Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Homebuilders charge drywall manufacturers with price fixing conspiracy, (Mar 18, 2015)

By Linda O’Brien, J.D., LL.M.

A group of gypsum wallboard manufacturers engaged in a conspiracy to eliminate competition and fix the prices of gypsum wallboard that was sold and used in construction projects across the United States, according to a complaint filed by several leading homebuilders in the federal district court in San Francisco (Ashton Woods Holdings L.L.C. v. USG Corporation, March 17, 2015).

Ashton Woods Holdings, Beazer Homes, D.R. Horton, Hovnanian Enterprises, KB home, Meritage Homes, M/I Homes, Inc., Pulte Home Corporation, The Drees Company, The Ryland Group, Toll Brothers, and Tri Pointe Homes are in the business of building and selling homes throughout the United States. USG Corporation, New NGC, Inc., LaFarge North America, Inc., Continental Building Products, Inc., Certainteed Corporation, American Gypsum Company LLC, Tin Inc., and Pacific Coast Building Products, Inc. manufacture gypsum wallboard for use in homebuilding projects nationwide. Gypsum wallboard is the basic material used to form walls and ceilings in over 90 percent of all new residential and commercial structures.

The complaint states that, prior to September 2011, the standard industry practice was to use “job quotes” to establish prices for gypsum wallboard used in a particular construction project. This competitive pricing practice set pricing for gypsum wallboard, regardless of price fluctuations in the gypsum industry. In September 2011, the defendant manufacturers simultaneously eliminated the job quote practice and implemented a “one year” price that represented a 35 percent increase over the then current pricing levels. The price increase reflected a historically unprecedented means both of pricing gypsum wallboard and of announcing price increases. It was implausible that the defendants each independently decided to implement the wholly new practice to the industry.

According to the complaint, many of the aspects of the price increase were unusual and inconsistent with independent decision-making and sound business practice by each defendant. First, no rational manufacturer would risk implementing such a price increase absent assurance that its competitors intended to implement similar increases. Second, the defendants implemented the price increase on virtually the same date. Third, the defendants’ price increases were effective for one year where previously price changes occurred more frequently. Fourth, the price increase was not made in response to an increase in demand. Fifth, the price increases were imposed when the industry was experiencing overcapacity.

The defendants increased prices for gypsum wallboard without fear that their customers would turn to competitors, the homebuilders claimed. Without a conspiracy, the gypsum wallboard prices should have remained relatively stable in light of costs and market expectations. As a result of the conspiracy, the plaintiffs purchased gypsum wallboard at supra-competitive prices for use in their homebuilding projects, the lawsuit charged.

The complaint also alleges that gypsum wallboard has no competitively significant substitutes due to its unique properties, including ease of installation and fire resistance at the lowest available cost. Gypsum wallboard is a commodity product that may be freely substituted with regard to manufacturer, primarily based on cost. Additionally, the gypsum wallboard market has characteristics amenable to collusion as there are high barriers to entry, price inelasticity, a high degree of concentration, and opportunities to conspire at various trade association meetings.

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

The case is No. 3:15-cv-01247-EDL.

Attorneys: Brian R. Strange, Keith Butler, Cindy Reichline, and John Ceglia (Strange & Carpenter) for Ashton Woods Holdings L.L.C., Beazer Homes Holding Corp., D.R. Horton Los Angeles Holding Company, Hovnanian Enterprises, Inc., KB home, Meritage Homes Corporation, M/I Homes, Inc., Pulte Home Corporation, The Drees Company, The Ryland Group, Inc., Toll Brothers, Inc., and Tri Pointe Homes, Inc.

Companies: Ashton Woods Holdings L.L.C.; Beazer Homes Holding Corp.; D.R. Horton Los Angeles Holding Company; Hovnanian Enterprises, Inc.; KB home; Meritage Homes Corporation; M/I Homes, Inc.; Pulte Home Corporation; The Drees Company; The Ryland Group, Inc.; Toll Brothers, Inc.; Tri Pointe Homes, Inc.; USG Corporation; New NGC, Inc.; LaFarge North America, Inc.; Continental Building Products, Inc.; Certainteed Corporation; American Gypsum Company LLC; Tin Inc.; Pacific Coast Building Products, Inc.

News: Antitrust CaliforniaNews