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From Antitrust Law Daily, December 16, 2015

Sale of Maine paper mill in effort to reduce industry capacity not actionable

By Jeffrey May, J.D.

The federal district court in Bangor, Maine, has refused to undo on antitrust grounds a paper company's sale of one its mills to a scrap metal operation. A labor union representing former employees of a Verso Paper Corporation paper mill in Bucksport, Maine, failed to state Sherman and Clayton Act claims against Verso for selling the mill to scrap metal operator AIM Development USA, in an effort to reduce productive capacity and drive up prices in the North American market for coated printing paper where Verso is a leading supplier (Int'l. Assn. of Machinists and Aerospace Workers AFL-CIO Local Lodge No. 1821 v. Verso Corp., December 14, 2015, Woodcock, J.).

Mootness. At the outset, the court concluded that, because the sale had been fully consummated, the lawsuit was moot. The union and the other plaintiffs were seeking an order that the Bucksport mill be sold to a Verso competitor that would continue operating the facility as a paper mill. They contended that the relief was appropriate because the sale of the mill for scrap was the result of an unlawful agreement between Verso and other paper company—NewPage Holdings Inc.—in anticipation of their now-consummated merger, as well as monopolistic conduct on the part of Verso. In addition, Verso’s sale of the mill to AIM was attacked as a violation of Section 7 of the Clayton Act.

According to the court, it could not provide the requested relief because the facility could no longer be sold as a paper mill. “Even if the Court could theoretically order AIM to sell what remains of the operating mill to a Verso competitor, the Court would not do so on this record because the Court is convinced based on the allegations in the Amended Complaint that such an order would not provide any ‘effectual relief.’” In any event, the court addressed the merits of the defendants’ motions to dismiss.

Sherman Act claims. The plaintiffs’ Sherman Act, Section 1 claim was dismissed. They alleged that Verso’s decision to close the Bucksport mill and sell it to a business that would dismantle it resulted from an agreement with NewPage to reduce competition for coated paper in North America and to eliminate the demand for skilled labor. They speculated that discovery would “provide evidentiary support to show that Verso and NewPage unlawfully agreed to shut down and sell the Bucksport Mill to a non-paper manufacturer in order to make the pending NewPage acquisition more attractive economically to Verso.” In an effort to show parallel conduct, the plaintiffs suggested that NewPage used AIM to perpetrate a similar scheme to reduce supply by destroying a paper mill in Wisconsin. However, the allegations did not “raise a reasonable expectation that discovery will reveal evidence of illegal agreement,” as required under Bell Atlantic Corp. v. Twombly, 550 U.S. 544 (2006).

Sherman Act, Section 2 claims also were dismissed. The plaintiffs alleged that Verso sold the Bucksport mill to AIM in an effort to reduce coated printing paper capacity and allow the company to become a monopoly in the North American market following its combination with NewPage. However, the court explained that Verso had no legal duty to sell the Bucksport mill to one of its competitors or to aid its competitors under Pacific Bell Telephone Company v. linkLine Communications, Inc., 555 U.S. 438 (2009).

Clayton Act claim. Lastly, the court rejected the plaintiffs’ assertion that, because the AIM acquisition permanently eliminated the possibility that the Bucksport mill could be used to produce printing paper, it violated Section 7 of the Clayton Act. In their lawsuit, the plaintiffs did not challenge the merger of Verso and NewPage. That deal was challenged by the Department of Justice and resolved under a consent decree that was approved last week. During the Tunney Act proceedings regarding the government settlement, the plaintiffs in this case did, however, ask the federal district court in Washington, D.C. to reject the consent decree on the ground that the government should have required, as part of the remedy, the divestiture of the Bucksport facility or prevent its sale to a company that planned to “scrap the mill.” The court was not swayed by their arguments.

In this suit, the plaintiffs challenged the sale of the Bucksport mill. They contended that the Clayton Act contemplated a determination of the impact of an acquisition on the market of the selling party’s business. However, the focus of the Clayton Act was on the impact of the transaction on the buyer, not the seller, according to the court. AIM’s purchase of the Bucksport mill was not an “acquisition” the effect of which was “substantially to lessen competition, or to tend to create a monopoly,” in the court's view.

“It appears that the Plaintiffs are seeking to create a new class of Clayton Act violation, whereby the monopoly is created not by controlling a greater percentage of the overall market by expanding production, but by curtailing it,” the court explained. “The notion that a business could increase its market power by downsizing is at least counterintuitive. However academically valid, this theory of monopoly power has not found its way into federal statute or caselaw.”

This is Case No. 1:14-cv-00530-JAW.

Attorneys: Ishai Mooreville (Baker & Miller PLLC) and Kimberly J. Ervin Tucker (Law Office of Kimberly J. Ervin Tucker) for Int’l. Assn. of Machinists and Aerospace Workers AFL-CIO Local Lodge No. 1821. Greta Louise Burkholder (Morgan, Lewis & Bockius LLP) and David E. Barry (Pierce Atwood LLP) for Verso Corp. Clifford Ruprecht (Roach Hewitt Ruprecht Sanchez & Bischoff, PC) for AIM Development USA LLC.

Companies: Int’l. Assn. of Machinists and Aerospace Workers AFL-CIO Local Lodge No. 1821; Verso Corp.; AIM Development USA LLC.

MainStory: TopStory AcquisitionsMergers Antitrust MaineNews

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