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Summary judgment denied in the Domestic Drywall Antitrust Litigation

Posted: February 18, 2016
By: P.J. D'Annunzio
Source: The Legal Intelligencer

A federal judge has ordered that all the remaining drywall manufacturers in the price-fixing antitrust litigation but one will have to remain in the case.

U.S. District Senior Judge Michael M. Baylson of the Eastern District of Pennsylvania, who has handled the case since it was consolidated nearly three years ago, denied summary judgment to the majority of the remaining defendants in the litigation.

The drywall manufacturers requesting summary judgment were National Gypsum, CertainTeed, American Gypsum, Lafarge and PABCO. CertainTeed's summary judgment motion was the only one granted by Baylson. In March, two former defendants, USG Corp. and TIN Inc., settled with the direct and indirect purchaser plaintiffs for a total of $55 million. Altogether, the defendants represent just over 89 percent of all U.S. drywall sales.

TIN agreed to pay $5.25 million to settle claims from direct purchasers of drywall and $1.75 million to settle with indirect purchasers.

USG agreed to pay $39.25 million to settle with the direct purchasers and $8.75 million to settle with indirect purchasers.

According to Baylson's 161-page opinion, both putative classes of plaintiffs alleged that, beginning in 2011, the defendants violated the antitrust laws by conspiring to hike prices, restrict supply, and eliminate the traditional pricing practice of providing customers with job quotes.

The remaining defendants claimed they "were merely 'following the leader,' which they argue is an expected and legal business practice in an oligopoly," Baylson wrote, noting that American was the first company to send a letter in 2011 notifying customers of a 35 percent price increase.

The defendants claimed that American's position took the industry by surprise, Baylson said, but ultimately, they saw it as an opportunity to improve their bottom line and mimicked American's strategy based on their independent conclusions that the changes American implemented were in their best interests, individually, and not part of a conspiracy.

Officers for American said in declarations that the price increase was a way to deal with the hit the company took during the Great Recession. Part of that plan to cope with American's financial troubles included eliminating price quotes. The officers claimed they did not communicate with other manufacturers about the strategy.

Declarations and depositions from the officers and employees of National, Lafarge, PABCO and CertainTeed denied knowledge of any agreement between other drywall manufacturers to set prices.

The difference in CertainTeed's case, Baylson said, was "the relative lack of evidence that CertainTeed communicated with other manufacturers or analysts coupled with the evidence that CertainTeed did take steps indicative of independent decision-making, result[ing] in the court's conclusion that a jury could not reasonably make the inference that CertainTeed participated in an agreement in restraint of trade."

The same could not be said for the other defendants, according to Baylson.

"When plaintiffs' evidence is considered as a whole, it tends to exclude the ­possibility that National, American, PABCO and Lafarge acted independently, or even interdependently," the judge continued.

Thomas Brown of Butler Weihmuller Katz Craig represented American, Leslie John of Ballard Spahr represented Lafarge, Gregory Casamento of Locke Lord represented PABCO, and Robert Milne of White & Case represented CertainTeed; none returned calls seeking comment.

Steven Bizar of Dechert represented National and said the litigation still has a long way to go. "It's not a ruling on the merits of the case," he said.

The classes still face the hurdle of certification, and they have to go to trial, he said, adding, "At the end of the day, on behalf of National Gypsum, we believe that our prices are fair, competitive and were set by National Gypsum alone."

In his opinion, Baylson also expressed that the litigation was only in its beginning stages and summary judgment was not the end.

"The judge's function in ruling on summary judgment is as a 'gatekeeper' through which the parties must pass. Denial of a summary judgment motion bestows a legal 'rite of passage'-like the trials and tribulations facing the Prince and Papageno in Mozart's 'The Magic Flute,' or the adventures of Ulysses in ancient Greece," Baylson said.

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