Applying Federal Common Law, Third Circuit Approves Assignment, Without Consideration, of Antitrust Claims from Direct Purchaser to Indirect Purchaser

In a recent precedential opinion in a case of first impression, the Third Circuit held that a written, express assignment of federal antitrust claims is valid even though no consideration is exchanged between the assignee and assignor. In doing so, the Third Circuit revived a putative class action by an indirect purchaser whose complaint had been dismissed by the District of Delaware for lack of standing under Illinois Brick.

In Wallach v. Eaton Corp., the plaintiff alleged the existence of an antitrust conspiracy among a dominant truck part manufacturer and certain downstream original equipment manufacturers (“OEMs”), which build trucks using the parts purchased from the manufacturer. The plaintiff acquired a truck built by an OEM allegedly involved in the conspiracy, but it did not purchase the truck directly from the OEM. Instead, it purchased the truck from an intermediary, which had acquired the truck directly from one of the conspiring OEMs.

Because the plaintiff had not purchased its truck directly from one of the conspirators, it lacked standing to assert a federal antitrust claim under the United States Supreme Court’s Illinois Brick decision, which affords standing only to direct purchasers. To remedy this defect, the intermediary gratuitously assigned its federal antitrust claims arising out of the alleged conspiracy to the plaintiff. The defendants challenged the plaintiff’s standing, arguing that the assignment was invalid because it was not supported by consideration. The District Court agreed and dismissed the case.

On appeal, the Third Circuit first considered whether state law or federal common law should be used to determine the validity of the gratuitous assignment and found that federal common law applied because the assignment of federal antitrust claims cannot be subject to varying state-law standards.

The Third Circuit turned to a question that apparently had never been considered by any federal appellate court: What is the federal common law concerning the assignment of federal antitrust claims? The Court’s “starting point” was the Restatement (Second) of Contracts, which the Court characterized as a “persuasive force in defining our federal common law.” Section 332 of the Restatement expressly approves of gratuitous assignments, so long as they are written and express.

The Court then considered whether the rule expressed in the Restatement is consistent with the case law concerning direct-purchaser standing. According to the Court, Illinois Brick’s direct-purchaser rule promotes three goals: “avoiding [duplicative] litigation, streamlining damages calculations and preventing disincentives for private antitrust suits.” A rule invalidating gratuitous assignments of antitrust claims would run afoul of the third goal; such a rule would make it harder for private litigants to bring antitrust suits because it would limit the ability of direct purchasers who may not have the motivation or wherewithal to prosecute their claims to assign them to indirect purchasers (or others) who are willing and able to prosecute them.

Because the Restatement’s gratuitous-assignment rule is consistent with federal antitrust laws, the Court applied that rule and held that the direct purchaser’s assignment of federal antitrust claims to the plaintiff was valid, notwithstanding the lack of consideration, and that the plaintiff therefore had standing under Illinois Brick.

The Third Circuit’s decision obviously is a boon to potential antitrust plaintiffs who normally would lack direct-purchaser status for it offers them a no-cost option for obtaining such status, at least so long as they can find a direct purchaser willing to assign its claims for nothing in return.

Christopher Walsh is a Director in the Gibbons Business & Commercial Litigation Department.
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