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This week, the Ninth Circuit takes a close look at a sizableantitrust jury award, and explains what constitutes a taxreturn for purposes of bankruptcy law.
OPTRONIC TECHNOLOGIES, INC v. NINGBO SUNNY ELECTRONIC CO.LTD.
The Court held that sufficient evidence supported a jury verdictholding telescope manufacturers liable for antitrustviolations.
The panel: Judges Tashima, Gould, andRakoff (S.D.N.Y.), with Judge Gould writing the opinion.
Key highlight: The documentaryevidence and expert testimony that Orion presented during trial . .. showed that Sunny had the technical capacity to manufacture thesame telescopes as Synta, but chose not to. . . . Other emailsbetween Sunny and Synta indicate that they had agreed to dividecustomers. . . . This is quintessential evidence of a marketallocation conspiracy.
Background: Plaintiff OptronicTechnologies, Inc., also known as Orion Telescopes & Binoculars(Orion), designs and markets telescopes. Orion sueddefendants Ningbo Sunny Electronic Co., Ltd. and Sunny Optics,Inc., (collectively Sunny), manufacturers oftelescopes, for violations of federal antitrust law and Californialaws arising out of Sunny's alleged conspiracy with othertelescope manufacturers (Synta) in relation toSunny's acquisition of telescope manufacturer/distributorMeade, and other conduct. Before trial, the district court grantedpartial summary judgment to Sunny, holding that Orion lackedstanding to challenge Sunny's conduct on the ground that itprevented Orion from acquiring Meade, but holding that Orion maystill have been harmed by Sunny's acquisition of Meadebecause it concentrated the telescope market. After a trial, thejury found Sunny liable and awarded Orion $16.8 million in damages.The district court trebled the damages pursuant to the Clayton Act,and awarded Orion $50.4 million, but then deducted $3.1 millionbased on the value of a settlement and supply agreement Orion hadreached with Synta. The court refused to deduct the profits Orionderived from the supply agreement because Sunny had the burden ofproof and, the court concluded, the expert declaration it submittedto support this argument was untimely. The district court alsogranted Orion an injunction that ordered Sunny to supply Orion andMeade at non-discriminatory terms for five years; and notcommunicate with Synta to the extent such communication violatedfederal antitrust law.
Result:The Ninth Circuit vacated onlywith regard to the valuation of the settlement set-off, which wasremanded for further proceedings, and affirmed in all otherrespects.
The Court first rejected Sunny's challenges to thedistrict court's evidentiary rulings as toexpertsholding that the testimony of Orion's telescopemanufacturing expert and damages expert was properly admitted, andthe testimony of one of Sunny's proposed rebuttal experts wasproperly excluded. The Court further held that the districtcourt's mid-trial curative instruction limiting thejury's consideration of the testimony of one of Sunny'srebuttal witnesses was proper.
The Court also upheld that jury's verdict as based onsufficient evidence. The Court thus rejected Sunny's argumentthat Orion failed to present sufficient evidence to support thejury's verdict in Orion's favor on its Sherman Act1 claim. The Court explained that the elements of aSection 1 claim are: (1) a contract, combination, or conspiracy (2)that unreasonably restrained trade under either a per se rule ofillegality or a rule of reason analysis, and (3) that the restraintaffected interstate commerce. The Court noted that horizontal pricefixing and market allocation are per se Section 1 violations.Contrary to Sunny's argument, Orion had presented sufficientevidence that Sunny conspired with horizontal competitor Synta toensure that Sunny acquired Meade to protect their market share andguarantee that a competitor would not buy Meade. Orion alsopresented sufficient evidence from which the jury could properlyfind, as it alternatively did, that Sunny conspired with acompetitor to fix prices and credit terms. And Orion presentedsubstantial evidence to support the jury's verdict that Sunnyagreed with Synta, a horizontal competitor, either not to competewith one another in the market, or to divide customers or potentialcustomers between themanother per se Section 1violation.
The Court also rejected Sunny's challenge to thejury's verdict in favor of Orion on its Sherman Act2 claim. The court explained that Section 2 makes itillegal to monopolize, or attempt to monopolize, or combineor conspire with any other person or persons, to monopolize anypart of the trade or commerce. The jury could have foundthat Sunny and Synta intended for Sunny to have a monopoly over thetelescope manufacturing market, and thus the jury's verdictdid not depend on an impermissibly joint monopoly theory. And Orionhad not failed to define the relevant market, but insteadestablished the relevant market through expert testimony. Likewise,sufficient evidence supported the jury's finding that Sunnyexpressed a specific intent to gain monopoly power. Finally, Orionalso presented sufficient evidence to establish that Sunny wasdangerously close to attaining monopoly power. The evidence Orionpresented at trial established that Sunny's market share wasabove the forty-four percent market the Court has recognized assufficient to establish a dangerous proximity to market power atthe relevant time and there had been no new entrants to thetelescope manufacturing market for ten years.
The Court also denied Sunny's request for a new trial onOrion's Clayton Act 7 claim on the ground thatOrion had not proved damages from this violation as required. Onthis claim, the jury found Sunny violated Clayton Act 7because there was a reasonable likelihood that Sunny'sacquisition of Meade would substantially reduce competition in thetelescope manufacturing market or create a monopoly. Orion hadpresented evidence of antitrust injury on this claim on the theorythat Sunny's acquisition of Meade reduced the number of majortelescope manufacturers from three to two, enabling Sunny and itscompetitors to charge supracompetitive prices for telescopes, whichwas a major factor in the overcharges that Orion experienced in itsbusiness dealings with Sunny, Synta, and Meade.
The Court also concluded that the injunctive relief granted bythe district court was not overbroad. The Court stressed that adistrict court may order an injunction beyond a simple proscriptionagainst the precise conduct previously pursued and that thereviewing court asks only if the relief is a reasonable method ofeliminating the consequences of the illegal conduct. In particular,the district court validly ordered Sunny to supply Meade onnon-discriminatory terms because the telescope manufacturing marketwould become over-concentrated if Sunny eliminated Meade. And thedistrict court properly ordered Sunny to supply Orion even thoughit had earlier dismissed Orion's refusal-to-deal claimbecause the district court can order conduct to avoid a recurrenceof the antitrust violation and eliminate its consequences and here,the jury had found that Orion had been forced to pay inflatedprices as a result of the market power exerted by Sunny and Syntafollowing the unlawful Meade acquisition.
The Court also disagreed that Orion could not receive damagesarising after September 2016, when Sunny contended any conspiracymust have ended, because Orion offered substantial evidence thatthe conspiracy had continued after 2016 because although Synta hadat that point agreed to supply Orion on most favored customerterms, it actually kept overcharging Orion. And even if theconspiracy had ended in 2016, Orion could recover post-2016 damagesbecause it continued to suffer economic harm from the harm tocompetition caused by the illegal concerted activity. TheCourt found, however, that the district court had abused itsdiscretion in excluding a declaration of Sunny's expert insupport of Sunny's post-trial motion to alter or amend thejudgment as untimely disclosed because the expert had been timelydisclosed. The Court accordingly remanded for the district court toreconsider whether to accept the expert's declaration.
Turning to Orion's cross-appeal challenging the districtcourt's entry of summary judgment for Sunny on the issue ofwhether Sunny caused Orion's failure to acquire Meade, theCourt again affirmed. The Court explained that Orion did not haveantitrust standing to raise the issue because the timing of bidscreated a strong presumption that Orion would not have acquiredMeade even if Sunny had not outbid another competitor for Meade andthus there was no genuine dispute of material fact on whether Sunnyprevented Orion from buying Meade.
RUDOLF SIENEGA V. STATE OF CALIFORNIA FTB
The Court holds that a Chapter 7 debtor's state tax debtswere non-dischargeable where the debtor notified the CaliforniaFranchise Tax Board of a federal tax adjustment, but did not paystate taxes.
The panel: Chief Judge Thomas, andJudges McKeown and Molloy (D. Mont.), withChief Judge Thomas writing the opinion.
Key highlight: [T]he [BankruptcyAppellate Panel] correctly concluded that sending faxes was not theequivalent of paying taxes. Therefore, it properly affirmed theholding of the bankruptcy court that the California state taxesthat Sienega owed were nondischargeable in bankruptcy.
Background: Rudolf Sienega failed to fileCalifornia state income tax returns for 1990, 1991, 1992, and 1996.The IRS made upward adjustments in Sienega's federal taxliability for those years, and the U.S. Tax Court later ruled thatSienega was liable for additional accuracy-related penalties. AfterSienega's counsel notified the Franchise Tax Board of theadjustments to his income, the Board issued a notice of proposedassessment to Sienega for each of the four tax years. Sienega laterfiled for bankruptcy. The Board filed an adversary complaintseeking to have Sienega's outstanding state tax debtsdeclared nondischargeable on the ground that he had not filed statetax returns in any of the relevant years. The bankruptcy courtgranted summary judgment to the Board, rejecting Sienega'sargument that notifying Board about the income adjustments entitledhim to a discharge.
Result:The Ninth Circuit affirmed. TheCourt explained that Section 523(a)(1)(B) of the Bankruptcy Codebars the discharge of tax debts for which the debtor did not file areturn. A paragraph added in 2005 clarified thatthe term return' means a return that satisfiesthe requirements of applicable nonbankruptcy law, andincludes a return prepared pursuant to section 6020(a) ofthe Internal Revenue Code of 1986, or similar State or locallaw. Section 6020(a) authorizes the IRS to prepare a returnfor someone who has failed to file a return but has disclosedall information necessary for the preparationthereof. Sienega argued that he had complied with asimilar California state law by faxing the Boardnotice of his federal tax adjustments under California Revenue andTaxation Code section 18622, which requires taxpayers to report IRSchanges and corrections. The faxes did not constitute areturn, the Court said, because they did not meetCalifornia law requirements for returns, did not purport to bereturns, were unsigned, did not contain enough data to allowcomplete computation of state tax, and nothing in the faxesindicated an honest and reasonable attempt to satisfy therequirements of tax law. In short, the Courtsaid, one of these things is not like the other. TheBankruptcy Appellate Panel thus correctly concluded that becausethe faxes did not constitute state tax returns, Sienega'sstate tax debts were not dischargeable.
Because of the generality of this update, the informationprovided herein may not be applicable in all situations and shouldnot be acted upon without specific legal advice based on particularsituations.
Morrison & Foerster LLP. All rights reserved
See the article here:
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