Antitrust Law Daily Most indirect purchaser plaintiffs lack standing in aluminum price manipulation litigation
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Thursday, February 18, 2021

Most indirect purchaser plaintiffs lack standing in aluminum price manipulation litigation

By Nicole D. Prysby, J.D.

The plaintiffs’ claims involved an indirect chain of causation centered around manipulation of a regional benchmark and the alleged damages were highly speculative.

Indirect purchasers of aluminum lacked standing to bring claims that defendants conspired to inflate aluminum prices, because they failed to demonstrate that they are efficient enforcers of the antitrust laws. The defendants allegedly conspired to acquire large positions in primary aluminum at low prices during the economic downturn following the 2008 market collapse, and then inflated prices through manipulation of a regional benchmark for aluminum pricing (the Midwest Premium, MWP). All but one of the plaintiffs purchased aluminum from parties other than the defendants. The court found that the plaintiffs failed to satisfy three of the four efficient-enforcer factors. The plaintiffs’ claims involved an unusually indirect chain of causation and would subject defendants with whom they had done business to the risk of damages that were disproportionate to their ill-gotten gains. In addition, more direct purchasers were ascertainable and the plaintiffs’ damages were highly speculative. Claims brought by one plaintiff that purchased aluminum directly went forward, as to the two defendants involved in those transactions (In re Aluminum Warehousing Antitrust Litigation, February 17, 2021, Engelmayer, P.).

First Level Purchasers (FLPs) and Individual Purchasers (IPs) alleged violations of the Sherman Act, in the form of a conspiracy to inflate aluminum prices. The defendants in the case included companies that either traded primary aluminum on the London Metals Exchange (LME) or stored aluminum at warehouses certified by the LME. The defendants allegedly conspired to acquire large positions in primary aluminum at low prices during the economic downturn following the 2008 market collapse, and then inflated prices through manipulation of the MWP. Other than one plaintiff, Ampal, Inc., the FLPs and IPs purchased aluminum from parties other than the defendants.

The defendants motioned for summary judgment, on the basis that the plaintiffs lacked standing because they were not efficient enforcers of the antitrust laws. The defendants argued that the plaintiffs (other than Ampal) made almost all their aluminum purchases from non-party industrial smelters who incorporated the allegedly manipulated MWP into their contracts. Thus, defendants argued, their conduct in allegedly rigging benchmark prices did not directly cause plaintiffs’ alleged injuries, given the intervening transactions between plaintiffs and third-party sellers, who remained free at all times not to charge the full MWP when selling aluminum to plaintiffs.

Law of the case doctrine. The court first concluded that the law of the case doctrine did not control whether the motion to dismiss on efficient-enforcer grounds should be granted. Although the court previously denied a motion to dismiss on those grounds, based on the plaintiffs’ allegations, the facts presented now differed from those available at the time of the earlier ruling. For example, it became clear that, contrary to allegations in the complaint, it was possible to buy aluminum without a contract incorporating the MWP.

Efficient enforcers. The court found that the plaintiffs, other than Ampal, were not efficient enforcers of the antitrust laws. The plaintiffs’ claims involved an unusually indirect chain of causation—that as a result of steps defendants took to lengthen warehouse queues, spot-market participants adjusted their purchase prices upward, which ultimately refracted the MWP price at the relevant time, affecting transactions in which defendants did not participate but which embedded the MWP as a price component. Even if the plaintiffs were correct about the steps taken by the defendants, the independent decision by non-defendant sellers to charge plaintiffs a price containing the allegedly inflated MWP broke the chain of causation between defendants’ actions and plaintiffs’ injury.

The evidence strongly indicated that charging customers the MWP was an independent pricing decision by smelters, not the inevitable result of defendants’ alleged conspiracy, and the plaintiffs provided no evidence of any constraint—legal, economic, or otherwise—that would have required smelters to charge plaintiffs the full MWP. That plaintiffs might have paid the MWP to third parties pursuant to industry convention, or pursuant to contracts with the MWP "hardwired" in, did not distinguish this case from other benchmark-manipulation actions where courts found plaintiffs’ transactions with non-defendants too indirect to support antitrust standing. Allowing plaintiffs to pursue defendants with whom they did not do business would expand defendants’ liability in this case alone more than 200-fold—and expose them to trebled damages on all 435,800 metric tons of aluminum the eight FLPs and IPs bought from smelters.

Other efficient enforcer factors also favored dismissal of the claims. More direct purchasers were ascertainable. And the plaintiffs’ claims implicated unduly speculative damages. The process of determining a plaintiff’s damages on an aluminum purchase from a non-defendant was rife with complicating factors, such as intervening pricing and contracting decisions by the nonculpable sellers with whom plaintiffs negotiated and from whom they purchased, and the inquiry into whether, but for the inflated MWP, other price terms would have been different. The damage calculation would be difficult even for a direct purchaser such as Ampal, as it would require isolating the impact of the alleged conspiracy of the MWP, showing how much of any defendant caused increases in the MWP were not offset by resulting decreases in the LME settlement price attributable to defendants’ conduct, and identifying the role that the inflated MWP played in the actual purchases of aluminum.

The exercise of reliably determining damages, difficult even as to a direct-purchaser plaintiff like Ampal, would be more daunting still as to indirect-purchaser plaintiffs. The challenges an indirect-purchaser plaintiff would face in estimating damages from third-party transactions were heightened by the presence of negotiations as to the all-in price they paid. Although the record evidence supported that the plaintiffs were unable to negotiate the calculation of the MWP to the extent it was included in their contracts, the plaintiffs admitted that they were able to negotiate other aspects of the all-in prices they paid for aluminum.

This case is No. 1:14-cv-06849-PAE.

Attorneys: Kyle G. Bates (Schneider Wallace Cottrell Konecky LLP) and Andrea B. Bierstein (Hanly Conroy Bierstein Sheridan Fisher & Hayes, LLP) for Eastman Kodak Co. David William Haller (Covington & Burling LLP) for Henry Bath LLC. David William Haller (Covington & Burling LLP) for JP Morgan Chase & Co.

Companies: Eastman Kodak Co.; Henry Bath LLC; JP Morgan Chase & Co.; Goldman Sachs Group Inc.

MainStory: TopStory Antitrust GCNNews NewYorkNews

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