Antitrust Law Daily Wrap Up, TOP STORY—D. Kan.: Invocation of privilege against self-incrimination did not warrant dismissal of price fixing claims against Dow, (Feb 4, 2014)

By Jeffrey May, J.D.

Dow Chemical Company was not entitled to dismissal of price fixing actions brought by companies whose former or current executives had invoked the Fifth Amendment privilege against self-incrimination and refused to give deposition testimony, the federal district court in Kansas City, Kansas, has ruled (In re Urethane Antitrust Litigation, February 3, 2014, Lungstrum, J.).

Dow sought dismissal of claims brought by the three groups of companies that had opted out of class actions brought on behalf of purchasers of polyether polyol products (PPPs). The purchasers asserted price fixing and market allocation claims against chemical companies, including Dow. The direct actions returned to active status after being stayed during the class-action trial, which ended with a $1.2 billion judgment against Dow.

The direct action plaintiffs (DAPs) are manufacturers and sellers of polyurethane foam who purchased PPPs from Dow. The DAPs converted the PPPs to foam and sold the foam to manufacturers of goods such as furniture, mattresses, and packaging.

After the DAPs filed their suits against the chemical companies, it was reported that U.S. Department of Justice was investigating a possible price fixing conspiracy by manufacturers of foam. Some of the executives of the DAPs invoked their Fifth Amendment privilege against self-incrimination.

Dow urged the court to dismiss the DAP suits pursuant to Federal Rule of Civil Procedure 41(b), which provides that a defendant may move to dismiss “[i]f the plaintiff fails to prosecute or to comply with these rules or a court order.” However, there was no basis to conclude that the plaintiffs acted improperly or in a dilatory manner such that Rule 41(b) might apply.

Dow unsuccessfully argued that the invocation of the privilege by the plaintiffs’ former and current executives should be imputed to the plaintiffs, resulting in a finding that the plaintiffs refused to provide discovery to defendant. Dow failed to demonstrate that it could not have obtained needed information from other witnesses, the court noted. The defendant did not suffer substantial prejudice from the invocations of the privilege.

Dow’s assertion that no lesser sanction than dismissal could make up for the discovery that the witnesses refused to provide was rejected by the court. The more usual “sanction” for a party’s executive’s invocation of the privilege would be the admission of the invocation into evidence, in support of an adverse inference against the party, the court explained. Dow would be free to raise that issue with the trial court.

Courts have exercised their inherent authority to dismiss claims brought by parties who invoked the Fifth Amendment privilege and thus refuse to provide key testimony. However, the plaintiffs did submit to Rule 30(b)(6) depositions and thus did not refuse to provide testimony to Dow, the court explained. Further, there was no precedent for dismissal of claims based on the invocation of the Fifth Amendment privilege by a non-party individual when the party itself did testify. Even if the court could dismiss a party’s claims because of the Fifth Amendment invocation by a non-party, the court said that it would not exercise its discretion to do so in this case.

The court also rejected Dow’s argument that the actions should be dismissed pursuant to Rule 37, which authorizes dismissal as a possible sanction for the failure to obey a court’s order concerning discovery. Dow failed to identify any such order that plaintiffs had violated concerning the invocation of the privilege. In the absence of such non-compliance, there was no basis for dismissal under Rule 37.

The case is No. 04-1616-JWL, MDL No. 1616.

Attorneys: Gloria B. Solomon (Trout Cacheris, PLLC) for Carpenter Co. Mauro M. Wolfe (Dickstein Shapiro Morin & Oshinsky LLP) for Woodbridge Foam Corp. and Dash Multi-Corp, Inc. Brian R. Markley (Stinson Morrison Hecker LLP) for Dow Chemical Co.

Companies: Carpenter Co.; Woodbridge Foam Corp.; Dash Multi-Corp, Inc.; Dow Chemical Co.

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