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Jury to Decide Dow Price-Fixing Case

Wednesday, January 30, 2013

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Eight years after the suit was filed, Dow Chemical Co. is preparing to defend itself before a federal-court jury over allegations that it participated in a urethane price-fixing conspiracy with other companies.

Dow is the only company still defending itself in the billion-dollar case, which dates to 2005. All of the co-defendant companies have settled.

The lawsuit alleges that Dow and its competitors began fixing prices for urethane chemicals by 1999, when the market was falling and the industry had excess demand. According to the plaintiffs, who are direct purchasers of the chemical products, the alleged conspiracy to keep prices high lasted into 2003.

A jury will decide whether Dow Chemical participated in a urethane price-fixing conspiracy from 1999 to 2003.

The trial, in federal court in Kansas City, KS, was expected to last five to seven weeks.

Damages against Dow could exceed $1 billion, according to some estimates. However, the final judgment could exceed $3 billion because awards are tripled under federal antitrust law.

Plaintiffs' witnesses are expected to include executives of other companies allegedly involved in the conspiracy.

Dow previously motioned to exclude testimony by two experts, and the motions were denied in a Dec. 21 ruling. The company's motion papers and those submitted in opposition were filed under seal.

Previous Settlements

Dow is the only company that hasn't settled with the purchaser plaintiffs. Bayer AG, BASF SE, Huntsman International LLC, and Lyondell Chemical Co. were also originally sued.

Dow, BASF, Hunstman, and Lyondell were first sued in federal court in New Jersey in 2005. The case was transferred to Kansas City that year as part of a multidistrict docket involving more than 60 plaintiffs.

In 2006, Bayer AG agreed to pay $55 million; Huntsman International LLC agreed to pay $33 million in 2011; and BASF Corp. agreed to pay $51 million in 2011. Lyondell Chemical Co. settled without paying damages because it was under bankruptcy protection. None of the companies that settled admitted any wrongdoing.

Judgement Denied

Last month, U.S. District Judge John W. Lungstrum denied a motion for summary judgment in Dow's favor, ruling that the purchasers' claims of conspiracy from 1999 to 2003 were sufficient to allow a jury to decide the case.

Dow has denied the price-fixing allegations, according to the court's ruling.

In that ruling, Dow was denied summary judgment on the horizontal price-fixing conspiracy claim where testimony from employees of alleged conspirators was direct evidence of a conspiracy, and the direct evidence was supported by circumstantial evidence of a conspiracy. The judgment was also denied on Dow's argument that certain claims were time-barred.

"Each piece of evidence supports the other, such that a reasonable jury could find that an agreement existed," Lungstrum wrote in his ruling, citing testimony from Dow and Bayer executives.

Facebook / The Dow Chemical Co.

Dow has maintained that it never entered into a price-fixing conspiracy. It is the only company, of multiple co-defendants, that hasn't settled yet.

In the Dec. 18 ruling, Dow had suggested that the alleged conspiracy was not economically plausible because prices actually fell or were flat during the alleged conspiracy period, while costs for the key constituent elements of the products rose at the same time.

The court rejected the argument, concluding that the alleged conspiracy was economically plausible and the structure of the industry—"a highly concentrated oligopoly with high barriers to entry and homogeneous commodity products without close substitutes"—could be a motive to enter a price-fixing conspiracy.

Plaintiffs' Conspiracy Evidence

Plaintiffs submitted direct and circumstantial evidence of a conspiracy in the earlier motions, including:

  • Testimony by Dow's Global Business Director for MDI and related polyols from 2000 until early 2004 about meetings Dow had with competitors to set prices and make price increases stick and other conversations;
  • Testimony provided by Bayer employeers about meetings related to price-fixing agreements among competitors;
  • Evidence that the alleged conspirators announced price increases simultaneously or within a very short time period;
  • Evidence of a "great number" of communications (e.g., text messages, emails, memos), meetings, and vacations involving the competitors, including communications involving pricing, that involved high-ranking executives who could influence pricing of the products;
  • Evidence that the alleged conspirators undertook to maintain secrecy of their communication;
  • Evidence that on particular occasions the alleged conspirators acted in a manner that would have been contrary to their own interests absent a conspiracy; and
  • Expert opinion evidence that prices were supra-competitive, or higher than they would have been absent agreement, during the alleged conspiracy period.

Dow disputed much of the evidence and stressed that all of the alleged participants have denied entering into a price-fixing agreement.

Dow said that executive meetings and communications during which the alleged scheme was discussed were "justified by legitimate business reasons," Lungstrum said. Dow also said it provided proof that the company and other alleged conspirators engaged in competitive conduct.

Executive Communication

Several examples of communications among executives about the alleged price-fixing conspiracy that the plaintiffs submitted were listed in the court documents from Dec. 18. A few examples include:

  • A few days after a golf outing together in August 1999, Bayer's Hans Kogelnik (predecessor of Larry Stern, head of polyurethanes from April 2000 through December 2002) left a telephone message for Bill Bernstein (BASF) stating "Sept. increase—where, who, why."
  • On June 22, 2000, Bob Wood of Dow met with Bernstein of BASF; on June 26, 2000, Rick Beitel of Dow played golf with Robert Kirk of Bayer; and on June 26, 2000, Beitel prepared an internal memo that mentioned support from BASF and Bayer for price increases.
  • In August 2000, Bernstein made notes about aggresive pricing by Bayer, including the following: "Call Dow / prices not up in August." A Dow email dated three days later stated that Dow was leaving BASF alone because BASF was supporting increases.
  • In March 2001, in an internal email, Bernstein wrote that he was trying to determine Huntsman's response to a price increase, but that they had not yet "connected." That same day and the following day, before and after the email, while he was on vacation, Bernstein placed eight calls to Tony Hankins of Huntsman. The following day, BASF and Huntsman announced price increases identical to Dow's increase.


Tagged categories: BASF; Bayer; Dow Chemical Company; Laws and litigation; Lawsuits; Urethane

Comment from Shyamala Rajagopalan, (1/30/2013, 9:23 AM)

What is it about golf and business (unethical) dealings? I thought serene environment will help one with clear thinking mind.

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