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From Antitrust Law Daily, September 7, 2018

Indirect steel purchasers lacked standing to sue steel manufacturers

By Nicole D. Prysby, J.D.

In a lawsuit against steel manufacturers that allegedly conspired to artificially raise prices, a putative class of indirect-purchaser plaintiffs added in an amended complaint failed to establish that the class had antitrust standing because they could not show that the amended claims relate back to the original complaint, the U.S. Court of Appeals in Chicago has held. The original complaint was brought by a plaintiff that was allegedly injured when it purchased steel tubing, and the complaint defined "steel products" as mill output—steel products manufactured at steel plants. The amended complaint defined steel products to include end-use household and consumer goods manufactured by third parties, such as appliances and automobiles. Given that no item in the original complaint bore any resemblance to the end-use consumer goods listed in the amended complaint, the amended complaint did not relate back because the transactions named in the original complaint did not satisfy the fair notice standard. For similar reasons, the court found no basis for tolling the limitations period. The court also held that the plaintiffs failed to sufficiently allege proximate cause under state antitrust laws, because they provided no theory on how to trace the alleged overcharge on steel through the complex supply and production chains that gave rise to the consumer products at issue (Supreme Auto Transport, LLC v. Arcelor Mittal USA, Inc., September 6, 2018, Wood, D.).

Supreme Auto Transport LLC, a Michigan company, filed suit in 2008 against a group of the largest U.S. steel producers, alleging that Mittal Steel USA (the predecessor to defendant ArcelorMittal) orchestrated a conspiracy with other steel manufacturers to cut back steel production to raise the price of steel artificially. The plan allegedly worked, and a steel shortage ensured, which caused higher steel prices that were passed along to everyone along the chain of producing products containing steel. In 2016, Supreme Auto amended its complaint to add 15 additional plaintiffs from 10 states, seeking to convert the case into a class action. The amended complaint added indirect-purchaser plaintiffs and redefined "steel products."

The district court held that the amended complaint failed to establish that the class had antitrust standing because their injuries were too remote from the alleged misconduct and their damages were too speculative. Any higher prices that indirect purchasers may have had to pay were essentially impossible to pin on the manufacturers given that the stream of commerce involving steel production includes manufacturers, distributors, fabricators, and others, and given that the finished products contained so many component parts that may also have affected the retail price. If the manufacturers conspired to raise prices illegally as alleged, the proper plaintiffs would have been those companies that purchased the steel directly from the manufacturers rather than the sellers of finished products containing steel. The district court also held that the indirect purchasers failed to establish proximate cause, largely for the same reasons that they were unable to establish antitrust standing: the presence of intermediary parties, the commingling of steel with other materials, and the absence of any link between the steel mills and the finished products.

Statute of limitations. The original complaint alleged that Supreme Auto was injured when it purchased steel tubing indirectly for end use. It did not include a formal class definition, merely that Supreme Auto was bringing suit on behalf of all others "similarly situated." The complaint defined steel products as flat steel sheet, coils, beams, rails, steel wire, etc. The amended complaint changed the definition of steel products to include any consumer steel product for end use, including appliances, automobiles, and other consumer goods. There was no question that the amended complaint was untimely unless the plaintiffs could show that their claims were tolled or that the amendments to the complaint relate back to the original one.

The Seventh Circuit sided with the district court, which had concluded that the amended complaint did not relate back because the transactions named in the original complaint did not satisfy the fair notice standard. The first complaint defined steel products as mill output—steel products manufactured at steel plants. The amended complaint defined steel products to include end-use household and consumer goods manufactured by third parties. Although the original complaint definition included any product "derived from raw steel," the list illustrated only products manufactured at steel mills. No object in the original list bore any resemblance to the end-use consumer goods listed in the amended complaint. The definition in the original complaint was largely copied from the definition in the direct-purchaser plaintiffs’ lawsuit, which was exclusively about mill-output products. It was not until years after the original complaint that the plaintiffs gave any hint that the lawsuit would encompass consumer steel products.

The court also found no basis for tolling the limitations period because the plaintiffs named in the amended complaint were not members of the class defined in the original complaint, nor were their claims encompassed by the original complaint.

Lack of proximate cause. The antitrust laws of 21 of the states where plaintiffs claimed injuries have enacted statutes that do not incorporate federal antitrust strict direct-purchaser requirements; in these states, downstream purchasers who pay inflated prices for consumer goods are not automatically barred from bringing antitrust suits against upstream price fixers. The plaintiffs asserted that in those states, all indirect purchasers suit may go forward, no matter how speculative the damages.

The court disagreed, finding that allowing lawsuits from indirect purchasers is not equivalent to negating the need to show proximate causation. The amended complaint alleges that the plaintiffs purchased steel as one among many components of other more complex products, all of which have gone through numerous manufacturing alterations and lines of distribution. In many of these products, steel is not even a primary or necessary ingredient. The plaintiffs provided no theory on how to trace the alleged overcharge on steel through the complex supply and production chains that gave rise to the consumer products at issue. Therefore, the claims were too remote to be supported under the state antitrust laws invoked by the plaintiffs.

This case is No. 17-2910.

Attorneys: Christopher Lovell (Lovell Stewart Halebian Jacobson LLP) and Marvin A. Miller (Miller Law LLC) for Supreme Auto Transport, LLC. Mark Leddy (Cleary, Gottlieb, Steen & Hamilton LLP) and Andrew S. Marovitz (Mayer Brown LLP) for Arcelor Mittal USA, Inc. Daniel I. Booker (Reed Smith LLP) and Jonathan S. Quinn (Neal, Gerber & Eisenberg LLP) for U.S. Steel Corp. Todd Jay Ehlman (Winston & Strawn LLP) and Robert Derise (Arnold & Porter Kaye Scholer LLP) for Nucor Corp.

Companies: Supreme Auto Transport, LLC; Arcelor Mittal USA, Inc.; U.S. Steel Corp.; Nucor Corp.

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