Antitrust Law Daily Wrap Up, ANTITRUST—S.D. Ind.: Restraint of trade counterclaims against fiberglass insulation manufacturer were time-barred, (Sep 16, 2015)

By Linda O’Brien, J.D., LL.M.

In an action by a fiberglass insulation manufacturer against a former distributor to recover unpaid invoices, the distributor’s counterclaims that the manufacturer engaged in a price fixing conspiracy were time-barred, the federal district court in Indianapolis has ruled. Thus, the manufacturer’s motion for summary judgment was granted (Knauf Insulation, GmbH v. Southern Brands, Inc., September 14, 2015, Barker, S.).

In 1980, Southern Brands, Inc. (SBI), a fiberglass insulation distributor, began purchasing insulation from Knauf Insulation, a fiberglass insulation manufacturer headquartered in Shelbyville, Indiana. In 2003 and 2007, SBI fell behind on payments for insulation purchased on account by $1.8 million. As a condition to continue to purchase insulation on account from Knauf, SBI executed a promissory note, which covered all past due invoices. SBI officers Albert and Rosemary Dowd also executed a personal guaranty of all of SBI’s obligations.

SBI began to pay off the debt with a series of interest-only payments, but ceased making payments in October 2008. Despite SBI’s delinquency on the note, Knauf continued to sell insulation to SBI on account until January 2012. As attempts to reach agreement on payment of SBI’s debt were unsuccessful, Knauf filed suit in February 2012, seeking to recover $1.8 million, plus interest, from SBI, as well as to hold the Dowds personally liable for the debt under their personal guaranty. The defendants filed a counterclaim for violations of Section 1 of the Sherman Act, alleging that Knauf entered into agreements with competitors and its largest customer, Masco Corp., from June 1999 to June 2004, which unlawfully restrained trade. Knauf moved for summary judgment.

The court determined that SBI’s Sherman Act counterclaim was barred by the statute of limitations. In this case, the defendants’ counterclaims accrued between 1999 and 2004. Since their claims would be barred by the four-year statute of limitations, the defendants contended that a class action based on the same legal theory and commenced against Knauf in October 2004, Columbus Drywall & Insulation, Inc. v. Masco Corp., tolled the limitations period. The parties agreed that the original complaint in the Columbus Drywall class action included SBI as a potential class member and tolled the statute of limitations when the suit was commenced in 2004.

According to the court, the statute of limitations resumed running for SBI in January 2006, when the plaintiffs in the Columbus Drywall litigation amended their complaint to redefine their class, excluding SBI as a potential class member. Looking to the Seventh Circuit’s decision in Sawyer v. Atlas Heating & Sheet Metal Works, Inc., 642 F.3rd 560 (2011), the court noted that when a purported class members ceases to be a member of the putative class, the tolling of the statute ceases and the limitations period begins to run immediately. In this case, SBI ceased to be a member of a putative class action when the Columbus Drywall plaintiffs amended their complaint in January 2006. For the insulation distributors that were excluded from the amended class definition, the statute began to run at that time. SBI would have had until January 2010 to either intervene in the Columbus Drywall case or file its own separate action. Since the present suit was not commenced until February 2012 and SBI did not file its counterclaim until April 2013, SBI’s counterclaim was clearly time-barred, the court concluded.

The case is No. 1:12-cv-00273-SEB-TAB.

Attorneys: Anne L. Cowgur (Taft Stettinius & Hollister LLP) for Knauf Insulation, GmbH. Robert E. Rigrish (Bodker Ramsey Andrews Winograd & Wildstein PC) for Southern Brands, Inc.

Companies: Knauf Insulation, GmbH; Southern Brands, Inc.

Cases: Antitrust IndianaNews