Hardware Store Allowed to Go After Home Depot

SAN FRANCISCO (CN) - Home Depot must face claims that it illegally restrained trade by making exclusive deals with power tools suppliers, a federal judge said in a tentative ruling.

In a December 2012 complaint, Orchard Supply Hardware claimed that Milwaukee Electric Tool Company (METCo) and Makita cut off its supply of power tools shortly after Home Depot announced that it would take steps to lock down the supply of professional power tools.

U.S. District Judge Jon Tigar had dismissed the case for failure to state a claim in April, but said in a tentative ruling Tuesday that Orchard Supply can pursue claims that Home Depot violated the Sherman Act; its California counterpart, the Cartwright Act; and unfair competition law.

Tigar did, however, nix Orchard's claims against the two power tools suppliers.

Orchard failed to sufficiently allege the existence of a horizontal arrangement between METCo and Makita to jointly participate in an unlawful group boycott, according to the ruling.

"Orchard points out that Home Depot publicly announced its intentions to lock up suppliers and then approached all three of its professional power tools suppliers to secure commitments to do so," Tigar wrote. "Given this, and the fact that METCo and Makita were totally dependent on Home Depot, Orchard gives no sufficient explanation for why METCo and Makita's decision to implement identical arrangements with their own distributors and partners is not simply a reflection of the suppliers' response to the 'common stimuli' of Home Depot's demand. Nor does Orchard suggest why the past instances of METCo and Makita simultaneously ending relationships with other Home Depot competitors were not responses to common demands from Home Depot at that time."

Orchard's amended claims failed to "'nudge' the claim of coordinated behavior 'across the line from conceivable to plausible,'" Tigar added.

In preserving the claim that Home Depot violated the Sherman Act, which prohibits "unreasonable restraints" of trade, Tigar found that Orchard sufficiently alleged the existence of two vertical agreements between Home Depot and each supplier.

"Orchard has alleged that the agreements are foreclosing competitors from competing in a market," he wrote. "Orchard alleges in extensive detail the nature of the professional power tools market, stating that the market is comprised of three leading manufacturers, including METCo and Makita. Orchard also alleges that the majority of professional customers will view a store as 'deficient' if it does not carry METCo or Makita tools, which will result in those customers ceasing to purchase any products at that store. Without the ability to sell METCo and Makita tools, Orchard will cease to remain a viable seller of professional power tools. By limiting the supply of METCo and Makita power tools, defendants have foreclosed Orchard's ability to compete in the professional power tools market."

Because Orchard sufficiently supports a Sherman Act claim, it likewise can support its claims under California's Cartwright Act and unfair competition law, according to the ruling.

Orchard can also bring its claim for tortious interference with economic relations, but not for tortious interference with existing contracts since the company failed to allege that Home Depot knew of Orchard's contracts with METCo and Makita.

Home Depot additionally cannot dismiss a false advertising claim related to its alleged display of "promotions and advertisements suggesting that Orchard charges more than Home Depot for the same products," while depicting products that were not actually the same.

Tigar barred Orchard from refilling the dismissed claims in an amended complaint.

Subscribe to Closing Arguments

Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.

Email *

Submit