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Wednesday, 30 June 2004 17:00

Price fixing lawsuit goes forward in California

A California state court lawsuit for alleged price-fixing by paint companies in the automotive refinishing market has taken a big step forward. Superior Court Judge Ronald Sabraw on June 17 granted a motion certifying the case as a class action. The step is important because individual named plaintiffs, namely small body shops, would have been unable to prosecute an expensive price-fixing case against large corporate defendants such as DuPont and PPG. 

The purported class action alleges that the defendant paint manufacturing companies, including DuPont, BASF, PPG, and Akzo Nobel, have engaged in a horizontal conspiracy not to compete (i.e., to fix prices) in the sale of automobile refinishing paint. The plaintiffs are indirect purchasers of auto refinish paints, namely body shops. They are called indirect purchasers because they generally purchased the paint through jobbers and not directly from the defendant paint manufacturers.

Certification of this California state action by indirect purchasers comes on the heels of a $66.75 million settlement in Philadelphia of a Federal Court class action for price fixing brought by direct purchasers (i.e., shops that bought paint directly from the paint manufacturers) against mostly the same paint companies. Federal lawsuits for price-fixing are brought under the Sherman Act. That law today only permits suits by direct purchasers. Until 1977 it permitted suits by both direct and indirect purchasers. When the federal law was changed to "direct purchasers only" in 1977, California enacted the Cartwright Act so that indirect purchasers could continue to bring suit.

The California lawsuit was brought for two causes of action: restraint of trade in violation of the Cartwright Act and unlawful and unfair business practices under the Unfair Competition Law.

In arguing for class action certification, plaintiffs brought in an expert witness, an economist, who stated his opinion that manufacturer list prices correlated strongly with changes in the prices charged by jobbers to the refinishers (body shops). The economist noted that price increases were passed from manufacturers to jobbers to refinishers. There was very little testimony about the pass through of price increases to end users, i.e., whether or not body shops increased their prices to customers when the price of paint went up.

In arguing against the class action certification, the defendants presented evidence that there are numerous distribution chains for automotive refinish paint and that price increases did not always pass from jobbers to refinishers. The defendants expert stated that records of sales transactions between jobbers and refinishers were "scarce." He also stated that analysis of sales records could lead to inaccurate conclusions because of several factors not reflected in such transactions: volume and long term contracts; rebates to refinishers (body shops); offsets such as tech services, customer support and free equipment.

In making his ruling for plaintiffs, Judge Sabraw found that the common issues having an impact on the refinishers were sufficient to establish a class action. He noted that DuPont, BASF, PPG and Akzo Nobel all had published suggested prices for refinishers; further, that other documents concerning the maintenance of jobber (profit) margins suggested that the paint companies expected that increases in their prices to the jobbers would be passed on to the refinishers.

The court established two "classes" of plaintiffs: refinishers (body shops) and end users (vehicle owners). The named plaintiffs representing the refinishers are Competition Collision Center, LLC and Harold's Autobody and Paint Shop.

The court class has scheduled a conference on the matter for mid-July in Oakland.

 

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