Oregon Federal Court Weighs In on Disputed Umbrella Theory of Damages

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An Oregon federal court recently relied on the so-called umbrella theory of damages to decide that the plaintiffs had an antitrust injury necessary to pursue an injunction. While this decision has garnered attention for enjoining the defendants from completing an acquisition, it also is noteworthy for its reliance on the disputed umbrella theory of damages.

This theory generally refers to antitrust damages that may result when non-conspiring market participants adjust their prices to correlate with the defendants’ alleged fixed prices. It is said that non-conspirators are able to make these adjustments because the alleged conspiracy creates a “price umbrella” under which the non-conspirators can shelter without fear of being challenged on prices. Litigants have disputed for many years whether this theory supports damages recoverable under federal antitrust law.

The issue of umbrella damages appeared several years ago in Whaley v. Pacific Seafood Group. In contesting class certification in 2011, the defendants argued the proposed class representatives were not “typical” as required by Rule 23(a)(3) because they were not selling seafood to the defendants. In response, the plaintiffs argued they were suffering antitrust damages similar to those of the class because they were selling seafood to processors that followed the defendants’ lead on prices. The district court explained that the Ninth Circuit had disapproved of the umbrella theory of damages for multilevel distribution chain cases but had not foreclosed the theory in single-level distribution cases. Relying on this distinction, the district court decided not to “categorically reject the umbrella theory of damages,” found the plaintiffs typical of the class, and certified the class.

The issue recently surfaced again. In a follow-on case, Boardman v. Pacific Seafood Group, the plaintiffs sought a preliminary injunction to prevent the defendants from acquiring another seafood processor; the defendants responded by arguing that the plaintiffs lacked an antitrust injury necessary to pursue the injunction. Reciting its class certification decision, the district court ruled it could “assume the umbrella theory of antitrust injury is viable” for the purposes of determining whether the plaintiffs likely are to succeed on the merits and, therefore, entitled to a preliminary injunction. On March 6, 2015, the district court enjoined the defendants from acquiring the other seafood processor.

It remains to be seen whether the Pacific Seafood decisions signal any judicial trend. Could these decisions indicate that federal courts are becoming more accepting of umbrella damages? Or are they mere anomalies based on the unique fact set before the district court, limited to ancillary damages issues such as typicality and antitrust injury considerations? The courts, undoubtedly, will be weighing in again.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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