Antitrust Law Daily Wrap Up, ANTITRUST—W.D.N.Y.: Class cert denied for indirect purchasers in caustic soda antitrust case, (Dec 17, 2024)

By Martin A. Steinberg, J.D.

Inadequacies in expert’s regression models to demonstrate predominance doomed motion for class certification.

The federal district court in Rochester, New York, denied class certification in a case where Indirect Purchaser Plaintiffs The Tripp Plating Works, Inc. (Tripp) and Finch Paper, LLC (Finch) (collectively “Indirect Purchaser Plaintiffs” or “IPPs”) allege that Defendants Olin Corporation (Olin), K.A. Steel Chemicals, Inc. (K.A. Steel), Occidental Chemical Corporation (OxyChem), Westlake Chemical Corporation (Westlake), Shintech Incorporated (Shintech), and Formosa Plastics Corporation, U.S.A. (Formosa USA) entered into a combination or conspiracy to artificially reduce or eliminate competition for the pricing of caustic soda sold to purchasers in the U.S. The court’s conclusion that IPPs have not shown predominance mandated that the class certification motion must be denied. The court also denied the parties’ motions to strike testimony of competing economics expert witnesses on class damages (Miami Products & Chemical Co. v. Olin Corp., No. 1:19-cv-00385-EAW-MJR (W.D.N.Y. Dec. 16, 2024)).

Background. Caustic soda, also known as sodium hydroxide or lye, is a commodity chemical used by customers in a variety of industries, including paper, pulp, and cellulose; chemical production; soaps and detergents; aluminum; food processing; water treatment; textiles; mineral oils; recycling; and pharmaceuticals. Caustic soda is a globally traded chemical, and the majority of worldwide production occurs outside the U.S. Plaintiffs claimed that Defendants, as the five largest producers, produced at least 90% of the domestic supply of the product.

Caustic soda is generally sold pursuant to contract, with limited amounts sold under freely negotiated spot sales. Caustic soda contracts may employ different pricing mechanisms—for example, the parties may agree upon a fixed price and a volume target for a period of time, they may tie the price formulaically to a pricing index or indices, or they may enter into long-term contracts for fixed prices, linked to changes in underlying cost factors, priced on an ECU [electrochemical unit] basis, or based on a market basket. Contracts tied to a market basket are priced based on the average selling price realized from some other set of agreed-upon contracts.

Tripp is a family-owned business that provides electroplating services, which is a process used to deposit finished coats on certain metal products such as valves, bonnets, and other parts. Finch is a company that produces paper products and uses membrane grade caustic soda for its manufacture of those paper products. Both claim to have indirectly purchased caustic soda manufactured by one or more of Defendants.

Olin is a vertically integrated global manufacturer and distributor of chemical products and a leading U.S. manufacturer of ammunition. Olin purchased K.A. Steel, a privately held distributor of caustic soda and other chemicals, in August 2012. OxyChem is a wholly owned subsidiary of Occidental Petroleum Company and produces and markets basic chemicals and vinyls. Westlake is an international manufacturer and supplier of basic chemicals, vinyls, polymers, and building products. Formosa USA is a vertically integrated supplier of plastic resins and petrochemicals. Shintech is a wholly owned subsidiary of Shin-Etsu Chemical Co., Ltd., the largest manufacturer of polyvinyl chloride in the world.

On December 28, 2023, the district court previously denied a motion for class certification filed by plaintiffs Miami Products & Chemical Co., Amrex Chemical Co., Inc., Main Pool and Chemical Co., Inc., Midwest Renewable Energy, LLC, Perry’s Ice Cream Company, Inc., and VanDeMark Chemical, Inc. (collectively “Direct Purchaser Plaintiffs” or “DPPs”).

Proposed classes. IPPs sought to certify two classes with the following definitions:

State Antitrust Class: All persons and entities who indirectly purchased from a distributor, and did not resell, liquid forms of membrane or diaphragm grade caustic soda in Arizona, California, Connecticut, Florida, Illinois, Iowa, Kansas, Maine, Maryland, Michigan, Minnesota, Mississippi, Nebraska, Nevada, New Hampshire, New Mexico, New York, North Carolina, North Dakota, Oregon, Rhode Island, South Dakota, Tennessee, Vermont, West Virginia, Wisconsin, and the District of Columbia manufactured by one or more of the Defendants or their co-conspirators (or any of Defendants’ or their co-conspirators’ parents, predecessors, subsidiaries or affiliates) at any time between October 1, 2015 and December 31, 2019.

Unjust Enrichment Class: All persons and entities who indirectly purchased from a distributor, and did not resell, liquid forms of membrane or diaphragm grade caustic soda in Arizona, Hawaii, Illinois, Iowa, Maine, Michigan, Minnesota, Mississippi, Nebraska, Nevada, New Mexico, New York, Oregon, Rhode Island, South Dakota, Utah, Vermont, West Virginia, and Wisconsin manufactured by one or more of the Defendants or their co-conspirators (or any of Defendants’ or their co-conspirators’ parents, predecessors, subsidiaries or affiliates) at any time between October 1, 2015 and December 31, 2019.

On October 31, 2023, the IPPs and Shintech entered into a settlement agreement. The Shintech Settlement Agreement is with the IPPs and the two proposed classes; and is pending preliminary approval of the court.

IPPs Cannot Satisfy the Predominance Requirement. The IPPs failed to demonstrate by a preponderance of the evidence that common questions will predominate over individual questions with respect to their proposed class, the court held. In the DPP Class Certification order, the court concluded for several reasons that the DPPs “failed to demonstrate by a preponderance of the evidence that common questions will predominate over individual questions with respect to their proposed class,” and that they had “not come forward with common proof sufficient to allow a trier of fact to conclude that all or most members of the class suffered antitrust injury as a result of the alleged cartel.” For similar reasons, the court reached the same conclusion about the IPPs’ proposed classes.

The diversity and complexity of the contracts between Defendants and their customers were primary drivers in the court’s finding that the predominance requirement had not been satisfied in connection with the DPPs’ class certification motion. During the relevant time period, Defendants would periodically send out price increase announcements, i.e., letters notifying their customers that they desired to increase the price of caustic soda. These letters would not automatically result in an increase in the prices paid by customers but would instead trigger negotiations between the seller and the buyer.

The IPPs’ theory of how price increase announcements caused injury to Defendants’ customers with index-based pricing relied entirely on assumption and conjecture, according to the court. Because of the characteristics of the caustic soda market, to prove class-wide injury, the DPPs and the IPPs both must present common proof of a plausible mechanism through which Defendants’ alleged anticompetitive behavior, namely, agreeing to increase prices by issuing parallel price increase announcements unsupported by market conditions, could have caused customers with widely differing contract terms to pay inflated prices. The evidence proffered by the IPPs in support of their class certification motion, however, failed to address the economic realities of the caustic soda market. They also failed to present evidence from which a reasonable trier of fact could conclude that price increase announcements resulted in artificially inflated negotiated prices that were actually incorporated into an index.

While at the class certification phase, Plaintiffs do not have to prove on the merits that the class was in fact injured, but they have to show at this stage is that they can prove, through common evidence, that all class members were injured by the alleged conspiracy. Sykes v. Mel S. Harris & Assocs. LLC, 780 F.3d 70, 82 (2d Cir. 2015). Without such common evidence, the need to present evidence that varies from member to member to establish antitrust injury will almost inevitably make individual questions more prevalent or important than common ones.

The court’s assessment of whether the predominance requirement has been satisfied must involve a careful examination of the soundness of an expert’s model relied upon to establish class-wide impact. The IPP’s expert’s model was fundamentally unsound because it did not accurately reflect the complex and varied contracts that existed between Defendants and their customers during the relevant time period. It therefore could suffice to support a showing of predominance. Courts have consistently rejected passthrough methodologies that use averaging and sampling without underlying evidentiary support, and thus mask individualized questions that otherwise predominate. The IPP’s pass-through model was based on data from only three distributors out of more than 155, and Defendant’s expert offered persuasive evidence that the model ignored the complexity of the supply chain.

Typicality. Typicality is satisfied when each class member’s claim arose from the same course of events, and each class member made similar legal arguments to prove the defendant’s liability. Typicality was not defeated because the IPPs did not make their purchasing decisions based solely on price. Connecticut’s unique limitation on the timeframe for recovery also did not impact the court’s typicality analysis. In any case, the court did not deny class certification based on a failure to demonstrate typicality.

Ascertainability. In the DPP Class Certification order, the court found that the class proposed by the DPPs was not ascertainable, because it provided no objective criteria for determining what constitutes a long-term, fixed-price contract that predated October 1, 2015. Because that phrase was used but not defined in the DPPs’ proposed class definition, the court determined that the proposed class was insufficiently ascertainable. Conversely, none of the terms used in the IPPs’ proposed class definitions lacked objective criteria. Ascertainability asks whether the class is defined by objective criteria that makes the class’s membership sufficiently definite, not whether the class is administratively feasible. Therefore, the court did not deny class certification on this basis.

The Case is No. 1:19-cv-00385-EAW-MJR.

Judge: Wolford, E.

Attorneys: Charles Andrew Dirksen (Cera LLP) and Fatima G. Brizuela (Hartley LLP) for Miami Products & Chemical Co. Corey W. Roush (Sidley Austin LLP) for Olin Corp.

Companies: Miami Products & Chemical Co.; Olin Corp.

Cases: Antitrust NewYorkNews