Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Plumbing contractor alleges price-fixing conspiracy in cast iron soil pipe market, (Mar 19, 2014)

By Linda O’Brien, J.D., LL.M.

A proposed class action by a plumbing contractor alleges a price-fixing conspiracy and other anticompetitive conduct against manufacturers of cast iron soil pipe (CISP) and their subsidiaries in violation of the Sherman Act. The complaint in Craig Mechanical, Inc. v. AB&I Foundry was filed in federal district court in Chattanooga, Tennessee on March 18, 2014.

CISP products are components of pipeline systems manufactured primarily from cast iron for use in commercial, industrial, and residential construction. The defendants—McWane, Inc. and its affiliates, AB&I Foundry and Tyler Pipe Company, and Charlotte Pipe and Foundry Company and its subsidiary, Randolph Holding Company—are manufacturers of CISP. Craig Mechanical is a California licensed plumbing contractor and has purchased CISP for use in its construction projects.

The complaint alleged that McWane and Charlotte are the primary producers of CISP in the U.S. and control over 90 percent of the CISP market. McWane, Charlotte, and the affiliated companies are the only members of the Cast Iron Soil Pipe Institute (CISPI), the trade association of U.S. CISP manufacturers, and had opportunities at trade events and meetings to communicate and coordinate their activities, including price-fixing, maintaining market shares, and excluding foreign competition.

The companies were involved in a conspiracy to fix prices of CISP since at least 2006. Charlotte’s acquisition and liquidation of a competitor in 2010 substantially decreased competition in the CISP market and allowed the McWane companies and Charlotte to continue to fix prices. Due to the conspiracy, the manufacturers have maintained identical prices and rebates with each other. Statements justifying the price increases were false and misleading, and constituted affirmative acts of concealment of the conspiracy, according to the complaint.

The complaint states that there are significant barriers to entry and expansion to new entrants in the industry due to the costs of building a foundry, purchasing specialty manufacturing tools, and developing a network for distribution of CISP products. Also, all CISP products are standardized and must meet strict testing and materials requirements, so CISP manufacturers compete primarily on price. The demand for CISP is inelastic because there is no functional substitute. Furthermore, state and local building codes often require the use of CISP in plumbing projects.

Craig alleged that it had no knowledge of the conspiracy due to the manufacturers’ secret conspiracy prior to the U.S. Federal Trade Commission filed its complaint against Charlotte in 2013, while investigating its acquisition of a CISP competitor. The conspiracy was fraudulently concealed by various means, including secret meetings, communications, and agreements.

Craig asserts claims for unreasonable restraint of trade and violations of Section 1 of the Sherman Act, Section 3 of the Clayton Act, California’s Cartwright Act, and Unfair Competition Law. The action seeks declaratory and injunctive relief, damages, restitution and disgorgement of ill-gotten gains, pre- and post-judgment interest, costs of suit, attorneys’ fees, and any other just and proper relief.

Similarly, a Louisiana-based plumbing supply distributor has filed a proposed class action suit against McWane, Charlotte, and its affiliated companies in the federal district court in Chattanooga, claiming that the companies engaged in a conspiracy to fix prices for CISP products. The complaint also alleged that, as a result of the conspiracy, the distributor and other purchasers have paid artificially inflated prices for CISP. (Red River Supply Inc. v. AB&I Foundry, March 18, 2014).

The case is No. 1:14-cv-00084.

Attorneys: Jeremy M. Cothern (Berke, Berke & Berke) and Joseph H. Meltzer (Kessler Topaz Meltzer & Check, LLP) for Craig Mechanical, Inc.

Companies: Craig Mechanical, Inc.; AB&I Foundry; Tyler Pipe Company; McWane, Inc.; Charlotte Pipe and Foundry Company; Randolph Holding Company

News: Antitrust TennesseeNews