Antitrust Law Daily Wrap Up, ANTITRUST NEWS: Wholesale distributor brings price fixing class action against cast iron pipe makers, (Nov 4, 2013)

By Linda O’Brien, J.D., LL.M.

Independent wholesale distributor, Security Supply Corporation, has filed a putative class action lawsuit, alleging price fixing conspiracy and other anticompetitive conduct against five manufacturers of cast iron soil pipe (CISP): McWane, Inc. and its affiliates, AB&I Foundry and Tyler Pipe Company , and Charlotte Pipe and Foundry Company and its subsidiary, Randolph Holding Company. The complaint in Security Supply Corp. v. AB&I Foundry, was filed in federal district court in San Francisco on November 1, 2013.

CISP products are components of pipeline systems manufactured for use in commercial, industrial and residential buildings and are sold to companies in construction projects or independent wholesale distributors, such as Security Supply. Security Supply alleged that certain factors in the CISP industry are conducive to price collusion. First, the industry is highly concentrated as there are only three producers of CISP in the U.S., AB&I and Tyler which are two divisions of McWane and Charlotte. Second, 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. Third, all CISP products are standardized so CISP manufacturers compete primarily on price. Finally, there is no functional substitute for CISP. As a result, the demand for CISP is inelastic and price increases do not limit the quantity of CISP sold or consumed in the market.

The complaint alleged that McWane and Charlotte, as the dominant suppliers in the market, were involved in a conspiracy to fix prices of CISP since at least 2006. The two manufacturers have maintained identical prices and rebates with each other. Due to the conspiracy, they have been able to increase prices without regard to market demand, according to the complaint. Charlotte’s acquisition and liquidation of four competitors from 2002 to 2010 substantially decreased competition in the CISP market and allowed McWane and Charlotte to continue to fix prices, Security Supply claimed.

McWane, Charlotte and its affiliated companies are the only members of CISPI, the trade association of U.S. CISP manufacturers and had numerous opportunities to communicate and coordinate the price-fixing, maintaining market share and excluding competition activities, according to the complaint. Security Supply claimed that it had no knowledge of the conspiracy until the FTC filed a complaint against Charlotte in 2013, challenging an acquisition of a CISP competitor.

As remedies, Security Supply requested (1) a declaration that the action is a proper class action; (2) a permanent injunction barring McWane and Charlotte from continuing the price fixing conspiracy; (3) a judgment for treble damages for an illegal price fixing conspiracy; (4) pre-judgment and post-judgment interest; and (5) reasonable attorney fees and costs of suit.

The case is No. 3:13-cv-05114.

Attorneys: Francis O. Scarpulla (Zelle Hofmann Voelbel & Mason LLP) for Security Supply Corp.

Companies: Security Supply Corp.; AB&I Foundry; Tyler Pipe Co.; McWane, Inc.; Charlotte Pipe and Foundry Co.; Randolph Holding Co.

News: Antitrust CaliforniaNews