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March 14, 2003


The opinion of the court was delivered by: Thomas F. Hogan, Chief United States Judge


RE: Plaintiff Kellogg Company's Motion in Limine to Preclude the Evidence that Kellogg Passed on Any Indirect-Purchaser Overcharges
Pending before the Court is Plaintiff Kellogg Company's ("Kellogg") Motion in Limine to exclude all evidence pertaining to any purported downstream pass through of defendants' conspiratorial overcharges as irrelevant under the Michigan Antitrust Reform Act. Kellogg claims that evidence of any purported pass through of overcharges is irrelevant under the Michigan Antitrust Reform Act as it is neither an affirmative defense nor an element of the plaintiff's damages claim. The remaining defendants in this action, Lonza and Degussa, oppose Kellogg's motion. Upon careful consideration of the motion, opposition, reply and oral arguments, the Court will deny Kellogg's motion as evidence of a pass through of overcharges may be relevant to defendants' argument that Kellogg did not suffer "actual damages" as required under Michigan antitrust law. The Court will not require that Kellogg prove a lack of downstream pass through as an element of its damages claims.


In this action Kellogg has alleged a massive, long-running international conspiracy among defendants and their co-conspirators to artificially inflate the prices of certain vitamins and vitamin products, allocate shares of the vitamin market among the defendants and their co conspirators, predetermine sales volume in the vitamin industry, eliminate competition, limit supply, and commit other practices constituting violations of both federal antitrust laws (Kellogg's direct purchaser claims) and the Michigan Antitrust Reform Act (MARA), Mich. Comp. Laws § 445.771 et seq (Kellogg's indirect purchaser claims).

The instant motion in limine concerns only Kellogg's indirect purchaser or "pass-on" claims under state law. Specifically, the motion requires the Court to determine whether, as Kellogg argues, evidence that Kellogg passed-on its indirect purchaser overcharges is irrelevant under the MARA, or whether the MARA allows for a pass through defense.

In order to succeed on the indirect claims under the MARA, plaintiffs must prove at trial that defendants charged higher prices to its direct purchasers than it would have in a competitive environment and that the overcharge or some portion thereof was passed through the chain of distribution to indirect purchasers. See A&M Supply Co. v. Microsoft Corp., 654 N.W.2d 572, 584 (Mich. Ct. App. 2002).

The relevant Michigan law is intertwined with important federal precedent concerning antitrust suits by private plaintiffs. Therefore, it is appropriately viewed through the backdrop of the landmark Supreme Court cases of Hanover Shoe, Illinois Brick, and ARC America Corp. In Hanover Shoe, the Supreme Court barred antitrust defendants from using the pass through defense except in limited circumstances. Hanover Shoe, Inc. v. United Shoe Mach. Corp., 392 U.S. 481, 494 (1968). Thus, direct purchaser defendants cannot limit their liability by showing that direct purchaser plaintiffs were not injured and had no damage claim because they passed on the price increase they sustained to indirect purchasers. Id. In Illinois Brick, the Supreme Court addressed the other side of the same coin, specifically, whether an indirect purchaser may offensively use a pass-on theory to show antitrust injury in a federal antitrust claim, despite the fact that a pass-on theory may not be used defensively. Illinois Brick Co. v. Illinois, 431 U.S. 720, 726 (1977). The Supreme Court rejected this argument, holding that only direct purchasers have standing to assert antitrust injury for the purposes of Section 4 of the Clayton Act. See id. at 728-29. Thus, it is clear that generally only direct purchasers can recover under federal antitrust law and that no pass through defense exists under federal antitrust law.

Illinois Brick, however, did not foreclose states from allowing indirect purchaser actions. Nineteen states, including Michigan, and the District of Columbia passed (or already had in place) Illinois Brick repealer statutes that permitted indirect purchasers to collect damages in private antitrust lawsuits. Pl.'s Mem. at 3. In California v. ARC Am. Corp., the Supreme Court upheld these repealer statutes, finding that Congress chose not to apply its Supremacy Clause power to pre-erupt the statutes, and that the statutes did not conflict with federal law. California v. ARC Am. Corp., 490 U.S. 93, 101 (1989).

The Michigan Legislature passed an Illinois Brick repealer statute in 1984 when it enacted MARA subsection 8(2) which states:

Any other person threatened with injury or injured directly or indirectly in his or her business or property by a violation of this act may bring an action for appropriate injunctive or other equitable relief against immediate irreparable harm, actual damages sustained by reason of a violation of this act, and, as determined by the court, interest on the damages from the date of the complaint, taxable costs, and reasonable attorney's fees. If the trier of fact finds that the violation is flagrant, it may increase recovery to an amount not in excess of 3 times the actual damages sustained by reason of a violation of this act.
Mich. Comp. Law § 445.778(2).

The statute is silent as to whether a pass through defense is permissible. Kellogg claims that it is not and that all evidence concerning whether Kellogg passed on the overcharges should be precluded. Defendants argue that the MARA permits the recovery of "actual damages" only and, therefore, that Kellogg must affirmatively show the amount of actual loss suffered not including any portion of the overcharge passed on in the chain of distribution. This is an issue of first impression, and this Court, sitting in diversity, is obligated to act as Michigan's Supreme Court would act if given the instant issue for determination.


Kellogg's primary argument rests on the omission of pass through language in § 8(2) of the MARA. As stated above, the statute provides standing for indirect purchasers to bring suits against antitrust defendants, but does not explicitly provide for a pass through defense. Kellogg argues that the Michigan legislature intentionally omitted pass through language to prohibit defendants from asserting such a defense, in both direct and indirect purchaser actions. Kellogg reasons (1) that language adopted by other states, on which Michigan could have modeled its own law, was available to the Michigan legislature at the time MARA was enacted but was nevertheless not used; and, (2) that Michigan's principles of statutory construction prohibit reading such a defense into the statute. The Court will briefly address each argument in turn.

As to the first argument, Kellogg points out that five of twenty jurisdictions allowing for indirect purchaser claims explicitly provide a pass through defense. Three statutes providing for a pass through — New Mexico, Hawaii, and the District of Columbia — were enacted prior to Michigan's 1984 amendment (repealing Illinois Brick). Pl.'s Mem. at 6-7.*fn1 If the Michigan legislature wanted to provide defendants with a pass through defense in civil antitrust litigation, Kellogg argues, they could have followed the language of the statutes in these jurisdictions. Pl.'s Mem. at 6-7. The same argument is made with respect to duplicative recovery provisions passed in other states. Kellogg points out that there are seven jurisdictions (Idaho, Illinois, Minnesota, Oregon, Rhode Island, South Dakota, and Vermont) in which the statutes provide that the court shall not allow, or ...

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