United States District Court, D. Colorado
JOHANA PAOLA BELTRAN, LUSAPHO HLATSHANENI, BEAUDETTE DEETLEFS, DAYANNA PAOLA CARDENAS CAICEDO, and ALEXANDRA IVETTE GONZÁLEZ, on behalf of themselves and others similarly situated, Plaintiffs,
INTEREXCHANGE, INC., USAUPAIR, INC., GREATAUPAIR, LLC, EXPERT GROUP INTERNATIONAL INC., d/b/a EXPERT AUPAIR, EURAUPAIR INTERCULTURAL CHILD CARE PROGRAMS, CULTURAL HOMESTAY INTERNATIONAL, CULTURAL CARE, INC., d/b/a CULTURAL CARE AU PAIR, AUPAIRCARE INC., AU PAIR INTERNATIONAL, INC., APF GLOBAL EXCHANGE, NFP, d/b/a AUPAIR FOUNDATION, AMERICAN INSTITUTE FOR FOREIGN STUDY, d/b/a AU PAIR IN AMERICA, AMERICAN CULTURAL EXCHANGE, LLC, d/b/a GOAUPAIR, AGENT AU PAIR, A.P.EX. AMERICAN PROFESSIONAL EXCHANGE, LLC, d/b/a PROAUPAIR, 20/20 CARE EXCHANGE, INC., d/b/a THE INTERNATIONAL AU PAIR EXCHANGE, and ASSOCIATES IN CULTURAL EXCHANGE, d/b/a GOAUPAIR, Defendants.
ORDER ADOPTING AND AFFIRMING IN PART FEBRUARY 22, 2016 RECOMMENDATION OF UNITED STATES MAGISTRATE JUDGE
CHRISTINE M. ARGUELLO United States District Judge
This matter is before the Court on the February 22, 2016 Recommendation of United States Magistrate Judge Kathleen M. Tafoya (Doc. # 240) on a handful of motions to dismiss in the instant case.
In her Recommendation, Magistrate Judge Tafoya analyzed five separate motions to dismiss brought by some combination of the fifteen Defendants named in this matter: Defendant Cultural Care, Inc.’s Motion to Dismiss All Claims in First Amended Complaint (Doc. # 127), Motion to Dismiss the First Amended Complaint by Defendant Interexchange, Inc. (Doc # 130), Defendant American Cultural Exchange, LLC, D/B/A Go Au Pair’s Motion to Dismiss Counts I, III, IV, V, VI, VII, VIII, IX and X of the First Amended Complaint (Doc. # 131), Joint Motion by Certain Sponsor Defendants to Dismiss the First Amended Complaint (Doc. # 135), and Defendant American Institute for Foreign Study’s Motion to Dismiss Amended Complaint (Doc. # 136). She recommended the Joint Motion by Certain Defendants to Dismiss the First Amended Complaint (Doc. # 135) be denied. (Doc. # 240 at 43.) Additionally, she recommended that the remaining motions (Doc. ## 127, 130, 131, and 136) should be granted in part and denied in part; specifically, that Plaintiffs’ claim under the Utah Minimum Wage Act and Plaintiffs’ claim for breach of contract should be dismissed,  but that Plaintiffs’ remaining claims should proceed. (Id.)
On March 14, 2016, Defendants filed two timely, consolidated objections to Judge Tafoya’s Recommendation; one relates to her recommendation regarding Plaintiffs’ antitrust claims (Doc. # 248), and the other relates to her recommendation regarding Plaintiffs’ remaining claims (Doc. # 247). Plaintiffs also filed a Response to Defendants’ Objections. (Doc. # 256.)
The Recommendation is incorporated herein by reference. See 28 U.S.C. § 636(b)(1)(B); Fed.R.Civ.P. 72(b). As such, the Recommendation’s thorough recitation of the factual background of this case will be reiterated only to the extent necessary to resolve Defendants’ objections.
A. Legal Standard
When a magistrate judge issues a recommendation on a dispositive matter, Fed.R.Civ.P. 72(b)(3) requires that the district judge “determine de novo any part of the magistrate judge’s [recommended] disposition that has been properly objected to.” In conducting its review, “[t]he district judge may accept, reject, or modify the recommended disposition; receive further evidence; or return the matter to the magistrate judge with instructions.” Id.
1. Plaintiffs’ Sherman Act Claims
Plaintiffs sue fifteen so-called “Sponsor” organizations (Sponsors), a mix of for-profit and non-profit organizations that are formally designated by the U.S. Department of State (DOS) as the exclusive entities permitted to recruit and place au pairswith host families in the United States under the J-1 Visa program. (Doc. # 110, ¶¶ 45–47, 72.) Judge Tafoya’s Recommendation found that Plaintiffs’ allegations were sufficient to state a claim for price fixing under Section 1 of the Sherman Act (Doc. # 240 at 13), which provides, in relevant part, that “Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.” 15 U.S.C. § 1 (Section 1).
Plaintiffs’ Amended Complaint alleges that the Sponsors, who have “100% of the market power within the relevant market, including the power jointly to set au pair compensation below competitive and legal levels, ” have violated Section 1 by engaging in a conspiracy not to compete with one another with respect to au pair wages. (Doc. # 110, ¶¶ 2, 72.) In other words, Plaintiffs allege that the Sponsors have agreed among themselves to create an artificially low, anticompetitive “wage floor” for au pairs – that is, to “fix” the price of au pair wages. Plaintiffs allege that such an agreement is to the Sponsors’ economic advantage, as wages are one of several components of the overall “price” of providing an au pair to a host family, and the Sponsors must compete both for au pairs and for host families. In particular, they allege that this so-called “wage-fixing” agreement benefits the Sponsors in at least two ways: first, it allows them to effectively increase the portion of the overall costs to host families that are comprised of Sponsors’ fees without increasing overall costs to host families for employing an au pair; second, it allows the Sponsors to expand the number of potential host families they can attract (i.e., customers), by increasing the afford ability of au pair child care child arrangements for host families vis-à-vis other kinds of child care arrangements. (Id., ¶ 132.) “Both of these results increase Sponsors’ profits, at the expense of au pairs.” (Id.)
As a preliminary matter, Defendants’ objection to the legal standard employed by Judge Tafoya is without merit. Defendants assert that Judge Tafoya erred because her Recommendation
failed to address the fact that Plaintiffs fail to allege facts in their Amended Complaint sufficient to exclude the possibility of independent action, even where parallel conduct is present, as required by Monsanto Co. v. Spray Rite Ser v. Corp., 484 U.S. 752 (1984) (cited by the Court in Twombly for that proposition at 550 U.S. 557, 556).
(Doc. # 238 at 8) (emphasis added). In making this argument, Defendants conflate the summary judgment standard (i.e., the standard applicable in Monsanto) and the motion to dismiss standard (i.e., the standard applicable here). As Plaintiffs explained long ago in their Response brief to Defendants’ Consolidated Motion to Dismiss (Doc. # 199 at 18), in Monsanto, the United States Supreme Court held that, in order to survive a motion for a directed verdict (which is analogous to the standard applied to a summary judgment motion), “there must be evidence that tends to exclude the possibility of independent action.” Id. at 769. Obviously, Judge Tafoya’s decision to apply the correct standard for the 12(b)(5) Motions before her, rather than the directed verdict/summary judgment standard, was not erroneous.
In Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007), the seminal case outlining the pleading standard for Section 1 under the Sherman Act, plaintiffs brought a class action suit against several telephone companies, alleging that the companies had conspired to stay in their own markets and to keep other companies out of those markets in violation of Section 1. The United States Supreme Court explained that because Section 1 does not prohibit all unreasonable restraints of trade, but only those restraints “effected by a contract, combination, or conspiracy, the crucial question is whether the challenged anticompetitive conduct stems from independent decision or from an agreement.” Id. at 553 (emphasis added). Accordingly, that Court held that, to survive a Motion to Dismiss, a complaint must present “enough factual matter (taken as true) to suggest that an agreement was made . . . [and] to raise a reasonable expectation that discovery will reveal evidence of illegal agreement.” Id. at 556. An agreement, however, need not be in writing or be explicit, and may be established by either direct or circumstantial evidence. See Id. at 553 (stating that the agreement may be “tacit or express”); Cayman Expl. Corp. v. United Gas Pipe Line Co., 873 F.2d 1357, 1361 (10th Cir. 1989) (“In the absence of an explicit agreement, conspiratorial conduct may be established by circumstantial evidence.”).
“Direct evidence [of] a Section 1 conspiracy must be evidence that is explicit and requires no inferences to establish the proposition or conclusion being asserted.” Champagne Metals v. Ken-Mac Metals, Inc., 458 F.3d 1073, 1083 (10th Cir. 2006) (citing In re Baby Food Antitrust Litig., 166 F.3d 112, 118 (3d Cir. 1999)). However, because direct evidence of concerted action is “so rare, ” the antitrust law has “granted fact finders some latitude to find collusion or conspiracy from parallel conduct and inferences drawn from the circumstances.” Oltz v. St. Peter's Cmty. Hosp., 861 F.2d 1440, 1450-51 (9th Cir. 1988). Specifically, if a complaint does not contain direct evidence of an agreement, but instead makes only allegations of so-called “parallel conduct, ” e.g., allegations of similar pricing behavior, etc., such allegations “must be placed in a context that raises a suggestion of a preceding agreement, not merely parallel conduct that could just as well be independent action.” Twombly, 550 U.S. at 557. That is, the complaint must contain “allegations plausibly suggesting (not merely consistent with) agreement.” Id. (emphasis added); see also Mitchael v. Intracorp, Inc., 179 F.3d 847, 859 (10th Cir.1999) (“While consciously parallel behavior may contribute to a finding of antitrust conspiracy, it is insufficient, standing alone, to prove conspiracy”). In considering whether a Plaintiff has alleged sufficient circumstantial evidence of conspiracy, the Court considers the allegations as a whole. Evergreen Partnering Group, Inc. v. Pactiv Corp., 720 F.3d 33, 47 (1st Cir. 2013) (“While each of [the plaintiff’s] allegations of circumstantial agreement standing alone may not be sufficient to imply agreement, taken together, they provide a sufficient basis to plausibly contextualize the agreement necessary for pleading a [Section] 1 claim.”)
At bottom, Defendants’ Objection is rooted in the proposition that Judge Tafoya “stray[ed] from the law by failing to recognize the impermissibility of inferring anticompetitive conspiracy from parallel conduct where there is independent business rationale for the behavior.” (Doc. # 248 at 2) (emphasis added). Defendants’ argument, however, fails to properly consider Plaintiffs’ allegations of a direct agreement, that is, the fact that Plaintiffs allege that there was more than mere parallel conduct indicative of an agreement among the Sponsors.
Although the Sponsors filed a Motion to Strike sections 90 through 94 of Plaintiffs’ Complaint at an earlier juncture in this case – i.e., those sections of the Complaint in which Plaintiffs allege that several of the Sponsors’ employees (the “Directors”) explicitly admitted to Plaintiffs’ investigator that the Sponsors had expressly agreed among themselves to keep au pair wages at the lowest possible level - Judge Tafoya denied their Motion and Defendants did not appeal her ruling. (Doc. # 235.) As such, in resolving Defendants’ Motions to Dismiss, Judge Tafoya properly considered these allegations and took them to be true, and this Court must do the same. Although Judge Tafoya did not discuss these allegations in great detail, the Court finds it worth doing so here, as they amount to what Judge Richard Posner has termed the “the smoking gun in a price-fixing case” - namely, “direct evidence, . . . [in] the form of an admission by an employee of one of the conspirators, that officials of the defendants had met and agreed explicitly on the terms of a conspiracy to raise prices.” See In re Text Messaging Antitrust Litig., 630 F.3d 622, 628 (7th Cir. 2010) (Posner, J.); see also Gen. Chemicals, Inc. v. Exxon Chem. Co., USA, 625 F.2d 1231, 1233 (5th Cir. 1980) (quotation omitted) (noting that “Rarely, if ever, can a plaintiff point to a ‘smoking gun’” of “direct evidence of a specific agreement between defendants” in a Sherman Act case).
Specifically, in the instant case, Plaintiffs allege as follows:
• In a telephone conversation on November 20, 2014, a representative of one Sponsor Defendant, with the title of “Director, ” admitted that there was an understanding between all of the Sponsors to pay standard au pairs the same amount. The sponsor explained that the government sets a minimum amount, but that all of the Sponsors then agreed among themselves to pay exactly that minimum amount. This Sponsor thus characterized the “stipend paid to the au pairs” as a “fixed expense.” The Sponsor explained that the stipend “is where pricing becomes standard across all agencies, ” and that “there is no difference in prices, as far as the stipend goes, between all of the agencies.”
• In a telephone conversation on November 21, 2014, a representative of another Sponsor, also with the title of “Director, ” admitted that all of the Sponsors agreed to set au pair wages at $195.75 per week. Specifically, the Sponsor acknowledged that each and every Sponsor got together and agreed to pay au pairs a stipend of no more than $195.75 a week. As the representative added, the Sponsors “all agreed to pay that amount, no more.”
• In yet another telephone conversation on November 21, 2014, a representative of yet another Sponsor, again with a “Director” title, explained why “the stipend is identical across all companies.” The representative admitted that the Sponsors all agreed to pay that exact same minimum rate. As the Sponsor noted, “[e]verybody agrees” to pay au pairs no more than the minimum weekly wage.
(Doc. # 101, ¶¶ 92–94) (emphasis added).
Defendants argue that the statements quoted above are not sufficiently specific to infer that there was an agreement among the Sponsors, because Plaintiffs (1) did not identify the specific individuals involved in the alleged agreement or the time or place where the agreement was made, and (2) provide “no information to suggest the individuals actually had authority to speak for one, much less all, of sponsor Defendants.” (Doc. # 248 at 14). In support of this proposition, they cite a footnote from Twombly, in which the Supreme Court stated
Apart from identifying a 7-year span in which the [Section] 1 violations were supposed to have occurred . . . the pleadings mentioned no specific time, place, or person involved in the alleged conspiracies . . . . [A] defendant seeking to respond to plaintiffs’ conclusory allegations in the § 1 context would have little idea where to begin.
550 U.S. at 565 n. 10 (emphasis added). There are a variety of reasons why Twombly offers very little guidance in this case. First, the above-quoted allegations of direct evidence in the form of admissions by the Sponsors are well-plead, not “conclusory, ” because they supply “a factual narrative” supporting their legal conclusions, in providing details like the specific dates of the admissions, that they were made by the Sponsor’s employees, and exact quotes about the admissions themselves. See Arapahoe Surgery Ctr., LLC v. Cigna Healthcare, Inc., 80 F.Supp.3d 1257, 1263-64 (D. Colo. 2015) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 681 (2009) (explaining that “[a]llegations are deemed ‘conclusory’ where they state a legal conclusion without supplying a factual narrative for that conclusion, such that they ‘amount to nothing more than a ‘formulaic recitation of the elements of a . . . claim.’ For example, a conclusory allegation [of] a [Section] 1 claim would state little more than that the defendant joined a conspiracy to unreasonably restrain trade”)). Additionally, Twombly offers no guidance regarding the specificity required in a well-pleaded allegation of an explicit/direct agreement, because plaintiffs’ complaint in that case was based solely on circumstantial evidence of an agreement. See Twombly, 550 U.S. at 564 (noting that “the complaint leaves no doubt that plaintiffs rest their [Section] 1 claim on descriptions of parallel conduct and not on any independent allegation of actual agreement”). However, a Tenth Circuit case – Champagne Metals v. Ken-Mac Metals, Inc., 458 F.3d 1073, 1084 (10th Cir. 2006) – is particularly instructive in analyzing the instant case, which, as described above, involves well-plead allegations of a direct agreement along with allegations of circumstantial evidence of such an agreement.
In Champagne Metals v. Ken-Mac Metals, Inc., 458 F.3d 1073, 1084 (10th Cir. 2006), a smaller, newer entrant to the aluminum distribution business brought suit under Section 1 against seven larger, more established aluminum distributors, alleging that those established distributors had agreed among themselves to exclude new competitors. The Tenth Circuit characterized the following ...