Quality Auto Painting Center of Roselle, Inc. v. State Farm Indemnity Co.

870 F.3d 1262
CourtCourt of Appeals for the Eleventh Circuit
DecidedSeptember 7, 2017
Docket15-14160, 15-14162, 15-14178, 15-14179, 15-14180
StatusPublished
Cited by3 cases

This text of 870 F.3d 1262 (Quality Auto Painting Center of Roselle, Inc. v. State Farm Indemnity Co.) is published on Counsel Stack Legal Research, covering Court of Appeals for the Eleventh Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Quality Auto Painting Center of Roselle, Inc. v. State Farm Indemnity Co., 870 F.3d 1262 (11th Cir. 2017).

Opinions

"WILSON, Circuit Judge:

Automobile body shops filed five complaints, each asserting federal antitrust and state tort claims against insurance companies. The body shops appeal the dismissal of their complaints for failure to state a claim.

The automobile insurance and repair industries have customs and practices that the public frequently encounter and endorse. The public’s level of familiarity, however, has no bearing on whether such customs and practices have been employed for the benefit of a long-term scheme designed to thwart antitrust and tort laws. Wary of the prejudicial effect of preconceptions about these industries, assuming as true only those facts within the four corners of the complaints, and drawing inferences from those facts only in favor of the body shops, we determine that the shops pleaded enough facts to plausibly support their federal antitrust and state tort claims. We reverse the dismissal of those claims.

I. Introduction

In their complaints, the body shops argue that the insurance companies engaged in two lines of tactics in pursuit of a single goal: to depress the shops’ rates for automobile repair. The first line of tactics was designed to set a “market rate,” which reflected not the forces of the market but an artificial rate that would benefit only the insurance companies. The second line of tactics was designed to pressure the body shops into accepting the market rate by steering insureds away from the non-compliant shops that charged more than the rate. The body shops argue that the insurance companies’ concurrent lines of tactics violated both federal antitrust and state tort laws.

The body shops argue two types of antitrust violations. First, the body shops argue that the insurance companies engaged in horizontal price fixing, an illegal agreement among competitors to fix prices. Instead of pleading facts that directly support the existence of an agreement, the body shops plead facts supporting circumstances—such as parallel conduct, adoption of a uniform price despite variables that would ordinarily result in divergent prices, and uniform practices—from which the shops infer the existence of an agreement. Second, the body shops argue that the insurance companies boycotted the non-compliant shops that charged more than the fixed prices by enlisting unwitting insureds into their scheme. Specifically, the body shops argue that the insurance companies steered insureds away from the non-compliant shops with misleading or false statements about the shops’ business integrity and quality.

Arguing the commission of three state torts, the body shops assert that the insurance companies were unjustly enriched, deprived the shops of quantum meruit, and tortiously interfered with potential business of the shops.

Because the body shops plead enough facts to plausibly support then- federal antitrust and state tort claims, we reverse the dismissal of those claims.

[1268]*1268II. Factual Allegations1

A. The insurance companies generate a significant portion of the body shops’ revenues.

The body shops operate in Kentucky, Missouri, New Jersey, and Virginia. The insurance companies offer' policies in these states and collectively control approximately 65% of the private passenger automobile insurance market in Kentucky, 85% in Missouri, 72% in New Jersey, and 100% in Virginia. Of the insurance companies, the State Farm companies have the largest market share: they control approximately 22.3% of the private passenger automobile insurance market in Kentucky, 22.88% in Missouri, and 14.85% in Virginia.2 The insurance companies’ insureds generate 60% of the Kentucky body shop’s revenue and between 70% and '95% of the revenue of each of the remaining body shops. Most of the insurance companies are subsidiaries or affiliates, or are otherwise related.

B, First line of tactics: The insurance companies select the “market rate” at which they reimburse the body shops.

The insurance companies refuse to reimburse the body shops at more than the “market rate,” which, is a term that appears in direct repair program (DRP) agreements between the companies and certain body shops. Under a DRP agreement, an insurance company lists a body shop as a “preferred provider” in exchange for the company’s paying the shop no more than the “going rate in the market area.” However, even if a body shop does not participate in an insurance company’s DRP, the company refuses to reimburse the shop at more than the market rate. None of the plaintiff body shops participates' in a defendant insurance company’s DRP.3

The market rate comprises the market labor rate and the market materials costs, both of which the insurance companies select. The insurance companies use the market labor rate that one company, State Farm, determines by using a method that is unverified and the results of which State Farm manipulates. Also, the insurance companies depress the market material costs by pressuring body shops into using inferior parts and into offering discounts and concessions.

1, The insurance companies use the market labor rate that one company determines and manipulates.

In determining the market labor rate that all of the insurance companies use, State Farm uses an unverified “half plus one” method of calculation and manipulates the result.4 The half plus one method (1) calculates half plus one—an amount we [1269]*1269designate as “n”—of the total number of employees or work bays (whichever is fewer in each body shop) in the market area; (2) lists the shops in a market area from the shop with the fewest employees or work bays to, the shop with the most; and (3) declares the market labor rate as the labor rate of the shop that employs the nth employee or work bay. It is unclear how the method designates a market area. No insurance company other than -State Farm has attempted to independently verify the results of this method. . .

In addition to using an unverified method of calculating the market labor rate, State Farm manipulates the results of the method by affecting the inputs. First, State Farm affects the labor rate that a body shop submits through an online survey compiling information used in the half plus one method. A body shop that enters a DRP agreement with State Farm can fill out a survey about the shop’s labor rate through an electronic forum, State Farm’s Business to Business portal. State Farm can and does manipulate a body' shop’s survey submission. Second, State Farm affects the inputs used in the half plus one method by removing a body shop that charges a higher labor rate from the DRP. If a DRP body shop tries to charge more than the market labor rate, State Farm first tells the shop that it is the only shop that is- attempting to raise its labor rate— when in fact several shops have done the same. If the DRP body shop continues to charge a higher labor rate, State Farm threatens to and does remove the shop from the DRP. Thus the labor rate of the body shop no longer contributes, even facially, to the calculation of' the market labor rate.

By using an unverified method of calculating the market labor rate and by manipulating the results, State Farm achieves a wholly artificial market labor rate.

2. The insurance companies lower the market materials costs by pressuring the body shops into using inferi- or parts and into offering discounts and concessions.

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Bluebook (online)
870 F.3d 1262, Counsel Stack Legal Research, https://law.counselstack.com/opinion/quality-auto-painting-center-of-roselle-inc-v-state-farm-indemnity-co-ca11-2017.