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Media Alerts - Felder's Collision Parts, Inc. v. All Star Advertising Agency, Inc. - Fifth Circuit
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January 31, 2015
  Felder's Collision Parts, Inc. v. All Star Advertising Agency, Inc. - Fifth Circuit
Headline: Fifth Circuit Affirms Dismissal of Antitrust Suit Targeting GM's Parts Rebates.

Area of Law: Antitrust.

Issue Presented: Whether, in a predatory-pricing antitrust suit, the effect of a manufacturer's rebate to its dealer is considered in deciding whether the dealer is selling its product at a price below its average variable cost.

Brief Summary: Felder's Collision Parts, a dealer of aftermarket General Motors ("GM") parts, sued GM and All Star, a dealer of original GM parts, for violating state and federal antitrust laws by engaging in predatory pricing. The U.S. District Court for the Middle District of Louisiana dismissed the antitrust claims because Felder's failed to plead facts indicating All Star was selling GM parts for less than All Star's average variable cost. Although at the point of sale All Star sold the parts for a price below its average variable cost, GM offered rebates following sale that, if considered, effectively decreased the average variable cost below the sales price. The Fifth Circuit affirmed the dismissal, reasoning that "[t]he price versus cost comparison focuses on whether the money flowing in for a particular transaction exceeds the money flowing out." In this case, when the rebate was considered, the money flowing in exceeded the amount flowing out; therefore, Felder's did not make a prima facie showing of price predation and the district court's dismissal of Felder's antitrust claims was affirmed.

Extended Summary: This case concerns competitors in the automobile parts market. There are two types of automobile parts: aftermarket parts, which are produced by a supplier other than the vehicle manufacturer, and original equipment manufacturer ("OEM") parts, which are produced by the vehicle manufacturer. Historically, an aftermarket part has been less expensive than the equivalent OEM part. In order to better compete with dealers of aftermarket parts for GM vehicles, GM began a "Bump the Competition" program. Under this program, when there is a matching aftermarket part, GM allows its dealers to sell the OEM part for 33% less than the prevailing market price for the aftermarket equivalent. Due to the size of this discount, OEM parts dealers, such as All Star, sold parts below the price they paid to GM for the part. After the sale, GM rebated the dealer the difference between the sales price and the price the dealer paid GM for the part. Additionally, GM paid the dealer a 14% profit. Felder's Collision Parts, an aftermarket parts dealer, brought suit under state and federal antitrust laws alleging that the sale of parts by All Star and other GM OEM dealers below the price paid to GM constituted predatory pricing.

To make out a prima facie case of price predation in the Fifth Circuit, one must allege that a predator is selling a good or service below the average variable cost of that good or service. Average variable cost is the sum cost of variable inputs such as manufacturing materials, labor, and electricity divided by the total amount of output. While calculating average variable cost is often arduous, in this case the average variable cost was simply the price the dealer paid to GM for the part. If GM's rebates were not considered, All Star sold parts to consumers below the amount they paid to GM, which would satisfy one essential element of predatory pricing. However, if GM's rebates were considered, All Star sold parts to consumers above the effective price they paid to GM, which would quash a price predation claim.

The Fifth Circuit concluded that GM's rebates should be included within the predatory pricing analysis because a time lapse between sale and rebate did not modify All Star's profitability. Contrary to Felder's "freeze frame" theory, the court did not agree that price and cost should be fixed at the time of sale because such a theory disregarded the economic reality that All Star's sales under Bump the Competition were profitable. The relevant inquiry for the price-versus-cost comparison is whether the alleged predator's sales are profitable, which generally means money flowing in exceeds money flowing out. Time lapse between a dealer's sale and a manufacturer's rebate for that sale does not exclude the rebate from the profitability calculus. Because All Star was selling OEM parts for more than they paid for them when the rebates were considered, these sales could not constitute predatory pricing. Therefore, the district court's dismissal was affirmed. It is important to note that Felder's did not allege GM was selling to its dealers below its average variable cost; instead, its complaint only alleged GM's dealers were selling to consumers below their average variable cost.

For the full opinion, please see:

Panel: Circuit Judges King, Jolly, and Costa

Argument Date: 12/3/2014

Date of Issued Opinion: 1/27/2015

Docket Number: No. 14-30410

Decided: Affirmed

Case Alert Author: Matthew Cameron

Counsel: James M. Garner, Sher Garner Cahill Richter Klein & Hilbert, L.L.C., for Plaintiff-Appellant Felder's Collision Parts, Inc.; Michael W. McKay, Stone, Pigman, Walter & Wittman, for Defendant-Appellee All Star Advertising Agency, Inc.; Mark Aaron Cunningham, Jones Walker LLP, for Defendant-Appellee General Motors, L.L.C.

Author of Opinion: Judge Costa

Case Alert Circuit Supervisor: Aaron-Andrew P. Bruhl

    Posted By: Aaron Bruhl @ 01/31/2015 05:42 PM     5th Circuit  

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