Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Alabama municipality alleges water treatment chemical price fixing conspiracy, (May 12, 2016)

By Linda O’Brien, J.D., LL.M.

Water treatment chemical manufacturer General Chemical Corporation engaged in a conspiracy to fix prices and rig bids for liquid aluminum sulfate, a chemical used by municipal water treatment facilities to treat drinking and waste water, according to a complaint filed in the federal district court in Birmingham, Alabama (Jefferson County, Alabama v. Reichl, May 11, 2015).

Jefferson County, Alabama owns and operates a public sanitary sewer system that serves thousands of its citizens. General Chemical, owned by Chemtrade Logistics Income Fund, was a leading manufacturer and supplier of water treatment chemicals, including liquid aluminum sulfate (LAS).

The complaint states that LAS is widely used to remove contaminants from water. It is regularly purchased by municipalities for use in purifying drinking and waste water and by pulp and paper manufacturers for manufacturing pulp and paper. To procure LAS, municipalities typically engage in a publically advertised bidding process. The LAS industry is susceptible to anticompetitive conduct due to the commodity nature of the product where competition is primarily focused on price, there is a lack of economic substitutes, and there are high barriers to entry.

In October 2015, the U.S. Department of Justice announced that former General Chemical executive Frank A. Reichl pleaded guilty for his role in a 13-year long conspiracy (from January 1997 to July 2010) to eliminate competition in the LAS market by fixing prices, rigging bids, agreeing not to compete for contracts, and allocating customers. The Justice Department charged Reichl with the following actions to facilitate the conspiracy: (1) participating in meetings and conversations to discuss the LAS business; (2) agreeing to not solicit the co-conspirators’ historical customers; (3) using bid and pricing histories to determinate which accounts were historical; (4) intentionally submitting losing bids to historical LAS customers; (5) discussing bid quotes; (6) withdrawing inadvertent winning bids from historical customers; and (7) instructing new employees on how to quote prices as to comply with the agreement.

According to the complaint, the defendants effectuated the conspiracy by (1) participating in secret meetings and communications; (2) agreeing not to pursue business from each other’s historical customers; (3) tracking bid and pricing histories to determine which accounts were historical customers; (4) intentionally submitting losing bid or price quotations to each other’s historical customers; and (5) selling liquid aluminum sulfate to customers at collusive and noncompetitive prices. The defendants benefited from their price fixing conspiracy by reaping inflated profits, and the plaintiff paid more for liquid aluminum sulfate than it otherwise would have, absent the defendants’ unlawful conduct.

The defendants affirmatively and fraudulently concealed their unlawful conduct, the complaint claimed. The plaintiff allegedly did not and could not have discovered through the exercise of reasonable diligence the existence of the conspiracy until the Justice Department disclosed in October 2015 that Reichl agreed to plead guilty to price fixing for LAS. The defendants actively concealed their conspiracy through various means to avoid detection and gave pretextual reasons for their artificially inflated LAS prices, the lawsuit alleges.

The plaintiff asserts claims for conspiracy in restraint of trade in violation of Section 1 of the Sherman Act. The action seeks declaratory and injunctive relief, treble damages, pre- and post-judgment interest, costs of suit, attorney fees, and any other just and proper relief.

The case is No. 2:16-cv-00777-SGC.

Attorneys: Craig L. Lowell and Dennis G. Pantazis (Wiggins, Childs, Pantazis, Fisher & Goldfarb, LLC) for Jefferson County, Alabama.

Companies: General Chemical Corporation; Chemtrade Logistics Income Fund; Geo Specialty Chemicals, Inc.

News: Antitrust AlabamaNews