Chicago Wars Heating up for Summer; KSA Responds to Force Partners

June 15, 2020 [addtoany]

EXCLUSIVE:  MUST CREDIT EDISONREPORT.  KSA Lighting has responded to the suit brought by Force Partners in Chicago.   The original complaint named KSA Lighting & Controls, Acuity Brands, Jim and Ashley Williams (according to the complaint, “a flashy and flamboyant couple”) as defendants.  Force Partners represents many lighting companies including Cooper Lighting Solutions.

Your humble editor is not a lawyer, nor does he pretend to be one on TV. Below is an attempt to describe the major issues in the case.  However, to fully understand the litigation in its entirety, it is best to read the original complaint (27 pages) from 19 DEC and KSA’s complete response (36 pages.)

Complaint:  There is a multifaceted conspiracy between Defendants KSA, Acuity Brands, Jim Williams, and Ashley Williams to force distributors to boycott Plaintiff Force Partners, and force this competitor of KSA, and the brands it represents, out of the relevant greater Chicagoland market.

Defense:  At the outset, Count 1 should be dismissed because the so-called “co-conspirators”—KSA, its owners, and Acuity—are closely related individuals and entities that cannot legally conspire with each other. The Individual Defendants are officers and owners of KSA, and therefore, constitute a single enterprise.  (members of medical staff could not conspire with hospital, or each other). To that end, Jim and Ashley Williams—as officers of KSA—cannot legally conspire with KSA under the Sherman Act. Nor can any of the KSA Defendants conspire with Acuity because KSA is Acuity’s closely related sales representative.

Complaint:  The relevant customers in this market are approximately 24 distributors who purchase lighting and control products both for C&I projects to sell to end-users. These distributors have reported a series of lies, threats, and coercions that led to the reluctant conclusion that these distributors must agree with the demands of the Defendants or risk losing access to the brands controlled by Defendant KSA, including Acuity, which is the largest lighting manufacturer in North America.

Defense:  KSA’s authorized distributor program provides all distributors the option of being “Partners” or “Associates,” giving distributors the choice of how much commitment they wish to make. But at no time did—nor is it alleged that—KSA ever refuse to deal with a distributor who wished to continue doing business with Plaintiff. Accordingly, Plaintiff’s allegation in Paragraph 119 is factually inconsistent with its other allegations, and does not plausibly state a “group boycott” claim.  KSA has every right to unilaterally offer authorized distributor programs, just as it has every right to deal with only those distributors that follow its terms.

Complaint:  Starting in August 2019, Force Partners began hearing troubling stories about secretive PowerPoint presentations made by Jim and Ashley Williams – and in at least one case by Acuity’s Senior Vice President of Sales John Mabbott – to approximately 24 distributors, who represent as much as 90% of Force Partners’ sales and are the most significant distributors in the greater Chicagoland market. These PowerPoint presentations, which distributors reported appeared to have been prepared by both Acuity and KSA, reportedly called on distributors to cease (or severely limit) doing business with Force Partners based on a lie: that Force Partners was making sales directly to down-stream users like general contractors and end users, and thus denying distributors their margin on such sales.

Defense:  Far from a “conscious commitment to a common scheme,” KSA is accused of making presentations and offering distributors an opportunity to join an authorized distributor program—not an illegal, conspiracy involving Acuity. Plaintiff alleges that KSA offered distributors the option to become “Partners” with KSA and that some unknown number of distributors chose to participate, meaning those distributors would receive KSA’s best prices and services in exchange for allegedly curtailing their business with other sales representatives. But offering authorized distributor programs to customers is the very opposite of anticompetitive—it demonstrates competition by cutting prices.

That statement, even if made and somehow viewed as “disparaging,” is not actionable. Disparaging statements of a competitor fall “outside the reach of the antitrust laws, however critical they may be of a competitor’s product or business model.” The Seventh Circuit has explained that “claims based on one competitor’s disparagement of another should presumptively be ignored” in evaluating antitrust claims.

Neither of these sentences are disparaging, and neither state a claim under the IUDTPA. That statute only prohibits a person engaged in his or her business from disparaging the goods, services, or business of another by false or misleading representation of fact.  Despite the statutory language, Illinois courts have repeatedly held that claims require a plaintiff to allege that a defendant published untrue or misleading statements that disparaged the plaintiff’s goods or services.” (“The statements, however, must specifically disparage a product or service and not just attack the reputation of the business or the person selling it.”) Here, there is no allegation that KSA disparaged Plaintiff’s goods or services.

Moreover, a statement is “considered commercially disparaging” only if it “accuse of outright dishonesty or reprehensible business methods in connection with his goods.” At worst, KSA’s alleged statement suggests that Plaintiff used an alternative sales channel. This in no way suggests “outright dishonesty or reprehensible business methods.”

Complaint:  Lighting products distributors in the greater Chicagoland market are not exclusive. In order to best meet the needs of its customers, they carry the products of a number of manufacturers in their inventory and also source products on a custom basis for “spec” commercial and industrial projects. The scheme proposed in the KSA/Acuity PowerPoint presentation meetings in August was that if the distributors wanted to continue doing business as usual with KSA (and Acuity and the other brands it represents) they would have to agree to be “Partners” with KSA. To be a “Partner,” distributors had to agree to curtail working with Force Partners and their brands, which included Eaton Lighting (also known as Cooper Lighting Solutions), a significant competitor to Acuity. Specifically, distributors were told that they would have to rig bids to ensure KSA won commercial or industrial spec projects; and those distributors who also carried Force Partners’ brands’ products on their shelves were told it had to be removed – all by October 1, 2019. Any distributor who did not agree to be a “Partner” would be deemed an “Associate,” and would not get KSA’s “best prices” – meaning they would not be able to get KSA’s brands’ product at a viable price.

Defense:  The crux of that claim is that KSA offered distributors the option to become “Partners” with KSA, meaning those distributors would receive KSA’s best prices and services in exchange for allegedly curtailing their business with other sales agents. Plaintiff calls this an “unwritten agreement.” Wrong—a unilateral invitation to each distributor does not constitute any type of an agreement, much less an antitrust violation.  The Seventh Circuit has explained that inducing dealers to follow a supplier’s exclusive dealing policy or guideline—and even terminating business with non-compliant dealers—does not create an actionable agreement under Section 1. The FAC implicitly acknowledges the illusory nature of these unwritten “agreements” by noting that the parties would “have no contractual recourse” in the event a party breaches the “agreement.” Put simply, KSA can unilaterally impose any policy it wishes on its distributors—irrespective whether they constitute what Plaintiff terms as an “abusive” tactic. Regardless of the hyperbole Plaintiff uses, it cannot make the leap that KSA’s offer to distributors to join its authorized distributor program constitutes an agreement with distributors to boycott.

To the contrary, providing incentives to distributors—including “best prices” and “services”—represents robust competition, not a conspiracy in violation of Section 1.

Complaint: Starting in September, after months of upward sales momentum, Force Partners began to see its sales drop significantly, suggesting the scheme has been implemented and has started to produce the intended effects. KSA’s CEO has told distributors it will enforce its demands, starting with inspections of the inventory of those distributors who carry Force Partners’ brands in their physical branch locations, to ensure they have been removed.

Defense:  Unhappy with its business prospects, Plaintiff brought this action to prevent KSA from offering a new incentive program to those distributors. Despite Plaintiff’s groundless allegations, that program, designed to offer KSA’s “best prices” and “services” to distributors, has yet to even be implemented. But rather than compete on price or service, Plaintiff—a self-described three-year old “new entrant” has preemptively condemned KSA’s program as part of an alleged “multifaceted conspiracy” designed to “monopolize” the market. While these claims are baseless on their face, “the antitrust laws were passed for the protection of competition, not competitors.”

One very curious comment on page 12 of the original complaint speaks about the defendants in very personal terms,  “The Williamses, a flashy and flamboyant couple who in 2016 were married at the Trump Hotel in Chicago…”  I cannot find any legitimate reason for this to be included in the litigation.

Editor’s Note:  EdisonReport is owned and operated by Randy Reid, who also owns LumEfficient Lighting. LumEfficient is represented in Illinois and Indiana by KSA Lighting & Controls.