Megadistributor PoolCorp and the manufacturers known in the industry as “The Big Three” are being accused of anti-competitive activity in a lawsuit that the plaintiffs are hoping will gain class action status.
The claim originally was filed solely against the Covington, La.-based distributor. But the plaintiffs amended their suit to include the manufacturers — Hayward Pool Products of Elizabeth, N.J., Pentair Aquatic Systems of Sanford, N.C., and Zodiac Pool Systems in Vista, Calif.
All are accused of violating the Sherman Antitrust Act, which prohibits activities that restrain trade or commerce. PoolCorp also is accused of violating the section of the law prohibiting monopolies.
The case was spurred by an investigation involving the Federal Trade Commission last November. After a 1½-year-long inquiry, the FTC accused PoolCorp of pressuring manufacturers not to sell to new distributors entering the market. PoolCorp maintained its innocence, but entered into a settlement in which it agreed to certain conditions.
“They’ve done what the FTC required,” said David Bamberger of DLA Piper, an attorney representing PoolCorp.
But within days of the settlement, dealers began to file lawsuits.
The plaintiffs, consisting of 11 dealers and consumers, accuse PoolCorp of using its Preferred Vendor program as a way to motivate and even intimidate manufacturers to refuse to sell to competing distributors. According to the claim, manufacturers often would have to agree because they couldn’t easily replace business lost by PoolCorp, the only national distributor.
“To achieve efficient and timely substitute distribution throughout many parts of the country would be challenging and problematic, if not infeasible,” plaintiffs stated in court documents.
The dealers and consumers also accuse the distributor of buying competing companies for the purpose of shutting them down. Through the alleged behavior, the plaintiffs said, PoolCorp and the manufacturers removed enough competition to artificially raise prices.
“PoolCorp unlawfully acquired, maintained and exercised monopoly power in the relevant market through the anticompetitive conduct set forth,” court papers read.
Hayward, Zodiac and Pentair are accused of conspiring with PoolCorp by agreeing to its terms. The market dominance of those three firms means that a distributor has to sell their products in order to run a viable business, the plaintiffs said. So for The Big Three to refuse to do business with a competitor of PoolCorp essentially constituted a death sentence to that distributor, the plaintiffs alleged.
“With the assistance and agreement of the only full-line pool products vendors … PoolCorp eliminated various existing distribution competitors, and prevented other would-be rivals from obtaining the products necessary to compete, blocking them from penetrating the market and raising their costs to obtain pool products,” the complaint stated.
The plaintiffs are asking the court to certify the class, a procedural step that would make the plaintiffs become representatives of unnamed parties who qualify to receive part of an award if the case is found in their favor. For this to happen, the judge must determine that enough parties have been affected, they have enough in common, and meet other criteria.
The plaintiffs are seeking, among other things, triple the damages proven in court. They also want the defendants to give up any profits received as a result of their alleged conduct.
For their part, PoolCorp and the manufacturers have filed motions to dismiss the case. All defendants stated that the allegations were not specific enough.
PoolCorp said that the alleged behavior, even if it had occurred, doesn’t meet the definition of antitrust. Vertical agreements — those with companies in another area of the supply chain — are not illegal on their face, PoolCorp stated. The distributor also said the plaintiffs didn’t prove that the alleged behavior had enough of an impact on the market to fall under the antitrust category.
Additionally, PoolCorp stated that it doesn’t have enough market share to constitute a monopoly. According to PoolCorp’s motion for dismissal, the company holds about one-third of the market, and several courts have stated that a firm must have more than 50 percent market share to be considered a monopoly.
In the motions for dismissal, the defendants didn’t address the issue of guilt, which is common at this phase, said attorney Mark Stapke, a partner in Michelman & Robinson, LLP, in Los Angeles, who has represented a number of pool firms. Defendants answer the individual accusations if the case goes to trial.
But PoolCorp maintains its innocence. “We’ve denied all the allegations of unlawful conduct,” Bamberger said.
The manufacturers declined to comment, citing pending litigation.
The hearings for the motions to dismiss will take place Oct. 31. Even if the judge sides with the defendants, the case may not end there. Generally, plaintiffs get more than one try: If the judge upholds the motion to dismiss, plaintiffs usually can modify their complaints and refile, Stapke said.
“It’s by the second or third time that you actually get traction on a dismissal,” he explained. If the cases move forward, it will become the plaintiffs’ job to prove that the classes deserve certification. If the judge is convinced it should be a class action case, defendants generally settle shortly thereafter.
