The federal government and 41 states have asked the Supreme Court to overturn a ruling that, they charge, departs from a long tradition of allowing consumers to recover damages for price-fixing or other antitrust injuries inflicted directly upon them.
The two-judge panel of the 8th U.S. Circuit Court of Appeals that made the ruling was "wrong," Solicitor Gen. Wade H. McCree Jr. said in a friend-of-the-court brief. "The United States believes that the decision... would seriously undercut the effectiveness of antitrust enforcement."
Furthermore, McCree charged, the decision would provent the government itself from suing its suppliers for rigging the prices of goods bought by federal agencies.
Also in a friend-of-the-court brief, the 41 states -- including Maryland and Virginia -- said the decision, if allowed to stand, will create "a wide-spread, judicially created exemption from antitrust damage actions," in which violators are liable to triple damages.
"All businesses which sell directly to nonbusiness consumers will be immune from damage actions brought by their customers," the state said. "Therefore, contrary to public policy, these antitrust violators will be permitted to retain their ill-gotten gains while their victims, the purchasing consumers, will lack standing to recover damages."
McCree and the 41 states agreed that the decision effectively numllified the Hart-Scott-Rodino Antitrust Improvements Act of 1976, which empowers state attorneys general to seek damages in behalf of all residents of their jurisdictions when it's impractical for individual consumers to litigate price-fixing claims involving, say, a penny overcharge on a gallon of gasoline.
The case began in Minneapolis in 1975 when a treble-damage action was filed in U.S. District Court against five hearing aid manufacturers: Sonotone Corp., Beltone Elctronics Corp., Dahlberg Electronics, Inc., Textron, Inc. and Radioear Corp.
The principal plaintiff, Kathleen R. Reiter, complained that by combining and conspiring to violate the antitrust laws, the defendants had controlled their dealers' sales practices, particularly the prices at which the aids ultimately would be sold to consumers. She sought relief in behalf of all persons who directly or indirectly bought hearing aids at allegedly unlawful prices.
Four of the manufacturers asked Judge Earl R. Larson to dismiss the suit on the ground that none of the plaintiffs had a right, or standing, to sue.
The basis of the defense motion was Section 4 of the Clayton Act of 1914, which amended the Sherman Act of 1890 to let antitrust suits be brought by "any person" injured in his "business or property." The alleged injury was neither to the business nor the property of the plaintiffs, the companies emphasized, and they pointed out, Congress hadn't mentioned "consumers."
Larson rejected such arguments and dismissed the motion. The legislative history in 1890 and in 1914 didn't shed much light on congressional intent, partly because at that time 'consumers' were not identifiable as a constituency, and protection of their economic interests was an unknown concept," Larson said. But, he siad, neither the legislative history nor any reasonable interpretation of the language of the antitrust laws will allow him to declare "that antitrust remedies are not available to individual consumers," of whom Reiter is a "classic" example.
Last June, however, Circuit Judges Myron H. Bright and J. Smith Henley reversed Larson. The full appeals court then voted 4-3 to deny a rehearing. The dissenters, as did the Justice Department and the 41 states later, warned that the ruling made null the 1976 amendments.
In the opinion for the two-judge panel, Bright denounced "gigantic consumer class actions" -- such as the hearing aid suit -- as "potentially ruinous" to American business, small and large, as "meritless," and as anticompetitive.
This drew a strong response from Solicitor Gen. McCree. Judges are "not authorized to substitute (their) judgment for that of Congress concerning the appropriate was to enforce the antitrust laws," he said. "Congress has authorized both class actions and suits by persons injured in their 'property;' the fact that, in the court of appeals view, some plaintiffs bring meritless suits is irrelevant."
Moreover, McCree said, the court "reached far beyond the scope of its own argument: The court banned all consumer suits, not simply large class suits against small businesses."
Because the decision, if upheld, would deny consumers a right of recovery, it would make the 1976 legislation "absolutely pointless," McCree said. It "cuts against the views of a recent Congress," he emphasized.
On the "business or property" issue, McCree said that in any ordinary sense, "a consusmer is injured in his property when a conspiracy in restraint of trade forces him to part with more money than competitive forces would require."
Accusing the appeals court of having put an "unwarranted" reliance on "hyperbolic statements by opponents of the Sherman and Clayton Acts, McCree said:
"In the case of a conspiracy among retailers, the consumer is the only direct victim."
McCree also said that nothing in any of the legislative debates cited by Judge Bright indicates that the protection of business was "the sole purpose" of the antitrust laws.
Only four days before joining Bright in the opinion, Judge Henley, in an opinion he wrote in another case, said that the Clayton Act "gives to an individual who is injured... a private cause of action..."