Duluth soaked by supplier? City joins suit that alleges bid rigging for water treatment chemical

DULUTH -- The city of Duluth has joined a class-action lawsuit alleging that it was overcharged by suppliers who rigged bids and colluded amongst themselves to fix the price of a commonly used water treatment chemical.

DULUTH - The city of Duluth has joined a class-action lawsuit alleging that it was overcharged by suppliers who rigged bids and colluded amongst themselves to fix the price of a commonly used water treatment chemical.

Earlier this month, Duluth became the third party to sign on to a complaint filed by Lockridge Grindal Nauen P.L.L.P., a Minneapolis-based law firm that has accused the makers and purveyors of aluminum sulfate of conspiring to artificially boost the price of their product, in violation of federal antitrust laws.
Duluth joins two other parties that already have signed onto the same class-action suit: the city of Rochester and the Metropolitan Council, which is the regional policy-making body, planning agency, and provider of essential services for the Twin Cities metropolitan area.
Joe Bruckner, an attorney and partner at Lockridge Grindal Nauen, said his firm is in discussions with other cities and private businesses that use alum to could join the suit.
Duluth buys thousands of gallons of liquid aluminum sulfate each year to treat the water it draws from Lake Superior. The chemical, often referred to simply as alum, helps reduce the turbidity of Duluth’s water supply. It acts to precipitate suspended solids and organic matter so the materials fall out and can be readily removed from the city’s tapwater.
The price Duluth pays for alum has risen sharply since the late 1990s. And there’s no apparent explanation why that would happen in a competitive market, City Attorney Gunnar Johnson said as he explained the rationale for joining in a lawsuit alleging external price manipulation.

Inside deals?
A criminal case brought by the U.S. Department of Justice against Frank A. Reichl, a former senior executive working in New Jersey for General Chemical Corp., one of the nation’s largest manufacturers of aluminum sulfate, could shine light on what’s been driving prices higher.
In October, Reichl signed court papers agreeing to cooperate with prosecutors and plead guilty to participating in a “conspiracy to suppress and eliminate competition in the sale and marketing of liquid aluminum sulfate by agreeing to rig bids and allocate customers for, and to fix, stabilize and maintain the price of, liquid aluminum sulfate sold to municipalities and pulp and paper companies in the United States from at least as early as 1997 and continuing until approximately July 2010.”
During about that same time frame, Duluth spent a total of more than $1.2 million on purchases of aluminum sulfate, and the cost of the chemical quadrupled.
A federal complaint filed by Lockridge Grindal Nauen notes the price of alum rose even as demand for the chemical softened and production costs remained stable or trended downward.
Bruckner said alum can be considered a commodity “in that one manufacturer’s product is not materially different from another’s, as long as it meets certain specifications.”
Ordinarily, he said, companies trading in a commodity should compete on price and service. But Bruckner said his clients allege that an agreement between players in the industry “short-circuited that price competition,” driving prices higher.
The class-action case Duluth has joined names Reichl and General Chemical as defendants along with a laundry list of others in the industry, including many as-yet-undisclosed players.
If the suit fails, Johnson noted that the city should sustain no financial loss; the costs will be borne by Lockridge Grindal Nauen.
Bruckner said class-action cases like the one Duluth has joined typically take “at least a few years to resolve.”

Much to gain
If Duluth and other plaintiffs prevail in their case, determining exactly how much any industry agreements drove up the price of alum will be subject to litigation.
“What we and our expert economists are going to show, is that had these producers competed, as they were supposed to, the price would have been lower. Had they competed on bids instead of colluding on bids the price would have been a certain specified amount lower. That’s what these customers, like the city of Duluth and the other plaintiffs, should have paid. But instead, they paid something higher than that. And that difference is the damages that the city of Duluth and all other members of this class suffered as a result of this conduct,” Bruckner said.
If a violation of federal antitrust laws is proven, the plaintiffs could be entitled to collect three times the damages they suffered as a result of the alleged collusion, plus any costs of bringing the case, including legal fees.

Related Topics: LAKE SUPERIOR
Peter Passi covers city government for the Duluth News Tribune. He joined the paper in April 2000, initially as a business reporter but has worked a number of beats through the years.
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