Norfolk, Newport News settle with chemical firms
NEWPORT NEWS — Norfolk and Newport News have settled a federal lawsuit that accused several manufacturers of fixing prices for a chemical that’s widely used to purify public water systems.
Newport News Waterworks — which provides water throughout the Peninsula — got a $4.35 million payout; and Norfolk — which provides water in South Hampton Roads — got $2.07 million, according to city attorney’s offices in the two cities.
They were among a group of 19 localities — including nine in Virginia — to share $35.6 million in settlement proceeds from the chemical manufacturers stemming from a 2018 anti-trust lawsuit.
“I think it’s a good thing for all of the Waterworks customers — and Waterworks as a whole — to recover that money,” said Newport News Deputy City Attorney Robert “Bob” Pealo. The civil lawsuit followed a criminal case and mirrored a larger class action case filed by hundreds of water systems across the country. The litigation accused the chemical makers of gouging the localities between 1997 and 2011 on the price of aluminum sulfate, a mainstay chemical agent used to remove particles from water.
They did this by carving up the market and “allocating customers” rather than competing with each other on price, said Paul Calamita, an attorney with Aqualaw PLC, a Richmond firm that spearheaded the cases involving Newport News, Norfolk and 17 other jurisdictions along with the firm Ballard Spahr.
“So Company A would say to Company B, ‘Hey, we’ll stay away from this utility if you stay away from this other utility,’” Calamita said.
They schemed behind the scenes, he said, to send fake high bids to each other’s utility so the “winning” bid “looked more favorable.”
The federal lawsuit — first filed in U.S. District Court in Virginia and moved to New Jersey federal court in 2018 — cited communications between two of the companies in which executives talked about “keeping peace in the valley” and that it “would be better business for everyone to work together instead of competing and ruining the market price.”
Liquid aluminum sulfate is a chemical agent that “grabs onto dirt and debris so that it’s settled out,” Calamita said.
The $35.6 million amount was actually separate settlements paid out piecemeal over a year and a half, as the chemical makers signed deals one by one between January 2019 and July 2020.
Norfolk, Newport News, Lynchburg and Richmond, as well as Fairfax, Henrico and Chesterfield counties were among the plaintiffs. Also part of the group were Baltimore, a utility in the Washington suburbs, five jurisdictions in South Carolina and one each in Missouri and North Carolina.
Of Newport News’ $4.35 million payout, about $1.1 million went to attorney fees and costs. The rest, $3.26 million, came to the city, Pealo said. That entire amount went to Newport News Waterworks, given that they paid the bill in the first place. That special fund, Pealo said, was created to reflect that the water utility doesn’t provide water only to Newport News, but also to Hampton, York County, James City County, Williamsburg and elsewhere.
Norfolk Deputy City Attorney Adam Melita said Norfolk landed a settlement total of $2.07 million, and that the city’s net recovery — after attorney fees and costs — was $1.52 million. But in Norfolk’s case, he said, the money stayed with the city’s general funds and became “part of the overall budget.”
More than 40% of the $35.6 million in payouts came from General Chemical LLC, of Parsippany, New Jersey. In both Newport News and Norfolk’s case, documents show, another 20% of the payouts were from American Securities LLC, a private equity firm that later bought General Chemical.
This litigation was separate from a larger class-action lawsuit that involved what Calamita said was “hundreds” of localities around the country. He said the class action lawsuit settled for “between $100 million and $110 million,” which he said wasn’t as good as the $35 million for the 19 jurisdictions in the smaller group.
The settlement numbers, Calamita said, were based not on the size of the water plants or how many customers they served, but how much aluminum sulfate was used to treat the water.