Antitrust Law Daily Wrap Up, ANTITRUST—D.N.J.: Claims raised by indirect purchasers of pipe fittings scaled back, (Oct 3, 2013)

By Tobias J. Gillett, J.D., LL.M.

In an action against manufacturers and distributors of ductile iron pipe fittings, the federal district court in Trenton, New Jersey, has dismissed indirect purchaser plaintiffs’ (IPPs) claims under the laws of 21 states and the District of Columbia for lack of standing. In addition, the court dismissed claims for injunctive relief by the IPPs and the State of Indiana, and dismissed the claims of five IPPs for failure to allege individual injury. However, the remaining antitrust, consumer protection, and unfair competition claims filed by the IPPs and Indiana could proceed (In re Ductile Iron Pipe Fittings (“DIPF”) Indirect Purchaser Antitrust Litigation, October 2, 2013, Thompson, A.).

Star Pipe Products, Ltd., McWane, Inc., and Sigma Corporation are manufacturers and distributors of ductile iron pipe fittings used to join pipes in municipal water and waste distribution systems. According to the complaint, the companies reached an agreement to fix prices under which McWane agreed to raise prices in exchange for Star and Sigma agreeing to adopt business practices that would reduce the risk they would sell below the agreed prices. On January 11, 2008, McWane raised prices, and Star and Sigma later followed suit. In June 2008, they renewed their agreement, with McWane agreeing to increase prices in coordination with Star and Sigma in exchange for sales information from those companies.

In February 2009, Congress enacted the American Recovery and Reinvestment Act (ARRA), which provided funds for water infrastructure projects and contained a provision requiring all funded projects to purchase domestically-produced materials. At that time, McWane was the only domestic producer of a full line of DIPF. Following enactment of the ARRA, Sigma sought to enter the domestic DIPF market, but McWane and Sigma entered an agreement under which Sigma agreed instead to become a distributor of McWane’s domestic DIPF. When Star also announced its intent to enter the domestic DIPF market, McWane allegedly adopted certain restrictive and exclusive distribution policies aimed at impeding and delaying Star’s entry.

Indirect purchasers of DIPF filed suit against McWane, Sigma, and Star, asserting claims under federal and state antitrust law and state consumer protection and unfair competition statutes. On March 18, 2013, the court dismissed the claims without prejudice (2013-1 Trade Cases ¶78,306), concluding that the IPPs had failed to demonstrate that any of them had suffered a cognizable injury stemming from allegedly anticompetitive conduct. The IPPs then filed a second amended complaint, asserting similar claims. In the present decision, the court addressed the defendants’ motions to dismiss the IPPs’ clams and claims filed by the state of Indiana under federal and Indiana antitrust law.

Injunctive relief. The court dismissed the IPPs’ and Indiana’s claims for injunctive relief. The court observed that the IPPs’ most recent allegations involved events from September 2009, while Indiana’s allegations involved events occurring no later than June 2010. The court found these allegations to be “insufficient to set forth a real and immediate danger.” Moreover, Sigma and Star had agreed in consent decrees with the FTC to abstain from the same conduct that the IPPs and Indiana sought to enjoin. Although the existence of a consent decree did not foreclose the possibility of injunctive relief, it was relevant to determining whether a danger of future violations existed, and neither the IPPs nor Indiana had alleged that the consent decrees were inadequate or identified any conduct that should be enjoined beyond that prohibited by the consent decrees.

Standing. The court concluded that the IPPs’ claims had to be dismissed for lack of standing to the extent that they alleged claims under the laws of Arizona, Arkansas, California, the District of Columbia, Hawaii, Iowa, Maine, Massachusetts, Minnesota, Mississippi, Nevada, New Mexico, Oregon, Rhode Island, South Carolina, South Dakota, Tennessee, Utah, Vermont, West Virginia, and Wisconsin. The court noted a split in authority among federal district courts regarding whether plaintiffs had to establish standing for each claim in their complaints prior to class certification. Here, the IPPs asserted claims under the laws of 29 states, but alleged that they were injured only in their home states of Florida, Kansas, Michigan, Nebraska, New Hampshire, New York, North Carolina, and North Dakota.

The court chose to follow the approach holding that “named plaintiffs lack standing to assert claims under the laws of the states in which they do not reside or in which they suffered no injury.” The court noted that the alternative would be to allow the IPPs “to embark on lengthy class discovery with respect to injuries in potentially every state in the Union,” without injuries alleged in relation to the laws of some of them. The court declined to defer the standing issue until after class certification, concluding that relevant Supreme Court precedent did not “permit a court to defer such analysis when class certification and standing issues are not presented simultaneously.”

The court rejected the defendants’ argument that the claims of five of the named IPPs and Indiana should be dismissed because they had purchased DIPF as part of a water systems project contract, and did not sufficiently allege that they paid a higher price under those contracts as a result of the alleged conspiracy. Requiring the plaintiffs to allege how the price of DIPF affected the price under the contracts would require the plaintiffs “to satisfy burdens in their pleadings properly required only at the summary judgment stage.” Moreover, “general economic principles suggest[ed] that indirect purchasers often suffer the greatest harm from illegal overcharges.”

The court also concluded that the water systems plaintiffs had adequately alleged antitrust standing. The court initially determined that the prudential standing test from the Supreme Court’s 1983 decision in Associated General Contractors of California, Inc. v. California Council of Carpenters, 459 U.S. 519 (“AGC”), applied to the plaintiffs’ claims under Michigan and Nebraska law , but not to the plaintiffs’ claims under Indiana, Minnesota, New York, North Dakota, or North Carolina law.

The court concluded that the AGC test permitted the water systems plaintiffs’ claims to proceed under Michigan and Nebraska law. The plaintiffs’ allegations that they purchased contracts that included DIPF subject to the alleged conspiracy, and that they paid more for the contracts as a result, were sufficient to show a causal connection between the alleged antitrust violation and the injury and to demonstrate an injury of the type the antitrust laws were intended to redress. The plaintiffs’ allegations were also sufficient to show that the DIPF in water systems projects could be traced through the chain of distribution, and therefore satisfied the directness of injury requirement. Although more direct victims existed, including direct purchasers and indirect purchasers who purchased DIPF as a stand-alone project, that factor did not “alone mandate dismissal.” Finally, although a potential for duplicative recovery or complex apportionment of damages existed in an indirect purchaser action where a direct purchaser class had also sought to recover damages, the court found the factor weighed in favor of standing in the present case, where the plaintiffs could trace damages through the distribution chain.

Finally, the court determined that the claims of five of the IPPs had to be dismissed due to their failure to allege individual injury, because they did not sufficiently allege that they purchased DIPF affected by the conspiracy or did not sufficiently allege that they purchased DIPF during the relevant time period. However, the court declined to dismiss the claims of a sixth IPP, even though the IPP only alleged purchases of domestic DIPF during the 2008-2009 conspiracy, because the court found “nothing to support Star Pipe Products’ contention that the 2008-2009 conspiracy was limited to imported DIPF.”

Failure to state a claim. The court concluded that the IPPs failed to state a claim under the Florida Antitrust Act, because that law denied standing to indirect purchasers. However, the court determined that the IPPs had sufficiently pled their claim under Florida’s consumer protection statute.

In addition, the court found that dismissal of the IPPs’ claims under Michigan, New York, and North Carolina antitrust law, and North Carolina and New Hampshire consumer protection law, was not required, even though the IPPs did not plead “a concrete connection between the alleged conduct” and those states. The court found the cause law cited by the IPPs did not provide sufficient authority to demonstrate that dismissal was warranted.

Finally, the court rejected Star’s argument that Indiana’s restraint of trade claim should be dismissed as to allegations occurring after May 2009 because Indiana did not demonstrate anything more than parallel conduct after that date. The court noted that it had previously held in the direct purchaser action that the direct purchasers’ allegations regarding conduct between January 2008 and May 2009 were sufficient “because the parallel conduct occurred in a context that raises a suggestion of a preceding agreement.” Since those allegations were sufficient to satisfy the pleading requirements, the court was “not persuaded” that Indiana’s allegations of a June 2010 price increase by Star followed by price increases by Sigma and McWane were insufficient “to demonstrate parallel conduct arising in a context that raises a suggestion of a preceding agreement.”

The case is Civil Action No. 12-169.

Attorneys: Jayne Arnold Goldstein (Pomerantz Grossman Hufford Dahlstrom & Gross, LLP) for Yates Construction Co. Inc. Gabrielle Elise Farina (Thompson & Knight LLP) and Joseph Jacob Fleischman (Norris, MClaughlin & Marcus PC) for Star Pipe Products Ltd.

Companies: McWane, Inc.; Sigma Corp.; Star Pipe Products, Ltd.; Yates Construction Co. Inc.

Cases: Antitrust NewJerseyNews