Antitrust Law Daily California law applies to state antitrust claims by repealer state plaintiffs
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Wednesday, July 10, 2019

California law applies to state antitrust claims by repealer state plaintiffs

By Nicole D. Prysby, J.D.

In multidistrict litigation against manufacturers alleged to have fixed prices for drywall, California law will govern as to state antitrust claims made by plaintiffs headquartered in states that have repealed Illinois Brick Co. and allow indirect purchasers to seek recovery from antitrust violators.

In a price-fixing action against drywall manufacturers, California law will govern as to state antitrust claims made by plaintiffs who were headquartered in repealer states, held a federal district court in Pennsylvania. The court held that application of California law to the state antitrust claims does not violate the Due Process Clause or the Commerce Clause. And, while California law differs from the laws of repealer states, the differences are not material. However, for non-repealer states, the court determined that it could not reach a conclusion on the issue of whether there is a true conflict between the interests of California and the non-repealer states, because the parties did not adequately brief the issue (In re Domestic Drywall Antitrust Litigation, July 8, 2019, Baylson, M.).

Background. Indirect and direct purchaser plaintiffs brought Sherman Act and state law claims against drywall manufacturers, alleging that the manufacturers engaged in a conspiracy to fix prices and eliminate job quotes in the sale of domestic drywall. Plaintiffs purchased drywall in 39 different states. They originally filed the action in federal court in California; it was transferred to the Pennsylvania court in 2015 by the Judicial Panel on Multidistrict Litigation. The parties disputed whether the plaintiffs may pursue all of their state antitrust claims under California’s Cartwright Act. The drywall manufacturers argued that state antitrust claims made by plaintiffs headquartered in states that have not repealed Illinois Brick Co. v. Illinois, should be dismissed, as (unlike California, a repealer state) non-repealer states do not allow indirect purchasers to seek recovery from antitrust violators.

Choice-of law issues. The manufacturers argued that California law should only apply to claims arising from purchases made in California, under both California choice-of-law principles and the U.S. Constitution. The court explained that Third Circuit law is binding on issues of federal law (although it would also give "special consideration" to Ninth Circuit law). With respect to issues of state substantive law, including choice-of-law rules, California law is binding because the case was transferred from the district court in California.

The court first considered whether application of California law to the state antitrust claims is constitutional and determined that application of California law does not violate the Due Process Clause. California has a "significant aggregation of contacts" with the plaintiffs’ state antitrust claims. Three of the plaintiffs were headquartered in California, one manufacturer was headquartered in California, and some portion of the plaintiffs’ purchasing entities headquartered in California purchased drywall. The alleged conspiracy took place in part in California. For example, through phone calls between employees and executives of the defendants who lived and worked in California. Application of California law also does not violate the Commerce Clause because plaintiffs and/or their purchasing entities headquartered in California purchased drywall during the relevant time period.

The court then considered whether the laws of the states of purchase should apply under California’s choice-of-law rules. California law differs materially from the laws of the non-repealer states. With respect to repealer states, there are differences but they are not material. For example, treble damages are unavailable in the repealer states of Florida and New Mexico, but that difference is not material to the state antitrust claims. Therefore, California law will govern as to state antitrust claims made by plaintiffs who were headquartered in repealer states. For non-repealer state, the court went on to consider each state’s interest in having its own law applied. California has a well-documented, articulated interest in applying the Cartwright Act and there is disagreement amongst district judges in California regarding whether non-repealer states are interested in denying their citizens recovery for antitrust violations committed by out-of-state defendants. The court determined that it could not reach a conclusion on the issue of whether there is a true conflict between the interests of California and the non-repealer states, because the parties did not adequately brief the interests of non-repealer states in which plaintiffs were headquartered. Therefore, the court will require future briefing on the issue to determine choice-of-law issues for non-repealer states.

This case is No. 2:13-md-02437-MMB.

Attorneys: Brian R. Strange (Strange & Butler Law Office) for Ashton Woods Holdings L.L.C. Sundeep K. Addy (Bartlit Beck Herman Palenchar & Scott) for USG Corp.

Companies: Ashton Woods Holdings L.L.C.; USG Corp.

MainStory: TopStory Antitrust PennsylvaniaNews

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