City of Tuscaloosa v. Harcros Chemicals, Inc.

• Decision Date: 22 February 1995
• Docket Number: Civ. A. No. 92-G-1614-S.
• Citation: 877 F. Supp. 1504
• Court: U.S. District Court — Northern District of Alabama
• Parties: CITY OF TUSCALOOSA; Municipal Utilities Board of Albertville; The Water Works and Sewer Board of the City of Birmingham; Water Works & Sewer Board of the City of Centre; The City of Dothan, a municipal corporation; The Water Works and Sewer Board of the City of Gadsden; The Utilities Board of the City of Gulf Shores; The City of Huntsville Water Works Utility Board; The Water Works Board of the City of Leeds; The Board of Water and Sewer Commissioners of the City of Mobile; The Board of Water & Sewer Commissioners of the City of Saraland; City of Sheffield; City of Vernon Water and Sewer Board; City of Phenix City; The City of Alexander City; The Water Works Board of the City of Arab; Baker Hill Water Authority; Calhoun County Water and Fire Protection Authority; Dallas County Water and Sewer Authority; Central Elmore Water Authority; City of Fairhope; Geneva Water Works and Sewer Board; The Water Works and Sewer Board of the City of Greenville; Town of Hayneville; Jefferson County, Alabama; The Utilities Board of the City of Muscle Shoals; North East Morgan County Water and Fire Protection Authority; Perdido Bay Water, Sewer, and Fire Protection District; The Water Works, Sewer and Gas Board of the City of Scottsboro; Utilities Board of The Town of Citronelle d/b/a South Alabama Utilities; The Water and Sewer Board of the City of Talladega; Tri-Community Water System; The Waterworks and Sewer Board of the City of Pritchard; and The Waterworks and Sewer Board of the Town of Westover, Plaintiffs, Auburn Water Works Board; Jasper Water Works and Sewer Board, Inc.; Opelika Water Works Board; The Water Works and Sanitary Sewer Board for the City of Montgomery; and The Water Works and Sewer Board of the City of Selma, Plaintiff Intervenors, v. HARCROS CHEMICALS, INC.; Jones Chemicals, Inc.; Van Waters & Rogers, Inc.; PB & S Chemical Co., Inc.; and Industrial Chemicals, Inc., Defendants.

877 F. Supp. 1504

CITY OF TUSCALOOSA; Municipal Utilities Board of Albertville; The Water Works and Sewer Board of the City of Birmingham; Water Works & Sewer Board of the City of Centre; The City of Dothan, a municipal corporation; The Water Works and Sewer Board of the City of Gadsden; The Utilities Board of the City of Gulf Shores; The City of Huntsville Water Works Utility Board; The Water Works Board of the City of Leeds; The Board of Water and Sewer Commissioners of the City of Mobile; The Board of Water & Sewer Commissioners of the City of Saraland; City of Sheffield; City of Vernon Water and Sewer Board; City of Phenix City; The City of Alexander City; The Water Works Board of the City of Arab; Baker Hill Water Authority; Calhoun County Water and Fire Protection Authority; Dallas County Water and Sewer Authority; Central Elmore Water Authority; City of Fairhope; Geneva Water Works and Sewer Board; The Water Works and Sewer Board of the City of Greenville; Town of Hayneville; Jefferson County, Alabama; The Utilities Board of the City of Muscle Shoals; North East Morgan County Water and Fire Protection Authority; Perdido Bay Water, Sewer, and Fire Protection District; The Water Works, Sewer and Gas Board of the City of Scottsboro; Utilities Board of The Town of Citronelle d/b/a South Alabama Utilities; The Water and Sewer Board of the City of Talladega; Tri-Community Water System; The Waterworks and Sewer Board of the City of Pritchard; and The Waterworks and Sewer Board of the Town of Westover, Plaintiffs Auburn Water Works Board; Jasper Water Works and Sewer Board, Inc.; Opelika Water Works Board; The Water Works and Sanitary Sewer Board for the City of Montgomery; and The Water Works and Sewer Board of the City of Selma, Plaintiff Intervenors, v. HARCROS CHEMICALS, INC.; Jones Chemicals, Inc.; Van Waters & Rogers, Inc.; PB & S Chemical Co., Inc.; and Industrial Chemicals, Inc., Defendants.

Civ. A. No. 92-G-1614-S.

United States District Court, N.D. Alabama, Southern Division.

February 22, 1995.

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Thomas A. Carraway, Clarence M. Small, Jr., John C. Hall III, Rives & Peterson, L. Vastine Stabler, Jr., William H. Prior, Jr., Walston, Stabler, Wells, Anderson & Bains, Birmingham, AL, T. Dudley Perry, Perry & Perry, Montgomery, AL, for plaintiffs.

Stanley A. Cash, Huie, Fernambucq & Stewart, Birmingham, AL, David E. Everson, Stinson, Mag & Fizzell, Kansas City, MO, for defendant Harcros Chemicals.

James C. Barton, Sr., Robert S. Vance, Jr., Johnston, Barton, Proctor, Swedlaw & Naff, Birmingham, AL, Gordon L. Lang, Nixon, Hargrave, Devans & Doyle, Washington, DC, for defendant Jones Chemicals.

J. Mark White, White, Dunn & Booker, Birmingham, AL, Keith E. Rounsaville, Edward C. LaRose, Trenam, Simmons, Kemker, Scharf, Barkin, Frye & O'Neill, Tampa, FL, for defendant Van Waters & Rogers.

Andrew P. Campbell, Leitman, Siegal, Payne & Campbell, Birmingham, AL, C. David Deep, Deep & Womack, Henderson, KY, for defendant PB & S Chemical.

Thad G. Long, James S. Christie, Jr., Bradley, Arant, Rose & White, Birmingham, AL, for defendant Indus. Chemicals.

John M. Johnson, E. Glenn Waldrop, Jr., William S. Cox III, Wynn M. Shuford, Light-foot, Franklin, White & Lucas, Birmingham, AL, for intervening plaintiffs.

MEMORANDUM OPINION

GUIN, Senior District Judge.

Plaintiffs in the above-styled cause are public entities organized and located in Alabama that purchase repackaged chlorine for the treatment of drinking water, sewage, and swimming pools. Defendant chemical companies either distribute or repackage chlorine¹ within the flow of interstate commerce.² The sale and distribution of chlorine between these buyers and sellers is handled by submission of sealed bids³ or by negotiation of purchase prices with one or more suppliers.

Experts for opposing parties have characterized the chlorine industry as an oligopoly selling a homogeneous product to an inelastic market on an ongoing basis.

Plaintiffs allege that a relatively small group of firms engaged in a price-fixing conspiracy with respect to price in sealed bid auctions for municipal chlorine procurement in Alabama from 1984 to 1990. Most of the defendants are relatively large, publicly held, for-profit corporations. They repackage chlorine into one-ton and 150-pound cylinders for use in water treatment and other industrial applications. The defendants enjoy substantial nonmunicipal business. They buy raw chlorine at similar prices from a small group of upstream chemical manufacturers and face similar costs and inelastic demand. Rivalry between suppliers is continuous and ongoing, with the same group of firms, usually joined by "outsiders,"⁴ facing each other repeatedly. All defendants issued price lists for use by their sales representatives during the relevant period. Most sales were made at the list prices. All firms were interested in the pricing strategies of their rivals. New competitors found low barriers to entry into the market area.

It is plaintiffs' contention that defendants implemented their pricing agreement by confining pricing to a few individuals. Joe Ragusa⁵ was denominated as the Harcros Chemicals official to control pricing. Richard Perry⁶ was the individual at PB & S Chemical Company. Robert and Jeff Jones controlled pricing at Jones Chemicals.⁷ Darwin Simpson⁸ was Van Waters & Rogers' named official.

Defendant Harcros Chemicals, Inc. hereinafter Harcros,⁹ is a chlorine repackager organized under the laws of Delaware with its principal place of business in Kansas. It has sold repackaged chlorine to industrial and municipal customers in Alabama since the 1960's.

Defendant Van Waters & Rogers, Inc. hereinafter Van Waters¹⁰ is a chlorine repackager organized under the laws of the State of Washington with its principal place of business in Washington.

Defendant Industrial Chemicals, Inc. hereinafter Industrial, a chlorine distributor for defendants Jones and PB & S, is organized under the laws of the State of Alabama with its principal place of business in Alabama.

Defendant Jones Chemicals, Inc. hereinafter Jones is a chlorine repackager organized under the laws of the State of New York with its principal place of business in New York.

Defendant PB & S Chemical Company, Inc. hereinafter PB & S is a chlorine repackager¹¹ organized under the laws of the State of Kentucky with its principal place of business in Kentucky.

Plaintiffs allege the defendants have conspired across state lines to violate federal and state antitrust laws to restrain trade in or affecting interstate commerce by fixing prices, allocating markets, and rigging bids for the sale of repackaged chlorine to public entities, including the plaintiffs, in the state of Alabama. 15 U.S.C. §§ 1, 2; 15 U.S.C. § 26; and Ala.Code § 6-5-60 (1993). The complaint contends that a horizontal arrangement to restrain trade existed among chlorine repackagers/distributors in Alabama during the 1980's for the purpose of establishing higher prices than would otherwise prevail.

Specific allegations follow:

1. The defendants violated section one of the Sherman Act by exchanging price information for the sale of repackaged chlorine to Alabama public entities;¹² allocating contracts or winning bids in geographic markets; refusing to deal with the plaintiffs; and submitting complementary, noncompetitive, or identical bids to public entities; and

2. The defendants fraudulently concealed their illegal conspiracy by submitting prearranged, complimentary losing bids for the supply of repackaged chlorine, giving the illusion of free market competition;¹³ conducting secret activities in furtherance of the conspiracy; confining knowledge of the conspiracy to a small number of key officials of the defendants; and testifying falsely under oath about their bid rigging scheme during an investigation and prosecution of civil actions by the Attorney General of Florida.

In an effort to prove their case plaintiffs have outlined seven structural conditions that facilitated the conspiracy: 1) Presence of oligopoly makes price conspiracy easier to accomplish; 2) Product homogeneity simplifies a collusive price agreement; 3) Sealed bidding makes collusion more likely because a cheater cannot hide a price cut; 4) Inelastic demand for chlorine facilitates collusion; 5) Static demand of purchases of chlorine by Alabama public entities establishes their demand in the 1980's was stable and predictable; 6) High barriers to entry in the repackaging industry make conspiracy plausible; and 7) Conspirators' similar costs make chlorine conspiracy plausible.

An intervenor complaint was filed October 7, 1992, and amended October 19, 1992. On December 7, 1992, the complaint was amended to add additional defendants. During the period of discovery the court granted motions to dismiss complaints filed on behalf of several plaintiffs and dismissed Mayo Chemical Company as a defendant. The parties now stand as listed in the style of the case.

Based on the allegations set forth, plaintiffs seek compensatory damages for defendants' "illegal conspiracy to restrain trade by fixing prices, allocating markets, and rigging bids for sale of repackaged chlorine." They seek a permanent injunction to restrain such behavior plus compensatory damages for fraudulent practices associated therewith.

On August 22, 1994, Industrial filed a motion for summary judgment. Jones and Van Waters joined Industrial's motion. On August 25, 1994, PB & S filed a motion for summary judgment, followed by a motion by Harcros the next day. These motions are now before the court, as well as motions to exclude proffered expert testimony of Dr. Robert F. Lanzillotti,¹⁴ Dr. James T. McClave,¹⁵ and Mr. Perry Garner,¹⁶ and to strike the declaration of Barbara Krysti.

I. CASE HISTORY

Prior to the institution of this suit the United States Justice Department convened a grand...