Antitrust Law Daily Wrap Up, ANTITRUST—E.D. Pa.: Homebuilders’ price fixing claims against drywall manufacturers proceed, (Jul 14, 2016)

By Jeffrey May, J.D.

The indirect purchaser doctrine did not bar homebuilders Ashton Woods and D.R. Horton from pursuing price fixing claims under the Sherman Act against drywall manufacturers, the federal district court in Philadelphia has ruled. The defending drywall makers also were unable to win dismissal of state antitrust claims brought by all 12 of the plaintiffs in the suit in an effort to avoid the indirect purchaser doctrine’s bar on damages claims (In Re: Domestic Drywall Antitrust Litigation, July 13, 2016, Baylson, M.).

Ashton Woods and D.R. Horton bought drywall from defending building materials distributor L&W Supply, which is a wholly-owned subsidiary of defending drywall maker USG. The Illinois Brick doctrine bars indirect purchasers—purchasers who did not purchase a product directly from a price fixing defendant—from pursuing damages under the Sherman Act, with limited exceptions. The defendants contended that Ashton Woods and D.R. Horton were indirect purchasers.

The plaintiffs were direct purchasers, in the court's view. They alleged that L&W, along with the entire USG corporate family, conspired with drywall manufacturers, according to the court. There were sufficient allegations to support a claim that L&W was an intermediary, and thus the claims against USG were as both a member of the conspiracy and an intermediary. The purchases from L&W, were also, as a matter of antitrust law, purchases from USG. Thus, Ashton Woods and D.R. Horton could seek damages against all defendants.

State antitrust law claims. The court concluded that it was premature to consider whether the plaintiffs could seek to apply California antitrust law to recover for all of their drywall purchases nationwide and whether claims under District of Columbia, Mississippi, and New York antitrust laws were barred because the statutes purportedly required wholly intrastate conduct. The court first needed to conduct a choice-of-law analysis to determine which state law or laws would apply.

The court, however, denied the defendants’ request to dismiss the state law antitrust claims that were subject to a pass through defense. This defense precludes indirect purchasers from recovering damages if the purchasers were able to "pass on" the overcharge to their customers on the ground that the plaintiff did not suffer an antitrust injury. The court decided that, at the pleading stage, the homebuilders plausibly alleged antitrust injury by alleging both that they did not break out the component costs of building materials when selling a home and that home prices were driven by factors unrelated to building costs.

State consumer protection claims. The plaintiffs also asserted violations of state consumer protection and unfair competition laws, under the laws of California, Colorado, the District of Columbia, Florida, Georgia, Nevada, New Mexico, North Carolina, South Carolina, and Virginia. The court dismissed the claims under the Georgia and North Carolina consumer protection statutes because these laws protected only consumers. The court also ruled that the plaintiffs could not sue under the District of Columbia law because it was consumer-oriented. The court, however, refused to dismiss other state consumer protection law claims.

The case is No. 2:13-md-02437-MMB.

Attorneys: Brian Russell Strange (Strange & Butler) for Ashton Woods Holdings L.L.C., Beazer Homes Holdings Corp. and D.R. Horton Los Angeles Holding Co., Inc. Steven E. Bizar (Dechert LLP) for USG Corp. and New NGC, Inc.

Companies: Ashton Woods Holdings LLC; Beazer Homes Holdings Corp.; D.R. Horton Los Angeles Holding Co., Inc.; USG Corp.; New NGC, Inc.

Cases: Antitrust StateUnfairTradePractices PennsylvaniaNews