The Urethane Blog

Foam Case Update

Defendants settle with 1 of 3 plaintiffs

Price-fixing suits against manufacturers of polyurethane foam

BY JON CHAVEZ
BLADE BUSINESS WRITER
 

Seven defendants in what has been called one of the largest class-action lawsuits in American legal history have reached a settlement with one of the three plaintiff classes involved in the lawsuit in U.S. District Court in Toledo.

The case involves allegations of price fixing by seven defendant companies that manufacture polyurethane foam.

As a result of the settlement, which occurred March 24 but whose details have yet to be announced, trials to hear complaints by the other two plaintiff classes have been scheduled for later this year. Judge Jack Zouhary is presiding over the case.

The case of Ace Foam Inc. et al vs. Crest Foam Industries et al began in 2010. An eighth defendant firm, Vitafoam Inc. of Toronto, was involved but it acknowledged its role in the alleged price-fixing and has already settled with all the plaintiffs.

Polyurethane foam is widely used as insulation and cushioning in a variety of products including packaging, flooring, bedding, and vehicles.

Following a raid of several major foam makers’ offices in 2010 by the FBI and the European Commission, a number of class action lawsuits were filed across the county. These foam antitrust class action lawsuits eventually were consolidated into one case and assigned to Judge Zouhary.

Collectively, the plaintiffs were seeking $9 billion and overall the classes reportedly could represent hundreds of millions of class members ranging from other manufacturers that use foam in products to people and companies which purchase foam products.

The defendants are accused of violating the federal Sherman and Clayton Antitrust Acts by conspiring to coordinate the timing and amount of price increases on polyurethane foam through phone calls, letters, and in-person meetings. The price fixing occurred in the United States and Canada and allegedly began in January, 1999.

In their complaints, the plaintiffs said the companies used several tactics to coordinate price increases and control the market. The defendants divided up customers among themselves and agreed not to encroach on each others’ markets and shared draft copies of price announcement letters before sending them out to customers. To avoid detection, the producers would not use their full names in correspondence, using initials or first names only.

Additionally, the foam manufacturers would meet secretly at industry trade conventions to discuss price fixing. Trade association meetings were nothing more than “meet-and-greet” sessions with competitors in order to fix prices and divide up customer territory, one plaintiff asserted in a 2010 lawsuit.

Investigators learned of the conspiracy in February, 2010, when Vitafoam approached the U.S. Justice Department and admitted to illegally fixing prices in exchange for leniency. Vitafoam said it learned of the conspiracy in 2008.

After the lawsuits were filed they were consolidated by the U.S. Judicial Panel on Multidistrict Litigation, which is made up of seven judges, and assigned to Toledo because of its convenient location for all the parties and its proximity to Detroit Metro Airport. Since 2010 under Judge Zouhary the class action suit mostly has been a long series depositions, discovery, the class certification process, and challenges by the defendants.

Only one court hearing involving all the parties has taken place: the hearing to approve the settlement. It occurred late last month in Cleveland because the Toledo courtroom was thought to not be big enough.

The three classes of plaintiffs in the case are the Direct Purchase class, which are companies who buy foam to make products sold to consumers; the Indirect Purchaser class, which is any person or entity who bought products with foam in them; and the Direct Action Plaintiffs, which are large buyers of foam, such as Sealy Mattress Co. and General Motors Co., whose claims are big enough to allow them to bring their own lawsuits.

The recent settlement was with the Direct Purchase class. Three of the seven defendants earlier agreed to pay a collective $156 million to the class. It has not been disclosed how much the four who settled agreed to pay.

Meanwhile, as a result of the settlement, a trial involving the direct action plaintiffs has been set for Aug. 18 and the trial for the indirect purchaser class will be Oct. 15.

Toledo attorney Rick Kerger, who is representing indirect purchasers, said the settlement came after the U.S. Supreme Court on March 2 declined to review the class certification in the case. The defendants had challenged the certification, losing in district court a year ago and in the Sixth Circuit Court of Appeals in November.

Mr. Kerger said it is typical in class-action suits for the direct purchase class to proceed first because the liabilities are clear and the damages pre-determined.

“It’s all about certification. If [the direct purchasers] don’t get class certified, it’s likely no one else will,” he said.

Conversely, if the first class of plaintiffs lose their case, it’s unlikely the other classes will win, he added.

Contact Jon Chavez at: jchavez@theblade.com or 419-724-6128.

Read more at http://www.toledoblade.com/business/2015/04/07/Defendants-settle-with-1-of-3-plaintiffs.html#Rlh2Drp0YmeGIKS8.99