Court documents filed in Ohio have outlined some of the background to a successful Canadian prosecution of a polyurethane cartel involving 12 companies. The documents are available from the United States District Court for the Northwestern District of Ohio Western Division.
The Carpenter Co; Crest Foam Industries Inc; Domfoam International, Inc; Flexible Foam Products Inc; FXI-Foamex Innovation, Inc; Future Foam Inc; Hickory Springs Manufacturing Co; Inoac International Co Ltd; Inoac USA Inc; Mohawk Industries, Inc; Ohio; Decorative Products, Inc; Otto Bock Polyurethane Technologies Inc; Plastomer Corporation; Leggett & Platt Inc, Scottdel Inc; Valle Foam Industries Inc; Vitafoam Products Canada Limited; Vitafoam, Inc; Woodbridge Foam Corporation; Woodbridge Sales & Engineering Inc; Woodbridge Foam Fabrication, Inc and were all named as defendants in the action. According to council for Legget & Platt, which denies the allegations and plans to vigorously defend itself, the matter is likely to come to trial in this case in December this year or early 2014. Plastomer Corporation and its staff have been dismissed from the proceedings without prejudice.
The plaintiffs were 17 individuals and trade purchasers for international hotel chains who claimed to have bought “products containing flexible polyurethane foam manufactured or distributed by one or more the defendants.
The class action has led to Vitafoam and Domfoam setting up a website and offering to pay at least $5m to settle their part in the class action. The website at www.flexiblepolyurethanefoamsettlement.com gives details. The court in Ohio agreed that this was a suitable settlement for Vita and Domfoam to make on 21 June 2013. A further 779 companies in the US have excluded themselves from the settlement. This gives them the option to pursue the companies separately. It is not clear what will happen to the other defendants in the class action.
How it came to light
Vitafoam went to the Competition Bureau of the Canadian Government voluntarily in February 2010 “to self-report” evidence of illegal antitrust activities amongst itself and other companies… and to seek acceptance into the Antitrust Division’s Corporate Leniency programme. By admitting that it had been involved in price fixing and being the first to tell the DOJ, Vitafoam became immune from criminal prosecution.
The Canadian Bureau obtained wire tap authorisations and raided five sites.
According to the Ohio documents: “Defendants established a practice where they would communicate and reach an agreement or understanding on the percentage and timing of price increases and market allocation in the sales and supply of polyurethane foam.”
Trade associations cleared
Although the meetings “often coincided with the bi-annual meetings held by the Polyurethane Foam Association, the International Sleep Products Association and Surfaces “a trade group that includes polyurethane carpet backing,” according to the Ohio document. The Ohio document, clearly states that “discussions took place outside of the formal meetings”.
People working for the defendants “would avoid detection by communicating through the fax machines at a local Staples or other store so that the identification of the sender would be hidden on the fax transmittal, says the Ohio document.
The Ohio document adds, “Defendants viewed price fixing as necessary because, if defendants did not increase their foam prices by the same percentage amount at around the same time period the attempted price increase would fail.”
The document alleges that sales people at Vitafoam in the US were instructed by senior management to send draft letters detailing price rises to their competitors and obtain their competitors’ drafts. Senior managers at Vita also used phone conversations and email to ensure that the price rises were agreed but to police the conspiracy and ensure compliance, says the document.
The Ohio document also alleges that “former Vitafoam executives and the Defendants agreed to avoid each other’s customers and refrain from taking business or market share from one another.”
The Canadian Competition Commission interviews included retired Vitafoam staff.
The defendants to the Ohio class action were named in a statement to support a search warrant by Pierre-Yeves Guay of the Commissioner of Competition in Canada on 21July,2010 which named the 12 companies that later found themselves in court in Ohio defending the civil class action in the US. The Ohio document, names 13 people in including president, vice-president sales and executive vice-president automotive at the companies.
The Ohio document also claims that defendants also violated the Clayton and Sherman Acts, two of the most important pieces of federal antitrust legislation in the US and a total of 23 state antitrust laws, 18 state laws relating to consumer protection and unfair competition and 25 individual state laws covering unfair enrichment.
The agreement reached with the court in Ohio covers Domfoam and Vitafoam.
Key documents and links
The Ohio document
The Court’s acceptance of Vitafoam and Domfoam’s class action compensation plan.
Full Ohio court documentation relating to the case
What to expect
If your company is suspected of operating in an anti-competitive way you may expect in some jurisdictions to find
- Your telephone calls and faxes are intercepted by the authorities
- Your offices entered by the police supporting the competition authorities
- Your senior management and staff at all levels to be interviewed by the competition authorities
- You may be named personally in a criminal or civil court case
- Your businesses’ reputation will suffer
- Legal costs
- Compensation payments to customers
- Criminal fines and possible imprisonment