTC, 111 F.3d 359, 371 (4th Cir. 2013). The parties dispute whether the plaintiffs sufficiently allege a "contract, combination, or conspiracy." Id.

         To show that the defendants conspired to fix prices, the plaintiffs must allege facts suggesting that the defendants "specifically made 'a conscious commitment to a common scheme designed to achieve an unlawful objective.'" SD3, LLC v. Black & Decker (U.S.) Inc., 801 F.3d 412, 424 (4th Cir. 2015) (quoting Monsanto Co. v. Spray-Rite Serv. Corp., 465 U.S. 752, 764 (1984)). Here, the plaintiffs do not allege any direct evidence of a conspiracy or agreement. See Am. Chiropractic Ass 'n v. Trigon Healthcare, Inc., 367 F.3d 212, 226 (4th Cir. 2004) (noting that direct evidence of conspiracy, such as a "smoking gun, " is "extremely rare in antitrust cases").

         Instead, the plaintiffs contend that the defendants engaged in parallel conduct that suggests an agreement. But to proceed on charges of parallel conduct, antitrust plaintiffs must allege enough additional facts "to raise a reasonable expectation that discovery will reveal evidence of [an] illegal agreement." Twombly, 550 U.S. at 557. Put another way, "[f]or a § 1 claim to survive, ... a plaintiff must plead parallel conduct and something 'more.'" SD3, 801 F.3d at 424 (quoting Twombly, 550 U.S. at 557) ("[P]arallel conduct, standing alone, does not establish the required agreement because it is equally consistent with lawful conduct."). Courts refer to the "more" required in the pleadings as "plus factors." Id. Courts evaluate plus factors holistically and weigh them together with the allegations of parallel conduct. See Id. at 424-25 (declining "to parse each 'plus factor' individually"). Allegations that alone seem neutral "can take on a different shape when considered in conjunction with other surrounding circumstances." Id.

         Plus factors consist of circumstantial or contextual evidence that substantiates an otherwise speculative conspiracy claim. Robertson v. Sea Pines Real Estate Cos., 679 F.3d 278, 289 (4th Cir. 2012) (citing Twombly, 550 U.S. at 557). The circumstantial evidence need not "compel an inference of conspiracy, " but need only render the allegations plausible. In re Text Messaging Antitrust Litig, 630 F.3d 622, 629 (7th Cir. 2010) (Posner, J.).

         In Twombly, the plaintiffs set forth extensive allegations of parallel behavior among the nation's phone service providers, but made only cursory allegations regarding the nature of the market, the history of the defendants' attendance at trade conventions, and suspicious statements made by company executives. 550 U.S. at 564-65. The plaintiffs in Twombly "rest[ed] their § 1 claim on descriptions of parallel conduct and not on any independent allegation of actual agreement." Id at 564. The complaint lacked enough plus factors tending to show an illegal agreement, so the plaintiffs failed to "nudge" their conspiracy allegation "from conceivable to plausible." Id. at 570.

         In contrast, the plaintiff in SD3 alleged specific facts about the defendants' agreement and conspiracy. 801 F.3d at 429. The plaintiff, an emerging table-saw manufacturer, sued a group of established table-saw manufacturers for conspiring to keep it out of the market. The plaintiff identified the exact time, place, and manner of the agreement, most of the individuals directly involved, and the procedures used to seal the agreement. Because the complaint set forth "parallel conduct in conjunction with ' circumstance[s] pointing toward a meeting of the minds, '" the Fourth Circuit held that the plaintiff plausibly alleged a conspiracy claim under the Sherman Act. Id at 434 (quoting Twombly, 801 F.3d at 557).

         In Text Messaging, the Seventh Circuit confronted a set of plus factors similar to those in our cases. 630 F.3d at 628. The plaintiffs in Text Messaging alleged that a group of cell phone companies met at trade shows to fix prices in the market for text messaging. The plaintiffs made allegations about the concentrated nature of the text messaging market as highly concentrated and asserted that the defendants increased prices despite falling input costs. The Seventh Circuit noted that "[w]hat is missing ... is the smoking gun, " direct evidence of conspiracy typically rare in antitrust cases. Id. at 629. The court, however, explained that it "need not decide whether the circumstantial evidence ... is sufficient to compel an inference of conspiracy." Id. The court thus held that the complaint plausibly alleged a Sherman Act conspiracy claim, noting that "[d]iscovery may reveal the smoking gun or bring to light additional circumstantial evidence that further tilts the balance in favor of liability." Id.

         In these cases, the plaintiffs rely on seven plus factors: (1) Masonite and JELD-WEN attended the same trade group meetings and investor conventions and often swapped executives; (2) the market for IMDs is highly concentrated, contains high barriers to entry, and deals with an inelastic, interchangeable good; (3) IMD manufacturers have violated antitrust laws in the past; (4) Masonite and JELD-WEN increased prices despite falling input costs; (5) Masonite made pricing decisions after a certain vice president learned of JELD-WEN's prices before they were public; (6) Masonite engaged in irrational pricing activity; and (7) Masonite stopped selling standalone doorskins to outside IMD manufacturers to yield the market to JELD-WEN.

         First, the plaintiffs allege that the defendants attended the same trade group meetings, conventions, and conferences. They also describe a revolving door for corporate executives between Masonite and JELD-WEN. "Allegations of communications and meetings among conspirators can support an inference of agreement because they provide the means and opportunity to conspire." SD3, 801 F.3d at 432; see also Evergreen Partnering Grp., Inc. v. Pactiv Corp., 720 F.3d 33, 49 (1st Cir. 2013). The plaintiffs' allegations here mirror the plaintiffs' assertions in Text Messaging, in which the plaintiffs alleged that trade association meetings gave cell phone companies the opportunity to conspire. See Text Messaging, 630 F.3d at 628 (noting that attending association meetings is not "illegal in itself, " but "facilitate[s] price fixing that would be difficult for the authorities to detect"). These two things-the defendants' mutual attendance of at least eight separate annual trade association meetings and their history of swapping executives-make it more plausible that the alleged conspiracy spawned from meetings at trade shows or conventions. See SD3, 801 F.3d at 425 ("Actions that might seem otherwise neutral in isolation can take on a different shape when considered in conjunction with other surrounding circumstances.").

         Second, the IMD market is highly concentrated and has high barriers to entry. IMDs are also inelastic (increasing their price does not significantly change demand) and interchangeable (any IMD can easily replace another IMD). In highly concentrated markets, fewer minds must meet to control the market. When products are inelastic, higher prices do not create lower demand. And when products are interchangeable, price is the only differentiating feature. The structure of the IMD market makes it susceptible to a price-fixing conspiracy. Because "industry structure that facilitates collusion constitutes supporting evidence of collusion, " id. at 432, the nature of the IMD market qualifies as a significant plus factor. See Text Messaging, 630 F.3d at 627-28.

         Moreover, concentrated markets enable firms "to agree on prices and to be able to detect 'cheating' (underselling the agreed price by a member of the group) without having to create elaborate mechanisms, such as an exclusive sales agency, that could not escape discovery by the antitrust authorities." Id. Because JELD-WEN and Masonite control 85 percent of the market, each firm can easily detect "cheating" simply by observing the other firm's behavior-enabling them to carry out a conspiracy without creating any "smoking gun" evidence.

         The third and fourth plus factors concern the history of antitrust violations in the IMD industry and the defendants' false explanation for their price increases. In letters to customers, the defendants blamed their price increases on rising input costs. In reality, input costs were decreasing and inflation rates were low. The defendants thus tried to conceal their true motives for raising prices-whatever those motives may have been. This behavior becomes especially troubling in light of the history of antitrust violations in the industry. The defendants' deception "suggest[s] that [they] knew their actions 'would attract antitrust scrutiny.'" SD3, 801 F.3d at 432 (quoting Starr v. Sony BMG Music Entm 7, 592 F.3d 314, 324 (2d Cir. 2010)). The defendants' actions also mirror the conduct of the defendants in Text Messaging, who similarly raised prices while their input costs simultaneously dropped.

         The fifth plus factor concerns a Masonite vice president who returned from business trips with advanced knowledge of JELD-WEN's impending price increases. Shortly after his return, Masonite also announced a price increase. This alleged advanced knowledge of JELD-WEN's price increases is precisely the sort of circumstantial or contextual evidence that creates a plausible inference of a conspiracy. See Robertson, 679 F.3d at 289. The defendants argue that this plus factor lacks in specifics. But "specific facts are not necessary" to plead an antitrust conspiracy. Erickson v. Pardus, 551 U.S. 89, 93 (2007). Direct evidence of a conspiracy is rarely available to antitrust plaintiffs, so they must rely on circumstantial evidence. See Text Messaging, 630 F.3d at 629; Robertson, 679 F.3d at 289 ("Conspiracies are often tacit or unwritten ..., thus necessitating resort to circumstantial evidence.").

         The sixth plus factor concerns Masonite's pricing activity. One would expect manufacturers of interchangeable products to engage in competitive pricing. Instead, Masonite not only raised prices, but also raised them substantially above what its own economic models predicted would be a competitive price. Masonite also never undercut JELD-WEN's perpetually increasing prices, even though doing so would have captured a larger share of the market. Thus, Masonite behaved in a manner inconsistent with the expected behavior of a competitive actor.

         Finally, the plaintiffs allege that Masonite stopped selling doorskins to outside manufacturers despite its continued capacity to produce doorskins. The plaintiffs say that Masonite's decision makes no business sense absent an illegal agreement. The defendants provide an alternative explanation: that Masonite may have left the doorskins market to limit competition in the downstream IMD market. But Masonite also may have expected JELD-WEN to sell even more doorskins to outside manufacturers, continuing downstream competition and needlessly reducing Masonite's overall market share. Moreover, if Masonite needed more doorskins for its own IMD factories, it could have limited the number of doorskins it sold to independent manufacturers instead of eliminating those sales altogether.

         Thus, Masonite's decision to stop selling doorskins to outside manufacturers constitutes "evidence that [it] acted contrary to its interests." In re Flat Glass Antitrust Litig., 385 F.3d 350, (3d Cir. 2004). The circumstances surrounding Masonite's exit from the doorskins market make the plaintiffs' allegation of a conspiracy more plausible. See SD3, 801 F.3d at 430.

         The defendants try to disaggregate the various plus factors, knocking down each individual allegation as insufficient to show that the defendants conspired to fix prices. But the Court will not "parse each 'plus factor' individually and ask whether that factor, standing alone, would be sufficient to provide the 'more.'" Id. at 425. Taken together, the plus factors in these cases render plausible the plaintiffs' allegation that the defendants entered into an illegal agreement.

         The plaintiffs set forth a combination of opportunity, market structure, and pricing plus factors similar to the facts that the Seventh Circuit in Text Messaging deemed sufficient to survive a motion to dismiss. 630 F.3d at 627-28. They also allege additional plus factors involving history of antitrust violations, misrepresentation, insider knowledge, and irrational business decisions. Here, as in SD3, the plaintiffs describe parallel conduct and "further circumstances pointing toward a meeting of the minds." 801 F.3d at 430. The plaintiffs' detailed allegations "allay[ ] the suspicion that the plaintiff[s] [are] merely speculating a conspiracy into existence from coincidentally similar action, " which "after all, was Twombly's principal concern." Id.

         To be sure, the plaintiffs have not proven that the defendants made any agreement to fix prices in the IMD market. But their allegations of parallel conduct and plus factors are sufficient to survive a motion to dismiss. Accordingly, the Court will deny the motion to dismiss the plaintiffs' claims for failure to state a claim under § 1 of the Sherman Act.^[6]

         2. Statute of Limitations

         Under the Sherman Act, a plaintiff must seek damages for violations "within four years after the cause of action accrued." 15 U.S.C. § 15b. In cases involving a price-fixing conspiracy, "each overt act that is part of the violation and that injures the plaintiff. . . starts the statutory period running again, regardless of the plaintiffs knowledge of the alleged illegality at much earlier times." Klehr v. A.O. Smith Corp., 521 U.S. 179, 189 (1997) (internal quotation marks omitted). A plaintiff generally cannot "recover for the injury caused by old overt acts outside the limitations period." Id.

         Here, the plaintiffs invoke the doctrine of fraudulent concealment to get around the four-year limitations period. The doctrine tolls the limitations period until a plaintiff discovers the fraud. See Bailey v. Glover, 88 U.S. 342, 349 (1874). Courts read the doctrine "into every federal statute of limitation, " Holmberg v. Armbrecht, 327 U.S. 392, 397 (1946), including antitrust laws. Supermarket of Marlinton, Inc. v. Meadow Gold Dairies, Inc., 71 F.3d 119, 122 (4th Cir. 1995) (applying fraudulent concealment to § 1 of the Sherman Act).

         A plaintiff must plead three elements to invoke fraudulent concealment: "(1) the party pleading the statute of limitations fraudulently concealed facts that are the basis of the plaintiffs claim, and (2) the plaintiff failed to discover those facts within the statutory period, despite (3) the exercise of due diligence." Id . "Inquiry notice, which charges a person to investigate when the information at hand would have prompted a reasonable person to do so, touches on the diligence requirement of part three." Go Comput. v. Microsoft Corp., 508 F.3d 170, 178 (4th Cir. 2007).

         Here, the plaintiffs do not allege that they engaged in any inquiry to satisfy the due diligence prong.^[7] Instead, the plaintiffs say that they "had no reason to investigate" after the defendants sent letters to their customers falsely citing rising input costs for price increases. (See Dk. No. 119, at ¶ 39, 3:18-cv-718.) They contend that no reasonable investigation would have led them to discover the conspiracy between Masonite and Jeld-Wen before the Steves litigation, excusing them from exercising diligence.

         To support their argument that they need not show diligence, the plaintiffs rely on the Fourth Circuit's decision in Supermarket of Marlinton. In that case, the Fourth Circuit held that a plaintiff can satisfy the due diligence prong "without demonstrating that it engaged in any specific inquiry." 71 F.3d at 128. The court, however, later clarified the scope of that holding: "nothing in Supermarket of Marlinton excuses a negligent plaintiff from the diligence requirement-not even if a fraud is allegedly well disguised." Microsoft, 508 F.3d at 179. Supermarket of Marlinton does not categorically excuse plaintiffs from satisfying the diligence prong.

         Instead, the diligence requirement is triggered when a plaintiff is on inquiry notice of its claim-when a plaintiff "knows of a pattern of particular actions that a defendant has taken against [the plaintiff], though the pattern's precise scope might be unclear and its exact legal ramifications uncertain." Id. at 179. Beginning in late 2012, the defendants sent multiple letters to customers falsely blaming price increases on rising input costs. At that time, the IMD industry was highly concentrated between JELD-WEN and Masonite. The industry also had a history of violating antitrust laws. The defendants' repeated false statements coupled with the surrounding circumstances of the industry at least created the "evidence of the possibility of fraud, " id, such that it put the plaintiffs on inquiry notice of their claims. Cf SDS II LLC v. Black & Decker (U.S.) Inc., 888 F.3d 98, 116 (4th Cir. 2018) (Wynn, J., concurring) (noting that a plaintiff is on "actual notice" when he "plead[s] the factual ...