Antitrust Law Daily Wrap Up, ANTITRUST NEWS: City of Rochester charges water treatment chemical manufacturer with price fixing conspiracy, (Dec 3, 2015)

By Linda O’Brien, J.D., LL.M.

The City of Rochester, Minnesota has filed a class action complaint in the federal district court in Minneapolis against water treatment chemical manufacturer General Chemical Corporation, its former senior executive, and six other chemical manufacturers for engaging in a conspiracy to fix prices and restrain competition for liquid aluminum sulfate (City of Rochester v. Hawkins, Inc., December 1, 2015).

General Chemical Corporation, owned by Chemtrade Logistics Income Fund, is the largest producer and supplier of water treatment chemicals, including liquid aluminum sulfate in North America. Hawkins, Inc., GEO Specialty Chemicals, Inc., C&S Chemicals, Inc., USALCO, LLC, Thatcher Group, Inc., and Kemira Chemicals, Inc. manufacture and supply specialty chemicals, including water treatment chemicals.

The complaint states that liquid aluminum sulfate (alum) is a chemical that functions as a coagulant, flocculant, precipitant, and emulsion breaker and is used by municipalities to treat potable water and waste water. Alum has become widely accepted as a water treatment chemical due to its efficiency and stability when compared to its alternatives. Municipalities typically acquire alum through a publicly advertised bidding process and award contracts that are one year in duration.

The characteristics of the alum market make it susceptible to collusion. Alum is a commodity product for which competition was principally on the basis of price, and there was a lack of available economic substitutes. Input costs for alum have been relatively stable or declining and there has been weak demand for alum in a mature market. Also, the alum industry is highly concentrated and there are significant barriers to entry. Further, industry and trade association conferences provided numerous opportunities for the defendants to communicate and conspire, the complaint alleges.

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 conspiracy, which took place from 1997 to July 2010, to suppress competition in the alum market by fixing prices, rigging bids, 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 alum 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 alum customers; (5) discussing bid quotes; (6) withdrawing inadvertent winning bids from historical customers; and (7) instructing employees on how to bid for potential business in order to comply with the conspiracy.

The plaintiff did not and could not have discovered the existence of the price fixing conspiracy until the Justice Department disclosed in October 2015 that Reichl agreed to plead guilty to price fixing for alum. The defendants actively concealed their conspiracy and led alum customers to believe that their price increases were attributable to rising demand due to tighter government regulations. The defendants also withdrew successful bids and gave pretextual justifications, such as clerical errors, to conceal their conspiratorial conduct, the complaint states.

According to the complaint, the defendants’ conspiracy to fix and maintain prices at artificially high and supra-competitive levels caused the City of Rochester to pay higher prices for alum than it would have paid in a competitive market.

The plaintiff asserts claims for conspiracy to restrain 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. 0:15-cv-04266-JRT-SER.

Attorneys: W. Joseph Bruckner ( Lockridge Grindal Nauen P.L.L.P.) and Daniel E. Gustafson (Gustafson Gluek PLLC) for the City of Rochester.

Companies: Hawkins, Inc.; General Chemical Corporation; General Chemical Performance Products LLC; Chemtrade Logistics Income Fund; GEO Specialty Chemicals, Inc.; C&S Chemicals, Inc.; USALCO, LLC; Thatcher Group, Inc.; Kemira Chemicals, Inc.

News: Antitrust MinnesotaNews