Metropolitan News-Enterprise


Monday, August 18, 2008


Page 1


Court: Intervenor May Be Liable for Fees in Antitrust Case


By SHERRI M. OKAMOTO, Staff Writer


An intervenor may be held jointly and severally liable for attorney fees and costs incurred in a prevailing plaintiff’s antitrust action, regardless of whether the intervenor was liable for unlawful conduct, the Ninth U.S. Circuit Court of Appeals ruled Friday.

The three-judge panel partially reversed U.S. District Court Judge Marsha J. Pechman of the Western District of Washington’s ruling finding an intervenor was not liable for over $1.5 million in costs and attorney fees arising from Costco Wholesale Corporation’s challenge to state regulations restricting the pricing authority and business practices of alcoholic beverage producers, distributors, and retailers as violating the Sherman Antitrust Act and the Commerce Clause.

Shortly after Costco filed its complaint, the Washington Beer and Wine Wholesalers Association—a non-profit professional trade organization comprised of beer and wine distributors—filed a motion to intervene as a defendant.

Pechman granted the motion, finding that the association had a protectable interest in the litigation because Costco’s claims challenged the statutes and regulations underlying association members’ contractual arrangements with producers and retailers and that the state would not necessarily adequately represent the association’s interests in the litigation.

Despite the association’s intervention and material assistance of the state in defending the challenged laws, Costco prevailed on the majority of its claims. Peachman determined that the state’s regulatory scheme violated the commerce clause by discriminating against out-of-state breweries and wineries, and except for a ban of retailer-to-retailer sales, also violated federal antitrust law.

The parties stipulated that Costco was entitled to $1,635,741 in fees and $66,972 in costs and that the state was liable under 42 U.S.C. § 1988(b)— which provides that “[i]n any action proceeding to enforce a provision of [42 U.S.C. §] 1983…the court, in its discretion, may allow the prevailing party…a reasonable attorney’s fee as part of the costs”—and 15 U.S.C. § 26—which provides that a court “shall award the cost of suit, including a reasonable attorney’s fee,” to any plaintiff who files an action seeking injunctive relief “against threatened loss or damage by a violation of the federal antitrust laws” and “substantially prevails”—but disagreed about whether the association was jointly and severally liable with the state.

 Peachman concluded that Independent Federation of Flight Attendants v. Zipes (1989) 491 U.S. 754 precluded holding the association liable for fees. Zipes held that a district court should not grant fees against an “innocent” intervenor unless the intervenor’s action was “frivolous, unreasonable, or without foundation.”

Writing for the appellate court, however, Judge Milan D. Smith Jr. explained that Zipes only applies to fee shifting statutes that limit a court’s discretion to award fees, such as 42 U.S.C. § 1988(b) for civil rights claims.

Because the association had not been found liable for engaging in unlawful activity and presented a colorable argument, Smith concluded the district court did not abuse its discretion in declining to find the association liable under 42 U.S.C. § 1988(b).

However, Smith reasoned, Zipes was inapplicable to 15 U.S.C. § 26, which provides a mandatory fee award for a prevailing plaintiff in an antitrust action.

“We see little basis for extending a rule intended to limit the exercise of discretion to a statute that leaves no room for discretion in the first place,” he wrote.

Because the association’s intervention increased Costco’s expenses in challenging the state’s anti-competitive laws and were carried out because of the association’s direct economic interest in the outcome of the litigation, and the purpose of Sec. 26 is to protect a litigant’s incentive to challenge anti-competitive state laws, Smith concluded, the costs imposed on Costco were of the type from which Sec. 26 seeks to protect and that the association would be liable for them if the district court finds Costco “substantially prevailed” on its antitrust claims on remand.

Judge Carlos T. Bea and Senior United States District Judge Joseph M. Hood of the Eastern District of Kentucky, sitting by designation, joined Smith in his opinion.

The case is Costco Wholesale Corporation v. Hoen, 06-36040.


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