When Swisher International hired Gibson, Dunn & Crutcher in 2016, the Florida-based tobacco company needed the legal equivalent of a white knight.
It had just been hit with a $44 million jury verdict in an antitrust suit, plus a couple million more in legal fees for plaintiffs counsel from upstart San Francisco litigation boutique Gaw Poe, founded by alums from Morrison & Foerster and O’Melveny & Myers.
The Gibson team, which included partners Theodore Boutrous Jr. and Daniel Swanson, was tapped post-verdict to save the day. And for a time, they did, pulling off what looked like a glorious rescue.
How incredible was it? They persuaded a federal judge in Orange County, California to set aside the jury verdict and revise his pre-trial summary judgment order to find for the defense. Which (to quote King George in “Hamilton”) I wasn’t aware that was something a person could do.
Except it all fell apart on appeal.
On Friday, the U.S. Court of Appeals for the Ninth Circuit in a bare-bones, unpublished decision ordered the trial court to restore the $44 million award.
In part, it’s a reminder for appellate lawyers everywhere: No matter how aggressive or creative you are, you’re still stuck with the lower court record.
“That’s how the legal system works,” said Mark Poe, (pictured above left, with law partner Randolph Gaw) who represented plaintiff Trendsettah USA Inc., or TSI, along with appellate co-counsel from Goldstein & Russell. “You need to raise the right arguments at the right time.”
But Gibson Dunn’s Swanson is adamant that the appellate panel got it wrong by failing to recognize the underlying merits of his argument.
“The panel’s decision disregards one of the most elemental principles of antitrust law: that businesses are not compelled to help their rivals and are free to choose whether or not to do business with others,” he wrote in an email.
“It creates conflicts with decisions of the Supreme Court, the Ninth Circuit itself and numerous other circuits, including Justice Gorsuch’s comprehensive decision in Novell v. Microsoft,” he continued. “If allowed to stand, this decision will send an alarming message that antitrust liability and treble damages can be imposed for mere breach of contract.”
If the decision is allowed to stand? When’s the last time anyone remembers the Ninth Circuit granting en banc review to an unsigned, non-precedential memorandum—let alone the U.S. Supreme Court granting cert?
Which points to another truth: Getting a big, bold opinion is great, but if what you really want is speedy resolution and a paycheck—and Gaw Poe took the case on pure contingency—this the kind of decision you hope for.
Deal or No Deal
The fight between Swisher and TSI is over cigarillos—short, skinny little cigars. Swisher is a dominant player in the industry, and TSI is a new entrant, looking to sell a lower-priced “3-for-99¢” brand it calls Splitarillo.
In 2011, the two companies struck a deal. Swisher at the time wasn’t competing in the lower-end cigarillo market, and had unused manufacturing capacity at its Jacksonville, Florida plant. So it contracted to make Splitarillos for TSI under a so-called private label agreement.
Splitarillos “were an instant hit on the market,” wrote Poe and Eric Citron of Goldstein & Russell in their appellate brief. But as growth exploded, Swisher allegedly “began to engage in various efforts to strangle its burgeoning competitor,” such as delaying products shipments and not delivering the requested varieties. (According to the Splitarillos website, their cigar flavors—shudder—include white grape, blueberry, pineapple and “Rozay Wine.”)
TSI also complained that when a batch of Splitarillos was shipped with defective “wet paper” wrappers, Swisher refused to accept the returns.
So…You might think this all sounds a lot like a breach of contract dispute—and indeed, breach of contract was one of the alleged claims. But breach of contract doesn’t get you treble damages.
Antitrust does—and lo and behold, TSI’s first claim against Swisher was for violating Section 2 of the Sherman Act. “[O]nce it became clear that TSI was blossoming into a legitimate rival, Swisher found multiple ways to affirmatively kneecap TSI and prevent it from eating further into Swisher’s dominant market share,” plaintiff’s wrote.
After an eight-day trial before U.S. District Judge James Selna in the Central District of Los Angeles, the jury sided with TSI on both the antitrust and contract claims, returning a verdict in less than three hours. One key: the jurors specifically found that Swisher’s conduct was not motivated even in part by legitimate business purposes,
The judgment was issued on April 14, 2016. The next day, Boutrous and Swanson entered appearances for Swisher, which had been represented at trial by Akerman.
The Gibson team quickly re-conceptualized the defense, arguing that there could not possibly have been an antitrust violation.
“It is black letter law ‘that competitors do not have a general duty to deal with one another’ under the Sherman Act,” they wrote. “The critical question in this case is thus whether Swisher had an antitrust duty to deal. The answer is: No.”
One obstacle: Per Judge Selna, this was a new argument. “Swisher waived its arguments regarding an antitrust duty to deal,” he wrote. And by failing to make the arguments at the Rule 50(a) stage, Swisher under Rule 50(b) couldn’t prevail on them now.
Still, he granted a new trial on the Sherman Act Section 2 verdict, pointing to issues with the jury instructions on refusal-to-deal liability. He also granted judgment as a matter of law to Swisher on TSI’s monopolization claim.
But that wasn’t the end. A few months later, the Ninth Circuit issued its decision in Aerotec International, Inc. v. Honeywell International, Inc. The case also involved refusal to deal, and the appellate ruling bolstered Swisher’s argument that it did nothing wrong.
In light of Aerotec, Selna concluded that Swisher was belatedly entitled to summary judgment as a matter of law because Swisher presented evidence at trial that it had “at least some rational for prioritizing its own production” and other conduct that TSI complained about.
TSI cried foul. “Swisher does not win just because it says it had legitimate reasons for its bad behavior,” Poe and Citron wrote on appeal. “The reason we have jury trials is so that the jury can determine whether it believes one party’s evidence or the other’s. Here, the jury was instructed to rule for Swisher if it believed that Swisher’s conduct was motivated even in part by legitimate business purposes, and the jury evidently disbelieved that story.”
An ‘Obvious Conclusion’
The Ninth Circuit panel—judges William Fletcher and Richard Paez, and U.S. District Judge Sharon Gleason from the District of Alaska, sitting by designation—concluded it was not an abuse of discretion for Selna to reconsider summary judgment in light of Aerotec.
But the panel reversed him anyway.
“[T]he district court cited evidence that Swisher had introduced at trial to support its assertion that it had legitimate business reasons for its conduct. But in rendering its verdict, the jury clearly had rejected this evidence,” they wrote.
The Ninth Circuit panel also held that Selna erred in ordering a new trial and in granting judgment as a matter of law to Swisher on the monopolization claim—though they didn’t offer much explanation why beyond noting that the jury’s findings appeared reasonable.
During oral argument, they were less circumspect.
“Here’s my problem,” Fletcher said to Swanson. “The plaintiffs seem to me to have the better of the argument on the question of whether or not this case when it was originally tried was a refusal to deal. Because it was not.”
“This case still is suffused with refusal to deal issues,” Swanson argued.” You have to show your conduct is motivated at least in part by legitimate business reasons.”
“The jury concluded it was not, even in part,” Fletcher responded.
“That’s the inference from the way they ruled,” Swanson said.
“Well no, I think it’s more than an inference. It’s an obvious conclusion,” Fletcher said. “Otherwise they would have ruled for you.”
As for Poe, he told the panel, “I don’t quarrel with the notion that it this case had been presented as a refusal to deal case from the very beginning—that would have presented an interesting issue,” he said.
“I think we probably still would have disputed that, but the fact of the matter is, Swisher’s trial counsel did have a theory of the case coming in. Its theory of the case coming in, we can see from the opening, the closing, was that ‘We didn’t do any of this stuff, we’re pure as snow’… It if had come in and said ‘We did all this stuff but we can’t be liable under the antitrust laws,’ then what is it doing? It’s admitting at least $10 million in liability on the contract claims.”
In an interview on Friday, Poe said he and his client were “enjoying the victory, but for now the next thing on my plate is to take my dog for a walk.”
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