9910038
B262991

UNITED STATES OF AMERICA
BEFORE FEDERAL TRADE COMMISSION

In the Matter of

Pools By Ike, Inc., a California corporation;
Isaac W. Hornsby II,
an individual;
Ricky Sneed,
an individual doing business as Aloha Pools;
Crystal One, Inc.,
a California corporation doing business as Crystal Pools;
Mario F. Medina,
an individual;
Swimco Pools, Inc.,
a California corporation doing business as Executive Pools and Service;
Brad L. Ward,
an individual;
Neudeck Pools, Inc.,
a California corporation;
Robert D. Hamilton,
an individual;
Capri Pools, Inc.,
a California corporation;
M. Kirt Campbell,
an individual;
Randall R. Arvizu,
an individual doing business as Pacific Pools and Spas;
Robbie Smith,
an individual doing business as Robbie Smith Construction and Pools by Robbie;
Rock Bottom, Inc.,
a California corporation;
Chuck D. Holmes,
an individual;
W.W. Harper Enterprises,
a California corporation doing business as WW Harper Pools & Spas;
Michael J. Harper,
an individual;
Michael A. Severini,
an individual doing business as Severini Pools and Spas;
Caribbean Enterprises Construction Co.,
a California corporation doing business as Caribbean Pools & Spas;
Michael Webb,
an individual;
Sunburst Pools, Inc.,
a California corporation doing business as Sunnyside Pool Service;
Keith E. Kelley,
an individual;
Pamela Gates,
an individual doing business as Tiffany Pools.

Docket No. C-3902

COMPLAINT

Pursuant to the provisions of the Federal Trade Commission Act, as amended, 15 U.S.C.   41 et seq., and by virtue of the authority vested in it by said Act, the Federal Trade Commission, having reason to believe that the individuals and corporations named above, hereinafter respondents, have violated Section 5 of the Federal Trade Commission Act, 15 U.S.C. 45, and it appearing to the Commission that a proceeding by it in respect thereof would be in the public interest, hereby issues this complaint, stating its charges as follows:

PARAGRAPH ONE: Respondent Pools by Ike, Inc., a California corporation, is a licensed swimming pool contractor with its office and principal place of business at 1730 Art Street, Bakersfield, California 93312.

PARAGRAPH TWO: Respondent Isaac W. Hornsby II is an individual and the president of Pools by Ike, Inc, a California corporation, a licensed swimming pool contractor with its office and principal place of business at 1730 Art Street, Bakersfield, California 93312.

PARAGRAPH THREE: Respondent Ricky Sneed, an individual doing business as Aloha Pools, is a licensed swimming pool contractor, with his office and principal place of business at 119 Garden Drive, Bakersfield, California 93307.

PARAGRAPH FOUR: Respondent Crystal One, Inc., a California corporation doing business as Crystal Pools, is a licensed swimming pool contractor with its office and principal place of business at 217 Mount Vernon Avenue, Suite 11, Bakersfield, California 93307.

PARAGRAPH FIVE: Respondent Mario F. Medina is an individual and the president of Crystal One, Inc., a California corporation doing business as Crystal Pools, a licensed swimming pool contractor with its office and principal place of business at 217 Mount Vernon Avenue, Suite 11, Bakersfield, California 93307.

PARAGRAPH SIX: Respondent Swimco Pools, Inc., a California corporation doing business as Executive Pools and Service, is a licensed swimming pool contractor with its office and principal place of business at 5650 District Boulevard, Suite 105, Bakersfield, California 93313.

PARAGRAPH SEVEN: Respondent Brad L. Ward is an individual and the president of Swimco Pools, Inc., a California corporation doing business as Executive Pools and Service, a licensed swimming pool contractor with its office and principal place of business at 5650 District Boulevard, Suite 105, Bakersfield, California 93313.

PARAGRAPH EIGHT: Respondent Neudeck Pools, Inc., a California corporation, is a licensed swimming pool contractor with its office and principal place of business at 509 Ming Avenue, Bakersfield, California 93307.

PARAGRAPH NINE: Respondent Robert D. Hamilton is an individual and the president of Neudeck Pools, Inc., a California corporation, a licensed swimming pool contractor with its office and principal place of business at 509 Ming Avenue, Bakersfield, California 93307.

PARAGRAPH TEN: Respondent Capri Pools, Inc., a California corporation, is a licensed swimming pool contractor with its office and principal place of business at 2810 Case Street, Bakersfield, California 93308.

PARAGRAPH ELEVEN: Respondent M. Kirt Campbell is an individual and the president of Capri Pools, Inc., a California corporation, a licensed swimming pool contractor with its office and principal place of business at 2810 Case Street, Bakersfield, California 93308.

PARAGRAPH TWELVE: Respondent Randall R. Arvizu, an individual doing business as Pacific Pools and Spas, is a licensed swimming pool contractor with his office and principal place of business at 12308 Clementa Avenue, Bakersfield, California 93312.

PARAGRAPH THIRTEEN: Respondent Robbie Smith, an individual doing business as Robbie Smith Construction and Pools by Robbie, is licensed swimming pool contractor with his office and principal place of business at 8416 Rockport Drive, Bakersfield, California 93312.

PARAGRAPH FOURTEEN: Respondent Rock Bottom, Inc., a California corporation, is a licensed swimming pool contractor with its office and principal place of business at 801 Angus Lane, Bakersfield, California 93312.

PARAGRAPH FIFTEEN: Respondent Chuck D. Holmes is an individual and the president of Rock Bottom, Inc., a California corporation, a licensed swimming pool contractor with its office and principal place of business at 801 Angus Lane, Bakersfield, California 93312.

PARAGRAPH SIXTEEN: Respondent W.W. Harper Enterprises, a California corporation doing business as WW Harper Pools & Spas, is a licensed swimming pool contractor with its office and principal place of business at 2400 K Street, Bakersfield, California 93301.

PARAGRAPH SEVENTEEN: Respondent Michael J. Harper is an individual and the president of W.W. Harper Enterprises, a California corporation doing business as WW Harper Pools & Spas, a licensed swimming pool contractor with its office and principal place of business at 2400 K Street, Bakersfield, California 93301.

PARAGRAPH EIGHTEEN: Respondent Michael A. Severini, an individual doing business as Severini Pools and Spas, is a licensed swimming pool contractor with his office and principal place of business at 661 Delfino Lane, Bakersfield, California 93304.

PARAGRAPH NINETEEN: Respondent Caribbean Enterprises Construction Co., a California corporation doing business as Caribbean Pools & Spas, is a licensed swimming pool contractor with its office and principal place of business at 5330 Office Center Court, #30, Bakersfield, California 93309.

PARAGRAPH TWENTY: Respondent Michael Webb is an individual and the president of Caribbean Enterprises Construction Co., a California corporation doing business as Caribbean Pools & Spas, a licensed swimming pool contractor with its office and principal place of business at 5330 Office Center Court, #30, Bakersfield, California 93309.

PARAGRAPH TWENTY-ONE: Respondent Sunburst Pools, Inc., a California corporation doing business as Sunnyside Pool Service, is a licensed swimming pool contractor with its principal office and place of business at 5630 District Blvd., Bakersfield, California 93313.

PARAGRAPH TWENTY-TWO: Respondent Keith E. Kelley is an individual and the president of Sunburst Pools, Inc., a California corporation doing business as Sunnyside Pools Service, a licensed swimming pool contractor with its principal office and place of business at 5630 District Blvd., Bakersfield, California 93313.

PARAGRAPH TWENTY-THREE: Respondent Pamela Gates, an individual doing business as Tiffany Pools, is a licensed swimming pool contractor with her office and principal place of business at 324 Oak Street, Suite N, Bakersfield, California 93304.

PARAGRAPH TWENTY-FOUR: The acts and practices of respondents, including those herein alleged, are in or affect commerce within the meaning of Section 5 of the Federal Trade Commission Act, as amended, 15 U.S.C. 45.

PARAGRAPH TWENTY-FIVE: Respondents are all swimming pool contractors who are licensed by the State of California to construct swimming pools and do business in and around Bakersfield, a city of 224,000 people in Kern County in the Central Valley of California. Except to the extent that competition has been restrained as herein alleged, respondents have been, and are now, in competition among themselves and with other pool contractors in the Bakersfield area.

PARAGRAPH TWENTY-SIX: Building a swimming pool entails a series of discrete tasks. Although swimming pool contractors may perform some of the construction work themselves, they generally hire a variety of subcontractors to do the work. First, a digger excavates the area where the pool is to be installed. Second, a steel subcontractor builds the steel reinforcing cage that forms the pool. Plumbers and electricians next install plumbing and electrical conduits. Third, a gunite subcontractor "shoots" nearly dry concrete into the hole to create the pool's shell. Fourth, a tile setter subcontractor lays the tile. Fifth, a decking subcontractor pours and molds the concrete deck surrounding the pool. Sixth, plumbers complete the plumbing and electrical work. Finally, a plasterer applies a coat of plaster to finish the pool's surface. Other related work that may be subcontracted includes landscaping (including but not limited to installation of decorative features such as waterfall, rocks or boulders), security, and fence services related to swimming pools.

PARAGRAPH TWENTY-SEVEN: Homeowners usually hire a pool contractor to handle all these aspects of constructing a swimming pool. Some homeowners, however, may choose instead to enter into an arrangement, known in the industry as an "owner-builder" arrangement, by which they hire subcontractors directly or use pool contractors as consultants only in arranging for subcontractors. In this way, homeowners who act as owner-builders are able to save a substantial amount of money. In such arrangements, however, liability in the event of an accident or injury during construction falls on the homeowner, rather than on the pool contractor.

-PARAGRAPH TWENTY-EIGHT: Home construction developers and contractors may hire pool contractors to handle all aspects of constructing a swimming pool. Home construction developers and contractors may also employ swimming pool subcontractors when they build homes with swimming pools. In those situations, the home construction contractor or developer, who is licensed by the State of California, is liable in the event of an accident or injury during construction much as a pool contractor is liable.

PARAGRAPH TWENTY-NINE: Beginning in early March 1998, respondents and others, all competing pool contractors, began meeting on a regular basis in an informal group that later came to be known as the Southern Valley Pool Association, hereafter the "Association." Although one of the reasons respondents met was to discuss common concerns of the swimming pool construction trade, one of the subjects which developed was a belief that there was a lack of profitability in building swimming pools in Bakersfield.

PARAGRAPH THIRTY: Through the Association meetings and other communications, some respondents, acting as a combination, acted to restrain competition by, among other things, facilitating, entering into, and implementing agreements among themselves, express or implied, to fix or increase the prices homeowners paid for swimming pool construction.

PARAGRAPH THIRTY-ONE: As a result of this combination, some respondents significantly increased prices to homeowners for constructing a swimming pool.

PARAGRAPH THIRTY-TWO: Through the Association meetings and other communications, some respondents, acting as a combination, also engaged in a group boycott aimed at owner-builders and home construction developers and contractors. Some respondents viewed owner-builders as a major threat to the success of their efforts to raise prices to homeowners, primarily based upon a belief that most such contracting was being performed on a cash basis. Homeowners acting as owner-builders could work directly with subcontractors or use pool contractors only as consultants and thereby defeat the price increase, many times by paying cash. Home construction developers and contractors could also work directly with subcontractors (rather than with pool contractors) and similarly defeat the price increase. Consequently, some respondents agreed to pressure their subcontractors to charge owner-builders 50 percent more (and to charge home construction contractors or developers 25 percent more) than the subcontractors were charging pool contractors. Some respondents set the price increases at these high levels in order to eliminate or reduce any savings homeowners and home construction developers and contractors would realize by bypassing pool contractors and dealing directly with subcontractors. Some respondents agreed among themselves to stop using subcontractors who refused to implement these price increases. Some respondents also agreed, as a further inducement to gain the subcontractors' agreement to this plan, to pay subcontractors a higher price for subcontractor services.

PARAGRAPH THIRTY-THREE: In furtherance of the group boycott described in paragraph 32:

A. Some respondents agreed to call a series of meetings with all the members of each trade of subcontractor (guniters, excavators, deckers, etc.). Beginning in early April 1998, a series of meetings was held, with some of respondents and all or nearly all of each trade of subcontractors in attendance. At these meetings with subcontractors, subgroups of the respondents:
 

1. instructed the subcontractors to raise their prices to owner-builders by 50 percent and to home construction developers and contractors by 25 percent;

2. warned the subcontractors that the respondents would stop subcontracting with them if the subcontractors did not increase their prices to owner-builders and home construction developers and contractors as set forth above; and

3. offered the subcontractors a quid pro quo whereby, if the subcontractors agreed to increase prices to owner-builders and home construction developers and contractors as set forth above, respondents would agree to a specified increase (the amount of which varied depending on the particular subcontracting work being done) in the price subcontractors charged respondents for subcontractor services.

B. As a direct result of these meetings, most of the subcontractors raised their prices to pool contractors by the specified amounts on or about May 15, 1998. Also as a direct result of these meetings, some subcontractors began charging or sought to charge owner-builders and home construction developers and contractors substantially higher prices than they charged swimming pool contractors. Other subcontractors stopped doing owner-builder jobs altogether, because they were fearful of losing their work with respondents.

PARAGRAPH THIRTY-FOUR: The acts and practices of the respondents as described in this complaint have had the purpose, tendency, effect, and capacity to restrain trade unreasonably and hinder competition in the provision of swimming pool contracting and subcontracting services in California in the following ways, among others:

A. to restrain competition among swimming pool contractors and subcontractors;
 
B. to fix or increase the prices that consumers pay for swimming pool contracting services and subcontracting services;
 
C. to deprive consumers of the benefits of competition among swimming pool contractors and subcontractors; and
 
D. to interfere with consumers' choice in deciding to build their swimming pool in an owner-builder arrangement or through home construction developers or contractors.

PARAGRAPH THIRTY-FIVE: The aforesaid acts and practices of the respondents are to the prejudice and injury of the public and constitute unfair methods of competition in or affecting commerce in violation of Section 5 of the Federal Trade Commission Act, as amended, 15 U.S.C.  45. The acts and practices of the respondents, as herein alleged, are continuing and will continue or recur in the absence of the relief requested.

WHEREFORE, THE PREMISES CONSIDERED, the Federal Trade Commission on this first day of November, 1999, issues its complaint against said respondents.

By the Commission.

Donald S. Clark
Secretary

SEAL: