Antitrust Law Daily Wrap Up, ANTITRUST—8th Cir.: Contractor’s claims in spray foam equipment price-fixing litigation dismissed, (Aug 13, 2015)

By Jody Coultas, J.D.

The U.S. Court of Appeals in St. Louis affirmed dismissal of Insulate SB, Inc.’s state and federal antitrust law claims against Graco, Inc. and its business partners for failure to show a concerted effort to retrain trade. Insulate had not alleged sufficient facts to allow its case to proceed to discovery (Insulate SB, Inc. v. Advanced Finishing Systems, Inc., August 13, 2015, Riley, W.).

Graco manufactures fast-set spray foam equipment (FSE) and sells it to distributors, who then resell to consumers like Insulate. In 2008, Graco’s share of the FSE manufacturing market was “above 90%.” In 2013, the FTC accused Graco of unlawfully acquiring its competitors in violation of Clayton Act. Graco and the FTC entered a consent agreement which confirmed Graco would not engage in any practice “that has the purpose or effect of achieving Exclusivity with any Distributor.”

Insulate alleged that Graco and a collection of FSE distributors conspired to reduce competition in violation of the Sherman Act, the Clayton Act, and numerous states’ antitrust and consumer protection laws. The district court granted dismissal of the claims based on the expiration of the statute of limitations.

Antitrust standing. Insulate had antitrust standing based on its allegations of conspiracies between Graco and the distributors and naming the distributors as defendants, according to the court. Indirect purchasers may bring an antitrust claim if they allege the direct purchasers are “party to the antitrust violation” and join the direct purchasers as defendants.

Adequacy of claims. Insulate was unable to present evidence that the defendants entered into either an express or implied agreement to retrain trade, according to the court. The critical element of each of Insulate’s claims was the existence of a contract or conspiracy. To satisfy the concerted action requirement, “the plaintiff must demonstrate that the defendants shared a ‘unity of purpose or a common design and understanding, or a meeting of the minds’.” In October 2007, Graco sent a letter to its distributors citing the “best efforts” clause in its distributor agreements and expressing its preference that distributors refrain from adding non-Graco products. This letter was proof, according to Insulate, of a conspiracy. However, there was no evidence that the distributors signed the letter or agreed to the terms of the letter. Thus, there was no evidence of a “meeting of the minds.” Also, Graco’s unilateral decision not to supply distributors who sold competing products did not transform a prior distributor agreement into a contract for exclusive dealing.

The only allegations in the complaint that came close to suggesting a conspiracy were those concerning Foampak. After learning Foampak was considering taking on a competitive product line, Graco threatened to end Foampak’s distributorship, so Foampak chose not to carry a competitive product. Manufacturer may choose to deal, or refuse to deal, with whomever they like, as long as they do so independently. However, Insulate could not challenge this conspiracy because it did not name Foampak as a defendant. Insulate also failed to name any other distributors that engaged in the alleged conspiracy.

State law claims. Because the Minnesota and California state antitrust laws were patterned on federal law, the court also found Insulate failed to adequately plead the state law claims.

The case is No. 14-2561.

Attorneys: Joshua P. Davis (Joseph Saveri Law Firm, Inc.), Veronica L. Harris (Nossaman LLP), and Eric N. Linsk (Lockridge & Grindal) for Insulate SB, Inc. Casey Dylan Marshall (Bassford & Remele) for Advanced Finishing Systems, Inc., AirTech Spray Systems, C.H. Reed, Inc., and C.J. Spray. Jeanne Welch Sopher (Rawle & Henderson), and Elizabeth Marie Sorenson Brotten (Foley & Mansfield) for Barnhardt Manufacturing Co.

Companies: Insulate SB, Inc.; Graco Inc.

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