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Landmark CHEP Antitrust Case Takes Big Step Forward
CHEP Lawsuit: Antitrust lawsuit brought by recyclers against CHEP advances as a federal judge denies CHEP’s motion to dismiss the case; next the court will decide if the dispute should be designated a class action lawsuit.

By Chaille Brindley
Date Posted: 9/1/2008

The first antitrust lawsuit filed against CHEP in the United States cleared its first big hurdle last month. A federal judge for the western district court of Arkansas denied CHEP’s motion to outright dismiss the case. 

   Judge Robert Dawson concluded that there was justification to allow the case to continue. Now the court must decide if it can certify the class, the second major legal hurdle before the case could go to trial.

   A big win for pallet recyclers, now the landmark case moves one step closer to the court room. Filed earlier this year by a coalition of pallet recyclers, they are seeking fair compensation for their services as well as protection to keep CHEP from taking similar actions in the future.  This could be the most significant case in the history of the industry.

   The outcome of this lawsuit could have major ramifications for CHEP as well as the entire pallet industry. If the class gets certified, the outcome of the case could provide a remedy to any recycler that has returned CHEP-marked pallets to CHEP.

   The complaint alleges that CHEP has used monopolistic practices to unlawfully transfer a portion of its business operational costs onto pallet recyclers. They also contend that CHEP’s actions have created an unfair market situation that lowers its costs while increasing that of its rivals. The plaintiffs further claim this has developed a barrier to entry for new companies, which has stifled free market competition.

   Jim L. Taylor, president of Best Pallets Inc. of Fort Smith, Ark., said, “This order by Judge Dawson clearly shows that he understands the key issues as they relate to  CHEP’S abuses of pallet recyclers and its market manipulation tactics.”

   Best Pallets is the lead plaintiff in this case. Jim Taylor started the Web site www.chepclassaction.com more than a year ago and has worked tirelessly to put together a coalition of recyclers that would challenge CHEP

   Best Pallets along with ITNOLAP Pallet & Crating Inc. of Murfreesboro, Tenn., Pallet Express Inc. of Greensboro, N.C., and Goeman’s Wood Products of Hartford, Wis. have brought this lawsuit on behalf of all recyclers in the United States.

   Herbert Schwartz, the lead attorney for the recyclers, said, “This is the first step, but it is a very significant one. This is a major win because we are going up against one of the top law firms in the country.”

   CHEP has been accused of violating the Sherman Antitrust Act, which makes it unlawful to attempt to monopolize any part of interstate commerce. Specifically, the recyclers had to show that there was enough justification to move forward with the case.  This requires that a defendant has potentially (1) engaged in predatory or anticompetitive conduct with (2) a specific intent to monopolize and (3) a dangerous probability of achieving monopoly power.

   Dawson wrote in his decision, “Plaintiffs allege that CHEP embarked on pallet leasing program knowing that the consequence would be the widespread loss of its pallets. By design, CHEP allegedly permitted its pallets to come into the possession of pallet recyclers, thereby utilizing their established pallet-collection network for its own benefit without providing adequate compensation. By not bearing the collection costs associated with its leasing program, CHEP allegedly gained long term pricing advantage at the expense of recyclers.”

   CHEP disputes that it has done anything wrong and has hired a top law firm to defend itself.

   Brian Beattie, senior vice president of marketing for CHEP, said, “CHEP rejects these claims and will vigorously defend itself. We are committed to a policy of strict compliance with the relevant competition laws everywhere we operate.”

   Brian was clear to point out that the outcome is far from over. He said, “CHEP is disappointed with the court’s decision on the motion to dismiss. That ruling has no impact on the underlining merits of the complaints. CHEP continues to believe that the complaint has no merit.” He added, “While the complaint seeks class action status, no class action has been certified at this time.”

   Although the judge has yet to rule on any of the evidence in the case, it at least appears that he has a good grasp of the recyclers’ claims and the basis for the antitrust lawsuit.

   Dawson concluded, “The plaintiffs allege a national market for pallets, a product which they describe as completely fungible. They further allege that CHEP is the largest pallet producer in this market and that the Accelerated Volume Program has rapidly increased CHEP’s customer base. These facts—considered in light of CHEP’s alleged ability to shift its own costs to the pallet recyclers and thereby create a pricing differential—are sufficient to allege a realistic probability of monopoly power.”

   Although CHEP has encountered other cases in the past, this is the first class action lawsuit brought on behalf of pallet recyclers. Unlike previous cases in Georgia and Ohio, this new lawsuit focuses mainly on antitrust concerns and not questions of proprietary pallet ownership, property abandonment or unjust enrichment.

   Class action status presents a whole new situation for recyclers because previous legal efforts focused on only one or two companies. Those served as primarily legal precedent that could have been relied on in further litigation. This lawsuit could apply to the entire industry if the court certifies it with class action status. If certified, the lawsuit would apply to any recycler in the lower 48 states that has received CHEP pallets under the normal course of business in the past four years. Companies are free to decide whether or not to participate in the outcome. More information will be provided as it becomes available. You can find out more by visiting the class action Web site at www.chepclassaction.com.

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