Button Maker’s Bankruptcy Sale Stymies Antitrust Suit

The allegations have all the literary ingredients for an alluring spy novel: corporate profits made from price-fixing schemes, secret meetings held throughout Europe and a conspiracy among industry giants who have a tight grip on one arm of the worldwide retail supply chain.

Scovill Fasteners Inc.’s Chapter 11 bankruptcy came as the Georgia manufacturer was defending itself against American apparel companies that accused it of conspiring with industry giants YKK Group, Coats PLC and William Prym GmbH & Co. to inflate the price of their clothing closures, buttons and snaps.

For three years, Scovill Fasteners has fought off a proposed class-action lawsuit—which recently caught a bankruptcy-related snag—that alleges the company revealed its pricing and marketing strategy to its competitors “as part of an on-going, international conspiracy of decades-long duration,” according to court documents filed with the U.S. District Court in Philadelphia.

Scovill Fasteners’ open dialogue forced companies further down the retail-supply chain to buy fasteners “at prices that were artificially higher than they would have been absent the conspiracy,” the court documents said.

The lawsuit portrays the defendants as desperate to inflate their U.S. sales figures while manufacturing operations gradually slipped overseas. That decline should have led fastener prices to drop when they rose instead, the plaintiffs said in their complaint.

The lawsuit doesn’t list how much money the apparel companies are trying to reclaim in damages.

Scovill Fasteners defended itself in late October, saying there’s a big difference between sharing industry information with other market leaders and illegally conspiring to fix prices.

“Plaintiffs’ minimal allegations regarding Scovill’s attendance at meetings with co-defendants are solely allegations of an exchange of information, not allegations of an agreement to fix prices,” it said in court documents.

It joined other defendants in asking Judge R. Barclay Surrick to throw out the case.

But Scovill Fasteners’ court-approved bankruptcy sale last week—a roughly $17 million deal with an affiliate of Los Angeles-based investment giant Gores Group—represents a setback for the suing companies, whose lawsuit remains against Scovill Fasteners’ bankruptcy estate. Unsecured creditors had complained before the sale that the Gores affiliate’s bid was so low that there’d be little money for them to recover from that estate.

An attorney for the plaintiffs declined to comment on whether the sale will affect the legal strategy behind the antitrust litigation, which heavily references a 2007 European Commission decision to fine the defendants a total of EUR328 million ($465.7 million) for operating a worldwide fastener cartel.

A Scovill entity was fined about EUR6 million in the matter, which claimed that that the groups carefully coordinated price increases, according to a European Commission press release. Then-competition commissioner Neelie Kroes added: “The highest management of these companies was well aware that this conduct was illegal, but decided to continue anyway.”

Scovill Fasteners runs a 222-worker factory in the rural town of Clarkesville, where it is the dominant employer. Its workers make the clothing accessories for customers that include jeans maker Levi Strauss & Co., Polo Ralph Lauren Corp. and overalls brand OshKosh B’Gosh.

Scovill Fasteners filed for Chapter 11 bankruptcy protection in early April. Its financial state worsened after its attempt to expand to China failed in 2009, costing it $30 million.