City of Tuscaloosa v. Harcros Chemicals, Inc.

The city of Tuscaloosa and other municipalities in Alabama (collectively, the municipalities) (plaintiffs) purchased chlorine to treat water. Harcros Chemicals, Inc., and four other chemical companies (collectively, the chemical companies) (defendants) sold and distributed chlorine to the municipalities through submitted bids or other price negotiations. The municipalities believed that the chlorine industry was an oligopoly that engaged in price-fixing throughout the bidding process. The municipalities filed a lawsuit against the chemical companies in federal district court, alleging they violated § 1 of the Sherman Act by forming a horizontal agreement to restrain trade by exchanging price information and concealing their collusion. At trial, the municipalities presented testimony from several expert witnesses to support their claims, including economist Dr. Robert F. Lanzillotti and statistician Dr. James T. McClave. Lanzillotti had no direct information about the actions of the chemical companies. Rather, Lanzillotti based his testimony on bidding patterns and concluded that in oligopolistic markets, sellers can easily engage in collusive activity to fix prices. Lanzillotti argued that the chemical companies were engaged in tacit collusion or conscious parallelism, relying on a single law-review article that proposed the theory. McClave performed a statistical analysis on data used by Lanzillotti to argue that the chemical companies’ allegedly collusive behavior raised chlorine prices. McClave also incorporated Lanzillotti’s theory of tacit collusion to conclude that the chemical companies engaged in illegal behavior. The chemical companies filed motions for summary judgment, arguing that the municipalities had no evidence to support their theory and that the expert testimonies presented by the municipalities should be excluded under the Daubert standard.