Journal Publishing Co., Inc. v. The Hartford Courant Company (2013)

MEMORANDUM OF DECISION RE MOTION TO STRIKE (# 109)

Preliminary Statement

This action brought by the plaintiff Journal Publishing Co., Inc. purports to allege anti-trust violations against the defendant, The Hartford Courant Company.   Specifically, the plaintiff alleges that the defendant engaged in (and continues to engage in) predatory pricing in an effort to drive the plaintiff from the market in violation of the anti-trust statutes, Conn. Gen.Stat. § 35–24 et seq.   The plaintiff also alleges a violation of the Connecticut Unfair Trade Practices Act (“CUTPA”) based largely on the same allegations.   The defendant filed a motion to strike the plaintiff's complaint in its entirety on the grounds that the allegations contained therein do not set forth a legally cognizable cause of action under either the anti-trust statutes or CUTPA.   The court heard argument on September 17, 2013.   For the reasons set forth below, the motion is GRANTED.

Standard of Review

The role of the trial court in ruling on a motion to strike is to test the legal sufficiency of a pleading.  RK Constructors, Inc. v. Fusco Corp., 231 Conn. 381, 384 (1994).   The court must “examine the [complaint] construed in favor of the [plaintiff] to determine whether the [pleading party has] stated a legally sufficient cause of action.”  (Internal quotation marks omitted.)   Dodd v. Middlesex Mutual Assurance Co., 242 Conn. 375, 378 (1997).  “[I]f facts provable in the complaint would support a cause of action, the motion to strike must be denied ․ Moreover, [w]hat is reasonably implied [in an allegation] need not be expressly alleged.”  (Citation omitted;  internal quotation marks omitted.)  Lombard v. Edward J. Peters, Jr., P.C., 252 Conn. 623, 626 (2000).

For purposes of the motion to strike, the moving party admits all facts well pleaded.  RK Constructors, Inc., supra, at 383 n.2. The same is not so of legal conclusions and a motion to strike may be granted if the complaint alleges “mere conclusions of law that are unsupported by the facts alleged.”   Novametrix Medical Systems, Inc. v. BOC Group, Inc. 224 Conn. 210, 215 (1992).

Discussion

The factual allegations in the complaint, taken as true, include that the plaintiff is a daily newspaper located in Manchester, Connecticut with circulation in Manchester as well as many neighboring towns and communities.   The defendant is also a daily newspaper, though a much larger corporation and with a larger circulation.   The defendant is affiliated with and is a part of a larger media “empire” which owns as well at least two television stations in Connecticut.   With respect to the newspaper business, the defendant is a competitor of the plaintiff in approximately 19 towns in the Manchester region and has been its competitor in these towns for many years.

Beginning around January 2009, “the defendant has sought to utilize predatory pricing for its newspaper by offering to sell same for substantially less than the cost to produce said paper;  thereby diminishing the Journal Inquirer's circulation which is the defendant's only real competition” in those 19 towns.   The complaint further alleges that “and wherein the defendant is likely to recoup its costs by eliminating the plaintiff as competition and/or defendant is presently recouping its costs by its advertising efforts through cross marketing the newspaper and television advertisements.”   These actions are alleged to constitute a “business practice by the defendant to unfairly compete with the plaintiff” in violation of both the anti-trust statutes as well as CUTPA.

The Connecticut Antitrust Act (“CAA”) “expresses a broad public policy of promoting competition in the market place and prohibiting unreasonable restraints on trade, monopolies and attempts to monopolize a defined market place.”  Wyatt Energy, Inc. v. Motive Enterprises, LLC, 104 Conn.App. 685 (2007).   The CAA is patterned after federal antitrust legislation and therefore, Connecticut courts are specifically directed to look to the federal courts for guidance on the interpretation and enforcement of these statutes.   Conn. Gen.Stat. § 35–44b.¹  See also, Westport Taxi Service, Inc. v. Westport Transit District, 235 Conn. 1, 15–16 (1995) (”[W]e follow federal precedent when we interpret the act unless the text of our antitrust statutes, or other pertinent state law, requires us to interpret it differently).

Plaintiff's predatory pricing claim comes within the parameters of Conn. Gen.Stat. § 35–27, which is patterned after § 2 of the Sherman Act, Shea v. First Federal Savings & Loan Assn. of New Haven, 184 Conn. 285, 304 (1981), and provides:  “[e]very contract, combination, or conspiracy to monopolize, or attempt to monopolize, or monopolization of any part of trade or commerce is unlawful.”

Section 35–27 enumerates three separate offenses, the first of which, a contract, combination, or conspiracy to monopolize, requires a plurality of actors.  Shea v. First Federal Savings & Loan Assn. of New Haven, supra, at 304, 439 A.2d 997.   The second offense, monopolization, “requires possession and [wilful] acquisition or maintenance of monopoly power ․ [which] is [the] power to fix or control prices or to exclude or control competition in the relevant market.”  (Citations omitted.)  Id. The third offense, attempt to monopolize, “encompasses ․ specific intent to control prices or destroy competition, predatory or anticompetitive conduct directed to accomplishing the unlawful purpose, and a dangerous probability of success.”  Id.

Wyatt Energy, Inc. v. Motiva Enterprises, LLC 308 Conn. 719, 728 (2013).   At issue here is a purported violation of the third offense, attempt to monopolize.  “[A] finding of attempt to monopolize requires a showing of predatory or anti-competitive conduct directed at accomplishing an unlawful purpose.”  Westport Taxi Service, Inc. v. Westport Transit District, supra, 235 Conn. at 16.   The plaintiff must allege that in an attempt to gain monopoly power, the defendant willfully engaged in anti-competitive business practices.  Id. Predatory pricing, alleged here, is one such “anti-competitive business practice” and a recognized unlawful means of attempting to monopolize a defined market.   See, e.g. Westport Taxi Service, Inc. v. Westport Transit District, supra.   The question for this court is whether the complaint adequately alleges that the defendant employed predatory pricing in an attempt to monopolize.

“Predatory pricing may be defined as pricing below an appropriate measure of cost ² for the purpose of eliminating competitors in the short run and reducing competition in the long run.   It is a practice that harms both competitors and competition.   In contrast to price cutting aimed simply at increasing market share, predatory pricing has as its aim the elimination of competition.”  Westport Taxi Service, Inc., v. Westport Transit District, supra, 235 Conn. 17, quoting, Cargill, Inc. v. Monfort of Colorado, Inc., 479 U.S. 104, 117–18 (1986).

Unlawful predatory pricing has three distinct features which courts analyze when assessing such claims.   The first is the price vs. cost analysis.   Predatory pricing occurs when a seller sets its prices below reasonably anticipated marginal or average variable costs.  Id. Prices at or above reasonably anticipated marginal or average variable costs are deemed to be nonpredatory.   Indeed, “ ‘[p]rices that are below reasonably anticipated marginal cost, and its surrogate, reasonably anticipated average variable cost ․ are presumed predatory.”  (Citations omitted.)  Id. at 18.

The second feature, or element, of a predatory pricing claim is that of recoupment.   Generally, a plaintiff must show that the defendant intended to recoup its investment in below cost prices and that the defendant had a reasonable prospect of doing so.  Id. at 22.

For the investment to be rational, the [predator] must have a reasonable expectation of recovering, in the form of later monopoly profits, more than the losses suffered ․ Recoupment is the ultimate object of an unlawful predatory pricing scheme;  it is the means by which a predator profits from predation.   Without it, predatory pricing produces lower aggregate prices in the market, and consumer welfare is enhanced.   Although unsuccessful predatory pricing may encourage some inefficient substitution toward the product being sold at less than its cost, unsuccessful predation is in general a boon to consumers ․ Determining whether recoupment of predatory losses is likely requires an estimate of the cost of the alleged predation and a close analysis of both the scheme alleged by the plaintiff and the structure and conditions of the relevant market.

(Internal quotations omitted, citations omitted.)  Id. at 21–22, quoting, Brooke Group, Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209 (1993).  “To sufficiently plead the second element of a predatory pricing claim, a plaintiff must state facts supporting that the defendant could ‘obtain enough market power to set higher than competitive prices, and then ․ sustain those prices long enough to earn in excess profits what they earlier gave up in below-cost prices.’  “ (Citation omitted.)  Affinity, LLC v. GFK Mediamark Research & Intelligence, LLC, 2013 WL 1189317 (S.D.N.Y.Sullivan, J.).

In Westport Taxi, the Court noted that predatory pricing claims brought pursuant to the Sherman Antitrust Act requires a plaintiff to show “a dangerous probability that the defendant would recoup its investment in below cost pricing.”   Id., n.21. This level of probability stood in contrast to certain predatory pricing claims brought under the Clayton Act. Id. In light of these differences, and under the unique circumstances present in the Westport Taxi case, the Court was not required to decide what level of probability of recoupment must be established under the Connecticut Act and so left that issue for another day.   It is clear however, that some level of probability of recoupment is required under Connecticut law in the absence of such unique facts.³

The third feature or element of a predatory pricing claim is specific intent.   Plaintiff must establish that the defendant engaged in predatory pricing with the intent to control prices or destroy competition.   See, Wyatt Energy, Inc. v. Motiva Enterprises, LLC, 308 Conn. 719, 727 n.8 (2013);  Shea v. First Federal Sav. and Loan Ass'n of New Haven, 184 Conn. 285, 304 (1981).

The question for this court is whether these three elements of a predatory pricing claim are adequately pled.   The parties disagree on the level of factual specificity required to satisfactorily plead such a claim.   On this issue, however, our Supreme Court and the federal courts have spoken at length.

With respect to the allegations necessary to state a cognizable antitrust claim, the United States Supreme Court has explained that, in pleading such a claim, “a formulaic recitation of the elements of a cause of action will not do ․ Factual allegations must be enough to raise a right to relief above the speculative level ․” (Citations omitted.)  Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007);  see also Todd v. Exxon Corp., 275 F.3d 191, 198 (2d Cir.2001) in deciding motion to dismiss for failure to state claim, “[i]t is ․ improper [for the court] to assume that the [plaintiff] can prove facts that it has not alleged or that the [defendant has] violated the antitrust laws in ways that have not been alleged” [internal quotation marks omitted] );  Furlong v. Long Island College Hospital, 710 F.2d 922, 927 (2d Cir.1983) (conclusory allegations cannot “substitute for minimally sufficient factual allegations”).

Bridgeport Harbour Place I, LLC v. Ganim, 303 Conn. 205, 213–14 (2011).   See also, In re Parcel Tanker Shipping Services Antitrust Litigation, 541 F.Sup.2d 487 (D.Conn.2008) (Conspiracy to engage in predatory pricing claim dismissed because “[a]lthough the complaint alleges conspiratorial activity, it does not allege facts tending to show how these activities were accomplished” but merely used “labels and conclusions” to support the claim);  Astra Media Group, LLC v. Clear Channel Taxi Media, LLC, 414 Fed.Appx. 334 (2d.   Cir.2011) (Predatory pricing claim dismissed where the plaintiff did not include any allegations as to the defendant's actual costs or the price at which the product (advertising) was being offered, so as to support allegation that the defendant was “carrying advertising below its actual cost”); ⁴  Montano Cigarette, Candy & Tobacco, Inc. v. Core–Mark Mid–Continent, Inc., 2008 WL 4793696 (D.Conn.2008) (Kravitz, J.) (Predatory pricing claim dismissed where complaint “simply states in conclusory fashion that [defendant] sells cigarettes below cost to injure competition” and provides no further factual support for the allegation);  Creative Copier Servs. v. Xerox Corp., 344 F.Sup.2d 858 (D.Conn.2004) (granting motion to dismiss predatory pricing claim because plaintiff offered only vague allegations that Xerox hoped to have a monopoly in the service market).

Defendants aver that the complaint is insufficiently pled with respect to each of the three requirements of a predatory pricing claim—selling below costs;  probability of recoupment;  specific intent.   Applying the pleading standards and parameters set forth above, this court agrees.

As to the first required element of a predatory pricing claim—that the defendant was pricing its product below some appropriate measure of its costs—the complaint states only:  “Since on (sic) or about January of 2009, the defendant has sought to utilize predatory pricing for its newspaper by offering to sell same for substantially less than the cost to produce said paper.”   This is precisely the type of vague and conclusory allegations which have been deemed insufficient time and time again.   The complaint is silent as to the price for which the paper is being sold by the defendant and silent as to any facts from which an appropriate measure of its costs might be inferred or a comparison of same to the former made.⁵  See e.g., Astra Media Group, LLC v. Clear Channel Taxi Media, LLC, supra;  Miniframe Ltd. v. Microsoft Corporation, 2013 WL 1385704 (S.D.N.Y.2013) (Sullivan, J.);  Montano Cigarette Candy & Tobacco, Inc., v. Core–Mark Mid–Continent, Inc., supra.

As to recoupment, the complaint states:  “and wherein the defendant is likely to recoup its costs by eliminating the plaintiff as competition and/or is presently recouping its costs by its advertising efforts through cross marketing the newspaper and television advertisements.”   The complaint fails to state how or in what manner, elimination of the plaintiff will likely lead to recoupment of the defendant's costs or losses.   There are simply no facts from which such a conclusory allegation might reasonably be supported or even inferred.   See, Affinity, LLC v. GFK Mediamark Resarch & Intelligence, LLC, supra.

To the extent that the complaint relies upon cross marketing of television and newspaper advertising revenue as a basis for recoupment, it appears plaintiff conflates the question of recoupment with the question of below cost pricing.   As noted above, recoupment is the aftermath of a successful predatory pricing scheme.   When the scheme has successfully driven the competition from the market, the monopoly can then raise prices well above costs without fear of competition and thereby make up the short-term losses incurred.⁶  That the defendant may have additional revenue by virtue of its ability to combine its television and newspaper advertising opportunities, which in turn may allow for the newspaper price to be lowered, establishes neither below cost pricing nor recoupment as that term is contemplated in a predatory pricing claim.

As to the final element of a predatory pricing claim, specific intent, the complaint is silent.   There simply is no specific allegation or allegation from which such specific intent to destroy competition may be inferred.   Indeed, the complaint identifies the predatory pricing, not as an effort to monopolize or destroy competition, but as an effort to “unfairly compete.”   Plaintiff's conclusory allegation of below cost pricing as a basis to infer intent is insufficient.

The motion to strike count one is granted.

Count Two—CUIPA

The same allegations advanced in support of the Antitrust Act violation are advanced in support of the CUTPA claim.   That the plaintiff has failed to adequately allege the former, does not necessarily defeat the latter.   See, Broadway Theatre Corp. v. Buena Vista Pictures Distribution, 2002 WL 32502100 *4 (D.Conn., Underhill, J.), and cases cited therein.

Under CGS § 42–110b(a), “[n]o person shall engage in unfair methods of competition and unfair or deceptive acts or practices in the conduct of any trade or commerce.”

It is well settled that in determining whether a practice violates CUTPA we have adopted the criteria set out in the cigarette rule by the federal trade commission for determining when a practice is unfair:  (1)[W]hether the practice, without necessarily having been previously considered unlawful, offends public policy as it has been established by statutes, the common law, or otherwise—in other words, it is within at least the penumbra of some common law, statutory, or other established concept of unfairness;  (2) whether it is immoral, unethical, oppressive, or unscrupulous;  (3) whether it causes substantial injury to consumers, [competitors or other businesspersons] ․ All three criteria do not need to be satisfied to support a finding of unfairness.   A practice may be unfair because of the degree to which it meets one of the criteria or because to a lesser extent it meets all three ․ Thus a violation of CUTPA may be established by showing either an actual deceptive practice ․ or a practice amounting to a violation of public policy ․ In order to enforce this prohibition, CUTPA provides a private cause of action to [a]ny person who suffers any ascertainable loss of money or property, real or personal, as a result of the use or employment of a [prohibited] method, act or practice ․” (Citations omitted;  internal quotation marks omitted.)  Ramirez v. Health Net of the Northeast, Inc., supra, 285 Conn. 18–19.

Harris v. Bradley Memorial Hospital & Health Center, 296 Conn. 315, 350–51 (2010).⁷

Although the CUTPA claim and the antitrust claim are distinct, where the former is dependent upon the latter, the latter must be adequately pled in order to support the former.   In other words, to the extent that the plaintiff alleges that the violation of public policy at issue in the CUTPA claim, is the violation of the antitrust act, the failure to adequately allege the antitrust violation is fatal to the CUTPA claim.   See, e.g., Siebe Environmental Controls v. Johnson–Goodyer, Inc., 2000 WL 1683421 (October 06, 2000, Hale, J.).

Further, the complaint fails to include any factual predicate for the conclusory allegations that the defendant's conduct was oppressive, unscrupulous, unethical or immoral or that such conducted resulted in substantial injury to consumers or competitors.   See, e.g., Minnesota Lawyers Mutual Ins. Co. v. Lancia, Superior Court, judicial district of Fairfield, Docket No. CV 04 0412468 (April 17, 2006, Hiller, J.) (CUIPA/CUTPA cause of action stricken because it stated only in conclusory fashion, that the actions of the defendant “constitute a general business practice”);  Argueta v. Nationwide Mutual Ins. Co., Superior Court, judicial district of Hartford, Docket No. CV 020820009 (February 20, 2004, Wagner, J.T.R.) (granting motion to strike because “conclusory allegations ․ are not supported by a factual basis establishing any other instance or instances demonstrating frequency indicative of a general business practice”);  Birdseye Development Co., LLC v. TD BankNorth, N.A., 2011 WL 1758989, 51 Conn. L. Rptr. 735 (April 14, 2011, Dooley, J.) (CUTPA count stricken as inadequately supported with factual allegations);  Heinrichs v. Danbury Ins. Co., 2008 WL 4210587, *2 (August 25, 2008, Holden, J.).

The court agrees with the plaintiff however that the allegations of diminished circulation as a result of the defendant's conduct, even where the conduct is not otherwise adequately alleged to violate the antitrust statutes, is adequate to allege an ascertainable loss, as required under CUTPA.

The motion to strike is granted.

Kari A. Dooley, Judge

FOOTNOTES

FN1. CGS § 35–44b provides:  “It is the intent of the General Assembly that in construing section 35–24 to 35–46, inclusive, the court of this state shall be guided by interpretations given by the federal courts to federal antitrust statutes.”.  FN1. CGS § 35–44b provides:  “It is the intent of the General Assembly that in construing section 35–24 to 35–46, inclusive, the court of this state shall be guided by interpretations given by the federal courts to federal antitrust statutes.”

FN2. The “appropriate measure of cost” used in the predatory pricing analysis may be either marginal cost or average variable cost.   See, McGahee v. Northern Propane Gas Co., 858 F.2d 1487, 1503–04 (11th Cir.1988), cert. denied, 490 U.S. 1084 (1989) (average variable cost may usually be used as surrogate for marginal cost in determining whether pricing is predatory);  Northeastern Telephone Co. v. American Telephone & Telegraph Co., 651 F.2d 76, 88 (2d Cir.1981), cert. denied, 455 U.S. 943 (1982) (reasonably anticipated marginal cost is best determinant for predatory pricing)..  FN2. The “appropriate measure of cost” used in the predatory pricing analysis may be either marginal cost or average variable cost.   See, McGahee v. Northern Propane Gas Co., 858 F.2d 1487, 1503–04 (11th Cir.1988), cert. denied, 490 U.S. 1084 (1989) (average variable cost may usually be used as surrogate for marginal cost in determining whether pricing is predatory);  Northeastern Telephone Co. v. American Telephone & Telegraph Co., 651 F.2d 76, 88 (2d Cir.1981), cert. denied, 455 U.S. 943 (1982) (reasonably anticipated marginal cost is best determinant for predatory pricing).

FN3. Plaintiff argues that the Court rejected the recoupment prong set forth in Brook Group, Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209 (1993).   The Court's decision simply cannot be read so broadly.   The Court noted that it need not address the “level of probability” of recoupment required because on the facts of the case, recoupment was not at issue.   There, the defendant had been able to subsidize its losses from below cost pricing with a federal subsidy.   The Court did not reject any portion of the Brook Group, Ltd. decision, but rather declined to accept or reject the level of probability of recoupment required under that decision..  FN3. Plaintiff argues that the Court rejected the recoupment prong set forth in Brook Group, Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209 (1993).   The Court's decision simply cannot be read so broadly.   The Court noted that it need not address the “level of probability” of recoupment required because on the facts of the case, recoupment was not at issue.   There, the defendant had been able to subsidize its losses from below cost pricing with a federal subsidy.   The Court did not reject any portion of the Brook Group, Ltd. decision, but rather declined to accept or reject the level of probability of recoupment required under that decision.

FN4. The court does not agree with plaintiff's reading of the Astra case or the basis upon which plaintiff claims the case was dismissed.   The ruling is clear that the complaint was lacking factual support in several areas related to the “below cost” requirement of a predatory pricing claim.   The allegation that the advertising was being “carried below [the defendant's] actual cost” was deemed “conclusory” as a result..  FN4. The court does not agree with plaintiff's reading of the Astra case or the basis upon which plaintiff claims the case was dismissed.   The ruling is clear that the complaint was lacking factual support in several areas related to the “below cost” requirement of a predatory pricing claim.   The allegation that the advertising was being “carried below [the defendant's] actual cost” was deemed “conclusory” as a result.

FN5. The court disagrees with the defendant that the complaint as written necessarily alleges that the revenues against which costs are measured are limited to newspaper sales and therefore insufficient as a matter of law.   The language is certainly inartful and confusing on the point.   However, the concept of selling “below costs,” broadly construed, could include an actual cost vs. all revenues analysis.   The reference to the price point for consumers is not necessarily a limitation on that analysis..  FN5. The court disagrees with the defendant that the complaint as written necessarily alleges that the revenues against which costs are measured are limited to newspaper sales and therefore insufficient as a matter of law.   The language is certainly inartful and confusing on the point.   However, the concept of selling “below costs,” broadly construed, could include an actual cost vs. all revenues analysis.   The reference to the price point for consumers is not necessarily a limitation on that analysis.

FN6. The court notes that although referencing the elimination of the plaintiff in connection with the recoupment allegation, the complaint does not specifically allege an attempt by the defendant to monopolize a market by driving the plaintiff out of business through predatory pricing.   Rather, the complaint only alleges an effort to diminish the plaintiff's circulation, which is alleged to constitute a business practice “to unfairly compete.”   The Antitrust laws are designed for the protection of consumers, not competitors.   Below cost prices which do not eliminate competition, inure to the benefit of consumers.   See, Cargill, Inc. v. Monfort of Colorado, Inc., 479 U.S. 104, 122 (1986) (“The mechanism by which a firm engages in predatory pricing—lowering prices—is the same mechanism by which a firm stimulates competition;  because cutting prices in order to increase business often is the very essence of competition”)..  FN6. The court notes that although referencing the elimination of the plaintiff in connection with the recoupment allegation, the complaint does not specifically allege an attempt by the defendant to monopolize a market by driving the plaintiff out of business through predatory pricing.   Rather, the complaint only alleges an effort to diminish the plaintiff's circulation, which is alleged to constitute a business practice “to unfairly compete.”   The Antitrust laws are designed for the protection of consumers, not competitors.   Below cost prices which do not eliminate competition, inure to the benefit of consumers.   See, Cargill, Inc. v. Monfort of Colorado, Inc., 479 U.S. 104, 122 (1986) (“The mechanism by which a firm engages in predatory pricing—lowering prices—is the same mechanism by which a firm stimulates competition;  because cutting prices in order to increase business often is the very essence of competition”).

FN7. Whether Connecticut should continue to follow the so-called cigarette rule in light of federal precedent which has essentially eschewed certain aspects of the rule, remains unanswered by our Supreme Court.   See, Ulbrich v. Groth, 310 Conn. 375 (2013)..  FN7. Whether Connecticut should continue to follow the so-called cigarette rule in light of federal precedent which has essentially eschewed certain aspects of the rule, remains unanswered by our Supreme Court.   See, Ulbrich v. Groth, 310 Conn. 375 (2013).

Dooley, Kari A., J.