A federal judge has refused to dismiss litigation asserting that sellers of fittings that connect iron pipes in pressurized municipal water and wastewater systems colluded to inflate prices.
U.S. District Judge Anne Thompson in Trenton ruled on Tuesday that the plaintiffs adequately alleged that the companies acted contrary to self-interests by increasing prices during waning demand, engaged in conspiratorial communications, and — based on their combined 90 percent market share in 2008 — had a motive to fix prices.
"[P]articipation in information exchanges in highly concentrated markets involving a fungible product with inelastic demand can be indicative of anticompetitive behavior," Thompson wrote in In re Ductile Iron Pipe Fittings Direct Purchaser Antitrust Litigation, 12-cv-711.
The Federal Trade Commission started actions in January 2012 that were followed within weeks by class suits on behalf of distributors, large government entities, like the city of Denver, that bought directly from the sellers, and municipal governments that bought through intermediaries or paid contractors who bought them.
Sellers McWane Inc., Sigma Corp. and Star Pipe Products Ltd. allegedly agreed that if one raised list prices, the others would, too.
The plaintiffs further charge that McWane, prior to a markup planned for January 2008, convinced the other two to limit discounts from list prices. When McWane announced increases on Jan. 11, 2008, the other two did so soon after.
That June, McWane allegedly persuaded Sigma and Star Pipe to join a trade association — the Ductile Iron Fittings Research Association (DIFRA) — for the sole purpose of exchanging sales information. The same month, McWane again announced a price increase mirrored by the other two.
In each instance, the three allegedly discussed their price increases by phone afterward, and continued coordinating prices through DIFRA and other direct communication.
The plaintiffs claim the February 2009 passage of the American Recovery and Reinvestment Act (ARRA), known as the Stimulus Act, presented another opportunity to manipulate the market.
McWane, as the sole supplier of a line of domestic fittings, stood to benefit from a provision conditioning disbursement of the $6 billion allotted for water infrastructure projects on use of U.S.-produced goods.
After Sigma tried to enter the domestic market, McWane compelled it instead to become a distributor of McWane products, effectively eliminating potential competition, the plaintiffs claim.
In addition, McWane allegedly shut Star Pipe out of the domestic market — by threatening to cut off supply and withhold rebates from distributors who did business with Star Pipe — and directed Sigma to do the same.
Thompson consolidated the suits in two categories: eight on behalf of direct purchasers, nine on behalf of indirect purchasers.
The direct purchaser litigation comprises three putative classes: those who bought fittings during the alleged three-way, price-fixing scheme in 2008 and 2009; during the alleged monopolization after passage of the Stimulus Act; or during the alleged McWane-Sigma conspiracy between September 2009 until the FTC’s action.
They assert claims under the Sherman Act, which prohibits monopolization and conspiracy in constraint of trade or commerce.
The defendants have denied wrongdoing and moved to dismiss all counts for failure to state a claim on which relief can be granted, contending that the direct-purchaser plaintiffs lacked standing and failed to plead sufficient facts.
Thompson disagreed. The plaintiffs established standing by alleging they bought fittings during the supposed schemes, she said, holding that they did not need to include specific prices or allegations that they paid list prices rather than discounted ones.
Otherwise, she said, the plaintiffs would be required to plead facts in anticipation of the defendants’ defenses.
Pleading such facts is unnecessary to sufficiently allege an antitrust injury, Thompson said.
As for the alleged conspiracy based on the stimulus, Thompson waved off the defendants’ argument that, because domestic and imported fittings are interchangeable, McWane could not have created a monopoly in the domestic market.
The legislation "publicly recognizes the domestic … market as a separate entity and has created a group of distinct, federally-funded customers," Thompson said. "In essence, the ARRA’s ‘Buy American’ provision created exactly the kind of market pressures that permit anticompetitive efforts to succeed."
The plaintiffs also adequately alleged McWane’s maintenance of monopoly power and barriers to market entry despite the decrease in its domestic market share from 100 percent to 90 percent, Thompson said.
The judge also found sufficient the plaintiffs’ claims that McWane excluded Sigma from introducing its own products into the domestic market, finding "no evidence that Sigma was merely making the best of a bad situation or that the scheme was necessary for Sigma to maintain access to McWane products."
Plaintiff counsel Karen Confoy of Fox Rothschild in Lawrenceville says she looks forward to proceeding with the case.
According to court documents, McWane, of Birmingham, Ala., is represented by Richard Harper of Baker Botts in New York; Sigma, of Cream Ridge, by Stephen Kastenberg of Ballard Spahr in Philadelphia; and Star Pipe, of Houston, by Gabrielle Farina of Thompson & Knight in New York. None returned a call.
A motion to dismiss claims by the indirect purchasers is pending.
Of the three FTC actions, only McWane’s still is pending. Sigma settled its FTC action contemporaneously with the 2012 filing, promising to refrain from future price fixing. Star Pipe entered a similar settlement that March.