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Saturday, May 20, 2006

Ind. Law - "Concrete price-fix case vexes helpless consumers"

Indianapolis Star business writer J.D. Wall has an excellent article today on the impact of the concrete price-fixing scandal on local consumers. The lengthy story is headlined "Concrete price-fix case vexes helpless consumers: State has no law offering recourse for homeowners." Some quotes:

If Greg Johns didn't live in Indiana, he might be suing ready-mixed concrete firms for spiking the price of his patio and driveway by illegally fixing prices.

But because Indiana's legislature has not passed a law like those in more than 25 other states, Johns, a Brownsburg resident, has done nothing. He has no legal option to see whether he was gouged or to recover any damages.

Johns, who spent $2,450 on a driveway and patio in 2003 and 2004, is in the same situation as the state of Indiana, the city of Indianapolis, Indianapolis International Airport and countless businesses and individuals.

All of them purchased concrete from July 2000 to May 25, 2004, when federal investigators say Indianapolis-area concrete firms colluded to fix prices for nearly all buyers of ready-mixed concrete.

Five of the largest local firms have been snared in the federal price-fixing investigation. Irving Materials, Shelby Materials, Builder's Concrete & Supply and Carmel Concrete Products have admitted guilt. Beaver Gravel was indicted but has denied guilt.

But because Johns, the state and the city all bought concrete through construction contractors -- not directly from concrete firms -- they are disqualified from suing the concrete firms, according to a 1977 decision by the U.S. Supreme Court.

"It was pretty easy for me to see that I probably paid an inflated price, indirectly," said Johns. Irving Materials provided the concrete for Johns' patio through a contractor, Cornerstone Concrete Services. Johns said he would sue Irving Materials if he could. * * *

The Supreme Court's ruling, known as the Illinois Brick decision, said federal law only allows direct purchasers -- such as construction contractors -- to recover damages. But the ruling did permit states to pass their own laws, in effect repealing the Illinois Brick decision.

Indiana hasn't done so. And when Rex Joseph, attorney for the Indianapolis airport, learned that, he was upset. "I wanted to do everything we could" to recover damages, Joseph said. He would not divulge how much concrete the airport had purchased during those four years.

To date, more than half of the 50 states have passed Illinois Brick repealer laws in various forms, according to the American Antitrust Institute.

It appears that Indiana legislators have never considered such a move. Bob Garton, the longtime leader of the Indiana Senate, remembers no such proposal. Neither does Rep. Pat Bauer, the House Democrat leader from South Bend.

I've underlined the phrase above because the "how" in allowing consumers to recover damages is problematic. The Star story continues:
"It would seem, however, that if you got cheated you ought to have a right to recourse in a court of law," [Rep.]Bauer said.

Most folks in the American legal community agree. Where they do not agree, however, is how many pounds of flesh customers should be able to exact from their price-fixing suppliers.

Currently, federal law allows direct customers to recover triple damages from their suppliers in a price-fixing case. That's what 27 Indiana construction contractors are seeking in a lawsuit they are pressing against Indianapolis-area concrete firms.

Indianapolis attorney Irwin Levin and his law firm, Cohen & Malad, are leading the suit, along with Houston attorney Stephen Susman. The suit is pending in federal court in Indianapolis against the five firms that have been named in the federal probe and two others that have not: American Concrete and Prairie Material Sales.

What defendants fear is that the Illinois Brick repealer laws could make them pay triple damages twice: first to direct purchasers like the construction contractors and second to end customers like Greg Johns.

"You can't get double recovery," said Dan Kelley, an [Ice Miller] attorney representing Irving Materials in the civil lawsuits against it. Kelley said an Illinois Brick repealer statute "creates a mess" of litigation and the possibility for individuals and business far removed from the price fixing to claim some sort of damage.

"Defendants are unhappy. There's the very real possibility of paying treble damages to direct purchasers and then turn around and pay treble damages to indirect purchasers," said Stephen Calkins, a law professor at Wayne State University and the former general counsel of the Federal Trade Commission.

But that argument is misleading, said Robert Lande, a law professor and cartels expert at the University of Baltimore. Past price-fixing lawsuits have almost all settled for amounts roughly equal to the amount of gouging.

In addition, he said, economists have developed sophisticated models to determine how much the various customers were gouged. In that way, Lande said, a judge could determine how much money to award construction contractors and how much to award end customers with new patios.

"No settlement has ever come out to be more than three times damages," Lande said. If companies guilty of price-fixing made the laws, he said, "no one would have an incentive to sue."

Here is an edited version of Illinois Brick Co. v. Illinois, 431 US 720 (1977).

This is the stuff of law journal articles. Here, for instance, is one from the St. John's Law Review that begins:

Few questions in antitrust law have proven to be as challenging as whether "indirect purchasers" should be authorized to seek damages for antitrust violations. Despite the seemingly unqualified language of section 4 of the Clayton Act, which creates a treble damage private right of action for "any person" injured in her business or property by virtue of an antitrust violation, indirect purchasers have been barred from seeking damages in federal court since the Supreme Court's 1977 decision in Illinois Brick Co. v. Illinois. At the same time, many such indirect purchasers, often consumers, have been authorized to seek the very relief barred in federal court under analogous but more expansive state antitrust laws. The Supreme Court specifically endorsed this dual-remedial scheme when, in California v. ARC America Corp., it rejected arguments that Illinois Brick effectively preempted broader state antitrust remedies.
And here is a 2002 article from the Antitrust Institute marking the 25th anniversary of "the Supreme Court’s famous Illinois Brick decision."

Posted by Marcia Oddi on May 20, 2006 12:42 PM
Posted to Indiana Law