Antitrust Law Daily Wrap Up, ANTITRUST—M.D. La.: Fly ash marketer’s antitrust, prices discriminations claims fail against competitor, (Sep 12, 2013)

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

A marketer of fly ash from a power station failed to state antitrust and price discrimination claims against a competitor that allegedly submitted artificially low bids to the operator of the power station that drove the marketer into default, the federal district court in Baton Rouge has ruled (Big River Industries, Inc. v. Headwaters Resources, Inc., September 11, 2013, Brady, J.). However, the court granted the marketer leave to amend its claims.

Big River Industries, Inc. (BRI) had an agreement with Cajun Electric Power Cooperative, Inc. to market fly ash from the Big Cajun II power station, an agreement assigned to Louisiana Generating, LLC (LaGen) in Cajun’s bankruptcy proceeding. The agreement gave Big River a right of first refusal of future marketing contracts. Headwaters Resources, Inc. (HRI) allegedly later contacted LaGen, and informed it that an exclusive agreement with LaGen would permit HRI to command a higher price for fly ash in the local “I-10 corridor.” Fly ash, one of the residues generated in combustion, is used in concrete and cement products.

LaGen issued a request for proposals for a new fly ash marketing contract, and both BRI and HRI submitted proposals. Although BRI submitted the most competitive bid, a series of proposals from HRI followed, with BRI matching each one. However, BRI was unable to comply with the terms of the new marketing agreement and defaulted. HRI then began marketing Big Cajun II fly ash, and subsequently increased the price of fly ash from $17.00 per ton to $26.00 per ton, despite a national surplus of fly ash.

BRI filed suit against HRI, and HRI filed a motion to dismiss.

Monopolization. For purposes of its monopolization claim, BRI failed to adequately define the relevant product and geographic markets. The definition of the geographic market as the “I-10 corridor” did not “denote any specific, unambiguous geographic region,” the court found. Moreover, BRI failed to allege facts regarding the number of competitors in the market, the area of effective competition, and whether other suppliers would face barriers to entry in attempting to enter the market.

Further, BRI did not define “a relevant product market with reference to all interchangeable substitute products or to the cross-elasticity of demand for the particular variety of fly ash marketed by the present parties.” Instead, BRI merely asserted the “unsupported legal conclusion” that “there is no substitute product for fly ash in this market.”

In addition, BRI failed to sufficiently allege HRI’s market power, according to the court. An inference of market power might be drawn from HRI’s price reductions to drive down BRI’s revenue, its ability to raise prices in a time of nationwide excess supply and declining demand, and BRI’s default. However, the court would have to determine the applicability of the alleged market conditions to the supply and demand in the relevant market, and it found “insufficiently pled assertions regarding each factor of market domination.”

Moreover, BRI also failed to adequately allege that the market contained barriers to entry. Although BRI claimed that “most of the concrete in this market is required to contain fly ash” and that “there is no substitute for fly ash in this market,” the court observed that “most of the concrete” left some concrete that would not be required to contain fly ash, and that BRI had not explained the source of the requirement that concrete contain fly ash. The court found it could not “rest upon a naked assertion of [the fly ash’s] non-substitutable nature.” Finally, the alleged decline and later rise in fly ash prices may have excluded competition, but would not have presented “any sustained barrier,” and in any case would not be big enough in the absence of a properly defined market.

Attempt to monopolize. BRI failed to adequately allege its claim that HRI attempted to gain a monopoly through predatory pricing. The court initially observed that analysis of the claim would require adequate allegations of the relevant market and HRI’s market power. Even if those elements had been sufficiently alleged, however, the court found BRI did not show that HRI would recoup the losses it allegedly sustained from its price reductions after driving BRI out of the market. BRI’s only alleged barriers to entry were “the naked assertions that there are no substitutes to fly ash in the relevant market and that Headwaters exercised monopolistic market power when it raised its prices after acquiring the LaGen contract without inducing any entries into the relevant market.” BRI would have to allege “additional facts to show how the particular market is susceptible to a monopoly takeover.”

Moreover, BRI did not adequately allege that HRI had a dangerous probability of obtaining monopoly power because it did not provide sufficient facts regarding HRI’s market power, its ability to exclude competitors, or its ability to recoup losses.

Conspiracy to monopolize. BRI also did not sufficiently allege its claim for conspiracy to monopolize, despite BRI’s reference to an e-mail to LaGen in which HRI claimed that it and LaGen could obtain substantial financial rewards if HRI could “solidify its hold” on the I-10 corridor fly ash market. BRI would have to allege sufficient facts regarding the relevant market definition and HRI’s power over the market for the court to determine the “economic feasibility” of the alleged conspiracy.

Vertical restraint. BRI also did not adequately support its claim of an illegal vertical restraint under Section 1 of the Sherman Act. BRI made only the “bare assertion” that LaGen and HRI entered into a conspiracy, and did not allege facts that would show that the alleged agreement had any anticompetitive effects on the market. Although BRI did describe the effects the agreement allegedly had on BRI, the court observed “that the antitrust laws are meant to protect competition not competitors.”

Price discrimination. BRI did not sufficiently allege its claim for price discrimination under the Robinson-Patman Act, according to the court. Although BRI did allege facts that would permit an inference that sales were made in interstate commerce, it did not “allege facts demonstrating that the commodities were of like grade and quality, the defendant discriminated in price among buyers, and the price discrimination had an effect on competition.”

In addition, to the extent that BRI alleged a claim for price discrimination under Section 13a of the Clayton Act, the court observe that “plaintiffs may not bring a civil claim under §13a because it is reserved for criminal enforcement by the Department of Justice.”

Louisiana antitrust claims. BRI also did not sufficiently state its claims under the Louisiana antitrust laws, in the court’s view. The court initially observed that the Louisiana statutes were “the functional equivalents of §§1 and 2 of the Sherman Act,” and therefore its prior discussion of BRI’s Sherman Act claims also applied to the Louisiana claims. The court also found that the continuing tort doctrine did not suspend the running of Louisiana’s one-year statute of limitations because the doctrine required “continuous wrongful action, not just continuing ill effects,” and the last alleged illegal act occurred in January 2011. However, the court reserved its findings on the issue of whether the doctrine of contra non valentem, which would suspend the statute when the cause of action was not known or reasonably knowable by BRI, suspended the statute here until BRI submitted an amended complaint.

The court granted BRI’s request for leave to amend, finding that, “[t]hough the complaint is deficient in many ways, there are enough factual allegations, taken as true, that give reason for some suspicion,” and that it was “not wholly convinced that, given the alleged circumstances, this was an innocent replacement of one exclusive distributor with another.”

The case is Civil Action No. 13-212-JJB.

Attorneys: Brent Paul Frederick (Dodson, Hooks & Frederick, APLC) for Big River Industries, Inc. Christine Lipsey (McGlinchey Stafford, PLLC) for Headwaters Resources, Inc.

Companies: Big River Industries, Inc.; Headwaters Resources, Inc.

Cases: Antitrust LouisianaNews