Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Auto dealers charge Toyoda Gosei in auto parts price fixing suit, (Oct 2, 2015)

By Linda O’Brien, J.D., LL.M.

Automotive parts manufacturer Toyoda Gosei engaged in a conspiracy with other manufacturers and suppliers to fix prices and allocate the market and customers in the United States for automotive hoses, according to a complaint filed by a group of automobile dealers in the federal district court in Flint, Michigan (Martens Cars of Washington, Inc. v. Toyoda Gosei Co., Ltd., October 1, 2015).

Japanese companies Toyoda Gosei Co., Ltd. and Sumitomo Riko Co. Ltd.—and their domestic subsidiaries—develop, manufacture, and supply a variety of automotive parts, including automotive hoses, for automobile manufacturers. Martens Cars of Washington, Inc., along with 38 other dealers, purchased and sold vehicles that contained automotive hoses manufactured by Toyoda Gosei and Sumitomo Riko.

Automotive hoses are flexible tubes used to convey liquid and air in automobiles, including low-pressure rubber hoses and plastic and resin tubes used in automobile engine compartments and fuel tank modules. Automotive hoses are installed by original equipment manufacturers (OEMs) in new cars as part of the automotive manufacturing process.

The complaint states that the U.S. Department of Justice (DOJ) is currently conducting a broad criminal investigation into illegal price fixing and bid rigging in the automotive parts industry. In September 2014, the DOJ announced that Toyoda Gosei agreed to pay a $26 million fine and plead guilty to a two-count felony charge for its role in conspiracies to fix prices and rig bids for automotive hoses, airbags, and steering wheels sold to automobile manufacturer Toyota from February 2004 to September 2010.

According to the criminal information, Toyoda Gosei and other manufacturers and suppliers carried out the conspiracy by (1) participating in meetings to discuss bids and price quotations to be submitted to Toyota; (2) agreeing to allocate the sales of automotive hoses sold to Toyota; and (3) exchanging information on bids and price quotations to be submitted to Toyota.

In January 2015, the DOJ announced that Makoto Horie, a Japanese national and former executive an automotive parts manufacturer Toyoda Gosei agreed to plead guilty to a one count felony charge that he conspired to fix prices and rig bids of automotive hoses installed in cars sold in the United States. Under the plea agreement, Horie would serve one year and one day in a U.S. prison and would pay a $20,000 fine for his role in the conspiracy, according to the complaint.

The complaint states that the defendant manufacturers and others participated in a conspiracy to suppress competition in the automotive parts industry by agreeing to fix prices and allocate the supply of automotive hoses sold to automobile manufacturers in the U.S. As a direct result of their anticompetitive conduct, dealers paid artificially inflated prices for automotive hoses incorporated into vehicles they purchased.

The complaint also alleges that the structure of the automotive hoses market in the U.S. is conductive to collusion. First, there are high barriers to entry, including start-up costs associated with manufacturing plants, equipment, energy, transportation, distribution, skilled labor, and establishing customer relationships. Second, there is inelasticity of demand for automotive hoses since there are no close substitutes for these products. Third, the market is comprised of products that are interchangeable across manufacturers.

The plaintiffs allegedly had no knowledge of the conspiracy until September 2014, when the DOJ publicly announced that Toyoda Gosei pleaded guilty for its role in the conspiracy to fix prices of automotive hoses. There was no information in the public domain concerning the defendants’ dealings with automobile manufacturers or that they had engaged in a conspiracy. Moreover, the defendants concealed and carried out the conspiracy in a manner that precluded detection, including the use of code names and meetings held in remote locations, the plaintiffs charged. Such fraudulent concealment tolled the statute of limitations applicable to the plaintiffs’ claims, the complaint alleges.

The plaintiffs assert claims for unjust enrichment and violations of Section 1 of the Sherman Act, state antitrust statutes, and state consumer protection statutes. The action seeks declaratory and injunctive relief, restitution, disgorgement, treble damages, pre- and post-judgment interest, costs of suit, attorney fees, and any other just and proper relief.

The case is No. 2:15-cv-13451-LVP-DRG.

Attorneys: Gerard V. Mantese (Mantese Honigman P.C.), Jonathan W. Cuneo and Michael J. Flannery (Cuneo Gilbert & LaDuca, LLP), Thomas P. Thrash (Thrash Law Firm, P.A.), Don Barrett (Barrett Law Group, P.A.), Shawn M. Raiter (Larson King LLP), Phillip Duncan (Duncan Firm, P.A.), Dewitt Lovelace (Lovelace & Associates, P.A.), Gregory Johnson (G. Johnson Law, PLLC), and Charles Barrett (Charles Barrett, P.C.) for Martens Cars of Washington, Inc.

Companies: Martens Cars of Washington, Inc.; Toyoda Gosei Co., Ltd.; Toyoda Gosei North America Corporation, TG Kentucky, LLC; TG Fluid Systems USA Corporation; Sumitomo Riko Company Limited, DTR Industries, Inc.

News: Antitrust MichiganNews