State Farm corporate headquarters

The U.S. Court of Appeals for the Eleventh Circuit heard arguments from auto-body repair shops claiming State Farm Insurance and a host of other national carriers conspired to fix prices.

Plaintiffs in the Orlando multidistrict litigation say the insurers agreed to drive down the prices they pay for repairs by agreeing among themselves on a preset “market rate” and enforcing compliance by steering their policyholders to businesses that play ball, effectively blackballing other shops.

In addition to State Farm, the defendants include Allstate, Progressive, Geico, Nationwide, USAA, Liberty Mutual and Hartford, among others.

Sitting en banc Tuesday, the judges were considering the case tossed out by U.S. District Judge Gregory Presnell in 2016 for failure to state a claim, then revived by a split panel last year.

The cases have been combined in the Middle District of Florida, and the appeal covers five of 14 similar complaints combined in the action. The body shops in the MDL are in Kentucky, Missouri, New Jersey and Virginia.

Although there are variations in the individual complaints, in general they allege insurers agreed to follow a market rate established by State Farm, which is accused of using a method of ranking body shops by criteria, including number of employees, number of work bays and area density, which it then “manipulates” as it solicits businesses to be part of its direct repair program.

If a body shop in the program tries to charge higher rates than those demanded by State Farm, they are met with an “ongoing pattern of coercion and implied threats” to enforce compliance, according to court filings.

Noncomplying shops are dropped from the program, and customers allegedly are “steered” away by the insurer.

The panel’s opinion was written by Judge Charles Wilson with the concurrence of Washington Western District Judge Barbara Rothstein, sitting by designation. Circuit Judge R. Lanier Anderson dissented.

Wilson noted the complaints alleged State Farm and the other defendants used unverified and manipulated market rates to depress costs.

“They use tactics such as requiring a body shop to repair a faulty part rather than installing a replacement part, even when the shop strongly recommends against continued use of the faulty part; requiring a shop to install a used or recycled part, even when a new part is available and would be best; and requiring a shop to offer discounts and concessions, even if doing so will force the shop to operate at a loss,” Wilson wrote.

The opinion noted claims of horizontal price fixing based on inferred agreements rather than evidence of such deals must be bolstered by other evidence, or “plus factors.” Among those cited by the plaintiffs were routine notices from the other insurers that they would not pay any more for repair work than State Farm.

Anderson said in dissent that he agreed the described behavior might be “objectionable,” but that didn’t make it illegal.

“With regard to the antitrust claims,” he wrote, “binding case law indicates to me that the allegations of these complaints do not give rise to the necessary reasonable inference of agreement or conspiracy and, therefore, fail to state a claim.”

On Tuesday, attorney Mark Shurtleff represented the lead plaintiff, Quality Auto Painting Center of Roselle Inc., along with colleague John Eaves of John Arthur Eaves Law Offices in Jackson, Mississippi.

Shurtleff began by arguing the complaining body shops were acting in the best interest of their customers, while the others’ loyalties lie with the insurance companies.

Several judges were skeptical, with Chief Judge Ed Carnes asking how the insurance companies’ behavior in matching each others’ rates was any different from other businesses.

“It happens in about every case,” said Carnes. “One raises it, they all raise it.”

Shurtleff pointed to the “uniformity of prices” demanded by the insurers, noting uncooperative body shops were targeted for criticism and boycotted.

Judge Stanley Marcus wondered whether commonplace business activity, such as an insurer recommending one shop and disclaiming another, was enough to “nudge your case across the line” into illegal price fixing.

Under questioning, Shurtleff agreed the insurers did not necessarily prohibit their policyholders from using another shop and simply showing the State Farm prices were demanded by other carriers did not necessarily prove collusion in itself.

The insurers were represented by Alston & Bird partner Michael Kenney for State Farm, Dentons partner Rick Fenton for Allstate, and Daniel Goldfine of Lewis Roca Rothgerber Christie for Geico.

The defense lawyers argued there was no direct evidence showing the insurers’ alleged action constituted price-fixing and urged the judges to hew closely to the U.S. Supreme Court’s 2007 decision in Bell Atlantic v. Twombly.

That decision toughened the standards for price-fixing claims and concluded “parallel conduct” without evidence of an an actual agreement was insufficient to support the claims.

“There is no way here to show that what is alleged is anti-competitive activity,” Kenney said.