Two high-profile lawsuits affecting the industry have seen new rulings.
A U.S. District Court in Louisiana has issued a new ruling in a class-action lawsuit against four major pool industry firms.
Mega-distributor PoolCorp and the “Big Three” manufacturers — Pentair Aquatic Systems, Hayward Pool Products and Zodiac Pool Systems — are being sued for anti-competitive activity and violating the Sherman Antitrust Act’s Section 1, which prohibits restraint of trade. PoolCorp also is accused of violating Section 2, banning monopolies.
The new development involves plaintiffs who are pool and spa dealers and distributors. They claim PoolCorp pressured the manufacturers not to do business with competing distributors. They also accuse the manufacturers of cooperating with PoolCorp, making it difficult for smaller or newer distributors to stock their shelves.
Last spring, the judge dismissed claims of fraudulent concealment for all four defendants and conspiracy for the manufacturers. The plaintiffs resubmitted both charges, saying they had discovered new information to support their claims.
The judge again dismissed the fraudulent concealment charge, stating that some allegations were too unspecific and others contradicted the notion of concealment. For instance, some distributors recounted conversations in which manufacturers refused to sell to them, claiming they were being pressured by PoolCorp against it. Even if that happened, the judge said, it is the opposite of concealment.
As for the conspiracy claim, the plaintiffs cited two actions they said indicate collusion. First, they claimed that all three manufacturers raised the minimum purchase amount needed to qualify for free freight nearly simultaneously and at the behest of PoolCorp. In 2007, according to court documents, Pentair and Hayward announced within a day of each other that the amount would increase from $10,000 to $20,000, and Zodiac made the same change approximately three months later.
The plaintiffs said those changes meant price increases for smaller distributors who didn’t order as much product. They also made two claims they said pointed to inappropriate communication between the Big Three. First, they claimed the manufacturers knew about each other’s increases in advance. Secondly, the plaintiffs said, in raising the free-freight minimums, the manufacturers acted against their own best interests because, they said, suppliers are better served when multiple distributors sell their products. (Defying one’s self interest is considered a key indicator that conspiracy may have occurred.)
The plaintiffs also said the four defendants conspired to place restrictions on buying groups, citing communications from PoolCorp executives who were concerned about the pricing being offered to buying groups compared with that offered PoolCorp. The claim also cited instances when the requirements for buying group members to purchase directly from manufacturers was increased, as well as a Pentair memo in which an executive explained why he found it more challenging to work with buying groups than distributors.
The judge allowed the allegations pertaining to free-freight minimums to move forward, saying the plaintiffs’ case was sufficient to suggest it was plausible the manufacturers acted against their best interests and had opportunities to conspire.
This does not mean the judge agrees with the plaintiffs, only that they offered a plausible argument in favor of the charges.
However, the judge dismissed the accusation that conspiracy was involved when the Big Three increased minimum purchases for buying groups, saying the plaintiffs’ case could not prove those policy changes went against the manufacturers’ self interests. At least one manufacturer said it is easier to work through distributors. Also, the judge said it was clear that PoolCorp told the manufacturers it didn’t want buying groups to receive favorable treatment. “The [complaint] is replete with allegations that because of [PoolCorp’s] market power, a manufacturer’s refusal to bow to [PoolCorp’s] demands could have devastating consequences,” she said. “Given these alleged facts, it is not plausible that the manufacturer defendants’ treatment of buying groups stemmed from anything but their perception of their own best interests.”
Because of this, she said the manufacturers’ actions toward buying groups carried no implication of conspiracy.
No trial date has been set.
Sandals lawsuit status
Defendants continue to question why American courts and law should be applied to an entrapment lawsuit when the incident took place overseas.
In December 2010, 33-year-old John Van Hoy Jr. was entrapped and drowned in an inground spa at the Sandals Royal Bahamian resort in Nassau. Relatives filed suit in the U.S. District Court in Miami, naming Sandals and its marketing representative, Unique Vacations, as well as pool and spa product manufacturers A.O. Smith Corp.; Hayward Industries; Pentair Aquatic Systems and its subsidiary, Sta-Rite; and distributors SCP and Hospitality Purveyors.
The family said the spa had a single-drain system with no backup; the drain cover was unsafe and improperly fastened; and drain velocities exceeded Florida’s 1.5-feet-per-second limit.
Last year, a Miami judge allowed the case to be heard in Florida, against Sandals’ claims that it should take place in the Bahamas. Sandals then moved that Bahamian law be applied to the case. But the judge recently stipulated that American law, potentially including the Virginia Graeme Baker Pool and Spa Safety Act, will be used. Because Sandals and Unique Vacations do a significant amount of business in the USA, the judge said, the application of American law is fair.
Pentair/Sta-Rite reached a settlement and is no longer part of the case.