Posted: December 2, 2019

Analysis of the Second Circuit’s Reversal of the Dismissal of Complaints in In re Aluminum Warehousing Antitrust Litigation

On August 27, 2019, the United States Court of Appeals for the Second Circuit reversed Judge Katherine B. Forrest’s dismissal of three consolidated complaints appearing in In re Aluminum Warehousing Antitrust Litigation, 13 MD 2481. Eastman Kodak Co. v. Henry Bath LLC, 936 F.3d 86 (2d Cir. 2019), vacating and remanding In re Aluminum Warehousing Antitrust Litig., No. 13-MD-2481 (KBF), 2016 WL 5818585 (S.D.N.Y. Oct. 5, 2016) (reported here on September 3, 2019).

This post analyzes the Second Circuit’s decision and briefly reviews developments before the district court since the claims were restored.

The Appeal

In the order appealed from, Judge Forrest dismissed the claims of various plaintiffs who asserted violations of Section 1 of the Sherman Act, 15 U.S.C. sec. 1, resulting from a conspiracy to inflate prices in the “primary” aluminum market (that is, aluminum produced at a primary aluminum plant or smelting facility, rather than reconstituted aluminum scrap.) Judge Forrest relied on the Second Circuit’s 2016 affirmance in In re Aluminum Warehousing Antitrust Litig., 833 F.3d 151 (2d Cir. 2016), of her earlier dismissal of antitrust claims brought by certain “End Users” of aluminum, who had purchased aluminum outside the primary market. As quoted by Eastman Kodak Co. v. Henry Bath LLC, 936 F.3d at 90, the Circuit’s earlier decision in In re Aluminum Warehousing Antitrust Litig., 833 F.3d at 161 had “concluded that those [End User] plaintiffs ‘disavow[ed] participation in any of the markets in which the defendants operate.’”

The Circuit found that Judge Forrest erred in applying In re Aluminum Warehousing Antitrust Litig. to dismiss the claims of the plaintiffs in Eastman Kodak Co. Specifically, the Court of Appeals disagreed with her reliance on the conclusion that the injury Plaintiffs claimed “occurred in the market for the purchase of primary aluminum, while the market restrained by the defendants was ‘first and foremost’ the market for aluminum warehousing”. Eastman Kodak Co., 936 F.3d at 95, quoting In re Aluminum Warehousing Antitrust Litig., 2016 WL 5818585 at *1. Rather, the Circuit concluded, “The defendants allegedly restrained the market for purchase and sale of primary aluminum, and the market in which the plaintiffs were injured was the market for the purchase and sale of primary aluminum. The observations this court made in Aluminum III [833 F.3d 151] about the difference in that cases [sic] between the market alleged to have been restrained by the defendants, and the market in which the plaintiffs suffered injury, have no application to these complaints.” 936 F.3d at 95.

Some factual context is required to understand the Circuit’s disagreement with Judge Forrest. As explained by Eastman Kodak Co., 936 F.3d at 91-92, the spot metal price for aluminum has two components. The first of these, the LME Cash Price, is set by the London Metals Exchange based on the value of the metal as established though market forces, without regard to the cost of delivery. “The second component, the benchmark regional premium, which in the United States is the Midwest Premium . . ., reflects the costs associated with making deliveries, including transportation, insurance, and warehouse storage while awaiting delivery.”

Plaintiffs alleged that certain defendants from the financial industry (the “Financial Defendants”) had acquired other defendants involved in the warehousing and delivery of aluminum (the “Warehousing Defendants”). Delays at the Warehousing Defendants’ facilities tend to increase the Midwest Premium, and thus the spot price of aluminum. Plaintiffs alleged that Financial and Warehousing Defendants conspired to create such delays, causing Plaintiffs injury.

Judge Forrest’s conclusion that “the market restrained by the defendants was ‘first and foremost’ the market for aluminum warehousing” was therefore mistaken:

The district court was perhaps correct as to “first,” in a temporal sense, but not as to “foremost.” . . . defendants’ alleged anticompetitive purpose was not to add delays and costs to warehouse customers demanding delivery of their stock. The purpose was to inflate the prices of the metal, so that the defendants’ large stocks of aluminum would be re-sold at artificially inflated prices because of their inflation of the Midwest Premium. The burden inflicted by the defendants on the warehousing market was merely the means to accomplish the defendants’ anticompetitive objective. There is no rule in antitrust law that defendants who undertake to restrain markets by concerted anticompetitive actions can be liable to victims in only one market, much less that they can be liable only in the market that is the first locus of restraint, regardless of the identity of the market that motivated the restraint.

936 F.3d at 96-97.

Subsequent Developments

As Judge Forrest had resigned from the bench effective September 2018, the Aluminum Warehousing matters were reassigned to the Hon. Paul A. Engelmayer in September 2019, shortly after restoration by the Second Circuit.

On November 4, 2019, Judge Engelmayer held a conference and set a schedule for briefing of a class certification motion that Plaintiffs had brought, which had been administratively terminated by Judge Forrest pending her determination on Defendants’ motion that led to the 2016 dismissal. Defendants also had submitted a related motion in 2016 to disqualify an expert from whom Plaintiffs had submitted a declaration in support of class certification. That, too, had been left pending upon the 2016 dismissal.

Judge Engelmayer directed that Defendants file further opposition to class certification, and any additional arguments regarding the expert, by November 15, 2019, with Plaintiffs to respond by December 5. That briefing is on schedule.

This post was written by Schlam Stone & Dolan partner Thomas A. Kissane.

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 Thomas A. Kissane at tkissane@schlamstone.com or call John or Tom at (212) 344-5400.

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