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From Antitrust Law Daily, September 2, 2014

Purchasers fail to state antitrust claims in aluminum conspiracy action

By Linda O’Brien, J.D., LL.M.

The federal district court in New York City has dismissed class action claims by purchasers of fabricated aluminum against operators of metal storage warehouses and metals traders for allegedly conspiring with the London Metal Exchange to restrict the supply of aluminum in violation of the Sherman Act and state antitrust laws (In re Aluminum Warehousing Antitrust Litigation, August 29, 2014, Forrest, K.).

The price of aluminum is set using a formula of a standardized benchmark price consisting of the cash price of aluminum purchased on the London Metal Exchange (LME), the world’s largest metals market, plus a premium of accumulated transport and storage costs.

Mag Instrument and Agfa Corp., manufacturers of products using aluminum, consumer products manufacturers (first-level purchasers or FLPs), and commercial businesses and individual consumers who indirectly purchased aluminum filed a series of class action suits against operators of metal storage warehouses and metal traders—including Goldman Sachs, Glencore, and JP Morgan—for engaging in a conspiracy with the LME to restrain the output of aluminum, in violation of Sections 1 and 2 of the Sherman Act and state antitrust laws. The plaintiffs asserted that the defendants arranged to stockpile aluminum in warehouses in the Midwest and delay load-outs of aluminum, which caused storage costs to increase and inflated prices for aluminum. LME’s motion to dismiss for lack of subject matter jurisdiction was granted. Subsequently, the remaining defendants moved for dismissal for lack of standing and failure to state a claim.

Conspiracy. To state conspiracy claims, the plaintiffs must plausibly allege facts that support (1) an agreement by the warehouse defendants to restrain load-outs of aluminum and (2) an agreement among the trader and warehouse defendants to effectuate the scheme. According to the court, the plaintiffs’ allegations were consistent with market-driven conduct by the trader and warehouse defendants rather than an unlawful conspiracy. First, there was no rational business motive for the traders to purchase and stockpile aluminum and then sell to users of aluminum before or after the expected price increase occurred. Second, the LME, traders and warehouse operators did not compete with each other. Third, the alleged anticompetitive conduct affected only one of several components of the price of primary aluminum—the Midwest premium—and the defendants were not sellers of primary aluminum. Accordingly, their conduct could not amount to price fixing.

Under the rule of reason analysis, the plaintiffs’ allegations that the defendants engaged in parallel conduct were insufficient to demonstrate a conspiracy. The court noted that the defendants’ conduct was entirely consistent with their self-interest. The manner in which the traders acquired, held, and cancelled aluminum trading warrants furthered their arbitrage opportunity, which was in their economic self-interest to capitalize. The warehouse operators were in the business of collecting rent for storage, and the longer the storage meant the higher the rent. Moreover, the plaintiffs’ allegations that the warehouse operators were committee members and the traders were part-owners of the LME were merely suggestive of potential opportunity to communicate and were insufficient to show an illegal conspiracy actually occurred.

Monopolization. The court also determined that no plaintiff alleged sufficient facts to support any plausible product or geographic market. To state a claim under Section 2 of the Sherman Act, a plaintiff must allege plausible facts that the defendant possesses market power in a relevant market. There were no allegations regarding the interchangeability of products or that any defendant had market power in some cognizable market, according to the court.

State law claims. Finally, the plaintiffs failed to show how the defendants’ conduct violated any particular state statute. Every state statute requires direct or indirect allegations showing proximate cause and the plaintiffs failed to include in their complaints any specific allegations of proximate cause, the court concluded.

The case is No. 13-md-2481.

Attorneys: Benjamin Martin Jaccarino (Lovell Stewart Halebian Jacobson LLP) for Superior Extrusion Inc. Phillip Timothy Howard (Howard & Associates PA) for Master Screens Inc., and Grace Adrianna Fletcher. Daniel E. Becnel, Jr. (Becnel Law Firm, LLC) for River Parish Contractors, Inc. Azra Zahoor Mehdi (The Mehdi Firm) for Viva Railings, LLC. Benjamin M. McGovern (Holland & Knight, LLP) for Goldman Sachs Group, Inc., GS Power Holdings LLC, and Metro International Trade Services, LLC. Jennifer Lynn Giordano (Latham & Watkins LLP) for London Metal Exchange Ltd. Henry Liu (Covington & Burling LLP) for JPMorgan Chase & Co.

Companies: Superior Extrusion Inc.; Master Screens Inc.; River Parish Contractors, Inc.; Viva Railings, LLC; Goldman Sachs Group, Inc.; GS Power Holdings LLC; Metro International Trade Services, LLC; London Metal Exchange Ltd.; JPMorgan Chase & Co.

MainStory: TopStory Antitrust NewYorkNews

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