Antitrust Law Daily Manufacturers adequately pleaded antitrust injury from conspiracy to inflate aluminum prices
Tuesday, August 27, 2019

Manufacturers adequately pleaded antitrust injury from conspiracy to inflate aluminum prices

By Peter Reap, J.D., LL.M.

A federal district court’s dismissal of the manufacturers’ suit, based on a finding that they lacked standing for failure to allege antitrust injury, was error.

Manufacturers that used aluminum in the production of their products adequately pleaded antitrust injury to pursue claims that financial trading firms and warehouse owners conspired to inflate prices in the primary aluminum market, the U.S. Court of Appeals in New York City has decided. The alleged injury suffered was in the very market that the defendants allegedly restrained. Therefore, the plaintiffs did not lack antitrust standing and the decision of the district court granting summary judgment to the defendants was vacated and the case remanded. In addition, the district court’s denial of an opportunity to replead for plaintiffs Reynolds and Southwire was based on the same flawed reasoning and was vacated (Eastman Kodak Co. v. Henry Bath LLC, August 27, 2019, Leval, P.).

The plaintiffs, including Reynolds Consumer Products LLC and Southwire Company, LLC (Reynolds/Southwire), are manufacturers that use primary aluminum in the fabrication of their products. Primary aluminum is used in the industry to describe aluminum in the form produced at a smelter or primary aluminum plant, by original producers, as distinguished from secondary aluminum, which is reconstituted aluminum scrap.

Of the two categories of defendants, the Financial Defendants are J.P. Morgan Chase & Co., Goldman Sachs & Co., and Glencore Ltd. Each of them trades in primary aluminum and in primary aluminum derivatives including futures contracts that are linked to the price of primary aluminum on the London Metals Exchange (LME). Each also (directly or indirectly) owned one of the Warehousing Defendants.

The Financial Defendants, according to the complaint, conspired with each other and with the Warehousing Defendants to inflate artificially the prices they would realize in the sale of these positions by manipulating the Midwest Premium. The plaintiffs alleged that they purchased primary aluminum for their needs mainly through long-term supply contracts that included as a price element the Midwest Premium, a figure which is based on the costs associated with delivery of aluminum.

The plaintiffs in this appeal were part of a larger group of related actions that were originally filed in various district courts and were consolidated for pretrial proceedings by the United States Panel on Multidistrict Litigation. The other consolidated actions, brought by groups identified as Commercial End Users and Consumer End Users, also asserted liability based on the defendants’ conspiratorial manipulation of the Midwest Premium. The district court had earlier dismissed the actions of the Commercial End Users and Consumer End Users on the ground that they were inefficient enforcers who did not satisfy the requirements for antitrust standing. In contrast, the district court granted the plaintiffs here, with the exception Reynolds/Southwire, leave to amend their complaints.

The Commercial End Users and Consumer End Users appealed the district court’s dismissal. The Second Circuit reasoned on appeal that those plaintiffs did not successfully allege antitrust injury because the injuries they alleged were in a different market from any market allegedly restrained by the defendants. In re Aluminum Warehousing Antitrust Litig. (AluminumIII), 833 F.3d 151, 161-62 (2d Cir. 2016). The district court then concluded that the Second Circuit’s Aluminum III decision compelled the grant of summary judgment to the defendants on the claims of the plaintiffs here. The plaintiffs appealed.

Antitrust standing. To satisfy the antitrust standing requirement, a private antitrust plaintiff must demonstrate that (1) it has suffered a special kind of antitrust injury, and (2) it is an efficient enforcer of the antitrust laws. Here, the only issue on appeal was whether the plaintiffs suffered an antitrust injury.

Antitrust injury. In Aluminum III, the Second Circuit affirmed the dismissal of the claims of the Consumer and Commercial End User plaintiffs who purchased either reconstituted aluminum or end products that contained aluminum. The appellate court held that those plaintiffs could not successfully allege antitrust injury because they were neither participants in the market restrained by the defendants (the market for warehousing services) nor claiming an injury "inextricably intertwined" with the objective of the conspiracy. The district court then reconsidered the viability of the plaintiffs in this appeal and ruled that Aluminum III compelled dismissal of their claims as well, because the injury they suffered occurred in the market for the purchase of primary aluminum while the market restrained by the defendants was "first and foremost" the market for aluminum warehousing.

The dismissal of the plaintiffs’ claims here was error because these plaintiffs alleged that the injury they suffered was in the very market that the defendants restrained, the Second Circuit determined. Their allegations were that the defendants restrained the market for sales of primary aluminum by artificial manipulation of the Midwest Premium. The motivation of the restraint was to enable the Financial Defendants to realize artificially inflated prices in selling off their positions in primary aluminum. The plaintiffs here were harmed because the defendants’ manipulation of the Midwest Premium raised the prices that plaintiffs paid when they purchased aluminum.

Apparently recognizing that Aluminum III’s explanation of the justification for the dismissal of those cases did not fit the allegations of these plaintiffs, the district court explained further that the difference was irrelevant because the defendants’ alleged inflation of a price element of primary aluminum was accomplished "first and foremost" by inflicting a restraint on the warehousing market. The price manipulation that motivated the defendants was indeed, according to the allegations, accomplished by first artificially causing a bottleneck and a delay in warehouse deliveries, resulting in extended warehousing and inflation in the costs of taking delivery from LME warehouses. But the defendants’ alleged anticompetitive purpose was not to add delays and costs to warehouse customers demanding delivery of their stock. The purpose was to inflate the prices of the metal, so that the defendants’ large stocks of aluminum would be re-sold at artificially inflated prices because of their inflation of the Midwest Premium, the appellate court explained. Further, the district court’s proposition that the defendants’ anticompetitive restraint occurred "foremost" in the warehousing market was inconsistent with the pleadings and evidence.

Reynolds and Southwire. Reynolds and Southwire filed their complaint on July 26, 2016, after the other plaintiffs had substantially completed discovery and after this court decided Aluminum III. After ordering summary judgment of dismissal of the Reynolds/Southwire complaint, the district court denied the plaintiffs’ motion for leave to amend on the ground that amendment would be futile. The district court’s conclusion that amendment of the complaint would be futile was based on the same flawed reasoning noted above and was vacated.

This case is No. 16-4230, 16-4233, 16-4235, 16-4243, 16-4305, 16-4308.

Attorneys: Derek Brandt (Brandt Law LLC) for Eastman Kodak Co., Agfa Corp., Agfa Graphics NV, Fujifilm Manufacturing USA, Inc. and Mag Instrument Inc. Richard C. Pepperman II (Sullivan & Cromwell LLP) and John M. Nannes (Skadden, Arps, Slate, Meagher & Flom LLP) for Henry Bath LLC, Metro International Trade Services, LLC, J.P. Morgan Chase & Co., Goldman Sachs & Co. LLC, Goldman Sachs International, JPmorgan Securities PLC, Glencore Ltd., Pacorini Metals USA, LLC, Henry Bath & Son Ltd. and Pacorini Metals Vlissingen B.V.

Companies: Eastman Kodak Co.; Agfa Corp.; Agfa Graphics NV; Fujifilm Manufacturing USA, Inc.; Mag Instrument Inc.; Henry Bath LLC; Metro International Trade Services, LLC; J.P. Morgan Chase & Co.; Goldman Sachs & Co. LLC; Goldman Sachs International; JPMorgan Securities PLC; Glencore Ltd.; Pacorini Metals USA, LLC; Henry Bath & Son Ltd.; Pacorini Metals Vlissingen B.V.

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