Megadistributor PoolCorp and the pool-equipment manufacturers dubbed by many “The Big Three” are being accused of anti-competitive activity. A lawsuit has been filed and plaintiffs are hoping it gains class-action status.
The claim originally was filed in 2011 solely against the Covington, La.-based distributor. Now the plaintiffs have amended their suit to include the others — 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 against PoolCorp was spurred by an investigation involving the Federal Trade Commission. After a 1-1/2-year-long inquiry, the FTC accused the company 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 class-action 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 selling 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 now are accused of conspiring with PoolCorp by agreeing to its terms. Their market dominance means distributors have to sell those products in order to run a viable business, plaintiffs said. So if “The Big Three” refused to do business with a competitor of PoolCorp, it 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 … , ” the complaint stated.
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.
In response, PoolCorp and the manufacturers have filed motions to dismiss the case. Defendants claim allegations are not specific enough.
PoolCorp said the alleged behavior, even if it had occurred, doesn’t meet the definition of antitrust, and plaintiffs haven’t proven the alleged behavior had enough of an impact on the market to fall under the antitrust category.
The distributor also said 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.
PoolCorp maintains its innocence. “We’ve denied all the allegations of unlawful conduct,” Bamberger said.
The manufacturers declined to comment, citing pending litigation.
As of press time, a hearing on the motions to dismiss was pending, but regardless of the outcome, the case may not end there. 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.