Suits Allege Price Fixing in Sales of Fittings for Municipal Water Systems

Suppliers of fittings used in municipal water piping systems, who already are in hot water with the federal government, are being named in a growing series of antitrust suits in federal court in Trenton.

The filings began days after the Federal Trade Commission initiated actions alleging price fixing against Sigma Corp., McWane Inc. and Star Pipe Products Ltd.

As of Wednesday, at least 16 federal actions had been filed in New Jersey, brought on behalf of municipal governments that indirectly did business with the defendants through distributors, the distributors themselves, and large cities such as Denver that buy directly from the suppliers.

In one class complaint, City of Hallandale Beach v. Sigma Corp., 12-cv-2259, filed Monday, the plaintiffs alleged that the three industry-leading companies colluded to artificially inflate and maintain prices for ductile iron pipe fittings.

The devices are used in water infrastructure projects to join pipes and direct the flow of water, among other things.

The defendants typically sell the fittings to wholesale distributors, who in turn sell them — along with the pipes themselves, valves and other products — to government entities. 

The companies, beginning in January 2008, began conspiring to increase prices, according to the plaintiffs.

Suspicious that Sigma and Star Pipe would not adhere to the increases, McWane allegedly demanded that the other two companies limit their discounts so they would not undersell McWane.

McWane made this demand in return for its support for the plan, the plaintiffs allege.

McWane, of Birmingham, Ala., announced increases in its published prices on Jan. 11, 2008. Sigma, of Cream Ridge, N.J., and Houston-based Star Pipe did the same.

That June, McWane again leveraged its support for the price inflations by persuading Sigma and Star Pipe to join in forming the Ductile Iron Fittings Research Association (DIFRA), the plaintiffs charged. The three allegedly began exchanging sales information via DIFRA.

The same month, McWane issued another price increase, as the other two followed suit.

Through January 2009, McWane, Sigma and Star Pipe allegedly continued “price coordination” through DIFRA by submitting the previous month’s sales figures to an accounting firm, which then combined the information and distributed reports to the companies.

The exchange “enabled each of the Defendants to determine and monitor its own market share and, indirectly, the output levels of its rivals,” the plaintiffs said.

According to the suit, a different scheme was hatched in February 2009, when Congress enacted the American Recovery and Reinvestment Act, commonly referred to as the stimulus package. The act dedicated several billion dollars to water infrastructure projects but required funding recipients to use materials produced in the United States.

McWane manufactures its products in the United States and at the time was the only supplier selling a full line of domestic pipe fittings.

Sigma tried to enter the domestic market, but McWane proposed a master distribution agreement to stifle competition, the plaintiffs charged.

They say the Sept. 17, 2009, agreement provided that McWane would sell Sigma its domestic products at a 20 percent discount and be its lone source of those products. The plaintiffs also alleged that Sigma then would resell the domestic fittings to distributors, so long as they agreed to buy exclusively from McWane or Sigma.

An “unwritten term” of the agreement required Sigma to sell McWane’s products at or near McWane’s published prices, the plaintiffs alleged.

This arrangement was made “with the specific intent to maintain artificially inflated prices … by eliminating competition among themselves and excluding their rivals,” the plaintiffs contend.

Also in June 2009, McWane allegedly kept Star Pipe out of the domestic market by threatening distributors with restricted access to domestic product and loss of rebates if they bought from Star Pipe. Those tactics worked, as distributors have continued to buy only from McWane and Sigma, the plaintiffs claim.

The FTC investigated and publicized the alleged schemes in the complaints filed on Jan. 4.

Sigma settled simultaneously by entering a consent agreement in which it promised to refrain from engaging in price fixing. The agreement did not impose monetary penalties or require an admission of wrongdoing. Star Pipe entered a similar consent agreement with the FTC on March 20.