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From Antitrust Law Daily, August 14, 2014

FTC proceedings did not require dismissal of private antitrust suit against pipe fittings suppliers

By Jeffrey May, J.D.

The FTC's decision to dismiss five of six antitrust claims against ductile iron pipe fittings (DIPF) manufacturer McWane, Inc. earlier this year did not require the dismissal of private antitrust claims against McWane and other DIPF suppliers, the federal district court of Trenton, New Jersey, has decided. In denying the defending DIPF suppliers’ motions to dismiss a second amended complaint, the court also concluded that complaining purchasers adequately alleged that a price fixing conspiracy extended into 2010 and 2011 based on parallel price moves (In Re: Ductile Iron Pipe Fittings (“DIPF”) Direct Purchaser Antitrust Litigation, August 13, 2014, Thompson, A.).

The antitrust action was brought on behalf of putative classes of direct purchasers of DIPF. These fittings join ductile iron pipes, which are used in water and wastewater systems. The defendants are McWane, Sigma Corporation, and Star Pipe Products, Ltd.

Separately, the FTC had challenged the conduct of the three companies. Sigma and Star Pipe settled the allegations under FTC consent orders. Following an administrative trial against McWane and an appeal to the Commission, five of the six remaining counts against McWane were dismissed. In January, the Commission issued an opinion, concluding that McWane unlawfully monopolized the domestic pipe fittings market, and an order, which prohibited McWane from requiring exclusivity from its customers.

In its decision, the Commission explained that a distribution relationship between McWane and Sigma Corporation had not been shown to be unlawful. In light of the Commission’s finding of monopolization against McWane and its decision that the distribution relationship was not unlawful, the Commission decided that it was unnecessary to reach a count alleging that McWane and Sigma conspired to monopolize through their distribution agreement. In the absence of a majority decision, allegations of a price fixing conspiracy and an anticompetitive information exchange were dismissed in the public interest.

In the private action, the court in March 2013 denied motions to dismiss the suit. In its most recent decision, the court has now rejected motions to dismiss the second consolidated amended complaint (SCAC).

Sigma moved to dismiss claims in the SCAC that it conspired with McWane to monopolize the domestic DIPF market and to unreasonably restrain trade. Sigma based its motion on the parallel FTC proceeding, noting that the FTC dismissed five of the six counts against McWane, including all counts involving Sigma.

The results of the FTC proceedings were not binding on the court, it was decided. Moreover, at this stage, the court had to accept as true all of the well-pleaded factual allegations and construe the complaint in the light most favorable to the plaintiffs. The FTC, on the other hand, reached its decision after extensive discovery, the court explained. Thus, Sigma's motion to dismiss was denied.

Price fixing. The defendants sought dismissal of new portions of the SCAC relating to allegations that McWane, Sigma, and Star Pipe engaged in parallel price moves in June 2010 and March 2011. The defendants unsuccessfully argued that the new claims should be dismissed because the plaintiffs failed to allege anything other than lawful, follow-the-leader pricing.

The plaintiffs adequately alleged “plus factors” that suggested that the conduct was the product of an agreement. They pled a motive to enter into a price fixing conspiracy, based on product and market characteristics, as well as the defendants’ participation in trade associations that facilitated an information exchange amongst them.

In addition, the plaintiffs alleged that the defendants raised prices during an economic downturn, which a jury could conclude was an action against self-interest—another plus factor supporting conspiracy. Lastly, the court rejected the defendants' assertions that the allegations of conspiratorial communication were “vague and unpersuasive.” The plaintiffs identified several specific communications between the defendants, and the presence of information exchanges in highly concentrated DIPF market, involving a fungible product with inelastic demand, could be indicative of anticompetitive behavior, according to the court.

The case is Civ. No. 12-711.

Attorneys: Erik E. Sardina (Lite DePalma Greenberg LLC) for John Hoadley and Sons, Inc., Mountain States Supply, LLC, and Mountainland Supply, LLC. Erik T. Koons (Baker Botts LLP), and John J. O'Reilly (Day Pitney LLP) for McWane, Inc. Gabrielle Elise Farina (Thompson & Knight LLP), and Joseph Jacob Fleischman (Norris, McLaughlin & Marcus, PC) for Star Pipe Products, Ltd. Jason Allen Leckerman (Ballard Spahr LLP) for Sigma Corp.

Companies: John Hoadley and Sons, Inc.; Mountain States Supply, LLC; Mountainland Supply, LLC; McWane, Inc.; Star Pipe Products, Ltd.; Sigma Corp.

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