Professional Documents
Culture Documents
Case No.
Plaintiff,
v.
DEMAND FOR JURY TRIAL
FRANK A. REICHL, GENERAL
CHEMICAL CORPORATION,
GENERAL CHEMICAL
PERFORMANCE PRODUCTS, LLC,
GENTEK,
INC. and JOHN
DOES 1-10.
Defendants.
INTRODUCTION
1.
Plaintiff Detroit Water and Sewerage Department brings this action both
individually and on behalf of a Class of plaintiffs consisting of all persons and entities in the
United States, who purchased liquid aluminum sulfate (Alum) directly from defendants at
any time from January 1, 1997 through at least July 31, 2010 (the Class Period).
2.
precipitant and emulsion breaker. Alum removes turbidity, suspended solids, total organic
carbon and biochemical oxygen demand. Alum is used in both municipal and industrial
applications.
3.
municipalities in potable water and wastewater treatment and by pulp and paper manufacturers
as part of their manufacturing processes. Alum is also used for algae control in lakes and
ponds, to fix dyes to fabrics and textiles, and by poultry houses as a litter amendment for
ammonia control.
4.
Plaintiff alleges that during the Class Period, defendants conspired, combined and
contracted to fix, raise, maintain and stabilize prices at which Alum would be sold. As more
fully detailed infra, Frank Reichl, a former senior executive at defendant General Chemical
Corporation has pleaded guilty to participating in said conspiracy already. As a result of
defendants unlawful conduct, plaintiff and the other members of the proposed Class paid
artificially inflated prices that exceeded the amount they would have paid if a competitive
market had determined prices for Alum.
JURISDICTION AND VENUE
5.
Plaintiff brings this action under Sections 4 and 16 of the Clayton Act, (15 U.S.C.
15 and 26), to recover treble damages and costs of suit, including reasonable attorneys fees,
against defendants for the injuries sustained by plaintiff and the members of the Class by
reason of the violations of Section 1 of the Sherman Act (15 U.S.C. 1).
6.
Jurisdiction is conferred upon this Court by 28 U.S.C. 1331 and 1337 and by
Sections 4 and 16 of the Clayton Act (15 U.S.C. 15(a) and 26).
7.
Venue is proper in this Judicial District pursuant to 15 U.S.C. 15(a) and 22 and
28 U.S.C 1391(b), (c) and (d) because during the Class Period, defendants resided,
transacted business, were found, or had agents in this District, and a substantial portion of the
affected interstate trade and commerce described below has been carried out in this District.
8.
This Court has personal jurisdiction over each defendant because, inter alia, each
defendant: (a) transacted business throughout the United States, including in this District; (b)
sold Alum throughout the United States, including in this District; (c) had substantial contacts
with the United States, including in this District; and/or (d) was engaged in an illegal scheme
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and price-fixing conspiracy that was directed at and had the intended effect of causing injury to
persons residing in, located in, or doing business throughout the United States, including in this
District.
PLAINTIFF
9.
principal place of business located at 735 Randolph, Room 701, Detroit, Michigan. During the
Class Period, Detroit Water and Sewerage Department purchased Alum directly from one or
more defendants. As a result of the alleged conspiracy, plaintiff was injured in its business or
property by reason of the antitrust violations alleged herein.
DEFENDANTS
10.
of Flanders, New Jersey. At all relevant times, Reichl actively conspired with Defendants and
co-conspirators in their unlawful price-fixing and bid-rigging conspiracy. On October 27,
2015, Reichl pleaded guilty for his role in the conspiracy as described herein.
11.
Delaware corporation, with its principal place of business at 90 East Halsey Road, Parsippany,
New Jersey. Defendants General Chemical Corporation and General Chemical Performance
Products, LLC, are referred to collectively herein as Genchem. As a leading manufacturer
and supplier of water treatment chemicals, including Alum, Genchem sold Alum in large
quantities to Plaintiff and other direct purchasers in this district and other locations in the
United States. At all relevant times except for the period from approximately July 2005 to
approximately December 2006, Reichl held high level executive positions with Genchem, and
his active participation in the price-fixing and big-rigging conspiracy was fully authorized
and/or ordered by Genchem.
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12.
LLC, was a limited liability company existing under the laws of Delaware, with its principal
place of business at 90 East Halsey Road, Parsippany, New Jersey.
13.
Upon information and belief, Defendant GenTek Inc. (GenTek) was a Delaware
corporation, with its principal place of business at 90 East Halsey Road, Parsippany, New
Jersey. Genchem was a wholly owned and controlled subsidiary by GenTek from
approximately 1999 to approximately October 2009. At all relevant times, as Genchems
parent company, GenTek was fully aware of Genchems role and participation in its unlawful
price-fixing and bid-rigging conspiracy as described herein.
14.
Upon information and belief, Defendants John Does 1 through 10 are corporations
and/or entities whose true names and capacities, or otherwise, are unknown to Plaintiff.
Therefore, Plaintiff sues such John Does 1 through 10 by such fictitious names. Further, upon
information and belief, Plaintiff alleges that each of the fictitiously named Defendants is in
some manner responsible for the events alleged herein and that Plaintiffs' damages were
proximately caused by such John Doe Defendants.
15.
any corporation, the allegation means that the corporation engaged in the act, deed or
transaction by or through its officers, directors, agents, employees or representatives while they
were actively engaged in the management, direction, control or transaction of the corporations
business or affairs.
16.
All acts alleged in this Complaint to have been done by defendants were
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CO-CONSPIRATORS
17.
unnamed co-conspirators with defendants in the violations and conspiracy alleged herein. In
order to engage in the offenses charged and violations alleged herein, these co-conspirators
have performed acts and made statements in furtherance of the antitrust violations and
conspiracies alleged herein.
18.
At all relevant times, each defendant was an agent of each of the remaining
defendants, and in doing the acts alleged herein, was acting within the course and scope of
such agency. Each defendant ratified and/or authorized the wrongful acts of each of the
defendants. Defendants, and each of them, are individually sued as participants and as aiders
and abettors in the improper acts and transactions that are the subject of this action.
INTERSTATE TRADE AND COMMERCE
19.
The business activities of defendants that are the subject of this action were within
the flow of, and substantially affected, interstate trade and commerce.
20.
continuous and uninterrupted flow of interstate commerce to customers throughout the United
States.
FACTUAL ALLEGATIONS
THE INDUSTRY
21.
among other things, performance chemicals utilized for water treatment and chemical
processing. Alum is one of the primary chemicals sold by defendants and their co-conspirators
in the water treatment market, with other uses including pulp and paper manufacturing
processes.
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22.
manufacturing facilities throughout the United States. For example, in 2008, defendant Gentek
operated manufacturing plants for its performance chemical business, which included Alum, in
California, Georgia, Illinois, New Jersey, New York, Texas and Washington. Other Alum
manufacturers operated Alum manufacturing facilities in Louisiana, Tennessee, Alabama,
South Carolina, Mississippi, North Carolina, Ohio and Indiana.
23.
Alum is sold by the ton and transported to customers by rail or truck, usually from
the Alum suppliers closest manufacturing plant. Freight is a significant component of price.
24.
competitive bidding processes, after which contracts for the supply of Alum, usually for a
duration of one year, are awarded. The results of the municipal bidding are typically made
public.
25.
requests for price to manufacturers, including defendants. Contracts for supply are then
negotiated, with those contracts lasting for a year or more. Unlike the municipal bidding
process, results of the negotiations between Alum suppliers and pulp and paper manufacturers
are usually not disclosed to the public.
26.
in the United States during the Class Period totaled hundreds of millions of dollars.
FACTORS INCREASING THE MARKETS SUSCEPTIBILITY TO CONSPIRACY
27.
cartelization by the defendants and their co-conspirators. Factors that made the Alum market
susceptible to collusion during the Class Period included: (1) a standardized product for which
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competition was principally on the basis of price; (2) weak demand in a mature market; (3) the
lack of available economic substitutes; and (4) high barriers to entry.
Standardized Product with High Degree of Interchangeability
28. Typically, when a product is characterized as a commodity, market participants
compete on the basis of price rather than other attributes such as product quality or customer
service. When competition occurs principally on the basis of price it is easier to implement
and monitor a cartel because price is more often objectively measurable and observable than
non-price factors such as service.
manufacturers indicates that Alum is a commodity product and competition in the market is
driven by price.
29. For example, in a 2004 Chemical Market Reporter article, one industry executive
described aluminum sulfate as a mature commodity market with severe competition among
suppliers.
30.
market noted that factors such as price competition from foreign participants and increased
commoditization of the chemicals may result in increasing pricing pressure in the future.
31.
In addition, a 2015 analyst report noted that the water management chemicals
market is split into two major categories: specialty chemicals and [c]ommodity chemicals
such as alum.
Weak Demand in a Mature Market
33. Static or declining demand is one factor which makes the formation of a collusive
arrangement more likely.
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declining demand conditions, firms will attempt to increase sales by taking market share from
competitors by decreasing prices. For this reason, firms faced with static or declining demand
have a greater incentive to collude to avoid price competition with competitors and protect
against bankruptcy.
34. Demand for Alum is driven by the demand for end-use markets in which it is
employed. These markets include the water treatment sector and the pulp and paper industry,
which uses Alum to manufacture corrugated cardboard and shipping containers. According to
one 2004 article, demand for alum has slowed due to retraction and consolidation in the pulp
and paper market, a major market for alum.
35. Figure 1 below illustrates actual revenues and unit shipments for the North
American coagulants and flocculants market in the U.S. from 2003 to 2006. As shown,
demand was relatively stable during these years and was forecast to continue to increase only
slightly from 2007 through 2010.
Figure 1: North American Demand for Coagulants and Flocculants used in Water
Treatment
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Source: Frost & Sullivan, North American Industrial Water Treatment Chemicals Markets, August 31, 2007.
36. Kemira Oyj, a global chemicals company headquartered in Finland which was
listed among Genteks water treatment competitors in its 2008 annual report described demand
in its 2014 annual report as follows: [o]nly modest growth can be expected in the Municipal
& Industrial segments relevant market in Europe and North America, as water treatment
infrastructure is already largely built and growth in demand is therefore restricted.
37. In addition, evidence indicates that the market for Alum is mature. In mature
industries, firms ability to increase sales is limited to population growth and the replacement
of existing products. This means that slow growth rates often exist in mature industries
because new distribution channels, which might raise sales, have typically been exhausted.
Consequently, the only way for firms in operating in mature industries, where demand growth
is slow, to capture additional market share is by competing with each other on the basis of
price. This factor is exacerbated in industries for commodity products, such as Alum, since
product differentiation would not be an alternative way to gain market share.
38. One 2001 article described the Alum market as very mature, with a projected
annual growth rate of roughly 2 percent. Similarly, a 2015 analyst report notes that the
technologies currently used in water treatment are mature. As a mature market, future sales
of Alum are determined by population growth. In its 2013 annual report, Chemtrade Logistics,
which acquired Genchem in 2014, noted that the North American market for water treatment
chemicals generally tracks GDP and population growth.
Lack of Substitutes
39. The lack of available substitutes for a product facilitates collusion among possible
conspirators. That is, customers are not able to avoid supra-competitive prices for Alum by
switching to another type of inorganic coagulant.
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40. Research indicates that in water treatment applications, there are several
substitutes for Alum such as aluminum chloride, polyaluminum chloride (PAC), aluminum
chlorohydrate, ferric sulfate, and ferric chloride. However, it is important to note that while
these goods can be functional substitutes for Alum, they are not necessarily economic
substitutes for Alum. An article from Chemical Market Reporter notes that [b]ecause PAC
compounds are processed more than basic water treatment chemicals like aluminum sulfate,
they are pricier. The PAC family, which includes aluminum chloride, PAC and aluminum
chlorohydrate, accounts for 15 percent of the water treatment market. Alum is the most mature
product and has a market share of more than 40 percent. Another article states that the market
for Alum benefitted from the recent trend toward phosphorous reduction in water treatment as
municipalities turn back to alum from iron salts which are less efficient binders than
aluminum compounds as the most cost-effective method of lowering phosphorous levels.
41. Economists regard products as economic substitutes if a nominal change in price
for one product results in increased demand for the other product. The change in price
necessary to cause consumers to switch to a substitute good is often considered to be around
five percent. Given the quality and cost differences discussed above, there do not appear to be
any economic substitutes for liquid aluminum sulfate.
Barriers to Entry
42.
who want to avail themselves of the high levels of profitability that are available. However,
the presence of significant barriers to entry makes this more difficult and helps to facilitate the
operation of a cartel.
43.
Here, there are significant barriers to entry which have prevented potential
competitors from effectively competing in the U.S. Alum market during the Class Period.
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High barriers to entry existed, because only a determined competitor with specialized
knowledge, the capital necessary to build manufacturing facilities and access to distribution
channels could have competed in this market.
GOVERNMENT ANTITRUST INVESTIGATION
44.
On October 27, 2015, the Antitrust Division of the Department of Justice (DOJ)
announced that Frank A. Reichl had agreed to plead guilty to participating in a conspiracy to
eliminate competition by fixing prices, rigging bids and allocating customers for Alum.
45.
Based upon information, belief and research, Reichl was the Vice President of
Sales and Marketing for Genchem between 2006 and 2010. Prior to that time, during the Class
Period, he also served as General Manager of Water Chemicals for Genchem. In both
positions, Reichls responsibilities included oversight of the sale and marketing of water
treatment chemicals, including Alum. Reichl was responsible for pricing, strategy, analyzing
and approving bid and pricing proposals, and supervising Genchems sales and marketing
employees.
46.
According to the criminal information filed against Mr. Reichl, Mr. Reichl and his
co-conspirators entered into and engaged in a combination and conspiracy to suppress and
eliminate competition in the sale of marketing of [Alum] by agreeing to rig bids and allocate
customers for, and to fix, stabilize, and maintain the price of [Alum] sold to municipalities and
pulp and paper companies in the United States, which conspiracy constituted a continuing
agreement, understanding, and concert of action among Reichl and his co-conspirators.
47.
Genchem, Reichl and his co-conspirators carried out the conspiracy by, inter alia:
a.
b.
historical customers;
g.
quote potential business in order to comply with the agreement not to compete.
48.
The fact that the DOJ Antitrust Division investigation is criminal, as opposed to
civil, is significant. The Antitrust Divisions Standards for Determining Whether to Proceed
by Civil or Criminal Investigation state: [i]n general, current Division policy is to proceed by
criminal investigation and prosecution in cases involving horizontal, per se unlawful
agreements such as price fixing, bid rigging and horizontal customer and territorial
allocations. See Antitrust Division Manual, Chapter III.C.5.
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Beginning at least as early as January 1, 1997, and continuing until at least July
30, 2010, the exact dates being unknown to plaintiff, defendant and its co-conspirators engaged
in a continuing agreement, understanding, and conspiracy in restraint of trade to artificially
raise, fix maintain or stabilize the price of Alum in the United States.
50.
defendants and their co-conspirators engaged in anticompetitive activities, the purpose and
effect of which were to artificially raise, fix, maintain, and/or stabilize the price of Alum sold
in the United States. These activities included the following:
a.
discuss each others Alum business and the price of Alum in the United States;
b.
g.
own historical customers if an inadvertently winning bid to one of its coconspirators historical customers could not be withdrawn.
51.
Defendants and their co-conspirators engaged in the activities described above for
During and throughout the period of the conspiracy alleged in this Complaint,
plaintiff and members of the Class purchased Alum from defendants (or their subsidiaries or
controlled affiliates) or their co-conspirators at inflated and supra-competitive prices.
53.
restraint of interstate trade and commerce in violation of Section 1 of the Sherman Act.
54.
the class have been injured in their business and property in that they have paid more for Alum
than they would have paid in a competitive market.
55.
The unlawful contract, combination or conspiracy has had the following effects,
among others:
a.
restrained;
b.
prices for Alum sold by the defendants have been raised, fixed,
anticompetitive conduct from Plaintiff and the Class from at least January 1, 1997 through at
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least October 27, 2015, when the antitrust investigation of Alum manufacturers became public.
During that time, Plaintiff and the Class did not learn or discover the operative facts giving rise
to their claims, despite due diligence. Thus, Defendants fraudulent concealment tolled the
statute of limitations through at least October 2015.
57.
otherwise, that their pricing and bidding activities were unilateral. In making those false
representations, Defendants misled Plaintiff and members of the Class as to the true, collusive,
and coordinated nature of their bid-rigging, customer allocation, and price-fixing activities.
58.
Defendants and their co-conspirators wrongful conduct was carried out in part
through means and methods that were designed to avoid detection, and which, in fact,
successfully precluded detection.
59.
conversations, and communications to discuss the bids and price quotations to be submitted to
customers in the United States.
60.
and their co-conspirators agreed upon bids and price quotations to be submitted to customers in
the United States.
61.
submitted collusive bids and price quotations to customers in the United States.
63.
throw-away bids and price quotes intended to lose business, thereby giving Plaintiff and
members of the class the false impression that defendants were competing for business.
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64.
Defendants and their co-conspirators sold Alum to purchasers in the United States at collusive
and noncompetitive prices.
65.
Moreover,
Defendants
and
their
co-conspirators
successful
contract,
Despite due diligence, Plaintiff had no knowledge of Defendants and their co-
In the course of purchasing Alum, Plaintiff studied prices of the specific products
involved.
68.
their co-conspirators. Plaintiff had no way to know that these prices were higher than they
should have been due to the conspiracy alleged herein.
69.
Plaintiff did not and could not have discovered Defendants and their co-
conspirators unlawful contract, combination, or conspiracy at any earlier date, despite due
diligence. Defendants and their co-conspirators undertook affirmative acts of concealment of
their contract, combination, or conspiracy, including their attendance at secret meetings,
making misrepresentations to Plaintiff and the Class of the reasons for the prices charged, and
engaging in secret conversations concerning the allocation of customers, bid-rigging, and
price-fixing of Alum.
70.
In this regard, plaintiff avers that the announcement of Mr. Reichls guilty plea on
October 27, 2015, is significant because it constituted the first public notice that a horizontal
conspiracy among competitors may have injured purchasers of Alum.
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71.
Accordingly, plaintiff avers that the applicable statute of limitations does not
constitute a bar to the claims set forth herein or to damages for any portion of the Class Period
asserted in this Complaint.
CLASS ACTION ALLEGATIONS
72.
Plaintiff brings this action on behalf of itself and as a class action under the
provisions of Rule 23(a) and (b)(2) and (b)(3) of the Federal Rules of Civil Procedure on
behalf of the following class (the Class):
All persons and entities in the United States who purchased Alum
directly from any defendant between January 1, 1997 and at least
July 31, 2010. This class excludes any judicial officer who is
assigned to hear any aspect of this action, governmental entities,
defendants, co-conspirators, and the present and former parents,
predecessors, subsidiaries and affiliates of the foregoing.
73.
Plaintiff believes that there are at least hundreds of Class members as above
described, the exact number and their identities being known by defendants, making the Class
so numerous and geographically dispersed that joinder of all members in impracticable.
74.
There are questions of law and fact common to the Class, which questions relate
to the existence of the conspiracy alleged, and the type and common pattern of injury sustained
as a result thereof, including, but not limited to:
a.
c.
nature and character of the acts performed by defendants and their co-conspirators
in furtherance of the conspiracy;
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d.
e.
Act;
alleged in this Complaint, caused injury to the business and property of plaintiff
and other members of the Class;
f.
conspiracy;
g.
Plaintiff is a direct purchaser of Alum and its interests are coincident with and not
antagonistic to those of the other members of the Class. Plaintiff is a member of the Class, has
claims that are typical of the claims of the Class members, and will fairly and adequately
protect the interests of the members of the Class. In addition, plaintiff is represented by
counsel who are competent and experienced in the prosecution of antitrust and class action
litigation.
76.
Defendants have acted, and refused to act, on grounds generally applicable to the
Class, thereby making appropriate final injunctive relief with respect to the Class as a whole.
78.
The questions of law and fact common to the members of the Class predominate
over any questions affecting only individual members, including legal and factual issues
relating to liability and damages.
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79.
A class action is superior to other available methods for the fair and efficient
adjudication of this controversy. Treatment as a class action will permit a large number of
similarly situated persons to adjudicate their common claims in a single forum simultaneously,
efficiently and without duplication of effort and expense that numerous individual actions
would engender. The Class is readily definable through the files of defendants and their coconspirators, and prosecution as a class action will eliminate the possibility of repetitious
litigation. Class treatment will also permit the adjudication of relatively small claims by many
Class members who otherwise could not afford to litigate an antitrust claim such as is asserted
in this Complaint. This class action presents no difficulties of management that would
preclude its maintenance as a class action.
CAUSE OF ACTION
Violation of Section 1 of the Sherman Act 15 U.S.C. 1
80.
Plaintiff incorporates and re-alleges each allegation set forth in the preceding
defendants and their co-conspirators, by and through their officers, directors, employees,
agents, or other representatives, entered into a continuing agreement, understanding, and
conspiracy in restraint of trade to artificially raise, fix, maintain, and/or stabilize prices for
Alum in the United States, and its territories and possessions, in violation of Section 1 of the
Sherman Act (15 U.S.C. 1).
82.
defendants and their co-conspirators to plaintiff and the members of the Class for Alum.
83.
Plaintiff and members of the Class had to pay more for Alum than they would
84.
85.
As a direct and proximate result of defendants scheme, plaintiff and the members
of the Class have been injured and financially damaged in their respective businesses and
property, in amounts which are presently undetermined. Plaintiffs injuries consist of paying
higher prices to purchase Alum than it would have paid absent defendants conduct. Plaintiffs
injuries are of the type the antitrust laws were designed to prevent and flow from that which
makes defendants conduct unlawful.
PRAYER FOR RELIEF
WHEREFORE, plaintiff prays as follows:
A.
That the Court determine that this action may be maintained as a class action
That the contract, combination or conspiracy, and the acts done in furtherance
That judgment be entered for plaintiff and members of the Class against
defendants for three times the amount of damages sustained by plaintiff and the Class as allowed
by law, together with the costs of this action, including reasonable attorneys fees.
D.
officers, directors, partners, agents and employees thereof, and all other persons acting or
claiming to act on their behalf, be permanently enjoined and restrained from, in any manner
continuing, maintaining or renewing the contract, combination or conspiracy alleged herein, or
from engaging in any other contract, combination or conspiracy having a similar purpose or
effect, and from adopting or following any practice, plan, program or device having a similar
purpose or effect.
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E.
That plaintiff and members of the Class have such other, further and different
relief as the case may require and the Court may deem just and proper under the circumstances.
JURY DEMAND
Plaintiff demands a jury trial, pursuant to Federal Rule of Civil Procedure 38(b), of all
triable issues.
Dated: November 4, 2015
Respectfully submitted,
BY:
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