Addressing Antitrust - BodyShop Business

Addressing Antitrust

When it comes to violating antitrust laws, insurance companies aren’t always the villains. Learn when it’s OK to speak out and join forces with industry members — and when it’s better to just zip your lips.

I can tell you everything I know about the antitrust laws," the owner of a small body shop said recently. "Years ago, a group of body shop owners wanted to get together to see what we could do about raising the labor rate the insurance companies were paying us because we didn’t feel it was fair. We arranged to have a meeting to discuss this. We all showed up and the first thing the fellow running the meeting told us was that we couldn’t talk about our labor rates because it would be against the antitrust laws! I don’t think we ever had another meeting."

This is typical of the mystery involving antitrust. In fact, if you go to many trade association meetings, you may see or hear an admonition not to talk about "getting together to do something." This rule is probably there because most people know antitrust laws have something to do with conspiring on certain matters, like those affecting prices.

What Exactly Is Antitrust?
The basic purpose of antitrust laws is to preserve full and free competition, and the laws principally focus on any activity that unfairly restricts that competition.

Historically, the first laws were aimed at huge industries like oil, tobacco and sugar. People feared that great amounts of wealth would become concentrated in the hands of a few companies; the result was passage of the Sherman Act in 1890. In general, the act prohibits agreements, combinations and conspiracies in restraint of trade. Such practices as price fixing, exclusive customers and territories, and refusals to deal with certain parties were some of the targets of the act.

Following that came the Clayton Act in 1914, which dealt with exclusive dealing, requirements contracts and tying arrangements. This statute also has provisions involving banking and financial institutions, as well as common carriers.

The Federal Trade Commission Act, passed in 1914, dealt with unfair or deceptive acts and trade practices.

The Robinson-Patman Act, which was actually part of the Clayton Act, was passed in 1936 and covers price discrimination and fees for brokers, allowances and services. Its purpose was to prevent large companies from using their massive buying power to obtain benefits not available to smaller purchasers.

All of these are federal statutes. In addition to them, most states also have some sort of antitrust statutes.

Book ’Em!
Violations of the federal or state statutes, although they differ in various jurisdictions, can carry stiff fines and even a prison sentence.

In addition to these criminal penalties, a consumer or private citizen can sue for damages as a result of an antitrust violation. The incentive to sue is increased because of the provisions for triple damages in the event a defendant is held accountable in a civil action; these civil suits are frequently filed as class actions, causing an extreme financial risk to a company against which such a suit is brought.

Besides this, attorneys general of various states have the authority to bring suit on behalf of those injured by antitrust violations. It’s perhaps this type of action with which the public is most familiar. When a state official appears to act on behalf of every consumer in his state who bought a certain product at an illegally fixed price, it always makes the news. Maybe you’re still holding airline script awards from a settlement made with the nation’s major airlines for fixing fares a few years ago; if you traveled on a designated airline during a certain period, then you filled out a form and, as a result of a class-action settlement, you probably received a small monetary award for use on future airline-ticket purchases.

Antitrust and the Autobody Industry
Whenever the public perceives prices are being manipulated by some large company rather than free-market competition, cries of "antitrust violation" automatically occur. And it’s perhaps the us-against-them — "small guy against the giant" — type thinking that naturally pits body shops against the insurance industry; as the insurance industry seeks to find new ways to cut costs for body work, many repairers are searching for remedies — and the antitrust laws have been looked at as one such cure.

For example, if New Jersey passes a law that requires all body shops to work for the same rate, isn’t that price fixing? Or if insurance companies have a preferred list of shops and a consumer who doesn’t want to go to one of those shops is told "go wherever you want, but we won’t guarantee the work at the shop you choose," isn’t that some type of coercion that violates antitrust statutes?

The problem here for collision repairers is that the insurance industry is typically regulated by a state insurance department or division, as opposed to being subject to federal antitrust laws. This is the doctrine of state action, according to professor Marc Fajer, University of Miami School of Law. Basically, when Congress passed the federal antitrust acts, it didn’t intend to interfere with state regulation of various entities, like insurance. This leaves regulation of alleged violations of the state insurance codes to either the departments that oversee those areas or to the state attorneys general — if they choose to get involved in matters such as your insurance adjuster’s failure to pay you a higher labor rate year after year, despite the rising cost of doing business.

The bad news for body shops trying to ride the antitrust horse into courtroom glory is that ideas that are presently distasteful to some body shops — like direct-repair programs (DRPs), preferred-list shops, insurance companies creating their own in-house body shops and insurance policies that restrict some repairs — may simply be the consolidation wave of the future.

It’s often said, according to Fajer, that antitrust laws protect competition, not the individual competitors. "The corner grocery store may be too small to exist in the Wal-Mart world," says Fajer. In other words, if a change in the insurance company/body shop relationship can be justified in some way that ultimately benefits the consumer, it’s unlikely any insurance-code or antitrust violation will be found. For example, if insurance companies can charge lower premiums for vehicle insurance because they’ve reduced costs by developing their own repair facilities, then the consumer has arguably benefited from the change.

But the other side of the argument would also seem to apply. If consumers can be shown they’re not getting the type of repairs they deserve because body shops aren’t being paid fair labor rates that allow them to hire quality personnel or because in-house repair shops may have more allegiance to insurance companies than insureds or because they aren’t being allowed to select facilities they know and love, then unhappy consumers are a powerful lobby for change.

On the flip side of this coin, though most body shop owners initially think of insurance companies as potential villainous antitrust-law violators, Fajer can envision some interesting scenarios in which body shops may be in violation. If, for example, large multi-location body shops conspire to coerce suppliers or insurance companies to treat them in a more favorable way than smaller, individual body shops, this is a potential antitrust violation. And because as an industry, body shops wouldn’t fall under a specific state code as insurance companies do, their behavior conceivably could be subject to federal law.

Free Speech
How can body shop owners get together and talk about their problems without violating antitrust laws? The Noerr-Pennington doctrine exempts collective good-faith activity designed to influence the government. In other words, there’s no prohibition against talking about legal means to effect change.

For example, a group of Washington, D.C., trial attorneys who took appointed cases were dissatisfied with the per-hour rate paid for their representation of indigent defendants, so they met to discuss how to talk to the courts regarding this problem. They hadn’t, at this point, violated any laws by talking about legal ways to change things. But when they decided not to work unless they got an increase in pay, they violated the antitrust laws.

Agreements to actually do something get closer to antitrust violations since they affect a larger percentage of the market. It’s unlikely the courts would find an antitrust violation if two small body shops in Pasadena, Texas, talked about how XYZ Insurance Company had never paid them what they were really worth and how they should just "work slower" on that company’s jobs. Why? Simply because the few jobs they got from XYZ each year would have no overall impact on the market.

Avoiding Antitrust Violations
In an attempt to avoid violating antitrust laws, Fajer suggests it’s always safer for trade associations and people in one particular business to talk about facilities, requirements, licensing or anything else besides matters involving money.

If you have a significant matter for discussion that can be remedied by legitimate and lawful governmental means, don’t be afraid to discuss it, particularly with trade counsel present for advice. Just beware of conspiring to affect pocketbooks — it’s arguably the first step to an antitrust violation.

Writer Susan Martin has her own law practice in Miami and is licensed to practice in the state and federal courts of Texas, Florida, Hawaii and Nevada. She’s also married to a body shop owner.

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