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In re Domestic Drywall Antitrust Litigation

United States District Court, E.D. Pennsylvania

October 3, 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: PARTIAL SUMMARY JUDGMENT ON UMBRELLA DAMAGES

          BAYLSON, J.

         I. INTRODUCTION

         In this multidistrict antitrust litigation (“MDL”), Plaintiffs-twelve homebuilders that purchased gypsum wallboard (drywall)-allege that Defendants-manufacturers and/or distributors of drywall-conspired to eliminate job quotes and fix prices during calendar years 2012 and 2013, causing Plaintiffs to pay artificially high prices. Currently pending before the Court is the motion of remaining Defendants L&W, PABCO, and USG (collectively, “Defendants”) for partial summary judgment on umbrella damages. (ECF 292, Def.'s Mot. for Partial Summ. J.) Defendants contend that Plaintiffs, as a matter of law, may not seek damages for drywall purchased from rival nonconspirators at prices that were inflated by Defendants' allegedly anticompetitive conduct. The issue is whether, under California law, Plaintiffs can seek damages based on prices charged by drywall sellers that were not involved in the price-fixing conspiracy, but whose prices were artificially high due to the alleged conspiratorial behavior of Defendants. After carefully considering the extensive briefing submitted by the parties and the positions advanced at oral argument on March 12, 2019, the Court DENIES Defendants' Motion.

         II. FACTUAL BACKGROUND

         The following is a fair account of the factual assertions-taken from both parties' recitations-that are relevant to Defendants' Motion for Partial Summary Judgment on Umbrella Damages.

         A. Parties

         Homebuilders that purchased drywall during 2012 and 2013 filed suit against domestic drywall manufacturers alleging a conspiracy to fix prices in contravention of federal and state antitrust laws and state consumer protection and unfair competition statutes (the “Homebuilder Action”).[1] The twelve Plaintiffs that remain in the Homebuilder Action are Ashton Woods Holdings, LLC (“Ashton Woods”); Beazer Homes Holdings Corp. (“Beazer Homes”); CalAtlantic Group, Inc. (“CalAtlantic”); D.R. Horton Los Angeles Holding Company, Inc. (“D.R. Horton”); Hovnanian Enterprises, Inc. (“Hovnanian”); KB Home; Meritage Homes Corporation (“Meritage Homes”); M/I Homes, Inc. (“M/I Homes”); Pulte Home Corporation (“Pulte Home”); The Drees Company (“Drees”); Toll Brothers, Inc. (“Toll Brothers”); and TRI Pointe Homes, Inc. (“TRI”). (Third Am. Compl.) The original defendants in the Homebuilder Action consisted of United States Gypsum Company (“USG Co.”) and United States Gypsum Corporation (“USG Corp.”) (together, “USG”); USG Corp.'s wholly-owned subsidiary, L&W Supply Corporation (“L&W”); New NGC, Inc. (“National”); Lafarge North America, Inc. (“Lafarge”); Continental Building Products, Inc. (“Continental”); CertainTeed Gypsum, Inc. (“CertainTeed”); American Gypsum Company LLC (“American”); Tin, Inc. (“TIN”); and PABCO Building Products LLC (“PABCO”). (Id.) As a result of substantial motion practice and negotiation amongst the parties, only three Defendants remain: PABCO; USG; and L&W.[2]

         B. Nature of Plaintiffs' Damages Theory

         Plaintiffs seek damages based on the allegedly artificially inflated prices they paid for drywall. (Third Am. Compl. ¶ 249.) They seek to recover not only for inflated prices charged by conspiring Defendants, but also for prices charged by nonconspiring sellers.[3] Plaintiffs' theory is that Defendants' conspiracy to inflate prices created a price ceiling-an umbrella-that prompted the other market suppliers, even those uninvolved in the conspiracy, to similarly raise prices in order to maintain profitability. To illustrate, neither CertainTeed nor Georgia-Pacific are alleged to be part of the price-fixing conspiracy. Nonetheless, Plaintiffs that purchased from CertainTeed and Georgia-Pacific seek damages on the theory that because Defendants' allegedly conspiratorial conduct caused prices market-wide to be artificially high, they are liable for the injury suffered.

         C. Overview of Distribution Scheme for Drywall

         The process through which drywall manufactured by Defendants ultimately reached Plaintiffs is intricate and somewhat unusual, as the ultimate end-buyer homebuilder ordinarily did not know the identity of the manufacturer that produced the drywall used in the homes they constructed. The following is a brief description of the distribution chain, summarized in more detail in the subsections that follow.

         Drywall manufacturers (both Defendants and nondefendant manufacturers) sold drywall to intermediary distributors. These intermediaries-the direct purchasers of drywall in the initial transaction with the manufacturer-either (a) resold the drywall directly to Plaintiffs or resold the drywall to a subcontractor who provided it to Plaintiffs (“Distributor Intermediaries”) or (b) provided the drywall to Plaintiffs as part of an installation service (“Installer Intermediaries”). Regardless of the method by which the drywall was procured, Plaintiffs generally did not know the source of the drywall used in the homes they constructed. Although Plaintiffs did not typically mandate that drywall come from a certain manufacturer (absent participation in a specific manufacturer program such as the CertainTeed Building Solutions Program), in their distributor or subcontractor agreements, Plaintiffs required or strongly preferred that the drywall be produced domestically.

         D. Plaintiffs Have Shown Nonconspirator Drywall Manufacturers Followed the Allegedly Conspiratorial Price Increases Without Exception

         Plaintiffs reference record evidence that, in their view, establishes CertainTeed and Georgia-Pacific raised prices directly in response to price decisions announced by the conspiring drywall manufacturers. Plaintiffs highlight various conversations and decisions amongst executives of the nonconspiring manufacturers-CertainTeed and Georgia-Pacific- demonstrating that their pricing decisions stemmed from the decisions of Defendants:

1. John K. Donaldson, President of CertainTeed, 2008-2012, declared that “[d]uring [his] tenure, [CertainTeed executives] did not perceive that CertainTeed Gypsum had the clout with customers to simply announce a list price increase and have it be accepted. Accordingly, while [CertainTeed] wished to pursue list price increases, [they] felt [their] best course was to match (or ‘follow') price increases announced by the large manufacturers-USG and National Gypsum.” (Pl.'s Statement of Undisputed Facts, Ex. 22 ¶ 37.) Mr. Donaldson also stated that “once a price increase had been announced by USG or National Gypsum, [CertainTeed's] decision to follow was generally a simple one.” (Id. ¶ 38.) Thus, according to Mr. Donaldson, “[a]fter both USG and National Gypsum had issued announcements regarding new 2012 list prices (in addition to American), the decision for [Mr. Donaldson and Steve Hawkins, the Vice President of Sales of CertainTeed] about whether CertainTeed Gypsum should do something similar became an easy one.” (Id. ¶ 49.)
2. Steve Hawkins, Vice President of Sales of CertainTeed, declared that “[w]hen it comes to the setting of list prices, CertainTeed has generally been what I would call a ‘follower.' [CertainTeed] ha[s] waited until one or more of the large manufacturers-USG or National Gypsum-announce to their customers an increase, then [CertainTeed] ha[s] evaluated internally and unilaterally … what [their] response would be, and generally have decided to announce similar list price increases …, typically with the same effective date.” (Pl.'s Statement of Undisputed Facts, Ex. 23 ¶ 15.) According to Mr. Hawkins, “[d]uring the period between January 2010 and September 2011, [CertainTeed] made eight price increase announcements, and in all but one [CertainTeed] made [their] price announcement after one of USG or National Gypsum had done so.” (Id.) Mr. Hawkins explained that CertainTeed's pricing strategy was to “generally choose a percentage increase similar to what [USG or National Gypsum] … announced.” (Id. ¶ 22.) Mr. Hawkins explained that after USG and National Gypsum announced price increases in 2012, he “saw no reason not to proceed with a CertainTeed announcement.” (Id. ¶ 55.)
3. Dave Engelhardt, President of CertainTeed 2012-present, declared that “CertainTeed Gypsum followed price increases announced by other manufacturers, in particular one or both of the two large manufacturers, USG and National Gypsum (‘National'). CertainTeed Gypsum followed this approach with respect to the 2012 price increase, electing not to announce anything until after both USG and National had done so. [After taking over as president of CertainTeed, ] I did not change this approach and felt it was the correct approach for the interests of CertainTeed Gypsum.” (Pl.'s Statement of Undisputed Facts, Ex. 24 ¶ 38.)
4. Keith Campbell, Vice President of Finance of CertainTeed 2000-2013, declared that “[b]ecause [CertainTeed] felt [the company] had limited ability to initiate list price increases, [CertainTeed] generally waited until one or both of the large manufacturers, USG and National Gypsum (‘National'), announced list price increases to their customers before announcing anything … [CertainTeed] generally then followed those announcements with [their] own.” (Pl.'s Statement of Undisputed Facts, Ex. 25 ¶ 16.)
5. Brent Paugh, President of Gypsum Division of Georgia-Pacific, declared that “the other wallboard manufacturers' announcements in the fall of 2011 and fall of 2012 concerning the elimination of job quotes and the holding of price for the full year helped contribute to the realization of wallboard price appreciation in January 2012 and January 2013, whereas previous price increase announcements by Georgia-Pacific or other manufacturers throughout 2010 and 2011 did not achieve any material price appreciation.” (Pl.'s Statement of Undisputed Facts, Ex. 26 ¶ 9.)

         Defendants dispute Plaintiffs' characterization of the rationale for the pricing decisions of CertainTeed and Georgia-Pacific, contending instead that the increase decisions were consistent with oligopolistic decisionmaking entirely unrelated to Defendants' actions. (ECF 312, Def.'s Resp. to Pl.'s Statement of Undisputed Facts ¶ 9-18.)

         E. Record Evidence Demonstrates Plaintiffs Indirectly Purchased Drywall from Defendants

         Neither Plaintiffs nor Defendants dispute that the chain of distribution was indirect; that is, that there was at least one intermediary between Defendants' manufacture of drywall and Plaintiffs' eventual purchase.[4] Further, Plaintiffs ordinarily[5] did not know the identity of the manufacturer whose wallboard was ultimately used in the homes they constructed. Although Plaintiffs generally did not require that drywall used in their homes come from a particular manufacturer, they did insist or prefer that the drywall be sourced from the United States:

1. Michael Mancini, of Meritage Homes, confirmed that Meritage “doesn't track the manufacturer of the drywall it purchase[d]” other than to “specify that [drywall] shall be manufactured in North America.” (Pl.'s Statement of Undisputed Facts, Ex. 27 Meritage Homes Dep. 132:1-5.)
2. Joseph P. Starr, of Beazer Homes, verified that “Beazer [generally] doesn't know the manufacturer of the drywall that gets installed in its homes, ” but noted Beazer does “specif[y] that the drywall installed in its homes should be of U.S. manufacture.” (Pl.'s Statement of Undisputed Facts, Ex. 28 Beazer Homes Dep. 67:13-16; 8-11.)
3. David Edward Metz, of Drees, indicated that Drees “maintains no records of the drywall manufacturer that it purchased from distributors.” (Pl.'s Statement of Undisputed Facts, Ex. 29 Drees Dep. 57:9-13.) The only requirement Drees has is that the drywall be “U.S. manufactured.” (Id. 55:14.)
4. Kevin Wilson, of TRI, stated that TRI did not require subcontractors to use a particular type of drywall, but explained that “[i]t's in [the contract between TRI Pointe Homes and the subcontractor] to only use domestically-produced drywall.” (Pl.'s Statement of Undisputed Facts, Ex. 30 TRI Dep. 237:11-15.)
5. Charles Chippero, of Pulte Home, stated that Pulte “specifically told [their distributors] to use domestically-produced wallboard.” (Pl.'s Statement of Undisputed Facts, Ex. 31 Pulte Home Dep. 106:16-20.)
6. Larry Sekely, of M/I Homes, explained that the only restriction M/I Homes placed on “the distributors that contractors source[d] their drywall from” was to specify that the drywall be “manufactured in the United States.” (Pl.'s ...

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