Commonwealth of Kentucky v. Marathon Petroleum Company LP
MEMORANDUM OPINION AND ORDER by Judge David J. Hale on 6/8/2016 - Defendant Marathon Petroleum Company LP's Motion to Dismiss (D.N. 28) is GRANTED in part and DENIED in part. The motion is granted as to Plaintiffs unjust enrichment claim (D.N. 18, PageID # 169 (COUNT 7)). The motion is denied as to all other claims. cc: Counsel(DAK)
UNITED STATES DISTRICT COURT
WESTERN DISTRICT OF KENTUCKY
COMMONWEALTH OF KENTUCKY,
Civil Action No. 3:15-cv-354-DJH
MARATHON PETROLEUM COMPANY,
* * * * *
MEMORANDUM OPINION AND ORDER
The Commonwealth of Kentucky claims that Marathon Petroleum Company has used its
dominant position in the Louisville and Northern Kentucky gasoline markets to further its
monopoly and thwart competition in violation of federal and state antitrust laws. (Docket No.
28) Marathon argues that the case should be dismissed because the Commonwealth is prohibited
from bringing its claims and the complaint fails to state a plausible claim for relief. The Court
will deny the motion as to the Commonwealth’s federal antitrust, state antitrust, and deceptive
practices claims. But because the people of the Commonwealth only conferred an indirect
benefit upon Marathon by buying gasoline at allegedly inflated prices, not a direct benefit as
required by Kentucky law, the Court will grant the motion as to the Commonwealth’s unjust
Marathon Petroleum Company, LP is a gasoline distributor. It owns the only refinery in
Kentucky, and it is the largest gasoline supplier in Kentucky. (D.N. 18, PageID # 153) It is also
the largest reformulated gasoline (RFG)1 supplier in Louisville and Northern Kentucky. (Id.) In
RFG is a special type of gasoline that gas stations must sell during the summer in certain parts
of Kentucky. See 42 U.S.C. § 7545(k)(6)(A); (D.N. 18, PageID # 153, 158-59).
fact, Marathon’s approximate RFG wholesale market share in Louisville and Northern Kentucky
is between 90 and 95 percent. (Id.)
The Commonwealth of Kentucky2 maintains that Marathon’s market share proves that it
has a monopoly on RFG in Louisville and Northern Kentucky. (D.N. 31, PageID # 255) The
Commonwealth attributes Marathon’s dominant market share to illegal manipulation of the
market through three types of agreements: exchange agreements, supply agreements, and deed
First, the Commonwealth alleges that Marathon uses exchange agreements with
horizontal competitors—i.e., competitors at the same market level—to keep other potential RFG
suppliers out of Kentucky. (Id., PageID # 158); see Cincinnati Riverfront Coliseum, Inc. v. City
of Cincinnati, 556 F. Supp. 664, 667 (S.D. Ohio 1983). Exchange agreements “involve a refiner
or supplier agreeing to provide gasoline to a competing refiner for sale in a particular area where
that competitor has insufficient supply.” (D.N. 28-1, PageID # 219) Marathon has exchange
agreements with ExxonMobil, Shell, and BP for delivery of RFG in Louisville and Northern
Kentucky. (D.N. 18, PageID # 161)
Second, the Commonwealth alleges that Marathon uses supply agreements with
unbranded retailers3 to constrain choice of supplier. (Id., PageID # 161) These supply contracts
are with Kroger and Swifty and require that those retailers purchase all of their gasoline from
Marathon or pay a penalty. (D.N. 31, PageID # 261-62; D.N. 28-1, PageID # 218)
This action was brought by the Office of the Attorney General of the Commonwealth of
Kentucky, purportedly “under [KY Rev. Stat. Ann. §§] 367.190, 367.990, the Hart-Scott-Rodino
Act, 15 U.S.C. § 15c, which permits states’ attorney[s] general to bring parens patriae suits on
behalf of those injured in violation of the Sherman Act and Section 16 of the Clayton Act, 15
U.S.C. § 26.” (D.N. 18, PageID # 156)
The Commonwealth’s complaint explains that retailers can either be branded, attracting
consumers through brand loyalty, or unbranded, attracting consumers due to price. (D.N. 18,
PageID # 161)
Third, Marathon, together with its wholly-owned subsidiary Speedway LLC, has
allegedly sold numerous retail gas station properties saddled with deed restrictions that permit
gasoline sales on the property only if the gasoline comes from Marathon. (D.N. 18, PageID
# 163) Marathon’s website states that it has 280 properties in 13 states throughout the Midwest
and Southeast with these restrictions. (Id., PageID # 163-64)
The Commonwealth asserts that these agreements, coupled with Marathon’s monopoly
power, have caused wholesale and retail prices of gasoline to be substantially higher than those
found in comparable competitive markets. (D.N. 31, PageID # 256) Thus, the Commonwealth
sued Marathon, alleging violations of §§ 1 and 2 of the Sherman Act,4 § 3 of the Clayton Act,5
and Kentucky common law. (D.N. 18) Marathon has moved to dismiss the complaint, arguing
that the Commonwealth is prohibited from bringing these claims. In the alternative, Marathon
argues that the Commonwealth fails to allege a plausible factual basis to support a finding of
unlawful conduct by Marathon. (D.N. 28-1, PageID # 214)
To survive a motion to dismiss for failure to state a claim, the Commonwealth’s
“complaint must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that
is plausible on its face.’” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (quoting Bell Atl. Corp. v.
Twombly, 550 U.S. 544, 570 (2007) (applying the motion-to-dismiss standard to the plaintiffs’
antitrust claims)). A claim is plausible on its face “when the plaintiff pleads factual content that
allows the court to draw the reasonable inference that the defendant is liable for the misconduct
alleged.” Iqbal, 556 U.S. at 678. Factual allegations are essential; “[t]hreadbare recitals of the
elements of a cause of action, supported by mere conclusory statements, do not suffice,” and the
15 U.S.C. §§ 1 and 2, as well as the analogue under state law, Ky. Rev. Stat. Ann. § 367.175.
15 U.S.C. § 14 and Ky. Rev. Stat. Ann. §§ 367.170(1) and 367.175(1)-(2).
Court need not accept such statements as true. Id. A complaint whose “well-pleaded facts do
not permit the court to infer more than the mere possibility of misconduct” does not satisfy the
pleading requirements of Rule 8. Id. at 679. Legal conclusions will not carry a complaint past
the motion-to-dismiss stage in the absence of supporting factual allegations, and a plaintiff
whose complaint is deficient is not entitled to a fishing expedition for facts to support it. See id.
The Commonwealth supports its legal conclusions with factual allegations. At this stage,
that is enough. Marathon argues—in a motion that reads more like a motion for summary
judgment than a motion to dismiss—that the Commonwealth only alleges conclusions, as
opposed to plausible facts.
(See D.N. 28-1)
Specifically, Marathon argues that the
Commonwealth lacks the authority to bring its claims and that even if it does have the authority,
its claims fail as a matter of law based on Iqbal’s plausibility standard. (Id.) The Court will
address each argument in turn.
A. The Commonwealth’s Authority
Marathon contends that the indirect-purchaser rule prohibits the Commonwealth from
bringing its federal and Kentucky antitrust claims for damages. It also contends that the
Commonwealth is prohibited from bringing this claim due to its lack of parens patriae authority
and the applicable statute of limitations. (Id.)
1) Indirect-Purchaser Rule
Section 4 of the Clayton Act states that “any person who shall be injured in his business
or property by reason of anything forbidden in the antitrust laws may sue.” 15 U.S.C. § 15.
In Hanover Shoe, Inc. v. United Shoe Machinery Corp., 392 U.S. 481, 478-88 (1968), the
Supreme Court held that an antitrust defendant could not defend antitrust violations by claiming
that the plaintiff “passed on” an illegal overcharge to the plaintiff’s customers. Later, in Illinois
Brick Co. v. Illinois, 431 U.S. 720, 737-38 (1997), the Supreme Court made Hanover Shoe
reciprocal, holding that an indirect purchaser could not bring a federal antitrust claim even if the
antitrust violation’s effects were passed down. However, the Illinois Brick Court acknowledged
an exception to Hanover Shoe. Id. at 735-36. A “situation in which market forces have been
superseded and the pass-on defense might be permitted is where the direct purchaser is owned or
controlled by its customer.” Id. at 736 n.16.
This acknowledgment in Illinois Brick led to the “control exception.” See Jewish Hosp.
Ass’n of Louisville, Ky., Inc. v. Stewart Mech. Enter., Inc., 628 F.2d 971, 975 (6th Cir. 1980).
The Sixth Circuit has found that the control exception “is limited to relationships involving such
functional economic or other unity between the direct purchaser and either the defendant or the
indirect purchaser that there effectively has been only one sale.” Id.; see Perkins v. Standard Oil
Co., 395 U.S. 642, 648 (1969) (holding that having a sixty percent-owned subsidiary was
sufficient control); In re Western Liquid Asphalt Cases, 487 F.2d 191, 199 (9th Cir. 1973)
(finding evidence that the defendants controlled their direct customers either by acquiring their
stock or by arranging to finance their purchases).
The Commonwealth alleges sufficient facts to support the application of the control
exception here. (D.N. 18, PageID # 151-55). It claims that Speedway is the wholly-owned
subsidiary of Marathon. (Id., PageID # 153) The Commonwealth also alleges that the exchange
and supply agreements, coupled with Marathon’s dominant market position, give Marathon
control over petroleum suppliers. (Id., PageID # 155) Finally, it asserts that it is suing on behalf
of consumers who purchase gasoline at retail outlets owned or controlled by Marathon. (Id.,
PageID # 156) At this stage, the allegations are sufficient to support a finding that the control
Marathon’s contention that the Supreme Court’s holding in Kansas v. UtiliCorp United,
Inc., 497 U.S. 199 (1990), rejects any exception to the indirect-purchaser rule is misguided. The
UtiliCorp Court concluded: “[E]ven assuming that any economic assumptions underlying the
Illinois Brick rule might be disproved in a specific case, we think it an unwarranted and
counterproductive exercise to litigate a series of exceptions. Having stated the rule in Hanover
Shoe, and adhered to it in Illinois Brick, we stand by our interpretation of § 4.” Id. at 217. The
Illinois Brick Court discussed the control exception. 431 U.S. at 736 n.16. The UtiliCorp Court
simply refused to expand the scope of exceptions.6 497 U.S. at 217. Consequently, the control
exception to the indirect-purchaser rule is not barred, and the Commonwealth has alleged
sufficient facts to meet this exception.
2) Parens Patriae Authority
Marathon concedes that the Commonwealth can bring a federal antitrust claim for
damages under the Sherman Act but disputes that it may do so under the Clayton Act. (D.N. 281, PageID # 229 (citing 15 U.S.C. § 15c)) While 15 U.S.C. § 15c expressly permits a state
attorney general to bring an antitrust suit based on the Sherman Act, the statute is silent as to the
Clayton Act. However, the Supreme Court has interpreted 15 U.S.C. § 15c as creating “a new
procedural device—parens patriae actions by States on behalf of their citizens—to enforce
existing rights of recovery under § 4 [of the Clayton Act].” UtiliCorp, 497 U.S. at 219 (quoting
Although there does not appear to be Sixth Circuit authority on this issue, other circuits have
held that UtiliCorp did not abolish the exceptions articulated in Illinois Brick. See In re ATM
Fee Antitrust Litig., 686 F.3d 741, 748-49 (9th Cir. 2012); Kloth v. Microsoft Corp., 444 F.3d
312, 321 (4th Cir. 2006); Howard Hess Dental Lab. v. Dentsply Int’l, Inc., 424 F.3d 363, 371-72
(3d Cir. 2005); In re Brand Name Prescription Drugs Antitrust Litig., 123 F.3d 599, 605-06 (7th
Illinois Brick Co., 431 U.S. at 734, n.14). Section 4 of the Clayton Act “affords relief only to a
person ‘injured in his business or property by reason of anything forbidden in the antitrust laws,”
id. (quoting 15 U.S.C. § 15(a)), and thus “[s]tate attorneys general may bring actions on behalf of
consumers who have such an injury.”
The Court therefore concludes that the
Commonwealth may bring a claim for damages under the Clayton Act.
3) Statute of Limitations
Marathon concedes that the four-year statute of limitations for federal antitrust claims
does not bar the Commonwealth’s suit because of the continuing-violation doctrine. (D.N. 34,
PageID # 315); 15 U.S.C. § 15b; see Zenith Radio Corp. v. Hazeltine Research Inc., 401 U.S.
321, 338 (1971). But Marathon contends that the Commonwealth can only recover damages for
events occurring four years prior to the filing of the Complaint on May 12, 2015. (D.N. 34,
PageID # 315) The Court will not consider the applicable statute of limitations’ effect on
damages at this time.
B. Federal Claims
Irrespective of the Commonwealth’s power to bring these claims, Marathon argues that
the Commonwealth alleges insufficient facts to maintain its Sherman Act and Clayton Act
claims. (D.N. 28-1) The Court, however, finds that the Commonwealth has alleged sufficiently
plausible facts to avoid dismissal of its complaint under Rule 12(b)(6).
1) Section 1 of the Sherman Act
The Commonwealth alleges that Marathon’s use of exchange agreements, supply
agreements, and deed restrictions unreasonably restrains trade in violation of § 1 of the Sherman
Act. (D.N. 18, PageID # 166) Section 1 states that “[e]very contract, combination in the form of
trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or
with foreign nations, is declared to be illegal.” 15 U.S.C. § 1. Section 1 applies only to
unreasonable restraints on trade. In re Se. Milk Antitrust Litig., 739 F.3d 262, 270 (6th Cir.
2014). Whether a restraint is unreasonable is determined by either the per se rule or the rule of
reason. Id. (citation omitted). Marathon contends that the Commonwealth is pursuing this claim
through the rule of reason because its amended complaint cut out a previous reference to the per
se rule. (D.N. 28-1, PageID # 217) But in its response, the Commonwealth argues for the
application of both. (D.N. 31, PageID # 259) The Court will examine the allegations under the
per se rule and the rule of reason.
The per se rule is only appropriate for “conduct that is manifestly anticompetitive, that is,
conduct that would always or almost always tend to restrict competition and decrease output.”
Elecs. Corp. v. Sharp Elecs. Corp., 485 U.S. 717, 723 (1988) (internal citations and quotations
omitted). “Restraints that are per se unlawful include horizontal agreements among competitors
to fix prices or to divide markets.” Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S.
877, 886 (2007) (citations omitted). The Commonwealth relies on this quote to contend that
Marathon’s agreements are per se unreasonable.
(D.N. 31, PageID # 259-60)
But a few
sentences later, the Supreme Court stated that “[t]o justify a per se prohibition a restraint must
have manifestly anticompetitive effects . . . and lack . . . any redeeming virtue.” Leegin, 551
U.S. at 886 (internal citations and quotations omitted).
There is nothing on the face of Marathon’s horizontal agreements that rises to this level.
There are no allegations that the agreements contain clauses in which the competitors agree not
to compete. And the agreements have redeeming qualities. The horizontal agreements allow
other petroleum producers access to the market without the upfront cost of building a refinery.
And, notably, the per se rule does not apply to vertical agreements—i.e., the supply agreements
and deed restrictions. Care Heating & Cooling, Inc. v. Am. Standard, Inc., 427 F.3d 1008, 1013
(6th Cir. 2005) (“Vertical distribution restraints are to be tested under the rule of reason.”).
Thus, the Commonwealth’s alleged facts do not state a per se violation of § 1.
The Commonwealth does, however, allege sufficient facts to support a § 1 claim under
the rule of reason.
To state a prima facie case, the Commonwealth must allege: “(1) a
conspiracy; (2) that produced anticompetitive effects; (3) that the scheme affected relevant
product and geographic markets; (4) that the conspiracy’s goal and related conduct was illegal;
(5) and that the restraint was the proximate cause of the plaintiff’s antitrust injury.” In re Milk,
739 F.3d at 272 (internal quotations omitted).
The Commonwealth’s alleged facts are sufficient under this test. First, it is undisputed
that the Commonwealth has alleged a conspiracy. Second, the Commonwealth has adequately
alleged anticompetitive effects, namely Marathon’s high market share and the region’s higher
prices than comparable markets. (See D.N. 18, PageID # 165) Third, the scheme is alleged to
have affected RFG sales in the exact location where RFG is required to be sold. (See id.)
Fourth, the Commonwealth alleges that the conspiracy’s goal of maintaining higher prices and a
monopoly, and the related conduct—the horizontal agreements, supply agreements, and deed
restrictions—are illegal. (Id., PageID # 154, 170) And finally, the Commonwealth alleges that
Marathon’s illegal conduct resulted in higher prices. (Id., PageID # 155)
Marathon proposes a different test for the rule of reason. (D.N. 28-1, PageID # 217
(citing Worldwide Basketball & Sport Tours, Inc. v. Nat’l Collegiate Athletic Ass’n, 388 F.3d
955, 959-60 (6th Cir. 2004)))7 Under that four-prong test, Marathon contends, one prong is not
Marathon applies the following test, while generally citing Worldwide Basketball, 388 F.3d at
959-60, as support for the application of this test: “(1) a relevant market for the product or
service at issue, (2) that the parties to the agreement or conspiracy have market power in that
met: harm to overall competition. (Id.) It argues that “it is entirely implausible that Marathon
harmed overall competition.”
But it is plausible.
The Court will address each of
Marathon urges the Court to use common sense regarding the deed restrictions, stating
that there must be plenty of suitable sites for retail gas stations remaining, and thus Marathon has
not encumbered enough properties to harm overall competition. (D.N. 34, PageID # 307) But
that is pure speculation. Even if Marathon owns only 30 properties in this region, at this stage of
the litigation, it is difficult for the Court to assess the overall effect.
Commonwealth’s allegations as true, the Court finds it to be plausible that deed restrictions on a
significant number of retail locations would harm overall competition.
The Commonwealth’s supply-agreement allegations are also sufficient to sustain a § 1
claim. Marathon relies on the lack of foreclosure allegations here. (D.N. 34, PageID # 308) For
exclusive-dealings claims, such as the Commonwealth’s supply-agreement claim, the
competitors that are left out of the contracts, or foreclosed, “must be found to constitute a
substantial share of the relevant market.” Tampa Elec. Co. v. Nashville Coal Co., 365 U.S. 320,
328 (1961). The target is thirty to forty percent. B & H Med., L.L.C. v. ABP Admin., Inc., 526
F.3d 257, 266 (6th Cir. 2008). But both cases Marathon relies on, Tampa Electric and B & H,
were decided on summary judgment. It would be improper to dismiss this claim at the pleading
stage for a failure to show substantial foreclosure. See E.I. du Pont de Nemours & Co. v. Kolon
Indus., Inc., 637 F.3d 435, 452 n.12 (4th Cir. 2011) (“While [plaintiff] did not allege a specific
market, (3) that the anticompetitive effects of the challenged conduct outweigh the procompetitive benefits, and (4) that the challenged conduct caused injury to overall competition.”
(D.N. 28-1, PageID # 217) Worldwide Basketball does mention an alternative, abbreviated test,
see 388 F.3d 955, 960, but Marathon does not cite, or argue for the application of, the
percentage of market foreclosure in its Counterclaim, it would be problematic to reject its
Counterclaim, with its extensive factual allegations, solely on that basis at the pre-discovery,
motion-to-dismiss stage, when [plaintiff] likely has insufficient information to calculate a precise
number. In contrast, United States v. Microsoft, 253 F.3d 34 (D.C. Cir. 2009), and Tampa
Electric, 365 U.S. 320, in which foreclosure percentages were determined, were decided after a
bench trial and on summary judgment, respectively.”).
Finally, the Commonwealth’s exchange-contracts allegations are also sufficient to sustain
a § 1 claim. The Commonwealth contends that Marathon has entered exchange agreements with
major competitors and uses these agreements to “limit or attempt to limit supply options
available to Kentucky gasoline retailers, depriving them of competitively priced alternatives.”
(D.N. 18, PageID # 161)
Marathon argues that exchange agreements have procompetitive
benefits, such as allowing petroleum companies access to markets without substantial
investments in refineries. (D.N. 43, PageID # 309) Marathon may be correct, but that does not
mean that all exchange agreements are procompetition. Marathon also contends that there are no
plausible facts showing that these exchange agreements are anticompetitive. (Id.) But this is not
the case. “[M]any joint arrangements and operations in which members of the industry engage
already may provide the opportunity for collusion on price and output.” Marathon Oil Co. v.
Mobil Corp., 669 F.2d 378, 383 (6th Cir. 1981). The Court cannot yet determine whether these
exchange agreements are meant to further Marathon’s alleged stranglehold on RFG in Louisville
and Northern Kentucky. But at this stage, the facts alleged are sufficient for the Court to draw
the reasonable inference that they are. It is plausible that Marathon meant to discourage other
suppliers from creating supply to the market with these agreements.
necessary on this point.
Again, discovery is
In sum, the Commonwealth has alleged sufficiently plausible facts to maintain its § 1
claim, and thus this portion of Marathon’s motion to dismiss will be denied.
2) Section 2 of the Sherman Act
The Commonwealth has also alleged sufficiently plausible facts to maintain its § 2 claim.
“Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any
other person or persons, to monopolize any part of the trade or commerce among the several
States, or with foreign nations, shall be deemed guilty” under § 2 of the Sherman Act. 15 U.S.C.
§ 2. There are two elements to a § 2 claim. Eastman Kodak Co. v. Image Tech. Serv., Inc., 504
U.S. 451, 481 (1992). The first element is the possession of monopoly power. Id. The
Commonwealth has alleged that Marathon has an approximate RFG wholesale market share of
90 to 95 percent in Louisville and Northern Kentucky and uses that share to execute beneficial
agreements. (D.N. 18, PageID # 153) At this stage, these allegations are sufficient to satisfy the
first element. See Eastman Kodak, 504 U.S. at 481-82.
The mere possession of a monopoly is insufficient; there must also be anti-competitive
conduct. Verizon Commc’ns Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 407
(2004). Thus, the second element, and the point of contention here, “is the use of monopoly
power to foreclose competition, to gain a competitive advantage, or to destroy a competitor.”
Eastman, 504 U.S. at 482-83 (1992) (internal quotation marks omitted). The Commonwealth
has alleged sufficiently plausible facts to satisfy this element. It is plausible that Marathon
intends to foreclose the market with its exchange agreements. (D.N. 18, PageID # 158-61) The
supply agreements could help Marathon control output and increase prices of RFG in the market.
(Id., PageID # 161-62) And the deed restrictions explicitly keep competitors out of the market.
(Id., PageID # 163-65)
“A monopolist is not free to take certain actions that a company in a competitive . . .
market may take, because there is no market constraint on a monopolist’s behavior.” LePage’s,
Inc. v. 3M, 324 F.3d 141, 151-52 (3d Cir. 2003). Marathon offers a series of reasons why its
agreements are not exclusionary. (D.N. 28-1, PageID # 221) It relies heavily on Stearns Airport
Equipment Co., Inc. v. FMC Corp., 170 F.3d 518, 522 (5th Cir. 1999), a Fifth Circuit summary
judgment case, for the idea that if there is any business justification for the agreements, then they
do not violate § 2. (D.N. 28-1, PageID # 221) Marathon’s reliance on Stearns is misplaced. The
Fifth Circuit was only discussing an inference that supports a finding of exclusionary conduct
where the defendant offers no rational business purpose. Stearns, 170 F.3d at 522. The inverse
does not necessarily flow from that inference. In any event, the pleadings alone are insufficient
to establish that a rational business purpose existed, and at the motion-to-dismiss stage, the Court
takes the plaintiff’s factual allegations as true. Iqbal, 556 U.S. at 678.
“Anticompetitive conduct can come in too many different forms, and is too dependent
upon context, for any court or commentator ever to have enumerated all the varieties.” Conwood
Co., L.P. v. U.S. Tobacco Co., 290 F.3d 768, 784 (6th Cir. 2002) (internal quotation marks
omitted). Discovery should provide the facts necessary to establish the context here. At this
point, considering only the facts alleged, the Court concludes that those facts support a
reasonable inference that Marathon has engaged in anticompetitive conduct under § 2 of the
Sherman Act. Consequently, this portion of Marathon’s motion to dismiss will also be denied.
3) Section 3 of the Clayton Act
The Commonwealth’s alleged facts are sufficiently plausible to maintain its § 3 claim.
Section 3 of the Clayton Act makes it unlawful
for any person engaged in commerce, in the course of such commerce, to lease or
make a sale or contract for sale of goods, wares, merchandise, machinery,
supplies, or other commodities . . . or fix a price charged therefor, or discount
from, or rebate upon, such price, on the condition, agreement, or understanding
that the lessee or purchaser thereof shall not use or deal in the goods, wares,
merchandise, machinery, supplies, or other commodities of a competitor or
competitors of the lessor or seller, where the effect of such lease, sale, or contract
for sale or such condition, agreement, or understanding may be to substantially
lessen competition or tend to create a monopoly in any line of commerce.
15 U.S.C. § 14. Like § 2 of the Sherman Act, § 3 of the Clayton Act generally requires a
showing of two elements: (1) exclusive dealing and (2) foreclosure of or “substantially lessened”
competition. See Tampa Elec., 365 U.S. at 326-27. Marathon contends that the Commonwealth
has failed to allege sufficiently plausible facts as to either element. (D.N. 28-1, PageID # 222)
The Court disagrees.
The Commonwealth first alleges that Marathon has supply agreements that require
retailers to buy 100% of their listed RFG amounts from Marathon or pay a penalty. (D.N. 18,
PageID # 158)
Marathon contends that the Commonwealth “merely assumes, without any
factual support, that a stated volume commitment is necessarily the same thing as exclusitivity.”
(D.N. 34, PageID # 311) But “even though a contract does not contain specific agreements not
to use the [goods] of a competitor, if the practical effect . . . is to prevent such use, it comes
within the condition of the section as to exclusivity.” Tampa Elec., 365 U.S. at 326 (alteration
and omission in original) (internal quotation marks omitted). The practical effect of requiring a
retailer to buy 100% of its listed RFG amounts from Marathon or pay a penalty is to prevent the
purchase of a competitor’s products. Therefore, the Commonwealth has alleged sufficient facts
concerning exclusivity to avoid dismissal at this stage.
As to market foreclosure, it would be improper, as the Court stated above, to dismiss this
claim at the pleading stage for a failure to show substantial foreclosure. See E.I., 637 F.3d at 452
n.12. At this stage, “a finding of domination of the relevant market by the lessor or seller [is]
sufficient to support the inference that competition had or would be substantially lessened by the
contracts involved.” Tampa Elec., 365 U.S. at 326. The Commonwealth has alleged facts
showing that Marathon has a dominant market share of RFG in Louisville and Northern
Kentucky. (D.N. 18, PageID # 153-54, 160) This domination, in addition to the exclusive nature
of the supply agreements, is sufficient for the Court to draw a reasonable inference that Marathon
is liable for a § 3 Clayton Act violation.
C. Kentucky Law Claims
The Commonwealth asserts four claims based on state law: two Ky. Rev. Stat. Ann.
§ 367.175 claims, one Ky. Rev. Stat. Ann. § 367.170 claim, and one unjust enrichment claim.
(D.N. 18, PageID # 169) Marathon contends that all four should be dismissed. (D.N. 28-1,
PageID # 230-33) The Court will dismiss the unjust enrichment claim, but not the others.
Section 367.175 is Kentucky’s version of the Sherman Act. Compare Ky. Rev. Stat.
Ann. § 367.175 (West 2016) with 15 U.S.C. §§ 1, 2. Because the Commonwealth’s Sherman
Act claims are sufficiently plausible, its § 367.175 claims are also sufficiently plausible. See
KASP, Inc. v. Adesa Lexington, LLC, No. 6:05-394-DCR, 2006 WL 385310, at *10 (E.D. Ky.
Feb. 17, 2006) (finding that “where a plaintiff can establish a claim under the Sherman Act, it
has also established a claim under the KCPA”). Marathon argues that Kentucky adopted Illinois
Brick in Arnold v. Microsoft Corp., No. 2000-CA-2144-MR, 2001 WL 1835377 (Ky. Ct. App.
Nov. 21, 2001), and thus the Court should dismiss the Commonwealth’s claims because it is
suing on behalf of indirect purchasers. (D.N. 28-1, PageID # 231) But as explained above, the
indirect-purchaser rule does not bar the Commonwealth’s claims because the control exception
applies. See Jewish Hosp., 628 F.2d at 975; KASP, 2006 WL 385310, at *10. Moreover, Arnold
is unpublished and is not binding precedent. See Ky. R. Civ. P. 76.28(4)(c).
Marathon’s final contention that the statute does not authorize damages is also
unpersuasive. (D.N. 28-1, PageID # 231) Kentucky law allows its Attorney General to bring a
claim for restitution on behalf of Kentucky citizens. Ky. Rev. Stat. Ann. § 367.200 (West 2016);
Com. ex rel. Beshear v. ABAC Pest Control, Inc., 621 S.W.2d 705, 706 (Ky. Ct. App. 1981)
(holding “that the legislature, in enacting KRS 367.200, intended to vest the Attorney General
with the authority to seek restitution on behalf of defrauded consumers.”); see Fed. Trade
Comm’n v. Mylan Labs., Inc., 99 F. Supp. 2d 1, 6 (D.D.C. 1999) (holding that Kentucky’s
Attorney General can bring a claim for restitution on behalf of indirect purchasers).
Marathon also contends that the Commonwealth’s § 367.170 claim should be dismissed
because it is based on implausible facts and there is no privity of contract between the people the
Commonwealth represents and the relevant agreements. (D.N. 28-1, PageID # 231-32; D.N. 34,
PageID # 316) The Commonwealth’s facts, however, are plausible, and privity of contract is not
Section 367.170(1) states that “[u]nfair, false, misleading, or deceptive acts or practices
in the conduct of any trade or commerce are hereby declared unlawful.” See Ky. Rev. Stat. Ann.
§ 367.170(2) (West 2016) (defining unfair “to mean unconscionable”). “The words ‘unfair,
false, misleading or deceptive’ are ‘defined in terms generally understood and perceived by the
public.’” Corder v. Ford Motor Co., 285 F. App’x 226, 227-28 (6th Cir. 2008) (quoting Smith v.
General Motors Corp., 979 S.W.2d 127, 131 (Ky. Ct. App. 1998)).
The statute is to be
construed broadly “to effectuate its purpose of ‘curtail[ing] unfair, false, misleading or deceptive
practices in the conduct of commerce.’” Com. ex rel. Chandler v. Anthem Ins. Cos., Inc., 8
S.W.3d 48, 54 (Ky. Ct. App. 1999) (quoting Com. v. N. Am. Van Lines, Inc., 600 S.W.2d 459,
462 (Ky. Ct. App. 1979)). The Commonwealth’s alleged facts support a reasonable inference of
unfair conduct for the same reasons that they support a reasonable inference of federal and
Kentucky antitrust violations. See part III.B, supra.
And privity is not an issue in this case. Section 367.220 lists the class of individuals who
may seek a private remedy for a § 367.170 violation. This provision requires privity of contract
to ‘exist between the parties in a suit alleging a violation of the Consumer Protection Act.”
Skilcraft Sheetmetal, Inc. v. Ky. Mach., Inc., 836 S.W.2d 907, 909 (Ky. Ct. App. 1992); see Ky.
Laborers Dist. Council Health & Welfare Tr. Fund v. Hill & Knowlton, Inc., 24 F. Supp. 2d 755,
772-73 (W.D. Ky. 1998).
But this section applies to private individuals, not Kentucky’s
Attorney General. See Ky. Laborers, 24 F. Supp. 2d at 773. In the context of the Kentucky
Consumer Protection Act statutory scheme, § 367.200—not § 367.220—“seems intended to
permit a court to order relief for the consumer on whose behalf the Attorney General
successfully brought suit.” Id. (noting that § 367.200 comes directly after § 367.190, which
gives Kentucky’s Attorney General the authority to maintain an action for injunctive relief)
(citing Com. ex rel. Beshear v. ABAC Pest Control, Inc., 621 S.W.2d 705, 706 (Ky. Ct. App.
1981) (“We hold, therefore, that the legislature, in enacting [section] 367.200, intended to vest
the Attorney General with the authority to seek restitution on behalf of defrauded
consumers . . . .”)). The Kentucky Attorney General’s power to bring consumer-protection suits
falls outside of § 367.220, and thus privity is not necessary.
Finally, the Commonwealth’s unjust enrichment claim will be dismissed because the
Commonwealth fails to allege that the plaintiff conferred a direct benefit upon Marathon. To
state an unjust enrichment claim under Kentucky law, the Commonwealth must plead: “(1) [a]
benefit conferred upon defendant at plaintiff’s expense; (2) a resulting appreciation of benefit by
defendant; and (3) inequitable retention of benefit without payment for its value.” Jones v.
Sparks, 297 S.W.3d 73, 78 (Ky. Ct. App. 2009). “Kentucky courts have consistently found that
the first element not only requires a benefit be conferred upon the defendant, but also that the
plaintiff be the party conferring that benefit.” Pixler v. Huff, No. 3:11-CV-00207-JHM, 2011
WL 5597327, at *11 (W.D. Ky. Nov. 17, 2011) (collecting cases). To meet the first element, “a
plaintiff must allege that he directly conferred a benefit on the defendant.” SAAP Energy v. Bell,
No. 1:12-CV-98, 2013 WL 4588828, at *2 (W.D. Ky. Aug. 28, 2013).
The Commonwealth fails to allege that it, or the people it represents, directly conferred a
benefit upon Marathon. Instead, in its pleading, the Commonwealth alleges that “Marathon’s
conduct conferred a benefit upon itself.” (D.N. 18, PageID # 169) This is insufficient. The
Commonwealth contends that the Court must read the pleading as a whole. (D.N. 31, PageID
# 293) But even read as a whole, the complaint is insufficient on this point. The best argument
the Commonwealth has, as set forth in its response, is that the people indirectly conferred a
benefit upon Marathon. (Id., PageID # 292-93) That is, Marathon charged anticompetitive
prices for RFG; retailers then passed the cost to customers; customers paid these prices; and
Marathon profited. (See id., PageID # 292) This indirect relationship is insufficient to plead
unjust enrichment, see SAAP Energy, 2013 WL 4588828, at *2, and thus this portion of
Marathon’s motion to dismiss will be granted.
Although the Commonwealth fails to state a claim of unjust enrichment, it has alleged
sufficiently plausible facts to support its federal antitrust and Kentucky Consumer Protection Act
claims against Marathon. It has also alleged sufficient facts establishing its authority to bring
these claims. Accordingly, and the Court being otherwise sufficiently advised, it is hereby
ORDERED that Defendant Marathon Petroleum Company LP’s Motion to Dismiss
(D.N. 28) is GRANTED in part and DENIED in part. The motion is granted as to Plaintiff’s
unjust enrichment claim (D.N. 18, PageID # 169 (“COUNT 7”)). The motion is denied as to all
June 8, 2016
David J. Hale, Judge
United States District Court
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