Lights Out for Resale Price and Dual Distribution Class Action


On December 2, 2010, the Court of Appeals for the 11th Circuit affirmed a ruling of dismissal entered by the United States District for the Northern District of Georgia. Jacobs v. Tempur-Pedic Int.’l, Inc., No. 08-12720. Plaintiff Jacobs brought an action on behalf of a class of purchasers of “visco-elastic foam" mattresses from defendant Tempur-Pedic North America, Inc. (“TPX”). Jacobs had purchased a mattress from a TPX distributor in Georgia. Pursuant to the TPX distributor’s agreement, the distributor sold the mattress to Jacobs at a price equal to or above the minimum retail price required by the agreement. Jacobs then brought a class action for alleged violations of Section 1 of the Sherman Act.

Jacobs alleged two theories of recovery. The first was that the minimum price required by the distribution agreement constituted vertical resale price maintenance in violation of Section 1. The second was that, because TPX sold its mattresses through its own website at the same minimum price, it was a “dual distributor”, and had entered into a horizontal price fixing agreement with its distributors, in violation of Section 1.

The District Court dismissed Jacobs’ complaint for failure to state a claim upon which relief can be granted under Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2007). In affirming, the Court of Appeals noted that its mission was to determine de novo whether the complaint contains “allegations plausibly suggesting (not merely consistent with) [a conspiracy or] agreement.” In other words, the issue was whether the complaint “possesses enough heft to show that the pleader is entitled to relief." Twombly at 557. As a myriad of recent cases confirming dismissals under Twombly have attested, the key is “plausibility”. Do the allegations “nudge” the claim across the line from conceivable to plausible?” To do so, the complaint must contain more than labels and conclusions and a formalistic recitation of the elements of a cause of action.

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