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Posted: October 17, 2018

Alleged Aluminum Allocation Fixing – Part II – Failure to Allege that the Injury was “Inextricably Intertwined”

This week we cover the Motion to Dismiss and affirming Appellate decisions decided in 2014 and 2016 in In re: Aluminum Warehousing Antitrust Litigation, 1:13-md-02481-KBF (SDNY), an action previously introduced in our September 24, 2018, post, where one can find a full account of the alleged collusion.

Brief Overview of the Alleged Collusion

Plaintiffs allege a conspiracy by the London Metal Exchange (“LME”), Glencore, Goldman Sachs and JP Morgan Chase & Co., among others, to restrain aluminum output and increase storage costs, both leading to an increase in price for, and injury to, Plaintiffs.

Claims Against the London Metal Exchange are Dismissed on Sovereign Immunity Grounds

In the summer of 2014, JudgeForrest of the Southern District granted defendant LME’s motion to dismiss brought under the Foreign Sovereign Immunities Act (“FSIA”) on the basis that LME was an organ of the United Kingdom (“UK”) Government, and was not engaged in commercial activity so as to fall into the commercial activity exception to the FSIA. See In re Aluminum Warehousing Antitrust Litig., No. 13-MD-2481 KBF, 2014 WL 4211353 (S.D.N.Y. Aug. 25, 2014). Judge Forrest found that LME was essentially a regulatory arm of the UK Government and was acting in an inherently regulatory capacity. LME’s load out rules and arrangements with reference to warehouses were both implemented to serve a regulatory purpose, and were not negotiated at arms-length but were mandatory and compulsory, establishing LME’s regulatory role. As such LME was a state organ and LME’s activity did not fall within the commercial activity exception to the FSIA. See id. at *11-15.

Plaintiffs’ Failed to Plead Allegations Sufficient to Support Antitrust Standing

At about the same time Judg eForrest issued a separate opinion dismissing the Plaintiffs’ claims, on a number of grounds. See In re Aluminum Warehousing Antitrust Litig., No. 13-MD-2481 KBF, 2014 WL 4277510 (S.D.N.Y. Aug. 29, 2014).
Among these included a lack of antitrust standing. Plaintiffs did not allege that they were competitors or consumers of the Defendants. Rather they alleged that Defendants’ independent actions had an effect which increased the Midwest Premium, thereby impacting the sales price in Plaintiffs’ independent trades. Because Plaintiffs’ did not allege that they were consumers or competitors of Defendants, they were forced to plead facts sufficient to show that their injury was “inextricably intertwined” as required under Blue Shield of Virginia v. McCready, 457 U.S. 465 (1982), Crimpers Promotions Inc. v. Home Box Office, Inc., 724 F.2d 290 (2d Cir.1983) and Province v. Cleveland Press Publ’g Co., 787 F.2d 1047, 1052 (6th Cir.1986). Because Plaintiffs failed to allege that they were “manipulated or utilized by [d]efendant[s] as a fulcrum, conduit or market force to injure competitors or participants,” that is to say they were manipulated “as a means to carry out the restraint of trade in the product market” within the language of Province, so as to support a claim that their injury was “inextricably intertwined” with that of consumers or competitors, the case was dismissed for lack of antitrust standing.

On appeal, the Second Circuit affirmed Judge Forrest’s reading under McCready, Crimpers and Province noting that because Defendants were not used as a “fulcrum, conduit or market force,” and they thus could not assert a claim under the “inextricably intertwined standard.” See In re Aluminum Warehousing Antitrust Litig., 833 F.3d 151, 161-163 (2d Cir. 2016).

Plaintiffs’ Failed to Plead Allegations Sufficient to Support Conspiracy

Additionally, in In re Aluminum, 2014 WL 4277510 at *24-34, per Judge Forrest, Plaintiffs failed to plausibly allege facts supporting either an agreement among the warehouse defendants to restrain load-outs of aluminum, or an agreement between the trader defendants and warehouse defendants to effectuate that conspiratorial scheme. They drew this conclusion, based on the fact that, given the allegations as pled, the story was consistent with the defendants acting in accordance with the market forces of supply and demand, rather than a conspiracy. Defendants were holding a cheap good now, as it was anticipated to become more expensive later, which is consistent with lawful competitive behavior. The court also noted that Defendants, who made money by trading warrants and selling storage space, were not competitors and did not directly gain from an increase in the Midwest premium, and as such lacked financial motive to act. The plaintiffs did not even allege a plausible market in which defendants restrained trade. As such, there was no conspiracy under either a per se or a rule of reason analysis.

Additionally, the Plaintiffs failed to plausibly allege the details of any conspiracy. The generalized allegations of defendants being on LME committees especially without allegations of how decision-making changed when the trader defendants acquired the warehouses, was wholly insufficient. The same can be said of the mere affiliation between individuals employed by Goldman Sachs and the warehouse defendants, in the absence of more particularized allegations. In light of this all, especially given that defendants’ conduct was self-interested, defendants alleged cancelling of warrants in parallel and delaying load-outs in parallel were not sufficient to satisfy the requirement that Plaintiffs plead parallel conduct to justify an inference of a conspiracy.

Plaintiffs’ Failed to Plead Allegations Sufficient to Support Monopolization Claims

Further, per Judge Forrest, Plaintiffs failed to allege facts sufficient to support their monopolization claims because they failed to fully define a relevant market, or assert that any of the defendants had the power to unilaterally effect the Midwest premium. The attempts to rely on the acts of multiple different actors was improper as the law does not recognize a “shared monopoly.” Metro’s control of a large percentage of the warehouses was not sufficient on its own to satisfy the test as they did not unilaterally control the warrants and futures contracts that determined the ingress and egress of aluminum to and from warehouses. Id. at*34-37.

Plaintiffs’ Failed to Plead Allegations Sufficient to Support State Law and Unjust Enrichment Claims

Finally, per Judge Forrest, the Plaintiffs various state law claims rely on the same antitrust, conspiracy, monopolization and unfair conduct allegations, and otherwise were not pled with particularity to allow the court to determine how the conduct violated each individual state statute. Id. at *37-38; In re Aluminum Warehousing Antitrust Litig., No. 13-MD-2481 KBF, 2014 WL 4743425 (S.D.N.Y. Sept. 15, 2014). On appeal this was affirmed on the same grounds. See In re Aluminum Warehousing Antitrust Litig., 833 F.3d at 163.

This post was written by Lee J. Rubin.

We welcome your feedback. If you have questions or comments about this post, please e-mail John M. Lundin, the Manipulation Monitor’s editor, at jlundin@schlamstone.com or Lee J. Rubin at lrubin@schlamstone.com or call John or Lee at (212) 344-5400.

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