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From Antitrust Law Daily, May 27, 2014

Price increases following acquisition did not restart statute of limitations

By Jeffrey May, J.D.

A complaining customer could not rely on post-acquisition price increases and enforcement of a non-compete clause to pursue an antitrust action arising out of an acquisition that took place more than five years before the complaint was filed, the U.S. Court of Appeals in Cincinnati has ruled. The court affirmed dismissal on statute of limitations grounds of a suit brought by Z Technologies against chemical manufacturer Lubrizol Corporation over conduct that followed Lubrizol’s acquisition of a competitor's oxidate business that established a monopoly in the market for petroleum wax-based oxidates (Z Technologies Corp. v. Lubrizol Corp., May 23, 2014, McKeague, D.).

Z Technologies, a customer that purchased oxidates to make anti-corrosion products for car manufacturers, filed its complaint approximately five years and three months after Lubrizol’s acquisition of Lockhart Company’s oxidate business. While antitrust claims are generally subject to a four-year statute of limitations, the court assumed that Z Technologies was entitled to an additional 40 days in light of an FTC challenge to the acquisition in 2009. In any event, the five-year-old claims would still be time barred unless Lubrizol’s conduct subsequent to the acquisition, including charging “supra-competitive” prices and enforcing a non-compete clause from the acquisition agreement, retriggered the date from which the statute of limitations was measured. The appellate court ruled that it did not.

Continuing violations doctrine. In order to avoid dismissal of its monopolization claim on statute of limitations grounds, Z Technologies argued that price increases following the acquisition amounted to “continuing” antitrust violations. However, the court concluded that the continuing violations doctrine, under which the statute of limitations is restarted by the commission of an overt act that causes the plaintiff’s damage, did not apply in the merger-monopolization context. Application of the continuing violations doctrine had been limited to conspiracy cases or cases involving monopolization claims outside the merger-to-monopoly context.

Even assuming that the continuing violations doctrine did apply to this situation, price increases in the merger-monopolization context were not “overt acts” extending the statute of limitations, the court held. Profits, sales, and other benefits accrued as the result of an initial wrongful act were not treated as “independent acts,” in the court's view. Rather, they were reaffirmations of a previous act. Here, Lubrizol's ability to derive profits from a price increase was complete at the time of its acquisition of Lockhart’s oxidate business.

In addition, allegations that Lubrizol implemented a non-compete clause to prevent Lockhart from re-leasing a partially-unused oxidate production facility were not timely. Even if this claim had been adequately alleged, the implementation of the non-compete clause, which was originally entered into at the time of the merger, did not constitute a “new and independent” act extending the statute of limitations under the continuing violations doctrine. “Under a contrary ruling, any contractual provision that was subsequently enforced would arguably restart the statute of limitations, raising the risks associated with mergers and thereby discouraging companies from merging,” the court reasoned.

“Hold-and-use” doctrine. The court also rejected Z Technologies’ argument that the purported use of the non-compete clause constituted a new use of an “asset” that extended the statute of limitations under the “hold-and-use” doctrine. Generally, the doctrine permits a Clayton Act challenge where assets are used in a different manner from the way that they were used when the initial acquisition occurred and the new use injures the plaintiff. However, Z Technologies' claim was highly speculative and did not satisfy the pleading standards established under Twombly and Iqbal. Even if Z Technologies had provided more detailed facts, the court noted that the complaint still failed to supply a basis for the conclusion that Lubrizol used the non-compete clause in a new or different manner. “If the enforcement of a contractual provision, which was included in the acquisition agreement presumptively to ensure certain conduct or to protect certain rights, constitutes a ‘new’ use of that provision, this will effectively undermine merger-acquisition agreements and subject them to continual challenge,” the court explained.

The decision sends a warning to potential antitrust plaintiffs who believe they might have been injured by an acquisition or merger not to sit on their rights. The court pointed out that Z Technologies chose not to bring suit, even though it was repeatedly harmed within the limitations period. “This is precisely the type of conduct that the statute of limitations is designed to prevent—parties sleeping on their rights.”

The case is No. 13-1254.

Attorneys: Justin J. Hakala (Morgan & Meyers, PLC) for Z Technologies Corp. Elizabeth A. Grove for Lubrizol Corp.

Companies: Lubrizol Corp.; Z Technologies Corp.; Lockhart Co.

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