After eight years of litigation, a national construction supply giant has agreed to pay $75 million to settle a massive price-fixing case.
The settlement by Masco Corp., whose brands include Behr paints, Delta faucets and Milgard windows, agreed on the eve of a trial in Atlanta federal court to settle the antitrust class action with 369 independent fiberglass insulation contractors that compete in the insulation installation business.
Masco’s settlement augments an earlier $37 million settlement that class counsel carved out with four other fiberglass insulation manufacturers — Johns Manville, CertainTeed Corp, Knauf Insulation GMBF and Guardian Fiberglass Inc. — who were accused of colluding with Masco and also were defendants in the suit. Another manufacturer, Owens-Corning, filed for bankruptcy protection before the suit was filed and was not named as a defendant.
Class attorneys say that together, the settlements total $112 million in what they believe is the largest antitrust settlement in the history of the Northern District of Georgia.
Masco is one of the nation’s largest insulation installation contractors, according to court records, and in 2003 — a year before the suit was filed — Masco contractors installed 40 percent to 50 percent of all fiberglass insulation in new home construction nationwide.
Masco announced the settlement in a public filing with the Securities and Exchange Commission on July 26. The case, which had been scheduled for trial before Chief U.S. District Judge Julie Carnes, was canceled by court order July 23.
In a news release that mirrors the language of the SEC filing, Masco said it reached “an agreement in principle” to settle the litigation.
“We have agreed to pay $75 million in exchange for full release of all claims, which cover the period 1999 to 2004,” the release stated. “While we continue to deny that the challenged conduct was unlawful, and we do not admit to any wrongdoing, this business decision eliminates the considerable expense and uncertainty of continued litigation and is in the best interest of the company and its shareholders. The settlement is still subject to court approval.”
Masco was defended by attorneys with the Washington and San Francisco offices of Latham & Watkins,and Detroit firm Honigman Miller Schwartz & Cohn. S. Wade Malone of Nelson Mullins Riley & Scarborough in Atlanta was local counsel. He could not be reached for comment by deadline.
Class counsel for the contractors who sued Masco — including Atlanta attorneys Frank Lowrey, Steven Rosenwasser, Michael Caplan and Michael Terry of Bondurant, Mixson & Elmore — said in a joint statement, “Class counsel are all pleased, after eight years of hard-fought litigation, to have reached a fair resolution of this case on behalf of our clients.” They would not comment further on the settlement terms.
At the heart of the alleged price-fixing conspiracy were efforts by five fiberglass insulation manufacturers — an oligopoly that virtually controlled the national fiberglass insulation market — to increase prices in what is essentially a static market, Carnes wrote in a 2009 order. Demand for fiberglass insulation is generally tied to housing starts, and customers buy according to their needs, the order said. As a result, lower product prices do not typically boost sales.
Contractors claimed in court filings that fiberglass manufacturers embarked on a conspiracy to increase prices as a way of boosting revenue. But they soon found they needed the cooperation of Masco, their largest customer, which because of its bulk purchases had been able to negotiate price advantages over its competitors while pressing for the lowest possible prices from manufacturers.
Documentary evidence produced during the litigation showed that by 1998, “Masco had concluded that industry conditions, particularly a decline in housing starts, threatened to lateralize Masco’s price advantage over other contractors,” the judge wrote. “Documents from 1999 suggest that Masco had decided to resist the threatened lateralization via pricing agreements with the manufacturers.”
‘Crossing The Line’
The contractors contended that “Masco went beyond simply negotiating the lowest price it could obtain for insulation” and “enlisted the manufacturers in a conspiracy to maintain and increase Masco’s price advantage to the detriment of competing independent contractors.
As part of the alleged conspiracy, Masco proposed an arrangement to “support across-the-board price increases in exchange for a guaranteed spread” between prices Masco paid to the fiberglass insulation manufacturers and higher prices the manufacturers would bill Masco’s competitors, Carnes’ order stated, citing “several documents that memorialize discussions between the manufacturers and Masco concerning a proposed arrangement.”
Documents obtained during the litigation suggested the spread was a minimum of 12 percent to 15 percent between Masco’s lower purchase prices and those paid by other independent contractors, among them lead plaintiffs Columbus Drywall and Insulation Inc. and Southland Insulation.
“The manufacturers agreed to this arrangement in exchange for Masco’s support for across-the-board price increases on insulation products during a time of decreased demand and excess supply,” Carnes wrote in a summary of the contactors’ allegations.
The judge’s order also suggested that an arrangement between Masco and the manufacturers “raised the starting point for all price negotiations” with Masco’s competitors. “Beginning as they did with an artificially elevated floor below which prices could not fall, plaintiffs could only go so far in obtaining a lower price through individual negotiations,” her order stated.
“I need to complete a phone conversation with Masco leadership before we pull the trigger on this” pricing proposal, the vice president of one insulation manufacturer stated in a 2003 email that Carnes cited.
At least one email written by a vice president of one of the insulation manufacturing firms raised questions about whether the industry’s negotiations with Masco might violate federal antitrust laws.
“What we really need is to convince them [Masco] that they can lead the industry in getting pricing up in the market if we commit to a reasonable gap,” stated the email included in Carnes’ order. “I don’t know how we do this well without crossing the line on certain antitrust/price fixing rules.”