State Farm's corporate headquarters. State Farm’s corporate headquarters. (Photo: CJ Hanevy/

The Eleventh Circuit Court of Appeals in Atlanta has scrapped five combined lawsuits filed by auto-body repair shops accusing State Farm Insurance and several other insurers of conspiring to punish shops that didn’t cooperate with its alleged scheme to fix prices and use substandard replacement parts.

No price-fixing

Eight of the nine judge en banc panel agreed that the repair shops’ complaints didn’t rise to the level of price-fixing and group-boycotting under the Sherman Antitrust Act, agreeing with a trial judge who dismissed the actions in 2016.

The case has divided courts. In 2017, a three-judge panel for the U.S. Court of Appeals for the Eleventh Circuit had split the other way, with Judge Charles Wilson and a visiting judge sitting by appointment saying complaints should move forward, while a third, Senior Judge R. Lanier Anderson, dissented.

Monday’s majority opinion was written by Anderson with the concurrence of Chief Judge Ed Carnes and Judges Gerald Tjoflat, Adalberto Jordan, Kevin Newson, William Pryor, Beverly Martin and Elizabeth Branch.

The dissenting opinion was crafted by Judge Charles Wilson, who had written the earlier opinion favoring the body shops.

The most recent ruling dismissed the federal causes of action and two of three state claims, leaving alive only a claim for tortious interference.

Cases began in 2014

As detailed in the opinions and other filings, the cases began in 2014, when the first of nearly two-dozen lawsuits was filed around the country accusing State Farm and insurers including Allstate, Progressive, Geico, Nationwide, USAA, Liberty Mutual and Hartford and others of conspiring to drive down the prices they pay for repairs by agreeing among themselves on a preset “market rate,” enforcing compliance by steering their policyholders to businesses that agree to their terms and boycotting those that refuse. 

The complaints were combined in multidistrict litigation in the U.S. District Court for the Middle District of Florida, where some were dismissed with prejudice and others remain pending.

Monday’s decision involves five complaints combined as Quality Auto Painting Center of Roselle Inc. et al. v. State Farm Indemnity Co. et al. The actions were dismissed by Judge Gregory Presnell in 2016 for failure to state a claim.

Price fixing or price leadership?

In general, the complaints alleged that the defendants insurers all 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.”

Shops not complying are dropped from the DRP program, and customers are “steered” away by the insurer.

In briefing for the en banc hearing, the appellate panel posed two questions as to the federal claims: whether the complaints could plausibly be inferred to support per se claims of illegal price-fixing and whether they could support claims of an illegal boycott by the insurers.

In ruling against the repair shops, Anderson relied heavily on the U.S. Supreme Court’s 2007 decision in Bell Atlantic v. Twombly.

That decision toughened the standards for price-fixing claims and concluded that simply showing that parties engaged in “parallel conduct” without evidence of an an actual agreement is insufficient to support such claims.

Anderson first took issue with the plaintiffs’ decision not to amend their complaints when Presnell first issued his ruling, writing that “the body shops’ appellate briefing takes undue liberties in construing the inferences that can be fairly read from their pleadings.”

The plaintiffs provided several “plus factors” to indicate more than parallel conduct by the insurers, which Anderson’s opinion took up and discarded one by one.

The assertion that the body shops are barred from changing the rates they charge without authorization from State Farm was not supported in the complaints, he wrote.

“Quite the contrary, the only relevant specific allegation of fact is that the non-State Farm Insurance companies advise the plaintiffs that they will pay no more than State Farm pays,” Anderson said, which is “mere price leadership” and perfectly acceptable.

“The body shops also argue that the conspiracy is shown by the presence of a common motive, namely desire to maximize profits,” he said. “However, under this logic, most businesses with similar pricing would be deemed in cahoots with each other because that is the goal of most corporations.”

Neither was there support for claims that State Farm kept its rating decision a secret, he said.

“Quite the opposite,” Anderson wrote, “the complaints reveal that State Farm must necessarily tell the rate to every repair shop in a given geographic area.”

Similarly, he said, there is no indication that the insurers are making identical demands of the repair shops.

“The body shops argue that the insurance companies have engaged in uniform tactics in that they require the Body Shops: to repair faulty parts rather than install replacement parts; to install used or recycled parts; and to offer discounts and concessions,” the opinion said.

“All of these purported ‘highly uniform’ tactics are easily explained by the most common of corporate stimuli: a desire to increase profits,” the opinion said.

None of the plaintiffs’ “plus factors” sufficed to “tip the scale from equipoise toward conspiracy sufficiently to prevent dismissal of this count,” Anderson wrote.

Boycott allegations insufficient

“The boycott allegations in this case are even weaker than the allegations of price-fixing,” the opinion said. “Neither the ‘steering’ allegations nor the ‘boycott’ section of the complaint allege even in conclusory fashion that there was an agreement to do so.”

“For the same reasons that it forecloses the body shops’ price-fixing claim, Twombly forecloses the body shops’ group boycott claims,” it said, which “allege only parallel conduct which is insufficient to create an inference of prior agreement or conspiracy.”

The complaints also included state law claims for unjust enrichment, quantum meruit and tortious interference, only the last of which narrowly survived the judges’ scrutiny.

Even that claim, Anderson noted, may be knocked out of district court on remand if Presnell declines to exercise jurisdiction.    

In dissent, Wilson wrote that the majority’s reading of Twombly was too narrow for dismissal of the suits at the pleading stage.

“Antitrust laws are often underenforced against anticompetitive exercises of buyer market power,” Wilson wrote. “And yet, under the majority’s interpretation of the Twombly standard, never has it been harder for an antitrust plaintiff to proceed to discovery.”

Allowed to proceed, wrote Wilson, discovery “might uncover, for example, that the insurers agreed at industry meetings to use the same market rate, same reimbursement formulas, and same standards of quality. … And it might not.”

The plaintiffs’ appeal was argued by former Utah Attorney General Mark Shurtleff, now in private practice in Salt Lake City, and John Eaves of John Arthur Eaves Law Offices in Jackson, Mississippi.

3 remaining cases pending

Shurtleff said he was disappointed with the ruling but still had hope that three remaining cases that have been combined with amended complaints and are pending will bring some relief to the repair shop owners.

“He did dismiss the amended complaints, but he put them on hold until the Eleventh Circuit ruled in this one,” Shurtleff said.

“We’ve been dealing with this since 2014, and I know how harshly these clients of ours are being treated,” he said. “It’s a daily struggle for them, but we’re not giving up.”

Arguing for the insurers on appeal were Alston & Bird partner Michael Kenny for State Farm, Dentons partner Rick Fenton for Allstate and Daniel Goldfine of Lewis Roca Rothgerber Christie for Geico.

In response to queries, a State Farm spokesman said only that the insurer was pleased with the ruling.