United States District Court, M.D. Louisiana
CLEAN WATER OPPORTUNITIES, INC. D/B/A ENGINEERED POLYURETHANE PATCHING SYSTEMS
THE WILLIAMETTE VALLEY COMPANY
RULING AND ORDER
W. DEGRAVELLES, JUDGE UNITED STATES DISTRICT COURT.
the Court is a Motion to Dismiss the Amended and Restated
Complaint (“Amended Complaint”) for Failure to
State a Claim filed by Defendant The Williamette Valley
Company (“Defendant”). (“Motion, ”
Doc. 40). Plaintiff Clean Water Opportunities, Inc., d/b/a
Engineered Polyurethane Patching Systems
(“Plaintiff”) has filed an Opposition, (Doc. 48),
and Defendant has filed a Reply in further support of the
Motion, (Doc. 51).
reasons discussed below, the Motion is granted, and this
action will be dismissed.
PLAINTIFF'S ALLEGATIONS AND PROCEDURAL
action concerns Defendant's alleged monopolization of the
market for “patch, ” a product used to fill
imperfections in mill-produced plywood. (Doc. 34 at 2-3).
Patch is applied to sheets of plywood traveling down a
conveyor belt at the rate of six to twelve sheets per minute
and is applied by an employee using a “patch gun,
” which is a handheld piece of equipment that mixes the
two components of patch. (Id. at 3). Patch is sold
to manufacturers on a per-gallon basis, but, as part of the
price, the seller provides and services patch application
American Plywood Association (“APA”) is an
industry-based governing organization that sets standards for
different grades of plywood. (Id.). The APA also
produces a guide for synthetic repairs that includes repair
using patch. (Id.). The APA allows two other types
of “veneer repair, ” namely “wood
plug” and “wood dough” or “wood
putty” repair. (Id. at 4). Wood plug repair
requires that imperfections be punched out and ultimately
re-inserted in sheets of plywood by hand, while wood dough
repair's mechanical and reliability limits “render
it ‘not approved' for the majority of defects
commonly found in panel faces today.” (Id.).
Wood dough repair also requires long drying time and may
leave “residual cracks.” (Id.).
Therefore, according to Plaintiff, “there are no market
substitutes for patch.” (Id.).
is a “disbursed suspension” with a functional
shelf life of two to four weeks. (Id. at 5). This
shelf life shortens when the suspension is agitated,
“like it would be while being transported in a
semi-bulk container on a flat-bed trailer (the standard
method of delivery).” (Id.). Between
patch's limited shelf life and the requirement that a
patch seller service patch application equipment (including
on an emergency basis), Plaintiff contends that the relevant
geographic market in this action includes patch users within
a five-hundred-mile, six-hour drive radius around Baton
Rouge, Louisiana. (Id. at 5-6). This corresponds
with a “Southern Market” for patch allegedly
“defined” by Defendant, which includes east
Texas, Louisiana, Mississippi, Alabama, southern Arkansas,
and the Florida panhandle. (Id. at 5).
is the sole supplier of patch in the continental United
States. (Id. at 6). Defendant installs patch
application equipment where patch is sold, but it does not
allow others to purchase the equipment, which is not
commercially sold, nor will it supply data to others on how
to build it. (Id. at 6-7). Additionally, only two
companies have the equipment to make patch “mixing
tubes, ” and, to purchase them at a low enough price to
be competitive, a supplier “would have to purchase a
minimum of 10, 000.” (Id. at 7). One component
of patch is a “non-standard” formula within the
polyurethane industry that a new manufacturer would need to
develop independently, and this component must meet numerous
performance standards. (Id.). The other component is
available “off the shelf” but there are
“hundreds of varian[ts]” that a potential
supplier would need to try, and the component is costly to
store and ship. (Id. at 7-8).
patch, raw materials must be purchased, and these raw
materials must be obtained at competitive prices to make the
sale of patch economically feasible. (Id. at 8).
“[S]ome of the better choices in raw materials”
are also “essentially unavailable” because
Defendant uses them. (Id.).
supplier must also have APA approval to operate in a mill,
and approval to operate industry-wide is contingent upon
three tests of a supplier's patch and equipment at three
different mills. (Id. at 8-9).
also alleges, “perhaps most importantly, ” that
the “mere suggestion” that Defendant will no
longer supply patch to a particular mill will, “in
virtually all cases, ” be sufficient to stop a mill
from using a different supplier. (Id. at 9).
1990, Plaintiff's principal owner, David Edwards, entered
into the business of supplying patch to mills.
(Id.). At that time, there were several companies in
the market for providing patch; however, by 1997 or 1998,
only Edwards's former company and Defendant remained.
(Id. at 10). In 2000, Defendant bought Edwards's
former company, which was then enjoying 10 to 15 percent
market share, and Edwards signed a ten-year noncompete
either by Defendant raising prices or by mills becoming
concerned about Defendant's monopoly, a competitor
entered the market nine months after Defendant first
established its monopoly. (Id.). The competitor was
“viable” for about a year before Defendant bought
it out. (Id.).
three years after the noncompete agreement ended, Edwards
began developing and selling patch through Plaintiff, his new
company. (Id.). Edwards reentered the market after
observing that, while he had been out of the market, the cost
of patch components had risen fifty percent but the selling
price of patch had risen 250 percent. (Id. at
10-11). He also thought the industry would “embrace a
second source” for patch and believed he could make
cost-saving technological improvements to patch application
equipment. (Id. at 11).
2014, Plaintiff entered into a production contract with
MARTCO, a plywood manufacturer, under which Plaintiff would
provide patch and application equipment for one of two
production lines at MARTCO's plant. (Id.). At
that time, Plaintiff was selling patch for $15 per gallon and
Defendant was selling patch for $17 per gallon.
(Id.). At some point, MARTCO advised Plaintiff that
Plaintiff would be permitted to take over a second production
line if Defendant did not lower its prices. (Id. at
12). Plaintiff “encouraged” MARTCO to allow it to
sell patch on both lines and offered a five-year contract at
$12.90 per gallon. (Id.).
then offered MARTCO “substantial discount[s]” on
all items Defendant sold MARTCO, including ones that did not
use patch, with the contingency that MARTCO purchase all
patch from Defendant and for the purpose of undercutting
Plaintiff. (Id.). Plaintiff “reasonably
believes and avers that, ” when these discounts are
considered, MARTCO was buying patch at a price below
Defendant's variable costs of production. (Id.
also offered MARTCO a discount but was advised that it would
be unable to match Defendant's discount. (Id. at
13). In a meeting between representatives of MARTCO and
Plaintiff, MARTCO assured Edwards that it was protected
“long term.” (Id.). MARTCO terminated
its relationship with Plaintiff and required Plaintiff to
remove its patch application equipment by April 23, 2015.
(Id.). Plaintiff believes that similar discount
agreements were accepted by two other manufacturers with
which Plaintiff had been in discussions about supplying
patch. (Id. at 13-15).
2015, because it had been unable to enter into sales
agreements with patch customers and Plaintiff was not
“financially viable, ” Plaintiff's assets
were sold to Defendant. (Id. at 15-16).
claims that, based on the prevailing price of patch when
Defendant last had significant competition, the current
competitive price of patch should be around $10 per gallon,
not the $17 per gallon actually charged. (See Id. at
16). This difference is passed on to plywood consumers.
(Id. at 17).
claims that Defendant engaged in illegal conduct to maintain
its monopoly, including predatory pricing, threatening
termination of its relationships with mills that did business
with Plaintiff, and an unlawful merger. (Id. at
17-18). Plaintiff alleges violations of the Sherman Antitrust
Act, 15 U.S.C. § 2; the Clayton Antitrust Act, 15 U.S.C.
§§ 4, 7; and the Louisiana Antitrust Statute, La.
R.S. 51:122, 51:123, 51:124(A). (Id. at 18-20).
original Complaint raised many of the same claims. The Court
dismissed the Complaint on March 30, 2017, ruling that
Plaintiff had failed to address barriers to entry to the
market for patch and sufficiently define the relevant market,
both in geographic terms and in terms of possible substitutes
for patch. (Doc. 33 at 4-7, 9). The Court also granted leave
to amend “to the extent Plaintiff finds it necessary to
amend its complaint to specifically allege how
Defendant's conduct was unlawful.” (Id. at
9). The Court further observed that Plaintiff's
“illegal acquisition” claim could not be
maintained absent its other claims, as Plaintiff was required
to show that Defendant's anticompetitive conduct was the
but-for cause of Plaintiff's acquisition. (Id.
Johnson v. City of Shelby, Miss., --- U.S. ---, 135
S.Ct. 346 (2014), the Supreme Court explained that
“[f]ederal pleading rules call for a ‘short and
plain statement of the claim showing that the pleader is
entitled to relief, ' Fed.R.Civ.P. 8(a)(2); they do not
countenance dismissal of a complaint for imperfect statement