Antitrust Law Daily Wrap Up, ANTITRUST—EDLa: FTC Allowed to Intervene in Pool Product Antitrust Litigation to Shield Identities of Informants from Discovery, (Jun 6, 2013)

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

The FTC may intervene in antitrust litigation against the largest distributor and three largest manufacturers of pool products in the United States in order to prevent the disclosure of the identities of informants in its previous investigation into the pool products industry, and application of the informant’s privilege mandated quashing certain specifications in subpoenae the direct purchaser plaintiffs and manufacturer defendants had served on third parties, the federal district court in New Orleans has ruled (In Re: Pool Products Distribution Market Antitrust Litigation, June 5, 2013, Vance, S.). However, the court limited the scope of the FTC’s proposed protective order, concluding that the agency would have to assert its informant’s privilege as to particular specifications, rather than restricting disclosure on a categorical basis without the opportunity to show the privilege did not apply.

Pool Corporation, SCP Distributors LLC, and Superior Pool Products (collectively, "Pool") make up the country’s largest distributor of pool products. After an investigation by the FTC into Pool’s alleged unfair methods of competition resulted in a consent decree, direct and indirect purchaser plaintiffs filed suit against Pool and the three largest manufacturers of pool products in the United States. On April 11, 2013, the court granted the defendants’ motion to dismiss the direct purchasers’ monopolization and boycott claims, but denied the motion as to their attempted monopolization claim and claims under Sherman Act, Section 1. On May 24, 2013, the court denied the defendants’ motion to dismiss the indirect purchasers’ Arizona, California, Florida, and Missouri antitrust claims, but found they did not state claims based on fraudulent or deceptive practices.

In the present motion, the FTC sought to intervene in the matter to shield certain privileged material from discovery. Specifically, the FTC sought to prevent discovery of documents and information that would reveal the identities of industry participants who had cooperated with the FTC investigation on the condition that their cooperation would remain confidential.

The direct purchaser plaintiffs (DPPs) and the manufacturer defendants served subpoenae duces tecum on various third parties, requesting documents and communications produced to or received from the Federal Trade Commission during the course of the investigation. The DPPs did not oppose the FTC’s intervention and agreed to withdraw specifications to which the FTC had raised objections, but did object to the scope of the FTC’s proposed protective order. The manufacturer defendants did not object to the intervention or the protective order.

Intervention. The court granted the FTC’s motion to intervene. The court explained that to intervene as of right a party must satisfy four conditions: “(1) the application must be timely; (2) the applicant must have an interest relating to the property or transaction that is the subject of the action; (3) the applicant must be so situated that the disposition of the action may, as a practical matter, impair or impede its ability to protect its interest; and (4) the applicant’s interest must be inadequately represented by the existing parties to the suit.”

The FTC’s application was timely because it “only recently learned that its interests were implicated,” since the subpoena specifications were issued in March 2013. The existing parties would not be harmed because most third parties would not yet have responded to the subpoenae, while the FTC’s interest would be jeopardized if the application was denied because the FTC possessed the informant’s privilege, and the informants might not be able to assert it themselves. The FTC had “an interest relating to the property or transaction that is the subject of the action” because the “property or transaction” was the documents subject to discovery, and the documents could reveal the informants’ identities. Since the FTC was “uniquely situated” to assert the privilege, denying intervention could “impair or impede” the FTC’s ability to protect its interest. Finally, the government’s interest was not represented by any of the parties to the lawsuit, and the parties had consented to the FTC’s intervention.

Protective order. The court explained that the informant’s privilege was the government’s privilege to prevent disclosure of the identity of persons who provide information, to encourage informants to cooperate with investigations and to hinder retaliation. The privilege does not apply “when the disclosure sought will not tend to reveal the identity of the informant and when the informant’s identity has already been disclosed,” and “must give way when disclosure is essential to a fair determination of a cause.”

The FTC’s proposed protective order would prevent parties from seeking materials regarding “(1) any third party’s communication with the FTC staff as part of the FTC investigation of Pool Corp, (2) materials any third party produced to or received from the FTC during the Pool Corp investigation, and (3) materials concerning or relating to the FTC’s investigation identified as such.” It would not prevent discovery of third parties’ knowledge of the facts of the case, or of any materials they may have received during the ordinary course of business, even if they were produced to the FTC during the investigation, unless the documents would reveal a third party’s cooperation with the FTC. The FTC also sought the ability to monitor future deposition of third parties for the purpose of asserting the privilege, and notification if a third party produced any of the precluded materials.

Although the DPPs agreed to withdraw the challenged specifications, except for any responses that may have already been made, and to submit to FTC monitoring, the DPPs objected to the breadth of the proposed order.

The court first found that the specifications to which the FTC objected “tend[ed] to reveal the identity of the informant” for purposes of the privilege. The FTC had demonstrated an interest in protecting the identity of its informants, and neither the DPPs nor the manufacturer defendants had met their burden to show that disclosure was essential to their cases. Therefore, the court squashed those specifications.

However, the court agreed with the DPPs that the FTC’s proposed order was overbroad because “it asks for a prospective categorical restriction on information that may be included in any future request without any avenue to demonstrate that the privilege is not applicable.” The court noted that the privilege “is qualified, not absolute,” and therefore the court would have to “at least review the particular specification at issue.”

The court concluded that it would reserve the FTC’s right to object to future specifications, and would facilitate that right by allowing it to monitor discovery and depositions. The FTC would be able to raise the privilege as to specific deposition questions or discovery requests by “satisfying the specific formal requirements for proper invocation.”

The case is MDL No. 2328.

Attorneys: Camilo Kossy Salas, III (Salas & Co., LC) for Direct Purchaser Plaintiffs. Thomas J. H. Brill (Law Office of Thomas H. Brill) for Indirect Purchaser Plaintiffs. Arnold Levin (Levin, Fishbein, Sedran & Berman) for Plaintiffs’ Steering Committee. William Bernard Gaudet (Adams & Reese, LLP) for Defendants’ Liaison Counsel. David H. Bamberger (DLA Piper, LLP) for Defendants’ Lead Counsel. Wayne J. Lee (Stone, Pigman, Walther, Wittmann, LLC) for Manufacturer Defendants' Liaison Counsel.

Companies: Pool Corp.; SCP Distributors LLC; Superior Pool Products; Hayward Industries, Inc.; Pentair Water Pool and Spa, Inc.; Zodiac Pool Systems, Inc.

Cases: Antitrust LouisianaNews FederalTradeCommissionNews