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In re Domestic Drywall Antitrust Litigation

United States District Court, E.D. Pennsylvania

July 8, 2019

IN RE DOMESTIC DRYWALL ANTITRUST LITIGATION
v.
USG Corp., et al., Defendants THIS DOCUMENT RELATES TO: Ashton Woods Holdings LLC, et al., Plaintiffs,

          MEMORANDUM RE: MOTION FOR SUMMARY JUDGMENT (CHOICE-OF-LAW)

          BAYLSON, J.

         I. Introduction

         In this multidistrict litigation, Plaintiffs, twelve large homebuilders who purchased gypsum wallboard (drywall) (collectively, “Plaintiffs”), [1] allege that Defendants, drywall manufacturers, conspired to eliminate job quotes and fix prices for the calendar years 2012 and 2013. Only three Defendants remain in this case: PABCO Building Products, LLC (“PABCO”); the United States Gypsum Company (“USG”) and the United States Gypsum Corporation (“USG Corp.”) (together, “USG”); and USG Corp.'s wholly-owned subsidiary, L&W Supply Corporation (“L&W”). The Third Amended Complaint (ECF 110, “TAC”)-the operative Complaint in this action-alleges four Counts:

1. Count I: Violation of the Sherman Act, 15 U.S.C. § 1, by all Plaintiffs against all Defendants, seeking declaratory and injunctive relief, pre- and post-judgment interest, and costs, including attorneys' and expert fees;
2. Count II: Violation of the Sherman Act, 15 U.S.C. § 1 by Plaintiffs Ashton Woods and D.R. Horton against all Defendants, seeking declaratory and injunctive relief, pre- and post-judgment interest, and costs, including attorneys' and expert fees;
3. Count III: Violations of the California Business & Professions Code §§ 16750(a), et seq. (“Cartwright Act”) and, in the alternative, state antitrust and restraint of trade laws in Illinois, North Carolina, Arizona, District of Columbia, Michigan, Minnesota, Mississippi, Nevada, New Mexico, New York, Oregon, Tennessee, West Virginia, and Wisconsin by all Plaintiffs against all Defendants, seeking damages, pre- and post-judgment interest, and costs, including attorneys' and expert fees;
4. Count IV: Violations of state consumer protection and unfair competition laws of California, Colorado, Florida, Nevada, New Mexico, North Carolina, South Carolina, and Virginia by all Plaintiffs against all Defendants, seeking damages and/or restitution, pre-and post-judgment interest, and costs, including attorneys' and expert fees.

         Currently before this Court is Defendants' Motion for Summary Judgment on Choice-of-Law (ECF 316, “MSJ”). At issue is Plaintiffs' allegation that they may pursue all of their state antitrust claims in Count III under California's Cartwright Act. (TAC ¶ 273.) Defendants seek dismissal of state antitrust claims made by Plaintiffs' purchasing entities that are headquartered in states that have not repealed Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977) (“non-repealer states”). Non-repealer states do not allow indirect purchasers to seek recovery from antitrust violators, unlike California, a “repealer state.”[2] The parties agree that Alabama, Delaware, Georgia, Indiana, Kentucky, Louisiana, Maryland, New Jersey, Ohio, Pennsylvania, Texas, and Washington are non-repealer states. (See MSJ at 23.)[3]

         For the reasons discussed below, Defendants' Motion is DENIED IN PART.

         II. Background

         A. Procedural History

         As the Court has provided a thorough summary of the procedural history in this multidistrict litigation in several prior opinions, the Court includes only the procedural history relevant to the instant Motion. (See, e.g., ECF 351 (“February 2016 MSJ Opinion”) (granting in part and denying in part manufacturers' motions for summary judgment in the direct and indirect purchaser actions)[4]; ECF 101 (“Homebuilder MTD Opinion”) (granting in part and denying in part Defendants' motion to dismiss Plaintiffs' state law and Sherman Act § 1 claims in the Second Amended Complaint))[5].)

         Plaintiffs filed the TAC on August 12, 2016 against Defendants USG; L&W; New NGC, Inc.; Continental Building Products, Inc. (“Continental”)[6]; CertainTeed Gypsum, Inc. (“CertainTeed”); American Gypsum Company LLC (“American Gypsum”); and PABCO. (ECF 110.) Defendants New NGC, Inc., USG, L&W, and CertainTeed filed Answers to the TAC on August 26, 2016. (ECF 121 (Answer by New NGC, Inc.); ECF 123 (Answer by PABCO); ECF 124 (Answer by USG Entities: L&W and USG); ECF 125 (Answer by CertainTeed).) On the same date, all Defendants filed a Partial Motion to Dismiss the state consumer protection and unfair competition law claims-Count IV of the TAC-which the Court denied (ECF 122, 163).

         On September 8, 2016, the Court approved the parties' Joint Stipulation dismissing all claims in the TAC against Defendant Continental with prejudice (ECF 129). The following year, on February 6, 2017, the Court granted Plaintiffs' unopposed Motion for Dismissal of CertainTeed, dismissing all claims against CertainTeed with prejudice (ECF 178). On May 21, 2018, the Court approved the parties' Joint Stipulation voluntarily dismissing all claims against American Gypsum (ECF 300).

         On July 2, 2018, Defendants USG, L&W, New NGC, Inc., and PABCO moved for summary judgment with respect to claims arising from purchases made by Plaintiffs in non-repealer states, which do not allow indirect purchasers to recover damages for antitrust violations (ECF 316). On July 31, 2018, the parties filed a Joint Stipulation, which the Court approved, voluntarily dismissing all claims against Defendant New NGC, Inc. with prejudice, leaving Defendants USG, L&W, and PABCO in the action (ECF 331).

         The following month, on August 27, 2018, Plaintiffs filed a Response in opposition to the Motion for Summary Judgment, arguing that summary judgment should be denied because Defendants failed to rebut the presumption that California law applies to all of Plaintiffs' claims, including those claims arising from purchases in non-repealer states that do not allow indirect purchaser claims (ECF 340, “Resp.”). Plaintiffs attached to the Response a Separate Statement of Material Facts (ECF 781, “Pls. Supp. SOF”).[7]

         Defendants filed a Reply on September 17, 2018, reiterating that California law should not apply to all of Plaintiffs' claims, but rather, that the law of the states where purchases occurred should govern (ECF 350, “Rep.”). Defendants also filed a Response to the Separate Statement of Material Facts (ECF 351, “Defs. Resp. SOF”).

         On February 19, 2019, Plaintiffs filed a Request for Judicial Notice of the then-pending Apple, Inc. v. Pepper case before the Supreme Court (ECF 375). According to Plaintiffs, an amicus brief filed by non-repealer states in that case, attached as Exhibit A to the Request for Judicial Notice, confirmed that there was no “true conflict” between the interests of California and non-repealer states and, therefore, California law should be applied to all of Plaintiffs' state antitrust claims (ECF 375 at 3; id. Ex. A). Defendants filed a Response on March 5, 2019, arguing that the amicus brief was irrelevant to the choice-of-law issue and seeking to refute Plaintiffs' contention that the amicus brief revealed that non-repealer states have no interest in preventing indirect purchaser recoveries under their states' laws (ECF 377 at 2-3).

         On March 12, 2019, the Court held oral argument on the Motion for Summary Judgment (ECF 378-81). Following oral argument, on June 3, 2019, both parties filed Notices regarding the Supreme Court's decision in Apple, Inc. v. Pepper, 139 S.Ct. 1514 (2019) (ECF 385, 386). On June 21, 2019, Defendants filed a Request for Judicial Notice of an amicus brief filed by the states of Louisiana, Ohio, Texas, and the Department of Justice in the pending Ninth Circuit case of Stromberg v. Qualcomm Inc., No. 19-15159 (9th Cir. 2019) (ECF 387). Plaintiffs filed a Response on June 28, 2019 (ECF 389).

         B. UNDISPUTED FACTS

         The following is a fair account of the factual assertions relevant to the instant Motion, as taken from both parties' Statements of Facts, and are not genuinely disputed.

         i. Parties

         1. Plaintiffs

         Plaintiffs allege that during the relevant time period-January 1, 2012 through December 31, 2015-they purchased drywall in Alabama, Arizona, California, Colorado, Connecticut, Delaware, the District of Columbia, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nevada, New Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Utah, Virginia, Washington, West Virginia, and Wisconsin that was manufactured by Defendants. (TAC ¶ 4.) During the relevant period, three Plaintiffs were headquartered or had their principal places of business in California: CalAtlantic, KB Home, and TRI Pointe. (Pls. Supp. SOF ¶¶ 45-47). The states where Plaintiffs have their headquarters and/or principal places of business are as follows:[8]

1. Ashton Woods, the named Plaintiff in this action, is a Georgia limited liability company with its principal place of business in Georgia. (MSJ Ex. 2, “DSOF” ¶ 1; ECF 781, “PSOF” ¶ 1.) None of the eight Ashton Woods entities that purchased drywall were incorporated in or have their principal places of business in California. (DSOF ¶ 2.)
2. Beazer Homes was incorporated in Delaware and has its principal place of business in Georgia. (Id. ¶ 3.) None of its three entities[9] that purchased drywall were incorporated or have their principal places of business in California. (Id. ¶ 4.)[10]
3. CalAtlantic was incorporated in Delaware and has its principal place of business in California. (Id. ¶ 5.) Two of its purchasing entities, Standard Pacific Corp. and Ryland Group, Inc., both have their principal places of business in California and purchased drywall during the relevant time period. (Id. ¶ 6.)[11] In total, CalAtlantic Group, Inc.'s purchasing entities purchased 103, 725 millions of square feet (“msf”) of drywall in California during the relevant time period. (Pls. Supp. SOF ¶ 45). (DSOF Ex. 16.)[12]
4. D.R. Horton was incorporated in California and has its principal place of business in Texas. (DSOF ¶ 7.) Of its 27 entities that purchased drywall, seven were incorporated in or have their principal places of business in California: Continental Residential, Inc., which was incorporated in and has its principal place of business in California and purchased 437.15 msf; D.R. Horton BAY, Inc., which has its principal place of business in California and purchased 26, 430.75 msf; D.R. Horton Ven, Inc., which was incorporated in and has its principal place of business in California and purchased 4, 130.92 msf; D.R. Horton, Inc.-Sacramento, which was incorporated in and has its principal place of business in California and purchased 2, 238.91 msf; DRH Cambridge Homes, Inc., which was incorporated in California and purchased 21, 075.53 msf; DRH Southwest Construction, Inc., which was incorporated in California and purchased 32.41 msf; and Western Pacific Housing, Inc., which has its principal place of business in California and purchased 15, 174 msf. (Id. ¶ 8; id. App. A.) In total, from January 1, 2012 through December 31, 2015, D.R. Horton and/or its purchasing entities purchased 71, 986 msf of drywall in California. (Pls. Supp. SOF ¶ 49.)[13]
5. The Drees Company was incorporated in and has its principal place of business in Kentucky. (DSOF ¶ 9.) Of its four entities that purchased drywall, none were incorporated in or have their principal places of business in California. (Id. ¶ 10.)
6. Hovnanian Enterprises, Inc. is a Delaware corporation with its principal place of business in New Jersey. (Id. ¶ 11.) Of its 15 entities that purchased drywall, two were incorporated in or have their principal places of business in California: K. Hovnanian Companies of California, Inc., which was incorporated and has its principal place of business in California and purchased 27, 928 msf of drywall, and K. Hovnanian JV Services Company, L.L.C., a California limited liability company with its principal place of business in Florida that purchased 5, 070 msf of drywall. (Id. ¶ 12; id. App. A.) In sum, Hovnanian Enterprises, Inc. and/or its entities purchased 27, 928 msf of drywall in California from January 1, 2012 through December 31, 2015. (Pls. Supp. SOF ¶ 50.)[14]
7. KB Home was incorporated in Delaware and has its principal place of business in California. (DSOF ¶ 13.) Three of its nine entities that purchased drywall during the relevant tie period were incorporated in or have their principal places of business in California: Fremont Pat Ranch, LLC, which purchased 35 msf of drywall; KB Home Arroyo Vista, LLC, which purchased 1, 865 msf; and KB Home South Bay Inc., which is both incorporated and headquartered in California and purchased 21, 628 msf. (Id. ¶ 14; id. App. A.)[15]
8. Meritage Homes Corporation was incorporated in Maryland and has its principal place of business in Arizona. (DSOF ¶ 15.)[16]
9. M/I Homes, Inc. was incorporated in and has its principal place of business in Ohio. (Id. ¶ 17.) None of its 14 entities that purchased drywall were incorporated or have their principal places of business in California. (Id. ¶ 18.)
10. Pulte Home Corporation was incorporated in Michigan and has its principal place of business in Georgia. (Id. ¶ 19.)[17]
11. Toll Brothers, Inc. was incorporated in Delaware and has its principal place of business in Pennsylvania. (Id. ¶ 21.) Three of its four purchasing entities that bought drywall were formed in or have their principal places of business in California: Plum Canyon Master LLC, a Delaware limited liability company with its principal place of business in California, which purchased 1, 177 msf of drywall; Porter Ranch Development Co., a California joint venture with its principal place of business in California that purchased 2, 209 msf; and Shapell Industries, Inc., which was incorporated in Delaware and has its principal place of business in California and purchased 8, 566 msf. (Id. ¶ 22.) From January 1, 2012 through December 31, 2015, Toll Brothers, Inc. and/or its purchasing entities purchased 47, 089 msf of drywall in California. (Pls. Supp. SOF ¶ 53.)[18]
12. TRI Pointe was incorporated in Delaware and has its principal place of business in California. (DSOF ¶ 23.) Of its seven entities that bought drywall, two were incorporated in or have their principal places of business in California: Pardee Homes, which was incorporated in and has its principal place of business in California and purchased 32, 258 msf of drywall, and TRI Pointe Contractors, LP, a Delaware limited partnership with its principal place of business in California that purchased 33, 355 msf. (Id. ¶ 24.) From January 1, 2012 through December 31, 2015, TRI Pointe and/or its purchasing entities bought 65, 100 msf of drywall in California. (Pls. Supp. SOF ¶ 47.)[19]

         ii. Defendants

         Defendant USG, which is headquartered in Illinois, a repealer state, operates a gypsum mine and manufactures drywall in California. (Pls. Supp. SOF ¶¶ 5-6.) USG also operates 14 drywall “plants” in Alabama, Florida, Indiana, Iowa, Maryland, Oregon, Pennsylvania, Texas, Utah, and Virginia. (Defs. Resp. SOF ¶ 5.) Further, USG operates gypsum rock mines and quarries in eight cities, including in Indiana, Iowa, Michigan, Oklahoma, Texas, and Utah. (Id. ¶ 5.) USG manufactures paper for drywall in four cities, including in Michigan, Missouri, New York, and Texas. (Id.)

         Defendant L&W was the largest distributor of drywall and related building products in the United States during the relevant time period. (Pls. Supp. SOF ¶ 8.) During this time period, L&W, a wholly-owned subsidiary of USG, sold drywall manufactured by USG, PABCO, and American Gypsum. (Defs. Resp. SOF ¶ 9.) Until L&W was acquired by ABC Supply Co., Inc. in 2016, L&W purchased 90% of its drywall from USG. (Pls. Supp. SOF ¶¶ 7, 9.) L&W was also one of PABCO's largest customers; its purchasers comprised 10% of PABCO's sales and 6% of L&W's business. (Pls. Supp. SOF ¶ 12; Defs. Resp. SOF ¶¶ 11, 12.) Of the 6% of L&W's business that consisted of purchases from PABCO, the majority of that business was conducted in California. (Pls. Supp. SOF ¶ 12; Defs. Resp. SOF ¶ 12.)

         PABCO, the smallest manufacturer among Defendants with a 4% national market share, is a limited liability company organized under the laws of Nevada and headquartered in California. (Defs. Resp. SOF ¶ 1.) PABCO began manufacturing and shipping drywall from its California facility in 1972, and it operates one paper mill in California that supplies to drywall production facilities. (Pls. Supp. SOF ¶¶ 1-3.) PABCO, which operates in 75 locations across the United States and Canada and employs individuals in 11 states, is the only remaining Defendant that is headquartered in California. (Defs. Resp. SOF ¶¶ 1, 4.) PABCO and USG have been operating in California for nearly fifty years. (Pls. Supp. SOF ¶¶ 4, 5.)

         C. Alleged Conspiratorial Conduct in California

         The parties do not dispute the following chronology of material facts. The Court considered the February 2016 MSJ Opinion to determine which facts were material and, where applicable, the Court provides the same description of events. The Court limits its analysis to material facts pertinent to the instant Motion but includes relevant background for context.[20]

         1. 5/15/2011: PABCO and L&W internal reports confirm communications regarding PABCO and L&W price increases as well as USG's plans.

         Mark Burkhammer (PABCO's Director of Sales) emailed Ryan Lucchetti (President of PABCO), Foster Duval (PABCO's Southern California Sales Manager), and Todd Thomas (PABCO) and stated, “Just spoke to Marty Brand [(L&W)] and he informed me that USG is still planning on going up at the end of the month . . . hasn't heard about others . . . just FYI.” (Id. ¶ 25 n.26.)

         Mr. Burkhammer, who was responsible for all drywall sales made by PABCO in California during the relevant time period, works out of his home in Tracy, California and in PABCO's offices in both Newark and Rancho Cordova, California. (Pls. Supp. SOF ¶ 15; Defs. Resp. SOF ¶ 15.) Mr. Lucchetti was also based in California. (Pls. Supp. SOF ¶ 30.) Mr. Duval, who was also based in California, testified that he was tasked with meeting with customers to discuss product availability, pricing, “programs in place, ” and contractors that preferred to use PABCO's product line. (Defs. Resp. SOF ¶ 19; id. Ex. Q, Duval Dep. Tr. at 67:5-69:25.)

         2. 9/19/2011: Dave Powers (President of American Gypsum) called Mr. Duval (PABCO).

         The call lasted 19 minutes. (February 2016 MSJ Opinion at 57.) In his deposition testimony, Mr. Powers explained that he “seriously debated” whether to place the call because he knew that American Gypsum was about to release its price increase announcement that would eliminate job quotes, create calendar-year pricing, and impose a 35% price increase for January 1, 2012. (Id.) However, Mr. Powers decided to call Mr. Duval because Mr. Duval was a personal friend who had just had open-heart surgery. (Id.) Mr. Powers testified that they “mostly discussed Mr. Duvall's [sic] health and family, but that they ended the call as they always did by slamming their former employer, USG, which involved talking about a lack of leadership in the industry.” (Id.) Mr. Duval does not remember the call or what was discussed, but he did not contest that it occurred. (Id. at 58.)

         3. 9/20/2011: American Gypsum circulated an announcement to customers that it would implement a 35% price increase and end job quotes effective January 1, 2012. (Id.)

         4. 9/20/2011-9/21/2011: PABCO's President commented on the American Gypsum announcement.

         The day after Mr. Powers and Mr. Duval's phone call, a customer forwarded American Gypsum's price increase announcement to Mr. Lucchetti (PABCO). (Pls. Supp. SOF ¶ 30.) Mr. Lucchetti forwarded the announcement to Mr. Duval and wrote, “Well here is the 1st.” (Id.) Mr. Duval responded, “Dave [Powers] gave me a call yesterday and mentioned his frustration with the lack of leadership in the industry. Eliminating job quotes would be a great start for the price improvement.” (Id. ¶ 31.) The next day, Mr. Lucchetti replied, “Dave Powers is my new hero.” (Id.)

         Mr. Burkhammer (PABCO) also received Mr. Lucchetti's email forwarding the announcement and stating, “Well here is the 1st.” (February 2016 MSJ Opinion at 59.) Mr. Burkhammer forwarded the email to Marty Brand, Vice President of Sales and Operations at L&W, and wrote, “Hope this works.” (Id.) Mr. Brand responded, “Interesting idea. I hope this does fly. I like the way they put it out there 2-1/2 months ahead of time!” (Pls. Supp. SOF ¶ 21.) Mr. Burkhammer responded by stating, “probably not legal but what the heck.” (Id. ¶ 22.)

         Both Mr. Burkhammer and Mr. Brand worked in California. (Id. ¶¶ 14-17; Defs. Resp. SOF ¶¶ 14-17.) Mr. Brand worked out of his home in Yorba Linda, California, and in L&W's office in Orange, California. (Pls. Supp. SOF ¶¶ 16-17.) During at least part of the relevant time period, Mr. Brand and his supervisor, Rob Waterhouse, made decisions on pricing. (Defs. Resp. SOF ¶ 18.)

         5. 9/27/2011: PABCO and L&W employees based in California discussed the elimination of job quotes.

         One week later, on September 27, 2011, after only American Gypsum announced the 35% price increase to take effect in January 2012, Mr. Burkhammer (PABCO) invited Mr. Brand (L&W) to dinner in an email. (February 2016 MSJ Opinion at 63.) In the email, Mr. Burkhammer wrote:

Look forward to seeing you and sharing some tales…maybe talk a little strategy if all the announcements are out by then. Even though we haven't officially stated our intention I sent an email to the troops getting them ready. No. more job quotes and 30 days to close any open quotes getting our system down to secured work through our distributors with footage and address's [sic]. I am suggesting, wherever and to whoever [sic] will listen, that the manufacturers have to police. . . .
. . .
. . . . Other distributors have not pushed back as anticipated…the small independents are uptight. I did quote a job in northern Cal that starts in Feb….2mmsft….ends in July….with the support of the distributor…even tho we haven't announced yet…we quoted up 40 dollars on 1-1-12. I don't know how this will all work out but it has some people thinking…but getting something done by seven manufacturers for the good of the industry is like being in the house of reps in DC.

(Pls. Supp. SOF ΒΆ 20.) Mr. Brand testified that he had no advance notice of USG's pricing plans before he received USG's September 28, 2011 ...


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