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A federal judge in Pennsylvania has ruled that California law applies to state law antitrust claims against the remaining defendants in a national litigation over drywall price-fixing.

U.S. District Judge Michael Baylson of the Eastern District of Pennsylvania on Monday denied a motion for summary judgment by defendants PABCO Building Products, United States Gypsum Co. and L&W Supply Corp. on the homebuilder plaintiffs' California-based claims against them.

The defendants argued that the law of the state where the plaintiffs' direct-purchasing entities are located should apply, as opposed to the law of California, Baylson said in his opinion. “In other words, defendants contend that California law should only apply to claims arising from purchases made in California.”

The defendants further argued that application of California law would violate the commerce clause by allowing the plaintiffs to recover for purchases made in states that have not repealed Illinois Brick v. Illinois.

In 1977, the U.S. Supreme Court held in Illinois Brick that indirect purchasers cannot recover damages from a manufacturer, while direct purchasers can. But currently, Alabama, Delaware, Georgia, Indiana, Kentucky, Louisiana, Maryland, New Jersey, Ohio, Pennsylvania, Texas and Washington are the only states not to have repealed use of the doctrine, Baylson said, noting that it remains in dispute whether the plaintiffs are direct or indirect purchasers.

The plaintiffs argued there is a presumption that California law applies nationwide under the due process clause, Baylson said, and because the defendants failed to overcome that burden, California law applies to all of the plaintiffs' claims.

Baylson ruled that California law did apply, since the claims were originally filed in the U.S. District Court for the Northern District of California.

The question then turned to whether the application of that law violates due process. Baylson looked to the Supreme Court's 1981 decision in Allstate Insurance v. Hague for guidance. In Allstate, the court held that an entity's ties to a jurisdiction can be established by a “significant contact or significant aggregation of contacts” in that jurisdiction.

“While defendants argue that plaintiffs have cherry-picked from the 663 relevant facts identified by the class plaintiffs to manufacture a significant contact with California, the record reflects that 'some portion' of defendants' alleged conspiratorial conduct took place in California during the relevant time period,” Baylson said. “As the parties' contacts with California exceed those in Allstate, the court need not reach any conclusions as to whether the facts cited amount to unlawful conspiratorial conduct to conclude that application of California law comports with the 'modest restrictions' imposed by the due process clause.”

Nor did the application of California law violate the commerce clause, Baylson said.

As for the choice-of-law question, Baylson said, “While defendants have identified differences between California law and the laws of a few other repealer states, as plaintiffs note, defendants do not explain how these differences are 'material' to plaintiffs' state antitrust claims. Without any analysis, the court cannot conclude that defendants have demonstrated that a true conflict would exist if California law were applied to claims arising from purchases in other repealer states.”

Joshua Ackerman of Bartlit Beck in Chicago represents USG and L&W Supply. Susan Adams of Locke Lord in Dallas represents PABCO. Neither responded to requests for comment.

Brian Strange of Strange & Butler in Los Angeles represents the plaintiffs and did not respond to a request for comment.