Gov't of Puerto Rico v. Carpenter Co.

• Decision Date: 27 February 2020
• Docket Number: Civil No. 18-1987 (GAG)
• Citation: 442 F.Supp.3d 464
• Parties: The GOVERNMENT OF PUERTO RICO, Plaintiff, v. The CARPENTER COMPANY, et al., Defendants.
• Court: U.S. District Court — District of Puerto Rico

442 F.Supp.3d 464

The GOVERNMENT OF PUERTO RICO, Plaintiff,

v.The CARPENTER COMPANY, et al., Defendants.

Civil No. 18-1987 (GAG)

United States District Court, D. Puerto Rico.

Signed February 27, 2020

Jane A. Becker-Whitaker, Becker & Vissepo, Jean Paul Vissepo-Garriga, Vissepo Law Group, P.S.C., Denise Maldonado-Rosa, Puerto Rico Department of Justice, San Juan, PR, for Plaintiff.

Carlos A. Rodriguez-Vidal, Goldman Antonetti & Cordova, Nilda M. Navarro-Cabrer, Nilda M. Navarro Law Office, Eduardo A. Zayas-Marxuach, Carmen M. Alfonso-Rodriguez, Roberto C. Quinones-Rivera, McConnell Valdes, LLC, Arturo L.B. Hernandez-Gonzalez, O'Neill & Borges, LLC, Annette Cortes-Arcelay, San Juan, PR, Adam S. Paris, Lauren M. Cruz, Michael H. Steinberg, Ryan Nielsen, Sullivan & Cromwell, LLP, Los Angeles, CA, James M. Sulentic, John P. Passarelli, Kutak Rock LLP, Omaha, NE, Coral Del Mar Lopez-Rosario, Stearns Weaver Miller, Miami, FL, Matthew P. McGuire, Alston & Bird LLP, Raleigh, NC, for Defendants.

OPINION AND ORDER

GUSTAVO A. GELPI, United States District Judge

On December 20, 2018, the Government for the Commonwealth of Puerto Rico ("Government" or "Commonwealth"), in its parens patriae capacity and on behalf of the people of the Puerto Rico, filed suit against several companies and private individuals ("Defendants")¹ involved in the flexible polyurethane foam's industry² for allegedly conspiring to price-fix products from January 1, 1999 up to the present. (Docket No. 1). Plaintiff seeks injunctive relief, pursuant to the Clayton Act, 15 U.S.C. § 26, requesting this Court to enjoin Defendants from continuing its ongoing price-fixing conspiracy and demands damages in no less than $50,000,000.00, under the unjust enrichment equity doctrine. Id.

Pending before the Court are Defendants' motions to dismiss for failure to state a claim upon which relief can be granted (Docket No. 34), for lack of standing (Docket No. 39) and for lack of personal jurisdiction (Docket Nos. 35; 37). After reviewing the parties' submissions, record and applicable law, this Court GRANTS the joint motion to dismiss for failure to state a claim at Docket No. 34 and, consequently, finds that the motions to dismiss at Docket Nos. 35, 37, 39 are MOOT .

I. Relevant Factual and Procedural Background

For purposes of the joint motion to dismiss, the Court accepts as true all the factual allegations in the Complaint and construes all reasonable inferences in favor of Plaintiff. See Beddall v. State St. Bank & Trust Co., 137 F.3d 12, 16 (1st Cir. 1998).

A. Defendants

The companies, and or affiliates, that sold flexible polyurethane foam throughout the United States, including the Commonwealth of Puerto Rico, during the period of the alleged price-fixing conspiracy are: (1) The Carpenter Company (or Carpenter Co.);³ (2) Flexible Foam Products, Inc. (Flexible Foam Products);⁴ (3) FXI Holdings, Inc., Foamex Innovations, Inc., or Foamex International, Inc. (Foamex or FXI);⁵ (4) Future Foam, Inc. (Future Foam);⁶ (5) Hickory Springs Manufacturing Company (Hickory Springs);⁷ (6) Leggett & Platt Inc. (Leggett);⁸ (7) Mohawk Industries Inc. (Mohawk);⁹ (8) Otto Bock Polyurethane Technologies, Inc. (Otto Bock);¹⁰ (9) Scottdel Inc. (Scottdel);¹¹ (10) Woodbridge Foam Corporation, Woodbridge Sales & Engineering, Inc., (collectively "Woodbridge"),¹² and (11) Corporation ABC.¹³ The claims against Defendants Vitafoam Products Canada Limited (Vitafoam Canada) and Vitafoam Inc. (collectively with Vitafoam Canada, "Vitafoam") were dismissed with prejudice pursuant to Plaintiff's notice of voluntary dismissal. (Docket Nos. 58; 59).

Similarly, according to the Complaint, the private individuals responsible for heading the alleged price-fixing conspiracy throughout the United States, including the Commonwealth of Puerto Rico, during the period in question are: (1) Louis Carson, former President of Scottdel; (2) David Carson, former Vice President, Manufacturing of Scottdel,¹⁴ (3) John Doe, (4) Jane Doe, (5) and their conjugal partnership, whose identity is currently unknown yet may be responsible for the allegations set forth in Plaintiff's complaint. Id. ¶¶ 61-65. Lastly, Plaintiff mentions possible agents and co-conspirators that may have participated as co-conspirators in the violations alleged in the Complaint. (Docket No. 1 ¶¶ 66-69).

B. The flexible polyurethane foam market

In 2008, over 590,000 metric tons of slabstock flexible polyurethane foam were produced in the United States. (Docket No. 1 ¶ 74). Flexible polyurethane foam has a wide-range of uses, yet it is most used in bedding and upholstery, while the more rigid variety is used for products, thermal insulation and in automobile dashboards. Id. ¶ 77. The American Chemistry Council estimated that the domestic revenue for polyurethane foam industry for 2015 was $28.2 billion. Id. ¶ 91. The Polyurethane Foam Association, a trade association in which the non-private-individual Defendants are members, advances that, compared to polyurethane foam, other alternative materials in the areas of economics, comfort potential, ease of use, and durability, cannot be deemed as acceptable a substitute. Id. ¶ 98. Finally, according to Plaintiff, there has been a recent trend towards consolidation in this industry where major players within the industry have been active in acquiring smaller companies and other competitors over the course of the last ten years. Id. ¶¶ 99-100.

C. The alleged conspiracy

The unraveling of the alleged conspiracy occurred in February 2010 when Vitafoam voluntarily contacted the U.S. Department of Justice's (DOJ) Antitrust Division to self-report evidence of misconduct amongst itself, other companies and individuals in the industry. (Docket No. 1 ¶ 105). Vitafoam sought, and eventually received, acceptance into the DOJ's Corporate Leniency Program. Id. Since that date, Vitafoam and its employees have been cooperating with the DOJ's criminal investigation into illegal anticompetitive conduct in the flexible polyurethane foam market. (Docket No. 1 ¶ 106). While seeking the corporate leniency letter, and in connection with a Canadian government antitrust investigation, several current and former Vitafoam employees agreed to be interviewed regarding the alleged price-fixing conspiracy. (Docket No. 1 ¶ 108). These interviews revealed the mechanisms, participants, duration, and impact of the conspiracy. Id.

According to these interviews, Defendants established a practice where they would communicate and reach an agreement or understanding as to the percentage amount and timing of price increases and market allocation in the sale and supply of polyurethane foam. Id. at ¶ 109. The price increase discussions occurred approximately two to three times per-year and often coincided with the bi-annual meetings held by the Polyurethane Foam Association (PFA). Id. The general pretext used to explain the price increases was through an increase in raw material costs. Id. at ¶ 110. When Defendants' raw material suppliers announced price increases for chemical ingredients of foam, they contacted each other to provide an opportunity to raise prices. Id. Defendants viewed price fixing as necessary because if they did not increase their foam prices by the same percentage amount, and at around the same period, then the attempted price increase would fail. Id.

During the period of the alleged conspiracy there has been an understanding among Defendants and their co-conspirators to collectively support supra-competitive prices; specifically, the percentage of price increases, the dates of the increases and how the conspirators would announce the increases with nearly the same effective dates. Id. at ¶ 112. Subsequently, price increase announcement letters were then mailed to customers, reflecting the prices determined. Id. Defendants policed these increases to ensure they were implemented amongst themselves and did not permit price reductions without consent of the overall group. (Docket No. 1 ¶ 112).

In the Complaint, Plaintiff explains in great length how former Vitafoam executives, particularly its former President and Vice President, coordinated and executed this price-fixing conspiracy. (Docket No. 1 ¶¶ 113-153). The allegations described include discussions and transcripts of conversations that occurred by means of telephone, e-mails and in-person meetings. Id. at ¶ 117. These top executives, as detailed in the Complaint, participated in a conspiratorial conduct during this period alongside individuals employed by numerous competitors, including co-Defendants Carpenter, Otto Bock, Woodbridge, Flexible Foam, Hickory Springs, Scottdel, and Foamex. Id. at ¶ 120. Notably, an unnamed witness that participated in an investigation held by Canada's Commissioner of Competition confirmed the involvements of most Defendants in these price-fixing schemes. Id. at ¶¶ 130-139. It is alleged that Defendants also undertook substantial efforts to police the conspiracy and keep it secret. Id. at ¶¶ 154-207. In this regard, they took advantage of attending trade association meetings along with their competitors and met to discuss coordinating price increases outside of the formal meetings. Id. at ¶ 199. The Complaint also lays out various market factors that made the market for flexible polyurethane foam highly susceptible to anticompetitive practices and unlawful collusion. Id. at ¶ 208. These were: (1) limited competition; (2) inelastic demand due to lack of substitutes; (3) standardized commodity product with high degree of interchangeability; (4) opportunities to conspire. Id. at ¶¶ 209-221.

The Commonwealth puts forward that it did not discover nor could have discovered, through the exercise of reasonable diligence, the existence of the conspiracy alleged prior to disclosure in 2010 of federal agencies' raids of certain Defendants' facilities. Id. at ¶ 222. Plaintiff stresses that, except for Vitafoam which sought leniency from the DOJ and Scottdel...