Antitrust Law Daily Wrap Up, ANTITRUST—EDLa: Indirect Purchasers’ State Antitrust Claims Proceed Against Pool Products Distributor and Manufacturers, (May 28, 2013)

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

Indirect purchasers have stated Arizona, California, Florida, and Missouri antitrust claims against the largest distributor and three largest manufacturers of pool products in the United States, but did not state claims based on fraudulent or deceptive practices, the federal district court in New Orleans has ruled (In Re: Pool Products Distribution Market Antitrust Litigation, May 24, 2013, Vance, S.).

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.

According to the plaintiffs, Pool is the only nationwide pool products distributor, operating 200 distribution centers with pricing controlled from its headquarters. Pool allegedly sought to restrain trade and monopolize the market for pool products distribution by acquiring competitors, including all or some of the assets of 13 competing distributors between 1995 and 2009.

It also allegedly had agreements with the three largest manufacturers of pool products, the only ones to offer a full line of such products, to discontinue favorable pricing or sales to rival distributors at the behest of Pool. The manufacturers allegedly agreed to these conditions out of fear of losing access to Pool’s irreplaceable distribution network, since Pool often represented 30 to 50 percent of a manufacturer’s total sales. When a new entrant would seek to distribute pool products in an area, Pool would threaten to refuse to sell manufacturers’ products throughout the United States if they agreed to sell to the new entrant. The contracts also contained most favored nation clauses requiring the manufacturers to give Pool terms at least as favorable as those offered to any other purchasers with the same volume levels as Pool.

In the present decision, the court addressed Pool’s motion to dismiss claims filed by the indirect purchaser plaintiffs (IPPs) under the antitrust and unfair competition laws of Arizona, California, Florida, and Missouri.

California. The court observed that California’s Cartwright Act “expressly permits indirect purchasers to recover damages for state antitrust law violations,” and therefore the IPPs had standing to bring their claims despite the federal Illinois Brick doctrine. Moreover, the IPPs’ allegations “that they were overcharged for Pool Products and that they paid more than they otherwise would have because of restrictive dealing agreements in violation of California law” were sufficient to show the injury required to establish standing under California’s Unfair Competition Law (UCL).

The court rejected the defendants’ argument that the IPPs had to satisfy the standing requirements specified in the Supreme Court’s decision in Associated Gen. Contractors of Cal., Inc. v. Cal. State Council of Carpenters, 459 U.S. 519 (1983). The Associated Gen. Contractors factors only applied to the extent that states had adopted them, and the California Supreme Court, in Clayworth v. Pfizer, Inc., 49 Cal. 4th 758 (2010), had found that the indirect purchasers in that case had standing without referring to the Associated Gen. Contractors factors.

The court observed that the “Cartwright Act does not bar unilateral acts covered by Sherman Act Section 2’s anti-monopolization provisions.” Therefore, the court dismissed the IPPs’ claims for monopolization or attempted monopolization under the Cartwright Act that were “akin” to the direct purchasers’ Section 2 attempted monopolization claim. The court also dismissed a claim for an illegal group boycott because the IPPs did not allege a horizontal agreement.

However, as in its decision with respect to the direct purchasers, the court found that the IPPs plausibly alleged vertical conspiracies between Pool and each of the three major manufacturers, “to the extent they are predicated on a national market.” The court found that the complaint lacked factual allegations that would permit it to conclude that California was a relevant geographic market or submarket. The IPPs’ allegations were sufficient, even though they did not allege specific illegal conduct in California, because they alleged that a California class representative had suffered injury in California as a result of the defendants’ conspiracy.

Moreover, the IPPs’ allegations of anticompetitive vertical agreements in violation of California antitrust law were sufficient to state a claim under the “unlawful” or unfair” prongs of the UCL. However, the IPPs’ further allegations that the defendants engaged in various fraudulent or deceptive actions were insufficient to satisfy the heightened pleading requirements of Federal Rule of Civil Procedure 9(b).

Arizona. The court found the IPPs also had standing under the Arizona Antitrust Act (AAA). In Bunker’s Glass Co. v. Pilkington PLC, 75 P.3d 99 (2003), the Arizona Supreme Court concluded that indirect purchasers have standing under the AAA, and did not apply the Associated Gen. Contractors factors. The IPPs allegations of injury sustained from “an overcharge that was passed on to IPPs as a result of defendants’ anticompetitive conduct” were sufficient to establish standing under Arizona’s traditional standing doctrine.

As with the Cartwright Act claims, the AAA’s “harmony” with the Sherman Act, and the Arizona courts’ application of federal case law, meant that the IPPs stated claims under the AAA with respect to the alleged vertical agreements between Pool and the manufacturers and to Pool’s attempted monopolization of the market, but did not state illegal group boycott or monopolization claims. The court again found that the complaint did not have factual allegations that would permit it to infer that Arizona was a relevant geographic market or submarket.

Florida. The court observed that the federal Illinois Brick doctrine did not bar suits by indirect purchasers under the Florida Deceptive and Unfair Trade Practices Act, and the defendants did not cite any case in which a court had applied the Associated Gen. Contractors factors to a FDUTPA claim. Therefore, the IPPs had standing under the FDUTPA.

The IPPs’ claims regarding attempted monopolization and anticompetitive vertical agreements were also sufficient to state a claim under the FDUTPA. The court noted that the FDUTPA provided that “due consideration and great weight shall be given to the interpretations of the Federal Trade Commission and the federal courts relating to § 5(a)(1) of the Federal Trade Commission Act.” Since the FTC Act “encompassed violations of the antitrust laws,” the FDUTPA covered the claims alleged by the IPPs, in the court’s view. However, the IPPs did not sufficiently allege “the who, what, where, when, and how” of further claims that the defendants committed deceptive acts, and therefore did not satisfy Rule 9(b).

Missouri. Since Missouri’s antitrust laws followed Illinois Brick and barred recovery by indirect purchasers, the IPPs had brought suit under the Missouri Merchandising Practices Act (MMPA). The court noted that the Missouri Supreme Court had not “directly addressed whether the Illinois Brick prohibition on indirect plaintiffs applies to claims based on allegations of antitrust conspiracies brought under the MMPA. However, it concluded that the Missouri Supreme Court would allow indirect purchasers suits under the MMPA, and therefore the IPPs had standing.

The court also found that the IPPs stated a claim under the MMPA. The Missouri Attorney General considered an “unfair practice” under the MMPA to be a practice that “[o]ffends any public policy as it has been established by the Constitution, statutes, or common law of this state, or by the Federal Trade Commission,” among other possibilities. As antitrust violations constituted unfair practices under the FTC Act, the IPPs stated a claim as to their antitrust allegations. However, the IPPs again failed to allege further claims regarding deceptive practices with the specificity required by Rule 9(b).

Statute of limitations. As in its decision with respect to the direct purchasers’ claims, the court concluded that the IPPs’ “allegations are woefully inadequate to plead fraudulent concealment” that would toll the statutes of limitations with respect to the California and Arizona antitrust claims, and therefore the statutes “bar[red] claims for overcharges outside of the four-year period.” The parties had not briefed what statute of limitations applied to the Florida and Missouri claims, but the IPPs would be limited to whatever statutory periods Florida and Missouri specified.

The case is MDL No. 2328.

Attorneys: Gerard Octave Salassi, IV (Butler Mordock, LLC) for Martin Cano. William Bernard Gaudet (Adams & Reese, LLP) and David H. Bamberger (DLA Piper, LLP) for Defendants. Wayne J. Lee (Stone, Pigman, Walther, Wittmann, LLC) for Manufacturer Defendants.

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