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In what appears to be a case of first impression, a federal judge has held that federal antitrust law pre-empts an unjust enrichment claim brought by a customer that claimed it was entitled to the nearly $1.7 million recovered by its supplier in an antitrust suit. U.S. District Judge Joseph Irenas ruled, in Stepan Co. v. Callahan Co., 07-Civ.-5115, that the customer’s sole recourse would have been to sue directly, under state antitrust law, the suppliers who allegedly engaged in price-fixing. Irenas, noting that only direct buyers can sue under federal antitrust law, said the plaintiff “seeks to circumvent that limitation by bringing a state law action to deprive a direct purchaser of funds properly awarded under federal law.” At issue was the alleged price-fixing of sodium monochloroacetate, or SMCA, a chemical that helps liquid flow. Stepan Co., based in Northfield, Ill., with a plant in Maywood, N.J., uses SMCA to manufacture consumer products. For years, its sole supplier was Callahan Co., a distributor based in Palmyra. In 2001, after the Department of Justice announced it had uncovered a conspiracy among SMCA suppliers to fix prices and allocate markets, Callahan brought a private federal antitrust class action in the District of Columbia against SMCA suppliers Hoechst Gmbh, of Germany, and Clariant Co., of Switzerland. The case settled, and Callahan’s share of the recovery was $1,676,710. After paying the claims administrator, it pocketed $1,123,396. Stepan learned of the settlement and contacted Callahan seeking all or part of the proceeds, on the basis that it was the truly injured party because the overcharges had been passed on to it. During the relevant time frame, August 1995 to September 1999, it had paid Callahan $3.953 million for 5.34 million pounds of SMCA. Callahan tried to resolve the dispute by bringing a declaratory judgment case in U.S. District Court in New Jersey. In May 2007, Stepan sued Callahan for unjust enrichment in the Northern District of Illinois and Callahan moved to transfer the case to New Jersey or put it on hold until the declaratory action was decided. On Oct. 3, U.S. District Judge John Darah, of the Northern District of Illinois, ordered the unjust enrichment case moved to New Jersey because it was where Callahan had delivered 95 percent of the SMCA. In granting Callahan’s motion for summary judgment and finding the unjust enrichment claim pre-empted, Irenas said allowing it to go forward would clash with the policies underlying the federal antritrust law’s ban on suits by indirect purchasers. One of those policies was a desire to avoid “the complicated task of tracing the effects of the overcharge on prices, sales, costs, and profits at various levels in the distribution chain.” Irenas wrote in his July 29 opinion that if Stepan were allowed to pursue its claim, “the Court could potentially be faced with similar claims from Stepan’s customers all the way down the chain of commerce, with each customer seeking its portion of the funds awarded to the entity from which it purchased the product.” The result would be “an endless chain” of claims that would “enmesh the Court in complex economic calculations” and “threaten efficient enforcement of the antitrust laws,” he warned. The other policy concern was creating a disincentive for direct purchasers, who would be less inclined to sue if they could not retain what they recovered. “If indirect purchasers were able to use a state claim to recover a portion of a direct purchaser’s federal antitrust award, a direct purchaser would be faced with the choice of exhausting the funds in a legal battle to defend its right to keep them, or distributing them into the outstretched hands of the indirect purchasers,” Irenas wrote. To prevail on its claim, Stepan would have to prove Callahan’s retention of the proceeds was unjust, which would conflict with U.S. Supreme Court precedent allowing direct purchasers to recover the full amount of overcharges, Irenas said. The ruling “clarifies that direct purchasers get to keep their antitrust settlement money without fear of indirect purchasers coming around for it,” says Callahan’s counsel, Douglas Johnson, of Earp Cohn in Cherry Hill. “If you let direct and indirect purchasers fight over money, the only ones who are going to get rich are the lawyers,” Johnson says. Though the result might not be perfect, “you have to give the money to someone, you can’t let there be this endless chain of claims.” Johnson adds that Stepan had a remedy: a state antitrust action against Hoechst and Clariant. Stepan’s lawyers — Steven Johnson of Gibbons in Philadelphia and Paul Olszowka of Wildman Harrold Allen & Dixon in Chicago — did not return a call for comment.

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